item 14 exhibits financial statement schedules reports form 8k a1 financial statements following consolidated financial statements registrant subsidiary included registrants proxy statement appendix incorporated reference part ii item 8 report 1 report ernst young llp independent auditors 2 consolidated balance sheet july 31 1995 1994 3 consolidated statement income years ended july 31 1995 1994 1993 4 consolidated statement shareholders equity three years ended july 31 1995 5 consolidated statement cash flows years ended july 31 1995 1994 1993 6 notes consolidated financial statements a2 financial statement schedules provision made applicable accounting regulations securities exchange commission omitted inapplicable required related instructions a3 exhibits 31 restated certificate incorporation registrant exhibit 31 registrants form 10k annual report year ended july 31 1987 form 10k incorporated reference 32 bylaws registrant amended date exhibit 32 1987 form 10k incorporated reference 41 form rights certificate exhibit 1 registrants form 8a filed june 30 1989 hereby incorporated reference 42 form rights agreement registrant first interstate bank rights agent exhibit 42 registrants form 10k annual report year ended july 31 1990 form 10k incorporated reference 101 maxwell laboratories inc director stock option plan exhibit 1023 registrants form 10k annual report year ended july 31 1989 form 10k incorporated reference 102 maxwell laboratories inc 1985 stock option plan amended date exhibit 103 registrants form 10k annual report year ended july 31 1991 form 10k incorporated reference 103 maxwell laboratories inc 1995 stock option plan 104 maxwell laboratories inc 1994 employee stock purchase plan 105 maxwell laboratories inc 1994 director stock purchase plan 106 lease dated december 1 1988 philip macdonald lessor registrant lessee exhibit 104 1989 form 10k incorporated reference 107 lease dated march 8 1978 scubed formerly known systems science software lessee calsorrento ltd formerly known industrial developers ltd lessor assumed registrant pursuant merger exhibit 108 1984 form 10k incorporated reference 108 lease dated february 28 1986 registrant lessee elkhorn ranch inc lessor exhibit 1011 registrants form 10k annual report year ended july 31 1986 form 10k incorporated reference 109 maxwell laboratories inc executive deferred compensation plan exhibit 1018 registrants form 10k annual report year ended july 31 1983 incorporated reference 1010 office lease agreement dated august 28 1987 airport property company nm limited partnership lessor registrant lessee exhibit 1016 registrants 1988 form 10k incorporated reference 1011 agreement may 1994 registrant compagnie europeene de composants electroniques lcc registrant licenses manufactures distributes certain capacitors 1012 lease dated april 17 1995 cody three inc lessor registrant lessee 1013 maxwell laboratories inc special severance pay plan exhibit 1022 1989 form 10k incorporated reference 1014 employment agreement dated june 20 1989 registrant alan c kolb exhibit 1026 1989 form 10k incorporated reference 1015 employment agreement dated june 20 1989 registrant kedar pyatt jr exhibit 1028 1989 form 10k incorporated reference 1016 letter agreement dated december 21 1989 registrant alan c kolb exhibit 1017 registrants form 10k annual report year ended july 31 1994 form 10k incorporated reference 1017 letter agreement dated december 21 1989 registrant kedar pyatt jr exhibit 1018 1994 form 10k incorporated reference 1018 lease dated october 12 1994 madison square partnership lessor purepulse technologies inc formerly foodco corporation lessee 1019 office lease dated july 24 1990 king street associates lessor registrant lessee exhibit 1027 1990 form 10k incorporated reference 1020 line credit agreement dated february 4 1994 registrant sanwa bank california exhibit 1021 1994 form 10k incorporated reference 1021 license agreement dated effective march 13 1991 registrant auburn university exhibit 1026 1991 form 10k incorporated reference 1022 lease dated february 13 1994 terilee enterprises inc lessor registrant lessee exhibit 1023 1994 form 10k incorporated reference 1023 agreement purchase sale assets dated february 13 1992 registrant sierra aerospace technology inc donald pruett dick ni annie ni exhibit 1032 1992 form 10k incorporated reference 13 proxy statement 1995 annual meeting shareholders appendix 23 consent independent auditors 27 financial data schedule b reports form 8k registrant filed reports form 8k fourth quarter fiscal year ended july 31 1995 signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized maxwell laboratories inc alan c kolb alan c kolb chief executive officer president october 24 1995 date pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities dates indicated alan c kolb chief executive october 24 1995 officer president alan c kolb director donn starry chairman october 24 1995 board director donn starry lewis j colby jr director october 24 1995 lewis j colby jr adolphe g gueymard director october 24 1995 adolphe g gueymard kedar pyatt jr director october 24 1995 kedar pyatt jr karl samuelian director secretary october 24 1995 karl samuelian john w weil director october 24 1995 john w weil director october 1995 thomas b hayward henry f owsley director october 24 1995 henry f owsley sean maloy executive vice president october 24 1995 chief operating officer sean maloy director gary j davidson vice presidentfinance october 24 1995 administration treasurer gary j davidson chief financial officer principal financial accounting officer index exhibits 31 restated certificate incorporation registrant exhibit 31 registrants form 10k annual report year ended july 31 1987 form 10k incorporated reference 32 bylaws registrant amended date exhibit 32 1987 form 10k incorporated reference 41 form rights certificate exhibit 1 registrants form 8a filed june 30 1989 hereby incorporated reference 42 form rights agreement registrant first interstate bank rights agent exhibit 42 registrants form 10k annual report year ended july 31 1990 form 10k incorporated reference 101 maxwell laboratories inc director stock option plan exhibit 1024 registrants form 10k annual report year ended july 31 1989 form 10k incorporated reference 102 maxwell laboratories inc 1985 stock option plan amended date exhibit 103 registrants form 10k annual report year ended july 31 1991 form 10k incorporated reference 103 maxwell laboratories inc 1995 stock option plan 104 maxwell laboratories inc 1994 employee stock purchase plan 105 maxwell laboratories inc 1994 director stock purchase plan 106 lease dated december 1 1988 philip macdonald lessor registrant lessee exhibit 104 1989 form 10k incorporated reference 107 lease dated march 8 1978 scubed formerly known systems science software lessee calsorrento ltd formerly known industrial developers ltd lessor assumed registrant pursuant merger exhibit 108 1984 form 10k incorporated reference 108 lease dated february 28 1986 registrant lessee elkhorn ranch inc lessor exhibit 1011 registrants form 10k annual report year ended july 31 1986 form 10k incorporated reference 109 maxwell laboratories inc executive deferred compensation plan exhibit 1018 registrants form 10k annual report year ended july 31 1983 incorporated reference 1010 office lease agreement dated august 28 1987 airport property company nm limited partnership lessor registrant lessee exhibit 1016 registrants 1988 form 10k incorporated reference 1011 agreement may 1994 registrant compagnie europeene de composants electroniques lcc registrant licenses manufactures distributes certain capacitors 1012 lease dated april 17 1995 cody three inc lessor registrant lessee 1013 maxwell laboratories inc special severance pay plan exhibit 1022 1989 form 10k incorporated reference 1014 employment agreement dated june 20 1989 registrant alan c kolb exhibit 1026 1989 form 10k incorporated reference 1015 employment agreement dated june 20 1989 registrant kedar pyatt jr exhibit 1028 1989 form 10k incorporated reference 1016 letter agreement dated december 21 1989 registrant alan c kolb exhibit 1017 registrants form 10k annual report year ended july 31 1994 form 10k incorporated reference 1017 letter agreement dated december 21 1989 registrant kedar pyatt jr exhibit 1018 1994 form 10k incorporated reference 1018 lease dated october 12 1994 madison square partnership lessor purepulse technologies inc formerly foodco corporation lessee 1019 office lease dated july 24 1990 king street associates lessor registrant lessee exhibit 1027 1990 form 10k incorporated reference 1020 line credit agreement dated february 4 1994 registrant sanwa bank california exhibit 1021 1994 form 10k incorporated reference 1021 license agreement dated effective march 13 1991 registrant auburn university exhibit 1026 1991 form 10k incorporated reference 1022 lease dated february 13 1994 terilee enterprises inc lessor registrant lessee exhibit 1023 1994 form 10k incorporated reference 1023 agreement purchase sale assets dated february 13 1992 registrant sierra aerospace technology inc donald pruett dick ni annie ni exhibit 1032 1992 form 10k incorporated reference 13 proxy statement 1995 annual meeting shareholders appendix 23 consent independent auditors 27 financial data scheduleitem 14 exhibits financial statement schedules reports form 8k al financial statements following consolidated financial statements registrant subsidiary included registrants proxy statement appendix incorporated reference part ii item 8 report 1 report ernst young llp independent auditors 2 consolidated balance sheet july 31 1996 1995 3 consolidated statement income years ended july 31 1996 1995 1994 4 consolidated statement shareholders equity three years ended july 31 1996 5 consolidated statement cash flows years ended july 31 1996 1995 1994 6 notes consolidated financial statements a2 financial statement schedules provision made applicable accounting regulations securities exchange commission omitted inapplicable required related instructions a3 exhibits 31 restated certificate incorporation registrant exhibit 31 registrants form 10k annual report year ended july 31 1987 form 10k incorporated reference 32 bylaws registrant amended date exhibit 32 1987 form 10k incorporated reference 41 form rights certificate exhibit 1 registrants form 8a filed june 30 1989 hereby incorporated reference 42 form rights agreement registrant first interstate bank rights agent exhibit 42 registrants form 10k annual report year ended july 31 1990 form 10k incorporated reference 101 maxwell laboratories inc director stock option plan exhibit 1023 registrants form 10k annual report year ended july 31 1989 form 10k incorporated reference 102 maxwell laboratories inc 1985 stock option plan amended date exhibit 103 registrants form 10k annual report year ended july 31 1991 form 10k incorporated reference 103 maxwell laboratories inc 1995 stock option plan exhibit 103 registrants form 10k annual report year ended july 31 1995 form 10k incorporated reference 104 maxwell laboratories inc 1994 employee stock purchase plan exhibit 104 registrants 1995 form 10k incorporated reference 105 maxwell laboratories inc 1994 director stock purchase plan exhibit 105 registrants 1995 form 10k incorporated reference 106 lease dated december 1 1988 philip macdonald lessor registrant lessee exhibit 104 1989 form 10k incorporated reference 107 lease dated june 14 1996 registrant lessor ceimic corporation lessee ceimic leasing approximately 27000 square feet laboratory office space 108 lease dated february 28 1986 registrant lessee elkhorn ranch inc lessor exhibit 1011 registrants form 10k annual report year ended july 31 1986 form 10k incorporated reference 109 maxwell laboratories inc executive deferred compensation plan exhibit 1018 registrants form 10k annual report year ended july 31 1983 incorporated reference 1010 office lease agreement dated august 28 1987 airport property company nm limited partnership lessor registrant lessee exhibit 1016 registrants 1988 form 10k incorporated reference 1011 agreement may 1994 registrant compagnie europeene de composants electroniques lcc registrant licenses manufactures distributes certain capacitors exhibit 1011 registrants 1995 form 10k incorporated reference 1012 lease dated april 17 1995 cody three inc lessor registrant lessee 1013 maxwell laboratories inc special severance pay plan exhibit 1022 1989 form 10k incorporated reference 1014 consulting agreement dated june 25 1996 registrant alan c kolb 1015 separation agreement dated june 25 1996 registrant alan c kolb 1016 chief executive officer employment contract dated march 25 1996 amendment dated april 16 1996 registrant kenneth f potashner 1017 restricted stock agreement dated july 25 1996 registrant kenneth f potashner 1018 lease dated october 12 1994 madison square partnership lessor purepulse technologies inc formerly foodco corporation lessee exhibit 1018 registrants 1995 form 10k incorporated reference 1020 line credit agreement dated february 4 1994 registrant sanwa bank california exhibit 1021 1994 form 10k incorporated reference 1021 license agreement dated effective march 13 1991 registrant auburn university exhibit 1026 1991 form 10k incorporated reference 1022 lease dated february 13 1994 terilee enterprises inc lessor registrant lessee exhibit 1023 1994 form 10k incorporated reference 1023 agreement purchase sale assets dated february 13 1992 registrant sierra aerospace technology inc donald pruett dick ni annie ni exhibit 1032 1992 form 10k incorporated reference 1024 severance agreement dated march 15 1996 registrant sean maloy 1025 executive bonus plan fiscal 1997 1026 purepulse technologies inc 1994 stock option plan 13 proxy statement 1996 annual meeting shareholders appendix 23 consent ernst young llp independent auditors 27 financial data schedule b reports form 8k registrant filed reports form 8k fourth quarter fiscal year ended july 31 1996 signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized maxwell laboratories inc skenneth f potashner kenneth f potashner chief executive officer president october 22 1996 date pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities dates indicated skenneth f potashner chief executive october 22 1996 officer president kenneth f potashner director sdonn starry chairman october 22 1996 board director donn starry slewis j colby jr director october 22 1996 lewis j colby jr sadolphe g gueymard director october 22 1996 adolphe g gueymard salan c kolb director october 22 1996 alan c kolb skarl samuelian director october 22 1996 karl samuelian sjohn w weil director october 22 1996 john w weil sthomas b hayward director october 22 1996 thomas b hayward shenry f owsley director october 22 1996 henry f owsley sgary j davidson vice president finance october 22 1996 administration treasurer gary j davidson chief financial officer principal financial accounting officer index exhibits 31 restated certificate incorporation registrant exhibit 31 registrants form 10k annual report year ended july 31 1987 form 10k incorporated reference 32 bylaws registrant amended date exhibit 32 1987 form 10k incorporated reference 41 form rights certificate exhibit 1 registrants form 8a filed june 30 1989 hereby incorporated reference 42 form rights agreement registrant first interstate bank rights agent exhibit 42 registrants form 10k annual report year ended july 31 1990 form 10k incorporated reference 101 maxwell laboratories inc director stock option plan exhibit 1023 registrants form 10k annual report year ended july 31 1989 form 10k incorporated reference 102 maxwell laboratories inc 1985 stock option plan amended date exhibit 103 registrants form 10k annual report year ended july 31 1991 form 10k incorporated reference 103 maxwell laboratories inc 1995 stock option plan exhibit 103 registrants form 10k annual report year ended july 31 1995 form 10k incorporated reference 104 maxwell laboratories inc 1994 employee stock purchase plan exhibit 104 registrants 1995 form 10k incorporated reference 105 maxwell laboratories inc 1994 director stock purchase plan exhibit 105 registrants 1995 form 10k incorporated reference 106 lease dated december 1 1988 philip macdonald lessor registrant lessee exhibit 104 1989 form 10k incorporated reference 107 lease dated june 14 1996 registrant lessor ceimic corporation lessee ceimic leasing approximately 27000 square feet laboratory office space 108 lease dated february 28 1986 registrant lessee elkhorn ranch inc lessor exhibit 1011 registrants form 10k annual report year ended july 31 1986 form 10k incorporated reference 109 maxwell laboratories inc executive deferred compensation plan exhibit 1018 registrants form 10k annual report year ended july 31 1983 incorporated reference 1010 office lease agreement dated august 28 1987 airport property company nm limited partnership lessor registrant lessee exhibit 1016 registrants 1988 form 10k incorporated reference 1011 agreement may 1994 registrant compagnie europeene de composants electroniques lcc registrant licenses manufactures distributes certain capacitors exhibit 1011 registrants 1995 form 10k incorporated reference 1012 lease dated april 17 1995 cody three inc lessor registrant lessee 1013 maxwell laboratories inc special severance pay plan exhibit 1022 1989 form 10k incorporated reference 1014 consulting agreement dated june 25 1996 registrant alan c kolb 1015 separation agreement dated june 25 1996 registrant alan c kolb 1016 chief executive officer employment contract dated march 25 1996 amendment dated april 16 1996 registrant kenneth f potashner 1017 restricted stock agreement dated july 25 1996 registrant kenneth f potashner 1018 lease dated october 12 1994 madison square partnership lessor purepulse technologies inc formerly foodco corporation lessee exhibit 1018 registrants 1995 form 10k incorporated reference 1020 line credit agreement dated february 4 1994 registrant sanwa bank california exhibit 1021 1994 form 10k incorporated reference 1021 license agreement dated effective march 13 1991 registrant auburn university exhibit 1026 1991 form 10k incorporated reference 1022 lease dated february 13 1994 terilee enterprises inc lessor registrant lessee exhibit 1023 1994 form 10k incorporated reference 1023 agreement purchase sale assets dated february 13 1992 registrant sierra aerospace technology inc donald pruett dick ni annie ni exhibit 1032 1992 form 10k incorporated reference 1024 severance agreement dated march 15 1996 registrant sean maloy 1025 executive bonus plan fiscal 1997 1026 purepulse technologies inc 1994 stock option plan 13 proxy statement 1996 annual meeting shareholders appendix 1996 summary annual report 23 consent ernst young llp independent auditors 27 financial data scheduleitem 14 exhibits financial statement schedules reports form 8k a1 financial statements a2 index financial statement schedules provision made applicable accounting regulations securities exchange commission omitted inapplicable required related instructions a3 list exhibits b reports form 8k registrant filed reports form 8k fourth quarter fiscal year ended july 31 1997 filed herewith maxwell technologies inc subsidiaries index consolidated financial statements report ernst young llp independent auditors board directors stockholders maxwell technologies inc audited accompanying consolidated balance sheets maxwell technologies inc subsidiaries july 31 1996 1997 related consolidated statements operations stockholders equity cash flows three years period ended july 31 1997 financial statements responsibility companys management responsibility express opinion financial statements based audits conducted audits accordance generally accepted auditing standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion financial statements referred present fairly material respects consolidated financial position maxwell technologies inc subsidiaries july 31 1996 1997 consolidated results operations cash flows three years period ended july 31 1997 conformity generally accepted accounting principles discussed note 8 consolidated financial statements 1996 company changed method assessing impairment longlived assets accordance adoption statement financial accounting standards 121 ernst young llp san diego california september 12 1997 maxwell technologies inc subsidiaries consolidated balance sheets thousands except per share data see accompanying notes maxwell technologies inc subsidiaries consolidated statement operations thousands except per share data see accompanying notes maxwell technologies inc subsidiaries consolidated statement stockholders equity thousands except share data see accompanying notes maxwell technologies inc subsidiaries consolidated statement cash flows thousands see accompanying notes maxwell technologies inc subsidiaries notes consolidated financial statements note 1 significant accounting policies description business company leader pulsed power technologies providing pulsed power based systems components wide range commercial applications research development commercial customers united states government company also offers industrial computers subsystems primarily oems computer telephony markets software products services government research various commercial applications consolidation minority interest amounts consolidated financial statements include accounts maxwell technologies inc subsidiaries significant intercompany transactions account balances eliminated consolidation cash equivalents company classifies highly liquid investments maturity three months less purchased cash equivalents inventories stated lower cost principally average cost method market property plant equipment property plant equipment carried cost depreciation amortization provided estimated useful lives assets three thirty years depreciation amortization property plant equipment amounted 3415000 2507000 2587000 fiscal 1995 1996 1997 respectively revenue recognition company recognizes substantially revenue sale manufactured products shortterm fixed price contracts upon shipment products completion services revenues including estimated profits longterm fixed price contracts recognized costs incurred revenues including fees earned cost plus contracts also recognized costs incurred contract revenue reflected companys sales includes amounts received united states government commercial customers funded research development efforts company provisions made current basis fully recognize anticipated losses contracts earnings loss per share computation net income loss per share based weighted average shares common stock outstanding plus dilutive effects common stock equivalents arising stock options weighted average number common equivalent shares outstanding 5356000 5494000 6644000 fiscal 1995 1996 1997 respectively net income loss per share unchanged fullydiluted basis maxwell technologies inc subsidiaries notes consolidated financial statements continued note 1 significant accounting policies continued financial accounting standards board statement 128 earnings per share company must change method used compute earnings per share fiscal 1998 restate prior periods new standard dilutive effect stock options excluded basic earnings per share impact expected result following basic net income loss per share three years ended july 31 impact statement 128 calculation diluted net income loss per share periods expected material use estimates preparation financial statements conformity generally accepted accounting principles requires management make estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities dates financial statements reported amounts revenues expenses reporting periods several industries company operates characterized rapid technological change short product life cycles result estimates required provide product returns product obsolescence well matters historically actual amounts recorded varied significantly estimated amounts stock split november 1996 company declared 2for1 stock split companys common shares effected 100 stock dividend distributed december 17 1996 stockholders record november 26 1996 common stock accounts earnings per share weighted average number share amounts prior periods restated reflect stock split note 2 accounts receivable following tabulation shows component elements accounts receivable longterm contracts july 31 maxwell technologies inc subsidiaries notes consolidated financial statements continued note 2 accounts receivable continued balances billed paid customers pursuant retainage provisions longterm contracts due upon completion contracts acceptance customers substantially unbilled receivables july 31 1997 expected become due payable within next year note 3 longterm debt credit agreements longterm debt consisted following july 31 variable rate bank note unsecured bears interest banks prime rate plus onehalf one percent 9 july 31 1997 bank note contains certain restrictive covenants relating networth networthratio quarterly operating results maturities longterm debt five years ending july 31 2002 1998511000 1999263000 200014000 200116000 200217000 company also unsecured twoyear bank line credit agreement company may borrow 10 million banks prime rate libor plus 175 july 31 1997 outstanding borrowings line credit agreement provides neither company subsidiaries may directly indirectly make distributions cash dividends note 4 stock plans stock option plans december 1995 company adopted 1995 stock option plan 500000 shares common stock reserved future grant january 1997 additional 300000 shares reserved future issuance plan companys director stock option plan provide granting either incentive stock options nonqualified stock options employees nonemployee members companys board directors respectively options also outstanding expired stock option plan options granted plans purchase common stock less fair market value date grant employee options generally exercisable cumulative annual installments 30 percent 20 percent options director option plan exercisable full one year date grant options terms five ten years maxwell technologies inc subsidiaries notes consolidated financial statements continued note 4 stock plans continued following table summarizes company stock option activity three years ended july 31 1997 addition company established separate stock option plans five principal operating subsidiaries fiscal 1997 options purchase various shares subsidiary stock granted estimated fair value subsidiary shares determined independent outside appraisal options outstanding july 31 1997 amount 103 136 subsidiarys outstanding common stock following table summarizes information concerning outstanding exercisable stock options july 31 1997 company adopted disclosureonly provisions financial accounting standards board statement 123 accounting stockbased compensation accordance provisions statement 123 company applies accounting principles board opinion 25 related interpretations accounting stock option plans accordingly compensation cost recognized stock options 1996 1997 company elected recognize compensation cost maxwell technologies inc subsidiaries notes consolidated financial statements continued note 4 stock plans continued based fair value method prescribed statement 123 companys net income loss net income loss per share would adjusted proforma amounts indicated impact outstanding nonvested stock options granted prior 1996 excluded pro forma calculations accordingly 1996 1997 pro forma adjustments indicative future period pro forma adjustments calculation reflect applicable stock options fair value company options date grant estimated using blackscholes optionpricing model assumptions 1996 1997 follows riskfree interest rate 60 dividend yield 0 volatility factor 52 weightedaverage expected term 3 years fair value subsidiary options date grant estimated using minimum value optionpricing model similar blackscholes model except excludes factor volatility since public market subsidiary shares estimated weighted average fair value grant date company options granted 1996 1997 174 733 per option respectively stock purchase plans december 1994 company established 1994 employee stock purchase plan director stock purchase plan employee plan permits substantially employees purchase common stock payroll deductions 85 lower trading price stock beginning end sixmonth offering period director plan permits nonemployee directors purchase common stock 100 trading price stock date request purchase received fiscal years 1996 1997 93112 39129 shares issued two plans aggregate 361000 442000 respectively july 31 1997 339335 shares reserved future issuance plans stockholder rights plan 1989 company adopted stockholder rights plan subsequently distributed one nonvoting common stock purchase right outstanding share common stock rights exercisable trade separately common stock unless person group acquires makes tender offer 20 companys common stock initially right entitles registered holder purchase onehalf share company common stock price 1625 per onehalf share subject certain antidilution adjustments rights expire june 20 1999 rights become exercisable certain conditions met right owned acquiring person group entitle holder receive upon exercise company common stock market value four times exercise price right provisions apply majority board directors determines acquisition business combination best interest stockholders addition company may redeem rights price 001 per right subject certain restrictions maxwell technologies inc subsidiaries notes consolidated financial statements continued note 4 stock plans continued deferred compensation 1996 1997 one executive officers company granted shares companys common stock subject certain restrictions shares vest four year periods respective grant dates shares issued fiscal 1996 value approximately 645000 shares issued fiscal 1997 value approximately 190000 values net accumulated amortization shown deferred compensation stockholders equity section balance sheet deferred compensation amortized expense four year vesting periods amortization totaled 40000 173000 fiscal 1996 1997 respectively note 5 income taxes income taxes credit follows years ended july 31 maxwell technologies inc subsidiaries notes consolidated financial statements continued note 5 income taxes continued deferred income taxes reflect net tax effects temporary differences carrying amounts assets liabilities financial reporting purposes amounts used income tax purposes primary components companys deferred tax assets liabilities follows july 31 company cannot carry losses back prior years loss prior year valuation allowance provided net operating loss carryforwards net deferred income tax assets parent company valuation allowance july 31 1997 includes approximately 700000 relating employee stock option stock purchase plan activity upon realization result credit additional paidin capital income tax expense fiscal year 1996 provide valuation allowance beginning year net deferred tax assets provide income tax expense purepulse technologies subsidiary filed separate tax return year july 31 1997 company net operating loss carryforwards federal state income tax purposes approximately 4300000 3400000 respectively federal loss carryforward expires fiscal year 2011 state loss carryforwards expire fiscal years 1999 2001 effective income tax rate varied statutory federal income tax rate follows maxwell technologies inc subsidiaries notes consolidated financial statements continued note 6 leases rental expense amounted 2110000 1992000 1831000 fiscal 1995 1996 1997 respectively incurred primarily building rental future minimum rental commitments july 31 1997 follows thousands certain leases include renewal options periods ranging one twentyfive years subject rental adjustment based consumer price indices substantially leases provide company pay property taxes insurance repairs maintenance note 7 employee benefit plan substantially employees eligible elect coverage contributory employee savings plan provides company matching contributions based onehalf employee contributions certain plan limits companys matching contributions plan totaled 568000 541000 592000 fiscal 1995 1996 1997 respectively note 8 impairment losses restructuring charges fiscal 1996 company recorded 144 million pretax charges primarily second third quarters amount 95 million recorded first two quarters included asset writedowns due adoption fasb statement 121 accounting impairment longlived assets longlived assets disposed increase valuation allowance companys net deferred income tax assets cost primarily form inventory reserves repositioning sierra capacitorfilter operation focus new commercial business area operational reserves primarily associated fixedprice contracts inventory 49 million charge third quarter resulted primarily costs associated management changes restructuring companys business units first second quarter charge 41 million attributable january 1996 adoption fasb statement 121 statement 121 requires carrying amount certain longlived assets written impairment value determined exist assets supported adequate anticipated future cash flows defined fasb upon adoption statement 121 company recorded impairment losses reflect difference preadoption carrying values estimated fair values assets subject review approximately 26 million recorded restated first quarter results cumulative effect change accounting principle balance 15 million impacted second quarter results assets included primarily facilities equipment associated chemical analytical services group certain equipment currently substantive use chemical analytical services business profitable fiscal 1996 company began exploring possible sale first quarter fiscal 1996 business sold june 1996 estimated fair values assets determined reference comparable asset sales lease values estimated discounted future cash flows facilities subject impairment loss corporate assets chemistry group maxwell technologies inc subsidiaries notes consolidated financial statements continued note 8 impairment losses restructuring charges continued equipment well majority underutilized equipment subject impairment companys technology programs systems business segment note 9 environmental matter 1992 company approximately 40 potentially responsible parties signed consent order state california respect costs incurred recycling facility characterize remediate hazardous substances date site characterized company potentially responsible parties paid substantially respective shares costs characterization estimated cost monitoring remediation activities companys share currently estimated approximately 35 totals approximately 23 million approximately 21 million amount consist maintenance monitoring related costs incurred 2530 year period company accrued share estimated costs basis amounts accrued company managements opinion additional liability resulting situation material effect companys financial statements note 10 business segments purposes analyzing understanding financial statements companys operations classified following business segments power conversion products includes design development manufacture electrical components subsystems including products capitalize pulsed power ultracapacitors microbial purification systems high voltage capacitors electrical components emi filter capacitors industrial computers subsystems includes design manufacture standard custom semicustom industrial computer modules platforms fully integrated systems primarily oems technology programs systems includes research development programs pulsed power pulsed power systems design construction weapons effects simulation computerbased analytic services primarily department defense information products services includes design development integration software products services including job cost accounting management information systems software products including applications internet well widearea localarea network software integration services maxwell technologies inc subsidiaries notes consolidated financial statements continued note 10 business segments continued business segment financial data three years ended july 31 follows intersegment sales insignificant operating profit loss sales less cost sales operating expenses excluding interest expense corporate expenses revenues corporate expenses fiscal 1996 maxwell technologies inc subsidiaries notes consolidated financial statements continued note 10 business segments continued include certain restructuring costs asset writedowns relating adoption fasb statement 121 accounting impairment longlived assets longlived assets disposed identifiable assets segment include assets directly identified segments corporate assets consist primarily cash equivalents facilities land july 31 1997 certain telecommunications computers networking equipment company sales united states government contracts subcontracts primarily technology programs systems business segment aggregated 32120000 32622000 33526000 fiscal 1995 1996 1997 respectively portion sales united states air force fiscal 1997 amounted 140 total company sales year customer industrial computers subsystems business segment represented 119 total sales company fiscal 1997 international sales amounted 7318000 7555000 12609000 fiscal 1995 1996 1997 respectively principally countries europe pacific rim note 11 supplementary financial information inventories inventoried costs relating longterm contracts classified follows july 31 property plant equipment consist following july 31 accounts payable consist following july 31 maxwell technologies inc subsidiaries notes consolidated financial statements continued note 11 supplementary financial information continued included othernet fiscal 1995 1996 amortization income threeyear period amounts contributed minority stockholders upon organization companys purepulse technologies inc subsidiary stockholders proportionate share purepulse technologies equity amounts fully amortized end third quarter fiscal 1996 amounted 508000 379000 fiscal 1995 1996 respectively also included othernet interest income 358000 128000 147000 fiscal 1995 1996 1997 respectively financial instruments subject company potential concentrations credit risk consist principally investments cash equivalents accounts receivable company invests excess cash major corporate financial institutions united states government backed securities company established guidelines relative diversification maturities maintain safety liquidity experienced losses investments companys accounts receivable result contracts united states government well contract product sales nongovernment customers various industries company performs ongoing credit evaluations selected nongovernment customers generally requires collateral supplemental disclosure cash flow information consists following three years ended july 31 signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized city san diego state california 30th day september 1997 maxwell technologies inc kenneth f potashner kenneth f potashner chairman chief executive officer president pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities dates indicated ii1item 14 exhibits financial statement schedules reports form 8k a1 financial statements see item 6 item 7 item 8 a2 financial statement schedules provision made applicable accounting regulations securities exchange commission omitted inapplicable required related instructions a3 list exhibits 31 restated certificate incorporation registrant exhibit 31 registrants form 10k annual report year ended july 31 1987 form 10k incorporated reference 32 certificate amendment restated certificate incorporation registrant increasing number authorized shares 20 million dated november 22 1996 exhibit 32 registrants 1997 form 10k annual report year ended july 31 1997 form 10k incorporated reference 33 certificate amendment restated certificate incorporation registrant increasing number authorized shares 40 million dated february 9 1998 exhibit 33 registrants form 10k annual report year ended july 31 1999 form 10k incorporated reference 34 bylaws registrant amended date exhibit 32 1987 form 10k incorporated reference 35 revised article iv bylaws registrant exhibit 34 1997 form 10k incorporated reference 41 rights agreement dated november 5 1999 registrant chasemellon shareholders services llc rights agent exhibit 1 registrants form 8a filed november 18 1999 hereby incorporated reference 101 maxwell laboratories inc director stock option plan exhibit 1023 registrants form 10k annual report year ended july 31 1989 form 10k incorporated reference 102 amendment number one maxwell laboratories inc director stock option plan dated february 7 1997 exhibit 102 1997 form 10k incorporated reference 103 amendment number two maxwell laboratories inc director stock option plan dated january 28 1999 exhibit 103 1999 form 10k incorporated reference 104 maxwell laboratories inc 1985 stock option plan amended date exhibit 103 registrants form 10k annual report year ended july 31 1991 form 10k incorporated reference 105 maxwell laboratories inc 1995 stock option plan exhibit 103 registrants form 10k annual report year ended july 31 1995 form 10k incorporated reference 106 amendment number one maxwell laboratories inc 1995 stock option plan dated march 19 1997 exhibit 106 1997 form 10k incorporated reference 107 amendment number two maxwell technologies inc 1995 stock option plan dated january 28 1998 exhibit 106 1998 form 10k incorporated reference 108 amendment number three maxwell technologies inc 1995 stock option plan dated january 28 1999 exhibit 108 1999 form 10k incorporated reference 109 amendment number four maxwell technologies inc 1995 stock option plan dated january 28 2000 1010 maxwell laboratories inc 1994 employee stock purchase plan exhibit 104 1995 form 10k incorporated reference 1011 maxwell laboratories inc 1994 director stock purchase plan exhibit 105 1995 form 10k incorporated reference 1012 maxwell technologies inc 1999 director stock option plan dated january 28 2000 1013 lease dated february 28 1986 registrant lessee elkhorn ranch inc lessor exhibit 1011 registrants form 10k annual report year ended july 31 1986 form 10k incorporated reference 1014 first amendment industrial real estate lease registrant lessee elkhorn ranch inc lessor dated june 30 1995 exhibit 1011 1997 form 10k incorporated reference 1015 maxwell technologies inc officer director stock repurchase policy exhibit 1012 1998 form 10k incorporated reference 1016 lease dated april 17 1995 cody three inc lessor registrant lessee exhibit 1012 registrants form 10k annual report year ended july 31 1996 form 10k incorporated reference 1017 amended restated industrial real estate lease dated january 1 1997 equus 9177 llc lessor ibus inc lessee exhibit 1016 1997 form 10k incorporated reference 1018 maxwell laboratories inc executive deferred compensation plan dated september 1 1998 exhibit 1017 1998 form 10k incorporated reference 1019 maxwell technologies inc employment agreement dated november 9 1999 registrant carlton j eibl 1020 chief executive officer maxwell technologies inc employment agreement dated april 30 1999 registrant thomas l horgan exhibit 109 1999 form 10k incorporated reference 1021 chief executive officer employment contract dated march 25 1996 amendment dated april 16 1996 registrant kenneth f potashner exhibit 1016 1996 form 10k incorporated reference 1022 second amendment chief executive officer employment contract dated june 23 1997 registrant kenneth f potashner exhibit 1021 1997 form 10k incorporated reference 1023 restricted stock agreement dated july 25 1996 registrant kenneth f potashner exhibit 1017 1996 form 10k incorporated reference 1024 amendment number one restricted stock agreement dated june 24 1997 registrant kenneth f potashner exhibit 1023 1997 form 10k incorporated reference 1025 secured promissory note dated february 2 1999 stock pledge agreement dated february 2 1999 registrant kenneth f potashner exhibit 1024 1999 form 10k incorporated reference 1026 stock pledge agreement dated february 2 1999 registrant kenneth f potashner exhibit 1025 1999 form 10k incorporated reference 1027 lease dated october 12 1994 madison square partnership lessor purepulse technologies inc formerly foodco corporation lessee exhibit 1018 1995 form 10k incorporated reference 1028 lease dated november 1 1996 ponderosa pines partnership lessor purepulse technologies inc lessee exhibit 1025 1997 form 10k incorporated reference 1029 lease dated february 13 1994 terilee enterprises inc lessor registrant lessee exhibit 1023 1994 form 10k incorporated reference 1030 executive bonus plan calendar year 2000 1031 purepulse technologies inc 1994 stock option plan exhibit 1026 1996 form 10k incorporated reference 1032 maxwell federal division inc 1996 stock option plan exhibit 1034 1997 form 10k incorporated reference 1033 maxwell energy products inc 1996 stock option plan exhibit 1035 1997 form 10k incorporated reference 1034 ibus inc 1996 stock option plan exhibit 1036 1997 form 10k incorporated reference 1035 amendment number one maxwell laboratories inc 1994 employee stock purchase plan effective april 30 1997 exhibit 1038 1997 form 10k incorporated reference 1036 space electronics inc 1999 stock option plan 1037 stock purchase agreement among maxwell technologies inc maxwell energy products inc pacificorp energy ventures inc dated october 30 1997 exhibit 10 registrants october 31 1997 form 10q incorporated reference 1038 amended restated agreement purchase sale assets dated march 29 1998 among company maxwell technologies systems division inc primex technologies inc primex physics international company exhibit 21 registrants form 8k filed april 29 1998 hereby incorporated reference 1039 assignment assumption agreement facility lease dated april 15 1998 primex physics international company assignor maxwell technologies systems division inc assignee exhibit 1040 1998 form 10k incorporated reference 1040 assignment assumption agreement ground lease dated april 15 1998 primex physics international company assignor maxwell technologies systems division inc assignee exhibit 1041 1998 form 10k incorporated reference 1041 underlease dated march 6 1997 pegasus airwave limited lessor ibus uk limited formerly trimap international limited lessee exhibit 1042 1998 form 10k incorporated reference 1042 shareholder agreement among maxwell technologies inc purepulse technologies inc sanyo ee corporation three oceans inc dated january 28 1999 exhibit 1044 1999 form 10k incorporated reference 1043 lease dated may 9 1995 modification amendment agreement dated september 24 1997 modification amendment agreement dated june 20 1996 arvco realty agent sorrento park investments lessor space electronics inc lessee exhibit 1045 1999 form 10k incorporated reference 1044 acquisition space electronics inc maxwell technologies inc dated january 29 1999 exhibit 21 registrants form 8k filed february 12 1999 hereby incorporated reference 1045 maxwell technologies inc 1999 management equity ownership program dated january 28 2000 1046 line credit agreement dated march 4 1998 registrant sanwa bank california first amendment dated may 29 1998 registrant sanwa bank california exhibit 1026 1998 form 10k incorporated reference 211 list subsidiaries registrant 231 consent ernst young llp independent auditors 271 financial data schedule b reports form 8k november 9 1999 registrant filed report form 8k included press release announcing modification renewal registrants shareholder rights plan expired june 1999 december 7 1999 registrant filed report form 8k reporting board directors adopted resolution november 22 1999 change fiscal year registrant calendar year effective january 1 2000 filed herewith signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized city san diego state california 24th day march 2000 maxwell technologies inc carlton j eibl carlton j eibl chief executive officer president pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities dates indicateditem 14 exhibits financial statement schedules reports form 8k a1 financial statements see item 6 item 7 item 8 a2 financial statement schedules provision made applicable accounting regulations securities exchange commission omitted inapplicable required related instructions a3 list exhibits 31 restated certificate incorporation registrant exhibit 31 registrants form 10k annual report year ended july 31 1987 form 10k incorporated reference 32 certificate amendment restated certificate incorporation registrant increasing number authorized shares 20 million dated november 22 1996 exhibit 32 registrants form 10k annual report year ended july 31 1997 form 10k incorporated reference 33 certificate amendment restated certificate incorporation registrant increasing number authorized shares 40 million dated february 9 1998 exhibit 33 registrants form 10k annual report year ended july 31 1999 form 10k incorporated reference 34 bylaws registrant amended date exhibit 32 1987 form 10k incorporated reference 35 revised article iv bylaws registrant exhibit 34 1997 form 10k incorporated reference 41 rights agreement dated november 5 1999 registrant chasemellon shareholders services llc rights agent exhibit 1 registrants form 8a filed november 18 1999 hereby incorporated reference 101 maxwell laboratories inc 1995 stock option plan exhibit 103 registrants form 10k annual report year ended july 31 1995 form 10k incorporated reference 102 amendment number one maxwell laboratories inc 1995 stock option plan dated march 19 1997 exhibit 106 1997 form 10k incorporated reference 103 amendment number two maxwell technologies inc 1995 stock option plan dated january 28 1998 exhibit 106 1998 form 10k incorporated reference 104 amendment number three maxwell technologies inc 1995 stock option plan dated january 28 1999 exhibit 108 1999 form 10k incorporated reference 105 amendment number four maxwell technologies inc 1995 stock option plan dated january 28 2000 exhibit 109 registrants december 31 1999 form 10k incorporated reference 106 amendment number five maxwell technologies inc 1995 stock option plan dated august 14 2000 107 maxwell laboratories inc director stock option plan exhibit 1023 registrants form 10k annual report year ended july 31 1989 form 10k incorporated reference 108 amendment number one maxwell laboratories inc director stock option plan dated february 7 1997 exhibit 102 1997 form 10k incorporated reference 109 amendment number two maxwell laboratories inc director stock option plan dated january 28 1999 exhibit 103 1999 form 10k incorporated reference 1010 maxwell technologies inc 1999 director stock option plan dated january 28 2000 exhibit 1012 registrants december 31 1999 form 10k incorporated reference 1011 maxwell laboratories inc 1994 employee stock purchase plan exhibit 104 1995 form 10k incorporated reference 1012 amendment number one maxwell laboratories inc 1994 employee stock purchase plan effective april 30 1997 exhibit 1038 1997 form 10k incorporated reference 1013 maxwell technologies inc 1999 management equity ownership program dated january 28 2000 exhibit 1045 registrants december 31 1999 form 10k incorporated reference 1014 maxwell laboratories inc 1994 director stock purchase plan exhibit 105 1995 form 10k incorporated reference 1015 maxwell energy products inc 1996 stock option plan exhibit 1035 1997 form 10k incorporated reference 1016 maxwell electronic components group inc 2000 stock option plan 1017 ibus inc 1996 stock option plan exhibit 1036 1997 form 10k incorporated reference 1018 ibusphoenix inc 2000 stock option plan exhibit 103 registrants september 30 2000 form 10q incorporated reference 1019 purepulse technologies inc 1994 stock option plan exhibit 1026 1996 form 10k incorporated reference 1020 purepulse technologies inc 2000 stock option plan exhibit 102 september 30 2000 form 10q incorporated reference 1021 maxwell federal division inc 1996 stock option plan exhibit 1034 1997 form 10k incorporated reference 1022 maxwell technologies inc employment agreement dated november 9 1999 registrant carlton j eibl exhibit 1019 registrants december 31 1999 form 10k incorporated reference 1023 maxwell technologies inc employment agreement dated april 30 1999 registrant thomas l horgan exhibit 1019 1999 form 10k incorporated reference 1024 restricted stock agreement dated july 25 1996 registrant kenneth f potashner exhibit 1017 registrants form 10k annual report year ended july 31 1996 incorporated reference 1025 amendment number one restricted stock agreement dated june 24 1997 registrant kenneth f potashner exhibit 1023 1997 form 10k incorporated reference 1026 secured promissory note dated february 2 1999 stock pledge agreement dated february 2 1999 registrant kenneth f potashner exhibit 1024 1999 form 10k incorporated reference 1027 stock pledge agreement dated february 2 1999 registrant kenneth f potashner exhibit 1025 1999 form 10k incorporated reference 1028 subordinated promissory note dated january 17 2001 maxwell technologies inc carl eibl 1029 executive bonus plan calendar year 2001 1030 stock purchase agreement among maxwell technologies inc maxwell energy products inc pacificorp energy ventures inc dated october 30 1997 exhibit 10 registrants october 31 1997 form 10q incorporated reference 1031 shareholder agreement among maxwell technologies inc purepulse technologies inc sanyo ee corporation three oceans inc dated january 28 1999 exhibit 1044 1999 form 10k incorporated reference 1032 agreement plan reorganization among gateworks corporation shareholders gateworks corporation ibusphoenix inc maxwell technologies inc september 13 2000 exhibit 101 registrants september 30 2000 form 10q incorporated reference 1033 loan security agreement dated february 26 2001 maxwell technologies inc maxwell electronic components group inc ibusphoenix inc purepulse technologies inc maxwell technologies systems division inc mml acquisition corporation comerica bank california 1034 lease dated march 28 2000 balboa boulevard building gp lessor registrant lessee 1035 lease dated november 1 1996 ponderosa pines partnership lessor purepulse technologies inc lessee exhibit 1025 1997 form 10k incorporated reference 211 list subsidiaries registrant 231 consent ernst young llp independent auditors b reports form 8k none filed herewith signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized city san diego state california 19th day march 2001 maxwell technologies inc carlton j eibl carlton j eibl chief executive officer president pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities dates indicateditem 14 exhibits financial statement schedules reports form 8k a1 financial statements see item 6 item 7 item 8 a2 financial statement schedules following financial statement schedule company included item 14d schedule ii valuation qualifying accounts thousands accounts schedules provisions made applicable accounting regulation securities exchange commission required related instructions inapplicable therefore omitted a3 list exhibits b reports form 8k none filed herewith signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized 29th day march 2002 pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities dates indicated signature title date carlton j eibl carlton j eibl chief executive officer president director march 29 2002 kenneth f potashner kenneth f potashner chairman board director march 29 2002 james baumker james baumker vice president finance treasurer chief financial officer principal financial accounting officer march 29 2002 mark rossi mark rossi director march 29 2002 jean lavigne jean lavigne director march 29 2002 robert guyett robert guyett director march 29 2002 documents incorporated reference maxwell technologies inc index annual report form 10k fiscal year ended december 31 2001 part ultracapacitor application model hybrid internal combustionelectric power train risk factors part ii index consolidated financial statements report ernst young llp independent auditors maxwell technologies inc subsidiaries consolidated balance sheets thousands except per share data maxwell technologies inc subsidiaries consolidated statements operations thousands except per share data maxwell technologies inc subsidiaries consolidated statements stockholders equity year ended july 31 1999 five months ended december 31 1999 years ended december 31 2000 2001 thousands except share data maxwell technologies inc subsidiaries consolidated statements cash flows thousands maxwell technologies inc subsidiaries notes consolidated financial statements part iii part iv schedule ii valuation qualifying accounts thousands signaturesitem 14 controls procedures within 90 days date report completed evaluation supervision participation chief executive officer chief financial officer effectiveness disclosure controls procedures pursuant rule 13a14 exchange act based evaluation chief executive officer chief financial officer concluded disclosure controls procedures effective respect timely communicating material information required disclosed report related company subsidiaries significant changes internal controls factors could significantly affect internal controls subsequent date evaluation completed item 15item 14 principal accountant fees services information required item contained definitive proxy statement respect annual meeting stockholders held may 6 2004 caption “ratification independent auditor” incorporated reference herein part iv item 15item 14 principal accountant fees services information required item contained definitive proxy statement respect annual meeting stockholders held may 5 2005 caption “ratification independent auditor” incorporated reference herein part iv item 15item 14 principal accountant fees services audit fees february 28 2006 aggregate fees paid payable mp fiscal year ended december 31 2005 professional services rendered connection audit company’s consolidated financial statements reviews company’s interim consolidated financial statements included quarterly reports form 10q review registration statement filed form s3 audit internal controls pursuant section 404 sarbanesoxley act 2002 approximately 1415000 audit internal controls approximately 830000 fiscal year ended december 31 2004 aggregate fees paid mp professional services rendered connection audit company’s consolidated financial statements reviews company’s interim consolidated financial statements included quarterly reports form 10q review registration statement filed form s3 audit internal controls pursuant section 404 sarbanesoxley act 2002 approximately 1487000 approximately 993000 audit internal controls audit related fees company engage mp professional services rendered connection statutory audits audit company’s 401k plan fiscal years ended december 31 2005 december 31 2004 tax fees company engage mp professional services rendered connection tax advice tax planning fiscal years ended december 31 2005 december 31 2004 fees company engage mp professional services fiscal years ended december 31 2005 december 31 2004 audit committee preapproval policies procedures audit committee preapproves audit permissible nonaudit services prior commencement services fiscal year 2005 audit committee approved 100 total fees paid mp audit committee determined rendering nonaudit services mp compatible maintaining auditor’s independence fiscal year ended december 31 2005 none total hours expended company’s financial audit mp provided persons mp’s fulltime permanent employees part iv item 15item 14 principal accounting fees services information required item set forth proxy statement incorporated report reference part iv item 15item 14 principal accounting fees services information required item set forth proxy statement incorporated report reference part iv item 15item 14 principal accountant fees services information required item set forth proxy statement incorporated report reference part iv item 15item 14 principal accounting fees services information required item set forth proxy statement incorporated report reference part iv item 15item 14 principal accounting fees services following table presents fees professional services rendered bdo usa llp mcgladrey llp 2012 2011 thousands 1 fees paid bdo usa llp cover audits fiscal years ended december 31 2012 2011 2010 fiscal years 2011 2010 previously audited mcgladrey llp audit fees audit fees include fees associated annual audit company’s consolidated financial statements reviews company’s interim consolidated financial statements included quarterly reports form 10q review registration statements filed form s3 audit effectiveness internal control financial reporting pursuant section 404 sarbanesoxley act 2002 auditrelated fees engage bdo usa llp mcgladrey llp auditrelated services fiscal years ended december 31 2012 2011 tax fees engage bdo usa llp mcgladrey llp professional services connection tax advice tax planning fiscal years ended december 31 2012 2011 fees engage bdo usa llp mcgladrey llp professional services fiscal years ended december 31 2012 2011 audit committee preapproval policies procedures audit committee preapproves audit permissible nonaudit services prior commencement services fiscal year 2012 services rendered bdo usa llp mcgladrey llp preapproved audit committee part iv item 15item 14 principal accounting fees services information required item set forth proxy statement incorporated annual report form 10k reference part iv item 15item 14 principal accounting fees services information required item set forth proxy statement incorporated annual report form 10k reference provided registrant file proxy statement commission within 120 days fiscal year ended december 31 2016 registrant submit information filing amendment annual report form 10k prior end 120day period part iv item 15item 14 principal accounting fees services information required item set forth proxy statement incorporated annual report form 10k reference part iv item 15item 14 principal accounting fees services following table presents fees professional services rendered bdo usa llp member firms bdo collectively bdo 2018 2017 thousands audit fees audit fees include fees related expenses professional services rendered independent accountant annual audit financial statements internal control financial reporting quarterly review financial statements review documents filed sec audits certain subsidiaries business statutory regulatory purposes auditrelated fees auditrelated fees assurance related services performed bdo reasonably related performance audit review consolidated financial statements fees consist primarily fees audit employee benefit plans tax fees engage bdo professional services connection tax advice tax planning fiscal years ended december 31 2018 2017 fees engage bdo professional services fiscal years ended december 31 2018 2017 audit committee preapproval policies procedures audit committee preapproves audit permissible nonaudit services prior commencement services fiscal year 2018 services rendered bdo preapproved audit committee part iv item 15item 14 exhibits financial statement schedules reports form 8k a1 financial statements a2 index financial statement schedules provision made applicable accounting regulations securities exchange commission omitted inapplicable required related instructions a3 list exhibits b reports form 8k june 29 1998 registrant filed form 8ka amendment current report form 8k filed april 29 1998 reporting acquisition assets assumption certain liabilities electromagnetic systems groups primex physics international amendment provided certain historical proforma financial information said group filed herewith managements discussion analysis financial condition results operations overview two years ago maxwell implemented business reorganization became effective august 1 1996 reorganization company recast distinct business operating units new senior management put place commercial business opportunities underlay reorganization company continues perform research development primarily core pulsed power advanced software areas united states department defense dod activities produced suite innovative products technologies research development capabilities entering fiscal 1998 new senior management team focused utilizing resources lay foundation global commerciallyfocused enterprise end following major steps taken year completed followon offering common stock raising approximately 47 million equity capital placed strong focus powercachetm ultracapacitor product line including buildup infrastructure manufacturing capability directline organizational reporting hired senior executive international expertise claude barathon president european operations initial emphasis sales marketing europe acquired three domestic companies related companys core business areas pulsed power products systems rd acquired united kingdombased company complements maxwells line industrial pcs provides strong base operations overseas discontinued separate operation primarily softwarerelated information products services business segment company organized three business segments effective third quarter fiscal 1998 reporting results accordingly primarily due acquisitions mentioned company incurred special charges year 89 million including costs acquired inprocess research development meeting certain criteria excluding special charges net income fiscal 1998 82 million double 40 million 1997 special charges company incurred net loss 769000 see special charges note 9 notes consolidated financial statements net loss 152 million fiscal 1996 included 144 million charges related reorganization adoption new accounting standards valuation allowance net deferred income tax assets charges see note 9 notes consolidated financial statements companys business segments follows power conversion products includes design development manufacture electrical components systems subsystems including products capitalize pulsed power ultracapacitors microbial purification systems high voltage capacitors electrical components power supplies power conditioning systems electromagnetic interference filter capacitors industrial computers subsystems includes design manufacture standard custom semicustom industrial computer modules platforms fully integrated systems primarily oems technology programs systems includes research development programs pulsed power pulsed power systems design construction weapons effects simulation computerbased analytic services primarily dod information products services includes design development integration software products services including job cost accounting management information systems software products including applications internet well widearea localarea network software integration services mentioned company reorganized operations within information products services business segment including refocusing certain operations along lines companys existing business segments discontinuation certain businesses therefore effective beginning fiscal 1998 third quarter company longer operates reports information products services segment partialyear results segment covering first six months fiscal 1998 included companys segment reporting results operations following table sets forth periods indicated selected operating data company expressed percentage sales following table sets forth periods indicated companys business segment sales gross profit gross profit percentage business segment sales fiscal 1998 companys total sales increased 239 million 236 1253 million 1014 million fiscal 1997 fiscal 1997 sales increased 205 million 253 1014 million 809 million fiscal 1996 international sales totaled 196 million fiscal 1998 126 million fiscal 1997 76 million fiscal 1996 increase international sales fiscal 1998 fiscal 1997 primarily due revenues expansion companys industrial computer business europe increase sales fiscal 1997 fiscal 1996 primarily attributable increased international revenues customer funded development power conversion products business segment power conversion products fiscal 1998 power conversion products sales increased 123 million 454 393 million 270 million fiscal 1997 power conversion products exhibited sales growth nearly product areas particular switch component national laboratory pulsed power project ultracapacitor business area included marketing technology access rights two new strategic partners fiscal year siemens matshusita components pacificorp electromagnetic interference emi filters implantable medical products aerospace applications well two newly acquired business areas company involving power systems glasstometal seals application ultracapacitor product line contributed increase sales fiscal 1997 power conversion products sales increased 106 million 644 270 million 164 million fiscal 1996 increase primarily attributable higher revenues customer funded ultracapacitor development sales prototype ultracapacitor products potential oem customers evaluation increased sales emi filters implantable medical products increased revenues customer funded development pulsed power purification systems industrial computers subsystems fiscal 1998 industrial computers subsystems sales increased 66 million 193 409 million 343 million fiscal 1997 sales business segment made principally oem customers primarily derived shipment computers subsystems designedin oems product fiscal 1998 company expanded product offering marketing strategy acquisition united kingdombased company offers standard products oems primarily via catalogs company expects selling standard products us fiscal 1999 leverage leads catalog sales additional oem designins going forward sales longstanding oem customer major multiyear program completed fiscal 1998 oem projects well expansion standard product area offset major program completion resulted increase sales year fiscal 1997 industrial computers subsystems sales increased 81 million 311 343 million 261 million fiscal 1996 sales increase fiscal 1997 derived increased sales oem customers primarily computer telephony market largest portion increase consisted sales single longstanding oem customer program concluded subsequent fiscal year described technology programs systems fiscal 1998 sales technology programs systems segment increased 94 million 302 405 million 311 million fiscal 1997 company increase revenues core governmentfunded pulsed power research development activities including revenue business area physics international acquisition addition companys jobcost accounting software business primarily focused government contractors shifted segment third quarter year commercial softwareoriented business segment reorganized fiscal 1997 sales technology programs systems segment increased 09 million 29 311 million 302 million fiscal 1996 increase primarily attributable revenues contract highvoltage power supplies department energy accelerator project increased work levels two large multiyear contracts dod increase partially offset absence revenue companys chemical analytical services business sold fourth quarter fiscal 1996 windingdown companys environmental consulting business lower hardware systems sales revenues fiscal 1997 portion fiscal 1998 include amounts related closure three dod pulsed power simulation facilities operated company many years san diego closure activities concluded first half fiscal 1998 company continues perform services longterm contracts dod including research nextgeneration pulsed power technology xray simulators well conducting experiments using existing simulators newly acquired physics international facility contracts dod subject periodic government funding provisions level future dod expenditures companys research development area related impact funding companys contracts predictable therefore previously reported results necessarily indicative expected future information products services previously discussed information products services business operated segment first six months fiscal 1998 sixmonth period sales information products services decreased 43 million 483 47 million 90 million full twelve months fiscal 1997 decrease reflects partialyear operations winddown near completion two large multiyear software development contracts criminal justice information systems cjis contracts fiscal 1997 sales information products services increased 09 million 110 90 million 81 million fiscal 1996 increase primarily reflects greater sales companys jobcost accounting software partially offset decline revenues cjis contracts gross profit fiscal 1998 companys gross profit 418 million 334 sales compared 313 million 309 sales fiscal 1997 fiscal 1997 companys gross profit 313 million 309 sales compared 150 million 186 sales fiscal 1996 increase gross profit percentage sales year primarily due increases overall sales resulting improved overhead absorption mix products services particularly power conversion products business segment addition lower gross profit margin fiscal 1996 reflects portion 144 million charge taken year recorded costs sales power conversion products fiscal 1998 power conversion products gross profit increased 61 million 162 million 101 million fiscal 1997 percentage sales gross profit increased 413 fiscal 1998 375 fiscal 1997 increase gross profit percentage sales reflected improved overhead absorption higher level sales higher margin mix products services including switch components national laboratory pulsed power system increased funded development related marketing technology access rights associated strategic partnering arrangements fiscal 1997 power conversion products gross profit increased 63 million 101 million 39 million fiscal 1996 percentage sales gross profit increased 375 fiscal 1997 236 fiscal 1996 increase gross profit percentage sales reflected improved overhead absorption favorable mix products services including higher sales emi filters implantable medical devices greater revenues funded research development also gross profit margin lower fiscal 1996 due portion 144 million charge taken year recorded cost sales company introduces ultracapacitor products may offer aggressive pricing gain market penetration would adverse impact gross profit margins company reaches full production volumes industrial computers subsystems fiscal 1998 industrial computers subsystems gross profit increased 27 million 232 142 million 115 million fiscal 1997 percentage sales gross profit increased 348 fiscal 1998 337 fiscal 1997 increase gross profit percentage sales primarily due increased sales first half fiscal 1998 certain higher margin customized oem products longstanding customer program completed second quarter year result completion program well companys entry lowerprice standard product arena gross profit margins higher first half fiscal 1998 second half business area company several major contracts large oems fiscal 1998 believes continue win oem projects distribution catalogs new lowerprice standard products provide access larger number oem opportunities competition programs however beginning include foreign competitors including asian companies addition consolidations market trends adversely impact projected volumes contracts previously awarded happened fiscal 1998 compaqs acquisition digital equipment corporation curtailed company project new form factor compactpci beginning gain favor marketplace company developed line compactpci products believes well positioned gain market share product area impact factors companys business yet predictable fiscal 1997 industrial computers subsystems gross profit increased 39 million 511 115 million 76 million fiscal 1996 percentage sales gross profit increased 337 fiscal 1997 292 fiscal 1996 due increased sales certain higher margin customized oem products improved overhead absorption higher overall sales addition cost sales fiscal 1996 reflected higher inventory writeoffs fiscal 1997 technology programs systems technology programs systems gross profit 91 million 62 million 57 million fiscal years 1998 1997 1996 respectively percentage sales gross profit remained relatively constant 225 fiscal 1998 201 fiscal 1997 187 fiscal 1996 base business segment relatively stable gross profit margins due predominance government costplus contracts business segment base costplus business major factor comparability gross profit percentage sales fiscal years 1997 1996 increase gross profit dollar amount percentage sales fiscal 1998 compared fiscal 1997 primarily due addition physics international reorganization software businesses late fiscal year previously described work commercial pulsed power systems contract fiscal 1998 systems contract substantially complete fiscal yearend information products services discussed operation information products services business separate segment discontinued beginning third quarter fiscal 1998 therefore 48 lower revenue segment gross profit decreased fiscal 1998 11 million 32 23 million 34 million fiscal 1997 percentage sales gross profit increased 494 fiscal 1998 374 fiscal 1997 fiscal 1997 information products services gross profit increased 55 million 34 million 22 million fiscal 1996 percentage sales gross profit increased 374 fiscal 1997 266 fiscal 1996 fiscal 1996 company recorded reserves cjis contracts total contract completion costs projected exceed contract value fixed price contracts addition fiscal 1996 included writeoff certain capitalized software development costs selling general administrative expenses fiscal 1998 companys selling general administrative expenses increased 45 million 205 264 million 219 million fiscal 1997 percentage total sales selling general administrative expenses decreased slightly 211 fiscal 1998 216 fiscal 1997 increase dollar amount expenses primarily support companys growth year well continued rampup organizational structure selling efforts ultracapacitor business area fiscal 1997 companys selling general administrative expenses increased 63 million 407 219 million 156 million fiscal 1996 percentage total sales selling general administrative expenses increased 216 fiscal 1997 193 fiscal 1996 increases attributable primarily increased sales marketing costs principally addition new sales marketing personnel added part companys plan grow commercial businesses commissions earned higher commercial sales fiscal 1997 primarily companys power conversion products industrial computers subsystems business segments ii accruals new incentive profit sharing plans implemented fiscal 1997 iii additions senior management executive business unit levels support companys new strategic direction research development expenses companys research development expenses reflect internally funded research development programs costs associated united states government customer funded research development contracts included cost sales research development expenses 82 million 53 million 51 million fiscal 1998 1997 1996 respectively percentage sales research development expenses 65 fiscal 1998 52 fiscal 1997 63 fiscal 1996 level research development expenses reflects companys ability obtain customer funding support significant portion research product development activities increase internally funded research development fiscal 1998 level expended fiscal 1997 1996 reflects companys focus new commercial product areas primarily due ultracapacitor power conversion products power electronics systems development compact pci continued product development major new programs industrial computers subsystems business segment special charges third quarter fiscal 1998 company completed acquisition three businesses acquiring businesses company acquired certain intangible assets intangible assets capitalized amortized estimated economic lives acquired inprocess research development meeting certain criteria however expensed quarter technology alternative future use ultimate recovery acquired value assured addition certain costs acquisitions well certain charges related discontinued business segment also charged operations total amount charges 89 million classified acquired inprocess research development special charges consolidated statement operations approximately 63 million charge acquisition related approximately 26 million relates information products services business segment see notes 8 9 notes consolidated financial statements interest expense interest expense 214000 173000 fiscal years 1998 1997 respectively compared 329000 fiscal 1996 decrease fiscal 1996 result lower average borrowings two recent fiscal years company completed followon stock offering fiscal 1998 used portion proceeds offering pay outstanding balance bank line credit remaining balance bank term loan othernet fiscal 1998 othernet 14 million compared 150000 fiscal 1997 398000 fiscal 1996 increase othernet primarily attributable interest income investment net cash proceeds companys followon offering completed november 1997 addition fiscal 1996 othernet reflects completion april 1996 amortization income amounts contributed minority stockholders upon organization companys purepulse technologies inc subsidiary stockholders proportionate share purepulses equity fiscal 1996 othernet included 379000 income none included subsequent fiscal years income tax expense company net operating loss carryforwards offset companys provision us income taxes fiscal years 1998 1997 fiscal 1998 income tax expense primarily due foreign taxes profits companys uk subsidiary acquired year fiscal 1996 income tax expense primarily due establishment valuation allowance 11 million net deferred income tax assets company liquidity capital resources company historically relied combination internally generated funds bank borrowings finance working capital requirements capital expenditures addition fiscal years 1998 1997 company received approximately 23 million 25 million respectively exercise stock options purchases employee stock purchase plans november 1997 company completed followon public offering 15 million shares common stock received net proceeds approximately 47 million portion proceeds used repay outstanding balance bank line credit remaining balance bank term loan approximately 12 million cash used fiscal 1998 completing acquisitions discussed results operations cash used operations fiscal 1998 50 million primarily attributable increases accounts receivable inventory due acquired businesses support higher fiscal 1998 sales companys capital expenditures fiscal 1998 excluding acquired businesses increased 70 million 47 million fiscal 1997 primarily facility expansion production equipment assets needed support growth companys business units principally power conversion products business segment company currently budgeted capital expenditures 87 million fiscal 1999 including commitments capital expenditures support volume manufacturing ultracapacitors existing facilities company continue assess capital needs area alternatively may consider leasing facilities manufacturing equipment may satisfy highvolume manufacturing requirements outsourcing licensing arrangements third parties company decides internally finance construction additional facilities significant amount capital would required company renegotiated unsecured bank line credit fiscal 1998 increasing amount available 200 million previous level 100 million interest rate line credit tied libor banks prime rate july 31 1998 outstanding borrowings line credit company believes funds hand together cash generated operations funds available bank line credit sufficient finance operations capital expenditures fiscal 1999 addition addressing need highvolume manufacturing ultracapacitor products company may continue timetotime consider acquisitions complementary businesses products technologies may require additional funding sources additional funding purposes could include one following cash flow operations investments strategic partners additional debt equity financing assurance company able obtain additional sources financing favorable terms time times company may require capital inflation changes prices generally company able increase prices offset inflationrelated increased costs commercial businesses substantial portion companys business agencies united states government consists costreimbursement contracts permit recovery inflation costs fixedprice contracts government customers typically include estimated costs inflation contract price software compatibility year 2000 date processing year 2000 y2k issue result computer programs using twodigit format opposed four digits indicate year computer systems utilizing programs may unable interpret dates beyond year 1999 could cause system failure computer errors leading disruptions operations 1998 company developed threephase program y2k information systems compliance phase 1 identify solve y2k issues companys significant information systems infrastructure enterprise business applications including telecommunications networking systems well accounting manufacturing software phase 2 identify plan y2k issues specific companys business units including local software product matters facilities related systems vendor key partner concerns phase 3 final testing major area exposure ensure compliance development contingency plans unsolved y2k deficiencies key vendors failing adequately address y2k problems company identified four major areas determined critical successful y2k compliance 1 networking telecommunications 2 financial manufacturing informational systems applications 3 products 4 thirdparty relationships phase 1 program company completed review companywide large systems several identified y2k compliant due recent implementation upgrade installations unrelated y2k concern rather needed part ordinary course business certain accounting manufacturing systems upgrades needed upgrades available third party suppliers process evaluated implementation updated systems expected calendar year end remaining upgrades system infrastructure identified planned final testing documentation phase 1 currently anticipated january 1999 time frame phase 2 company currently identifying evaluating business unit exposures thirdparty area company process contacting significant third parties primarily key vendors customers regarding y2k readiness products preliminary findings indicate company products appear y2k compliant several company made upgrades available via companys internet web site products company still completing evaluation process testing contingency plan development phase 3 begin early 1999 expected completed mid1999 company believes cost approximately 100000 complete replacement network telecommunication infrastructure requiring y2k upgrades company yet determine costs incurred connection local software facilities products third party area anticipated costs relating resolving y2k issues based estimates derived utilizing assumptions future events including continued availability certain resources factors however guarantee estimates achieved additional y2k remediation activities developed planned actual results differ materially current estimate specific factors might cause material differences include limited availability cost personnel trained area completion companys y2k investigations ability locate correct relevant computer codes similar uncertainties addition assurance y2k compliance problems revealed future could material adverse affect companys business financial condition results operations many companys customers suppliers may affected y2k issues may require expend significant resources modify replace existing systems may result customers reduced funds purchase companys products suppliers experiencing difficulties producing shipping key components company timely basis third party issues could material adverse affect companys business financial condition results operations discussion companys y2k status constitutes year 2000 readiness disclosure item defined year 2000 information readiness disclosure act also contains forwardlooking statements see forwardlooking statements accounting principles june 1997 fasb issued statement 130 reporting comprehensive income statement 131 disclosures segments enterprise related information effective fiscal periods beginning december 15 1997 company believes statements adopted fiscal 1999 material effect financial statements forwardlooking statements extent discussion goes beyond historical information indicates results developments company plans expects achieve forwardlooking statements identified use terms expected anticipates plans like readers cautioned statements forwardlooking statements within meaning section 27a securities act 1933 amended section 21e securities exchange act 1934 amended statements subject number risks uncertainties actual results future could differ materially described forwardlooking statements result various risk factors company undertakes obligation publicly release result revisions forwardlooking statements may made reflect future events circumstances readers referred item 1 companys annual report form 10k fiscal 1998 discussion certain factors selected consolidated financial data following selected consolidated statement operations data fiscal years ended july 31 1996 1997 1998 consolidated balance sheet data july 31 1997 1998 derived consolidated financial statements company notes thereto audited ernst young llp independent auditors following selected consolidated statement operations data years ended july 31 1994 1995 consolidated balance sheet data july 31 1994 1995 1996 derived audited consolidated financial statements company included appendix following selected data read conjunction managements discussion analysis financial condition results operations consolidated financial statements company notes thereto appearing elsewhere appendix 1 see note 9 notes consolidated financial statements report ernst young llp independent auditors board directors stockholders maxwell technologies inc audited accompanying consolidated balance sheets maxwell technologies inc subsidiaries july 31 1997 1998 related consolidated statements operations stockholders equity cash flows three years period ended july 31 1998 financial statements responsibility companys management responsibility express opinion financial statements based audits conducted audits accordance generally accepted auditing standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion financial statements referred present fairly material respects consolidated financial position maxwell technologies inc subsidiaries july 31 1997 1998 consolidated results operations cash flows three years period ended july 31 1998 conformity generally accepted accounting principles ernst young llp san diego california september 15 1998 maxwell technologies inc subsidiaries consolidated balance sheets thousands except per share data see accompanying notes maxwell technologies inc subsidiaries consolidated statement operations thousands except per share data see accompanying notes maxwell technologies inc subsidiaries consolidated statement stockholders equity thousands except share data see accompanying notes maxwell technologies inc subsidiaries consolidated statement cash flows thousands see accompanying notes maxwell technologies inc subsidiaries notes consolidated financial statements note 1 description business summary significant accounting policies description business company leader pulsed power technologies providing pulsed power based systems components wide range commercial applications research development commercial customers united states government company also offers industrial computers subsystems primarily oems computer telephony markets software products services government research various commercial applications consolidation minority interest amounts consolidated financial statements include accounts maxwell technologies inc subsidiaries significant intercompany transactions account balances eliminated consolidation cash equivalents company classifies highly liquid investments maturity three months less purchased cash equivalents inventories stated lower cost principally average cost method market property plant equipment property plant equipment carried cost generally depreciated using straightline method depreciation amortization provided estimated useful lives related assets three thirty years depreciation amortization property plant equipment amounted 2507000 2587000 3745000 fiscal 1996 1997 1998 respectively revenue recognition company recognizes substantially revenue sale manufactured products shortterm fixed price contracts upon shipment products completion services revenues including estimated profits longterm fixed price contracts recognized costs incurred revenues including fees earned cost plus contracts also recognized costs incurred contract license revenue reflected companys sales includes amounts received united states government commercial customers funded research development efforts company provisions made current basis fully recognize anticipated losses contracts foreign currency march 1998 company acquired united kingdombased subsidiary see note 8 business combinations assets liabilities foreign subsidiary translated us dollars yearend exchange rates revenues expenses translated average rates prevailing year material effects foreign currency translation year ended july 31 1998 income loss per share effective november 1 1997 company adopted financial accounting standards board fasb statement 128 earnings per share statement 128 replaced previously reported primary fully diluted earnings per share basic diluted earnings per share basic earnings per share calculated using weighted average number common shares outstanding diluted earnings per share similar previously reported fully diluted earnings per share calculated basis weighted average number common shares outstanding plus dilutive effect outstanding stock options assuming exercise using treasury stock method outstanding preferred shares maxwell energy products subsidiary assuming maxwell technologies inc subsidiaries notes consolidated financial statements continued note 1 description business summary significant accounting policies continued conversion earnings per share amounts prior periods restated necessary conform statement 128 requirements years ended july 31 1996 1998 potentially dilutive common shares excluded calculation diluted loss per share inclusion would antidilutive following table sets forth computation basic diluted income per share use estimates preparation financial statements conformity generally accepted accounting principles requires management make estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities dates financial statements reported amounts revenues expenses reporting periods several industries company operates characterized rapid technological change short product life cycles result estimates required provide product returns product obsolescence well matters historically actual amounts recorded varied significantly estimated amounts stock split november 1996 company declared 2for1 stock split companys common shares effected 100 stock dividend distributed december 17 1996 stockholders record november 26 1996 common stock accounts income loss per share weighted average number share amounts prior periods restated reflect stock split new accounting standards june 1997 fasb issued statement 130 reporting comprehensive income statement 131 disclosures segments enterprise related information effective fiscal periods beginning december 15 1997 company believes statements adopted fiscal 1999 material effect financial statements maxwell technologies inc subsidiaries notes consolidated financial statements continued note 2 accounts receivable following tabulation shows component elements accounts receivable longterm contracts july 31 balances billed paid customers pursuant retainage provisions longterm contracts due upon completion contracts acceptance customers substantially unbilled receivables july 31 1998 expected become due payable within next year note 3 credit agreement company unsecured twoyear bank line credit agreement dated march 1998 company may borrow 20 million banks prime rate libor plus 175 july 31 1998 outstanding borrowings line credit agreement provides neither company subsidiaries may directly indirectly make distributions cash dividends note 4 stock activity stock plans followon public stock offering november 1997 company issued 1500000 shares common stock followon public offering 3400 per share proceeds company net offering costs 11 million underwriters commissions 28 million totaled approximately 47 million intended general corporate purposes including working capital expenditures well acquisitions stock option plans december 1995 company adopted 1995 stock option plan 500000 shares common stock reserved future grant january 1997 january 1998 additional 300000 490000 shares respectively reserved future issuance plan companys director stock option plan provide granting either incentive stock options nonqualified stock options employees nonemployee members companys board directors respectively options also outstanding expired stock option plan options granted plans purchase common stock company less stocks fair market value date grant employee options generally exercisable cumulative annual installments 20 30 percent options director option plan exercisable full one year date grant options terms five ten years maxwell technologies inc subsidiaries notes consolidated financial statements continued note 4 stock activity stock plans continued following table summarizes company stock option activity three years ended july 31 1998 following table summarizes information concerning outstanding exercisable company stock options july 31 1998 addition company established separate stock option plans four principal operating subsidiaries options purchase shares subsidiary stock granted primarily fiscal 1997 options outstanding july 31 1998 total 8 15 various subsidiaries outstanding common stock company adopted disclosureonly provisions fasb statement 123 accounting stockbased compensation accordance provisions statement 123 company applies accounting principles board opinion 25 related interpretations accounting stock option plans accordingly compensation expense recognized stock options granted 1996 1997 1998 company elected recognize compensation cost based fair value method prescribed statement 123 companys net income loss net income loss per share would adjusted proforma amounts indicated maxwell technologies inc subsidiaries notes consolidated financial statements continued note 4 stock activity stock plans continued impact outstanding nonvested stock options granted prior 1996 excluded pro forma calculations accordingly 1996 1997 1998 pro forma adjustments indicative future period pro forma adjustments calculation reflect applicable stock options fair value company options date grant estimated using blackscholes optionpricing model assumptions follows 1998 riskfree interest rate 55 dividend yield 0 volatility factor 54 weightedaverage expected term 4 years 1996 1997 riskfree interest rate 60 dividend yield 0 volatility factor 52 weightedaverage expected term 3 years fair value subsidiary options date grant estimated using minimum value optionpricing model similar blackscholes model except excludes factor volatility since public market subsidiary shares estimated weighted average fair value grant date company options granted 1996 1997 1998 174 733 1209 per option respectively stock purchase plans december 1994 company established 1994 employee stock purchase plan director stock purchase plan employee plan permits substantially employees purchase common stock payroll deductions 85 lower trading price stock beginning end sixmonth offering period director plan permits nonemployee directors purchase common stock 100 trading price stock date request purchase received fiscal years 1997 1998 39129 40795 shares issued two plans aggregate 442000 759000 respectively july 31 1998 298540 shares reserved future issuance plans stock repurchase program january 1998 company adopted common stock repurchase program whereby 600000 shares common stock could repurchased twoyear period fiscal year 1998 162000 shares repurchased aggregate cost approximately 40 million stockholder rights plan 1989 company adopted stockholder rights plan subsequently distributed one nonvoting common stock purchase right outstanding share common stock rights exercisable trade separately common stock unless person group acquires makes tender offer 20 companys common stock initially right entitles registered holder purchase onehalf share company common stock price 1625 per onehalf share subject certain antidilution adjustments rights expire june 20 1999 rights become exercisable certain conditions met right owned acquiring person group entitle holder receive upon exercise company common stock market value four times exercise price right provisions apply majority board directors determines acquisition business combination best interest stockholders addition company may redeem rights price 001 per right subject certain restrictions deferred compensation 1996 1997 executive officer company granted shares companys common stock subject certain restrictions shares granted vest ratably four year period grant dates shares fair value approximately 645000 190000 respectively values net accumulated amortization shown deferred compensation consolidated balance sheet consolidated statement stockholders equity deferred compensation amortized expense four year vesting periods amortization totaled 40000 173000 209000 fiscal 1996 1997 1998 respectively maxwell technologies inc subsidiaries notes consolidated financial statements continued note 5 income taxes income taxes follows years ended july 31 deferred income taxes reflect net tax effects temporary differences carrying amounts assets liabilities financial reporting purposes amounts used income tax purposes primary components companys deferred tax assets liabilities follows july 31 company cannot carry losses back prior years loss current year valuation allowance provided net operating loss carryforwards net deferred income tax assets company valuation allowance july 31 1998 includes approximately 2000000 relating employee stock option stock purchase plan activity upon realization result credit additional paidin capital income tax expense fiscal year 1996 provide valuation allowance beginning year net deferred tax assets provide income tax expense purepulse technologies subsidiary filed separate tax return year income tax expense fiscal year 1998 primarily due foreign taxes profits companys newly acquired united kingdom subsidiary july 31 1998 company net operating loss carryforwards federal state income tax purposes approximately 3000000 3500000 respectively federal loss carryforward expires fiscal year 2011 state loss carryforwards expire fiscal years 1999 2001 maxwell technologies inc subsidiaries notes consolidated financial statements continued note 5 income taxes continued provisions income taxes accompanying statements operations differ tax provision calculated applying statutory income tax rate 35 income loss income taxes minority interest primary components difference follows years ended july 31 note 6 leases rental expense amounted 1992000 1831000 3303000 fiscal 1996 1997 1998 respectively incurred primarily facility rental future minimum rental commitments july 31 1998 follows thousands certain leases include renewal options periods ranging one twentyfive years subject rental adjustment based consumer price indices substantially leases provide company pay property taxes insurance repairs maintenance company also subleases certain leased facilities noncancellable subleases ranging one five years future amounts due company subleases next five years follows 1999 371000 2000 392000 2001 404000 2002 168000 2003 none note 7 employee benefit plan substantially employees eligible elect coverage contributory employee savings plan provides company matching contributions based onehalf employee contributions certain plan limits companys matching contributions plan totaled 541000 592000 749000 fiscal 1996 1997 1998 respectively note 8 business combinations january 1998 company acquired tekna seal inc privatelyheld manufacturer glasstometal seals variety industrial applications stockforstock exchange accounted pooling interests terms agreement maxwell purchased outstanding stock tekna seal aggregate 154000 shares maxwell common stock fair market value approximately 4 million company incurred direct transaction costs approximately 85000 charged operations quarter ended january 31 1998 historical results operations tekna seal material relation maxwell financial information prior periods restated reflect merger retained earnings november 1 1997 restated reflect tekna seals accumulated earnings approximately 13 million date maxwell technologies inc subsidiaries notes consolidated financial statements continued note 8 business combinations continued march 1998 company acquired phoenix power systems inc phoenix power privatelyheld company leading products power electronics power conditioning applications telecommunications broadcasting semiconductor manufacturing medical biotechnology markets terms agreement maxwell purchased outstanding stock phoenix power approximately 4 million 13 million cash 100679 shares maxwell common stock valued approximately 27 million direct acquisition costs approximately 95000 purchase price allocated estimated fair values net tangible intangible assets acquired approximately 3 million charged acquired inprocess rd three months ended april 30 1998 value assigned intangible assets 16 million amortized straightline basis estimated economic lives aggregate purchase price phoenix power could increase much 13 million dependent upon financial performance phoenix power next two years also march 1998 company acquired trimap international ltd trimap privatelyheld united kingdombased manufacturer industrialgrade pccompatible computer systems trimap acquired stockforstock exchange accounted pooling interests aggregate 290000 shares maxwell common stock valued approximately 70 million company incurred direct transaction costs approximately 625000 charged operations quarter ended april 30 1998 historical results operations trimap material relation maxwell financial information prior periods restated reflect merger retained earnings february 1 1998 restated reflect trimaps accumulated deficit approximately 660000 date april 1998 company acquired majority assets electromagnetic systems group primex physics international company physics international cash 10 million assumption certain liabilities direct acquisition costs 175000 physics international specializes highenergy pulsed power technology primarily performing research development us government acquired assets consisted primarily intangible assets intellectual property fixed assets existing customer contracts accounts receivable liabilities assumed consisted primarily majority physics internationals current liabilities obligations acquired customer contracts purchase price allocated estimated fair values net assets acquired approximately 25 million charged acquired inprocess rd quarter ended april 30 1998 value assigned intangible assets 37 million amortized straightline basis estimated economic lives pro forma results operations physics international acquisition occurred beginning fiscal years 1997 1998 follows eliminating significant intercompany transactions excluding charge acquired inprocess rd maxwell technologies inc subsidiaries notes consolidated financial statements continued note 8 business combinations continued shares used computing pro forma basic diluted income per share 5949000 6644000 fiscal 1997 7677000 8356000 fiscal 1998 pro forma information presented illustration necessarily indicate operating results would occurred acquisition completed beginning years indicated necessarily indicate future operating results pro forma results phoenix power presented acquisition material company note 9 losses restructuring special charges primarily due acquisition three businesses quarter company recorded 89 million pretax charge third quarter fiscal 1998 approximately 63 million charge related acquisitions including transaction costs business combinations accounted pooling interests appraised amount acquired inprocess research development two purchase business combinations also fiscal 1998 third quarter company reorganized operations within information products services business segment including refocusing certain operations along lines business segments discontinuation certain businesses charges related discontinued business segment amounted 26 million approximately 13 million remained paid july 31 1998 majority remaining charge expected incurred end second quarter fiscal 1999 fiscal 1996 company recorded 144 million pretax charges amount 95 million recorded first two quarters included asset writedowns due adoption fasb statement 121 accounting impairment longlived assets longlived assets disposed increase valuation allowance companys net deferred income tax assets cost primarily form inventory reserves repositioning sierra capacitorfilter operation focus new commercial business area operational reserves primarily associated fixedprice contracts inventory additional 49 million charge recorded third quarter primarily costs associated management changes restructuring companys business units note 10 environmental matter 1992 company approximately 40 potentially responsible parties signed consent order state california respect costs incurred recycling facility characterize remediate hazardous substances date site characterized company potentially responsible parties paid substantially respective shares costs characterization estimated cost monitoring remediation activities companys share currently estimated approximately 33 totals approximately 23 million approximately 21 million amount consist maintenance monitoring related costs incurred 2530 year period company accrued share estimated costs basis amounts accrued company managements opinion additional liability resulting situation material effect companys consolidated financial statements note 11 business segments purposes analyzing understanding financial statements companys operations classified following business segments power conversion products includes design development manufacture electrical components systems subsystems including products capitalize pulsed power ultracapacitors microbial purification systems high voltage capacitors electrical components power supplies power conditioning systems eltromagnetic interface filter capacitors industrial computers subsystems includes design manufacture standard custom semicustom industrial computer modules platforms fully integrated systems primarily oems maxwell technologies inc subsidiaries notes consolidated financial statements continued note 11 business segments continued technology programs systems includes research development programs pulsed power pulsed power systems design construction weapons effects simulation computerbased analytic services primarily department defense information products services includes design development integration software products services including job cost accounting management information systems software products including applications internet well widearea localarea network software integration services fiscal 1998 company reorganized operations within information products services business segment including refocusing certain operations along lines business segments discontinuation certain businesses effective beginning fiscal third quarter company longer operates reports information products services business segment business segment financial data including partialyear results fiscal 1998 information products services segment prior discontinuance three years ended july 31 follows maxwell technologies inc subsidiaries notes consolidated financial statements continued note 11 business segments continued intersegment sales insignificant operating profit loss sales less cost sales operating expenses excluding interest expense corporate expenses revenues corporate expenses fiscal 1998 charges acquired inprocess rd fiscal 1996 include certain restructuring costs asset writedowns relating adoption fasb statement 121 identifiable assets segment include assets directly identified segments corporate assets consist primarily cash equivalents facilities land july 31 1997 telecommunications centralized computers networking equipment company well assets corporate information systems function sales united states government contracts subcontracts primarily technology programs systems business segment aggregated 32622000 33526000 40332000 fiscal 1996 1997 1998 respectively portion sales united states air force amounted 14 10 company sales fiscal years 1997 1998 respectively customer industrial computers subsystems business segment represented 12 sales company fiscal 1997 international sales amounted 7555000 12609000 19558000 fiscal 1996 1997 1998 respectively principally countries europe pacific rim note 12 financial statement details inventories classified follows july 31 property plant equipment consist following july 31 goodwill noncurrent assets consist following july 31 maxwell technologies inc subsidiaries notes consolidated financial statements continued note 12 financial statement details continued accounts payable consist following july 31 included othernet fiscal 1996 amortization income threeyear period amounts contributed minority stockholders upon organization companys purepulse technologies inc subsidiary stockholders proportionate share purepulse technologies equity amounts fully amortized end third quarter fiscal 1996 amounted 379000 year also included othernet interest income 128000 147000 1545000 fiscal 1996 1997 1998 respectively increase interest income fiscal 1998 due investment net cash proceeds companys followon public stock offering completed november 1997 financial instruments subject company potential concentrations credit risk consist principally investments cash equivalents accounts receivable company invests excess cash major corporate financial institutions united states government backed securities company established guidelines relative diversification maturities maintain safety liquidity experienced losses investments companys accounts receivable result contracts united states government well contract product sales nongovernment customers various industries company performs ongoing credit evaluations selected nongovernment customers generally requires collateral supplemental disclosure cash flow information consists following three years ended july 31 signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized city san diego state california 28th day october 1998 maxwell technologies inc kenneth f potashner kenneth f potashner chairman chief executive officer president pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities dates indicated ii1item 14 principal accounting fees services information required item set forth proxy statement incorporated report reference part iv item 15item 14 principal accounting fees services information required item set forth proxy statement incorporated annual report form 10k reference part iv item 15item 14 principal accounting fees services information required item set forth proxy statement incorporated report reference part iv item 15item 14 principal accounting fees services information required item set forth proxy statement incorporated annual report form 10k reference part iv item 15 item 7 managements discussion analysis financial condition results operations information required item contained proxy statement appendix pages a2 a4 caption managements discussion analysis financial condition results operations incorporated herein reference item 8item 7 managements discussion analysis financial condition results operations information required item contained proxy statement appendix pages a2 a6 caption managements discussion analysis financial condition results operations incorporated herein reference item 8item 7 managements discussion analysis financial condition results operations managements discussion analysis financial condition results operations overview roots pulsed power advanced software applications company performing research development primarily united states department defense dod maxwell today portfolio commercial products services derived technologies expertise accumulated long history government funded pulsed power research development although maxwell aggressively pursuing technology commercialization government funded research development continues significant part companys business sales united states government contracts comprising 33 total sales fiscal 1997 efforts technology advancements produce important factors development applications commercial value company sustained net loss 152 million fiscal 1996 including charges totaling 144 million related following adoption fasb statement 121 ii fiscal 1996 reorganization company including senior management related severance recruitment charges facilities consolidations iii establishment valuation allowance net deferred income tax assets iv establishment certain contract inventory environmental related reserves see note 8 notes consolidated financial statements implementing business reorganization company selected new chief executive officer refocused divested certain product lines consolidated certain facilities recast company distinct business operating units new senior management business units reorganization part reorganization became effective august 1 1996 company placed government focused operations single business unit companys new business segments follows power conversion products includes design development manufacture electrical components subsystems including products capitalize pulsed power ultracapacitors microbial purification systems high voltage capacitors electrical components emi filter capacitors industrial computers subsystems includes design manufacture standard custom semicustom industrial computer modules platforms fully integrated systems primarily oems technology programs systems includes research development programs pulsed power pulsed power systems design construction weapons effects simulation computerbased analytic services primarily dod information products services includes design development integration software products services including job cost accounting management information systems software products including applications internet well widearea localarea network software integration services company recognizes substantially revenue sale manufactured products shortterm fixedprice contracts upon shipment products completion services revenues including estimated profits longterm fixedprice contracts recognized costs incurred revenues including fees earned cost plus contracts also recognized costs incurred contract revenue reflected companys sales includes amounts received united states government commercial customers funded research development efforts company provisions made current basis fully recognize anticipated losses contracts significant portion companys product sales relatively small number oems oem sales characterized relatively long product life cycles generally lower gross margins vary throughout product life cycles gross margins typically lower early stages product introduction company achieved sufficient volume sales increase absorption fixed costs addition company may price products aggressively order form new oem relationships introduce new products achieve market penetration company may receive product development funding oem customers could partially mitigate impacts gross margins gross margins oem sales also particularly sensitive changes product customer mix margin variances among individual products relative importance single large sale overall operating results operations following table sets forth periods indicated selected operating data company expressed percentage sales following table sets forth periods indicated companys business segment sales gross profit gross profit percentage business segment sales fiscal 1997 companys total sales increased 205 million 253 1014 million 809 million fiscal 1996 fiscal 1996 sales increased 59 million 79 809 million 750 million fiscal 1995 international sales amounted 126 million fiscal 1997 76 million fiscal 1996 73 million fiscal 1995 increase international sales fiscal 1997 primarily attributable increased international revenues customer funded development power conversion products business segment power conversion products fiscal 1997 power conversion products sales increased 106 million 644 270 million 164 million fiscal 1996 increase primarily attributable higher revenues customer funded ultracapacitor development sales prototype ultracapacitor products potential oem customers evaluation increased sales emi filters implantable medical products increased revenues customer funded development pulsed power purification systems fiscal 1996 power conversion products sales increased 12 million 82 164 million 152 million fiscal 1995 result higher sales certain pulsed power components introduction last half fiscal 1996 companys emi filters implantable medical products increased revenues customer funded development pulsed power purification systems industrial computers subsystems fiscal 1997 industrial computers subsystems sales increased 81 million 311 343 million 261 million fiscal 1996 sales business segment made principally oem customers primarily derived shipment computers subsystems designedin oems products sales increase fiscal 1997 derived increased sales oem customers primarily computer telephony market largest portion increase consisted sales single longstanding oem customer use products nearing conclusion product cycles company currently expect receive orders customer next generation products however companys products recently integrated several new oem products introduced oem customers company believes orders industrial computers subsystems new oem customers largely offset loss sales described sales oems new products achieve levels projected oem company may unable offset expected loss sales fiscal 1996 sales business segment increased 28 million 121 261 million 233 million fiscal 1995 increase also due increased shipments oem customers result design wins new oem products technology programs systems fiscal 1997 sales technology programs systems segment increased 09 million 29 311 million 302 million fiscal 1996 increase primarily attributable revenues new contract highvoltage power supplies department energy accelerator project increased work levels two large multiyear contracts dod increase partially offset absence revenue companys chemical analytical services business sold fourth quarter fiscal 1996 windingdown companys environmental consulting business lower hardware systems sales revenues fiscal 1997 included amounts related closure three dod pulsed power simulation facilities operated company many years san diego closures concluded first half fiscal 1998 underlying contracts dod completed however company subsequently received additional longterm contracts dod including one research nextgeneration pulsed power switch technology xray simulators contracts dod subject periodic government funding provisions level future dod expenditures companys research development area related impact funding companys contracts predictable therefore previously reported results necessarily indicative expected future fiscal 1996 sales business segment decreased 09 million 28 302 million 311 million fiscal 1995 primarily result reduced sales chemical analytical services partially offset increased revenues two multiyear dod contracts information products services fiscal 1997 sales information products services increased 09 million 110 90 million 81 million fiscal 1996 increase primarily reflects greater sales companys jobcost accounting software partially offset decline revenues two large multiyear software development contracts criminal justice information systems cjis contracts work cjis contracts scheduled substantially completed first half fiscal 1998 fiscal 1996 sales business segment increased 27 million 502 81 million 54 million fiscal 1995 principally due revenues attributable commencement work fiscal 1996 one cjis contracts gross profit fiscal 1997 companys gross profit 313 million 309 sales compared 150 million 186 sales fiscal 1996 increase gross profit percentage sales primarily due increased overall sales fiscal 1997 resulting improved overhead absorption improved mix products services particularly power conversion products business segment fiscal 1996 companys gross profit 150 million 186 sales compared 186 million 247 sales fiscal 1995 decreases fiscal 1996 primarily attributable portion 144 million charge taken fiscal 1996 recorded cost sales power conversion products fiscal 1997 power conversion products gross profit increased 63 million 101 million 39 million fiscal 1996 percentage sales gross profit increased 375 fiscal 1997 236 fiscal 1996 increase gross profit percentage sales reflected improved overhead absorption improved mix products services including higher sales emi filters implantable medical devices greater revenues funded research development company introduces ultracapacitor products may offer aggressive pricing gain market penetration would adverse impact gross profit margins company reaches full production volumes fiscal 1996 1995 gross profits business segment consistent 39 million percentage sales gross profit decreased 236 fiscal 1996 258 fiscal 1995 primarily due portion 144 million charge taken fiscal 1996 recorded cost sales industrial computers subsystems fiscal 1997 industrial computers subsystems gross profit increased 39 million 511 115 million 76 million fiscal 1996 percentage sales gross profit increased 337 fiscal 1997 292 fiscal 1996 due increased sales certain higher margin customized oem products improved overhead absorption higher overall sales addition cost sales fiscal 1996 reflected higher inventory writeoffs fiscal 1997 fiscal 1996 gross profit decreased 01 million 16 76 million 78 million fiscal 1995 percentage sales gross profit decreased 292 fiscal 1996 333 fiscal 1995 result higher inventory writeoffs fiscal 1996 impact fiscal 1996 shipments several large competitively bid procurements lower profit margins technology programs systems technology programs systems gross profit 62 million 57 million 62 million fiscal years 1997 1996 1995 respectively percentage sales gross profit remained relatively constant 201 fiscal 1995 187 fiscal 1996 201 fiscal 1997 stability gross profit percentage sales resulted predominance government cost plus contracts business segment see business government business information products services fiscal 1997 information products services gross profit increased 55 million 34 million 22 million fiscal 1996 percentage sales gross profit increased 374 fiscal 1997 266 fiscal 1996 fiscal 1996 company recorded reserves cjis contracts total contract completion costs projected exceed contract value fixed price contracts addition fiscal 1996 reflects writeoff certain capitalized software development costs lesser extent comparative improvement fiscal 1997 attributable increased sales companys higher margin jobcost accounting software products fiscal 1996 gross profit business segment decreased 28 million 22 million 06 million fiscal 1995 percentage sales gross profit decreased 266 fiscal 1996 118 fiscal 1995 reflecting impact fiscal 1996 reserves recorded cjis contracts writeoff certain capitalized software development costs selling general administrative expenses fiscal 1997 companys selling general administrative expenses increased 63 million 407 219 million 156 million fiscal 1996 percentage total sales selling general administrative expenses increased 216 fiscal 1997 193 fiscal 1996 increases attributable primarily increased sales marketing costs principally addition new sales marketing personnel added part companys plan grow commercial businesses commissions earned higher commercial sales fiscal 1997 primarily companys power conversion products industrial computers subsystems business segments ii accruals new incentive profit sharing plans implemented fiscal 1997 iii additions senior management executive business unit levels support companys new strategic direction fiscal 1996 selling general administrative expenses increased 19 million 141 156 million 136 million fiscal 1995 percentage sales selling general administrative expenses increased 193 fiscal 1996 182 fiscal 1995 increases attributable primarily charge fiscal 1996 approximately 15 million environmental matters amounts connection reorganization well higher sales marketing costs support companys commercial business initiatives research development expenses companys research development expenses reflect internally funded research development programs costs associated united states government customer funded research development contracts included cost sales research development expenses 53 million 51 million 50 million fiscal 1997 1996 1995 respectively level research development expenses reflects companys ability obtain customer funding support significant portion research product development activities increased overall sales level however percentage sales research development expenses decreased 52 fiscal 1997 63 fiscal 1996 67 fiscal 1995 interest expense fiscal 1997 interest expense decreased 173000 329000 fiscal 1996 result lower average borrowings fiscal 1996 interest expense remained relatively constant comparison fiscal 1995 othernet fiscal 1997 othernet 150000 compared 398000 fiscal 1996 848000 fiscal 1995 decrease othernet primarily reflects completion april 1996 amortization income amounts contributed minority stockholders upon organization companys purepulse technologies inc subsidiary stockholders proportionate share purepulses equity fiscal 1996 fiscal 1995 othernet included 379000 508000 income respectively none included fiscal 1997 balance othernet three fiscal years principally interest income tax expense company net operating loss carryforwards offset companys provision income taxes fiscal 1997 fiscal 1996 income tax expense primarily due establishment valuation allowance 11 million net deferred income tax assets company due losses incurred fiscal 1996 income tax expense incurred effective rate 36 fiscal 1995 primarily reflects nontaxable status 508000 amortization described liquidity capital resources company historically relied combination internally generated funds bank borrowings finance working capital requirements capital expenditures addition fiscal 1997 company received approximately 25 million exercise stock options purchases stock purchase plans cash flow operations fiscal 1997 29 million net income plus depreciation amortization approximately 66 million partially offset increases accounts receivable inventory support higher fiscal 1997 sales companys capital expenditures fiscal 1997 increased 47 million 20 million fiscal 1996 primarily acquisition production computer equipment assets needed support growth companys business units company currently budgeted capital expenditures 70 million fiscal 1998 support growth including expansion manufacturing facilities emi filter ultracapacitor operations expansion one companys owned buildings addition company addressing need highvolume manufacturing ultracapacitors commitments may made fiscal 1998 toward meeting needs alternatively company may consider leasing facilities manufacturing equipment may satisfy volume manufacturing requirements outsourcing licensing arrangements third parties company decides internally finance construction facilities significant amount capital would required company renegotiated bank line credit fiscal 1997 converting line credit two year unsecured arrangement increasing amount available 100 million interest rate line credit tied libor banks prime rate july 31 1997 outstanding borrowings line credit addition addressing need high volume manufacturing company may also time consider acquisitions complementary businesses products technologies may require additional funding sources additional funding purposes could include one following cash flow operations investments strategic partners additional debt equity financing assurance company able obtain additional sources financing favorable terms time times company may require capital subsidiary option programs company implemented employee stock option plans five principal operating subsidiaries providing issuance incentive nonqualified stock options purchase common stock companies subsidiary option plans intended encourage entrepreneurial atmosphere business segment providing focused rewards promoting growth options inthemoney subsidiary level negative impact companys earnings per share company expects reported diluted earnings per share reduced future quarters due inthemoney subsidiary options except extent exercised however subsidiary options affect companys consolidated net income reported consolidated statement operations options exercised dilute companys actual ownership interests subsidiaries thus reducing companys share net income potential dividends distributions proceeds sale disposition subsidiary equity interests upon exercise stock options subsidiaries would accounted minority interest based current programs dilutive impact attributable option plans could 13 principal operating subsidiary 17 one subsidiary addition certain key employees companys maxwell business systems inc subsidiary information products services business segment currently aggregate 20 right purchase additional 29 subsidiary see risk factors potential dilutive impact employee stock option programs subsidiaries management executive compensation inflation changes prices generally company able increase prices offset inflationrelated increased costs commercial businesses substantial portion companys business agencies united states government consists costreimbursement contracts permit recovery inflation costs fixedprice contracts government customers typically include estimated costs inflation contract price accounting principles february 1997 financial accounting standards board issued statement 128 earnings per share statement 128 company required present basic net income per share excludes effects dilutive common stock equivalents diluted net income per share basic net income per share expected higher currently presented primary net income per share periods positive earnings due exclusion dilutive stock options computation diluted net income per share expected materially different earnings per share amounts would computed current method company required adopt statement 128 fiscal quarter ending january 31 1998 time historical net income per share data presented restated conform provisions statement 128 item 8item 7 managements discussion analysis financial condition results operations overview company applies industryleading capabilities power computing develop market products services customers multiple industries including energy satellite defense telecommunications consumer electronics medical bioprocessing markets november 1999 companys board directors adopted resolution change companys fiscal year calendar year effective january 1 2000 company previously reported results fiscal year august 1 july 31 following discussion includes fivemonth transition period august 1 december 31 1999 short fiscal year previously reported fiscal years ended july 31 1999 1998 1997 see note 1 notes consolidated financial statements short fiscal year company adopted plan restructure operations restructuring plan change fiscal year calendar year effective january 1 2000 restructuring plan consolidates certain commercial business operations improves manufacturing operational capabilities ii focuses defense contracting business pulsed power systems computerbased analysis government national laboratories iii focuses application purebright technology bioprocessing medical consumer water markets iv provides sale certain nonstrategic business operations beginning current fiscal year company combined industrial computer business power quality business company also combined three components businesses powercache ultracapacitors emi filters ceramic capacitor products radiationhardened microelectronics commercial highreliability electronic components group company focused defense contracting business pulsed power systems computerbased analysis government national laboratories maxwells purepulse technologies subsidiary concentrate significant opportunities application purebright technology pathogen inactivation medical bioprocessing markets consumer water applications finally company initiated sale businesses involving high voltage wound film capacitors high voltage power supplies time card job cost accounting software glasstometal seals results operations prior fiscal years restated report businesses discontinued operations february 29 2000 company sold high voltage wound film capacitors high voltage power supplies businesses cash 35 million company generates revenue sale commercial products performing contract research projects united states government customers time company also generates revenue licensing technology rights strategic partners sales marketing companys products united states industrial computers europe handled directly company elsewhere company utilizes sales representatives distributors assist marketing products company conducts marketing programs intended position promote products services including trade shows seminars advertising public relations distribution product literature websites internet companys operating expenses substantially impacted selling general administrative activities research development activities selling expenses primarily driven 1 sales volume respect sales force expenses commission expenses 2 extent market research activities new product design efforts 3 advertising trade show activities 4 number new products launched period general administrative expenses primarily include costs associated companys administrative employees facilities functions company incurs expenses foreign countries primarily functional currencies locations result companys international operations united states dollar amount revenue expenses impacted changes foreign currency exchange rates companys ability maintain grow sales depends variety factors including ability maintain competitive position areas technology performance price brand identity quality reliability distribution customer service support companys sales growth also depends ability continue introduce new products respond technological change market demand timely manner business segments accordance requirements guidelines statement financial accounting standards 131 disclosure segments enterprise related information statement 131 maxwells operations classified business segments connection companys restructuring plan company integrated businesses new operating divisions accordingly company defined four new reporting segments follows prior year segment information restated conform new segmentation power computing systems part restructuring plan company integrating ibus inc phoenix power systems inc subsidiaries ibusphoenix new ibusphoenix operation expand industrial computer product line ibus inc complementary power quality products broaden global reach power quality products part restructuring plan company combining san diego operations two subsidiaries single facility san diego new san diego facility designed highlyefficient manufacturing improved processes improved personnel training disciplined cost control practices company designs manufactures supplies standard custom semicustom industrial computer modules platforms fullyintegrated systems oems worldwide basis companys ibusphoenix product line ranges enclosures cpu boards backplanes fully integrated highly customized computer systems product line primarily employs passive backplane architecture complemented newlyintroduced compactpci line products ibusphoenix power quality products consist power distribution units power conditioners inverters uninterruptible power supplies ups power protection products designed engineered company customer applications primarily medical telecommunications markets electronic components restructuring plan organizes highreliability electronic components group electronic components group within company combining powercache ultracapacitor business sierrakd emi filter ceramic capacitor business space electronics inc sei highreliability radiationhardened microelectronics business businesses involve manufacturing highreliability electronic components based companys core competencies power computing current fiscal year company integrate powercache ultracapacitor business microelectronics components business one manufacturing site san diego emi filters ceramic capacitors continue manufactured companys facility carson city nevada facilities designed highlyefficient manufacturing improved processes improved personnel training disciplined cost control practices components group developing powercache ultracapacitor provide bursts power rapid injection energy required application powercache ultracapacitor scalable manufactured broad range shapes sizes currently company developing ultracapacitors submatchbook size cells measuring 2 x 2 x 6 maintaining high energy storage per unit volume powercache ultracapacitors also linked together modules supply higher power applications automotive power quality systems electronic components group designs manufactures sells line ceramic capacitor filters absorb electromagnetic fields signals generated electronic devices interfere disrupt functioning electronic devices including implantable medical devices pacemakers defibrillators aerospace guidance communications systems products block emi entering electronic device opening used example power leads sensors fiscal year 1999 maxwell acquired sei san diegobased designer manufacturer high reliability radiation hardened microelectronic components assemblies primarily space market sei unit electronic components group provides integrated circuits multichip modules designed adapted space flight high reliability applications space market sei products used satellites experience extreme environmental conditions often radiationintense orbits government systems division maxwell engaged variety research development programs pulsed power pulsed power systems design construction weapons effects simulation services primarily supplied united states government agencies including air force defense threat reduction agency systems division also provides systems services national laboratories industrial defense companies systems division typically performs research development contracts allow company apply developed technology commercial markets sterilization purification systems companys purepulse technologies inc subsidiary purepulse applies purebright intense broad spectrum pulsed light technology kill viruses microorganisms water blood plasma biopharmaceutical medical products medical product packaging material part restructuring plan purepulse pursue purebright applications medical biopharmaceutical consumer water markets purebright applications involving food packaging industrial water applications niche markets medical packaging well applications involving coolpureregistered trademark pulsed electric field technology deemphasized possibly sold licensed maxwell intends seek equity financing directly purepulse finance product development activities operations results operations following table sets forth periods indicated selected operating data company expressed percentage sales following table sets forth sales gross profit gross profit percentage sales companys business segments sales short fiscal year sales continuing operations sales totaled 522 million decrease 36 million 64 total sales 558 million comparable fivemonth period ended december 31 1998 fiscal year 1999 total sales 1537 million increase 303 million 245 1234 million fiscal year 1998 fiscal year 1998 sales increased 215 million 211 1234 million 1019 million fiscal year 1997 international sales totaled 114 million 310 million 194 million 114 million short fiscal year fiscal years 1999 1998 1997 respectively sales short fiscal year lower comparable fivemonth period ended december 31 1998 short fiscal year included revenue sales licenses collaborative agreements 06 million comparable prior period included 48 million revenue sales products increased approximately 2 516 million short fiscal year 507 million comparable prior period sales short fiscal year negatively impacted reduced revenues winddown certain government programs economic issues facing certain customers commercial satellite oil markets expansion companys industrial computer business germany france fiscal year 1999 full year sales fiscal year 1999 companys united kingdom industrial computer operation acquired fiscal year 1998 primary drivers increased international sales fiscal years 1999 1998 sales fiscal years 1999 1998 increased prior fiscal year companys business segments sales within companys business segments discussed power computing systems short fiscal year sales segment totaled 277 million increase 92 million 502 sales 185 million comparable fivemonth period ended december 31 1998 fiscal year 1999 power computing systems sales increased 223 million 519 651 million 428 million fiscal year 1998 domestic sales segment made principally oem customers primarily derived shipment power computing systems designedin oems products last two fiscal years company strengthened international presence acquisition industrial computer businesses united kingdom germany inception operations france european businesses focus lowerpriced standard products emphasis catalog sales increase sales short fiscal year well fiscal year 1999 primarily attributable increase european sales increase sales power quality protection delivery systems following fiscal year 1998 acquisition phoenix power systems inc well new designin wins customized oem products including supply contracts industrial computers approximately 27 million two years two siemens electrocom lp programs united states postal service partially offsetting increases completion second quarter fiscal year 1998 sales single longstanding oem customer multiyear program curtailment end fiscal year 1998 companys program digital equipment corporation due acquisition compaq computers standard product sales accelerated company continues expand presence europe sales large oem programs remain critical element business current marketing strategy company issued product catalogs featuring standard custom product lines dual aim generating direct sales well leads additional oem designin opportunities addition companys recent integration industrial computer power quality businesses improve international sales power quality products services sales oem products achieve levels projected oem projects curtailed due consolidations market conditions company may unable offset loss sales fiscal year 1998 power computing systems sales increased 85 million 250 428 million 343 million fiscal year 1997 sales growth business segment principally derived expansion standard product offerings marketing capabilities acquisitions united kingdombased industrial computer company san diegobased phoenix power specializing power quality conditioning delivery systems although company completed major multiyear program longstanding customer first half fiscal year 1998 new oem designin projects well expansion standard products offset impact major program completed resulting sales growth year electronic components short fiscal year electronic components sales totaled 77 million decrease 86 million 528 sales 163 million comparable fivemonth period ended december 31 1998 decrease sales short fiscal year resulted partly fact revenue received short fiscal year technology licenses collaborative agreements 30 million revenue received prior year comparable period powercache ultracapacitor business area addition revenues customers companys microelectronic components business area commercial satellite market decreased short fiscal year due recent economic issues affecting customers also overstock issues primary medical filter customer weakness oil space markets resulted decrease sales companys emi filters ceramic capacitors business area current fiscal year company expects see improved trends customer market areas fiscal year 1999 electronic components sales increased 18 million 57 346 million 328 million fiscal year 1998 sales emi filter capacitor businesses contributed sales increase business segment fiscal year 1999 company acquired small manufacturer ceramic capacitors used variety high voltage applications including commercial space defense medical equipment business combined another business company makes similar ceramic products different markets growing business filters implantable medical devices combination complementary product lines provided improved efficiencies economies scale companys carson city nevada facility partially offsetting increased product sales revenue licenses collaborative agreements decreased 37 million fiscal year 1999 73 million fiscal year 1998 fiscal year 1998 electronic components sales increased 33 million 111 328 million 295 million fiscal year 1997 nearly product areas contributed sales growth specifically ultracapacitor business area entered new strategic partnering arrangements including marketing technology access rights epcos ag formerly siemens matshusita components pacificorp company also experienced sales growth emi filters implantable medical products aerospace applications government systems sales segment short fiscal year 161 million compared 177 million comparable fivemonth period ended december 31 1998 fiscal year 1999 sales segment increased 36 million 87 446 million 410 million fiscal year 1998 april 1998 company acquired physics international pi primarily governmentfunded pulsed power research simulation business primex technologies pi companys principal competitor simulation area combined businesses consolidate scientific technical research capabilities benefit government companys technology base inclusion revenues pi accounted substantially increase revenue segment fiscal year 1999 compared fiscal year 1998 however increases offset fiscal year 1999 short fiscal year winddown completion several government programs company certain followon contracts levels work new programs less prior periods fiscal year 1998 government systems sales increased 93 million 293 410 million 317 million fiscal year 1997 increase companys core governmentfunded pulsed power research development activities including revenue pi following acquisition substantial portion revenues business segment comes contracts dod agencies us government contracts subject increases decreases well periodic changes government funding provisions additional replacement followon contracts may available awarded company level future government expenditures companys research development areas related impact funding companys contracts therefore predictable previously reported results necessarily indicative expected future sterilization purification systems short fiscal year sales totaled 06 million substantial decrease prior periods prior year revenues consisted primarily fees license agreements key partners several strategic business areas agreements occurred short fiscal year company redefining product strategy market focus segment result expect significant revenue contribution either license fees product sales current fiscal year fiscal year 1999 sterilization purification systems sales increased 26 million 386 94 million 68 million fiscal year 1998 revenues fiscal year 1999 consisted primarily fees license agreements key partners several strategic business areas license agreements included grant two sanyo entities certain nonexclusive rights manufacturing distribution segments products exclusive license agreement johnson vision products inc integration purebright pulsed light sterilization systems manufacturing process contact lenses including onetime license fee ongoing royalties equipment supply arrangement amendment existing license longstanding partner narrowed field exclusivity eliminated certain minimum purchase requirements exchange onetime payment fiscal year 1998 sterilization purification systems sales increased 03 million 47 68 million 65 million fiscal year 1997 gross profit short fiscal year companys gross profit 108 million 207 sales substantial decrease prior years reduced sales volumes specifically decreases high margin revenues licenses collaborative agreements certain writeoffs inventories determined excess obsolete primary reasons reduced gross margins fiscal year 1999 companys gross profit increased 68 million 164 486 million compared 418 million fiscal year 1998 fiscal year 1998 gross profit increased 56 million 154 418 million 362 million fiscal year 1997 percentage sales gross profit 317 fiscal year 1999 compared 339 fiscal year 1998 356 fiscal year 1997 reductions gross margins percentage sales fiscal year 1997 fiscal years 1998 1999 result combination factors including increase revenues sales full systems significant third party content upon lower overall gross profit margins realized decrease high margin development funding technology license fees changes mix products services sold company believes restructuring plan consolidates certain commercial business operations improves manufacturing operational capabilities result improvement gross profit margins achieved company gross profit segment discussed power computing systems short fiscal year power computing systems gross profit totaled 80 million 289 sales compared 56 million 30 sales fivemonth period ended december 31 1998 decrease gross margin percentage sales primarily attributable lower margin mix product sales short fiscal year certain writeoffs excess obsolete inventories fiscal year 1999 power computing systems gross profit increased 58 million 402 204 million 146 million fiscal year 1998 percentage sales gross profit decreased 314 fiscal year 1999 340 fiscal year 1998 decrease primarily due change sales mix fiscal year 1998 included certain higher margin products oem near end life cycle sales fiscal year 1999 addition companys revenues derived contracts include full systems greater third party content upon lower overall gross profit margins realized fiscal year 1998 power computing systems gross profit increased 31 million 262 146 million 115 million fiscal year 1997 percentage sales gross profit increased 340 fiscal year 1998 337 fiscal year 1997 increase gross profit percentage sales primarily result increased sales first half fiscal year 1998 certain highermargin customized oem products longstanding customer program completed second quarter year result completion program well companys entry lowerprice standard product arena gross profit margins higher first half fiscal year 1998 second half business area electronic components gross profit electronic components segment 01 million short fiscal year 19 sales gross profit segment significantly impacted short fiscal year unabsorbed overhead production costs powercache ultracapacitors business area currently startup phase volume production resulting negative gross margins addition business area received contribution short fiscal year high margin revenue licenses collaborative agreements company expects powercache gross margins turn positive improve sales volumes increase business ultracapacitor product sales rampup gross margins continue impacted company reaches full production volumes company currently working programs reduce cost materials automate manufacturing effort reduce production costs however required infrastructure investments continuing made impact gross profit current sales volumes low sales volumes electronic components business areas also contributed reduced gross margins short fiscal year addition emi filter ceramic capacitors sei microelectronics business areas recorded charges short fiscal year writeoff certain slow moving excess inventories also impacting gross margins fiscal year 1999 electronic components gross profit decreased 27 million 114 million 141 million fiscal year 1998 percentage sales gross profit decreased 330 fiscal year 1999 432 fiscal year 1998 decrease gross profit primarily reflects decrease high margin development funding technology license fees 37 million also reflects lower margin mix products services decrease also reflects changes companys pricing strategies response competitive pressures continues improve penetration various markets fiscal year 1998 gross profit decreased 14 million 141 million 155 million fiscal year 1997 gross margin percentage sales decreased 432 1998 525 fiscal year 1997 decrease gross profit primarily reflects lower margins received large program sei government systems short fiscal year gross profit 37 million 227 revenues compared 30 million 169 sales fivemonth period ended december 31 1998 gross profit percentage sales fivemonth period ended december 31 1998 negatively impacted poor absorption fixed overhead costs prior adjustment later fiscal year 1999 rates billable government segment fiscal year 1999 government systems gross profit increased 13 million 136 109 million 96 million fiscal year 1998 percentage sales gross profit increased 244 fiscal year 1999 234 fiscal year 1998 primary factors increase gross profit fiscal year 1999 compared fiscal year 1998 full year contribution revenues gross margins pi following acquisition april 1998 fiscal year 1998 government systems gross profit 96 million 64 million fiscal year 1997 percentage sales gross profit increased 234 fiscal year 1998 201 fiscal year 1997 increase gross profit dollar amount percentage sales fiscal year 1998 compared fiscal year 1997 relates acquisition pi well commercial contract pulsed power systems fiscal year 1998 contract substantially complete end fiscal year 1998 sterilization purification systems low sales volume short fiscal year gross profit sterilization purification systems segment loss 10 million reflecting unabsorbed fixed costs fiscal year 1999 sterilization purification systems gross profit increased 24 million 59 million 35 million fiscal year 1998 percentage sales gross profit increased 628 fiscal year 1999 521 fiscal year 1998 fiscal year 1998 gross profit increased 35 million 521 28 million 440 sales fiscal year 1997 increase gross profit dollars percentage sales reflects substantial portion high margin revenues license activities fiscal year 1999 compared fiscal year 1998 fiscal year 1998 compared fiscal year 1997 fiscal year 1998 company substantially completed multiyear lowmargin research program us army revenues program replaced fiscal year 1999 fiscal year 1998 higher margin commercial licensing developmental programs selling general administrative expenses short fiscal year selling general administrative expenses approximately 164 million 315 sales compared 141 million 254 sales fivemonth period ended december 31 1998 increase expenses primarily support companys growth fiscal year 1999 continuing expansion europe power computing systems business segment short fiscal year also includes 750000 severance costs related companys former ceo discussed company adopted restructuring plan short fiscal year includes certain facility consolidations costsaving programs implemented current fiscal year fiscal year 1999 companys selling general administrative expenses increased 77 million 289 344 million 267 million fiscal year 1998 207 million fiscal year 1997 percentage total sales selling general administrative expenses increased 224 fiscal year 1999 216 fiscal year 1998 203 fiscal year 1997 increase expenses primarily support companys sales growth including businesses acquired fiscal years 1999 1998 addition company made certain investments related administrative infrastructure administrative sales support increased expenses percentage sales research development expenses companys research development expenses reflect internally funded research development programs costs associated research development contracts funded united states government customers included cost sales research development expenses 35 million 79 million 74 million 41 million short fiscal year fiscal years 1999 1998 1997 respectively percentage sales research development expenses 66 fivemonth period ended december 1999 51 fiscal year 1999 61 fiscal year 1998 40 fiscal year 1997 level research development expenses reflects part companys ability obtain customer funding support portion research product development activities increase amount internally funded research development percentage sales short fiscal year reflects increased emphasis development new commercial product areas restructuring acquisition charges connection restructuring plan company undertaken various actions improve cost structure company result company recorded restructuring related charges short fiscal year totaling approximately 50 million charges primarily include severance costs related reduction work force closure combination certain facilities writeoff nonperforming operating assets company expects record additional restructuringrelated charges next three fiscal quarters company completes restructuring plan finalizes consolidation integration operations related facilities fiscal year 1999 company recorded restructuring acquisition charges approximately 31 million charges approximately 16 million consisted direct acquisition costs business combinations accounted using poolingofinterests method remaining 15 million charge consists primarily amounts provided revised estimates costs resolve certain environmental legal contingencies occurred prior years well restructuring provisions including employee facility expenses related decisions made july 1999 reduce certain administrative infrastructure company europe united states company recorded 63 million charge fiscal year 1998 related acquisition three businesses including transaction costs business combination accounted poolingofinterest appraised amount acquired inprocess research development two business combinations accounted purchases interest expense interest expense 112000 404000 338000 220000 short fiscal year fiscal years 1999 1998 1997 respectively increase interest expense last two fiscal years result higher average borrowing preceding year due primarily increase debt assumed company various businesses acquired 1999 1998 december 31 1999 company amounts outstanding bank lineofcredit interest income net interest income net consisting primarily interest income 17000 647000 1471000 238000 short fiscal year fiscal years 1999 1998 1997 respectively decrease interest income reflects lower average cash balances short fiscal year fiscal year 1999 fiscal year 1998 company received proceeds approximately 47 million followon offering common stock cash proceeds substantially used company fund growth operations acquisitions fiscal years 1999 1998 provision credit income taxes credit income taxes short fiscal year includes credit 55 million primarily representing deferred income tax benefits temporary differences tax loss carryforwards deferred income tax credit partially offset approximately 600000 certain foreign state income tax expense future years company provide income taxes approximating applicable statutory rates although cash payments taxes substantially lower near term remaining tax loss carryforwards utilized fiscal year 1999 credit income taxes includes credit 59 million representing reversal valuation allowance provided previous years certain deferred tax benefits valuation allowance reversed based companys determination become likely deferred tax benefits realized future deferred income tax credit partially offset approximately 500000 certain foreign state income tax expense companys fiscal year 1998 1997 provisions income taxes relate primarily taxes businesses acquired fiscal year 1999 using poolingofinterests method minority interest net income loss subsidiaries minority interest net income loss subsidiaries 548000 short fiscal year 427000 80000 54000 fiscal years 1999 1998 1997 respectively current period loss results loss short fiscal year incurred companys minority owned subsidiaries primarily sterilization purification systems segment income loss continuing operations result factors mentioned income loss continuing operations 81 million short fiscal year compared 87 million fiscal year 1999 21 million fiscal year 1998 100 fiscal year 1997 discontinued operations previously discussed company adopted plan divest high voltage wound film capacitors high voltage power supplies time card job cost accounting software glasstometal seals businesses connection decision sell businesses company recorded pretax charges 47 million including provisions 38 million estimated losses sale businesses 09 million severance costs involuntary employee terminations provisions contractual employment obligations continuing benefit february 29 2000 company sold high voltage wound capacitors high voltage power supplies businesses cash 35 million approximately net book value net assets sold date anticipated disposal remaining businesses expected occur end second quarter calendar year 2000 liquidity capital resources company historically relied combination internally generated funds bank borrowings finance working capital requirements capital expenditures addition two recent full fiscal years company received approximately 23 million exercise stock options purchases employee stock purchase plans fiscal year 1998 company completed followon public offering 15 million shares common stock generating net proceeds approximately 47 million portion proceeds used repay outstanding bank loans approximately 12 million cash used fiscal year 1998 acquisitions remaining proceeds used fiscal years 1998 1999 fund growth including additional working capital requirements cash provided continuing operations short fiscal year approximately 400000 compared uses cash operations 78 million 60 million fiscal years 1999 1998 respectively fiscal year 1997 cash 41 million provided continuing operations short fiscal year operating losses offset decreases operating assets primarily accounts receivable fiscal years 1999 1998 use cash primarily attributable increases accounts receivable due acquired businesses support increased sales fiscal year 1999 companys capital expenditures short fiscal year fiscal years 1999 1998 1997 20 million 74 million 61 million 44 million respectively related primarily production capital assets needed support growth companys business units company ordered additional equipment volume manufacturing ultracapacitors existing facility manufacture emi filter capacitors newly expanded carson city nevada manufacturing site addition company incur expenditures connection design construction new facilities newlyintegrated commercial divisions company may also consider leasing facilities manufacturing equipment may satisfy highvolume manufacturing requirements outsourcing licensing arrangements third parties company decides internally finance construction additional facilities significant amount capital may required company also incur cash expenditures current fiscal year connection completing restructuring plan company believes funds onhand together cash generated operations cash expected received divestiture certain businesses funds available bank lineofcredit sufficient finance restructuring plan operations capital expenditures current fiscal year addition addressing manufacturing requirements company may also timetotime consider acquisitions complementary businesses products technologies may require additional funding sources additional funding purposes could include one following cash equivalents shortterm investments hand cash flow operations borrowings existing bank lineofcredit investments strategic partners additional debt equity financings assurance company able obtain additional sources financing favorable terms time times company may require capital maxwell unsecured bank lineofcredit 200 million company borrowings outstanding december 31 1999 inflation changes prices generally company able increase prices offset inflationrelated increased costs commercial businesses substantial portion companys business agencies united states government consists costreimbursement contracts permit recovery inflation costs fixedprice contracts government customers typically include estimated costs inflation contract price software compatibility year 2000 date processing prior years company discussed nature progress plans become year 2000 ready late 1999 company completed year 2000 information systems compliance program including remediation testing systems development contingency plan result planning implementation efforts company experienced significant disruptions mission critical information technology noninformation technology systems believes systems successfully responded year 2000 date change company incurred costs approximately 15 million connection year 2000 information systems compliance program including 01 million incurred short fiscal year company aware material problems resulting year 2000 issues either products internal systems products services third parties company continue monitor mission critical computer applications suppliers vendors throughout year 2000 ensure latent year 2000 matters may arise promptly addressed forwardlooking statements extent discussion goes beyond historical information indicates results developments company plans expects achieve forwardlooking statements identified use terms expected anticipates believes plans like readers cautioned future results uncertain could affected variety factors could cause actual results differ expected differences could material company undertakes obligation revise forwardlooking statements reflect future events circumstances readers referred companys risk factor section 10k detailed discussion certain factors new accounting pronouncements june 1998 financial accounting standards board issued statement 133 accounting derivative instruments hedging activities required adopted years beginning june 15 2000 companys minimal use derivatives management anticipate adoption new statement significant effect earnings financial position company december 1999 sec issued staff accounting bulletin 101 revenue recognition financial statements sab 101 among guidance clarifies certain conditions met order recognize revenue sab 101 requires companies necessary restate previously reported financial statements comply new guidance company currently evaluating impact adoption sab 101 results operations financial position item 7aitem 7 managements discussion analysis financial condition results operations overview apply industryleading capabilities power computing develop commercialize electronic components power computing systems oem customers multiple industries including transportation telecommunications consumer industrial electronics medical aerospace december 1999 adopted plan restructure operations restructuring plan consolidated certain commercial business operations improved manufacturing operational capabilities focused defense contracting business pulsed power systems computerbased analysis government national laboratories focused application purebright broadspectrum pulsed light technology bioprocessing medical consumer water markets provided sale certain nonstrategic business operations goal restructuring plan create productdriven highgrowth company improve operating results fourth quarter calendar year 2000 since january 2000 recruited 50 key managers extensive commercial experience engineering manufacturing material procurement supply chain management information technology financial controls sales marketing also invested 11 million build outfit stateoftheart production facilities including information technology infrastructure implement new manufacturing business processes systems increase production capacity improve efficiency product quality experienced significant change early part 2000 part efforts achieve objectives restructuring plan schedule made significant progress essentially completed facilities organizational consolidation program october 2000 part restructuring plan combined high reliability electronic components businesses including powercache ultracapacitors emi filtered feedthroughs ceramic capacitor products radiationshielded microelectronics single commercial high reliability electronic components group also combined applied computing systems business power quality systems business focused defense contracting business pulsed power systems computerbased analysis government national laboratories expect sell part business end march 2001 focused purepulse significant opportunities application purebright technology pathogen inactivation medical bioprocessing markets consumer water applications exploring strategic alternatives purepulse expect result sale majority interest business 2001 finally calendar year 2000 sold businesses involving high voltage wound film capacitors high voltage power supplies time card job cost accounting software financial information contained form 10k restated periods presented reflect defense contracting purepulse businesses well businesses divested 2000 discontinued operations electronic components group ibusphoenix power computing systems business generate revenues continuing operations currently investing purepulse operations develop broadspectrum pulsed light pathogen inactivation systems investment continue time complete strategic transaction business generate substantially revenue continuing operations sale commercial products time also generate revenue licensing technology rights strategic partners sales marketing products united states europe asia conducted direct indirect sales channels conduct marketing programs intended position promote products including trade shows seminars advertising public relations distribution product literature websites internet ability maintain grow sales depends variety factors including ability maintain competitive position areas technology performance price brand identity quality reliability distribution customer service support sales growth also depends ability continue introduce new products respond technological change competitive pricing pressure market demand timely manner operating expenses impacted research product development selling general administrative activities selling expenses primarily driven sales volume respect sales force expenses commission expenses extent market research activities new product design efforts advertising trade show activities number new products launched period general administrative expenses primarily include costs associated administrative employees facilities functions incur expenses foreign countries primarily functional currencies locations result international operations changes foreign currency exchange rates impact united states dollar amount revenue expenses 1999 changed fiscal year calendar year effective january 1 2000 previously reported results fiscal year august 1 july 31 business segments continuing operations comprised following two business segments electronic components group part restructuring plan organized electronic components group combining numerous business units product lines including powercache ultracapacitors emi filtered feedthroughs ceramic capacitors radiationshielded microelectronics october 2000 integrated powercache ultracapacitor operations radiationshielded microelectronics operations one new manufacturing site san diego emi filters ceramic capacitors manufactured facility carson city nevada redesigned 2000 facilities designed highly efficient manufacturing improved processes improved personnel training disciplined cost control practices electronic components group consists primarily following power delivery high reliability devices product lines ultracapacitors electrical energy storage delivery peak power variety applications emi filtered feedthroughs cardiac pacemakers defibrillators implantable medical devices high temperature ceramic capacitors filters used oil exploration radiationshielded microelectronics including integrated circuits power modules single board computers space military markets ibusphoenix power computing systems part restructuring plan integrated ibus inc phoenix power systems inc subsidiaries ibusphoenix organization operations us europe asia new ibusphoenix operation focused providing high availability custom computing systems power quality products part restructuring plan combined san diego operations two businesses single facility october 2000 new facility designed highly efficient manufacturing improved processes improved personnel training disciplined cost control practices current ibusphoenix product offerings include applied computing systems power distribution systems power conditioning units sell products mainly oems serving telecommunications internet infrastructure industrial automation broadcasting medical imaging markets classified following business segment discontinued operation financial reporting purposes purepulse designs develops systems generate extremely intense broadspectrum pulsed light inactivate viruses pathogens contaminate products sourced human animal tissues plasma derivatives transfusion blood components biopharmaceuticals production vaccines purepulse also developing systems purify water exploring strategic alternatives purepulse expect result sale majority interest business 2001 results operations comparison discussion results operations three months ended december 31 2000 three months ended september 30 2000 following table sets forth selected data expressed percentage sales three months ended december 31 2000 compared three months ended september 30 2000 three months ended december 31 2000 first quarter operations new facilities following completion restructuring plan following table sets forth sales gross profit loss gross profit percentage sales business segments following completion restructuring plan achieved significantly higher sales continuing operations improved operating results three months ended december 31 2000 fourth quarter compared three months ended september 30 2000 third quarter discussion improved quarterly results continuing operations follows sales fourth quarter 274 million reflecting 57 million 266 increase sales 217 million third quarter sales fourth quarter ibusphoenix power computing systems segment increased 21 million 157 sales third quarter driven primarily increased sales power quality products made possible increased manufacturing capacity available new facility expect sales segment continue increase 2001 reflecting contribution sales products acquired connection acquisition gateworks corporation well contribution sales new applied computing products first introduced first quarter 2001 expect introduce additional applied computing products 2001 sales fourth quarter electronic components group segment increased 37 million 435 sales third quarter representing increased sales product lines electronic components group segment increase sales largely attributable increased production capacity business areas new redesigned facilities sales powercache ultracapacitors also increased due shipments made fourth quarter connection supply agreement allison transmission division general motors corporation gross profit fourth quarter gross profit 67 million 244 sales compared 10 million 48 sales third quarter improvement gross profit attributable partly increased sales volume fourth quarter partly fact 21 million valuation adjustments inventories costs goods sold variances power quality product lines ibusphoenix recorded cost sales third quarter recur fourth quarter addition wrote certain inventories third quarter related decisions made discontinue certain product lines also higher margin mix product sales fourth quarter microelectronics product lines electronic components group segment began realize gross margin benefits reduced overhead expenses fourth quarter 2000 began occupy new redesigned manufacturing facilities selling general administrative expenses fourth quarter selling general administrative expenses decreased 18 million 266 50 million 68 million third quarter percentage total sales expenses decreased 182 fourth quarter 314 third quarter primarily due increase sales volume expenses fourth quarter reflect certain yearend adjustments accrued expenses reduced total selling general administrative expenses continuing focus opportunities decrease selling general administrative expenses expect level expenses future quarters closely approximate amount expenses third quarter research development expenses research development expenses reflect internally funded research development programs research development expenses 26 million 96 sales fourth quarter compared 23 million 108 sales third quarter increased level spending research development accelerate new product introductions expect level spending remain increased levels percentage sales future periods restructuring acquisition charges connection restructuring plan undertook various actions improve cost structure result recorded restructuring related charges 23 million third quarter charges included severance costs related reductions headcount costs associated closure combination certain facilities writeoff nonperforming operating assets third quarter also recorded charge 48 million reduce carrying value goodwill related 1998 acquisition phoenix power systems inc amount representative current appraised value asset also third quarter recorded charge 05 million related inprocess technology acquired connection acquisition gateworks corporation september 2000 completed facilities organizational consolidation program started part restructuring plan therefore record additional charges related restructuring plan fourth quarter expect incur additional charges future operating loss result factors mentioned operating loss 09 million fourth quarter compared operating loss 156 million third quarter excluding restructuring acquisition charges operating loss 09 million fourth quarter compared 81 million third quarter comparison discussion results operations years ended december 31 2000 1999 five months ended december 31 1999 fiscal years ended july 31 1999 1998 following table sets forth periods indicated selected operating data expressed percentage sales following table sets forth sales gross profit gross profit percentage sales continuing business segments sales continuing operations year ended december 31 2000 1023 million reflecting 13 million 12 decrease sales 1036 million year ended december 31 1999 decrease sales prior year primarily result conclusion major ibusphoenix supply agreement current year well elimination revenue licensing strategic transactions made contribution revenue prior year offset increases sales current year electronic components group segment major supply agreement contributed sales 86 million year ended december 31 2000 compared sales 193 million 1999 sales year ended december 31 1999 included contributions licensing strategic transactions 10 million contributed sales revenue current year excluding sales major supply agreement licensing strategic transactions sales year ended december 31 2000 937 million 104 million 125 increase sales 833 million year ended december 31 1999 five months ended december 31 1999 sales totaled 369 million fiscal year ended july 31 1999 total sales 1029 million increase 249 million 319 780 million fiscal year 1998 sales five months ended december 31 1999 negatively impacted reduced revenues licensing strategic transactions economic issues facing certain customers commercial satellite oil markets sales fiscal year ended july 31 1999 increased fiscal year ended july 31 1998 business segments sales customers outside united states totaled 258 million 253 million calendar years ended december 31 2000 1999 respectively 107 million 240 million 148 million five months ended december 31 1999 fiscal years ended july 31 1999 1998 respectively expansion applied computing business germany france contribution sales united kingdom applied computing operation acquired fiscal year 1998 primary drivers increased foreign sales beginning fiscal year ended july 31 1999 sales within continuing business segments follows electronic components group year ended december 31 2000 sales electronic components group segment increased 98 million 334 391 million 293 million year ended december 31 1999 sales increased product lines electronic components group segment 2000 including 69 million increase sales microelectronics product lines customers commercial satellite market sales powercache ultracapacitor product lines also increased 2000 despite 10 million decrease revenue received technology license agreements due primarily shipments made fourth quarter connection supply agreement allison transmission division general motors corporation five months ended december 31 1999 electronic components group sales totaled 91 million representing lower average monthly sales volumes achieved fiscal year ended july 31 1999 decrease sales five months ended december 31 1999 partly attributable fact revenue received five months ended december 31 1999 technology licenses collaborative agreements 37 million revenue received fiscal year ended july 31 1999 powercache ultracapacitor product lines addition revenues customers microelectronic components product lines commercial satellite market decreased five months ended december 31 1999 due economic issues affecting customers also overstock issues primary filtered feedthrough customer weakness oil space markets resulted decreased sales filtered feedthroughs ceramic capacitors late 1999 fiscal year ended july 31 1999 electronic components group sales increased 26 million 378 million 352 million fiscal year ended july 31 1998 sales filtered feedthroughs ceramic capacitors contributed sales increase due partly acquisition small manufacturer ceramic capacitors used variety highvoltage applications including commercial space defense medical equipment combined ceramic capacitor product lines carson city nevada facility partially offsetting increased product sales revenue licenses collaborative agreements decreased 37 million fiscal year ended july 31 1999 73 million fiscal year ended july 31 1998 ibusphoenix power computing systems year ended december 31 2000 ibusphoenix sales decreased 111 million 149 632 million sales 743 million year ended december 31 1999 year ended december 31 2000 foreign sales represented 34 total sales segment compared 32 year ended december 31 1999 domestic sales segment made principally oem customers primarily derived shipment power computing systems designedin oems products beginning 1998 strengthened international presence segment acquisition applied computing businesses england germany inception operations france date european businesses focused primarily lowerpriced standard products decrease sales year ended december 31 2000 primarily attributable decline revenues oem supply agreement siemens electrocom lp united states postal service concluded third quarter 2000 winding 2000 supply agreement contributed sales 86 million year ended december 31 2000 compared sales 193 million 1999 excluding sales supply agreement sales segment 2000 546 million approximately sales 550 million 1999 excluding major supply agreement sales decreased applied computing product lines segment current year due primarily phaseout certain marginal older technology product lines without comparable contribution current year new products introduced beginning first quarter 2001 offsetting reduced applied computing sales within power quality product lines segment increased current year five months ended december 31 1999 sales segment totaled 277 million fiscal year ended july 31 1999 ibusphoenix sales increased 223 million 519 651 million 428 million fiscal year ended july 31 1998 increase sales fiscal year ended july 31 1999 partly attributable increase european sales due expansion applied computing businesses germany france contribution sales united kingdom applied computing operation acquired fiscal year ended july 31 1998 addition sales increased fiscal year ended july 31 1999 segments power quality product lines following february 1998 acquisition phoenix power systems inc applied computing product lines due new designin wins customized oem products including major supply agreement siemens electrocom lp united states postal service partially offsetting increases completion second quarter fiscal year ended july 31 1998 sales single longstanding oem customer multiyear program curtailment end fiscal year ended july 31 1998 program digital equipment corporation due acquisition compaq computers segment market certain standard products segment continues expand presence europe sales large oem programs remain critical element business current enhancement marketing strategy engaged network independent sales representatives united states certain territories outside united states dual aim generating direct sales well leads additional oem designin opportunities addition recent integration applied computing power quality businesses improve international sales power quality products services providing access segments existing international sales channels product lines sales oem products achieve levels projected oem projects curtailed due consolidations market conditions may unable offset loss sales gross profit year ended december 31 2000 gross profit 229 million 223 sales compared 291 million 281 sales year ended december 31 1999 gross profit gross profit percentage sales negatively impacted year ended december 31 2000 reduced sales volume year primarily third quarter 2000 inadequate fully absorb fixed manufacturing costs addition reduced gross profit current year reflects costs incurred current year connection training personnel improved manufacturing processes certain writeoffs inventories related discontinued product lines deemed excess obsolete five months ended december 31 1999 gross profit 85 million 232 sales substantial decrease prior years reduced sales volumes decreases high margin revenues licenses collaborative agreements certain writeoffs inventories determined excess obsolete primary reasons reduced gross margins five months ended december 31 1999 fiscal year ended july 31 1999 gross profit increased 34 million 115 328 million compared 294 million fiscal year ended july 31 1998 percentage sales gross profit 319 fiscal year ended july 31 1999 compared 377 fiscal year ended july 31 1998 reductions gross margins percentage sales fiscal year ended july 31 1998 fiscal year ended july 31 1999 resulted combination factors including increase revenues sales applied computing systems significant third party content upon lower overall gross profit margins realized decrease high margin development funding technology license fees changes mix products services sold believe improved manufacturing operational capabilities obtained completion restructuring plan october 2000 result improved gross margins future periods gross profit within continuing business segments follows electronic components group year ended december 31 2000 gross profit electronic components group segment increased 49 million 787 111 million 62 million year ended december 31 1999 percentage sales gross profit improved 285 current year 213 prior year increase gross profit current year result increased sales volume improved cost structure primarily microelectronics powercache product lines offset reduction gross margins associated revenue licenses collaborative agreements costs incurred connection training personnel improved manufacturing processes certain writeoffs inventories related discontinued product lines deemed excess obsolete increase gross profit percentage sales also reflects increased sales volume impact process cost improvements business segment powercache ultracapacitor product line continue make required infrastructure investments negatively impact gross profit current sales volumes although gross margins improved powercache business margins continue reduce overall gross margins electronic components group segment gross profit electronic components group segment 05 million five months ended december 31 1999 59 sales gross profit segment significantly impacted five months ended december 31 1999 unabsorbed overhead production costs powercache ultracapacitor business area startup phase volume production resulting negative gross margins addition business area received contribution five months ended december 31 1999 high margin revenue licenses collaborative agreements low sales volumes electronic components group business areas also contributed reduced gross margins five months ended december 31 1999 addition charges recorded filtered feedthrough ceramic capacitors microelectronics product lines five months ended december 31 1999 writeoff certain inventories deemed excess obsolete also impacting gross margins fiscal year ended july 31 1999 electronic components group gross profit decreased 25 million 124 million 149 million fiscal year ended july 31 1998 percentage sales gross profit decreased 329 fiscal year 1999 423 fiscal year 1998 decrease gross profit primarily reflected decrease high margin development funding technology license fees 37 million also reflected lower margin mix products services decrease also reflected changes pricing strategies response competitive pressures continued improve penetration various markets ibusphoenix power computing systems year ended december 31 2000 ibusphoenix gross profit decreased 111 million 487 117 million 228 million year ended december 31 1999 percentage sales gross profit decreased 186 current year compared 308 year ended december 31 1999 decrease gross profit primarily attributable impact reduced sales volume segment current year addition segment experienced change product mix include higher proportion lowermargin power quality products compared higher margin applied computing solutions reduced gross profit current year also reflects costs incurred current year connection training personnel improved manufacturing processes certain writeoffs inventories related discontinued product lines deemed excess obsolete five months ended december 31 1999 ibusphoenix gross profit totaled 80 million 289 sales representing decrease gross margin percentage sales prior periods decrease primarily attributable lower margin mix product sales five months ended december 31 1999 certain writeoffs excess obsolete inventories fiscal year ended july 31 1999 ibusphoenix gross profit increased 58 million 402 204 million 146 million fiscal year ended july 31 1998 percentage sales gross profit decreased 314 fiscal year ended july 31 1999 340 fiscal year ended july 31 1998 decrease primarily due change sales mix fiscal year ended july 31 1998 included certain higher margin products near end life cycle sales fiscal year ended july 31 1999 addition higher proportion revenues fiscal year ended july 31 1999 derived contracts include applied computing systems greater third party content upon lower overall gross profit margins realized selling general administrative expenses year ended december 31 2000 selling general administrative expenses decreased 12 million 47 263 million 275 million year ended december 31 1999 percentage total sales expenses decreased 257 year ended december 31 2000 265 year ended december 31 1999 continuing focus opportunities decrease selling general administrative expenses five months ended december 31 1999 selling general administrative expenses approximately 122 million 331 sales increase expenses primarily support continuing growth continuing expansion europe ibusphoenix five months ended december 31 1999 also included 750000 severance costs related former ceo fiscal year ended july 31 1999 selling general administrative expenses increased 72 million 379 261 million 189 million fiscal year ended july 31 1998 percentage total sales selling general administrative expenses increased 253 fiscal year ended july 31 1999 242 fiscal year ended july 31 1998 increase expenses primarily support sales growth including businesses acquired fiscal years ended 1999 1998 addition made certain investments related administrative infrastructure administrative sales support increased expenses percentage sales research development expenses research development expenses reflect internally funded research development programs research development expenses 87 million 85 sales first three years ended december 31 2000 compared 64 million 62 sales year ended december 31 1999 increased level spending research development accelerate new product introductions expect level spending remain increased levels future periods research development expenses 26 million 68 million 58 million five months ended december 31 1999 fiscal years ended july 31 1999 1998 respectively percentage sales research development expenses 71 five months ended december 31 1999 66 fiscal year ended july 31 1999 75 fiscal year ended july 31 1998 restructuring acquisition charges connection restructuring plan undertook various actions improve cost structure result recorded restructuring related charges 39 million first three quarters year ended december 31 2000 charges included severance costs related reductions personnel costs associated closure combination certain facilities writeoff nonperforming operating assets completed facilities organizational consolidation program started part restructuring plan expect record additional charges related restructuring plan three months ended september 30 2000 also recorded charge 48 million reduce carrying value goodwill related 1998 acquisition phoenix power systems inc amount representative current appraised value asset also three months ended september 30 2000 recorded charge 05 million related inprocess technology acquired connection acquisition gateworks corporation september 2000 also recorded restructuring related charges connection restructuring plan five months ended december 31 1999 totaling approximately 28 million fiscal year ended july 31 1999 recorded restructuring acquisition charges approximately 26 million charges approximately 16 million consisted direct acquisition costs business combinations accounted using poolingofinterests method remaining 10 million charge consisted primarily amounts provided revised estimates costs resolve certain environmental legal contingencies occurred prior years well restructuring provisions including employee facility expenses related decisions made july 1999 reduce certain administrative infrastructure europe united states recorded 39 million charge fiscal year ended july 31 1998 related acquisition two businesses including transaction costs business combination accounted poolingofinterest appraised amount acquired inprocess research development business combination accounted purchase interest expense interest expense increased 14 million year ended december 31 2000 03 million prior year increased interest expense relates higher borrowing levels current year compared prior year december 31 2000 227 million outstanding bank lineofcredit expect borrowings related interest expense decrease second quarter 2001 following sale defense contracting business end march 2001 proceeds used repay debt interest expense 112000 404000 338000 five months ended december 31 1999 fiscal years ended july 31 1999 1998 respectively interest income net interest income net consisting primarily interest income foreign currency transaction gains losses gains losses dispositions fixed assets 9000 year ended december 31 2000 501000 year ended december 31 1999 interest income decreased reflecting lower average cash balances year ended december 31 2000 interest income net 29000 565000 13 million five months ended december 31 1999 fiscal years ended july 31 1999 1998 respectively decrease interest income reflects lower average cash balances five months ended december 31 1999 fiscal year ended july 31 1999 fiscal year ended july 31 1998 received proceeds approximately 47 million followon offering common stock cash proceeds used fund growth operations acquisitions december 31 1999 provision credit income taxes credit income taxes year ended december 31 2000 reflects expected worldwide tax rate current fiscal year effective tax rate reduced fact tax credit provided 48 million charge recorded reduce carrying value goodwill since amount never deductible tax purposes future years continue provide income taxes approximating applicable statutory rates although cash payments taxes substantially lower nearterm tax loss carryforwards utilized net deferred tax assets approximately 246 million december 31 2000 relate primarily net operating loss carryforwards expect use result expected gains dispositions discontinued operations future income operations year ended december 31 1999 credit income taxes included credit 43 million representing reversal valuation allowance provided previous years certain deferred tax benefits valuation allowance reversed based determination become likely deferred tax benefits realized future deferred income tax credit partially offset certain foreign state income tax expense credit income taxes five months ended december 31 1999 reflected expected worldwide tax rate period credit income taxes fiscal year ended july 31 1999 includes credit 43 million discussed representing reversal valuation allowance provided previous years certain deferred tax benefits provision income taxes fiscal year ended july 31 1998 related primarily taxes businesses acquired fiscal year ended july 31 1999 using poolingofinterests method minority interest net income loss subsidiaries minority interest net income loss subsidiaries 181000 year ended december 31 2000 4000 year ended december 31 1999 reduction net loss results losses incurred minorityowned subsidiaries minority interest net income loss subsidiaries material five months ended december 31 1999 fiscal years ended july 31 1999 1998 income loss continuing operations result factors mentioned income loss continuing operations 163 million 46000 years ended december 31 2000 1999 respectively result factors mentioned income loss continuing operations 58 million five months ended december 31 1999 compared 39 million 14 million fiscal years ended july 31 1999 1998 respectively discontinued operations connection restructuring plan divested three businesses 2000 high voltage wound film capacitors high voltage power supplies time card job cost accounting software businesses february 2000 sold high voltage wound film capacitors high voltage power supplies businesses cash 35 million approximately book value net assets sold date addition buyer assumed certain liabilities businesses including longterm lease facility businesses occupied extended 2006 annual rent approximately 05 million november 2000 sold time card job cost accounting software business cash 25 million shares common stock buyer immaterial value fourth quarter 2000 also received cash approximately 07 million related equity investment unconsolidated entity classified discontinued operation december 1999 recorded provisions approximately 21 million net tax estimated losses sale discontinued businesses based actual proceeds received net assets discontinued businesses respective dates sale reversed provisions estimated december 1999 recorded aggregate gain sales 29 million net tax including reversal late 2000 decided focus electronic components group ibusphoenix businesses accordingly late 2000 offered sale defense contracting business signed letters intent sell business separate transactions two buyers transactions expected completed march 31 2001 also seeking strategic alternatives purepulse business expect result sale majority business 2001 accordingly defense contracting business purepulse classified discontinued operations financial reporting purposes see note 10 consolidated financial statements included elsewhere form 10k income loss operations discontinued businesses 29 million year ended december 31 2000 compared 18 million year ended december 31 1999 52 million 71 million 31 million five months ended december 31 1999 fiscal years ended july 31 1999 1998 respectively income operations discontinued businesses year ended december 31 1999 fiscal year ended july 31 1999 includes 17 million tax credit representing reversal income tax valuation allowance provided previous years certain deferred tax assets liquidity capital resources historically relied combination cash hand internally generated funds proceeds sales stock bank borrowings finance working capital requirements capital expenditures fiscal year ended july 31 1998 received cash 471 million connection public offering stock addition fiscal years ended july 31 1999 december 31 2000 received approximately 17 million 29 million respectively exercise stock options purchases employee stock purchase plans cash used continuing operations year ended december 31 2000 approximately 153 million compared 130 million year ended december 31 1999 current year use cash primarily attributable operating losses cash expenditures connection completing restructuring plan certain increases working capital expenditures years ended december 31 2000 1999 118 million 52 million respectively capital expenditures 2000 include approximately 89 million related design construction remodeling outfitting manufacturing facilities remaining expenditures relate primarily capital assets needed support growth ordered additional equipment volume manufacturing ultracapacitors manufacture emi filter capacitors may also consider leasing facilities manufacturing equipment may satisfy highvolume manufacturing requirements outsourcing licensing arrangements third parties decide construct additional facilities purchase highvolume manufacturing equipment significant amount capital may required year ended december 31 2000 also received cash 60 million connection sales businesses used cash 45 million connection payment earnout obligation related 1998 acquisition 500000 cash paid connection september 2000 acquisition gateworks corporation cash used continuing operations five months ended december 31 1999 approximately 35 million compared 134 million 18 million fiscal years 1999 1998 respectively five months ended december 31 1999 operating losses partially offset decreases operating assets primarily accounts receivable fiscal years ended july 31 1999 1998 use cash primarily attributable increases accounts receivable inventories due acquired businesses support increased sales capital expenditures five months ended december 31 1999 fiscal years ended july 31 1999 1998 16 million 55 million 46 million respectively related primarily production capital assets needed support growth business units believe funds hand together cash generated operations cash expected received divestiture certain businesses funds available bank credit agreement sufficient finance operations capital expenditures 2001 well finance remaining payments required connection restructuring plan addition addressing manufacturing requirements may also timetotime consider acquisitions complementary businesses products technologies may require additional funding sources additional funding purposes could include cash equivalents cash flow operations borrowings existing bank credit agreement additional debt equity financings assurance able obtain additional sources financing favorable terms time times may require capital borrowings 227 million outstanding bank credit agreement december 31 2000 bank repaid full proceeds new bank credit agreement old agreement terminated effective february 26 2001 bank debt reduced following sale defense contracting business expected completed march 31 2001 new bank credit agreement february 2001 us subsidiaries entered loan security agreement comerica bank california agreement consists 150 million term loan revolving credit facility term loan due earlier june 15 2001 date complete sale defense contracting business sell part business proceeds less necessary repay term loan must make partial payment term loan term loan bears interest banks reference rate plus 150 fail repay term loan june 15 2001 must grant comerica bank security interest real property need negotiate bank new due date payment schedule terms assurance able negotiate terms favorable basis current borrowing availability revolving credit facility determined borrowing base consisting portion accounts receivable inventory total availability exceed 150 million sell defense contracting business repay term loan profit one fiscal quarter availability revolving credit facility 150 million longer determined borrowing base amounts borrowed revolving loans bear interest option either banks reference rate plus 10 libor rate plus 30 may prepay revolving loans time amounts borrowed due may 30 2002 march 15 2001 150 million outstanding term loan 100 million outstanding revolving facility bank credit facility contains financial covenants certain restrictions ability sell assets engage mergers acquisitions incur additional indebtedness pay dividends common stock date form 10k compliance required covenants bank credit facility secured assets united states except real property pledge twothirds stock certain foreign subsidiaries minority equity interests subsidiaries subsidiary option programs electronic components group ibusphoenix purepulse minority equity investors former strategic partners associated relationships established past former shareholders companies acquired using subsidiaries stock former current employees exercised stock options entities december 31 2000 minority investors owned outstanding shares approximately 51 electronic components group 63 ibusphoenix 193 percent purepulse addition subsidiary employee stock option plan permits issuance incentive nonqualified stock options purchase subsidiary common stock option programs ibusphoenix purepulse active electronic components group program active although options issued previously remain outstanding mid2000 key employees ibusphoenix purepulse eligible option grants respective subsidiary plans eligible grants parent company level key parent company electronic components group employees eligible option grants parent company level subsidiaries option plans intended encourage entrepreneurial atmosphere business segment providing focused incentives appreciate equity value business options inthemoney subsidiary level negative impact earnings per share expect report diluted earnings per share future quarters due inthemoney subsidiary options except extent exercised however subsidiary options affect consolidated net income reported consolidated statement operations options exercised dilute actual ownership interest subsidiaries thus reducing share net income potential dividends distributions proceeds sale disposition subsidiary equity interest upon exercise stock options subsidiaries accounted minority interest december 31 2000 potential percentage ownership interest attributable exercisable subsidiary options diluted basis approximately 3 electronic components group 3 percent ibusphoenix 5 purepulse inflation changes prices generally able increase prices offset inflationrelated increased costs commercial businesses conversion euro currency january 1 1999 certain member countries european union established fixed conversion rates existing currencies european unions common currency euro transition period introduction euro ends june 30 2002 issues face result introduction euro include converting information technology systems reassessing currency risk negotiating amending licensing agreements contracts processing tax accounting records addressing issues expect conversion euro material effect financial condition results operations forwardlooking statements extent discussion goes beyond historical information indicates results developments plan expect achieve forwardlooking statements identified use terms expected anticipates believes plans like readers cautioned future results uncertain could affected variety factors could cause actual results differ expected differences could material undertake obligation revise forwardlooking statements reflect future events circumstances referred risk factors section form 10k detailed discussion certain factors new accounting pronouncements june 1998 financial accounting standards board issued statement 133 accounting derivative instruments hedging activities later amended statement nos 137 138 required adopt beginning january 1 2001 statement 133 requires us recognize derivatives either assets liabilities measured fair value accounting changes fair value derivative depends use derivative make minimal use derivatives hedges anticipate adoption statement 133 significant effect results operations financial position december 1999 sec issued staff accounting bulletin 101 revenue recognition financial statements sab 101 provides guidance applying generally accepted accounting principles revenue recognition financial statements adoption sab 101 current fiscal year material effect financial statements march 2000 fasb issued fasb interpretation 44 accounting certain transactions involving stock compensation fin 44 clarifies certain issues application accounting principles board opinion 25 accounting stock issued employees fin 44 effective july 1 2000 certain provisions cover specific events occur either december 15 1998 january 12 2000 adoption fin 44 material impact financial statements item 7aitem 7 managements discussion analysis financial condition results operations overview apply industryleading capabilities power computing develop commercialize electronic components power computing systems oem customers multiple industries including transportation telecommunications consumer industrial electronics medical aerospace december 1999 adopted plan restructure operations goal restructuring plan create focused productdriven highgrowth company since hired 50 key managers extensive commercial experience engineering manufacturing material procurement supply chain management information technology financial controls sales marketing invested 18 million build outfit stateoftheart production facilities implement new manufacturing business processes systems including information technology infrastructure erp system addition rebuilding industrial capabilities infrastructure maxwell increased 2000 2001 investment research development change expand dramatically companys products toward proprietary highermargin power computing products began introducing new products end 2001 currently focused marketing sales initiatives around new products see business description item 1 discussion new products part restructuring plan calendar year 2000 sold businesses involving high voltage wound film capacitors high voltage power supplies time card job cost accounting software also decided sell defense contracting business seek strategic alternatives purepulse business defense contracting business sold march 2001 company plans sell spinoff purepulse business 2002 entities reflected discontinued operations financial statements continuing operations comprised two business segments electronic components ibusphoenix power computing systems generate substantially revenue continuing operations sale commercial products 1999 changed fiscal year calendar year effective january 1 2000 previously reported results fiscal year august 1 july 31 business segments continuing operations comprised following two business segments electronic components group part restructuring plan organized electronic components group combining numerous business units product lines including powercache ultracapacitors emi filtered feedthroughs ceramic capacitors radiationshielded microelectronics october 2000 integrated powercache ultracapacitor operations radiationshielded microelectronics operations one new manufacturing site san diego designed highly efficient manufacturing improved processes improved personnel training disciplined cost control practices emi filtered feedthroughs ceramic capacitors business sierra kd sierra located carson city nevada sold june 2001 electronic components group currently includes following power delivery high reliability devices product lines •ultracapacitors electrical energy storage delivery peak power variety applications •radiationshielded microelectronics including integrated circuits power modules single board computers space military markets •testing equipment accelerated life testing rf components used environments requiring extremely high reliability ibusphoenix power computing systems part restructuring plan integrated ibus inc phoenix power systems inc subsidiaries ibusphoenix organization operations us europe ibusphoenix focused providing high availability custom computing systems power quality products part restructuring plan combined san diego operations two businesses single facility october 2000 new facility designed highly efficient manufacturing improved processes improved personnel training disciplined cost control practices december 2001 operations great britain moved new facility initiated plans consolidate standard product assembly europe facility current ibusphoenix product offerings include applied computing systems power distribution systems power conditioning units sell products mainly oems serving telecommunications internet infrastructure industrial automation broadcasting medical imaging markets purepulse classified purepulse business segment discontinued operation financial reporting purposes purepulse designs develops systems generate extremely intense broadspectrum pulsed light inactivate viruses pathogens contaminate products sourced human animal tissues plasma derivatives transfusion blood components biopharmaceuticals production vaccines purepulse also developing systems purify water december 2000 management identified government systems purepulse operations part companys strategic focus future adopted plan subsequently approved board directors january 2001 completed end 2001 sell government systems division either sell majority purepulse first sold government systems division two transactions march april 2001 turned attention selling purepulse timing effort coincided economy going recession dramatic downturn public private equity markets negative impact economy financial markets terrorist attacks september 11 2001 result poor market conditions 2001 unable secure transaction acceptable terms however 2001 purepulse improved business prospects developing inflow system utilizing broad spectrum pulsed light technology developing additional positive clinical data supporting safety efficacy technology securing numerous customer relationships entering strategic alliance culligan international corporation develop commercialize systems purify drinking water based progress business plus improvements economy financial markets company currently pursuing financing strategic partners private individuals believe provide adequate financing allow maxwell technologies spinoff share ownership purepulse maxwell shareholders currently pursuing steps necessary spinoff share ownership purepulse maxwell investors soon practical end 2002 also continue explore possible sale maxwells share ownership purepulse critical accounting policies consolidated financial statements prepared accordance accounting principles generally accepted us requires company make estimates assumptions company believes significant accounting policies following may involve higher degree judgment complexity management assumptions conclusions areas may significantly impact results operations company revenue recognition current year substantially revenue derived sale manufactured products directly customers revenue recognized time product shipped general offer discounts right return however prior years certain continuing discontinued segments recorded revenue longterm shortterm fixed price contracts cost plus contracts us government directly prime contractor revenues including estimated profits recognized costs incurred included provisions anticipated losses contracts subject rate audits could result additional revenues additional losses excess estimated provisions accounts receivable establish maintain customer credit limits based credit checks analyses creditworthiness payment history accounts receivable consist primarily amounts due us normal business activities maintain allowance doubtful accounts reflect expected bad debts based past collection history specific risks identified portfolio excess obsolete inventory value inventories lower cost market assessing ultimate realization inventories make judgments future demand requirements compare current committed inventory levels recorded significant changes reserves recent periods due changes market conditions possible changes reserves may required due changing market conditions judgments ultimate realization may incorrect impairment goodwill assessing recoverability goodwill must make assumptions regarding estimated future cash flows factors determine fair value respective assets addition periodically complete independent appraisals business segments compare fair value carrying value estimates related assumptions change future may required record impairment charges valuation allowance deferred tax assets valuation allowance provided deferred tax assets likely items either expire company able realize benefit future deductibility uncertain general companies recent history operating losses faced difficult burden proof ability generate sufficient future income within next two years order realize benefit deferred tax assets 2001 company determined appropriate record valuation allowance deferred tax assets based recent history losses deferred tax assets still available company use future offset taxable income would result recognition tax benefit reduction companys effective tax rate discontinued operations estimated costs associated sale business determining net gain sale businesses included discontinued operations made judgments liability associated lease obligations making judgments assessed commercial real estate markets several locations made estimates able either sublease terminate buy lease obligations changes markets may impact estimates results operations comparison discussion results operations three months ended september 30 2001 three months ended december 31 2001 sales gross profit sales fourth quarter 154 million reflecting 04 million 3 increase third quarter gross profit percentage sales increased 4 14 sales fourth quarter electronic components group segment increased 28 million 71 due mainly shipments components certain customers involved making satellites gross profit gross profit percentage sales increased higher revenue improved mix electronic components group relatively low variable costs revenue increases generate significant incremental margin sales fourth quarter ibusphoenix power computing systems segment decreased 24 million 22 due 15 million lower sales power products used making medical imaging equipment lower computing systems sales mainly europe gross profit gross profit percentage sales also decreased lower sales operating expenses operating expenses decreased fourth quarter 03 million 4 79 million 82 million third quarter due mainly lower research development expenses operating loss result factors mentioned operating loss 56 million fourth quarter compared operating loss 76 million third quarter comparison discussion results operations fiscal year ended july 31 1999 five months ended december 31 1999 years ended december 31 1999 2000 2001 unaudited sales gross profit electronic components group year ended december 31 2001 sales electronic components segment decreased 95 million 24 296 million 391 million year ended december 31 2000 46 million decrease due sale sierra completed june 2001 sales decreased 36 million 24 million microelectronics ultracapacitor product lines respectively due early year slowness commercial satellite market delays adopting powercache products automotive consumer electronics markets year ended december 31 2001 gross profit decreased 66 million 59 46 million 111 million year ended december 31 2001 percentage sales gross profit decreased 15 current year 28 prior year sale sierra accounted 13 million decrease balance decrease resulted lower microelectronics ultracapacitor sales startup costs associated making prototype rf component testing products year ended december 31 2000 sales electronic components segment increased 98 million 33 391 million 293 million year ended december 31 1999 sales increased product lines 2000 including 69 million increase sales microelectronics product lines customers commercial satellite market sales powercache ultracapacitor product lines also increased 2000 despite 10 million decrease revenue received technology license agreements due primarily shipments made fourth quarter allison transmission division general motors corporation year ended december 31 2000 gross profit increased 49 million 79 111 million 62 million year ended december 31 1999 percentage sales gross profit improved 29 2000 21 prior year increase gross profit result increased sales volume improved cost structure primarily microelectronics powercache product lines offset reduction gross margins associated revenue licenses collaborative agreements costs incurred connection training personnel improved manufacturing processes certain writeoffs inventories related discontinued product lines deemed excess obsolete increase gross profit percentage sales also reflects increased sales volume impact process cost improvements business segment ibusphoenix power computing systems year ended december 31 2001 ibusphoenix sales decreased 15 million 24 482 million sales 632 million year ended december 31 2000 decrease sales year ended december 31 2001 primarily attributable conclusion several major oem supply agreements computing products replaced new followon agreements accounted 12 million decrease addition poor market conditions telecommunications sector us europe accounted another 12 million decrease offsetting reduced applied computing sales nonproprietary buildtoprint power quality products primarily ge medical increased 10 million current year ended december 31 2001 gross profit decreased 5 million 43 67 million 117 million year ended december 31 2000 percentage sales gross profit decreased 14 current year compared 19 year ended december 31 2000 decrease gross profit primarily attributable impact reduced sales volume segment current year addition segment experienced change product mix include higher proportion lowermargin nonproprietary buildtoprint power quality products compared higher margin proprietary power quality applied computing products year ended december 31 2000 ibusphoenix sales decreased 111 million 15 632 million sales 743 million year ended december 31 1999 year ended december 31 2000 foreign sales represented 34 total sales segment compared 32 year ended december 31 1999 domestic sales segment made principally oem customers primarily derived shipment power computing systems designedin oems products decrease sales year ended december 31 2000 primarily attributable decline revenues oem supply agreement computing products siemens electrocom lp united states postal service concluded third quarter 2000 winding 2000 supply agreement contributed sales 86 million year ended december 31 2000 compared sales 193 million 1999 excluding sales supply agreement sales segment 2000 546 million approximately sales 550 million 1999 excluding major supply agreement sales decreased applied computing product lines segment 2000 due primarily phaseout certain marginal older technology product lines without comparable contribution new products introduced beginning first quarter 2001 offsetting reduced applied computing sales within power quality product lines segment increased year ended december 31 2000 ibusphoenix gross profit decreased 111 million 487 117 million 228 million year ended december 31 1999 percentage sales gross profit decreased 186 current year compared 308 year ended december 31 1999 decrease gross profit primarily attributable impact reduced sales volume segment current year addition segment experienced change product mix include higher proportion lowermargin power quality products compared higher margin applied computing solutions reduced gross profit current year also reflects costs incurred current year connection training personnel improved manufacturing processes certain writeoffs inventories related discontinued product lines deemed excess obsolete selling general administrative expenses 2001 completed implementation erp system allowed us combine separate finance hr purchasing groups corporate service groups supporting maxwells operating divisions annual cost savings estimated 2 million impact 2002 addition overhead savings believe groups provide better support year ended december 31 2001 selling general administrative expenses decreased 26 million 10 237 million 263 million year ended december 31 2000 percentage total sales selling general administrative expenses increased 30 year ended december 31 2001 26 year ended december 31 2000 decrease expenses primarily due sale sierra year ended december 31 2000 selling general administrative expenses decreased 12 million 5 263 million 275 million year ended december 31 1999 percentage total sales expenses decreased 26 year ended december 31 2000 27 year ended december 31 1999 year ended december 31 1999 included 750000 severance cost related former ceo research development expenses research development expenses reflect internally funded research development programs expect research development expenses continue levels comparable 2001 order continue development proprietary technology based power computing products research development expenses 115 million 15 sales year ended december 31 2001 compared 87 million 9 sales year ended december 31 2000 increased level spending accelerate new product introductions expect remain level future periods although selectively added upgraded certain key engineering positions increase attributable materials agency fees third party costs research development expenses 87 million 9 sales year ended december 31 2000 compared 64 million 6 sales year ended december 31 1999 increased level spending research development accelerate new product introductions restructuring charges recorded restructuring related charges 39 million first three quarters year ended december 31 2000 charges included severance costs related reductions personnel costs associated closure combination certain facilities writeoff nonperforming operating assets completed facilities organizational consolidations program 2000 three months ended september 30 2000 also recorded charge 48 million reduce carrying value goodwill related 1998 acquisition phoenix power systems inc amount representative current appraised value asset also three months ended september 30 2000 recorded charge 05 million related inprocess technology acquired connection acquisition gateworks corporation september 2000 also recorded restructuring related charges connection restructuring plan five months ended december 31 1999 totaling approximately 28 million gain sale business june 2001 sold certain assets emi filtered feedthroughs ceramic capacitors business sierra wilson greatbatch cash 469 million recorded gain 391 million interest expense interest expense decreased 12 million year ended december 31 2001 14 million prior year decreased interest expense relates lower borrowing levels second half current year company repaid outstanding obligations bank line credit proceeds sale sierra government systems division interest expense increased 14 million year ended december 31 2000 03 million prior year increased interest expense relates higher borrowing levels compared prior year december 31 2000 228 million outstanding bank lineofcredit interest income net interest income net consisting primarily interest income foreign currency transaction gains losses gains losses dispositions fixed assets 634000 year ended december 31 2001 9000 year ended december 31 2000 change due mainly cash available investments december 2001 recorded reserve 500000 investment common stock private company based assessment current fair market value provision credit income taxes 2001 tax provision reflects reduction deferred tax assets within continuing operations 36 million increase valuation allowance 188 million fully reserve deferred tax assets companys 2001 loss operations results cumulative loss position last three years accordance generally accepted accounting principles realization companys net deferred tax assets met likely threshold accordingly fourth quarter valuation allowance recorded fully reserve cumulative deferred tax assets recorded december 31 2001we net deferred tax assets approximately 188 million december 31 2001 relate primarily net operating loss carryforwards tax credits credit income taxes year ended december 31 2000 reflected expected worldwide tax rate year effective tax rate reduced fact tax credit provided 48 million charge recorded reduce carrying value goodwill since amount never deductible tax purposes year ended december 31 1999 credit income taxes included credit 43 million representing reversal valuation allowance provided previous years certain deferred tax benefits deferred income tax credit partially offset certain foreign state income tax expense minority interest net income loss subsidiaries minority interest net loss subsidiaries 710000 year ended december 31 2001 181000 year ended december 31 2000 reduction net loss resulted losses incurred majorityowned subsidiaries allocated based ownership percentage minority shareholders discontinued operations loss discontinued operations 47 million year ended december 31 2001 compared loss 26000 year ended december 31 2000 discontinued operations comprised government systems division purepulse subsidiary well businesses divested 2000 loss comprised unaudited march 2001 sold government systems division cash recorded gain 11 million net 28 million provision mainly related going lease obligations net lease obligations 74 million run april 2006 income loss operations discontinued businesses 58 million year ended december 31 2001 compared 29 million year ended december 31 2000 included loss 2001 charge tax provision 25 million recording valuation allowance february 2000 sold high voltage wound film capacitors high voltage power supplies businesses cash 35 million approximately book value net assets sold date addition buyer assumed certain liabilities businesses including longterm lease facility businesses occupied extended 2006 annual rent approximately 05 million november 2000 sold time card job cost accounting software business cash 25 million shares common stock buyer immaterial value fourth quarter 2000 also received cash approximately 07 million related equity investment unconsolidated entity classified discontinued operation december 1999 recorded provisions approximately 21 million net tax estimated losses sale discontinued businesses based actual proceeds received net assets discontinued businesses respective dates sale reversed provisions estimated december 1999 recorded aggregate gain sales 29 million net tax including reversal income loss operations discontinued businesses 29 million year ended december 31 2000 compared 18 million year ended december 31 1999 52 million 71 million five months ended december 31 1999 fiscal year ended july 31 1999 respectively income operations discontinued businesses year ended december 31 1999 fiscal year ended july 31 1999 includes 17 million tax credit representing reversal income tax valuation allowance provided previous years certain deferred tax assets liquidity capital resources cash used operating activities year ended december 31 2001 approximately 173 million compared 153 million year ended december 31 2000 current year use cash primarily attributable operating losses capital expenditures years ended december 31 2001 2000 62 million 118 million respectively year ended december 31 2001 received 469 million 207 million cash connection sale sierra government systems division respectively funds used pay debt fund continuing discontinued operations believe funds hand together cash generated operations funds available bank credit agreement sufficient finance continuing operations discontinued operations capital expenditures 2002 however may require additional finances fund losses may timetotime consider acquisitions complementary businesses products technologies may require additional funding sources additional funding purposes could include borrowings existing bank credit agreement additional debt equity financings sales businesses assurance able obtain additional sources financing favorable terms time times may require capital new bank credit agreement us based operations borrowings 6 million outstanding bank credit agreement december 31 2001 compared 228 end 2000 february 2001 united states subsidiaries entered loan security agreement comerica bankcalifornia subsequently amended december 2001 agreement amended consists 6 million term loan secured deed trust well certain collateral 5 million revolving credit facility term loan bears interest option banks reference rate plus 5 cost funds plus 225 principal amortized monthly 20 years balance due december 31 2004 may prepay term loan revolving loans time amounts borrowed due december 31 2004 december 31 2001 6 million outstanding term loan none outstanding revolving facility filing date form 10k compliance required covenants minority equity interests subsidiaries subsidiary option programs electronic components group ibusphoenix purepulse minority equity investors former strategic partners associated relationships established past former shareholders companies acquired using subsidiaries stock former current employees exercised stock options entities december 31 2001 minority investors owned outstanding shares approximately 54 electronic components group 65 ibusphoenix 152 purepulse addition subsidiary employee stock option plan permits issuance incentive nonqualified stock options purchase subsidiary common stock january 2002 adopted plan complete merger transactions electronic components group subsidiary ibusphoenix subsidiary whereby minority shareholdings options converted shares options maxwell technologies upon completion mergers would result issuance 06 million common shares maxwell technologies 05 million options purchase common shares maxwell technologies february 2002 pacificorp energy ventures inc largest minority shareholder electronic components group exchanged preferred shares electronic components group 05 million common shares maxwell technologies pursuant right original investment agreement december 31 2001 potential percentage ownership interest attributable exercisable subsidiary options diluted basis approximately 46 purepulse inflation changes prices generally able increase prices offset inflationrelated increased costs commercial businesses forwardlooking statements extent discussion goes beyond historical information indicates results developments plan expect achieve forwardlooking statements identified use terms expected anticipates believes plans like readers cautioned future results uncertain could affected variety factors could cause actual results differ expected differences could material undertake obligation revise forwardlooking statements reflect future events circumstances referred risk factors section form 10k detailed discussion certain factors new accounting pronouncements july 2001 financial accounting standards board issued statements financial accounting standards 141 business combinations fas 141 142 goodwill intangible assets fas 142 fas 141 requires business combinations initiated june 30 2001 accounted using purchase method fas 142 goodwill intangible assets indefinite lives longer amortized reviewed annually frequently impairment indicators arise impairment separable intangible assets deemed indefinite lives continue amortized useful lives maximum life amortization provisions fas 142 apply immediately goodwill intangible assets acquired june 30 2001 companies required adopt fas 142 fiscal years beginning december 15 2001 accordingly company adopt fas 142 january 1 2002 connection adoption fas 142 company required perform transitional goodwill impairment assessment company currently evaluating effect adoption provisions fas 142 results operations financial position august 2001 fasb issued sfas 144 accounting impairment disposal longlived assets sfas 144 addresses financial accounting reporting impairment disposal longlived assets sfas 144 supersedes sfas 121 retains sfas 121s fundamental provisions recognition measurement impairment longlived assets held used measurement longlived assets disposed sale sfas 144 also supersedes accounting reporting provisions accounting principles board apb opinion 30 segments business disposed retains apb opinion 30s requirement report discontinued operations separately continuing operations extends reporting component entity either disposed classified held sale sfas 144 became effective company beginning january 1 2002 adoption sfas 144 january 1 2002 material impact companys financial position results operations item 7aitem 7 management’s discussion analysis financial condition results operations overview 2000 2001 converted maxwell primarily engineering physics services company us military governmental customers product driven commercial enterprise predominantly commercial opposed military governmental customers conversion involved hiring new personnel restructure divestiture businesses building outfitting new factories development introduction new products beginning end 2001 continuing 2002 target telecommunications markets ibus computing systems business microelectronics business collapsed timeframe experienced longer cycle expected getting ultracapacitors designed end products end products go commercial production negative market forces impacted us time completing rebuild conversion company product driven commercial enterprise result cost structure production capacity well excess immediate revenue opportunities responded tightly focusing strategy product lines around high reliability products second half 2002 initiated series steps intensify focus strategy exit nonstrategic businesses • july 2002 acquired montena components swiss manufacturer marketer ultracapacitors high voltage capacitors battery capacitor winding equipment acquisition brought maxwell additional power business focused high reliability components additional design production capabilities enhance maxwell’s profile reliable global supplier montena components located rossens switzerland near major automotive industrial development manufacturing centers germany france italy • september 2002 suspended operations purepulse technologies subsidiary developing pulsedlight purification systems preserving purepulse’s intellectual property possible future sale • september 2002 sold computing systems business ibusphoenix subsidiary although business strategic focus high reliabilityhigh availability computer servers markets systems particularly telecommunications deteriorated dramatically concluded nearterm growth prospects computing systems business limited • september 2002 sold noncore teknaseal glasstometal seals business cash also december 2002 sold small power factor correction product line fit high reliability strategy • third quarter 2002 began integrating power systems business ibusphoenix electronic components group current power systems products address high reliability power quality requirements medical imaging industrial automation systems oem customers new power system products scheduled introduction 2003 incorporate ultracapacitor proprietary power electronics technologies address high reliability backup power applications industrial market • early 2003 completed integration relocation power systems business principal manufacturing facility san diego california vacated listed sale companyowned facility formerly housed north american operations ibusphoenix consolidation allows efficient use remaining facilities personnel sale vacated facility provide company additional cash resources • also early 2003 formed ultracapacitor manufacturing marketing alliance china yeonglong technologies co ltd 200 million per annum manufacturer electrolytic capacitors commercialize proprietary boostcap ultracapacitors china position us global supplier ultracapacitors production facilities us europe china completion actions virtually maxwell’s revenue derived sale power microelectronic products winding equipment company’s internal operations concentrated two primary facilities one san diego california rossens switzerland business segments acquisition montena components dispositions ibus computing systems business teknaseal glasstometal seals business completed third fourth quarters 2002 company’s businesses organized two segments high reliability segment winding equipment segment high reliability segment contains high reliability power microelectronic products currently include • ultracapacitors electrical energy storage delivery peak power variety applications • high voltage grading coupling capacitors used electric utility infrastructure high voltage laboratories applications involving transport distribution measurement high voltage electrical energy • power distribution conditioning modules integration larger medical imaging industrial systems delivery consistent high quality power • radiationshielded microelectronics including power modules memory modules single board computers aerospace military applications winding equipment segment makes winding machines automated assembly lines used manufacture metalized film capacitors lithium batteries prior sale computing systems business end third quarter 2002 company’s ibusphoenix power computing systems segment designed manufactured marketed applied computing systems power distribution power conditioning systems mainly oems serving telecommunications industrial automation broadcasting medical imaging markets power distribution conditioning systems part high reliability segment restated ibus computing systems segment consists computing business sold september 2002 june 2001 company sold substantially assets except accounts receivable liabilities business operations sierra kd components business carson city nevada “sierra” sierra manufactured commercialized ceramic filter capacitors wire feedthroughs implantable medical devices ceramic capacitors aerospace commercial applications september 30 2002 company sold non core teknaseal glasstometal seals business minneapolis minnesota businesses previously reported part former electronic components segment classified segment reporting purposes called sierra teknaseal segment results operations sales consolidated sales 2002 58 million decrease 199 million 26 2001 sharp declines sale telecommunications equipment continued weakness satellite industrial markets served company negatively impacted reported results sales increased acquisition montena components july 2002 contributing approximately 8 million revenue remainder 2002 decreased due primarily impact sales declines markets mentioned divestitures ibus computing systems teknaseal september 2002 excluding acquisition divestitures 2002 sales decreased 74 million 19 compared lines business 2001 primarily due decrease sales power products medical imaging market 2001 consolidated sales 779 million 245 million 24 2000 ibus computing systems sales declined 248 million 51 due conclusion computer supply contract siemens electrocom weakness industrial telecommunications markets sales declined 46 million due divestiture sierra june 2001 excluding sales ibus computing systems sierra sales increased 49 million 12 due primarily strong demand 2001 power systems medical imaging market segment sales 2002 vs maxwell high reliability year ended december 31 2002 sales increased 07 million 2 401 million 394 million year ended december 31 2001 acquisition montena components july 2002 contributed 81 million increase modest increases microelectronics boostcap ultracapacitors offset decrease sales power products medical imaging market outlook 2003 expect yeartoyear revenue growth 2003 compared 2002 led significant growth ultracapacitor revenues increased ultracapacitor revenues partially offset expected decline revenues high reliability products expect decline power systems revenue transition product mix high margin proprietary designs away low margin buildtoprint systems supply low margin build print power system products ge medical systems decided source products affiliates companies located low cost countries result expect record significantly lower future sales ge medical systems revenues high voltage capacitors microelectronics expected decline 2003 compared 2002 anticipated weakness utility infrastructure separately satellite industries winding equipment sixmonth period purchase montena july 2002 ending december 31 2002 sales 36 million outlook 2003 believe compared annualized 2002 revenues 2003 revenues grow due expected increased demand winding machines used produce metalized thin film capacitors lithium batteries ibus computing systems year ended december 31 2002 sales decreased 131 million 54 11 million 241 million year ended december 31 2001 sold ibus computing systems september 2002 computing systems business focused high reliability high availability computers markets systems particularly telecommunications deteriorated dramatically year negatively impacted results operations sierra teknaseal year ended december 31 2002 sales decreased 111 million 77 33 million 144 million year ended december 31 2001 due primarily sale sierra june 2001 teknaseal business september 2002 segment sales 2001 vs 2000 maxwell high reliability year ended december 31 2001 sales increased 39 million 11 394 million 355 million year ended december 31 2000 power product sales increased 98 million mainly medical imaging market offset decreases microelectronics ultracapacitors due decline commercial satellite market primarily related deterioration telecommunications delays adoption ultracapacitors automotive consumer electronics markets ibus computing systems year ended december 31 2001 sales decreased 248 million 51 241 million 489 million year ended december 31 2000 decreases due primarily conclusion computer supply contract siemens electrocom weakness industrial telecommunications markets sierra teknaseal year ended december 31 2001 sales decreased 36 million 20 144 million 18 million year ended december 31 2000 due primarily sale sierra june 2001 although revenues teknaseal increased 1 million increase offset reduced revenue result sale sierra june 2001 total costs expenses cost sales 511 million 2002 decrease 23 2001 cost sales 666 million compared 802 million 2000 cost sales percent net sales 88 86 78 2002 2001 2000 respectively gross profit margins negatively impacted downturn general economy particular telecommunications equipment satellite industrial markets served company resulted inventory charges excess obsolete inventory underutilized production facilities outlook 2003 second half 2002 significantly reduced fixed production costs primarily consolidating us production one facility san diego also reallocated resources improve quality cycle times yields reduce material costs expect gross margins improve quarter 2003 result initiatives improved revenue mix selling general administrative sga expenses 181 million 2002 decrease 19 2001 sga 225 million compared 257 million 2000 sga percent net sales 31 29 25 2002 2001 2000 respectively although dramatically reduced sga costs improved efficiencies response market conditions sga percent sales increased lower product revenues research development rd expenses 84 million 2002 decrease 27 mainly attributable reductions sale ibus computing systems 2001 rd 115 million compared 87 million 2000 rd percent net sales 15 9 2002 2001 2000 respectively outlook 2003 sga plus rd totaled approximately 5 million completed fourth quarter 2002 although increase rd funding boostcap ultracapacitors new products energy storage modules contain boostcap ultracapacitors expect total spending sga rd quarterly basis comparable fourth quarter 2002 acquisitions divestitures restructuring july 2002 acquired montena components provider ultracapacitors high voltage capacitors oem customers automated winding equipment used produce capacitors lithium batteries 3 million cash 225 million common shares maxwell acquisition brought additional high reliability power business focused ultracapacitors high voltage capacitors additional design production capabilities enhance profile reliable global supplier net gain loss sale businesses 65 million 2002 391 million 2001 september 2002 sold ibus computing systems business 70 million debt certain consideration order position business sale incurred 15 million restructuring charges related mainly severance also incurred 76 million charges related goodwill impairment asset writedowns related business loss disposition totaled 70 million fully reserved note due risks collectability september 2002 also sold noncore teknaseal glasstometal seals business 55 million cash 1 million held escrow account expected released company ratably next four calendar quarters approximately 04 million 55 million proceeds payable certain former employees teknaseal recorded net gain 02 million fourth quarter 2002 expect record additional gains funds released us escrow june 2001 sold sierra business 469 million cash company retained accounts receivable acquisition date amounted 25 million recorded net pretax gain 391 million 2001 restructuring charges 16 million 2002 23 million 2000 2002 restructuring charges related mainly restructuring ibus computing systems actions position business sale first half 2002 ibusphoenix introduced new applied computing products developed 2001 however market applied computing products particularly telecommunications deteriorated throughout 2002 company responded poor market conditions computing systems capital goods restructuring ibusphoenix june 2002 company began implementing restructuring plan recorded restructuring charges 07 million addition company also determined certain components inventory adversely impacted accordingly company recorded inventory charge 30 million certain excess obsolete raw material components finished goods charge included cost sales third fiscal quarter 2002 company decided sell applied computing business ibusphoenix new company organized former ibusphoenix senior managers preparation sale configure ibusphoenix computing business selfsupporting ibusphoenix consolidated production applied computing products facility tangmere united kingdom reduced worldwide personnel result plan company recorded additional restructuring charges 09 million quarter ended september 2002 unpaid restructuring balance 04 million december 31 2002 expected paid first quarter 2003 1999 2000 company undertaken various actions consolidate facilities reduce cost structure result company recorded restructuring 23 million charges year ended december 31 2000 charges include severance costs related reduction workforce impacted segments classes employees closure combination certain facilities amortization goodwill 12 million 06 million 2001 2000 respectively connection adoption fas 142 amortization goodwill discontinued beginning fiscal 2002 fixed asset impairments 23 million 2002 09 million 2000 impairment charges recorded 2002 related fixed assets associated ibus computing systems business abandoned computers computer systems infrastructure directly related supporting ibus computing systems business impairment also includes fixed assets associated transformer harness production power systems group production transformers harnesses outsourced impairment charges recorded 2000 related writeoff leasehold improvements fixed assets abandoned due consolidation factories goodwill impairments 53 million 2002 48 million 2000 impairment charges recorded 2002 related disposition ibus computing systems business goodwill impairment charges recorded 2000 related goodwill originally recorded conjunction acquisition phoenix power maxwell technologies acquired phoenix power march 1998 4 million terms agreement provided additional contingent purchase price based upon financial performance phoenix power following acquisition february 28 2000 january 2000 company paid additional consideration 5 million recorded additional goodwill additional consideration based projection made company december 1999 phoenix power would provide lease 16 million adjusted pretax income 12month period ended february 2000 subsequent reviews actual results revealed adjusted pretax income closer 05 million threshold additional consideration per acquisition agreement however agreement provide return additional consideration based facts revised lower full year projections requested received third party appraisal determined impairment existed accordingly company reduced goodwill 48 million investment impairment 05 million recorded 2001 relates maxwell’s ownership approximately 1 privately held company involved support services areas information technology system software integration engineering technical services contract various government agencies upon review annual financial statements discussions cfo informed company negative net worth decided restructure operations discontinue information technology software integration engineering businesses focus government contracting based facts uncertainty surrounding ability return profitability concluded investment impaired fully reserved investment amortizations intangibles 05 million 2002 relates amortization customer backlog acquired conjunction acquisition montena components amortization ultracapacitor intellectual property recorded conjunction merger electronic components group majority owned subsidiary maxwell purchase shares owned company conjunction ibus computing system’s acquisition gateworks corporation 2000 recorded charge 05 million writeoff inprocess technology minority interest net loss subsidiaries 02 million 07 million 02 million years ended december 31 2002 2001 2000 respectively first quarter 2002 company acquired outstanding minority interests including stock options majorityowned subsidiaries except purepulse technologies see discontinued operations exchange shares options maxwell interest income expense net 42000 06 million 12 million years ended december 31 2002 2001 2000 respectively company used proceeds sale businesses pay debt excess invested high quality shortterm marketable investments income loss continuing operations taxes income loss continuing operations taxes 355 million 148 million 226 million 2002 2001 2000 respectively comparative purposes following discussion segment earnings losses exclude restructuring charges deductions net gainloss sale businesses maxwell high reliability losses 62 million 2002 compared 115 million 2001 change due improved product mix significant cost reductions acquisition montena components contributed 06 million yeartoyear change 2001 loss increased 45 million 115 million 7 million 2000 increase due unfavorable product mix high margin sales microelectronic products decreased low margin buildtoprint power systems recorded significant increase outlook 2003 expect achieve full year profitability segment due full year impact acquisition montena components consolidation factories san diego expected growth boostcap ultracapacitor revenues winding equipment segment part acquisition montena components expected produce full year positive earnings ibus computing systems disposed september 2002 recorded losses 11 million ninemonth period compared 10 million full year 2001 08 million 2000 business significantly impacted economic downturn general deterioration telecommunications sector existing oem contracts started expire 2000 early 2001 replaced uncertainty future prospects led decision sell business sierra teknaseal sold june 2001 september 2002 respectively generated combined earnings 1 million 2 million 03 million 2002 2001 2000 respectively component businesses although profitable served niche markets limited growth potential assessment could maximize value maxwell sale rather continuing operations provision credit income taxes year ended december 2002 tax credit 01 million included foreign expense 01 million tax provision recorded montena components offset refund us taxes paid 2001 02 million valuation allowance increased 129 million net deferred tax assets valuation allowance approximately 313 million december 31 2002 relate primarily net operating loss carryforwards tax credits 2001 tax provision reflects reduction deferred tax assets used offset taxable income increase valuation allowance 183 million fully reserve deferred tax assets fourth quarter 2001 valuation allowance 135 million recorded fully reserve cumulative deferred tax assets recorded december 31 2001 valuation allowance established realizability deferred tax assets longer assessed management likely credit income taxes year ended december 31 2000 reflected expected worldwide tax rate year effective tax rate reduced fact tax credit provided 48 million charge recorded reduce carrying value goodwill since amount never deductible tax purposes discontinued operations discontinued operations comprised government systems purepulse subsidiaries well certain smaller businesses divested 2000 connection company’s decision 2000 focus future company electronic components group ibusphoenix company sold high voltage wound film capacitors high voltage power supplies business time card job cost accounting software business addition company offered sale defense contracting business decided seek strategic alternatives purepulse technologies inc subsidiary accordingly defense contracting business purepulse previously classified separate segment high voltage wound film capacitors high voltage power supplies business time card job cost accounting software business classified discontinued operations financial reporting purposes loss discontinued operations 48 million year ended december 31 2002 compared loss 47 million year ended december 31 2001 26000 year ended december 31 2000 september 2002 purepulse subsidiary suspended operations recorded noncash charges approximately 17 million cash charges approximately 05 million severance charges purepulse designing developing systems generate extremely intense broadspectrum pulsed light purify water inactivate viruses pathogens contaminate vaccines products sourced human animal tissues plasma derivatives transfusion blood components biopharmaceuticals although purepulse attracted 5 million equity capital millipore maxwell march 2002 venture capital equity markets deteriorated since time purepulse able raise additional capital fund operations loss discontinued operations 47 million year ended december 31 2001 compared loss 26000 year ended december 31 2000 march 2001 sold government systems division cash recorded gain 11 million net 27 million provision mainly related ongoing lease obligations december 31 2002 remaining lease obligations expire april 2006 20 million related provision 08 million loss operations discontinued businesses 58 million year ended december 31 2001 compared 29 million year ended december 31 2000 included loss 2001 charge tax provision 25 million recording valuation allowance february 2000 sold high voltage wound film capacitors high voltage power supplies businesses cash 35 million approximately book value net assets sold date addition buyer assumed certain liabilities businesses including longterm lease facility businesses occupied extended 2006 annual rent approximately 05 million november 2000 sold time card job cost accounting software business cash 25 million shares common stock buyer immaterial value fourth quarter 2000 also received cash approximately 07 million related equity investment unconsolidated entity classified discontinued operation liquidity capital resources cash used operating activities year ended december 31 2002 approximately 90 million compared 173 million year ended december 2001 2002 use cash primarily attributable operating losses including restructuring related cash expenses continuing operations 2002 included ibus computing systems cash used discontinued operations included purepulse residual leases obligations divested businesses year ended december 31 2002 41 million compared 97 million year ended december 31 2001 capital expenditures years ended december 31 2002 2001 18 million 62 million respectively cash 30 million used company’s third fiscal quarter part purchase price montena components capital expenditures 2003 expected exceed 28 million approximately equal annual depreciation amortization charges 2001 2002 company financed operating losses term debt described heading “new bank credit agreement” sale nonstrategic businesses year ended december 31 2001 received 469 million 207 million cash connection respectively sale sierra government systems businesses funds used pay debt 228 million fund continuing discontinued operations first day fourth fiscal quarter 2002 sold teknaseal approximately 51 million net cash maxwell 1 million held escrow account paid upon teknaseal achieving certain revenue benchmarks 2003 used portion proceeds prepay 28 million bank term loan reduced outstanding term loan 30 million maxwell technologies sa requires advances customers certain product lines issues bank guarantees give customer right receive back advance product delivered specific date end december 2002 issued guarantees 03 million related product arrangements expect ship customers first quarter 2003 quarter ended september 2002 suspended operations purepulse sold ibus computing systems started consolidating power systems business corporate headquarters leased facility san diego contains ultracapacitor microelectronic high reliability business also decided offer sale 85000 sq ft owned facility housed ibus computing systems north american operations administration actions combined acquisition montena consistent strategy focus high value high reliability power microelectronic products structure company’s operations selfsupporting product revenues near future present expect future cash flows operations combined existing cash balance adequate fund capital equipment working capital requirements operating losses next twelve months also expect within next twelve months complete sale owned facility san diego expect add significantly cash reserves although believe adequate cash hand future cash flows meet cash requirements decrease revenues would cause continued losses negative cash flows operations therefore company may need seek additional financing future although cannot predict certainty might need additional financing believe financing would required next twelve months company needs additional financing assurance financing available acceptable terms addition company generate sufficient cash flow operations line current forecasts company may initiate measures raise cash asset sales additional debt equity issuances andor curtail operations failure achieve expected cash flows necessary obtain additional debt equity investments would material adverse effect company bank credit agreement maxwell europe subsidiary previously named maxwell technologies sa bank credit agreement two swiss banks borrowings credit agreement bear interest bank’s prime rate plus 10 credit agreement also eligible borrow fixed term loans libor rate plus 25 repayment terms extending beyond one month date funding interest rate 65 december 31 2002 borrowings credit agreement secured assets maxwell europe loan covenants december 31 2002 amounts outstanding credit agreement 03 million assigned letters guarantee available borrowing balance 33 million february 2001 entered loan security agreement comerica bankcalifornia loan security agreement amended consists term loan secured deed trust well certain collateral term loan bears interest option bank’s reference rate plus 5 cost funds plus 225 interest rate 475 december 31 2002 principal amortized monthly 20 years balance due december 31 2004 may prepay term loan time prepaid 28 million term loan november 13 2002 currently outstanding principal balance 30 million loan security agreement amended contains covenants restricting ability among things • sell dispose part business sales ordinary course business sales proceeds exceed 2 million • engage business businesses currently engaged • merge consolidate acquire businesses unless use equity meet financial covenants combined proforma basis • incur debt except 5 million incurred foreign subsidiaries 2 million debt • make investments except investments certain marketable debt securities guaranteed united states federal state agency certain commercial paper certificates deposit bank money market accounts investments foreign subsidiaries exceed 2 million 2 million investments • pay dividends • incur liens except liens securing amounts loan security agreement loan security agreement amended also requires us maintain minimum tangible net worth 24 million filing date form 10k compliance covenants minority equity interests subsidiaries subsidiary option programs january 2002 adopted plan complete merger transactions maxwell electronic components group subsidiary ibusphoenix subsidiary whereby minority shareholdings options subsidiaries would converted shares options maxwell april 15 2002 merger transactions resulted issuance 565000 common shares maxwell options purchase 520000 common shares maxwell february 2002 pacificorp energy ventures inc largest minority shareholder electronic components group exchanged preferred shares electronic components group 518000 common shares maxwell pursuant right original investment agreement purepulse classified discontinued operations minority equity investors former strategic partners former employees issued shares purepulse originally incorporated former employees exercised stock options entity december 2002 minority investors owned approximately 19 outstanding stock purepulse critical accounting policies consolidated financial statements prepared accordance accounting principles generally accepted us requires company make estimates assumptions company believes significant accounting policies following may involve higher degree judgment complexity management assumptions conclusions areas may significantly impact results operations company revenue recognition current year substantially revenue derived sale manufactured products directly customers general revenue recognized time product shipped unless specific terms require otherwise general offer discounts right return however prior years certain continuing discontinued segments recorded revenue longterm shortterm fixed price contracts cost plus contracts us government directly prime contractor revenues including estimated profits recognized costs incurred included provisions anticipated losses contracts subject rate audits could result additional losses excess estimated provisions accounts receivable establish maintain customer credit limits based credit checks analyses creditworthiness payment history accounts receivable consist primarily amounts due us normal business activities maintain allowance doubtful accounts reflect expected bad debts based past collection history specific risks identified portfolio excess obsolete inventory value inventories lower cost market assessing ultimate realization inventories make judgments future demand requirements compare current committed inventory levels markets company’s products extremely competitive characterized rapid technological change new product development product obsolescence evolving industry standards addition price competition intense significant price erosion generally occurs life product recorded significant charges reserves recent periods due changes market conditions possible changes reserves may required due changing market conditions judgments ultimate realization may incorrect assets held sale remaining lease obligations building formerly occupied ibusphoenix inc classified held sale carried historical cost company believes based analysis prepared listing agent fair value excess carrying value changes market conditions factors may ultimately result realizing less carrying value also company estimated remaining liability associated remaining lease obligations recorded discontinued operations see discussion discontinued operations making estimates assessed commercial real estate markets made estimates able either sublease terminate buy remaining lease obligations commercial real estate markets depressed due poor economic conditions spending reductions businesses government agencies guarantee able conclude lease obligations amounts accrued loss sale ibus computing systems business company fully reserved 7 million note received exchange ibus computing systems business due uncertainty collectability future collections would result recognizing gains longlived assets goodwill longlived assets property plant equipment intangible assets reviewed impairment whenever events changes business circumstances indicate carrying value longlived asset may recoverable company determines carrying value longlived asset may recoverable permanent impairment charge recorded amount carrying value longlived asset exceeds fair value management believes estimates fair value reasonable however changes business circumstances estimates cash flows fair value could materially impact reported results assessing recoverability goodwill completed annually make assumptions regarding future cash flows factors determine fair value addition periodically independent appraisals business segments performed compare fair value carrying value estimates related assumptions change future may required record impairment charges goodwill associated ibus computing systems written conjunction disposition business remaining goodwill mainly attributable acquisition montena components completed july 2002 analysis completed early fourth quarter 2002 based determination circumstances since recently completed acquisition montena materially changed company’s fair value date significantly excess carrying value assets including goodwill valuation allowance deferred tax assets valuation allowance provided deferred tax assets likely items either expire company able realize benefit future deductibility uncertain general companies recent history operating losses faced difficult burden proof ability generate sufficient future income within next two years order realize benefit deferred tax assets 2001 company determined appropriate record valuation allowance continued 2002 deferred tax assets based recent history losses deferred tax assets still available company use future offset taxable income would result recognition tax benefit reduction company’s effective tax rate inflation changes prices generally able increase prices offset inflationrelated cost increases continuing operations forwardlooking statements extent discussion goes beyond historical information indicates results developments plan expect achieve forwardlooking statements identified use terms “expected” “anticipates” “believes” plans like readers cautioned future results uncertain could affected variety factors could cause actual results differ expected differences could material risks uncertainties could cause forwardlooking statements inaccurate summarized • decline domestic global economy delay development introduction customers’ end products incorporate components systems • success introduction marketing new products existing new markets • ability manufacture existing new products volumes demanded customers competitive prices adequate gross margins • market success products offered company’s customers products incorporated • ability growing markets grow company’s market share relative competitors • success meeting cost reduction goals restructuring reorganizing businesses • ability successfully integrate businesses operations acquired businesses • ability finance growth businesses internal resources outside financing reasonable rates undertake obligation revise forwardlooking statements may made reflect future events circumstances referred “risk factors” section item 1 part form 10k detailed discussion certain factors new accounting pronouncements august 2001 financial accounting standards board fasb issued sfas 144 “accounting impairment disposal longlived assets” sfas 144 addresses financial accounting reporting impairment disposal longlived assets sfas 144 supersedes sfas 121 retains sfas 121’s fundamental provisions recognition measurement impairment longlived assets held used measurement longlived assets disposed sale sfas 144 also supersedes accounting reporting provisions accounting principles board “apb” opinion 30 segments business disposed retains apb opinion 30’s requirement report discontinued operations separately continuing operations extends reporting component entity either disposed classified held sale sfas 144 became effective company beginning january 1 2002 adoption sfas 144 january 1 2002 material impact company’s financial position results operations june 2002 fasb issued sfas 146 “accounting costs associated exit disposal activities” sfas 146 statement supercedes emerging issues task force eitf issue 943 “liabilities recognition certain employee termination benefits costs exit activity including certain costs incurred restructuring” sfas 146 requires liability cost associated exit disposal activity recognized date entity commits exit plan sfas 146 also establishes liability initially measured recorded fair value provisions sfas 146 effective exit disposal activities initiated december 31 2002 december 2002 fasb issued sfas 148 “accounting stockbased compensation transition disclosure amendment fasb statement 123” sfas 148 statement amends sfas 123 “accounting stock based compensation” sfas 123 provide alternative methods voluntarily transitioning fair value based method accounting stockbased employee compensation sfas 148 also amends disclosure requirements sfas 123 require disclosure method used account stockbased employee compensation effects method reported results annual interim financial statements disclosure provisions effective company’s year ended december 31 2002 company yet completed final evaluation options presented sfas 148 however within next year company expects reach determination whether change company’s existing accounting stockbased compensation fair value method accordance transition alternatives sfas 148 item 7aitem 7 management’s discussion analysis financial condition results operations following discussion financial condition results operations years ended december 31 2003 2002 2001 read conjunction consolidated financial statements related notes included elsewhere annual report addition discussion historical information contain forwardlooking statements subject risks uncertainties including estimates based judgment determining allowance inventory reserves bad debt allowance deferred tax assets tax expenses future estimation liquidity fiscal year 2004 may significantly different actual results negative changes revenues affect estimation cost sales research development selling general administrative aspects business executive summary begin management’s discussion analysis financial condition results operations overview business strategic plan subsequently provide summary highlights recently completed fiscal year followed discussion different aspects business proceed page 28 discuss results operations year ended december 31 2003 compared year ended december 31 2002 year ended december 31 2002 compared year ended december 31 2001 thereafter beginning page 34 provide analysis changes balance sheet cash flows discuss capital requirements financing activities section entitled “liquidity capital resources” beginning page 36 discuss critical accounting policies impact inflation business new accounting pronouncements overview maxwell technologies inc delaware corporation originally incorporated 1965 name “maxwell laboratories inc” 1996 changed name maxwell technologies inc presently headquartered san diego california developer manufacturer innovative costeffective energy storage power delivery solutions maxwell’s high reliability business segment comprised three product lines • ultracapacitors primary product ultracapacitors includes boostcap® ultracapacitor cells multicell modules powercache® backup power systems provide highly reliable power solutions applications consumer industrial electronics transportation telecommunications • highvoltage capacitors condis® highvoltage grading coupling capacitors used electric utility infrastructure applications involving transport distribution measurement highvoltage electrical energy • radiationmitigated microelectronic products radiationmitigated microelectronic products include power modules memory modules singleboard computers applications space satellite industries aim design manufacture products perform reliably life products systems integrated seek achieve high reliability application proprietary technologies rigorously controlled design development manufacturing test processes high reliability strategy emphasizes development marketing products enable us achieve higher profit margins commodity electronic components systems year ended december 31 2003 continued efforts focus business exit nonstrategic businesses efforts culminated exit lowmargin power magnetics business commensurate consolidation remaining valueadded business ultracapacitor product line sale winding equipment business segment result actions well divestitures throughout 2002 2003 consolidated operations high reliability business segment see part item 1 “businessstrategic consolidation operations” part ii item 7 “management’s discussion analysis financial condition results operations acquisitions restructuring divestitures discontinued operations events” notes 2 3 notes consolidated financial statements information regarding business combinations divestitures phasedout operations 2003 highlights partially result efforts began 1999 refocus core product lines exit nonstrategic businesses reduced loss continuing operations year ended december 31 2003 72 million 051 per diluted share loss 353 million 288 per diluted share year ended december 31 2002 2003 took several steps intensify focus high reliability highmargin strategy eliminate noncore lowmargin products including • 2003 completed integration relocation power systems business principal manufacturing facility san diego california vacated later sold companyowned facility formerly housed north american operations ibusphoenix consolidation allowed efficient use remaining facilities personnel sale vacated facility provided us additional cash resources • also 2003 formed ultracapacitor manufacturing marketing alliance yec 200 million per annum manufacturer electrolytic capacitors headquartered taichung taiwan manufacturing sales operations mainland china entered alliance order commercialize proprietary boostcap® ultracapacitors china help position us global supplier ultracapacitors production facilities north america europe access facilities asia • july 2003 announced phaseout electronic components tester business completed december 31 2003 business part high reliability business segment • august 2003 announced phaseout magneticsbased power systems products also part high reliability segment focus power systems expertise development marketing proprietary ultracapacitorbased multicell modules backup power solutions part phaseout magneticsbased power systems products power distribution conditioning modules integrated boostcap® ultracapacitors product line • december 2003 sold winding equipment business segment acquired via acquisition montena 2002 completion actions remaining operations consolidated high reliability business segment comprised three current product lines ultracapacitors highvoltage capacitors radiationmitigated microelectronics see part item 1 “businessstrategic consolidation operations” part ii item 7 “management’s discussion analysis financial condition results operations acquisitions restructuring divestitures discontinued operations events” notes 2 3 notes consolidated financial statements information regarding consolidation activities 2004 outlook completed restructuring refocusing business december 2003 process began late 1999 result efforts reduced quarterly breakeven revenue threshold 15 million beginning 2003 less 12 million anticipated first quarter 2004 done combination downsizing cost reduction increases productivity reduction low margin products entered fiscal year 2004 cash reserves 10 million continuing growth ultracapacitor business focus highmargin products expect become profitable end second half 2004 maintaining capital expenditures depreciation ratio expect also become cash flow neutral although believe expectations reflected 2004 outlook reasonable actual results could differ materially projected assumed forwardlooking statements future financial condition results operations well forwardlooking statements subject change inherent risks uncertainties necessarily factors impacting risks uncertainties set forth part item 1 “businessrisk factors” business segments consistent commitment maintain maxwell leading developer manufacturer highlyreliable innovative costeffective energy storage power delivery solutions 2003 completed divestiture phaseout electronic components tester business magneticbased power systems products winding equipment business segment currently focused remaining high reliability business segment comprised three product lines • ultracapacitors primary product ultracapacitors includes boostcap® ultracapacitor cells multicell modules powercache® backup power systems provide highly reliable power solutions applications consumer industrial electronics transportation telecommunications • highvoltage capacitors condis® highvoltage grading coupling capacitors used electric utility infrastructure applications involving transport distribution measurement highvoltage electrical energy • radiationmitigated microelectronic products radiationmitigated microelectronic products include power modules memory modules singleboard computers applications space satellite industries results operations year ended december 31 2003 compared year ended december 31 2002 total revenue total revenue year ended december 31 2003 approximately 45 million including approximately 4 million license fees received yec exchange right manufacture boostcap® ultracapacitors china license fee one time event shown separate line item consolidated statements operations product revenue excludes yec licensee fees year ended december 31 2003 approximately 41 million compared approximately 58 million year ended december 31 2002 reduction approximately 17 million 29 reduction attributed mainly ibus computing systems business sold third quarter 2002 therefore generate revenue year ended december 31 2003 increase revenue flagship product boostcap® ultracapacitors offset reduction revenue microelectronic products segment revenue high reliability year ended december 31 2003 revenue high reliability business segment 352 million compared 401 million year ended december 31 2002 represents decrease approximately 5 million 12 decrease revenue reduced sales radiationmitigated microelectronics products due downturn telecommunication industry power systems products phasedout lowmargin transformer business winding equipment year ended december 31 2003 revenue winding equipment business segment 98 million compared 36 million year ended december 31 2002 represents increase approximately 62 million 175 year ended december 31 2002 revenue segment covers sixmonth period acquisition montena july 2002 year end december 31 2002 determined winding equipment business segment adding value company terms margin contribution technological advances improvement market share contributing improvements economies scale therefore segment business sold end december 2003 reported results operations winding equipment product line continuing operations continued involvement therewith ibus computing systems ibus computing systems business sold september 2002 generate revenue year ended december 31 2003 year ended december 31 2002 revenue ibus computing systems business approximately 110 million teknaseal year ended december 31 2002 revenue teknaseal glasstometal seals business 33 million teknaseal glasstometal seals business sold september 2002 revenue generated year ended december 31 2003 cost sales year ended december 31 2003 cost sales 367 million compared 511 million year ended december 31 2002 represents decrease 144 million 28 decrease attributable primarily disposition phaseout activities 2002 total operating expenses operating expenses 2003 vs 2002 dollars thousands selling general administrative sga expense sga expense year ended december 31 2003 138 million compared 181 million year ended december 31 2002 decrease 43 million 24 primarily due reduction personnel overhead result disposition phaseout activities 2002 2003 sga expense approximately 30 revenue years ended december 31 2003 2002 research development rd expense rd expense year ended december 31 2003 59 million compared 84 million year ended december 31 2002 decrease 25 million 30 partly due decision streamline product lines focus core high reliability business segment products rd percent sales 13 15 years ended december 31 2003 2002 respectively income loss continuing operations income taxes income loss continuing operations income taxes year ended december 31 2003 72 million compared 355 million year ended december 31 2002 improvement 283 million 80 decrease losses primarily attributable disposition phaseout operations unprofitable loss continuing operations year ended december 31 2003 includes 695000 income sale teknaseal glasstometal seals business reflected gain loss sale operations 2003 income loss continuing operations income taxes year ended december 31 2003 includes curtailment settlement gain 22 million swiss law pension plan swiss employees must managed entity legally separate company however according statement financial accounting standard “sfas” 87 required recognize gain loss pension fund balance sheet income statement regardless fact pension plan funded obliged continue contributing rate mandated swiss law result defined benefit accounting treatment may create distorted picture balance sheet financial results year ended december 31 2003 future periods income loss continuing operations income taxes without pension benefit would 96 million high reliability business segment operating losses 76 million year ended december 31 2003 62 million year ended december 31 2002 increase 14 million 23 increase primarily attributable increase inventory reserves power systems business phasedout magnetics portion power systems business provision benefit income taxes tax benefit year ended december 31 2003 220000 compared 132000 year ended december 31 2002 improvement 88000 67 benefit consists primarily foreign income tax benefit recorded subsidiary maxwell technologies sa valuation allowance increased year ended december 31 2003 32 million prior year net deferred tax assets valuation allowance approximately 342 million december 31 2003 year ended december 31 2002 compared year ended december 31 2001 total revenue total revenue year ended december 31 2002 approximately 58 million compared approximately 78 million year ended december 31 2001 reduction approximately 20 million 26 reduction attributed mainly sale noncore business subsidiaries including noncore teknaseal glasstometal seals business addition economic slow started 2001 negatively impacted ibus computing systems business continued decline 2002 segment revenue high reliability year ended december 31 2002 revenue high reliability business segment 401 million compared 394 million year ended december 31 2001 represents increase 700000 2 acquisition montena july 2002 contributed 81 million increase revenue modest increases sales radiationmitigated microelectronics boostcap® ultracapacitors offset decrease sales power systems products medical imaging equipment market winding equipment winding equipment business segment acquired july 2002 part acquisition montena thus impact revenue year ended december 31 2001 revenue sixmonth period ended december 31 2002 36 million ibus computing systems year ended december 31 2002 revenue ibus computing systems business approximately 11 million compared 241 million year ended december 31 2001 represents decrease 131 million 54 sold ibus computing systems business september 2002 although computing systems business focused high reliability highavailability computer servers markets systems particularly telecommunications deteriorated dramatically year negatively impacted results operations sierra teknaseal year ended december 31 2002 revenue sierrakd emi filter ceramic business teknaseal glasstometal seals business 33 million compared 144 million year ended december 31 2001 represents decrease 111 million 77 reduction revenue attributed primarily sale sierrakd emi june 2001 teknaseal glasstometal seals business sold september 2002 cost sales year ended december 31 2002 cost sales 511 million compared 666 million year ended december 31 2001 represents decrease 155 million 23 decrease attributable primarily continued implementation pursuit restructuring plan initiated late 1999 resulted closing selling nonstrategic operations total operating expenses operating expenses 2002 vs 2001 dollars thousands selling general administrative sga expense sga expense year ended december 31 2002 181 million compared 225 million year ended december 31 2001 decrease 44 million 19 due primarily reduction personnel overhead result dispositions phaseout activities 2002 sga expense 31 revenue year ended december 31 2002 29 year ended december 31 2001 research development rd expense rd expense year ended december 31 2002 84 million compared 115 million year ended december 31 2001 decrease 31 million 27 primarily attributable reductions headcount sale ibus computing systems business rd percent sales 15 years ended december 31 2002 2001 income loss continuing operations income taxes income loss continuing operations income taxes year ended december 31 2002 355 million compared 147 million year ended december 31 2001 decrease approximately 50 million recognized gain 391 million sale sierrakd emi filter ceramics business 2001 sold 469 million addition nonrecurring charges goodwill impairment 53 million property plant impairment 23 million restructuring charges 16 million loss sale businesses 65 million included operating expenses year ended december 31 2002 provision benefit income taxes tax benefit year ended december 31 2002 132000 compared tax provision approximately 23 million year ended december 31 2001 recognized gain 391 million sale sierrakd emi filter ceramics business 2001 sold 469 million acquisitions restructuring divestitures discontinued operations events acquisitions july 2002 acquired montena components ltd provider ultracapacitors highvoltage capacitors oem customers automated winding equipment used produce capacitors lithium batteries approximately 30 million cash 225 million shares maxwell common stock acquisition brought us additional high reliability power business focused ultracapacitors highvoltage capacitors additional design production capabilities enhanced profile reliable global supplier see “divestitures” discussion disposition winding equipment business acquired acquisition montena restructuring charges 16 million year ended december 31 2002 restructuring charges year ended december 31 2001 2002 restructuring charges primarily attributable restructuring ibus computing systems business actions position business sale first half 2002 ibusphoenix introduced new applied computing products developed 2001 however market applied computing products particularly telecommunications deteriorated throughout 2002 responded poor market conditions computing systems capital goods restructuring ibusphoenix june 2002 began implementing restructuring plan recorded restructuring charges 700000 addition also determined certain components inventory adversely impacted accordingly recorded inventory charge approximately 30 million certain excess obsolete raw material components finished goods charge included cost sales third quarter 2002 decided sell applied computing business ibusphoenix new company organized former ibusphoenix senior managers preparation sale configure ibusphoenix computing business selfsupporting ibusphoenix consolidated production applied computing products facility tangmere united kingdom reduced personnel worldwide result actions recorded additional restructuring charges 900000 quarter ended september 30 2002 unpaid restructuring balance 400000 december 31 2002 paid 2003 divestitures june 2001 sold sierrakd emi filter ceramic capacitor business 469 million cash retained accounts receivable acquisition date amounted 25 million result transaction recorded net pretax gain 391 million sale year ended december 31 2001 september 2002 sold ibus computing systems business 70 million debt certain considerations also incurred 76 million charges related goodwill impairment asset writedowns related business loss disposition totaled 70 million fully reserved note due risks collectability september 2002 also sold noncore teknaseal glasstometal seals business 55 million cash 10 million held escrow account subsequently released us succeeding four calendar quarters approximately 400000 55 million proceeds paid certain former employees teknaseal recorded net gain 200000 fourth quarter 2002and recorded additional gains 695000 year ended december 31 2003 gain loss sale businesses 65 million year ended december 31 2002 391 million year ended december 31 2001 june 2003 decided discontinue marketing supporting electronic components tester business recorded charges cost sales 444000 primarily attributable excess inventory equipment 393000 primarily attributable warranty buyouts 259000 primarily attributable expected future warranty returns quarters ended june 30 2003 september 30 2003 december 31 2003 respectively sales electronic components tester business immaterial periods presented december 2003 sold former ibus manufacturing administrative facility san diego facility previously classified assets held sale book value 74 million proceeds sale facility 90 million resulting gain 12 million payment loan balance comerica bank closing costs 387000 recorded gain sale property equipment december 2003 maxwell technologies sa swiss subsidiary formerly known montena components ltd sold fixed assets substantially inventory warranty employee agreement obligations winding equipment business located matran switzerland metar sa new company formed former ceo montena components metar employees business sold 324000 recognized net loss 538000 discontinued operations government systems business purepulse reported discontinued operations loss discontinued operations 6000 year ended december 31 2003 compared 48 million year ended december 31 2002 47 million year ended december 31 2001 march 2001 sold government systems business 207 million recorded gain 11 million net 27 million provision mainly related ongoing lease obligations december 31 2003 remaining lease obligation expires april 2006 11 million reserve provision 600000 september 2002 purepulse suspended operations recorded noncash charges approximately 17 million cash charges approximately 05 million severance charges purepulse designing developing systems generate extremely intense broadspectrum pulsed light purify water inactivate viruses pathogens contaminate vaccines products sourced human animal tissues plasma derivatives transfusion blood components biopharmaceuticals although purepulse raised 5 million equity capital millipore maxwell march 2002 venture capital equity markets deteriorated time purepulse able raise additional capital fund operations loss operations discontinued businesses 58 million year ended december 31 2001 included loss charge tax provision 25 million recording valuation allowance events investment impairment 500000 recorded 2001 related maxwell’s ownership approximately 1 privatelyheld company involved support services areas information technology system software integration engineering technical services contract various government agencies upon review annual financial statements discussions chief financial offer informed company negative net worth decided restructure operations discontinue information technology software integration engineering businesses focus government contracting based facts uncertainty surrounding ability return profitability concluded investment impaired fully reserved investment amortization goodwill 12 million year ended december 31 2001 connection adoption sfas 142 amortization goodwill discontinued beginning fiscal year 2002 2003 made assessment company’s goodwill intangible assets determined impairment accordingly goodwill impairments recognized year ended december 31 2003 goodwill impairments 53 million year ended december 31 2002 goodwill impairment recognized year ended december 31 2001 received 209000 sale privatelyheld company referred 26000 previously recorded us investment 2003 recovered 183000 500000 recorded impaired 2001 reflected gain loss sale business amortization intangibles 76000 year ended december 31 2003 483000 year ended december 31 2002 relates amortization customer backlog acquired conjunction acquisition montena amortization ultracapacitor intellectual property recorded conjunction merger electronic components group majorityowned subsidiary maxwell purchase shares already owned us minority interest income consolidated subsidiaries 200000 700000 years ended december 31 2002 2001 respectively first quarter 2002 acquired outstanding minority interests including stock options majorityowned subsidiaries except purepulse see “discontinued operations” exchange shares options maxwell interest income expense net 1000 42000 600000 years ended december 31 2003 2002 2001 respectively used proceeds sale businesses pay debt excess invested high quality shortterm marketable investments fixed asset impairments 23 million year ended december 31 2002 impairment charges recorded 2002 related fixed assets associated ibus computing systems business abandoned computers computer systems infrastructure directly related supporting ibus computing systems business impairment also included fixed assets associated transformer harness production ibusphoenix power systems group production transformers harnesses subsequently outsourced liquidity capital resources changes cash flow year ended december 31 2003 cash used operating activities 50 million compared 90 million year ended december 31 2002 173 million year ended december 31 2001 use cash year ended december 31 2003 primarily attributed operating losses year ended december 31 2002 use cash primarily attributable operating losses including restructuringrelated cash expenses continuing operations 2002 included ibus computing systems business cash used discontinued operations included purepulse residual leases obligations divested businesses year ended december 31 2002 41 million compared 97 million year ended december 31 2001 capital expenditures years ended december 31 2003 2002 2001 24 million 18 million 62 million respectively spent 10 million capital investments build outfit stateoftheart production facilities include mechanization fullscale automation 2002 cash 30 million used company’s third quarter part purchase price montena capital expenditures 2004 expected exceed 36 million approximately equal annual depreciation amortization charges restructuring plan started early 2000 completed 2003 started realizing benefit restructuring effort fourth quarter 2003 indicators productivity lower product cost new product introduction increased reduction overhead increased productivity improve gross margin reduce operating expenses 2004 based current plan believe generate positive cash flow operations year ending december 31 2004 january 2004 secured 30 million line credit us bank available working capital needs line used date also line credit 16 million swiss bank working capital switzerland line fully used december 31 2003 98 million cash 25 million shortterm investments end december 2003 also 925000 term loan available swiss bank capital equipment purchases loan employee pension fund amount approximately 250000 believe liquidity provided existing cash equivalents well cash generated operations available lines credit provide sufficient capital fund capital equipment working capital requirements potential operating losses next 12 months failure achieve expected cash flows obtain additional debt equity investments necessary would material adverse effect us net accounts receivable decreased 59 million december 31 2003 85 million december 31 2002 primary reasons decrease due lower revenues improvement collection cycle net inventory balance decreased 73 million december 31 2003 118 million december 2002 reduction due improved inventory management increase inventory reserves due phaseout tester magnetic based power products inventory reserves december 31 2003 31 million compared 20 million december 31 2002 accounts payable accrued liabilities december 31 2003 77 million compared 104 million december 31 2002 primary reason reduction lower inventory purchases decrease operating expenses shortterm borrowing increased 19 million december 31 2003 570000 december 31 2002 net liability discontinued operations december 31 2003 2002 15 million 23 million respectively 2002 2001 financed operating losses term debt described heading “shortterm longterm borrowings” sale nonstrategic businesses year ended december 31 2001 received 469 million 207 million cash connection sale sierrakd emi filter ceramic capacitor business government systems defense contracting business respectively funds used pay debt 228 million fund continuing discontinued operations first day fourth fiscal quarter 2002 sold teknaseal glasstometal seals business received approximately 51 million net cash 10 million held escrow account later paid upon teknaseal achieving certain revenue benchmarks 2003 used portion proceeds prepay 28 million bank term loan reduced outstanding term loan 30 million term loan paid full december 2003 maxwell technologies sa requires advances customers certain product lines issues bank guarantees give customer right receive back advance product delivered specific date end december 2003 issued guarantees 400000 related product arrangements expect ship customers first quarter 2004 quarter ended september 2002 suspended operations purepulse sold ibus computing systems business started consolidating power systems business corporate headquarters leased facility san diego also contains part ultracapacitor microelectronics businesses also decided offer sale 85000 square foot owned facility housed ibusphoenix’s computing systems north american operations administration actions combined acquisition montena consistent strategy focus high value high reliability power microelectronic products structure company’s operations selfsupporting product revenues near future former ibusphoenix facility sold december 2003 shortterm longterm borrowings shortterm borrowings maxwell’s european subsidiary maxwell technologies sa 16 million bank credit agreement swiss bank borrowings credit agreement bear interest 55 plus 25 every quarter borrowings outstanding credit agreement eligible borrow fixed term loans libor plus 175 repayment terms extending beyond one month date funding borrowings credit agreement secured assets maxwell technologies sa december 31 2003 full amount credit line drawn addition 400000 letters guarantee outstanding december 31 2003 related customer deposits february 2004 secured 30 million credit line us bank working capital purposes subject oneyear repayment period line secured accounts receivable assets company bears interest bank’s prime plus 175 subject minimum interest rate 575 agreement requires us maintain minimum tangible net worth 15 million plus 50 consideration future equity debt transactions plus 50 net income fiscal quarter date agreement longterm borrowings beginning 2004 maxwell technologies sa obtained 925000 term loan financing acquisition specific capital equipment borrowings term loan secured equipment purchased credit agreement bears interest swiss interbank borrowing rate plus 20 term loan borrowed quarterly advances 925000 limit repaid one five years funds borrowed beginning 2004 repaid 5year period interest rate would 43 maxwell sa loan montena sa pension plan 300000 swiss francs 250000 december 31 2003 december 31 2002 loan pension plan bears interest variable mortgage rate banque cantonale de fribourg plus 1 resulted 5 interest rate 2003 february 2001 entered loan security agreement comerica bankcalifornia loan security agreement amended consisted 50 million credit line secured deed ibusphoenix facility san diego well certain collateral term loan bore interest option bank’s reference rate plus 5 cost funds plus 225 interest rate 475 december 31 2002 principal amortized monthly 20 years balance due december 31 2004 amount loan paid full december 2003 portion proceeds sale ibusphoenix facility minority equity interests subsidiaries subsidiary option programs january 2002 adopted plan complete merger transactions maxwell electronic components group ibusphoenix subsidiary whereby minority shareholdings options subsidiaries would converted shares options maxwell april 15 2002 merger transactions resulted issuance 565000 common shares maxwell options purchase 520000 common shares maxwell february 2002 pacificorp energy ventures inc largest minority shareholder electronic components group exchanged preferred shares electronic components group 518000 common shares maxwell pursuant right original investment agreement purepulse classified discontinued operations minority equity investors former strategic partners former employees issued shares purepulse originally incorporated former employees exercised stock options entity december 31 2003 minority investors owned approximately 18 outstanding stock purepulse loss sale ibus computing systems business fully reserved 70 million note received exchange ibus computing systems business september 2002 due uncertainty collectability note discounted cancelled exchange 475000 fourth quarter 2003 contractual obligations 1 operating lease obligations represent building leases vehicle leases management personnel rossens switzerland facility 2 debt obligations represent shortterm borrowings current portion longterm debt critical accounting policies discussion analysis financial condition results operations based upon consolidated financial statements prepared accordance accounting principles generally accepted united states america refer us gaap used certain assumptions judgments preparation financial statements assumptions estimates may potentially affect reported amounts assets liabilities disclosure contingencies well reported amounts revenues expenses following may involve higher degree judgment complexity management assumptions conclusions areas may significantly impact results operations company revenue recognition fiscal year ended december 31 2003 substantially revenue derived sale manufactured products directly customers licensing fees received right manufacture proprietary boostcap® ultracapacitors product revenue recognized time product shipped title passes customer unless specific terms require otherwise general discounts offered right return license fee revenues recognized performance requirements met fee fixed determinable collection fees probable prior years certain continuing discontinued segments involved revenues longterm shortterm fixed price contracts cost plus contracts us government directly prime contractor revenues including estimated profits recognized time costs incurred included provisions anticipated losses contracts subject rate audits could result reduction revenue excess estimated provisions turn could increase losses periods reduction occurs accounts receivable establish maintain customer credit limits based references financial information creditworthiness payment history accounts receivable consist primarily amounts due us normal business activities maintain allowance doubtful accounts reflect anticipated bad debts based past collection history specific risks identified portfolio determine bad debt reserve based analysis make measure reserve requirements establish specific reserves recognize inability customer pay obligation become aware increasing negative changes financial condition customers economic conditions change adversely may increase allowance increase allowances would adversely impact financial condition results operations assets held sale remaining lease obligation december 2003 sold building formerly occupied ibusphoenix inc classified assets held sale 2002 proceeds sale facility approximately 90 million closing expenses 387000 resulting gain sale facility 12 million provided estimate remaining liability discontinued operations purepulse associated remaining lease obligation recorded discontinued operations making estimate considered factors commercial real estate market including estimate able sublease terminate buy remaining lease obligation given currently depressed commercial real estate markets continued spending reductions businesses government agencies guarantee able conclude lease obligation amount accrued could require additional charges excess obsolete inventory value inventories lower cost market assessing ultimate realization inventories make judgments future demand requirements compare current committed inventory levels markets company’s products extremely competitive characterized rapid technological change new product development product obsolescence evolving industry standards addition price competition intense significant price erosion generally occurs life product recorded significant charges reserves recent periods reflect changes market conditions believe future events subject change errors estimates may significant adverse impact balance sheet longlived assets intangible assets longlived assets property plant equipment intangible assets reviewed impairment whenever events changes business circumstances indicate carrying value longlived asset may recoverable accordance sfas 144 “accounting impairment disposal longlived assets” significant assumptions analysis impairment involve estimates future discounted cash flows use cash flow assumptions consistent business plans consider relevant information determine carrying value longlived asset may recoverable permanent impairment charge recorded amount carrying value longlived assets exceeds fair market value changes business circumstances key assumptions used estimating undiscounted cash flows carrying value longlived assets may overstated understated well related impairment charge goodwill account goodwill accordance sfas 142 “goodwill intangible assets” standard requires goodwill longer amortized subject annual impairment test event occurs circumstances change reasonably possible impairment may exist first step consists estimating fair value reporting unit based discounted cash flow model using revenue profit forecasts comparing estimated fair values carrying values reporting unit includes allocated goodwill fair value less carrying value second step performed compute amount impairment determining implied fair value goodwill implied fair value goodwill residual fair value derived deducting fair value reporting unit’s assets liabilities estimated fair value calculated step one impairment charge represents excess carrying amount reporting units’ goodwill implied fair value goodwill assessing implied fair value goodwill made assumptions regarding estimates future cash flows operating factors significant assumptions analysis impairment involve estimates revenue expense forecasts reporting unit changes business circumstances key assumptions used estimating fair value reporting unit carrying value goodwill may overstated understated well related impairment charge cannot say certainty may incur charges impairment goodwill future fair value maxwell technologies maxwell sa decrease due market conditions unanticipated circumstances may revise assumptions incur additional charges additional impairment charges adversely affect results operations valuation allowance deferred tax assets valuation allowance provided deferred tax assets likely items either expire able realize benefit future deductibility uncertain general companies recent history operating losses faced difficult burden proof ability generate sufficient future income order realize benefit deferred tax assets determined appropriate record valuation allowance december 31 2003 deferred tax assets based recent history losses amounts expected likely realizable deferred tax assets still available us use future offset taxable income would result recognition tax benefit reduction company’s effective tax rate impact inflation believe inflation material impact results operations fiscal years threeyear period ended december 31 2003 however assurance future inflation would adverse impact operating results financial condition new accounting pronouncements effective january 1 2003 adopted sfas 87 “employers’ accounting pensions” amended accordance emerging issues task force 034 “determining classification benefit attribution method “cash balance” pension plan” related swiss pension plan statement requires standardized method measuring net periodic pension cost recognizing compensation cost employee’s pension employee’s approximate service period relating cost directly terms plan statement requires immediate recognition liability minimum liability accumulated benefit obligation exceeds fair value plan assets statement also requires expanded disclosures pension plan assets obligations benefit payments contributions net benefit cost adoption sfas 87 january 1 2003 resulted cumulative effect accounting change net tax 878000 note 11 january 2003 financial accounting standards board fasb issued fasb interpretation fin 46 “consolidation variable interest entities” interpretation provided guidance identification financial reporting variable interest entities variable interest entities lack characteristics controlling financial interest lack sufficient equity finance activities without additional subordinated financial support fin 46 requires company consolidate variable interest entity company obligated absorb majority entity’s expected losses entitled receive majority entity’s residual returns fin 46 also requires disclosures variable interest entities company required consolidate significant variable interest fin 46 applicable immediately variable interest entities created january 31 2003 variable interest entities created prior february 1 2003 fin 46 applicable first interim annual period ending december 15 2003 application interpretation expected material effect consolidated financial statements december 2002 fasb issued sfas 148 “accounting stockbased compensation transition disclosure amendment fasb statement 123” sfas 148 statement amends sfas 123 “accounting stock based compensation” sfas 123 provide alternative methods voluntarily transitioning fair value based method accounting stockbased employee compensation sfas 148 also amends disclosure requirements sfas 123 require disclosure method used account stockbased employee compensation effects method reported results annual interim financial statements disclosure provisions effective fiscal year ended december 31 2002 november 2002 fasb issued fasb interpretation 45 “guarantor’s accounting disclosure requirements guarantees including indirect guarantees indebtedness others” elaborates disclosures made guarantor clarifies guarantor required recognize inception guarantee liability fair value obligation undertaken issuing guarantee recognition provisions fin 45 applicable guarantees issued modified december 31 2002 disclosure provisions effective year ended december 31 2003 adoption fin 45 material impact consolidated financial position results operations june 2002 fasb issued sfas 146 “accounting costs associated exit disposal activities” sfas 146 statement supercedes emerging issues task force eitf issue 943 “liabilities recognition certain employee termination benefits costs exit activity including certain costs incurred restructuring” sfas 146 requires liability cost associated exit disposal activity recognized date entity commits exit plan sfas 146 also establishes liability initially measured recorded fair value provisions sfas 146 effective exit disposal activities initiated december 31 2002 adoption sfas 146 january 1 2003 material impact company’s financial position results operations august 2001 fasb issued sfas 144 “accounting impairment disposal longlived assets” sfas 144 addresses financial accounting reporting impairment disposal longlived assets sfas 144 supersedes sfas 121 retains sfas 121’s fundamental provisions recognition measurement impairment longlived assets held used measurement longlived assets disposed sale sfas 144 also supersedes accounting reporting provisions accounting principles board “apb” opinion 30 segments business disposed retains apb opinion 30’s requirement report discontinued operations separately continuing operations extends reporting component entity either disposed classified held sale sfas 144 became effective company beginning january 1 2002 adoption sfas 144 january 1 2002 material impact company’s financial position results operations item 7aitem 7 management’s discussion analysis financial condition results operations following discussion financial condition results operations years ended december 31 2004 2003 2002 read conjunction consolidated financial statements related notes included elsewhere annual report addition discussion historical information contain forwardlooking statements subject risks uncertainties including estimates based judgment determining allowance inventory reserves bad debt allowance deferred tax assets tax expenses future estimation liquidity fiscal year 2005 may significantly different actual results negative changes revenues affect estimation cost sales research development selling general administrative aspects business executive summary begin management’s discussion analysis financial condition results operations overview business strategic plan subsequently provide summary highlights recently completed fiscal year followed discussion different aspects business proceed page 32 discuss results operations year ended december 31 2004 compared year ended december 31 2003 year ended december 31 2003 compared year ended december 31 2002 thereafter beginning page 39 provide analysis changes balance sheet cash flows discuss capital requirements financing activities section entitled “liquidity capital resources” beginning page 41 discuss critical accounting policies impact inflation business new accounting pronouncements overview maxwell technologies inc delaware corporation originally incorporated 1965 name “maxwell laboratories inc” 1996 changed name maxwell technologies inc presently headquartered san diego california developer manufacturer innovative costeffective energy storage power delivery solutions maxwell operates one business segment called high reliability two manufacturing locations san diego california rossens switzerland comprised three product lines • ultracapacitors primary product ultracapacitors includes boostcap® ultracapacitor cells multicell modules powercache® backup power systems provide highly reliable power solutions applications consumer industrial electronics transportation telecommunications • highvoltage capacitors condis® highvoltage grading coupling capacitors used electric utility infrastructure applications involving transport distribution measurement highvoltage electrical energy • radiationmitigated microelectronic products radiationmitigated microelectronic products include power modules memory modules singleboard computers applications space satellite industries aim design manufacture products perform reliably life products systems integrated seek achieve high reliability application proprietary technologies rigorously controlled design development manufacturing test processes high reliability strategy emphasizes development marketing products enable us achieve higher profit margins commodity electronic components systems year ended december 31 2004 completed discontinuance winding equipment product line segment sold december 2003 shipment final product order obligated fulfill therefore financial statements fiscal 2004 2003 2002 include reclassification winding equipment product line segment discontinued operations 2004 highlights reported net loss fiscal 2004 91 million 062 per diluted share versus net loss 63 million 045 per diluted share fiscal 2003 increased loss primarily result discontinuation ultracapacitor sales digital camerabased product applications reserves recorded smallcell boostcap® inventories ultracapacitor orders received priced production cost costs incurred related compliance activities pursuant section 404 sarbanesoxley act 2002 various nonrecurring gains approximately 48 million recorded 2003 fiscal 2004 continued focus developing strategic alliances introducing new products reducing product costs operating expenses efforts described • continued efforts commercialize proprietary boostcap® ultracapacitors china manufacturing marketing alliance yeong long technologies co ltd “yec” placed first order 5 10farad cells delivery 2004 yec manufacturing alliance provide maxwell additional low cost supply ultracapacitors help position us global supplier ultracapacitors • introduced new bcap350 cell boostcap® ultracapacitor first series new ultracapacitors standardized batterysizing drive costs ease integration technology standardizing ultracapacitors maxwell reducing manufacturing costs passing savings directly oems well reducing timetomarket supplying known form factors seamless rapid product integration • selected supply boostcap® ultracapacitors hybrid gasolineelectric transit buses built california transit facility productionlevel order resulted strategic alliance formed ise corporation 2002 • entered strategic alliance hydrogenics corporation collaborate integrating maxwell’s boostcap® ultracapacitors hydrogenics’ fuel cell power systems alliance consists joint development program designed accelerate ultracapacitor fuel cell integration • boostcap® ultracapacitor production facility rossens switzerland certified rigorous auto industryspecific international organization standardization iso ts 16949 standard confirming company’s competence automotive supplier commitment organizational excellence achievement important milestone company’s goal becoming preferred ultracapacitor supplier highvolume automotive applications • entered multiyear strategic development exclusive supply agreement tantalus systems corporation accelerate deployment advanced meter reading data management systems north american electric utility market tantalus utilize boostcap® ultracapacitors power wireless transmitters utility network products alliance highlights maxwell’s product application diversity help position us contribute profit advancing technology electric gas water utility meters • entered multiyear strategic supply agreement general hydrogen corporation provide boostcap® ultracapacitors use fuel cell power systems electric lift trucks applications fuel cell systems augmented ultracapacitors potential provide efficient lower maintenance alternative conventional battery power endusers • nasa’s jet propulsion laboratory independently verified testing methodologies maxwell uses demonstrate fault tolerance scs750 super computer space product design uses combination proprietary packaging radiationmitigated architecture match fault tolerance competing products use radiationhardened processors thus providing alternative potentially exceed processing power existing components • new production line condis® high tension capacitors completed first qualification runs successful expect new factory concept dramatically reduce lead times double available output capacity • july 2004 maxwell received supplier year award siemens power transmission distribution high voltage circuit breakers division marks first time division’s insulation materials group found one global suppliers meet stringent quality requirements award represents another milestone maxwell’s ongoing multidisciplinary initiatives organizational excellence • added 21 additional form factors configurations line highperformance radiationhardened synchronous dynamic random access memory sdram components space applications dramatically increasing options aerospace engineers requiring higher density memory keep escalating computing demands space applications • selected supply boostcap® ultracapacitors 17 fuelefficient low emission hybrid gasolineelectric drive trains ise corporation building buses purchased city elk grove california transit agency second productionlevel transit bus order ise 2004 selection maxwell’s boostcap® product reflects ultracapacitors’ growing acceptance standard energy storage power delivery solution transportation industry • delivered two prototype scs750 single board computers planning systems inc psi evaluation faulttolerant computing platform systems psi developing air force research laboratory’s deployable structures experiment dsx space science mission scs750 employs proprietary component shielding technology novel systemlevel architecture mitigate radiation effects demonstrated errorfree performance extensive testing simulates environmental radiation encountered space dsx one several space programs scs750 evaluated • introduced two powercache® ultracapacitorbased backup power modules provide maintenancefree spacesaving alternative batteries shortterm “bridge” power uninterruptible power supply ups systems telecommunications industrial medical applications modules allow missioncritical facilities rely ups systems wireless telecommunications base stations data centers automated factories hospitals avoid downtime event power interruptions • entered strategic supply agreement enercon gmbh leading producer wind turbines enercon source ultracapacitors exclusively maxwell enercon’s turbines employ independent braking pitch adjustment mechanism blade backup power ensure continuous operation event power failure • delivered first new cvtcvd product wellknown european high voltage instrumentation company first quarter 2004 results operations year ended december 31 2004 compared year ended december 31 2003 revenue year ended december 31 2004 322 million compared 352 million year ended december 31 2003 represents decrease 30 million 8 prior year first quarter 2004 recorded final 10 million payment license fees received yeonglong technologies inc “yec” exchange right manufacture boostcap® ultracapacitors china license fee payment shown separate line item consolidated statements operations revenues year ended december 31 2003 included 40 million license fees received yec high reliability product revenues fiscal 2004 2003 approximately 312 million gross profit 2004 gross profit approximately 69 million 21 revenue compared 66 million 19 revenue prior year product gross profit excluding yec license fees approximately 59 million 19 product revenue 2004 compared 26 million 8 product revenue 2003 product gross profit 2004 improved dramatically approximately 33 million 126 compared prior year due focus core product lines phaseout lowmargin product lines improved manufacturing efficiencies improvement product gross profit partially offset reserves recorded approximately 500000 first quarter 2004 approximately 440000 third quarter 2004 approximately 14 million fourth quarter 2004 ultracapacitor orders received priced production costs orders placed third fourth quarters 2004 part larger supply agreement additional reserves may required future orders placed agreement similar agreements depending degree able reduce product costs time orders placed also recorded reserves approximately 450000 third quarter approximately 730000 fourth quarter 2004 excess obsolete inventories total operating expenses operating expenses2004 vs 2003 dollars thousands year ended december 31 2004 operating expenses 159 million compared 129 million period 2003 represents increase 30 million 23 operating expenses 2004 approximately 51 product revenue compared 41 product revenue 2003 operating expenses included gains approximately 22 million pension curtailment settlement gains 14 million sale property equipment 12 million sales businesses adjusted gains actual operating expenses fiscal 2003 177 million selling general administrative sga expense sga expenses 102 million 2004 compared 114 million 2003 represents decrease 12 million 11 sga expenses 32 33 revenue 2004 2003 respectively 2003 recorded approximately 800000 charges related reserves loans made former subsidiary accruals severance former chairman company reductions labor force fourth quarter 2003 also contributed overall decrease 2004 savings resulting reductions labor force partially offset increased costs approximately 10 million associated sarbanesoxley compliance activities research development rd expense rd expenses 55 million 2004 compared 58 million 2003 represents decrease approximately 300000 5 rd expense 17 revenue 2004 2003 rd expenses vary slightly year due nonheadcount expenses relating materials outside services rd efforts mostly focused singleboard computer ultracapacitor electrode packaging technologies loss continuing operations income taxes loss continuing operations income taxes 2004 increased 91 million 28 revenue 63 million 18 revenue 2003 loss continuing operations income taxes 2003 excluding impact 48 million gains discussed total operating expenses would 111 million provision benefit income taxes 2004 recorded 712000 provision compared benefit 96000 2003 provision booked 2004 relates primarily change tax rates applicable net deferred tax liabilities swiss subsidiary swiss subsidiary tax holiday expires 2005 therefore existing tax liabilities realized higher nontax holiday rate benefit recorded 2003 relates losses incurred swiss subsidiary expect offset future taxable income discontinued operations december 2003 maxwell technologies sa swiss subsidiary formerly known montena components ltd sold fixed assets substantially inventory warranty employee agreement obligations winding equipment business located matran switzerland metar sa new company formed former ceo montena components metar employee business sold 324000 recognized loss disposal net tax 529000 new metar company completed january june 2004 certain work progress related customer orders received maxwell technologies sa date sale concluded continuing involvement winding equipment business second quarter 2004 shipment final metar product order obligated fulfill accordance statement financial accounting standards “sfas” 144 accounting impairment disposal longlived assets results operations related winding equipment business recorded continuing operations first quarter 2004 reclassified discontinued operations fiscal 2004 2003 2002 winding equipment product line included discontinued operations sales 10 million cost sales 205000 2004 reflected income discontinued operations year ended december 31 2003 compared year ended december 31 2002 total revenue total revenue year ended december 31 2003 352 million including 40 million license fees received yec exchange right manufacture boostcap® ultracapacitors china license fee onetime event shown separate line item consolidated statements operations product revenue excludes yec licensee fee year ended december 31 2003 312 million compared 544 million year ended december 31 2002 reduction approximately 232 million 43 reduction attributed mainly ibus computing systems business sold third quarter 2002 therefore generate revenue year ended december 31 2003 increases revenue flagship product boostcap® ultracapacitors offset reduction revenue microelectronic products high reliability year ended december 31 2003 revenue high reliability business segment 352 million compared 401 million year ended december 31 2002 represents decrease approximately 49 million 12 decrease revenue reduced sales radiationmitigated microelectronics products due downturn telecommunication industry power systems products phasedout lowmargin transformer business winding equipment year ended december 31 2003 revenue winding equipment product line segment 99 million compared 36 million year ended december 31 2002 represents increase approximately 63 million 176 year ended december 31 2002 revenue segment covers sixmonth period acquisition montena july 2002 year end december 31 2002 determined winding equipment business segment adding value company terms margin contribution technological advances improvement market share contributing improvements economies scale winding equipment segment sold december 2003 recorded continuing operations first quarter fiscal year 2004 reclassified discontinued operations ibus computing systems ibus computing systems business sold september 2002 generate revenue year ended december 31 2003 year ended december 31 2002 revenue ibus computing systems business approximately 110 million teknaseal year ended december 31 2002 revenue teknaseal glasstometal seals business 33 million teknaseal glasstometal seals business sold september 2002 revenue generated year ended december 31 2003 cost sales year ended december 31 2003 cost sales 286 million compared 480 million year ended december 31 2002 represents decrease 195 million 41 decrease attributable primarily disposition phaseout activities 2002 total operating expenses operating expenses2003 vs 2002 dollars thousands 1 464000 attributable backlog acquired purchase montena completely amortized 2002 selling general administrative sga expense sga expense year ended december 31 2003 114 million compared 176 million year ended december 31 2002 decrease approximately 61 million 35 primarily due reduction personnel overhead result disposition phaseout activities 2002 2003 sga expense approximately 33 32 revenue years ended december 31 2003 2002 respectively research development rd expense rd expense year ended december 31 2003 58 million compared 84 million year ended december 31 2002 decrease approximately 25 million 30 partly due decision streamline product lines focus core high reliability business segment products rd percent sales 17 15 years ended december 31 2003 2002 respectively loss continuing operations income taxes loss continuing operations income taxes year ended december 31 2003 63 million compared 373 million year ended december 31 2002 improvement 309 million 83 decrease losses primarily attributable disposition phaseout operations unprofitable loss continuing operations year ended december 31 2003 includes 695000 income sale teknaseal glasstometal seals business reflected “gain loss sale businesses” 2003 loss continuing operations income taxes year ended december 31 2003 includes pension curtailment settlement gain 22 million swiss law pension plan swiss employees must managed entity legally separate company however according sfas 87 required recognize gain loss pension fund balance sheet income statement regardless fact pension plan funded obligated continue contributing rate mandated swiss law result defined benefit accounting treatment may create distorted picture balance sheet financial results year ended december 31 2003 future periods loss continuing operations income taxes without pension benefit would 85 million benefit income taxes tax benefit year ended december 31 2003 96000 compared 114000 year ended december 31 2002 reduction 18000 16 benefit consists primarily foreign income tax benefit recorded subsidiary maxwell technologies sa valuation allowance increased year ended december 31 2003 32 million prior year net deferred tax assets valuation allowance approximately 342 million december 31 2003 acquisitions restructuring divestitures discontinued operations events acquisitions july 2002 acquired montena components ltd provider ultracapacitors highvoltage capacitors oem customers automated winding equipment used produce capacitors lithium batteries approximately 30 million cash 225 million shares maxwell common stock acquisition brought us additional high reliability power business focused ultracapacitors highvoltage capacitors additional design production capabilities enhanced profile reliable global supplier see “discontinued operations” discussion disposition winding equipment business acquired acquisition montena restructuring charges 16 million year ended december 31 2002 restructuring charges primarily attributable restructuring ibusphoenix inc business actions position business sale first half 2002 ibusphoenix introduced new applied computing products developed 2001 however market applied computing products particularly telecommunications deteriorated throughout 2002 responded poor market conditions computing systems capital goods restructuring ibusphoenix june 2002 began implementing restructuring plan recorded restructuring charges 700000 addition also determined certain components inventory adversely impacted accordingly recorded inventory charge approximately 30 million certain excess obsolete raw material components finished goods charge included cost sales third quarter 2002 decided sell applied computing business ibusphoenix new company organized former ibusphoenix senior managers preparation sale configure ibusphoenix computing business selfsupporting ibusphoenix consolidated production applied computing products facility tangmere united kingdom reduced personnel worldwide result actions recorded additional restructuring charges 900000 quarter ended september 30 2002 unpaid restructuring balance 400000 december 31 2002 paid 2003 divestitures december 2003 sold former ibus manufacturing administrative facility san diego facility previously classified assets held sale book value 74 million proceeds sale facility 90 million resulting gain 12 million payment loan balance comerica bank closing costs 387000 recorded gain sale property equipment june 2003 decided discontinue marketing supporting electronic components tester business recorded charges cost sales 444000 primarily attributable excess inventory equipment 393000 primarily attributable warranty buyouts 259000 primarily attributable expected future warranty returns quarters ended june 30 2003 september 30 2003 december 31 2003 respectively sales electronic components tester business immaterial periods presented september 2002 sold ibusphoenix inc business 70 million debt certain considerations also incurred 76 million charges related goodwill impairment asset write downs related business loss disposition totaled 70 million fully reserved note due risks collectability 2003 received final settlement payments 475000 new bus corporation partial recovery 70 million note recovery reflected “gainloss sale businesses” consolidated statements operations september 2002 also sold noncore teknaseal glasstometal seals business 55 million cash 10 million held escrow account subsequently released us succeeding four calendar quarters approximately 400000 55 million proceeds paid certain former employees teknaseal recorded net gain 200000 fourth quarter 2002 recorded additional gains 695000 year ended december 31 2003 discontinued operations december 2003 maxwell technologies sa swiss subsidiary formerly known montena components ltd sold fixed assets substantially inventory warranty employee agreement obligations winding equipment business located matran switzerland metar sa new company formed former ceo montena components metar employee business sold 324000 recognized loss disposal net tax 529000 new metar company completed january june 2004 certain work progress related customer orders received maxwell technologies sa date sale concluded continuing involvement winding equipment business second quarter 2004 shipment final metar product order obligated fulfill accordance sfas 144 accounting impairment disposal longlived assets results operations related winding equipment business recorded continuing operations first quarter 2004 reclassified discontinued operations fiscal 2004 2003 2002 winding equipment business included discontinued operations sales 10 million cost sales 205000 2004 reflected income discontinued operations september 2002 purepulse suspended operations recorded noncash charges approximately 17 million cash charges approximately 05 million severance charges purepulse designing developing systems generate extremely intense broadspectrum pulsed light purify water inactivate viruses pathogens contaminate vaccines products sourced human animal tissues plasma derivatives transfusion blood components biopharmaceuticals although purepulse raised 5 million equity capital millipore maxwell march 2002 venture capital equity markets deteriorated time purepulse able raise additional capital fund operations march 2001 sold government systems business 207 million recorded gain 11 million net 27 million provision mainly related ongoing lease obligations december 31 2004 2003 remaining lease obligation expires april 2006 650000 reserve provision 608000 11 million reserve provision 600000 respectively events 2004 2003 made assessment company’s goodwill intangible assets determined impairment accordingly goodwill impairments recognized years ended december 31 2004 2003 goodwill impairments 53 million year ended december 31 2002 amortization intangibles 76000 483000 years ended december 31 2004 2003 2002 respectively relates amortization developed core technology customer backlog acquired conjunction acquisition montena amortization ultracapacitor intellectual property recorded conjunction merger electronic components group majorityowned subsidiary maxwell purchase shares already owned us interest income net 46000 13000 42000 years ended december 31 2004 2003 2002 respectively used proceeds sales businesses assets 2002 pay debt excess invested high quality shortterm marketable investments investment impairment 500000 recorded 2001 related maxwell’s ownership approximately 1 privatelyheld company involved support services areas information technology system software integration engineering technical services contract various government agencies upon review annual financial statements discussions chief financial officer informed company negative net worth decided restructure operations discontinue information technology software integration engineering businesses focus government contracting based facts uncertainty surrounding ability return profitability concluded investment impaired fully reserved investment received 209000 sale privately held company 26000 previously recorded us investment 2003 recovered 183000 500000 recorded impaired 2001 reflected recovery gain loss sale business minority interest income consolidated subsidiaries 200000 year ended december 31 2002 acquired outstanding minority interests including stock options majorityowned subsidiaries except purepulse see “discontinued operations” exchange shares options maxwell fixed asset impairments 23 million year ended december 31 2002 impairment charges recorded 2002 related fixed assets associated ibus computing systems business abandoned computers computer systems infrastructure directly related supporting ibusphoenix business impairment also included fixed assets associated transformer harness production ibusphoenix power systems group production transformers harnesses subsequently outsourced restatement consolidated financial statements year ended december 31 2002 restated consolidated financial statements reflect adjustments company’s consolidated financial statements year ended december 31 2002 previously reported form 10k adjustments giving rise need restate financial statements year ended december 31 2002 relate stockbased compensation arising april 2002 repurchase remaining minority interests merger ibusphoenix electronic components group subsidiaries connection transactions exchanged outstanding vested unvested options purchase shares common stock subsidiaries options acquire shares maxwell result fully described note 7 consolidated financial statements stockbased compensation expense totaling approximately 19 million incurred connection exchange vested subsidiary stock options based difference fair market value common stock respective merger date exercise price modified stock option assessed impact error historical financial statements concluded required restate financial statements result company restated consolidated financial statements year ended december 31 2002 principal effect increase net loss approximately 19 million correction impact net stockholders’ equity cash flows used continuing operations additional detail respect impact restatement results operations reported note 1 consolidated financial statements liquidity capital resources changes cash flow year ended december 31 2004 cash used operating activities 91 million compared 43 million year ended december 31 2003 89 million year ended december 31 2002 use cash years ended december 31 2004 2003 primarily attributed operating losses continuing operations capital expenditures years ended december 31 2004 2003 2002 30 million 24 million 18 million respectively 2002 cash 30 million used company’s third quarter part purchase price montena capital expenditures 2005 expected approximately 37 million approximately equal annual depreciation amortization charges restructuring plan started 1999 completed early 2004 started realizing benefit restructuring effort 2004 indicators productivity lower production cost new product introductions increased reduction overhead increased productivity continue improve gross margins reduce operating expenses percentage revenues 2005 february 2004 secured 30 million line credit us bank renewed march 2005 available working capital needs limited amount eligible assets line used date also line credit approximately 18 million swiss bank working capital switzerland line fully used december 31 2004 2003 also approximately 10 million term loan available swiss bank capital equipment purchases used december 31 2004 approximately 107 million cash equivalents approximately 21 million shortterm investments end december 2004 shelf registration statement form s3 file securities exchange commission raised approximately 101 million november 2004 sale shares common stock registered pursuant shelf registration statement approximately 55 million shelf registration statement remains available us raising capital believe liquidity provided existing cash equivalents investments marketable securities borrowings available lines credit availability form s3 provide sufficient capital fund capital equipment working capital requirements potential operating losses next 12 months failure achieve 2005 expected cash flows operating activities obtain additional debt equity investments necessary available would material adverse effect us net accounts receivable increased 69 million december 31 2004 59 million december 31 2003 primary reasons increase due longer credit terms larger customers slow payment one large customer net inventory balance increased 81 million december 31 2004 73 million december 2003 increase due increase ultracapacitor business inventory reserves december 31 2004 40 million compared 32 million december 31 2003 accounts payable accrued liabilities december 31 2004 73 million compared 82 million december 31 2003 primary reason reduction decrease sga expenses shortterm borrowing including current portion term loan increased 20 million december 31 2004 19 million december 31 2003 net liabilities discontinued operations december 31 2004 2003 10 million 15 million respectively shortterm longterm borrowings shortterm borrowings maxwell’s european subsidiary maxwell technologies sa 20 million swiss franc approximately 18 million bank credit agreement swiss bank renews annually borrowings credit agreement bear interest libor plus 175 repayment terms extending beyond one month date funding assets maxwell technologies sa secure borrowings credit agreement december 31 2004 full amount credit line drawn interest rate funds borrowed december 31 2004 248 approximately 334000 letters guarantee outstanding december 31 2004 primarily related customer deposits february 2004 secured 30 million credit line us bank working capital purposes subject oneyear repayment period march 2005 credit line renewed substantially terms prior credit line used date line secured accounts receivable assets company bears interest bank’s prime rate plus 175 subject minimum interest rate 575 agreement requires us maintain minimum tangible net worth 205 million plus 50 consideration future equity debt transactions plus 50 net income fiscal quarter date agreement december 31 2004 company required maintain 85 banking activities investment balances bank provides credit line december 31 2004 company reduced investment balance bank less 70 company’s total investment value march 7 2005 credit line amended require 50 company’s total investment balance maintained bank company currently compliance covenants anticipates term credit line longterm borrowings maxwell technologies sa term loan maximum draw 115 million swiss francs approximately 10 million full amount term loan outstanding december 31 2004 813000 classified longterm debt borrowings term loan secured equipment purchased credit agreement bears interest swiss interbank borrowing rate plus 20 term loan borrowed quarterly advances maximum limit repaid one five years weighted average interest rate funds borrowed december 31 2004 376 maxwell sa loan montena sa pension plan 300000 swiss francs approximately 265000 paid 2004 stock sale november 2004 company raised approximately 101 million deduction expenses fees sale approximately 12 million shares common stock institutional investors company sold shares directly investors negotiated transaction underwriters used placement shares previously registered securities act 1933 amended pursuant shelf registration statement filed form s3 securities exchange commission september 2004 approximately 55 million securities available future issuance registration statement december 31 2004 government audits company subject government audits two businesses sold discontinued 2001 contract assumed acquirers company’s former defense contract business entered 1990 completed late 1990s currently audited defense department’s auditing agency company believes costs properly charged internal revenue service irs assessed company penalty approximately 262000 failure file form w2s business sold 2001 acquiring company former business write irs stating would responsible filing 2001 form w2s company submitted documentation irs defense department’s auditing service auditing contract entered microelectronics group subcontractor 1995 completed 1999 company requested release liability prime contractor assurance release obtained company incur liability management anticipate unfavorable settlement matters unfavorable audit results combination audits would result adverse potentially significant impact company’s cash flow minority equity interests subsidiaries subsidiary option programs purepulse suspended operations 2002 classified discontinued operations minority equity investors former strategic partners former employees issued shares purepulse originally incorporated former employees exercised stock options entity december 31 2004 2003 minority investors owned approximately 18 outstanding stock purepulse contractual obligations 1 operating lease obligations represent building leases us switzerland locations well vehicle leases management personnel switzerland facility 2 purchase commitments primarily represent value noncancelable purchase orders estimate purchase orders cancelled would result significant penalty company 3 debt obligations represent longterm shortterm borrowings current portion longterm debt critical accounting policies discussion analysis financial condition results operations based upon consolidated financial statements prepared accordance accounting principles generally accepted united states america refer us gaap used certain assumptions judgments preparation financial statements assumptions estimates may potentially affect reported amounts assets liabilities disclosure contingencies well reported amounts revenues expenses following may involve higher degree judgment complexity management assumptions conclusions areas may significantly impact results operations company revenue recognition fiscal year ended december 31 2004 substantially revenue derived sale manufactured products directly customers licensing fees received right manufacture proprietary boostcap® ultracapacitors product revenue recognized time product shipped title passes customer unless specific terms require otherwise general discounts offered right return license fee revenues recognized performance requirements met fee fixed determinable collection fees probable prior years certain continuing discontinued segments involved revenues longterm shortterm fixed price contracts cost plus contracts us government directly prime contractor revenues including estimated profits recognized time costs incurred included provisions anticipated losses contracts subject rate audits could result reduction revenue excess estimated provisions turn could increase losses periods reduction occurs production costs anticipation increase production capacity expected efficiencies economies scale new production line expected reduce future costs accepted ultracapacitor orders priced current production costs orders scheduled shipments various times third quarter 2005 estimated production costs quarter 2005 order determine estimated loss fulfill commitments december 31 2004 estimates include taking account installation commencing early 2005 new ultracapacitor production line facility located rossens switzerland new production line create production efficiencies thereby reducing production costs production efficiencies gained process line implemented production volume increases actual production costs 2005 may differ estimates efficiencies could result adverse impact results operations accounts receivable establish maintain customer credit limits based references financial information creditworthiness payment history accounts receivable consist primarily amounts due us normal business activities maintain allowance doubtful accounts reflect anticipated bad debts based past collection history specific risks identified portfolio determine bad debt reserve based analysis make measure reserve requirements establish specific reserves recognize inability customer pay obligation become aware increasing negative changes financial condition customers economic conditions change adversely may increase allowance increase allowances would adversely impact financial condition results operations remaining lease obligation discontinued operations provided estimate liability purepulse associated remaining lease obligation recorded discontinued operations making estimate considered factors commercial real estate market including estimate able sublease terminate buy remaining lease obligation guarantee able conclude lease obligation amount accrued could require additional charges excess obsolete inventory value inventories lower cost market assessing ultimate realization inventories make judgments future demand requirements compare current committed inventory levels markets company’s products extremely competitive characterized rapid technological change new product development product obsolescence evolving industry standards addition price competition intense significant price erosion generally occurs life product recorded significant charges reserves recent periods reflect changes market conditions believe future events subject change revisions estimates may significant adverse impact balance sheet statement operations longlived assets intangible assets longlived assets property equipment intangible assets reviewed impairment whenever events changes business circumstances indicate carrying value longlived asset may recoverable accordance sfas 144 “accounting impairment disposal longlived assets” significant assumptions analysis impairment involve estimates future undiscounted cash flows use cash flow assumptions consistent business plans consider relevant information determine carrying value longlived asset group may recoverable permanent impairment charge recorded amount carrying value longlived assets exceeds fair market value changes business circumstances key assumptions used estimating undiscounted cash flows may required recognize impairment charge reduce carrying value longlived assets goodwill account goodwill accordance sfas 142 “goodwill intangible assets” standard requires goodwill longer amortized subject annual impairment test event occurs circumstances change reasonably possible impairment may exist first step consists estimating fair value reporting unit comparing estimated fair values carrying values reporting units includes allocated goodwill fair value less carrying value second step performed compute amount impairment determining implied fair value goodwill implied fair value goodwill residual fair value derived deducting fair value reporting unit’s assets liabilities estimated fair value calculated step one impairment charge represents excess carrying amount reporting units’ goodwill implied fair value goodwill determined fair value reporting units based discounted cash flow model using revenue profit forecasts assessing implied fair value goodwill made assumptions regarding estimates future cash flows operating factors significant assumptions analysis impairment involve estimates revenue expense forecasts reporting unit changes business circumstances key assumptions used estimating fair value reporting unit may required recognize impairment charge reduce carrying value goodwill cannot say certainty may incur charges impairment goodwill future fair value maxwell technologies maxwell sa decrease due market conditions revisions assumptions unanticipated circumstances additional impairment charges adversely affect results operations valuation allowance deferred tax assets valuation allowance provided deferred tax assets likely items either expire able realize benefit future deductibility uncertain general companies recent history operating losses faced difficult burden proof ability generate sufficient future income order realize benefit deferred tax assets determined appropriate record valuation allowance december 31 2004 deferred tax assets based recent history losses amounts expected likely realizable deferred tax assets still available us use future offset taxable income would result recognition tax benefit reduction company’s effective tax rate impact inflation believe inflation material impact results operations fiscal years threeyear period ended december 31 2004 however assurance future inflation would adverse impact operating results financial condition new accounting pronouncements december 2004 financial accounting standards board “fasb” issued sfas 123 revised 2004 sharebased payment sfas 123r revision sfas 123 accounting stockbased compensation sfas 123 sfas 123r requires sharebased payments employees including grants employee stock options recognized financial statements based fair values allow previously permitted pro forma disclosure alternative financial statement recognition sfas 123r supercedes accounting principles board opinion 25 accounting stock issued employees apb 25 related interpretations amends sfas 95 statement cash flows sfas 123r scheduled effective beginning third quarter fiscal 2005 sfas 123r allows either prospective recognition compensation expense retroactive recognition may date back original issuance sfas 123 interim periods year adoption company currently evaluating transition methods impact adoption sfas 123r cannot predicted time depend method adoption elected fair value number sharebased payments granted future however company adopted sfas 123r prior periods magnitude impact standard would approximated impact sfas 123 assuming application blackscholes model described disclosure pro forma net loss pro forma loss per share note 1 notes consolidated financial statements sfas 123r also requires benefits tax deductions excess recognized compensation cost reported financing cash flow rather operating cash flow required current literature requirement reduce net operating cash flows increase net financing cash flows periods adoption november 2004 fasb issued sfas 151 “inventory costs amendment arb 43 chapter 4” requiring companies treat idle facility costs abnormal handling costs freight wasted materials current period charges rather portion inventory costs effective date annual periods beginning june 15 2005 company evaluated sfas 151 management believes impact company’s results operations financial position item 7aitem 7 management’s discussion analysis financial condition results operations following discussion financial condition results operations years ended december 31 2005 2004 2003 read conjunction consolidated financial statements related notes included elsewhere annual report addition discussion historical information contain forwardlooking statements subject risks uncertainties including estimates based judgment determining allowance inventory reserves bad debt allowance deferred tax assets tax expenses future estimation liquidity fiscal year 2006 may significantly different actual results negative changes revenues affect estimation cost sales research development selling general administrative aspects business executive summary begin management’s discussion analysis financial condition results operations overview business strategic plan subsequently provide summary highlights recently completed fiscal year followed discussion different aspects business proceed page 32 discuss results operations year ended december 31 2005 compared year ended december 31 2004 year ended december 31 2004 compared year ended december 31 2003 thereafter beginning page 36 provide analysis changes balance sheet cash flows discuss capital requirements financing activities section entitled “liquidity capital resources” beginning page 39 discuss critical accounting policies impact inflation business new accounting pronouncements overview maxwell technologies inc delaware corporation originally incorporated 1965 name “maxwell laboratories inc” 1996 changed name maxwell technologies inc presently headquartered san diego california developer manufacturer innovative costeffective energy storage power delivery solutions maxwell operates one operating segment called high reliability two manufacturing locations san diego california rossens switzerland comprised three product lines • ultracapacitors primary focus ultracapacitors energy storage devices possess unique combination high power density extremely long operational life ability charge discharge rapidly boostcap® ultracapacitor cells multicell packs modules provide highly reliable energy storage power delivery solutions applications multiple industries including transportation energy consumer industrial electronics telecommunications • highvoltage capacitors condis® highvoltage capacitors extremely robust devices designed manufactured perform reliably decades climates products include grading coupling capacitors capacitive voltage dividers used ensure safety reliability electric utility infrastructure applications involving transport distribution measurement highvoltage electrical energy • radiationmitigated microelectronic products radiationmitigated microelectronic products include highperformance highdensity power modules memory modules single board computers incorporate proprietary radpak® packaging shielding technology novel architectures enable withstand environmental radiation effects perform reliably space aim design manufacture products perform reliably life products systems integrated seek achieve high reliability application proprietary technologies rigorously controlled design development manufacturing test processes high reliability strategy emphasizes development marketing products enable us achieve higher profit margins commodity electronic components systems year ended december 31 2004 completed discontinuance winding equipment product line segment sold december 2003 shipment final product order obligated fulfill therefore financial statements fiscal 2004 2003 2002 include reclassification winding equipment product line segment discontinued operations 2005 highlights 2005 reported revenue 454 million net loss 63 million 039 per diluted share versus revenue 322 million net loss 91 million 062 per diluted share fiscal 2004 lower net loss result higher gross margin driven increased revenue across product lines reduced production costs fiscal 2005 continued focus developing strategic alliances introducing new products improving liquidity reducing product costs operating expenses efforts described • february 2005 northrop grumman space technology ngst selected maxwell’s scs750 single board computer spacecraft control payload data management national polarorbiting operational environmental satellite system npoess began hardware deliveries threemonth period ended september 30 2005 • march 2005 received approval united states advanced battery consortium usabc commence development compact lowcost highperformance 48volt ultracapacitorbased electrical energy storage module applications passenger vehicles • april 2005 diehl luftfahrt elektronik gmbh leading producer aerospace systems controls selected maxwell’s boostcap® ultracapacitors power emergency actuation systems doors evacuation slides passenger aircraft including new airbus 380 jumbo jet • july 2005 maxwell raised approximately 54 million sale common stock pursuant previously filed shelf registration statement • july 2005 maxwell announced orbital sciences corp selected maxwell’s scs750 single board computer sbc manage payload data nasa’s glory earth science mission glory threeyear mission investigate composition greenhouse gasses effect solar radiation earth’s environment • august 2005 maxwell announced microelectronics unit certified stringent as9100 quality assurance standard suppliers aerospace industry certification granted extensive audit maxwell’s microelectronics unit verified meets aerospace industryspecific quality assurance standards design development production installation servicing • september 2005 maxwell announced compact fully integrated 48volt multicell boostcap® ultracapacitor module ease integration heavyduty transportation industrial applications • october 2005 maxwell announced bcap0350 “d cell” ultracapacitor cells multicell packs modules successfully completed underwriters laboratories’ ul recognition process qualifying bear ul recognized component mark • december 2005 maxwell raised approximately 237 million net transaction fees completion private placement convertible debentures results operations year ended december 31 2005 compared year ended december 31 2004 revenue year ended december 31 2005 454 million compared 322 million year ended december 31 2004 represents increase 132 million 41 prior year half revenue increase came boostcap product line experienced increased demand products well growth usabc contract revenue maxwell expects continued strong demand boostcap products 2006 however contract revenue expected lower 2006 approximately 40 revenue increase came high tension product line experienced strong demand customers asia management expects high tension revenue continue increase 2006 lower rate experienced 2005 microelectronics revenue provided approximately 15 2005 revenue growth primarily due revenue npoess contract maxwell expects microelectronics revenue continue growing 2006 driven npoess contract product demand revenue year ended december 31 2004 included 10 million license fees received yeonglong technologies inc “yec” 10 million lowmargin magneticsbased products neither continued 2005 gross profit gross profit 2005 approximately 140 million 31 revenue compared 69 million 21 revenue prior year included 2005 gross profit impact contract revenue usabc npoess contracts two contracts provided 7 total 31 gross profit 2005 included 2004 gross profit impact license fee revenue yec provided 3 total 21 gross profit 2004 excluding impact contract license fee revenue gross profit improvement 2005 driven primarily boostcap product line drove product costs selling prices accepted end 2004 boostcap volume increases drove 61 gross profit improvement remainder driven price reserves 23 million recorded customer orders received 2004 priced projected production costs fully utilized 2005 additional reserves approximately 618000 recorded first third quarters 2005 customer orders received priced production costs received customer order subsequent december 31 2005 priced projected production costs require reserve approximately 352000 first quarter 2006 expect continue driving production costs meet pricing requirements markets compete additional reserves may required future orders depending degree able reduce product costs time orders placed selling general administrative sga expense sga expenses 141 million 2005 compared 102 million 2004 2005 recorded 361000 stock compensation expense 614000 severance pay versus 112000 severance pay 2004 sales commissions increased 531000 audit fees increased 427000 2005 versus 2004 voluntary reduction executive pay realized 2004 reinstated 2005 accounts 354000 increased sga cost higher compensation costs excluding executive pay 942000 driven primarily new hires supporting growth stock compensation expense expected increase future implement requirements fas123r first quarter 2006 milestones achieved related restricted stock awards research development rd expense rd expenses 72 million 2005 compared 55 million 2004 increased rd spending result new product development efforts boostcap microelectronics product lines well higher spending intellectual property efforts patent filings boostcap development efforts included electrode ultracapacitor module designs microelectronics development efforts focused single board computer development expect introduce large number new boostcap products 2006 therefore expect continue investment rd levels similar 2005 provision benefit income taxes recorded 49000 tax provision 2005 compared 712000 tax provision 2004 provisions recorded relate swiss subsidiary swiss subsidiary tax holiday extended 2005 additional five years extended tax holiday reduced maxwell’s provision income taxes 158000 2005 recorded income tax benefit net loss fiscal 2005 due uncertainty surrounding realization associated deferred tax asset however record deferred tax asset approximately 25 million deferred tax liability similar amount embedded conversion rights convertible debentures amounts netted balance sheet additionally established valuation allowance deferred tax assets related convertible debentures become profitable unlikely cash payments required income taxes time net operating loss carryforwards available discontinued operations winding equipment product line included discontinued operations sales 10 million cost sales 205000 2004 reflected income discontinued operations activity related discontinued winding equipment product line 2005 see discussion discontinued operations 2004 2003 comparison detail regarding disposal transaction year ended december 31 2004 compared year ended december 31 2003 revenue year ended december 31 2004 322 million compared 352 million year ended december 31 2003 represents decrease 30 million 8 prior year decrease revenue caused planned phase lowmargin magneticsbased products fit within company’s focus high reliability products first quarter 2004 recorded final 10 million payment license fees received yec exchange right manufacture boostcap® ultracapacitors china license fee payment shown separate line item consolidated statements operations revenues year ended december 31 2003 included 40 million license fees received yec high reliability product revenues fiscal 2004 2003 approximately 312 million gross profit gross profit 2004 approximately 69 million 21 revenue compared 66 million 19 revenue prior year product gross profit excluding yec license fees approximately 59 million 19 product revenue 2004 compared 26 million 8 product revenue 2003 product gross profit 2004 improved dramatically approximately 33 million 126 compared prior year due focus core high reliability product lines phaseout lowmargin product lines improved manufacturing efficiencies improvement product gross profit partially offset reserves recorded approximately 500000 first quarter 2004 approximately 440000 third quarter 2004 approximately 14 million fourth quarter 2004 ultracapacitor orders received priced production costs orders placed third fourth quarters 2004 part larger supply agreement also recorded reserves approximately 450000 third quarter approximately 730000 fourth quarter 2004 excess obsolete inventories selling general administrative sga expense sga expenses 102 million 2004 compared 114 million 2003 represents decrease 12 million 11 2003 recorded approximately 800000 charges related reserves loans made former subsidiary accruals severance former chairman company reductions labor force fourth quarter 2003 also contributed overall decrease 2004 executive pay voluntarily reduced 30 2004 lowered expenses 328000 compared prior year savings resulting reductions labor force executive pay partially offset increased costs approximately 10 million associated sarbanesoxley compliance activities research development rd expense rd expenses 55 million 2004 compared 58 million 2003 represents decrease approximately 300000 5 rd expenses varied slightly year due nonheadcount expenses relating materials outside services rd efforts focused singleboard computer ultracapacitor electrode packaging technologies provision benefit income taxes 2004 recorded 712000 provision compared benefit 96000 2003 provision booked 2004 related primarily expected change tax rates applicable net deferred tax liabilities swiss subsidiary swiss subsidiary tax holiday set expire 2005 therefore existing tax liabilities would realized higher nontax holiday rate tax holiday actually extended 2005 income tax benefit recorded 2003 related losses incurred swiss subsidiary offset taxable income 2004 discontinued operations december 2003 maxwell technologies sa swiss subsidiary formerly known montena components ltd sold fixed assets substantially inventory warranty employee agreement obligations winding equipment business located matran switzerland metar sa new company formed former ceo montena components metar employee business sold 324000 recognized loss disposal net tax 529000 new metar company completed january june 2004 certain work progress related customer orders received maxwell technologies sa date sale concluded continuing involvement winding equipment business second quarter 2004 shipment final metar product order obligated fulfill accordance statement financial accounting standards “sfas” 144 accounting impairment disposal longlived assets results operations related winding equipment business recorded continuing operations first quarter 2004 reclassified discontinued operations fiscal 2004 2003 winding equipment product line included discontinued operations sales 10 million cost sales 205000 2004 reflected income discontinued operations march 2001 sold government systems business 207 million recorded gain 11 million net 27 million provision mainly related ongoing lease obligations december 31 2005 2004 remaining lease obligation expires april 2006 204000 fully reserved 650000 reserve provision 608000 respectively divestitures december 2003 sold former ibus manufacturing administrative facility san diego facility previously classified assets held sale book value 74 million proceeds sale facility 90 million resulting gain 12 million payment loan balance comerica bank closing costs 387000 recorded gain sale property equipment june 2003 decided discontinue marketing supporting electronic components tester business recorded charges cost sales 444000 primarily attributable excess inventory equipment 393000 primarily attributable warranty buyouts 259000 primarily attributable expected future warranty returns quarters ended june 30 2003 september 30 2003 december 31 2003 respectively reversed 177000 warranty reserves related tester business q4 2005 sales electronic components tester business immaterial periods presented september 2002 sold ibusphoenix inc business 70 million debt certain considerations also incurred 76 million charges related goodwill impairment asset writedowns related business loss disposition totaled 70 million fully reserved note due risks collectability 2003 received final settlement payments 475000 new bus corporation partial recovery 70 million note recovery reflected “gainloss sale businesses” 2003 consolidated statements operations september 2002 also sold noncore teknaseal glasstometal seals business 55 million cash 10 million held escrow account subsequently released us succeeding four calendar quarters recorded net gain 200000 fourth quarter 2002 recorded additional gains 695000 year ended december 31 2003 events 2005 2004 2003 made assessment company’s goodwill intangible assets determined impairment accordingly goodwill impairments recognized years ended december 31 2005 2004 2003 amortization intangibles 76000 years ended december 31 2005 2004 2003 relates amortization developed core technology acquired conjunction 2002 acquisition montena components amortization ultracapacitor intellectual property recorded conjunction 2003 merger electronic components group majorityowned subsidiary maxwell purchase shares already owned us interest income net 198000 46000 13000 years ended december 31 2005 2004 2003 respectively large increase net interest income 2005 due investments marketable securities funds received stock offerings convertible debt issuance gain embedded derivative liabilities 800000 related convertible debentures issued december 2005 initial fair value embedded conversion features warrants 92 million december 20 2005 treated discount 25 million debenture amortized fouryear life note addition 13 million prepaid fees related issuance convertible debt also amortized fouryear life note 100000 amortization debt discount prepaid fees period december 20 2005 december 31 2005 full quarter’s worth amortized debt discount prepaid fees would 904000 quarter 2006 using effective interest method fair value calculation december 31 2005 impacted change maxwell’s stock price decreased 1 per share december 20 2005 december 31 2005 1417 per share fair value embedded conversion features warrants recalculated reporting period difference value prior period reflected statement operations maxwell’s stock price 17 per share march 31 2006 would recognize 19 million expense statement operations due fair value calculation first quarter fiscal 2006 future impact fair value recalculations difficult predict given historical volatility maxwell’s stock price however noncash item impact cash flow investment impairment 500000 recorded 2001 related maxwell’s ownership approximately 1 privatelyheld company involved support services areas information technology system software integration engineering technical services contract various government agencies upon review annual financial statements discussions chief financial officer informed company negative net worth decided restructure operations discontinue information technology software integration engineering businesses focus government contracting based facts uncertainty surrounding ability return profitability concluded investment impaired fully reserved investment 2003 recovered 183000 500000 recorded impaired 2001 reflected recovery gain sale business liquidity capital resources changes cash flow year ended december 31 2005 cash used operating activities 51 million compared 88 million year ended december 31 2004 55 million year ended december 31 2003 use cash years ended december 31 2005 2004 2003 primarily attributed operating losses continuing operations restructuring plan started 1999 completed early 2004 started realizing benefit restructuring effort 2004 2005 performance indicators productivity lower production cost new product introductions positive impact reducing net cash used operating activities increased productivity continue improve gross margins reduce operating expenses percentage revenues 2006 2005 accounts receivable inventory balances grew support higher revenue levels accrued compensation increased due severance certain executives capital expenditures years ended december 31 2005 2004 2003 38 million 30 million 24 million respectively capital spending focused automating production processes high voltage boostcap product lines capital expenditures 2006 expected approximately 62 million invested primarily production equipment increase capacity higher customer demand boostcap products february 2004 secured 30 million line credit us bank renewed 2005 available working capital needs limited amount eligible assets line used date decided renew credit line expired january 31 2006 also line credit 2 million swiss franc approximately 15 million swiss bank working capital switzerland line fully used december 31 2005 2004 also 115 million swiss franc approximately 874000 term loan available swiss bank capital equipment purchases approximately 699000 outstanding december 31 2005 approximately 338 million cash equivalents restricted cash approximately 696000 shortterm investments end december 2005 raised net issuance costs approximately 101 million november 2004 54 million july 2005 sale shares common stock raised approximately 237 million net issuance fees convertible debentures december 2005 addition warrants issued part convertible debt would provide 75 million additional liquidity fully exercised believe liquidity provided existing cash equivalents investments marketable securities borrowing available line credit provide sufficient capital fund capital equipment working capital requirements potential operating losses next 12 months shortterm longterm borrowings shortterm borrowings maxwell’s european subsidiary maxwell technologies sa 20 million swiss franc approximately 15 million december 31 2005 bank credit agreement swiss bank renews annually borrowings credit agreement bear interest 252 borrowings credit agreement unsecured december 31 2005 full amount available credit line drawn maxwell sa 10 million swiss francs approximately 760000 december 31 2005 overdraft credit agreement swiss bank renews annually borrowings credit agreement bear interest 50 borrowings credit agreement unsecured december 31 2005 none overdraft credit line drawn approximately 49000 letters guarantee outstanding december 31 2005 primarily related customer deposits swiss subsidiary february 2004 secured 30 million credit line us bank working capital purposes subject oneyear repayment period march 2005 credit line renewed substantially terms prior credit line used date management decided renew line 2006 expired january 31 2006 line secured accounts receivable assets company bore interest bank’s prime rate plus 175 subject minimum interest rate 575 agreement required us maintain minimum tangible net worth 357 million plus 50 consideration future equity debt transactions plus 50 net income fiscal quarter date agreement december 31 2005 company required maintain 50 banking activities investment balances bank providing credit line company compliance covenants december 31 2005 longterm borrowings maxwell technologies sa term loan maximum draw 115 million swiss francs approximately 874000 financing specific capital equipment expenditures borrowings term loan secured equipment purchased credit agreement bears interest swiss interbank borrowing rate plus 20 term loan borrowed maximum limit repaid five years december 31 2005 approximately 699000 outstanding weighted average interest rate funds borrowed december 31 2005 40 maxwell sa loan montena sa pension plan 300000 swiss francs approximately 265000 paid 2004 convertible debentures december 2005 issued 25 million aggregate principal amount senior subordinated convertible debentures due payable december 2007 december 2009 warrants purchase 394737 shares maxwell common stock net proceeds issuance totaled approximately 237 million direct placement costs approximately 13 million debentures convertible 1315790 shares maxwell’s common stock debentures warrants convertible 1900 per share subject adjustment upon certain events sale equity us december 31 2005 interest rate debentures 5375 shares associated subordinated convertible debt stock warrants required registered march 20 2006 penalty 12500 per day accrue shares registered deadline debentures agreement requires us maintain minimum cash balance least 80 million amount classified restricted cash december 31 2005 stock sale november 2004 july 2005 company raised approximately 101 54 million respectively deduction expenses fees sale approximately 17 million shares common stock institutional investors company sold shares directly investors negotiated transaction underwriters used placement shares previously registered securities act 1933 amended pursuant shelf registration statement filed form s3 securities exchange commission september 2004 discontinued operations cash discontinued operations fluctuated use cash 2003 2005 source cash 2004 use cash discontinued operations caused primarily purepulse business vacant facilities associated government systems business source cash 2004 result discontinued winding equipment business generated sales 1 million 2004 offset use cash discontinued operations company expects use cash discontinued operations significantly lower 2006 2005 lease vacant facilities expires april 2006 government audits company subject government audits two businesses sold discontinued 2001 contract assumed acquirers company’s former defense contract business entered 1990 completed late 1990s audited defense department’s auditing agency defense department’s audit completed 2005 company reimbursed immaterial amount finalize audit internal revenue service irs assessed company penalty approximately 262000 failure file form w2s business sold 2001 acquiring company former business write irs stating would responsible filing 2001 form w2s 2005 irs fully released company 262000 penalty defense department’s auditing agency auditing contract entered microelectronics group subcontractor 1995 completed 1999 company requested release liability prime contractor assurance release obtained company incur liability management anticipate unfavorable settlement matter unfavorable results remaining audit would result adverse impact company’s cash flow events 2005 customer brought attention possible defect product source another manufacturer resell customer process investigating matter yet able determine warranty exposure maxwell may therefore recorded warranty reserve provision carry insurance believe would cover portion obligation might ultimately arise matter minority equity interests subsidiaries purepulse suspended operations 2002 classified discontinued operations minority equity investors former employees issued shares purepulse originally incorporated former employees exercised stock options entity december 31 2005 2004 minority investors owned approximately 18 outstanding stock purepulse contractual obligations 1 operating lease obligations represent building leases us switzerland locations well vehicle leases management personnel switzerland facility 2 purchase commitments primarily represent value noncancelable purchase orders estimate purchase orders cancelled would result significant penalty company 3 debt obligations represent longterm shortterm borrowings current portion longterm debt critical accounting policies discussion analysis financial condition results operations based upon consolidated financial statements prepared accordance accounting principles generally accepted united states america refer us gaap used certain assumptions judgments preparation financial statements assumptions estimates may potentially affect reported amounts assets liabilities disclosure contingencies well reported amounts revenues expenses following may involve high degree judgment complexity management assumptions conclusions areas may significantly impact results operations company revenue recognition fiscal year ended december 31 2005 substantially revenue derived sale manufactured products directly customers revenue recognized time costs incurred certain longterm contracts licensing fees received right manufacture proprietary boostcap® ultracapacitors another revenue category fiscal years ended december 31 2004 2003 product revenue recognized according guidelines staff accounting bulletin numbers 101 104 title passes customer either shipment facilities receipt facility depending shipping terms provided collectability reasonably assured general discounts offered right return revenue recognized time costs incurred calculated percentage completion basis accordance statement position 811 “accounting performance constructiontype certain productiontype contracts” limited funding prime contractor license fee revenues recognized performance requirements met fee fixed determinable collection fees probable prior years certain continuing discontinued segments involved revenues longterm shortterm fixed price contracts cost plus contracts us government directly prime contractor revenues including estimated profits recognized time costs incurred included provisions anticipated losses contracts subject rate audits could result reduction revenue excess estimated provisions turn could increase losses periods reduction occurs excess obsolete inventory value inventories lower cost market assessing ultimate realization inventories make judgments future demand requirements compare current committed inventory levels markets company’s products extremely competitive characterized rapid technological change new product development product obsolescence evolving industry standards addition price competition intense significant price erosion generally occurs life product recorded significant charges reserves recent periods reflect changes market conditions believe future events subject change revisions estimates may significant adverse impact balance sheet statement operations goodwill account goodwill accordance sfas 142 “goodwill intangible assets” standard requires goodwill longer amortized subject annual impairment test event occurs circumstances change reasonably possible impairment may exist first step consists estimating fair value reporting unit comparing estimated fair values carrying values reporting units includes allocated goodwill fair value less carrying value second step performed compute amount impairment determining implied fair value goodwill implied fair value goodwill residual fair value derived deducting fair value reporting unit’s assets liabilities estimated fair value calculated step one impairment charge represents excess carrying amount reporting units’ goodwill implied fair value goodwill determined fair value reporting units based market value company’s stock market value company’s stock december 31 2005 exceeded carrying values reporting units therefore second step calculation determine implied fair value goodwill necessary cannot say certainty may incur charges impairment goodwill future fair value maxwell technologies maxwell sa decrease due market conditions revisions assumptions unanticipated circumstances additional impairment charges adversely affect results operations convertible debentures account convertible debentures warrants accordance sfas 133 “accounting derivative instruments hedging activities” standard requires conversion feature convertible debt separated host contract presented derivative instrument certain conditions met eitf 0019 “accounting derivative financial instruments indexed potentially settled company’s stock” eitf 052 “the meaning “conventional convertible debt instrument” issue 0019” also analyzed determine whether debt instrument considered conventional convertible debt instrument classified stockholders’ equity convertible debentures issued december 20 2005 evaluated determined conventional convertible therefore certain terms provisions including liquidating damages associated registration rights agreement embedded conversion option bifurcated accounted derivative liability instrument stock warrants issued conjunction convertible debt december 20 2005 also evaluated determined derivative instrument therefore classified liability balance sheet accounting guidance also requires conversion feature warrants recorded fair value reporting period changes fair value recorded statement operations blackscholes valuation calculation applied conversion features warrants december 20 2005 december 31 2005 december 20 2005 valuation used effective debt discount instruments represent debt discount amortized fouryear life debentures using effective interest method december 31 2005 valuation used record fair value instruments end reporting period difference prior period calculations reflected statement operations company’s stock price one input used blackscholes calculation significant impact calculation 1 per share change company’s stock price december 20 2005 december 31 2005 generated 800000 gain embedded derivative liabilities statement operations volatility company’s stock price likely generate large swings valuations conversion features warrants future periods impact inflation believe inflation material impact results operations fiscal years threeyear period ended december 31 2005 however assurance future inflation would adverse impact operating results financial condition new accounting pronouncements december 2004 financial accounting standards board fasb issued sfas 123 revised 2004 sharebased payment sfas 123r revision sfas 123 accounting stockbased compensation sfas 123 sfas 123r requires sharebased payments employees including grants employee stock options recognized financial statements based fair values allow previously permitted pro forma disclosure alternative financial statement recognition sfas 123r supercedes accounting principles board opinion 25 accounting stock issued employees related interpretations amends sfas 95 statement cash flows sfas 123r allows either modified prospective recognition compensation expense retroactive recognition may date back original issuance sfas 123 interim periods year adoption company planning adopt modified prospective transition method april 15 2005 securities exchange commission issued final rule effective dates application sfas 123r sfas 123r effective beginning first interim annual reporting period company’s first fiscal year beginning june 15 2005 presently company elected adopt statement effective january 1 2006 impact adoption sfas 123r cannot predicted time depend method adoption elected fair value number sharebased payments granted future however company adopted sfas 123r prior periods magnitude impact standard would approximated impact sfas 123 assuming application blackscholes model described disclosure pro forma net loss pro forma loss per share sfas 123r also requires benefits tax deductions excess recognized compensation cost reported financing cash flow rather operating cash flow required current literature requirement reduce net operating cash flows increase net financing cash flows periods adoption november 2004 fasb issued sfas 151 inventory costs amendment arb 43 chapter 4 requiring companies treat idle facility costs abnormal handling costs freight wasted materials current period charges rather portion inventory costs sfas 151 effective annual periods beginning june 15 2005 company implemented sfas 151 impact company’s results operations financial position may 2005 fasb issued sfas 154 accounting changes error corrections replacement apb opinion 20 fasb statement 3 statement replaces apb opinion 20 accounting changes fasb statement 3 reporting accounting changes interim financial statements changes requirements accounting reporting change accounting principle company implemented sfas 154 impact company’s results operations financial position june 2005 emerging issues task force issued eitf 052 meaning “conventional convertible debt instrument” issue 0019 provides guidance application sfas 133 accounting derivative instruments hedging activities eitf 052 applied new instruments entered instruments modified periods beginning june 29 2005 company implemented eitf 052 impact require classification conversion features convertible debentures derivative instruments september 2005 emerging issues task force issued eitf 058 income tax consequences issuing convertible debt beneficial conversion feature provides guidance application sfas 109 accounting income taxes eitf 058 applied financial statements beginning first interim annual reporting period beginning december 15 2005 company implemented eitf 058 impact require recognition deferred tax asset deferred tax liability approximately 25 million related embedded conversion features convertible debentures february 2006 fasb issued sfas 155 accounting certain hybrid financial instruments statement amends fasb statements 133 accounting derivative instruments hedging activities 140 accounting transfers servicing financial assets extinguishments liabilities statement resolves issues addressed statement 133 implementation issue d1 applications statement 133 beneficial interests securitized financial assets company still evaluating impact sfas 155 balance sheet arrangements none item 7aitem 7 management’s discussion analysis financial condition results operations following discussion financial condition results operations years ended december 31 2006 2005 2004 read conjunction consolidated financial statements related notes included elsewhere annual report addition discussion historical information contain forwardlooking statements subject risks uncertainties including estimates based judgment determining allowance inventory warranty reserves bad debt allowance deferred tax assets tax expenses future estimation liquidity fiscal year 2007 may significantly different actual results negative changes revenues affect estimation cost sales research development selling general administrative aspects business executive summary begin management’s discussion analysis financial condition results operations overview business strategic plan subsequently provide summary highlights recently completed fiscal year followed discussion different aspects business proceed page 35 discuss results operations year ended december 31 2006 compared year ended december 31 2005 year ended december 31 2005 compared year ended december 31 2004 thereafter beginning page 38 provide analysis changes balance sheet cash flows discuss capital requirements financing activities section entitled “liquidity capital resources” beginning page 42 discuss critical accounting policies impact inflation business new accounting pronouncements overview maxwell technologies inc delaware corporation headquartered san diego california originally incorporated 1965 name “maxwell laboratories inc” 1996 changed name maxwell technologies inc develop manufacture market energy storage power delivery products transportation industrial telecommunications applications microelectronic products space satellite applications maxwell operates one operating segment called high reliability two manufacturing locations san diego california rossens switzerland comprised three product lines • ultracapacitors primary focus ultracapacitors energy storage devices possess unique combination high power density extremely long operational life ability charge discharge rapidly boostcap® ultracapacitor cells multicell packs modules provide highly reliable energy storage power delivery solutions applications multiple industries including transportation energy consumer industrial electronics telecommunications • highvoltage capacitors condis® highvoltage capacitors extremely robust devices designed manufactured perform reliably decades climates products include grading coupling capacitors capacitive voltage dividers used ensure safety reliability electric utility infrastructure applications involving transport distribution measurement highvoltage electrical energy • radiationmitigated microelectronic products radiationmitigated microelectronic products include highperformance highdensity power modules memory modules single board computers incorporate proprietary radpak® packaging shielding technology novel architectures enable withstand environmental radiation effects perform reliably space aim design manufacture products perform reliably life products systems integrated seek achieve high reliability application proprietary technologies rigorously controlled design development manufacturing test processes high reliability strategy emphasizes development marketing products enable us achieve higher profit margins commodity electronic components systems year ended december 31 2004 completed discontinuance winding equipment product line segment sold december 2003 shipment final product order obligated fulfill therefore financial statements fiscal 2004 include winding equipment product line segment discontinued operations 2006 highlights 2006 reported revenue 539 million net loss 165 million 098 per diluted share versus revenue 454 million net loss 63 million 039 per diluted share fiscal 2005 higher net loss result production costs associated ramp phase increased manufacturing capacity within boostcap® product line continue face challenge ramping production keeping pace demand simultaneously achieving anticipated production efficiencies cost reductions expect continue driving production costs meet pricing requirements markets compete efficiencies fully achieved anticipate achieving manufacturing costs meet pricing strategy fiscal 2006 developed strategic alliances introduced new products added capacity meet future anticipated demand provided capital improvements perfected production processes efforts described • january 2006 general hydrogen corporation placed 200000 unit threeyear purchase order boostcap® ultracapacitors enhance performance energy management hydricity® pack technology strategic pricing conditioned volume thresholds specified purchase order • february 2006 enercon gmbh one world’s leading producers wind energy systems designated maxwell preferred supplier placed 15 millionunit purchase order ultracapacitors wind turbine blade pitch systems • february 2006 maxwell announced would introduce 30 boostcap® ultracapacitor products next several months part unique product family strategy featuring new “power” “energy” product types better meet diverse requirements automotive transportation industrial consumer electronics markets september 30 2006 30 products introduced • march 2006 maxwell entered agreement supply proprietary carbon powderbased ultracapacitor electrode material yeonglong technologies co ltd yec’s new line small cell ultracapacitor products assist yec setting worldwide marketing distribution • april 2006 maxwell formed toll manufacturing alliance belton technology group major chinese manufacturer precision components flex circuits circuit boards products support maxwell’s forecasted growth boostcap® ultracapacitors multicell modules driven automotive transportation industrial electronics applications advancing toward highvolume production • april 2006 maxwell signed contract shanghai urban electric power investment development corporation suep granting suep license manufacture market ultracapacitor products based maxwell’s proprietary large cell multicell module technology brand mainland china contract also obligates suep source ultracapacitor electrode material exclusively maxwell sixyear term renewable mutual agreement • may 2006 maxwell announced introduced energy powertype c cell ultracapacitor cells multicell packs new 25volt cells external dimensions weigh onethird much familiar csize battery designed easy mounting printed circuit boards electrical devices systems • june 2006 maxwell announced signed supply agreements seven new distribution partners strengthening expanding company’s growing international channel network channel partners supply maxwell’s boostcap® ultracapacitor products provide support services company’s rapidly growing customer base transportation automotive telecommunications industrial consumer electronics markets • june 2006 maxwell announced new “quickturn” boostcap® ultracapacitor module program offers shipment within 14 days receipt customer purchase orders customconfigured multicell energy storage power delivery solutions systems requiring 540 volts quickturn program leverages standard modular building blocks proprietary balancing monitoring thermal transfer technologies establish new industry standard flexibility responsiveness customer requirements • august 2006 maxwell announced signed memorandum understanding collaborate development cold start system commercial transportation market collaboration alcoa afl automotive tier 1 supplier automotive commercial vehicle industries cold start system incorporates maxwell’s boostcap® ultracapacitors afl’s power management system provide efficient engine starting system • september 2006 maxwell announced signed memorandum understanding kromberg schubert gmbh co kg incorporate maxwell’s boostcap® ultracapacitors highly efficient lowcost engine starting system automobiles • november 2006 maxwell announced introduced compact fully integrated 125volt boostcap® ultracapacitor module provide easytointegrate building block scalable energy storage power delivery solutions heavy hybrid electric vehicles heavy duty industrial applications requiring 1500 volts • january 2007 maxwell announced received purchase order 100000 square meters proprietary ultracapacitor electrode material shanghai electric equipment company ltd sanjiu preparing introduce line ultracapacitor products based maxwell’s cell architecture highperformance electrode chinese transportation electric utility industrial markets results operations year ended december 31 2006 compared year ended december 31 2005 revenue year ended december 31 2006 539 million compared 454 million year ended december 31 2005 compared 2005 total revenue increased 85 million 19 prior year three quarters revenue increase came boostcap® product line experienced increased demand products well license revenue totaled 14 million 2006 approximately 30 revenue increase came high tension product line management expects high tension revenue continue increase 2007 lower rate experienced 2006 microelectronics revenue 2006 marginally lower 2005 maxwell expects microelectronics revenue grow 2007 driven npoess single board computer contract demand component products management believes license revenue continue 2007 anticipate continued strong demand boostcap® products overall growth prospects 2007 remain bright expect company revenue first quarter 2007 lower fourth quarter 2006 due major customer’s internal production delays due shortages key materials products unrelated ultracapacitors customer finds alternative sources nonultracapacitor key building blocks anticipate long term increased demand boostcap products gross profit gross profit 2006 approximately 123 million 23 revenue compared 140 million 31 revenue prior year gross profit within boostcap product line decreased increased production costs associated ramp phase increased manufacturing capacity challenge continues ability ramp production keep pace demand simultaneously achieving anticipated production efficiencies fully place anticipate achieving required cost reductions meet pricing strategy expect continue driving production costs meet pricing requirements markets compete although overall gross profit 2006 lower improvement gross profit high tension products compared 2005 high tension gross profit improvements primarily result reduced manufacturing costs increased volume additionally gross profit microelectronics products improved compared 2005 primarily result increased single board computer demand npoess year ended december 31 2006 costs sales also included 211000 stock compensation expense related adoption sfas 123r versus comparable period expense stock compensation selling general administrative sga expense sga expenses 164 million 2006 compared 141 million 2005 increase predominantly related stock compensation expense restricted stock option awards 23 million recognized 2006 related adoption sfas 123r compared 361000 period 2005 additionally sales expense including labor related expenses outside commissions advertising increased support significantly increased boostcap revenue research development rd expense rd expenses 101 million 2006 compared 72 million 2005 increased rd spending result new product development efforts boostcap microelectronics product lines well higher spending intellectual property activity patent filings boostcap development efforts included electrode ultracapacitor module designs microelectronics development efforts focused single board computer development introduced several new boostcap products 2006 anticipate continuing investment rd levels similar 2007 provision benefit income taxes recorded 208000 tax provision 2006 compared 49000 tax provision 2005 provisions recorded relate swiss subsidiary swiss subsidiary tax holiday extended 2005 additional five years recorded income tax benefit net loss fiscal 2006 due uncertainty surrounding realization associated deferred tax asset however recorded deferred tax asset approximately 18 million deferred tax liability similar amount embedded conversion rights convertible debentures amounts netted balance sheet additionally established valuation allowance deferred tax assets related convertible debentures discontinued operations march 2001 sold government systems business 207 million recorded gain 11 million net 27 million provision mainly related ongoing lease obligations december 31 2006 reserve provision lease expired april 2006 named defendant suit filed march 4 2004 superior court state california county san luis obispo suit edmonds vs ibusphoenix inc filed plaintiff behalf allege damages concerning repurchase ibusphoenix inc shares september 12 2006 california jury ruled favor plaintiff amount 231000 company paid 435000 including interest expense included discontinued operations fiscal 2006 preferred shareholders purepulse provided company release liability accordingly reserve approximately 259000 reversed included discontinued operations year ended december 31 2005 compared year ended december 31 2004 revenue year ended december 31 2005 454 million compared 322 million year ended december 31 2004 represents increase 132 million 41 prior year half revenue increase came boostcap product line experienced increased demand products well growth usabc contract revenue microelectronics revenue provided approximately 15 2005 revenue growth primarily due revenue npoess contract revenue year ended december 31 2004 included 10 million license fees received yeonglong technologies inc “yec” 10 million lowmargin magneticsbased products neither continued 2005 gross profit gross profit 2005 approximately 140 million 31 revenue compared 69 million 21 revenue prior year included 2005 gross profit impact contract revenue usabc npoess contracts two contracts provided 7 total 31 gross profit 2005 included 2004 gross profit impact license fee revenue yec provided 3 total 21 gross profit 2004 excluding impact contract license fee revenue gross profit improvement 2005 driven primarily boostcap product line drove product costs selling prices accepted end 2004 boostcap volume increases drove 61 gross profit improvement remainder driven price reserves 23 million recorded customer orders received 2004 priced projected production costs fully utilized 2005 additional reserves approximately 618000 recorded first third quarters 2005 customer orders received priced production costs received customer order subsequent december 31 2005 priced projected production costs require reserve approximately 352000 first quarter 2006 additional reserves may required future orders depending degree able reduce product costs time orders placed selling general administrative sga expense sga expenses 141 million 2005 compared 102 million 2004 2005 recorded 361000 stock compensation expense 614000 severance pay versus 112000 severance pay 2004 sales commissions increased 531000 audit fees increased 427000 2005 versus 2004 voluntary reduction executive pay realized 2004 reinstated 2005 accounts 354000 increased sga cost higher compensation costs excluding executive pay 942000 driven primarily new hires supporting growth research development rd expense rd expenses 72 million 2005 compared 55 million 2004 increased rd spending result new product development efforts boostcap microelectronics product lines well higher spending intellectual property efforts patent filings boostcap development efforts included electrode ultracapacitor module designs microelectronics development efforts focused single board computer development expect introduce large number new boostcap products 2006 therefore expect continue investment rd levels similar 2005 provision benefit income taxes recorded 49000 tax provision 2005 compared 712000 tax provision 2004 provisions recorded relate swiss subsidiary swiss subsidiary tax holiday extended 2005 additional five years extended tax holiday reduced maxwell’s provision income taxes 158000 2005 recorded income tax benefit net loss fiscal 2005 due uncertainty surrounding realization associated deferred tax asset however record deferred tax asset approximately 25 million deferred tax liability similar amount embedded conversion rights convertible debentures amounts netted balance sheet additionally established valuation allowance deferred tax assets related convertible debentures discontinued operations winding equipment product line included discontinued operations sales 10 million cost sales 205000 2004 reflected income discontinued operations activity related discontinued winding equipment product line 2005 events 2006 2005 2004 made assessment company’s goodwill intangible assets determined impairment accordingly goodwill impairments recognized years ended december 31 2006 2005 2004 amortization intangibles 76000 years ended december 31 2006 2005 2004 relates amortization developed core technology acquired conjunction 2002 acquisition montena components amortization ultracapacitor intellectual property recorded conjunction 2003 merger electronic components group majorityowned subsidiary maxwell purchase shares already owned company net interest expense year ended december 31 2006 431000 interest income 198000 46000 years ended december 31 2005 2004 respectively large increase interest payments creating expense amount 2006 due convertible debt issued december 2005 result registration rights shares acquired upon debt conversion warrants exercised fair value embedded conversion features warrants recorded liabilities initial fair value 92 million december 20 2005 treated discount 25 million debenture amortized fouryear life note addition 13 million prepaid fees related issuance convertible debt also amortized fouryear life note 100000 amortization debt discount prepaid fees period december 20 2005 december 31 2005 full year amortized debt discount prepaid fees totals 36 million year ended december 31 2006 fair value calculation december 31 2006 2005 impacted change maxwell’s stock price reduction time holder exercise rights fair value embedded conversion features warrants recalculated reporting period difference value prior period reflected statement operations future impact fair value recalculations difficult predict given historical volatility maxwell’s stock price however noncash item impact cash flow liquidity capital resources changes cash flow year ended december 31 2006 cash used operating activities 147 million compared 51 million year ended december 31 2005 88 million year ended december 31 2004 use cash years ended december 31 2006 2005 2004 primarily attributed operating losses continuing operations addition increase accounts receivable inventory balances support higher revenue capital expenditures years ended december 31 2006 2005 2004 68 million 38 million 30 million respectively capital spending focused automating production processes high tension boostcap product lines capital expenditures 2007 expected approximately 54 million invested primarily production equipment increase capacity higher customer demand boostcap products financing activities years ended december 31 2006 2005 2004 61 million 306 million 119 million majority proceeds issuance stock proceeds form long short term borrowing liquidity december 31 2006 approximately 162 million cash equivalents restricted cash approximately 32 million shortterm investments line credit 2 million swiss francs approximately 16 million swiss bank working capital switzerland line fully used december 31 2006 also 12 million swiss francs approximately 943000 term loan swiss bank capital equipment purchases approximately 566000 facility outstanding december 31 2006 1 million swiss francs approximately 820000 line credit another swiss bank working capital approximately 779000 line utilized december 31 2006 entered lease agreement may 2006 acquisition manufacturing equipment maximum 15 million swiss francs approximately 12 million lease term 48 months 593000 credit agreement used purchase equipment agreement december 31 2006 december 2006 secured 10 million loan us bank capital equipment purchases subject threeyear repayment period december 31 2006 entire line credit drawn 30 million line credit us bank secured 2004 renewed 2005 never used decided renew january 2006 raised approximately 54 million net issuance expenses private placement common stock july 2005 raised approximately 237 million net issuance expenses sale convertible debentures december 2005 warrants issued part convertible debt placement would provide additional 75 million cash fully exercised believe liquidity provided existing cash equivalents investments marketable securities borrowing available lines credit provide sufficient capital fund capital equipment working capital requirements potential operating losses next 12 months november 2006 company filed s3 securities exchange commission time sell aggregate 1250000000 company common stock warrants debt securities additional funds required several options raise capital include negotiations elimination current restriction 8 million cash options include bridge financing andor private placement public offering marketable securities provide additional liquidity debentures short term long term borrowings convertible debentures december 20 2005 company issued 25 million aggregate principal amount senior subordinated convertible debentures due payable quarterly installments december 2007 december 2009 “debentures” warrants purchase 394737 shares maxwell common stock net proceeds issuance totaled approximately 237 million direct placement costs approximately 13 million debentures convertible 13 million shares maxwell’s common stock time option holder interest due quarterly interest rate fixed federal funds rate plus 1125 per annum portion accrued unpaid interest may paid shares maxwell’s common stock company’s option fiscal year ended december 31 2006 made interest payments 778000 41573 shares company common stock issuance date debentures convertible holder time common shares price 1900 per share subject adjustment upon certain events sale equity securities maxwell price conversion price debenture eighteen months issue date maxwell may require specified amount principal debentures converted certain conditions satisfied period 20 consecutive trading days change fair value revaluation debenture conversion rights warrant liabilities represents difference fair value warrants debenture conversion two measurement dates using blackscholes calculation effect fair market value adjustment recorded “gain loss embedded derivative liabilities” net fair value holder’s maxwell’s conversion rights december 31 2006 2005 liabilities 46 million 58 million respectfully amounts included “convertible debentures longterm debt” balance sheet warrants issued connection issuance debentures exercise price 1900 issuance date subject adjustment upon certain events sale equity securities maxwell price current exercise price fair value warrants december 31 2006 2005 19 million 26 million respectively included “stock warrants” balance sheet warrants exercisable time december 20 2010 warrants exercised december 31 2006 long debentures outstanding company required maintain cash balance 80 million amount classified restricted cash december 31 2006 2005 shortterm borrowings maxwell sa european subsidiary 20 million swiss francs approximately 16 million december 31 2006 credit agreement swiss bank borrowings credit agreement bear interest 395 repayment terms extending beyond one month date funding borrowings credit agreement unsecured december 31 2006 2005 full amount credit line drawn maxwell sa 10 million swiss francs approximately 820000 december 31 2006 overdraft credit agreement swiss bank renews annually borrowings credit agreement bear interest 34 borrowings credit agreement unsecured december 31 2006 779000 drawn overdraft credit line agreement requires swiss subsidiary maintain minimum equity amount 50 million swiss francs compliance covenant december 31 2006 january 2006 30 million credit line us bank expired line never drawn management decided renew line longterm borrowings maxwell sa term loan maximum draw 12 million swiss francs approximately 943000 december 31 2006 financing specific capital equipment expenditures borrowings term loan secured equipment purchased credit agreement bears interest swiss interbank borrowing rate plus 20 term loan borrowed quarterly advances maximum limit repaid one five years december 31 2006 approximately 566000 outstanding weighted average interest rate funds borrowed december 31 2006 41 maxwell sa lease agreement acquisition manufacturing equipment amount 15 million swiss francs approximately 12 million december 31 2006 lease agreement borrowings minimum purchase 250000 swiss francs lease secured equipment purchased leasing fee 222 acquisition price plus vat residual value 5 acquisition price equipment suppliers paid directly bank interest payable rate 675 per annum entire amount borrowed time lending arrangement converts lease december 31 2006 593000 credit agreement paid suppliers december 2006 secured 10 million loan us bank capital equipment purchases subject threeyear repayment period agreement bears interest rate us government treasury note plus 825 basis points december 31 2006 entire line credit drawn december 2006 company secured loan us bank amount 26000 vehicle loan subject five year repayment period agreement bears interest rate 49 december 31 2006 26000 outstanding stock sale november 2004 july 2005 company raised approximately 103 55 million respectively deduction expenses fees sale approximately 17 million shares common stock institutional investors company sold shares directly investors negotiated transaction underwriters used placement shares previously registered securities act 1933 amended pursuant shelf registration statement filed form s3 securities exchange commission september 2004 discontinued operations cash discontinued operations fluctuated source cash 2004 use cash 2006 2005 use cash discontinued operations caused primarily purepulse business vacant facilities associated government systems business source cash 2004 result discontinued winding equipment business generated sales 1 million 2004 offset use cash discontinued operations government audits company subject government audits two businesses sold discontinued 2001 contract assumed acquirers company’s former defense contract business entered 1990 completed late 1990s audited defense department’s auditing agency defense department’s audit completed 2005 company reimbursed immaterial amount finalize audit internal revenue service irs assessed company penalty approximately 262000 failure file form w2s business sold 2001 acquiring company former business write irs stating would responsible filing 2001 form w2s 2005 irs fully released company 262000 penalty defense department’s auditing agency audited contract entered microelectronics group subcontractor 1995 completed 1999 company contracted subcontractor received letter december 31 2006 releasing obligations primary contractor received verbal release subcontractor requested provide letter releasing maxwell obligations audit based information received believe contingent liability accrual longer probable therefore 464000 liability reversed fiscal year ending 2006 events 2005 customer brought attention possible defect product sourced another manufacturer resold customer matter resolved yet able determine warranty exposure maxwell may therefore recorded warranty reserve provision carry insurance believe would cover portion obligation might ultimately arise matter minority equity interests subsidiaries purepulse suspended operations 2002 classified discontinued operations minority equity investors former employees issued shares purepulse originally incorporated former employees exercised stock options entity december 31 2006 2005 minority investors owned approximately 11 18 respectively outstanding stock purepulse contractual obligations 1 operating lease obligations represent building leases us switzerland locations 2 purchase commitments primarily represent value noncancelable purchase orders estimate purchase orders cancelled would result significant penalty company 3 debt obligations represent longterm shortterm borrowings current portion longterm debt interest critical accounting policies discussion analysis financial condition results operations based upon consolidated financial statements prepared accordance accounting principles generally accepted united states america refer us gaap used certain assumptions judgments preparation financial statements assumptions estimates may potentially affect reported amounts assets liabilities disclosure contingencies well reported amounts revenues expenses following may involve high degree judgment complexity management assumptions conclusions areas may significantly impact results operations company revenue recognition fiscal year ended december 31 2006 substantially revenue derived sale manufactured products directly customers revenue recognized time costs incurred certain longterm contracts licensing fees received right manufacture products based proprietary ultracapacitors design revenue category fiscal years ended december 31 2006 2004 product revenue recognized according guidelines sec staff accounting bulletin numbers 101 revenue recognition financial statements 104 revenue recognition title passes customer either shipment facilities receipt customer facility depending shipping terms provided collectability reasonably assured method consistently applied period right return revenue fixed price government contracts recognized time costs incurred calculated percentage completion basis accordance statement position 811 accounting performance constructiontype certain productiontype contracts limited funding prime contractor prior years certain continuing discontinued segments involved revenues longterm shortterm fixed price contracts cost plus contracts us government directly prime contractor revenues including estimated profits recognized time costs incurred included provisions anticipated losses contracts subject rate audits could result reduction revenue excess estimated provisions turn could increase losses periods reduction occurs fiscal year ended december 31 2006 company recognized revenue relates specific deliverables accordance eitf 0021 accounting revenue arrangements multiple deliverables revenue involves contract grants license manufacture market products mainland china using maxwell’s proprietary large cell multicell module technology separate brand contract obligates manufacturer source ultracapacitor electrode material maxwell agreement general right return requires refunds excess obsolete inventory value inventories lower cost market assessing ultimate realization inventories make judgments future demand requirements compare current committed inventory levels markets company’s products extremely competitive characterized rapid technological change new product development product obsolescence evolving industry standards addition price competition intense significant price erosion generally occurs life product recorded significant charges reserves recent periods reflect changes market conditions believe future events subject change revisions estimates may significant adverse impact balance sheet statement operations goodwill account goodwill accordance sfas 142 “goodwill intangible assets” standard requires goodwill longer amortized subject annual impairment test event occurs circumstances change reasonably possible impairment may exist first step consists estimating fair value reporting unit comparing estimated fair values carrying values reporting units includes allocated goodwill fair value less carrying value second step performed compute amount impairment determining implied fair value goodwill implied fair value goodwill residual fair value derived deducting fair value reporting unit’s assets liabilities estimated fair value calculated step one impairment charge represents excess carrying amount reporting unit goodwill implied fair value goodwill determined fair value reporting units based market value company’s stock market value company’s stock december 31 2006 exceeded carrying value reporting unit therefore second step calculation determine implied fair value goodwill necessary cannot say certainty may incur charges impairment goodwill future fair value maxwell technologies maxwell sa decrease due market conditions revisions assumptions unanticipated circumstances additional impairment charges adversely affect results operations convertible debentures account convertible debentures warrants accordance sfas 133 “accounting derivative instruments hedging activities” standard requires conversion feature convertible debt separated host contract presented derivative instrument certain conditions met eitf 0019 “accounting derivative financial instruments indexed potentially settled company’s stock” eitf 052 “the meaning “conventional convertible debt instrument” issue 0019” also analyzed determine whether debt instrument considered conventional convertible debt instrument classified stockholders’ equity convertible debentures issued december 20 2005 evaluated determined conventional convertible therefore certain terms provisions including liquidating damages associated registration rights agreement embedded conversion option bifurcated accounted derivative liability instrument stock warrants issued conjunction convertible debt december 20 2005 also evaluated determined derivative instrument therefore classified liability balance sheet accounting guidance also requires conversion feature warrants recorded fair value reporting period changes fair value recorded statement operations blackscholes valuation calculation applied conversion features warrants december 20 2005 december 31 2006 2005 december 20 2005 valuation used effective debt discount instruments represent debt discount amortized fouryear life debentures using effective interest method december 31 2006 2005 valuations used record fair value instruments end reporting periods difference prior period calculations reflected statement operations company’s stock price one input used blackscholes calculation significant impact calculation change company’s stock price gain loss effect embedded derivative liabilities statement operations volatility company’s stock price likely generate large swings valuations conversion features warrants future periods stock compensation effective january 1 2006 company adopted fair value recognition provisions revised statement financial accounting standards 123 revised sfas 123r sharebased payment establishes accounting sharebased awards exchanged employee services requires companies expense estimated grant date fair value awards requisite employee service period company elected modified prospective method provides certain changes method valuing sharebased compensation modified prospective method prior periods revised comparative purposes expense recognition provisions sfas 123r apply new awards unvested awards outstanding effective date awards subsequently modified cancelled estimated compensation expense awards outstanding effective date recognized remaining service period using compensation cost calculated pro forma disclosure purposes sfas 123 accounting stockbased compensation prior period company adopted disclosure provisions sfas 123 amended sfas 148 accounting stock based compensationtransitions disclosure accordance provisions sfas 123 company applied accounting principles board opinion 25 related interpretations accounting stock option plans accordingly 361000 zero compensation expense recognized years ended december 31 2005 2004 impact inflation believe inflation material impact results operations fiscal years threeyear period ended december 31 2006 however assurance future inflation would adverse impact operating results financial condition pending accounting pronouncements july 2006 fasb issued interpretation 48 accounting uncertainty income taxes fin 48 fin 48 clarifies accounting reporting income taxes recognized accordance sfas 109 “accounting income taxes” interpretation prescribes comprehensive model financial statement recognition measurement presentation disclosure uncertain tax positions taken expected taken income tax returns fin 48 effective fiscal years beginning december 15 2006 company expect adoption fin 48 material impact company’s financial position results operations september 2006 fasb issued sfas 157 fair value measurement sfas 157 provides new single authoritative definition fair value provides enhanced guidance measuring fair value assets liabilities requires additional disclosures related extent companies measure assets liabilities fair value information used measure fair value effect fair value measurements earnings sfas 157 effective company january 1 2008 company currently assessing impact sfas 157 consolidated financial statements september 2006 fasb issued sfas 158 employers’ accounting defined benefit pension postretirement plansan amendment fasb statements 87 88 106 132r” “sfas 158” sfas 158 requires balance sheet recognition funded status pension postretirement benefit plans sfas 158 actuarial gains losses prior service costs credits remaining transition assets obligations recognized previous accounting standards must recognized component accumulated comprehensive income loss within stockholders’ equity net tax effects amortized component net periodic benefit cost addition measurement date plan assets benefit obligation measured required company’s fiscal year end sfas 158 effective company december 31 2007 except measurement date provisions effective december 31 2009 plan reported financial statement regulated swiss government equally funded employees company february 2007 fasb issued sfas 159 fair value option financial assets financial liabilitiesincluding amendment fasb statement 115 permits entities choose measure many financial instruments certain items fair value sfas 159 also includes amendment sfas 115 “accounting certain investments debt equity securities” applies entities availableforsale trading securities statement effective beginning entity’s first fiscal year begins november 15 2007 company anticipate material impact consolidated financial statements upon adoption standard balance sheet arrangements none item 7aitem 7 management’s discussion analysis financial condition results operations following discussion financial condition results operations years ended december 31 2007 2006 2005 read conjunction consolidated financial statements related notes included elsewhere annual report addition discussion historical information contain forwardlooking statements subject risks uncertainties including estimates based judgment determining allowance inventory warranty reserves bad debt allowance deferred tax assets tax expenses future estimation liquidity fiscal year 2008 may significantly different actual results negative changes revenues affect estimation cost sales research development selling general administrative aspects business executive summary begin management’s discussion analysis financial condition results operations overview business strategic plan next provide summary highlights recently completed fiscal year followed discussion different aspects business proceed page 35 discuss results operations year ended december 31 2007 compared year ended december 31 2006 year ended december 31 2006 compared year ended december 31 2005 thereafter provide analysis changes balance sheet cash flows discuss capital requirements financing activities section entitled “liquidity capital resources” also provide discussion critical accounting policies impact inflation business new accounting pronouncements overview maxwell technologies inc delaware corporation headquartered san diego california originally incorporated 1965 name “maxwell laboratories inc” 1996 changed name maxwell technologies inc develop manufacture market energy storage power delivery products transportation industrial telecommunications applications microelectronic products space satellite applications maxwell operates one operating segment called high reliability two manufacturing locations san diego california rossens switzerland comprised three product lines • ultracapacitors primary focus ultracapacitors energy storage devices possess unique combination high power density long operational life ability charge discharge rapidly boostcap® ultracapacitor cells multicell packs modules provide highly reliable energy storage power delivery solutions applications multiple industries including transportation automotive telecommunications energy consumer industrial electronics • highvoltage capacitors condis® highvoltage capacitors extremely robust devices designed manufactured perform reliably decades climates products include grading coupling capacitors capacitive voltage dividers used ensure safety reliability electric utility infrastructure applications involving transport distribution measurement highvoltage electrical energy • radiationmitigated microelectronic products radiationmitigated microelectronic products include highperformance highdensity power modules memory modules single board computers incorporate proprietary radpak® packaging shielding technology novel architectures enable withstand effects environmental radiation perform reliably space aim design manufacture products perform reliably life products systems integrated seek achieve high reliability application proprietary technologies rigorously controlled design development manufacturing test processes high reliability strategy emphasizes development marketing products enable us achieve higher profit margins commodity electronic components systems 2007 highlights 2007 reported revenue 574 million net loss 157 million 086 per diluted share versus revenue 539 million net loss 165 million 098 per diluted share fiscal 2006 fiscal 2007 continued focus developing strategic alliances introduced new products increased production capacity meet future anticipated demand reduced product costs funded capital improvements strengthened senior management perfected production processes efforts described • january maxwell announced received purchase order 100000 square meters proprietary ultracapacitor electrode material shanghai sanjiu electric equipment company ltd sanjiu preparing introduce line ultracapacitor products based maxwell’s cell architecture highperformance electrode chinese transportation electric utility industrial markets • february announced professor burkhard goeschel retired november 2006 member sixperson management board bmw group overall responsibility research development purchasing appointed maxwell’s board directors • april announced opening sales office shanghai china market boostcap® ultracapacitor products service customers support distribution channel partners throughout asia • may announced edward b caudill elected chairman company’s board directors • may announced supply ultracapacitor cells integration kits us department energy’s argonne national laboratory collaborative research project assemble evaluate integrated ultracapacitorlithiumion battery energy storage system hybridelectric plugin hybrid vehicles • may announced sale 10 million shares common stock allotment option purchase 150000 additional shares public offering resulting gross proceeds company 115 million includes entire overallotment option • july announced signing memorandum understanding valeo tier 1 supplier automakers worldwide covering development collaboration incorporate maxwell’s boostcap® ultracapacitors valeo’s starsx ‘stopstart’ regenerative braking system • july announced board directors appointed david j schramm president chief executive officer replacing richard balanson phd remains parttime employee company functioning senior technical advisor • july announced boostcap® ultracapacitor products certified official testing agency people’s republic china energy storage applications vehicles certification protocol included testing electrical mechanical thermal safety lifetime performance • august delivered first spacequalified scs750 single board computers sbc orbital sciences corp prime contractor nasa’s glory earth sciences mission sbcs manage payload data glory threeyear mission investigate composition greenhouse gases effect solar radiation earth’s environment • september announced awarded contract mercedes car group design produce ultracapacitors advanced engineering hybridelectric drive train program incorporating braking energy recuperation system enables increase fuel efficiency reduce emissions • september introduced 75volt boostcap® ultracapacitor module provide scaleable costeffective lowmaintenance solution meet backup power quality requirements wind turbines renewable energy generation industrial equipment applications • september announced dantherm power leading developer hydrogen fuel cellbased power supply solutions selected maxwell’s boostcap® ultracapacitors shortduration “bridge power” element integrated uninterruptible power supply ups systems telecommunications fiber broadband applications • october announced contract valued approximately 3 million astrium’s united kingdombased satellite unit supply single board computers sbc european space agency’s esa “gaia” astronomy mission survey billion stars celestial bodies trace origin evolution milky way galaxy • october announced sale 15 million shares common stock allotment option purchase 195000 additional shares public offering underwritten ubs securities llc resulted gross proceeds company approximately 154 million includes entire overallotment option • november announced alliance tianjin lishen battery jointstock co ltd lishen china’s leading producer rechargeable lithiumion batteries plan manufacture market novel “hybrid” energy storage products combining companies’ respective ultracapacitor lithiumion battery technologies results operations year ended december 31 2007 compared year ended december 31 2006 following table presents selected consolidated financial information thousands except per share amounts revenue year ended december 31 2007 increased 35 million 6 prior year majority revenue increase came highvoltage capacitors hv product line generated 17 increase sales 2006 increase due two factors 68 increase increased sales hv products exchange rate swiss franc us dollars represented 32 hv revenue increase anticipate revenue hv products continue increase however facing challenges sourcing certain raw materials necessary production continue explore various sourcing options raw materials also adding production capacity rossens plant order meet customer demand license revenue totaled 553000 2007 14 million 2006 reduction due completion license agreement provided ultracapacitor cell designs manufacturing knowhow shanghai urban eclectic power investment development corporation fulfilling sourcing agreement supply ultracapacitor electrode material customer although historically license revenue sporadic management believes significant additional opportunities generate revenue technology knowhow company continue explore various opportunities 2008 include licensing intellectual property unrelated electrode fabrication battery companies improvements production processes battery performance microelectronics revenue increased 656000 5 prior year increase due 20 million increase sales volume components mostly new single board computers offset 13 million decrease sales npoess project revenue npoess project decreased due funding limitations program expect revenue increase 2008 additional npoess funding becomes available demand single board computer products continue grow however accounting revenue recognition rules require deferring revenue shipments single board computer products final “flight rated” boards shipped acceptance customer received revenue recognition rules continue make revenue fluctuate period boostcap® product revenue decreased 14 million 9 prior year decrease primarily attributable lowerthanforecasted sales first half year largest customer wind turbine oem lower sales prior year power systems integrator incorporation telecommunications power quality application europe sales wind turbine oem customer increased anticipated quarterly run rate second half 2007 expected continue endofyear rate would result higher sales 2008 2007 also expect additional sales 2008 telecommunication application described addition increased designin activity bus truck electric rail applications expected contribute higher boostcap® revenue 2008 however past also experienced various delays major customer’s internal production problems shortages key materials products unrelated ultracapacitors issues control could significant impact 2008 revenue continue work customers finding various applications boostcap® products multitude devices systems cases customers carry assessment products inhouse however situations customer contracts maxwell provide service fee 2007 recognized 19 million nonrecurring engineering fees although rd endeavors may specific particular customer application provide us additional information use utilization construction design specifications boostcap® products along additional revenue receive 2008 expect realize benefits past year’s changes include outsourcing ultracapacitor manufacturing provide significant cost reductions products management also reviewed entire line boostcap® products decided discontinue production certain low volume items increase prices others bring line costs associated lower volume part also reviewed standard price list considering value products provide customers increasing pricing better balance volumerevenue equation gross profit gross profit 2007 approximately 144 million 25 revenue compared 123 million 23 revenue prior year gross profit within boostcap® product line increased primarily result increased shore manufacturing products cost reduction benefit moving finished good manufacturing shore began realized 2007 however impact costs savings fully reflected financial results end 2007 shore inventory took place higher cost inventory 2007 process implementing efficiencies expectation 2008 results reflect benefits gross profit cost reductions valuebased pricing strategy purpose comparison previous year 2007 lower license revenue nonreoccurring engineering revenue increased also added gross profit overall gross profit 2007 higher 2006 improvement due increased volume change mix products sold gross profit percentage increased slightly boostcap® microelectronics products highvoltage gross profit margin percentage declined slightly 2007 ending year near historical average 2008 expect see continued improvement gross profit percentage boostcap® products expected increased product production spread relatively consistent overhead costs two products anticipate inline historical averages year ended december 31 2007 costs sales also included 260000 stock compensation expense versus 211000 2006 selling general administrative sga expense sga expenses 189 million 2007 compared 164 million 2006 increase predominantly related increased labor costs 16 million 11 million increased sales marketing staff 500000 increase general administrative stems expanded management capabilities sales cost increased 171000 2007 due new costs associated establishment representation office china stock compensation expense restricted stock option awards although effect cash increased 180000 2007 25 million additionally expenses outside sales commissions increased 118000 general administrative expenses travel increased 53000 consulting professional services increased 195000 2007 compared 2006 research development rd expense rd expenses 113 million 2007 compared 101 million 2006 increased rd spending result new product development efforts boostcap® microelectronics product lines well higher spending intellectual property activity patent filings boostcap® development efforts included focusing continued improvement energy density ultracapacitor products goal evaluate understand fundamental component ultracapacitor maximize performance involved rd partnerships provide assist specific research application utilization construction design specifications boostcap® products situations conducting involved research clients pay majority costs microelectronics development efforts focused primarily single board computer development provision benefit income taxes recorded tax provisions 2007 2006 65000 208000 respectively provisions recorded relate swiss subsidiary swiss subsidiary tax holiday extended 2005 additional five years recorded income tax benefit net loss fiscal 2007 due uncertainty surrounding realization associated deferred tax asset however recorded deferred tax asset approximately 524000 deferred tax liability similar amount embedded conversion rights convertible debentures amounts netted balance sheet additionally established valuation allowance deferred tax assets year ended december 31 2006 compared year ended december 31 2005 revenue year ended december 31 2006 539 million compared 454 million year ended december 31 2005 compared 2005 total revenue increased 85 million 19 prior year three quarters revenue increase came boostcap® product line experienced increased demand products well license revenue totaled 14 million 2006 approximately 30 revenue increase came highvoltage product line management expects highvoltage revenue continue increase 2007 lower rate experienced 2006 microelectronics revenue 2006 marginally lower 2005 maxwell expects microelectronics revenue grow 2007 driven npoess single board computer contract demand component products gross profit gross profit 2006 approximately 123 million 23 revenue compared 140 million 31 revenue prior year gross profit within boostcap® product line decreased increased production costs associated ramp phase increased manufacturing capacity challenge continues ability ramp production keep pace demand simultaneously achieving anticipated production efficiencies fully place anticipate achieving required cost reductions meet pricing strategy expect continue driving production costs meet pricing requirements markets compete although overall gross profit 2006 lower improvement gross profit highvoltage products compared 2005 highvoltage gross profit improvements primarily result reduced manufacturing costs increased volume additionally gross profit microelectronics products improved compared 2005 primarily result increased single board computer demand npoess year ended december 31 2006 costs sales also included 211000 stock compensation expense related adoption sfas 123r versus comparable period expense stock compensation selling general administrative sga expense sga expenses 164 million 2006 compared 141 million 2005 increase predominantly related stock compensation expense restricted stock option awards 23 million recognized 2006 related adoption sfas 123r compared 361000 period 2005 additionally sales expense including labor related expenses outside commissions advertising increased support significantly increased boostcap® revenue research development rd expense rd expenses 101 million 2006 compared 72 million 2005 increased rd spending result new product development efforts boostcap® microelectronics product lines well higher spending intellectual property activity patent filings boostcap® development efforts included electrode ultracapacitor module designs microelectronics development efforts focused single board computer development introduced several new boostcap® products 2006 anticipate continuing investment rd levels similar 2007 provision benefit income taxes recorded 208000 tax provision 2006 compared 49000 tax provision 2005 provisions recorded relate swiss subsidiary swiss subsidiary tax holiday extended 2005 additional five years recorded income tax benefit net loss fiscal 2006 due uncertainty surrounding realization associated deferred tax asset however recorded deferred tax asset approximately 18 million deferred tax liability similar amount embedded conversion rights convertible debentures amounts netted balance sheet additionally established valuation allowance deferred tax assets related convertible debentures discontinued operations named defendant suit filed march 4 2004 superior court state california county san luis obispo suit edmonds vs ibusphoenix inc filed plaintiff behalf alleges damages concerning repurchase ibusphoenix inc shares september 12 2006 california jury ruled favor plaintiff amount 231000 company paid 435000 including interest expense included discontinued operations fiscal 2006 preferred shareholders purepulse provided company release liability accordingly reserve approximately 259000 reversed included discontinued operations events assess company’s goodwill intangible assets annually economic conditions warrant assessment determined impairment accordingly goodwill impairments recognized years ended december 31 2007 2006 2005 amortization intangibles 224000 76000 years ended december 31 2007 2006 2005 respectively increase prior years 148000 relates amortization capitalized legal costs patent infringement lawsuit nesscap discussed item 3 remainder relates amortization developed core technology acquired conjunction 2002 acquisition montena components amortization ultracapacitor intellectual property recorded conjunction 2003 merger electronic components group majorityowned subsidiary maxwell purchase shares already owned company net interest expense years ended december 31 2007 2006 11 million 431000 respectively net interest income 198000 year ended december 31 2005 transition interest income expense due interest payments convertible debenture issued december 2005 result registration rights shares acquired upon debt conversion warrants exercised fair value embedded conversion features warrants recorded liabilities initial fair value 92 million december 20 2005 treated discount 25 million debenture addition 13 million costs related issuance convertible debt also amortized remaining current life note term debenture may adjusted based holder’s election extend payment terms beginning first payment due december 2007 holder deferred initial payment may elect defer next eight quarterly payments payment deferred 24 month period installment payments may delayed final payment debt may extend december 2011 amortization debt discount deferred costs totaled 36 million years ended december 31 2007 2006 fair value calculation december 31 2006 2005 impacted change maxwell’s stock price reduction time holder exercise rights fair value embedded conversion features warrants recalculated reporting period difference value prior period reflected statement operations future impact fair value recalculations difficult predict given historical volatility maxwell’s stock price however noncash item impact cash flow liquidity capital resources changes cash flow year ended december 31 2007 cash used operating activities 146 million compared 147 million year ended december 31 2006 51 million year ended december 31 2005 use cash years ended december 31 2007 2006 2005 primarily attributed operating losses continuing operations patent defense costs increased accounts receivable inventory balances support higher revenue capital expenditures years ended december 31 2007 2006 2005 47 million 68 million 38 million respectively capital spending focused automating production processes highvoltage boostcap® product lines capital expenditures 2008 expected approximately 57 million invested primarily production equipment increase capacity higher customer demand highvoltage boostcap® products financing activities year ended december 31 2007 totaled 298 million majority coming company sale 266 million stock net offering costs sales 115 million shares common stock second quarter 2007 15 million shares common stock fourth quarter 2007 sale common stock pursuant prospectus supplement filed securities exchange commission financing activities years ended december 31 2006 2005 increases cash 61 million 306 respectively majority activity 2006 coming issuance stock options exercised proceeds long shortterm borrowings 2005 sold approximately 489000 shares common stock company received proceeds approximately 54 million placed convertible debenture along warrants purchase shares maxwell common stock received net proceeds approximately 237 million liquidity december 31 2007 approximately 222 million cash equivalents investment marketable securities additional 80 million restricted cash total 302 million cash restriction released convertible debenture repaid 1 million swiss francs approximately 888000 line credit swiss bank working capital approximately 843000 line utilized december 31 2007 november 2006 filed s3 securities exchange commission time sell aggregate 125 million company’s common stock warrants debt securities 2007 company sold 266 million stock sales 115 million shares common stock second quarter 2007 15 million shares common stock fourth quarter 2007 year ended december 31 2007 patent defense costs totaled 16 million anticipate expenditures 2008 less 2007 additional funds required several options raise capital include negotiations eliminate current restriction 8 million cash bridge financing andor private placement public offering common stock preferred stock debt debentures shortterm long term borrowings convertible debentures december 20 2005 company issued 25 million aggregate principal amount senior subordinated convertible debentures “debentures” along warrants purchase shares maxwell common stock net proceeds issuance totaled approximately 237 million direct placement costs approximately 13 million debenture payable quarterly installments 28 million march 2008 december 2009 holder option delay installment 24 months holder elected delay first payment due december 2007 warrants initially issued purchase 395000 shares maxwell common stock debentures convertible 13 million shares maxwell’s common stock time option holder strike price 1900 per share number warrants conversion shares strike price subject adjustment upon certain events sale equity securities maxwell price strike price 1900 per share response equity sales 2007 number warrants increased 419000 number shares common stock conversion feature increased 14 million shares interest due quarterly interest rate tied federal funds rate plus 1125 per annum portion accrued unpaid interest may paid shares maxwell’s common stock company’s option fiscal year ended december 31 2007 made interest payments 794000 65248 shares company common stock eighteen months issue date maxwell may require specified amount principal debentures converted certain conditions satisfied period 20 consecutive trading days change fair value revaluation debenture conversion rights warrant liabilities represents difference fair value warrants debenture conversion two measurement dates using blackscholes calculation effect fair market value adjustment recorded “gain loss embedded derivative liabilities” net fair value holder’s maxwell’s conversion rights december 31 2007 2006 liabilities 13 million 46 million respectfully amounts included “convertible debentures longterm debt” balance sheet warrants issued connection issuance debentures fair value december 31 2007 2006 577000 19 million respectively included “stock warrants” balance sheet warrants exercisable time december 20 2010 warrants exercised december 31 2007 long debentures outstanding company required maintain cash balance 80 million amount classified restricted cash december 31 2007 2006 shortterm borrowings maxwell’s european subsidiary maxwell technologies sa maxwell sa 20 million swiss franc approximately 18 million december 31 2007 bank credit agreement swiss bank renews annually borrowings credit agreement bear interest 465 repayment terms extending beyond one month date funding borrowings credit agreement unsecured december 31 2007 2006 full amount available credit line drawn maxwell sa 10 million swiss francs approximately 888000 december 31 2007 overdraft credit agreement swiss bank renews annually borrowings credit agreement bear interest 445 borrowings credit agreement unsecured december 31 2007 843000 overdraft credit line drawn maxwell sa 20 million swiss francs approximately 18 million december 31 2007 shortterm loan agreement swiss bank borrowings shortterm loan agreement bear interest 455 repayment terms extending beyond one month date funding borrowings shortterm loan agreement unsecured december 31 2007 full amount credit line drawn longterm borrowings maxwell sa term loan maximum draw 12 million swiss francs approximately 10 million december 31 2007 financing specific capital equipment expenditures borrowings term loan secured equipment purchased credit agreement bears interest swiss interbank borrowing rate plus 20 term loan borrowed quarterly advances maximum limit repaid one five years december 31 2007 approximately 408000 outstanding weighted average interest rate funds borrowed december 31 2007 42 december 2006 secured 10 million credit line us bank capital equipment purchases subject threeyear repayment period agreement bears interest rate us government treasury note plus 825 basis points december 31 2007 interest rate 1299 amount outstanding 511000 december 2006 company secured loan us bank amount 26000 vehicle loan subject five year repayment period agreement bears interest rate 49 december 31 2007 21000 outstanding stock sales november 2006 filed s3 securities exchange commission time sell aggregate 125 million company’s common stock warrants debt securities fiscal year ended december 31 2007 company sold 266 million stock sales 115 million shares common stock second quarter 2007 15 million shares common stock fourth quarter 2007 case sale common stock pursuant prospectus supplement filed securities exchange commission july 2005 company sold 488888 shares common stock 1125 per share pursuant prospectus supplement filed securities exchange commission represented remaining amount available sale form s3 registration statement filed september 2004 company received proceeds approximately 54 million events 2005 customer brought attention possible defect product sourced another manufacturer resold customer late 2007 maxwell sa initiated proceeding germany original manufacturer currently discovery phase analysis maxwell’s claim product defect manufactured source company products resold maxwell end customers experienced issues product november 2007 “expert” appointed performing experiments allegedly defective product determine defect b defect one stemming manufacturing operating conditions expert’s opinion expected earlier june 2008 matter resolved yet able determine warranty exposure maxwell may therefore recorded specific warranty reserve provision issue carry insurance believe would cover portion obligation might ultimately arise matter minority equity interests subsidiaries purepulse suspended operations 2002 classified discontinued operations minority equity investors former employees issued shares purepulse originally incorporated former employees exercised stock options entity december 31 2007 2006 minority investors owned approximately 11 outstanding stock purepulse contractual obligations 1 operating lease obligations represent building leases us switzerland locations 2 purchase commitments primarily represent value noncancelable purchase orders estimate purchase orders cancelled would result significant penalty company 3 debt obligations represent longterm shortterm borrowings current portion longterm debt interest 4 pension benefit payments represent expected amounts paid pension benefits critical accounting policies discussion analysis financial condition results operations based upon consolidated financial statements prepared accordance accounting principles generally accepted united states america refer us gaap used certain assumptions judgments preparation financial statements assumptions estimates may potentially affect reported amounts assets liabilities disclosure contingencies well reported amounts revenues expenses following may involve high degree judgment complexity management assumptions conclusions areas may significantly impact results operations company revenue recognition derive revenue sale manufactured products directly customers certain longterm contracts revenue recognized time costs incurred licensing fees recognize revenue right manufacture products based proprietary ultracapacitor design product revenue recognized according guidelines sec staff accounting bulletin numbers 101 revenue recognition financial statements 104 revenue recognition title passes customer either shipment facilities receipt customer facility depending shipping terms provided collectability reasonably assured volume discount offered revenue recognized lowest price customer method consistently applied period right return revenue fixed price government contracts recognized time costs incurred calculated percentage completion basis similar contract accounting statement position 811 accounting performance constructiontype certain productiontype contracts limited funding prime contractor prior years certain continuing discontinued segments involved revenues longterm shortterm fixed price contracts cost plus contracts us government directly prime contractor revenues including estimated profits recognized time costs incurred included provisions anticipated losses contracts subject rate audits could result reduction revenue excess estimated provisions turn could increase losses periods reduction occurs recognize revenue relates multiple element contracts accordance eitf 0021 accounting revenue arrangements multiple deliverables revenue guidance applies includes contract grants license manufacture market products mainland china using maxwell’s proprietary large cell multicell module technology separate brand contract obligates manufacturer source ultracapacitor electrode material maxwell agreement general right return allows refunds additionally contracts elements agreement need delivered accepted customer prior revenue recognized deliverables time company entered multipleelement contractual arrangements elements software essential functionality delivered elements company recognizes revenue delivered elements vendorspecific objective evidence vsoe fair value undelivered elements exists accordance statement position 972 software revenue recognition sop 972 fiscal 2007 company entered two contracts whereby delivered certain elements vsoe fair value undelivered elements exist december 31 2007 company recorded approximately 574000 deferred revenue related contracts contract research development arrangements contain upfront milestonebased payments recognize revenue using proportional performance method based percentage costs incurred relative total costs estimated incurred complete contract revenue recognition computed methodology compared amount nonrefundable cash payments received contractually receivable reporting date lesser two amounts recognized revenue reporting date proportional performance methodology applied company utilizes input based measure specifically costs incurred date determine proportional performance believe use input measure reasonable surrogate proportional performance compared output based measure milestones amounts billed advance recorded deferred revenue balance sheet since payments received generally nonrefundable termination contract customer prior completion could result immediate recognition deferred revenue relating payments already received previously recognized revenue excess obsolete inventory lower cost market reserves value inventories lower cost market assessing ultimate realization inventories make judgments future demand requirements compare current committed inventory levels markets company’s products extremely competitive characterized rapid technological change new product development product obsolescence evolving industry standards price competition intense significant price erosion generally occurs life product recorded significant charges reserves recent periods reflect changes market conditions believe future events subject change revisions estimates may significant adverse impact balance sheet statement operations goodwill account goodwill accordance sfas 142 “goodwill intangible assets” standard requires goodwill longer amortized subject annual impairment test event occurs circumstances change reasonably possible impairment may exist first step consists estimating fair value reporting unit comparing estimated fair values carrying values reporting units includes allocated goodwill fair value less carrying value second step performed compute amount impairment determining implied fair value goodwill implied fair value goodwill residual fair value derived deducting fair value reporting unit’s assets liabilities estimated fair value calculated step one impairment charge represents excess carrying amount reporting unit goodwill implied fair value goodwill one reporting unit estimate fair value reporting unit based market value company’s outstanding common stock market value company’s stock december 31 2007 exceeded carrying value reporting unit therefore second step calculation determine implied fair value goodwill necessary cannot say certainty may incur charges impairment goodwill future fair value maxwell technologies maxwell sa decrease due market conditions revisions assumptions unanticipated circumstances impairment charges adversely affect results operations convertible debentures account conversion factor convertible debentures warrants accordance sfas 133 “accounting derivative instruments hedging activities” standard requires conversion feature convertible debt separated host contract presented derivative instrument eitf 0019 “accounting derivative financial instruments indexed potentially settled company’s stock” eitf 052 “the meaning “conventional convertible debt instrument” issue 0019” also analyzed determine whether debt instrument considered conventional convertible debt instrument classified stockholders’ equity convertible debentures issued december 20 2005 evaluated determined conventionally convertible therefore certain terms provisions including liquidating damages associated registration rights agreement embedded conversion option bifurcated accounted derivative liability instrument stock warrants issued conjunction convertible debt december 20 2005 also evaluated determined derivative instrument therefore classified liability balance sheet accounting guidance also requires conversion feature warrants recorded fair value reporting period changes fair value recorded statement operations blackscholes valuation calculation applied conversion features warrants period end date december 20 2005 valuation used effective debt discount instruments represent debt discount amortized fouryear life debentures using effective interest method company’s stock price one input used blackscholes calculation significant impact calculation change company’s stock price effect gain loss embedded derivative liabilities statement operations volatility company’s stock price likely generate large swings valuations conversion features warrants future periods stock compensation effective january 1 2006 adopted fair value recognition provisions revised statement financial accounting standards 123 revised sfas 123r sharebased payment establishes accounting sharebased awards exchanged employee services requires companies expense estimated grant date fair value awards requisite employee service period applied modified prospective method provides certain changes method valuing sharebased compensation modified prospective method prior periods revised comparative purposes expense recognition provisions sfas 123r apply new awards unvested awards outstanding effective date awards subsequently modified cancelled estimated compensation expense awards outstanding effective date recognized remaining service period using compensation cost calculated pro forma disclosure purposes sfas 123 accounting stockbased compensation prior period applied disclosure provisions sfas 123 amended sfas 148 accounting stock based compensationtransitions disclosure accordance provisions sfas 123 continued accounting principles board opinion 25 related interpretations accounting stock option plans recognized 361000 compensation expense year ended december 31 2005 impact inflation believe inflation material impact results operations fiscal years threeyear period ended december 31 2007 however assurance future inflation would adverse impact operating results financial condition pending accounting pronouncements september 2006 fasb issued sfas 157 fair value measurement sfas 157 provides new single authoritative definition fair value provides enhanced guidance measuring fair value assets liabilities requires additional disclosures related extent companies measure assets liabilities fair value information used measure fair value effect fair value measurements earnings provisions sfas 157 effective us january 1 2008 currently assessing impact sfas 157 consolidated financial statements february 2007 fasb issued sfas 159 fair value option financial assets financial liabilitiesincluding amendment fasb statement 115 permits entities choose measure many financial instruments certain items fair value sfas 159 also includes amendment sfas 115 “accounting certain investments debt equity securities” applies entities availableforsale trading securities statement effective beginning entity’s first fiscal year begins november 15 2007 anticipate material impact consolidated financial statements upon adoption standard balance sheet arrangements none item 7aitem 7 management’s discussion analysis financial condition results operations following discussion financial condition results operations years ended december 31 2008 2007 2006 read conjunction consolidated financial statements related notes included elsewhere annual report addition discussion historical information contain forwardlooking statements subject risks uncertainties including estimates based judgment estimates include limited assessing collectability accounts receivable applied unapplied production costs production capacities usage recoverability inventories longlived assets including deferred income taxes incurrence losses warranty costs stock compensation expense impairment goodwill intangible assets estimations cost complete certain projects research development projects estimation probability performance criteria restricted stock awards met fair value warrants embedded conversion options related convertible debentures estimation liquidity fiscal year 2009 may significantly different actual results negative changes revenues affect estimation cost sales research development selling general administrative aspects business executive summary begin management’s discussion analysis financial condition results operations overview business strategic plan subsequently provide summary highlights recently completed fiscal year followed discussion different aspects business proceed discuss results operations year ended december 31 2008 compared year ended december 31 2007 year ended december 31 2007 compared year ended december 31 2006 followed analysis changes balance sheet cash flows discussion capital requirements financing activities section entitled “liquidity capital resources” review critical accounting policies new accounting pronouncements along impact inflation business overview maxwell technologies inc delaware corporation headquartered san diego california originally incorporated 1965 name “maxwell laboratories inc” 1996 changed name maxwell technologies inc develop manufacture market energy storage power delivery products transportation industrial telecommunications applications microelectronic products space satellite applications maxwell operates one operating segment called high reliability two manufacturing locations san diego california rossens switzerland comprised three product lines • ultracapacitors primary focus ultracapacitors energy storage devices possess unique combination high power density long operational life ability charge discharge rapidly boostcap® ultracapacitor cells multicell packs modules provide highly reliable energy storage power delivery solutions applications multiple industries including transportation automotive telecommunications energy consumer industrial electronics • highvoltage capacitors condis® highvoltage capacitors extremely robust devices designed manufactured perform reliably decades climates products include grading coupling capacitors capacitive voltage dividers used ensure safety reliability electric utility infrastructure applications involving transport distribution measurement highvoltage electrical energy • radiationmitigated microelectronic products radiationmitigated microelectronic products include highperformance highdensity power modules memory modules single board computers incorporate proprietary radpak® packaging shielding technology novel architectures enable withstand effects environmental radiation perform reliably space goal meet exceed life application product service needs customers continuous improvements effectiveness business processes aim design manufacture products perform reliably life products systems integrated seek achieve high reliability application proprietary technologies rigorously controlled design development manufacturing test processes high reliability strategy emphasizes development marketing products could enable us achieve higher profit margins commodity electronic components systems 2008 highlights 2008 reported revenue 822 million net loss 148 million 071 per diluted share versus revenue 574 million net loss 157 million 086 per diluted share fiscal 2007 fiscal 2008 continued focus developing strategic alliances introduced new products increased production capacity meet future anticipated demand reduced product costs funded capital improvements augmented board directors improved production processes efforts described • january 2009 announced vanner inc manufacturer electrical power conversion products selected boostcap® ultracapacitor modules provide burst power retrofit diesel engine starter system vanner contract install chicago transit buses • november introduced new family boostcap® ultracapacitor products specifically designed meet power energy requirements industrial consumer electronics applications typical applications benefiting ultracapacitor cells 25to150farad range include robotics factory automation uninterrupted power supply ups systems industrial telecommunications installations renewable energy systems including solar wind energy generation systems cordless power tools consumer electronics • october delivered 220 modules woojin industrial systems 1500volt dc system installed second quarter 2009 earlier year woojin took delivery 72 modules completed installation 750volt dc system testing evaluation gyengsan light rail transit track woojin contractor selected korean federal government’s korean railroad research institute krri overseeing installation highefficiency ultracapacitorbased braking energy recuperation system subway station seoul gyengsan light rail installation preliminary testing conducted krri woojin system development projected recuperation system would reduce grid power consumption 20 percent matched actual operation could save enough energy recoup initial investment less four years • september announced lti reenergy gmbh lti one world’s leading producers electromechanical wind turbine blade pitch control systems selected maxwell’s boostcap® ultracapacitors supply backup power lti’s pitchmaster® blade pitch control system • september announced plug power inc leading developer hydrogen fuel cellbased power systems electric lift trucks selected maxwell’s boostcap® ultracapacitors enhance performance energy management line gendrive™ power units plug power placed purchase order maxwell’s boostcap mc2600 2600farad ultracapacitor cells delivered third fourth quarters • july announced vossloh kiepe gmbh leading producer heavy vehicle drive systems selected 125volt boostcap® ultracapacitor modules braking energy recuperation torque assist emissionfree electric buses producing collaboration van hool nv milan italy municipal transit system shipments began third quarter 300 125volt boostcap® heavy duty transportation modules delivered end year • june common stock added russell 3000 2000 indexes include 3000 2000 securities respectively based market capitalization russell indexes constructed provide comprehensive unbiased broad market smallcap barometers completely reconstituted annually • may two new members appointed board directors yon yoon jorden served chief financial officer four publicly traded companies adding extensive experience corporate finance strategy board roger l howsmon seasoned corporate executive extensive international marketing business development experience adding strong contacts transportation industry • march announced swiss subsidiary honored supplier year third time siemens power transmission distribution high voltage capacitors according siemens award recognizes supplier best demonstrates ongoing commitments lowering operational costs innovation product quality delivery performance technical support manufacturing expertise maxwell received high ratings technological innovation supply capabilities overall quality supplying condis® high voltage capacitor products • february announced boostcap® ultracapacitor production facility san diego california certified auto industryspecific international organization standardization iso ts 16949 standard confirming company’s competence automotive supplier maxwell’s ultracapacitor plant rossens switzerland earned isots certification 2004 contract manufacturing operation shenzhen china certified 2006 results operations year ended december 31 2008 compared year ended december 31 2007 following table presents selected consolidated financial information thousands except per share amounts revenue fiscal 2008 increased 43 822 million compared 574 million period one year ago product revenue increased 46 253 million license fee service revenue decreased 20 505000 based yearly weightedaverage foreign exchange rate swiss franc us dollar value swiss franc increased 11 09245 per us dollar year ended december 31 2008 08351 per us dollar period one year ago revenues reported year ended december 31 2008 increased 55 million due increase foreign exchange rate revenue mix product line years ended december 31 2008 2007 expect revenue continue grow 2009 although moderate pace nearly revenue growth 2009 expected come ultracapacitor products gross profit gross profit 2008 increased 125 million 87 269 million compared 2007 percentage revenue gross profit increased 33 2008 compared 25 2007 higher gross profit resulted increase volume sales 62 million increase 63 million due higher average selling prices andor net reduction costs product increase gross profit burdened increases freight expenses 15 million negative impact gross profit expect gross profit improve 2009 moderate pace growth 2008 shown significant impact fluctuations exchange rates outside control almost gross profit improvement 2009 expected come ultracapacitor products selling general administrative sga expense selling general administrative sga expenses 29 revenue 2008 compared 33 2007 total expense increased 50 million 26 increase absolute dollars driven increases 19 million personnel costs 11 million commissions paid high voltage capacitors products compared 2007 893000 related increase exchange rates 421000 travel expenses increase personnel costs due increase headcount reflects increase sales expect sga expenses absolute dollars continue trend upwards revenues increase however expect total increase 2009 less increase occurred 2008 compared 2007 research development rd expense research development rd expenses 148 million 2008 compared 113 million 2007 increase 35 million 32 however percentage revenues rd expense 18 2008 compared 20 2007 increase 35 million primarily driven increases 14 million personnel costs 830000 travel expenses 816000 design development costs 298000 related increase exchange rates increase personnel costs related increase headcount reflects increase revenue well decrease work previously outsourced rd spending continues represent significant percentage revenue focused mainly boostcap® product development microelectronics single board computer product development 2009 currently expect rd expenses approximately level 2008 provision benefit income taxes recorded income tax benefit 226000 2008 compared income tax provision 65000 2007 provision swiss us operations unremitted earnings foreign subsidiaries included consolidated financial statements without giving effect united states taxes may payable distribution united states anticipated earnings remitted united states remitted additional united states taxes paid would material year ended december 31 2007 compared year ended december 31 2006 following table presents selected consolidated financial information thousands except per share amounts revenue fiscal 2007 increased 6 574 million compared 539 million period one year ago product revenue increased 6 31 million license fee service revenue increased 19 390000 based yearly weightedaverage foreign exchange rate swiss franc us dollar value swiss franc increased 5 08351 per us dollar year ended december 31 2007 07984 per us dollar period one year ago revenues generated year ended december 31 2007 foreign operations increased 16 million due increase foreign exchange rate revenue mix product line years ended december 31 2007 2006 gross profit gross profit 2007 increased 21 million 17 compared 2006 percentage revenue gross profit increased 25 2007 compared 23 2006 higher gross profit resulted increase volume sales 900000 increase 12 million due higher average selling prices andor net reduction costs product gross profit within boostcap® product line increased primarily result increased shore manufacturing products cost reduction benefit moving finished good manufacturing shore began realized 2007 however impact costs savings fully reflected financial results end 2007 shore inventory took place higher cost inventory 2007 process implementing efficiencies expectation 2008 results reflect benefits gross profit cost reductions valuebased pricing strategy purpose comparison previous year 2007 lower license revenue nonreoccurring engineering revenue increased also added gross profit selling general administrative sga expense selling general administrative sga expenses 33 revenue 2007 compared 30 2006 total expense increased 25 million 15 increase driven increases 16 million labor costs 195000 consulting professional services 180000 stockbased compensation expense 171000 additional costs associated opening sales office china 118000 outside sales commissions 53000 travel related expenses research development rd expense research development rd expenses 113 million 2007 compared 101 million 2007 increase 12 million 12 percentage revenues rd expense 20 2007 compared 19 2006 increased rd spending result new product development efforts boostcap® microelectronics product lines well higher spending intellectual property activity patent filings boostcap® development efforts included focusing continued improvement energy density ultracapacitor products goal evaluate understand fundamental component ultracapacitor maximize performance involved rd partnerships provide assist specific research application utilization construction design specifications boostcap® products situations conducting involved research clients pay majority costs microelectronics development efforts focused primarily single board computer development provision benefit income taxes recorded income tax provision 65000 2007 compared income tax provision 208000 2006 provision swiss subsidiary’s operations unremitted earnings foreign subsidiaries included consolidated financial statements without giving effect united states taxes may payable distribution united states anticipated earnings remitted united states remitted additional united states taxes paid would material events assess company’s goodwill intangible assets annually economic conditions warrant assessment determined impairment also assess impairment longterm assets accordingly goodwill asset impairments recognized years ended december 31 2008 2007 2006 amortization intangibles 364000 224000 76000 years ended december 31 2008 2007 2006 respectively increase prior years relates amortization new patents 2008 2007 net interest expense years ended december 31 2008 2007 2006 481000 11 million 431000 respectively result registration rights shares would acquired upon debt conversion warrant exercises’ fair value embedded conversion features warrants recorded liabilities initial fair value 92 million december 20 2005 treated discount 25 million debenture addition 13 million costs related issuance convertible debt also amortized remaining current life note term debenture may adjusted based holder’s election extend payment terms beginning first payment due december 2007 holder deferred initial payment may elect defer next four quarterly payments due 2009 payments deferred 24 month period final payment debt extended december 2011 amortization debt discount deferred costs totaled 24 million year ended december 31 2008 36 million years ended december 31 2007 2006 fair value calculation december 31 2008 2007 impacted change maxwell’s stock price reduction time holder exercise rights fair value embedded conversion features warrants recalculated reporting period difference value prior period reflected statement operations future impact fair value recalculations difficult predict given historical volatility maxwell’s stock price however noncash item impact cash flow liquidity capital resources changes cash flow net cash used operating activities 70 million year ended december 31 2008 primarily resulted net loss 148 million net working capital outflows 18 million offset net noncash charges 101 million net cash used operating activities year ended december 31 2007 146 million primarily resulted net loss 157 million net working capital outflows 57 million offset net noncash charges 68 million net cash used operating activities year ended december 31 2006 147 million primarily resulted net loss 165 million net working capital outflows 59 million offset net noncash charges 77 million net cash used operating activities 2008 70 million improvement prior years net cash used operating activities 146 million 147 million respectively years ended december 31 2007 2006 improvement cash used operating activities 2007 2008 77 million primarily driven decrease loss operations 38 million improvement collection receivables 37 million impact changes accounts payable accrued liabilities 28 million improvements offset increase inventories 40 million although sales increased 43 accounts receivable actually went 2008 due improvement collections brought average days sales outstanding 62 days 2008 75 days 2007 income accounts payable related increase inventory net cash provided investing activities 381000 year ended december 31 2008 result 81 million cash received maturities marketable securities offset 71 million capital expenditures 501000 purchases marketable securities 149000 purchases intangible assets net cash used investing activities 91 million year ended december 31 2007 primarily resulted 76 million purchases marketable securities 47 million capital expenditures offset 32 million cash received maturities marketable securities net cash used investing activities 91 million year ended december 31 2006 result 95 million purchases marketable securities 68 million capital expenditures offset 69 million cash received maturities marketable securities 299000 proceeds sale equipment capital spending focused improving production processes highvoltage boostcap® product lines capital expenditures 2009 expected approximately 2008 invested primarily production equipment increase production capacity meet higher customer demand highvoltage boostcap® products net cash provided financing activities 41 million year ended december 31 2008 result 77 million proceeds issuance longterm shortterm debt 66 million issuance common stock offset 101 million principal payments longterm shortterm debt 103000 retirement shares 66 million issuance common stock driven 56 million raised equity distribution agreement “eda” net cash provided financing activities 297 million year ended december 31 2007 result 285 million issuance common stock 94 million proceeds issuance longterm shortterm debt offset 78 million principal payments longterm shortterm debt 298000 retirement shares 285 million issuance common stock driven 266 million raised s3 filed november 2006 net cash provided financing activities 61 million year ended december 31 2006 result 72 million proceeds issuance longterm shortterm debt 43 million issuance common stock offset 50 million principal payments longterm shortterm debt 368000 retirement shares liquidity december 31 2008 approximately 126 million cash equivalents additional 80 million restricted cash total 206 million cash restriction released convertible debenture repaid 1 million swiss francs approximately 947000 december 31 2008 line credit swiss bank working capital approximately 917000 line utilized december 31 2008 november 2006 filed s3 securities exchange commission time sell aggregate 125 million company’s common stock warrants debt securities 2007 company received 266 million cash sale 27 million shares common stock august 2008 entered eda ubs securities llc “ubs” time sell 15 million common stock received 56 million cash sale 687000 shares common stock since entering eda continue cash requirements may adversely impacted diminished credit availability extreme volatility security prices result current deterioration global financial markets current cash balances sufficient cover activities additional funds required several options raise capital include continued sale shares eda negotiations eliminate current restriction 8 million cash using capital leases finance new equipment bridge financing andor private placement public offering common stock strategic partner investment sale various assets debt connection eda response high level volatility securities pricing current marketplace believe still able obtain additional funding future eda regardless potential declines common stock price result continued decline overall economy addition discussions financial institutions investment banks expressed interest providing additional sources funding company may consider negotiations eliminate current restriction 8 million cash balances acknowledge eliminating restriction may require company incur future economic obligations company considers viable option secure additional funding sources credit availability diminish based company’s assessment potential financing alternatives believe adequate resources fund working capital requirements obligations become due capital equipment additions product development expenditures next 12 months debentures shortterm long term borrowings convertible debentures december 20 2005 company issued 25 million aggregate principal amount senior subordinated convertible debentures “debentures” along warrants purchase shares maxwell common stock net proceeds issuance totaled approximately 237 million direct placement costs approximately 13 million debenture payable quarterly installments 28 million march 2008 december 2009 holder option delay installment 24 months holder elected delay first payment due december 2007 warrants initially issued purchase 395000 shares maxwell common stock debentures convertible 13 million shares maxwell’s common stock time option holder strike price 1900 per share number warrants conversion shares strike price subject adjustment upon certain events sale equity securities maxwell price strike price 1900 per share interest due quarterly interest rate tied federal funds rate plus 1125 per annum portion accrued unpaid interest may paid shares maxwell’s common stock company’s option fiscal year ended december 31 2008 made principal payments 97 million 11 million shares company common stock well 14 million cash interest payments 597000 54000 shares company common stock well 356000 cash eighteen months issue date maxwell may require specified amount principal debentures converted certain conditions satisfied period 20 consecutive trading days none conditions occurred since issuance debentures change fair value revaluation debenture conversion rights warrant liabilities represents difference fair value warrants debenture conversion two measurement dates using blackscholes calculation effect fair market value adjustment recorded “gain loss embedded derivative liabilities” net fair value holder’s maxwell’s conversion rights december 31 2008 2007 liabilities 357000 13 million respectively amounts included “shortterm borrowings current portion longterm debt” balance sheet warrants issued connection issuance debentures fair value december 31 2008 2007 318000 577000 respectively included “stock warrants” balance sheet warrants exercisable time december 20 2010 warrants exercised december 31 2008 long debentures outstanding company required maintain cash balance 80 million amount classified restricted cash december 31 2008 2007 shortterm borrowings maxwell’s european subsidiary maxwell technologies sa maxwell sa 20 million swiss franc approximately 19 million december 31 2008 bank credit agreement swiss bank renews annually borrowings credit agreement bear interest 390 repayment terms extending beyond one month date funding borrowings credit agreement unsecured december 31 2008 2007 full amount available credit line drawn maxwell sa 10 million swiss francs approximately 947000 december 31 2008 overdraft credit agreement swiss bank renews annually borrowings credit agreement bear interest 440 borrowings credit agreement unsecured december 31 2008 917000 overdraft credit line drawn maxwell sa 20 million swiss francs approximately 19 million december 31 2008 shortterm loan agreement swiss bank borrowings shortterm loan agreement bear interest 285 repayment terms extending beyond one month date funding borrowings shortterm loan agreement unsecured december 31 2008 full amount credit line drawn maxwell sa term loan maximum draw 12 million swiss francs approximately 11 million december 31 2008 financing specific capital equipment expenditures borrowings term loan secured equipment purchased credit agreement bears interest swiss interbank borrowing rate plus 20 term loan borrowed quarterly advances maximum limit repaid one five years december 31 2008 approximately 218000 outstanding weighted average interest rate funds borrowed december 31 2008 376 various shortterm financing agreements insurance premiums agreements typically nine month period interest rate 425 december 31 2008 84000 outstanding longterm borrowings maxwell sa lending agreement acquisition manufacturing equipment 15 million swiss francs acquisition equipment completed agreement converted 48 monthly payments 34302 swiss francs interest rate 79 december 31 2008 balance obligation 863000 final payment due 2011 various financing agreements vehicles us switzerland agreements five year repayment period interest rates 4970 december 31 2008 112000 outstanding events 2005 customer brought attention possible defect product produced maxwell contract another manufacturer resold customer effort resolve matter maxwell’s subsidiary maxwell technologies sa initiated legal proceeding germany late 2007 product manufacturer suit currently discovery phase time allegedly defective product analyzed expert tasked determining defect b defect one stemming manufacturing operating conditions recently german courts held meeting parties subject proceeding confer expert meeting expert issue report findings event determination made defect exists potential liability would depend upon nature defect actual amount damages would determined subsequent legal proceeding since matter still preliminary stages yet able determine warranty exposure maxwell may therefore recorded warranty reserve provision maxwell however carry insurance may cover portion warranty liability might ultimately arise matter minority equity interests subsidiaries purepulse suspended operations 2002 classified discontinued operations 2006 minority equity investors former employees issued shares purepulse originally incorporated former employees exercised stock options entity december 31 2008 2007 minority investors owned approximately 11 outstanding stock purepulse contractual obligations 1 operating lease obligations represent building leases us switzerland locations 2 purchase commitments primarily represent value noncancelable purchase orders estimate purchase orders cancelled would result significant penalty company 3 debt obligations represent longterm shortterm borrowings current portion longterm debt 195 million interest 35 million 4 pension benefit payments represent expected amounts paid pension benefits critical accounting policies discussion analysis financial condition results operations based upon consolidated financial statements prepared accordance accounting principles generally accepted united states america refer us gaap used certain assumptions judgments preparation financial statements assumptions estimates may potentially affect reported amounts assets liabilities disclosure contingencies well reported amounts revenues expenses many items may involve higher degree judgment complexity management assumptions conclusions areas may significantly impact results operations company estimates include limited assessing collectability accounts receivable applied unapplied production costs production capacities usage recoverability inventories longlived assets including deferred income taxes incurrence losses warranty costs stock compensation expense impairment goodwill intangible assets estimations cost complete certain projects research development projects estimation probability performance criteria restricted stock awards met fair value warrants embedded conversion options related convertible debentures markets company’s products extremely competitive characterized rapid technological change new product development product obsolescence evolving industry standards addition price competition intense significant price erosion generally occurs life product result factors actual results could differ estimates used management revenue recognition sales revenue derived sale manufactured products directly customers certain longterm contracts revenue recognized time costs incurred licensing fees recognize revenue right manufacture products based proprietary ultracapacitor design product revenue recognized according guidelines securities exchange commission “sec” staff accounting bulletin “sab” numbers 101 revenue recognition financial statements 104 revenue recognition title passes customer either shipment facilities receipt customer facility depending shipping terms provided collectability reasonably assured volume discount offered revenue recognized lowest price customer method consistently applied period right return revenue generated fixed price contracts recognized time costs incurred calculated percentage completion basis measured percentage cost incurred date estimated costs contract accordance american institute certified public accountants’ statement position “sop” 811 accounting performance constructiontype certain productiontype contracts limited funding prime contractor provisions estimated losses incomplete contracts made period losses determined revenue generated contracts multiple elements recognized accordance emerging issues task force “eitf” 0021 accounting revenue arrangements multiple deliverables revenue guidance applies includes contract grants license manufacture market products mainland china using maxwell’s proprietary large cell multicell module technology separate brand contract obligates manufacturer source ultracapacitor electrode material maxwell agreement general right return allows refunds additionally contracts elements agreement need delivered accepted customer prior revenue recognized deliverables time entered multipleelement contractual arrangements elements software essential functionality delivered elements company recognizes revenue delivered elements vendorspecific objective evidence vsoe fair value undelivered elements exists accordance sop 972 software revenue recognition modified sop 984 fiscal 2007 entered two contracts whereby delivered certain elements vsoe fair value undelivered elements exist december 31 2008 one contracts remained open recorded approximately 19 million deferred revenue related contracts contract research development arrangements contain upfront milestonebased payments recognize revenue using proportional performance method based percentage costs incurred relative total costs estimated incurred complete contract revenue recognition computed methodology compared amount nonrefundable cash payments received contractually receivable reporting date lesser two amounts recognized revenue reporting date proportional performance methodology applied us utilizes input based measure specifically costs incurred date determine proportional performance believe use input measure reasonable surrogate proportional performance compared output based measure milestones amounts billed advance recorded deferred revenue balance sheet since payments received generally nonrefundable termination contract customer prior completion could result immediate recognition deferred revenue relating payments already received previously recognized revenue inventory inventories stated lower cost firstin firstout basis market finished goods workinprocess inventory values include cost raw materials labor manufacturing overhead inventory written market establishes new cost basis value cannot subsequently increased based upon changes underlying facts circumstances unabsorbed underabsorbed costs treated expense period incurred excess obsolete inventory assessing ultimate realization inventories make judgments future demand requirements compare current committed inventory levels markets products extremely competitive characterized rapid technological change new product development product obsolescence evolving industry standards addition price competition intense significant price erosion generally occurs life product recorded significant charges reserves recent periods reflect changes market conditions believe future events subject change revisions estimates may significant adverse impact balance sheet statement operations goodwill account goodwill accordance fasb sfas 142 goodwill intangible assets standard requires goodwill balances undergo annual impairment test event occurs circumstances change reasonably possible impairment may exist first step consists estimating fair value reporting unit comparing estimated fair values carrying values reporting unit includes allocated goodwill fair value less carrying value second step performed compute amount impairment determining implied fair value goodwill implied fair value goodwill residual fair value derived deducting fair value reporting unit’s assets liabilities estimated fair value calculated step one impairment charge represents excess carrying amount reporting unit’s goodwill implied fair value goodwill cannot say certainty may incur charges impairment goodwill future fair value maxwell technologies maxwell sa decrease due market conditions revisions assumptions unanticipated circumstances impairment charges could adversely affect results operations based financial information reviewed management one reporting unit convertible debenture account convertible debenture warrants accordance fasb sfas 133 accounting derivative instruments hedging activities standard requires conversion feature convertible debt separated host contract presented derivative instrument certain conditions met eitf 0019 accounting derivative financial instruments indexed potentially settled company’s stock eitf 052 meaning conventional convertible debt instrument issue 0019 also analyzed determine whether debt instrument considered conventional convertible debt instrument classified stockholders’ equity december 20 2005 valuation used effective debt discount instruments represent debt discount amortized fouryear life debenture using effective interest method convertible debenture issued december 20 2005 evaluated determined conventional convertible debt instrument therefore certain terms provisions including liquidating damages associated registration rights agreement embedded conversion option bifurcated accounted derivative liability instrument stock warrants issued conjunction convertible debenture december 20 2005 also evaluated determined derivative instrument therefore classified liabilities balance sheet accounting guidance also requires conversion feature warrants recorded fair value reporting period changes fair value recorded statement operations blackscholes valuation calculation applied conversion features warrants end period valuations used record fair value instruments end reporting periods difference prior period calculations reflected statement operations stock price one input used blackscholes calculation significant impact calculation change stock price gain loss effect embedded derivative liabilities statement operations exercise price number convertible shares warrants adjusted original issued amounts continue subjected adjustment upon certain events sale equity securities maxwell price current exercise price volatility stock price likely generate large swings valuations conversion features warrants future periods fair value measurement fasb statement 159 “the fair value option financial assets financial liabilities” “sfas 159” effective january 1 2008 standard permitted elect measure financial instruments certain items fair value change fair value recorded earnings elected measure eligible items using fair value option accordance sfas 159 elect fair value option financial instruments therefore sfas 159 impact consolidated financial condition results operations stock compensation value stock compensation based fair value recognition provisions revised financial accounting standards board “fasb” statement financial accounting standards 123 revised sharebased payment “sfas 123r” establishes accounting stockbased awards exchanged employee services requires companies expense estimated grant date fair value awards requisite employee service period expense recognition provisions sfas 123r apply new awards unvested awards outstanding effective date awards subsequently modified cancelled estimated compensation expense awards outstanding effective date recognized remaining service period using compensation cost calculated pro forma disclosure purposes sfas 123 accounting stockbased compensation pension account retirement plan swiss subsidiary defined benefit pension plan fasb sfas 158 employers’ accounting defined benefit pension postretirement plansan amendment fasb statements 87 88 106 132r” “sfas 158” sfas 158 requires balance sheet recognition funded status pension postretirement benefit plans sfas 158 actuarial gains losses prior service costs credits remaining transition assets obligations recognized previous accounting standards must recognized component accumulated comprehensive income loss within stockholders’ equity net tax effects amortized component net periodic benefit cost plan implemented terms plan required swiss law believe swiss plan adequately funded future payments appear significant based current funding status plan swiss defined benefit pension plan similar us defined contribution plan 401k access asset approximately 45 50 contributions made employees plan regulated swiss government addition access rights pension asset pension asset reported comply accounting pronouncements require us disclose amount balance sheet company make excess distribution employees may able absorb future losses decreases plan assets increases benefit obligation foreign currency translation functional currency swiss subsidiary local currency assets liabilities denominated foreign currencies translated using exchange rates balance sheet dates revenues expenses translated using average exchange rates prevailing year translation adjustments resulting process shown separately component accumulated comprehensive income loss within shareholders’ equity condensed consolidated balance sheets foreign currency transaction gains losses reported income expense net condensed consolidated statements operations impact inflation believe inflation material impact results operations fiscal years threeyear period ended december 31 2008 however assurance future inflation would adverse impact operating results financial condition pending accounting pronouncements december 2007 fasb issued sfas 141r business combinations “sfas 141r” sfas 141r establishes principles requirements acquirer recognizes measures financial statements identifiable assets acquired liabilities assumed noncontrolling interest acquiree goodwill acquired sfas 141r also establishes disclosure requirements enable evaluation nature financial effects business combination sfas 141r effective fiscal years beginning december 15 2008 april 2008 fasb issued fasb staff position “fsp” fas 1423 determination useful life intangible assets fsp amends factors considered developing renewal extension assumptions used determine useful life recognized intangible asset fasb statement 142 goodwill intangible assets intent fsp improve consistency useful life recognized intangible asset statement 142 period expected cash flows used measure fair value asset fasb statement 141r us generally accepted accounting principles fsp effective interim annual financial statements beginning november 15 2008 expect adoption fsp material impact company’s financial statements march 2008 fasb issued sfas 161 disclosures derivative instruments hedging activities “sfas 161” sfas 161 amends expands disclosure requirements sfas 133 accounting derivative instruments hedging activities sfas 161 requires qualitative disclosures objectives strategies using derivatives quantitative disclosures fair value amounts gains losses derivative instruments disclosures creditriskrelated contingent features derivative agreements statement effective financial statements issued fiscal years beginning november 15 2008 adoption sfas 161 affect consolidated financial condition results operations may require additional disclosures enter derivative hedging activities may 2008 fasb issued fasb statement 162 hierarchy generally accepted accounting principles statement identifies sources accounting principles framework selecting principles used preparation financial statements nongovernmental entities presented conformity generally accepted accounting principles us gaap statement effective 60 days following sec’s approval public company accounting oversight board “pcaob” amendments au section 411 meaning present fairly conformity generally accepted accounting principles expect adoption statement material impact company’s financial statements may 2008 fasb issued staff position apb 141 accounting convertible debt instruments may settled cash upon conversion including partial cash settlement fsp apb 141 fsp apb 141 requires liability equity components convertible debt instruments may settled cash upon conversion including partial cash settlement separately accounted manner reflects issuer’s nonconvertible debt borrowing rate resulting debt discount amortized period convertible debt expected outstanding additional noncash interest expense fsp apb 141 effective financial statements issued fiscal years beginning december 15 2008 interim periods within fiscal years provisions fsp apb 141 required applied retrospectively periods presented company required adopt fsp apb 141 beginning first quarter 2009 december 2008 fasb issued staff position fas 132r1 employers’ disclosures postretirement benefit plan assets fsp fas 132r1 fsp fas 132r1 requires detailed disclosures employers’ plan assets defined benefit pension postretirement plan including employers’ investment strategies major categories plan assets concentrations risk within plan assets inputs valuation techniques used measure fair value plan assets fsp fas 132r1 also requires fair value measurements using significant unobservable inputs level 3 disclosure effect measurements changes plan assets period disclosures plan assets required fsp fas 132r1 must provided fiscal years ending december 15 2009 pronouncement disclosurerelated impact financial position results operations june 2008 fasb ratified emerging issues task force eitf issue 075 “determining whether instrument embedded feature indexed entity’s stock” eitf 075 eitf 075 mandates twostep process evaluating whether equitylinked financial instrument embedded feature indexed entity’s stock effective fiscal years beginning december 15 2008 interim periods within fiscal years first quarter 2009 many warrants issued company contain strike price adjustment feature upon adoption eitf 075 result instruments longer considered indexed company’s stock accordingly adoption eitf 075 change current classification equity liability related accounting many warrants outstanding date company currently evaluating impact adoption eitf 075 financial position results operations cash flows balance sheet arrangements none item 7aitem 7 management’s discussion analysis financial condition results operations following discussion financial condition results operations years ended december 31 2010 2009 2008 read conjunction consolidated financial statements related notes included item 8 financial statements supplementary data annual report form 10k addition discussion contains forwardlooking statements subject risks uncertainties including estimates based judgment estimates include limited assessing collectability accounts receivable applied unapplied production costs production capacities usage recoverability inventories longlived assets deferred income taxes incurrence warranty obligations stock compensation expense impairment goodwill intangible assets cost complete certain projects probability performance criteria restricted stock awards met fair value embedded conversion options related convertible debentures management’s discussion analysis financial condition results operations “mda” designed provide reader financial statements narrative perspective management financial condition results operations liquidity certain factors may affect future results mda presented following sections • executive overview • 2010 highlights • results operations • liquidity capital resources • contractual obligations • critical accounting estimates • pending accounting pronouncements • balance sheet arrangements • outlook executive overview maxwell global leader developing manufacturing marketing advanced energy storage power delivery products transportation industrial telecommunications applications microelectronic products space satellite applications strategy establish compelling value proposition products designing manufacturing perform reliably minimal maintenance life applications integrated three product lines ultracapacitors applications multiple industries including transportation automotive telecommunications energy consumer industrial electronics highvoltage capacitors primarily applied electrical utility infrastructure radiationhardened microelectronic products space satellite applications primary objective grow revenue profit margins creating satisfying demand ultracapacitorbased energy storage power delivery solutions focusing establishing expanding market opportunities ultracapacitors preferred supplier ultracapacitor products worldwide believe transportation industry represents largest market opportunity ultracapacitors primarily applications related electrical system augmentation braking energy recuperation hybrid electric drive systems transit buses trucks autos electric rail vehicles various backup power applications including instantly available power wind turbine blade pitch systems also represent significant rapidly growing market opportunity also seek expand market opportunities highvoltage capacitor radiationhardened microelectronic products market highvoltage capacitors consists mainly expansion upgrading maintenance existing electrical utility infrastructure new infrastructure installations developing countries installations capitalintensive frequently subject regulation availability government funding general economic conditions although market microelectronics products space satellite applications relatively small specialized nature products requirement failurefree reliability allows us opportunity generate profit margins significantly higher commodity electronic components 2010 total revenues 1219 million representing increase 20 compared 2009 increase 127 compared five years ago 2006 revenue growth primarily attributable increased ultracapacitor product sales grew 2010 56 compared 2009 271 compared five years ago overall gross profit 2010 38 compared 35 2009 23 five years ago increase gross margin driven mainly significantly improved profitability ultracapacitor products related increased sales volume reduced manufacturing costs first time last five years generated positive cash flow operations 87 million 2010 reflecting efforts expand revenues better managing manufacturing costs operating expenses december 31 2010 cash equivalents restricted cash 478 million believe sufficient fund operations least next twelve months however future may decide supplement planned cash flow provided operations issuing debt equity going forward continue focus growing business strengthening market leadership brand recognition penetration existing markets entry new markets development new products primary focus grow ultracapacitor business continued market penetration primary applications including automotive transportation wind energy order achieve growth objectives need overcome risks challenges facing business significant risks challenges face include ability achieve maintain profitability ability develop management team product development infrastructure manufacturing capacity facilitate growth competing technologies may capture market share interfere planned growth hiring developing training retaining key personnel critical execution strategy attentive risks focus achieving higher profit margins managing operating costs developing new products promoting value proposition products competing technologies addition plans augment current manufacturing capacity infrastructure coming years believe sufficient accommodate planned growth believe sound management company well positioned continue accelerate financial operational progress exhibited results operations 2010 highlights 2010 continued focus developing strategic alliances introducing new products increasing production capacity meet anticipated future demand reducing product costs funding capital improvements augmenting executive management improving production processes efforts described • october announced delivery productionlevel quantities boostcap® ultracapacitors continental ag one world’s leading automotive electronics mechatronics suppliers continental’s “ebooster” voltage stabilization system micro hybrid automobiles • september announced delivery boostcap® ultracapacitor cells multicell modules 1000 hybrid transit bus drive systems first three quarters 2010 • august reported sales boostcap® ultracapacitor products wind energy applications first three quarters 2010 running 40 percent ahead windrelated sales period last year estimated 13000 boostcapequipped turbines operation worldwide • may announced robert l guyett elected chairman company’s board directors guyett 73 joined maxwell’s board january 2000 previously served chairman may 2003 may 2007 also chairs board’s audit committee serves compensation governance nominating strategy committees since 1995 president chief executive officer crescent management enterprises llc consulting firm provides financial management investment advisory services director newport corp nasdaqlisted supplier products systems semiconductor communications electronics research life science markets also serves boards privately held companies director treasurer christopher dana reeve foundation earlier career director chief financial officer engelhard corp director chief financial officer fluor corporation • may announced agreement rutronik elektronische bauelemente gmbh rutronik distribute maxwell’s boostcap® ultracapacitor products throughout europe new contract rutronik especially address european industrial automotive renewable energies key energy storage market segments maxwell’s ultracapacitor products • march announced capacity expansion process improvements production facility condis® family high voltage capacitors • march announced voith turbo leading producer heavy vehicle drive systems selected maxwell’s 125volt boostcap® ultracapacitor modules braking energy recuperation torque assist lowemission fuelefficient hybridelectric transit bus drive systems voith maxwell entered strategic supply agreement maxwell voith’s exclusive supplier ultracapacitor modules assembled united states meet local content requirements • february introduced began shipping new k2 series large cell boostcap® ultracapacitors k2 series boostcap® cells operate 27 volts incorporate design construction enhancements ensure high performance durability long operating lifetime design advancement allowed us improve performance large cell ultracapacitor product line maintaining form function well reducing cost product • february announced realignment expansion executive team reflecting increased focus placing product development marketing business development strengthen expand presence marketplace changed scope vice president michael liedtke’s responsibilities business development market intelligence strategic planning appointed van andrews senior vice president ultracapacitor sales marketing promoted jeremy cowperthwaite newly created position vice president ultracapacitor engineering results operations following table presents certain statement operations data expressed percentage revenue periods indicated year ended december 31 2010 compared year ended december 31 2009 2010 net loss decreased 169 million 74 compared prior year net loss reported 2010 61 million 023 per share net loss 229 million 094 per share 2009 decrease net loss driven primarily increase revenues combined improvements gross profit operating margins addition decrease 42 million accruals settlement us fcpa violations 2010 recorded 23 million gain versus 53 million loss 2009 embedded derivatives warrants offsetting improvements incurred 14 million charge related impairment depreciation adjustment assets longer believe probable sale reclassified fourth quarter heldforsale heldandused revenue gross profit following table presents revenue cost revenue gross profit years ended december 31 2010 2009 thousands except percentage revenue 2010 increased 20 1219 million compared 1013 million 2009 ultracapacitor revenue increased 56 685 million 2010 compared 438 million prior year sales high voltage capacitor products totaled 357 million 2010 10 398 million recorded 2009 revenue microelectronic products flat yearoveryear increase revenue ultracapacitor product line influenced primarily continuing strong demand energy storage power delivery systems wind energy hybrid electric transit vehicles micro hybrid automotive systems backup power wireless communications decline high voltage capacitor product revenues result shift mix high voltage product sales lower priced products substantial amount revenue generated swiss subsidiary functional currency swiss franc reported revenue materially impacted changes exchange rates swiss franc us dollar reporting currency due weakening us dollar swiss franc 2010 compared 2009 revenue positively impacted 24 million following table presents revenue mix product line years ended december 31 2010 2009 gross profit 2010 increased 116 million 33 469 million compared 2009 percentage revenue gross profit increased 38 2010 compared 35 2009 increase gross profit absolute dollars 72 million related increase volume sales 27 million due net reductions product costs 17 million related net foreign exchange gains recorded 2010 compared net foreign exchange losses recorded 2009 hedge intercompany thirdparty asset liability balances denominated currencies local currency net foreign exchange gains losses recognized transaction gains losses incurred hedged assets liabilities net gains losses realized hedge contracts product cost reductions driven primarily advancements manufacturing process product design product design advancements allowed us reduce product cost large cell ultracapacitor product line selling general administrative expense following table presents selling general administrative expense years ended december 31 2010 2009 thousands except percentage selling general administrative expenses 29 revenue 2010 compared 33 2009 total expense increased 23 million 7 increase absolute dollars driven primarily 21 million higher labor costs due increases sales marketing operations increase net foreign exchanges losses 2010 recorded net foreign exchange losses 17 million compared 396000 net foreign exchange gains 2009 addition facilitiesrelated expenses increased 550000 2010 travelrelated expenses increased 421000 also recorded asset impairment 880000 2010 related equipment reclassified heldforsale heldandused increases offset 42 million decrease expense accrual settlement fcpa matter 2010 recorded accruals settlement fcpa matter 51 million 2009 recorded accruals settlement fcpa matter 93 million research development expense following table presents research development expense years ended december 31 2010 2009 thousands except percentage research development expense 177 million 2010 compared 160 million 2009 increase approximately 18 million 11 however percentage revenues research development expense 15 2010 compared 16 2009 increase absolute dollars driven primarily increase expenses 870000 related consulting services materials used product development increase 590000 labor expense increase 439000 facilities information technology expenses 2010 continued expand efforts develop existing new products amortization debt discount prepaid debt costs amortization debt discount prepaid debt costs 83000 2010 compared 737000 2009 decrease approximately 654000 amortization period debt discount prepaid debt costs associated original payment terms convertible debentures wherein final payment due december 31 2010 however holder elected defer three quarterly installments 2011 gain loss embedded derivatives warrants gain embedded derivatives 23 million 2010 compared loss 53 million 2009 gain loss recorded embedded derivative warrants primarily represents change fair market value revaluation debenture conversion rights warrants end year compared beginning year december 2010 warrants exercised full february 2011 remaining principal balance convertible debentures converted shares common stock following transactions impact consolidated statement operations related fair value measurement derivative instruments warrants provision income taxes recorded income tax provision 16 million year ended december 31 2010 compared 25 million year ended december 31 2009 provision primarily related swiss operations 2009 tax provision included onetime noncash tax provision 17 million associated transfer certain intellectual property switzerland us order maximize utilization us federal state net operating loss carryforwards unremitted earnings foreign subsidiaries included consolidated financial statements without giving effect united states taxes may payable anticipated earnings remitted united states year ended december 31 2009 compared year ended december 31 2008 2009 net loss increased 81 million 55 compared period one year ago net loss reported 2009 229 million 094 per share net loss 148 million 071 per share 2008 increase net loss impacted accrual 93 million potential settlement us fcpa violations 65 million higher losses embedded derivatives warrants year ended december 31 2009 compared 2008 revenue gross profit following table presents revenue cost revenue gross profit years ended december 31 2009 2008 thousands except percentage revenue 2009 increased 26 1013 million compared 804 million 2008 product revenue increased 29 229 million license fee service revenue decreased 100 20 million increase total revenue influenced primarily higher volume ultracapacitor microelectronic product lines increases ultracapacitor volumes driven primarily continuing strong demand ultracapacitorbased energy storage systems wind turbines hybrid busses increase volume microelectronic revenue driven timing certain satellite projects management expect higher level volume continue substantial amount revenue generated swiss subsidiary reported revenue materially impacted fluctuation swiss franc us dollar reporting currency however impact comparing revenue 2009 compared 2008 less half one percent weightedaverage foreign exchange rate us dollar swiss franc 092113 per swiss franc year ended december 31 2009 compared 092561 per swiss franc 2008 following table presents revenue mix product line years ended december 31 2009 2008 gross profit 2009 increased 102 million 41 353 million compared 2008 percentage revenue gross profit increased 35 2009 compared 31 2008 higher gross profit resulted increase volume sales 65 million increase 37 million due net reduction product costs cost reductions driven primarily advancements manufacturing process product design using greater mix ocean freight rather air freight outsourcing assembly products chinese manufacturers product design advancements allowed us improve performance large cell ultracapacitor product line maintaining form function well reducing cost product selling general administrative expense following table presents selling general administrative expense years ended december 31 2009 2008 thousands except percentage selling general administrative expenses 33 revenue 2009 compared 29 2008 total expense increased 98 million 42 comparing 2009 2008 several material items occurred 2009 2008 considered fourth quarter 2009 accrued 93 million potential settlement fcpa violations 2009 incurred approximately 700000 legal professional services related international investigation fcpa violations approximately 500000 paid executive severance 2009 addition new items labor expense increased approximately 12 million 2009 compared 2008 increase driven primarily increases selling marketing personnel consistent increase revenues increases 2009 selling general administrative expense compared 2008 partially offset greater foreign currency transaction gains 15 million decrease 400000 travelrelated expenses research development expense following table presents research development expense years ended december 31 2009 2008 thousands except percentage research development expense 160 million 2009 compared 148 million 2008 increase approximately 11 million 7 however percentage revenues research development expense 16 2009 compared 19 2008 increase absolute dollars 11 million driven primarily increases labor costs due focus new existing product development provision benefit income taxes recorded income tax provision 25 million year ended december 31 2009 compared income tax benefit 226000 2008 provision related swiss operations 2009 tax provision included onetime noncash tax provision 17 million associated transfer certain intellectual property switzerland us order maximize utilization us federal state net operating loss carryforwards unremitted earnings foreign subsidiaries included consolidated financial statements without giving effect united states taxes may payable anticipated earnings remitted united states liquidity capital resources changes cash flow following table summarizes cash flows operating investing financing activities past three fiscal years thousands net cash provided operating activities 87 million 2010 although net loss 61 million 2010 net loss included net noncash charges 74 million addition working capital balances remained relatively consistent yearoveryear longterm liabilities increased 77 million 2010 primarily related longterm settlement payments negotiated sec doj related fcpa matter net cash used operating activities 10 million 2009 70 million 2008 improvement operating cashflows 2009 2010 driven primarily improvement operating results increase longterm liabilities noted net cash used investing activities 88 million year ended december 31 2010 compared 50 million used investing activities year ended december 31 2009 381000 provided investing activities year ended december 31 2008 cash used investing activities 2010 2009 primarily related capital expenditures focused increasing production capacity meet anticipated increases demand 2008 capital expenditures 71 million offset cash proceeds maturity marketable securities 81 million net cash provided financing activities 99 million year ended december 31 2010 compared 227 million 2009 41 million 2008 year ended december 31 2009 raised 210 million sale common stock shelf registration statement equity distribution agreement year ended december 31 2010 received cash proceeds 75 million exercise stock warrants liquidity december 31 2010 approximately 398 million cash equivalents additional 80 million restricted cash total 478 million cash restriction released february 2011 convertible debentures converted shares common stock working capital increased 574 million december 31 2010 321 million december 31 2009 november 2006 filed shelf registration statement form s3 securities exchange commission time sell aggregate 125 million common stock warrants debt securities “shelf registration statement” 2007 received 266 million cash sale 27 million shares common stock august 2008 entered equity distribution agreement “eda” ubs securities llc “ubs” time sell 15 million common stock received 56 million cash sale 687000 shares common stock since entering eda suspended april 2009 may 2009 raised 186 million cash sale 23 million shares common stock public offering underwritten roth capital partners january 2010 shelf registration statement longer effective discussed item 3 accrued 144 million settlement fcpa violations 67 million paid first quarter 2011 54 million 23 million payable first quarters 2012 2013 respectively additionally december 31 2010 outstanding 83 million principal amount convertible debentures february 2011 principal amount converted shares common stock restriction 80 million previously restricted cash released management believes cash operating activities combined available cash balances sufficient fund operations obligations become due capital equipment expenditures least next twelve months however future may decide supplement planned cash flow provided operations issuing debt equity debentures shortterm long term borrowings convertible debentures december 20 2005 issued 25 million aggregate principal amount senior subordinated convertible debentures “debentures” along warrants purchase shares common stock net proceeds issuance totaled approximately 237 million direct placement costs approximately 13 million debentures payable quarterly installments 28 million march 2008 december 2009 holder option delay installment 24 months holder elected delay quarterly payments due june september december 2009 june september december 2011 respectively warrants initially issued purchase 395000 shares common stock debentures initially convertible 13 million shares common stock time option holder strike price 1900 per share number warrants conversion shares strike price subject adjustment upon certain events sale equity securities maxwell price strike price 1900 per share december 20 2010 holders warrants exercised right purchase 462461 shares common stock resulting cash proceeds 75 million december 31 2010 principal balance 83 million convertible debentures convertible 513845 shares common stock option holder conversion price 1622 february 2011 holder convertible debentures elected convert remaining principal balance shares common stock year ended december 31 2010 made interest payments 115000 cash based federal funds rate plus 1125 per annum change fair value revaluation convertible debenture conversion rights warrant liabilities represents difference fair value warrants conversion rights two measurement dates using blackscholes calculation effect fair market value adjustment recorded “gain loss embedded derivative liabilities” net fair value holder’s maxwell’s conversion rights december 31 2010 2009 liability 21 million 30 million respectively december 31 2010 2009 amount classified within noncurrent liabilities component “longterm debt excluding current portion” debentures outstanding required maintain cash balance 80 million classified restricted cash december 31 2010 2009 december 31 2010 restricted cash classified current asset since convertible debentures due full 2011 shortterm borrowings maxwell’s swiss subsidiary maxwell sa 30 million swiss francdenominated approximately 32 million december 31 2010 credit agreement swiss bank renews semiannually bears interest 195 borrowings shortterm loan agreement unsecured december 31 2010 2009 full amount loan drawn maxwell sa also 10 million swiss francdenominated approximately 11 million december 31 2010 credit agreement another swiss bank available balance line withdrawn reduced bank time december 31 2010 2009 amounts drawn credit line interest rates applicable draws line determined time draw maxwell sa entered lending agreement acquisition manufacturing equipment amount 15 million swiss francs approximately 16 million december 31 2010 acquisition equipment completed agreement converted 48 monthly payments 34302 swiss francs interest rate 222 december 31 2010 2009 balance obligation 210000 543000 respectively final payment due 2011 longterm borrowings maxwell sa 20 million swiss francdenominated approximately 21 million december 31 2010 credit agreement swiss bank renews every two years bears interest 25 borrowings credit agreement unsecured december 31 2010 2009 full amount available credit line drawn company various financing agreements vehicles agreements five year repayment period interest rates ranging 49 70 december 31 2010 2009 177000 84000 respectively outstanding financing agreements minority equity interests subsidiaries purepulse suspended operations 2002 classified discontinued operations 2006 minority equity investors former employees issued shares purepulse originally incorporated former employees exercised stock options entity december 31 2010 2009 minority investors owned approximately 11 outstanding stock purepulse contractual obligations 1 operating lease obligations represent building leases us switzerland locations 2 purchase commitments primarily represent value noncancelable purchase orders estimate purchase orders cancelled would result significant penalty 3 debt obligations represent convertible debentures longterm shortterm borrowings interest payable 278000 principal balance 83 million convertible debentures converted shares common stock february 2011 4 pension benefit payments represent expected amounts paid pension benefits 5 january 31 2011 company reached settlements sec doj respect fcpa matter 6 due uncertainty respect timing future cashflows associated unrecognized tax benefits december 31 2010 unable make reasonably reliable estimates period cash settlement respective taxing authorities therefore 424000 unrecognized tax benefits excluded contractual obligations table critical accounting estimates consider accounting estimate critical 1 accounting estimate requires us make assumptions matters uncertain time accounting estimate made 2 changes estimate reasonably likely occur period use different estimates reasonably could used current period would material impact financial condition results operations also see note 1 summary significant accounting policies part ii item 8 financial statements supplementary data annual report form 10k discusses significant accounting policies believe following either critical accounting policies require us make significant estimates assumptions preparation consolidated financial statements ii key accounting policies may require us make difficult subjective judgments revenue recognition nature estimates required sales revenue primarily derived sale products directly customers certain longterm contracts revenue recognized time costs incurred license fees service revenue recognized performance requirements met assumptions approach used product revenue recognized following criteria met 1 persuasive evidence arrangement exists upon contract signing receipt authorized purchase order customer 2 title passes customer either shipment facilities receipt customer facility depending shipping terms 3 price deemed fixed determinable free contingencies significant uncertainties 4 collectability reasonably assured customer purchase orders andor contracts generally used determine existence arrangement shipping documents used verify product delivery assess whether price fixed determinable based upon payment terms associated transaction volume discount offered revenue recognized lowest price offered customer assess collectability accounts receivable based primarily upon creditworthiness customer determined credit checks analysis well customer’s payment history revenue generated certain longterm fixed price contracts recognized percentage completion basis measured percentage cost incurred date estimated costs contract limited funding primary contractor provisions estimated losses incomplete contracts made period losses determined estimated contract costs based historical experience assumptions regarding future contractual obligations regularly review estimates consider impact recurring business risks uncertainties inherent contracts implementation delays due factors within outside control time entered multipledeliverable contractual arrangements elements software essential functionality delivered elements additionally contracts elements agreement need delivered accepted customer prior revenue recognized agreement recognize revenue delivered elements vendorspecific objective evidence “vsoe” fair value undelivered elements exists 2007 entered one contract whereby previously delivered certain elements vsoe fair value undelivered elements exist undelivered element delivered 2010 previously deferred revenue recognized changes cost estimates fair values certain deliverables could negatively impact operating results addition unforeseen conditions could arise contract term may significant impact operating results excess obsolete inventory nature estimates required estimates principally based assumptions regarding ability sell items inventory due uncertainty potential volatility estimated factors changes assumptions could materially affect results operations assumptions approach used estimate excess obsolete inventory evaluated quarterly basis based rolling historical inventory usage assumptions regarding future product sales requirements actual levels inventory change specific products become slow moving obsolete estimated reserve may materially change convertible debt conversion features nature estimates required reporting period value holder’s conversion option forced conversion option associated convertible debentures derivative liabilities calculate value features use blackscholes pricing model along z factor statistical model used calculate probability forced conversion option assumptions approach used blackscholes pricing model requires estimation expected term variables dependent expected term used based weighted average estimated holding period principal payment december 31 2010 estimated payment outstanding due date however certain conditions satisfied period 20 consecutive trading days may require specified amount outstanding principal debentures converted furthermore holder’s election portion outstanding principal may converted shares common stock anytime either scenarios could reduce expected term therefore effect estimated liability additionally estimates make impact estimate probability forced conversion option conversion based current variance market stock price exercise price would indicate likelihood conversion equity prior final payment holding period estimate also impacts variables including expected volatility riskfree interest rate variables could potentially significant impact carrying value debt materially affect results operations december 31 2010 estimated holding period 07 years resulted estimation net fair value holder’s maxwell’s conversion rights liability 21 million effect fair value adjustment 931000 gain year ended december 31 2010 february 2011 holder convertible debentures elected convert remaining principal balance convertible debentures shares common stock gain recognized consolidated statement operations 2011 primarily based market value common stock date conversion pension nature estimates required use several significant assumptions within actuarial models measure pension benefit obligations estimate fair values real estate assets assumptions approach used discount rate expected return assets important elements plan expense asset liability measurement addition appraise fair value real estate assets annually evaluate critical assumptions least annually periodically evaluate assumptions involving demographic factors retirement age mortality turnover update reflect experience expectations future actual results given year often differ actuarial assumptions economic factors example december 31 2009 estimated benefit payments approximately 11 million would paid 2010 actual benefits paid 2010 444000 projected benefit obligation december 31 2010 253 million fair value plan assets 307 million warranty nature estimates required estimated warranty reserve established time revenue recognized products typically carry one two year warranty estimates principally based assumptions regarding warranty costs sale cases new product little claims experience may exist due uncertainty potential volatility estimated factors changes assumptions could materially affect results operations assumptions approach used estimate warranty evaluated quarterly basis based prior experience data return rates historical costs well expectations future although engage extensive product quality programs processes warranty obligation may future affected product recalls increases product failure rates repair field replacement costs additional development costs incurred correcting product failure actual product failure rates use materials service delivery costs differ estimates additional warranty reserves could required event gross profit gross margins would reduced extent actual experience varies estimates specific data becomes available used modify reserve estimated based historical averages ensure reserves within range likely outcomes stockbased compensation nature estimates required stockbased awards include stock option grants restricted stock restricted stock units employee stock purchase plan record compensation expense stockbased awards accordance criteria set forth stock compensation subtopic financial accounting standards board accounting standards codification guidance fair value employee stock option estimated date grant using option pricing model meets certain requirements currently use blackscholes option pricing model estimate fair value stock options blackscholes model meets requirements guidance fair values generated model may indicative actual fair values equity awards determination fair value sharebased payment awards utilizing blackscholes model affected stock price number assumptions including expected volatility expected life riskfree interest rate expected dividends fair value restricted stock restricted stock units based closing market price common stock date grant assumptions approach used estimate expected dividend yield zero never paid cash dividends present intention pay cash dividends expected volatility based historical stock prices using mathematical formula measure standard deviation change natural logarithm underlying stock price expected period time commensurate expected option life riskfree interest rate derived zero coupon rate us treasury instruments option’s expected life expected life calculation based actual life historical stock option grants stockbased compensation expense recognized consolidated statement operations based options awards ultimately expected vest guidance requires forfeitures estimated time grant revised necessary subsequent periods actual forfeitures differ estimates cumulative catch adjustment evaluate assumptions used value stockbased awards quarterly basis factors change employ different assumptions stockbased compensation expense may differ significantly recorded past modifications cancellations stockbased awards may required accelerate increase cancel remaining unrecognized stockbased compensation expense extent grant additional equity securities stockbased compensation expense increase fair value additional grants compensation expense recognized awards expected vest therefore estimate forfeiture rate revise estimates subsequent periods actual forfeitures differs prior estimates addition restricted stock awards performancebased vesting criteria estimate probability achievement performance criteria recognize compensation expense related awards expected vest compensation expense may significantly impacted future extent estimates differ actual results income taxes nature estimates required record income tax valuation allowance realization certain deferred tax assets including net operating losses likely assumptions approach used significant judgment required evaluating federal state foreign tax positions determination tax provision despite belief valuation allowance unrecognized tax benefits adequate often difficult predict final outcome timing resolution particular tax matters may adjust allowance relevant circumstances evolve guidance relevant tax authority tax advisors resolution issues courts adjustments recognized component income tax expense entirely period identified commitments contingencies nature estimates required involved litigation regulatory proceedings claims prosecute defend matters aggressively however many uncertainties associated litigation assurance actions third party claims us resolved without costly litigation andor substantial settlement charges assumptions approach used disclose information concerning contingent liabilities respect claims proceedings unfavorable outcome remote recognize liabilities claims proceedings appropriate based upon probability loss ability estimate losses fairly present conjunction disclosures matters consolidated financial statements management’s view exposure review outstanding claims proceedings external counsel appropriate assess probability estimates loss recognize liability related claims proceedings time unfavorable outcome becomes probable amount reasonably estimated reasonable estimate range recognized liability best estimate within range amount range better estimate amount minimum amount range recognized reevaluate assessments quarter new significant information becomes available determine whether liability recognized existing liability adjusted actual cost ultimately resolving claim proceeding may substantially different amount recognized liability addition permissible recognize liability loss probable estimable cases may insufficient time recognize liability prior actual incurrence loss upon verdict judgment trial example case quickly negotiated settlement impact inflation believe inflation material impact results operations fiscal years threeyear period ended december 31 2010 however assurance future inflation would adverse impact operating results financial condition pending accounting pronouncements january 2010 fasb issued asu 201006 fair value measurements disclosures improve disclosures fair value measurements standard requires us disclose separately amounts significant transfers level 1 level 2 fair value measurements describe reasons transfers reconciliation fair value measurements using significant unobservable inputs level 3 required present separately information purchases sales issuances settlements gross basis rather one net number update provides clarification level disaggregation determining appropriate classes assets liabilities clarifies disclosures inputs valuation techniques level 2 level 3 fair value measurements new disclosures clarifications existing disclosures effective interim annual reporting periods beginning december 15 2009 except disclosures purchases sales issuances settlements roll forward activity level 3 fair value measurements disclosures effective fiscal years beginning december 15 2010 interim periods within fiscal year adoption update disclosurerelated expected significant impact financial position results operations october 2009 fasb reached consensus asu 200913 multipledeliverable revenue arrangements asu 200914 certain revenue arrangements include software elements asu 200913 modifies requirements must met entity recognize revenue sale delivered item part multipleelement arrangement items yet delivered asu 200913 eliminates requirement undelivered elements must either vendorspecific objective evidence “vsoe” ii thirdparty evidence “tpe” entity recognize portion overall arrangement consideration attributable items already delivered absence vsoe tpe standalone selling price one delivered undelivered elements multipleelement arrangement entities required estimate selling prices elements overall arrangement consideration allocated element delivered undelivered items based relative selling prices regardless whether selling prices evidenced vsoe tpe based entity’s estimated selling price residual method allocating arrangement consideration eliminated asu 200914 modifies software revenue recognition guidance exclude scope tangible products contain software nonsoftware components function together deliver product’s essential functionality new updates effective revenue arrangements entered materially modified fiscal years beginning june 15 2010 early adoption permitted new pronouncement allow us recognize revenue multipledeliverable arrangements earlier previous years although unable estimate amounts future 30 million recognized multipledeliverable revenue arrangements year ended december 31 2010 amounts recognized multiple deliverable revenue arrangements year ended december 31 2009 december 31 2010 2009 0 21 million respectively deferred revenue related multipledeliverable revenue arrangements balance sheet arrangements none outlook continue focus growth opportunities ultracapacitor product line 2011 identifying pursuing new expanded applications multiple industries including transportation automotive renewable energy backup power industrial electronics increased production capacity ultracapacitor products internally offshore contract assembly relationships expect growth large cell ultracapacitor products augmented 2011 increasing sales voltage stabilization idlestopstart functionality micro hybrid automobiles expect total revenue continue grow 2011 rate comparable potentially higher experienced 2010 driven primarily increasing sales ultracapacitor products advances manufacturing processes design enhancements large mediumsize ultracapacitor products lowcost offshore assembly material sourcing increasing sales volume expected contribute continuing improvement manufacturing cost structure expect gross profit percentage revenue continue increase 2011 moderate pace growth 2010 continue increase revenue expect selling general administrative expenses increase addition sales personnel well customer facing application engineers work improving ultracapacitor applications developing new applications also expect research development expenses ultracapacitor product line increase continue focus material science new product design development although operating expenses expected increase absolute dollars expect operating expenses remain consistent decline slightly 2010 operating expenses percentage revenue expect continued revenue growth gross profit improvement may enable company generate profit operations 2011 capital expenditures expected approximately 125 million 2011 forty percent planned capital spending focused advances ultracapacitor manufacturing processes production capacity expansion increasing high voltage capacitor production capacity based current product mix makes another thirty percent planned capital spending additional twenty percent support research development microelectronics product line remaining ten percent planned capital spending related build new corporate research development facility implementation financial planning analysis application well applications support expected growth item 7aitem 7 management’s discussion analysis financial condition results operations following discussion financial condition results operations years ended december 31 2012 2011 2010 read conjunction consolidated financial statements related notes included item 8 financial statements supplementary data annual report form 10k addition discussion contains forwardlooking statements subject risks uncertainties including estimates based judgment estimates include limited assessing collectability accounts receivable applied unapplied production costs production capacities usage recoverability inventories longlived assets deferred income taxes incurrence warranty obligations stock compensation expense impairment goodwill intangible assets strategies future revenues operating results cash balances access liquidity cost complete certain projects probability performance criteria restricted stock awards met accruals estimated losses legal matters discussion regarding forward looking statements see section annual report form 10k entitled special note regarding forwardlooking statements management’s discussion analysis financial condition results operations “mda” designed provide reader financial statements narrative perspective management financial condition results operations liquidity certain factors may affect future results mda presented following sections • overview restatement • executive overview • 2012 highlights • results operations • liquidity capital resources • contractual obligations • critical accounting estimates • impact inflation • pending accounting pronouncements • balance sheet arrangements overview restatement annual report form 10k annual report fiscal year ended december 31 2012 maxwell technologies inc company • restates consolidated balance sheet december 31 2011 related consolidated statements operations stockholders equity comprehensive income cash flows fiscal year ended december 31 2011 • restates item 6 “selected financial data” item 6 fiscal year 2011 • amends item 7 managements discussion analysis financial condition results operations item 7 relates fiscal year ended december 31 2011 • restates note 15 unaudited quarterly financial information item 8 first three fiscal quarters fiscal year ended december 31 2012 quarterly periods fiscal year ended december 31 2011 background restatement audit committees investigation january 2013 following receipt information concerning potential revenue recognition issues audit committee board directors engaged independent legal counsel forensic accountants conduct investigation concerning potential issues work management determine potential impact accounting revenue february 2013 result findings audit committees investigation date determined certain employees engaged conduct resulted revenue recorded periods prior criteria revenue recognition us generally accepted accounting principles satisfied investigation revealed arrangements three distributors regarding extended payment terms one distributors regarding return rights profit margin protection sales distributors respect certain transactions addition arrangements revealed one nondistributor customer honor transfer title date later customers purchase orders indicated based results investigation audit committee determined arrangements communicated finance accounting department ceo therefore considered revenue originally recorded based terms agreements customers known finance accounting department policy record revenue related shipments title passed either shipment facilities receipt customers facility assuming revenue recognition criteria achieved addition arrangements noted investigation uncovered error individual transaction customer given extended payment terms considered revenue originally recognized result arrangements discovered investigation believe fixed determinable sales price existed time shipment collection reasonably assured least respect certain transactions addition revenue related certain shipments one nondistributor customer recorded actual transfer title satisfaction obligation deliver products therefore revenue sales recognized time shipment based arrangements customers revealed investigation considered revenue originally recognized determined following • beginning period investigation revealed arrangements regarding extended payment terms certain sales three distributors determined appropriate defer revenue recognition sales distributors period shipment period cash receipt three distributors revenue recognition period cash receipt determined appropriate beginning fourth quarter 2011 • beginning period investigation revealed return rights profit margin protection one distributor determined appropriate defer revenue recognition determine distributor entitled returns credits distributor deferral revenue determine distributor entitled returns credits determined appropriate beginning fourth quarter 2011 time determination made currently anticipated occur second half fiscal year 2013 previous sales revenue deferred net credits returns may made distributor recognized revenue • arrangements nondistributor customer honor transfer title date later customers purchase order indicated determined appropriate defer revenue recognition period agreed honor transfer title • individual transaction customer given extended payment terms considered revenue originally recognized first quarter 2011 revenue recognition cash received second quarter 2011 determined appropriate managements subsequent internal review audit committee investigation complete management company conducted review beginning first quarter 2009 first quarter 2013 ensure sales arrangements detected accounted appropriately review noted number quarter end revenue cutoff errors wherein revenue recorded prior transfer title customer satisfaction obligation deliver products corrected errors occurring first quarter 2011 third quarter 2012 moving revenue recognition items period delivery actually occurred results audit committees investigation managements internal review based findings investigation previously reported current report form 8k dated march 7 2013 audit committee consultation management board directors concluded previously issued financial statements contained annual report form 10k year ended december 31 2011 quarterly reports form 10q quarters ended march 31 2011 june 30 2011 september 30 2011 march 31 2012 june 30 2012 september 30 2012 longer relied upon accordingly accompanying consolidated financial statements first three quarters fiscal year ended december 31 2012 fiscal year ended december 31 2011 interim periods within fiscal year ended december 31 2011 restated annual report form 10k result audit committees investigation certain employees terminated sr vice president sales marketing resigned reported current report form 8k dated march 7 2013 connection errors identified investigation resulting restatement previously reported financial statements identified control deficiencies internal control financial reporting constitute material weaknesses discussion disclosure controls procedures material weaknesses identified see part ii item 9a controls procedures annual report form 10k previously filed annual report form 10k fiscal year ended december 31 2011 quarterly reports form 10q periods affected restatements amended accordingly investors longer rely upon previously released financial statements quarterly annual periods including march 31 2011 earnings releases communications relating periods see note 2 restatement previously issued financial statements financial information note 15 unaudited quarterly financial information notes consolidated financial statements annual report impact adjustments full fiscal year ended december 31 2011 first three quarters fiscal year ended december 31 2012 quarterly periods fiscal year ended december 31 2011 respectively restatement adjustments restatement adjustments related sales arrangements several adjustments made previously filed consolidated financial statements result restatement order reflect revenue recognition appropriate periods discussed accordingly subject sales transactions revenue accounts receivable balances reduced equivalent amount period sale originally recorded revenue increased subsequent period criteria revenue recognition met subject sales transactions cost revenue reduced inventory increased period sale originally recorded revenue cost revenue increased inventory reduced period sale ultimately recorded revenue however sales one distributor revenue deferred determine distributor entitled returns credits discussed increase revenue related reduction inventory increase cost revenue recorded future period determination made adjustments also reflect impacts adjusting returns reserves certain stock rotation rights distributors adjusting reserves allowances doubtful accounts well commissions expense although changes material addition adjustments revenue accounts receivable inventory cost revenue inventory reserves balances cost revenue adjusted relation adjustments inventory discussed order reflect inventory ultimately recorded balance sheets lower cost market value restatement adjustments since determination restate previously issued financial statements constituted event default terms credit facility bank right require immediate payment outstanding borrowings result restatement adjustments recorded reclassify amounts outstanding credit facility longterm debt current liabilities respective balance sheet date addition insignificant amount debt issuance costs reclassified longterm asset shortterm asset consistent classification related debt june 2013 entered forbearance agreement bank wherein bank agreed forbear exercise rights remedies call outstanding debt credit facility connection events default period terminating earlier september 30 2013 occurrence additional events default restatement adjustment made reclassify legal settlement customer selling general administrative expense contrarevenue second quarter 2011 amount 26 million certain immaterial adjustments made connection restatement increased net loss 153000 year ended december 31 2011 decreased net income 170000 nine months ended september 30 2012 restatement adjustments impact previously reported tax provision benefit affected periods 54000 decrease income tax provision quarter ended september 30 2012 restatement adjustments related us operations significant net operating loss carryforwards recorded income tax expense benefit period date however restatement adjustments impact composition deferred tax assets liabilities december 31 2011 presented note 10 income taxes notes consolidated financial statements included annual report total restatement adjustments nine months ended september 30 2012 total restatement adjustments decreased revenue 92 million decreased previously reported net income 43 million 015 per diluted share 43 million fiscal year ended december 31 2011 total restatement adjustments decreased revenue 101 million decreased previously reported net income 23 million 008 per diluted share net loss 14 million restatement adjustments revenue year ended december 31 2011 26 million represents reclassification charge anticipated settlement legal matter customer selling general administrative expense contrarevenue bringing impact restatement adjustments revenue 2011 net reclassification decrease 75 million june 30 2013 collected related accounts receivable sales transactions subject restatement year ended december 31 2011 nine months ended september 30 2012 exception insignificant amount subsequently credited certain customers quarterly effects restatement following tables subsequent sections discuss effect restatement quarterly revenue gross profit income loss operations net income loss diluted net income loss per share nine months ended september 30 2012 first three quarters fiscal year ended december 31 2012 four quarters fiscal year ended december 31 2011 note 15 consolidated financial statements sets forth unaudited restated quarterly results operations first three quarters fiscal year ended december 31 2012 quarterly periods fiscal year ended december 31 2011 nine months ended september 30 2012 restatement adjustments decreased revenue 92 million 1240 million previously reported 1148 million decreased gross profit 37 million 515 million previously reported 478 million result restatement adjustments nine months ended september 30 2012 net income decreased 43 million 86 million previously reported 43 million diluted net income per share decreased 015 030 previously reported 015 quarter ended september 30 2012 restatement adjustments decreased revenue 12 million 439 million previously reported 427 million decreased gross profit 231000 184 million previously reported 181 million result restatement adjustments quarter ended september 30 2012 net income decreased 175000 54 million previously reported 52 million diluted net income per share decreased 001 019 previously reported 018 quarter ended june 30 2012 restatement adjustments decreased revenue 46 million 409 million previously reported 362 million decreased gross profit 25 million 170 million previously reported 145 million result restatement adjustments quarter ended june 30 2012 net income decreased 26 million 27 million previously reported 31000 diluted net income per share decreased 009 previously reported zero quarter ended march 31 2012 restatement adjustments decreased revenue 34 million 392 million previously reported 358 million decreased gross profit 10 million 161 million previously reported 152 million result restatement adjustments quarter ended march 31 2012 net income decreased 15 million 504000 previously reported net loss 952000 diluted net income per share decreased 005 002 previously reported net loss per share 003 quarter ended december 31 2011 restatement adjustments decreased revenue 51 million 425 million previously reported 374 million decreased gross profit 11 million 161 million previously reported 150 million result restatement adjustments quarter ended december 31 2011 net income decreased 11 million 16 million previously reported 515000 diluted net income per share decreased 004 006 previously reported 002 quarter ended september 30 2011 restatement adjustments increased revenue 934000 411 million previously reported 420 million increased gross profit 281000 165 million previously reported 168 million result restatement adjustments quarter ended september 30 2011 net income increased 271000 298000 previously reported 569000 diluted net income per share increased 001 previously reported 002 quarter ended june 30 2011 restatement adjustments increased revenue 01 million 385 million previously reported 385 million decreased gross profit 16 million 155 million previously reported 139 million result restatement adjustments quarter ended june 30 2011 net loss decreased 10 million 12 million previously reported 200000 diluted net loss per share decreased 003 004 previously reported 001 quarter ended march 31 2011 restatement adjustments decreased revenue 60 million 353 million previously reported 292 million decreased gross profit 26 million 139 million previously reported 113 million result restatement adjustments quarter ended march 31 2011 net income decreased 25 million 196000 previously reported net loss 23 million diluted net income per share decreased 010 001 previously reported net loss per share 009 executive overview maxwell global leader developing manufacturing marketing advanced energy storage power delivery products transportation industrial information technology applications microelectronic products space satellite applications strategy establish compelling value proposition products designing manufacturing perform reliably minimal maintenance long operational lifetimes three product lines ultracapacitors applications multiple industries including transportation automotive information technology renewable energy consumer industrial electronics highvoltage capacitors applied mainly electrical utility infrastructure radiationhardened microelectronic products space satellite applications primary objective grow revenue profit margins creating satisfying demand ultracapacitorbased energy storage power delivery solutions focusing establishing expanding market opportunities ultracapacitors preferred supplier ultracapacitor products worldwide believe transportation industry represents largest market opportunity ultracapacitors primarily applications related engine starting electrical system augmentation braking energy recuperation hybrid electric drive systems transit buses trucks autos electric rail vehicles backup power quality applications including instantly available power uninterruptible power supply systems stabilizing output renewable energy generation systems may also represent significant market opportunities also seek expand market opportunities highvoltage capacitor radiationhardened microelectronic products market highvoltage capacitors consists mainly expansion upgrading maintenance existing electrical utility infrastructure new infrastructure installations developing countries installations capitalintensive frequently subject regulation availability government funding general economic conditions although market microelectronics products space satellite applications relatively small specialized nature products requirement failurefree reliability allows us generate profit margins significantly higher commodity electronic components 2012 revenues 1593 million representing overall increase 8 compared 2011 revenue growth primarily attributable growth ultracapacitor sales revenue increased 10 960 million 2012 compared 868 million 2011 revenue growth ultracapacitor products slower 2012 compared two prior fiscal years ultracapacitor revenues increased 27 2011 56 2010 decline overall growth rate ultracapacitor products primarily attributable global economic conditions reduced demand certain product applications particularly european wind energy public transit vehicle markets addition sales ultracapacitor products backup power applications declined 2012 result lower spending information technology globally revenues high voltage products 456 million 2012 compared 423 million 2011 revenues microelectronics products 177 million 2012 compared 180 million 2011 overall gross profit margin fiscal year 2012 increased 41 compared 39 2011 primarily due cost efficiencies associated greater volume well process improvements manufacturing cost reduction efforts december 31 2012 cash equivalents 287 million management believes available cash balance combined cash expect generate operations sufficient fund operations obligations become due capital investments least next twelve months going forward continue focus growing business strengthening market leadership brand recognition penetration existing markets entry new markets development new products primary focus grow ultracapacitor business continued market penetration primary applications including automotive transportation renewable energy backup power order achieve growth objectives need overcome risks challenges facing business significant challenge face ability manage dependence small number vertical markets including driven government regulation highly dependent government subsidy programs example large portion current ultracapacitor business concentrated chinese hybrid transit bus wind energy markets heavily dependent government regulation subsidy markets may experience slower rates growth compared past couple years changes delays government policies subsidy programs historically supported sales markets although believe longterm prospects markets remain positive pursuing growth opportunities products vertical markets including applications backup power quality heavy vehicle engine starting order diversify market presence augment longterm growth prospects significant risks challenges face include ability maintain profitability ability develop management team product development infrastructure manufacturing capacity facilitate growth competing technologies may capture market share interfere planned growth hiring developing retaining key personnel critical execution strategy attentive risks focus growing revenues profits developing new products promoting value proposition products versus competing technologies addition process augmenting current manufacturing capacity infrastructure believe sufficient accommodate anticipated growth demand products 2012 highlights 2012 continued focus researching new technologies developing strategic alliances introducing new products increasing production capacity reducing product costs funding capital improvements improving production processes efforts described • january announced bombardier transportation leading producer rail vehicles rail transportation equipment systems services selected maxwell ultracapacitors energy storage element bombardier energstor® braking energy recuperation system • also january announced entered oneyear agreement panapacific preferred integrator engineering partner commercial vehicle market distribute new ultracapacitorbased engine start module united states canada mexico although sales product date significant • february announced swiss subsidiary participating program swiss government accelerate initiatives improve manufacturing processes enhance performance condis® highvoltage capacitor products electric utility grid infrastructure highvoltage applications • march announced process planning new ultracapacitor electrode production facility double current electrode capacity also increasing internal outsourced assembly capabilities ensure meet increasing worldwide demand ultracapacitor products • may announced swiss subsidiary launched new line condis® capacitors voltage dividers medium voltage applications based environmentally friendly technology • also may announced signing global distribution agreement digikey corporation global electronic components distributor recognized design engineers industrys largest selection electronic components available immediate shipment distribute products worldwide • june rd magazine recognized ultracapacitorbased engine start module medium heavy duty trucks one 100 technologically significant products introduced marketplace past year although sales product date significant • october announced automobili lamborghini spa incorporate ultracapacitors support stopstart idleelimination system lamborghinis aventador cars • also november announced swiss subsidiary introduced line high voltage capacitors capacitive voltage dividers operate normally temperatures minus 76º fahrenheit electric utility grid installations regions experience extremely low temperatures results operations following table presents certain statement operations data expressed percentage revenue periods indicated year ended december 31 2012 compared year ended december 31 2011 net income reported 2012 72 million 025 per diluted share compared net loss 14 million 005 per diluted share 2011 revenue grew 8 2012 compared 2011 cost revenue operating expenses declined percentage revenue 2011 recorded reduction revenue settlement legal matter customer 26 million gain embedded derivatives warrants 11 million 2012 continued achieve improved operating results due revenue growth combined continued improvements gross profit operating margins revenue gross profit following table presents revenue cost revenue gross profit years ended december 31 2012 2011 thousands except percentage revenue 2012 increased 8 1593 million compared 1472 million 2011 ultracapacitor product revenue increased 10 960 million 2012 compared 868 million prior year increase ultracapacitor revenue influenced primarily sales growth hybrid transit bus market offset lower sales wind energy certain backup power applications sales high voltage capacitor products totaled 456 million 2012 8 423 million recorded 2011 increase high voltage capacitor revenue primarily due changes pricing policy resulting denomination sales swiss franc instead euro revenue microelectronic products relatively flat yearoveryear beginning fourth quarter year ended december 31 2011 sales three distributors began recognizing revenue upon collection sales price rather upon shipment due certain arrangements distributors related payment terms sales addition one distributor also beginning fourth quarter year ended december 31 2011 due return rights profit margin protection given distributor began deferring revenue sales time determine distributor entitled returns credits result year ended december 31 2012 deferred revenue recognition 189 million sales recognized 127 million previously deferred revenue year ended december 31 2011 deferred revenue recognition 108 million sales recognized 32 million previously deferred revenue year related one distributor given return rights profit margin protection deferred revenue sales beginning fourth quarter year ended december 31 2011 revenue remain deferred time distributor confirms us entitled returns credits time determination made currently anticipated occur second half fiscal year 2013 previous sales revenue deferred net credits returns may made distributor recognized revenue december 31 2012 cumulative sales distributor revenue yet recognized 56 million substantial amount revenue generated swiss subsidiary functional currency swiss franc reported revenue materially impacted changes exchange rates swiss franc us dollar reporting currency due strengthening us dollar swiss franc 2012 compared 2011 revenue negatively impacted 27 million following table presents revenue mix product line years ended december 31 2012 2011 gross profit 2012 increased 80 million 14 651 million compared 2011 percentage revenue gross profit increased 41 2012 compared 39 2011 increase gross profit absolute dollars 53 million related increase volume sales 14 million due net reductions product costs high voltage product line addition increase gross profit absolute dollars due classification contrarevenue legal settlement expense related customer dispute recorded 2011 26 million offsetting increases decrease gross profit absolute dollars 13 million related impact changes foreign currency exchange rates primarily changes swiss franc us dollar selling general administrative expense following table presents selling general administrative expense years ended december 31 2012 2011 thousands except percentage selling general administrative expenses 21 revenue 2012 compared 24 2011 total expense decreased 16 million 4 decrease absolute dollars primarily attributable 19 million decrease legal expenses related resolution certain legal matters addition 12 million decrease bonus expense bonus expense recorded 2012 financial targets bonus program achieved 384000 decrease labor expense due lower headcount offsetting decreases advertising costs consulting fees increased 15 million primarily related roll new ultracapacitor product engine start module increased participation trade shows advertising media fees marketing consultants increase net foreign exchange gains 490000 result audit committees investigation managements internal review restatement previously issued financial statements expect incur additional selling general administrative expenses fiscal 2013 range approximately 40 million 50 million addition connection investigations sec doj related restatement previously issued financial results ongoing legal matters expect incur significant legal expenses 2013 future periods matters substantially resolved research development expense following table presents research development expense years ended december 31 2012 2011 thousands except percentage research development expense 217 million 2012 compared 224 million 2011 decrease approximately 656000 3 percentage revenues research development expense 14 2012 compared 15 2011 decrease absolute dollars primarily driven 584000 decrease salary contract labor costs primarily related higher development expenses contract labor costs incurred 2011 design engine start module addition bonus expense decreased 474000 bonus expense recorded 2012 financial targets bonus program achieved offsetting decreases 357000 increase information technology expense 242000 increase depreciation amortization expense associated recent investments research development facilities infrastructure gain embedded derivatives year ended december 31 2011 recorded gain embedded derivatives 11 million gain recorded embedded derivatives represented change fair market value revaluation debenture conversion rights dates conversion compared beginning year february 2011 remaining principal balance convertible debentures converted shares common stock impact consolidated statement operations 2012 related fair value measurement derivative instruments provision income taxes recorded income tax provision 23 million year ended december 31 2012 compared 19 million year ended december 31 2011 provision primarily related swiss operations unremitted earnings foreign subsidiaries included consolidated financial statements without giving effect united states taxes may payable anticipated earnings remitted united states company established valuation allowance us federal state deferred tax assets well deferred tax asset foreign subsidiary due uncertainty surrounding realization assets evidenced cumulative losses operations december 31 2012 management periodically evaluates recoverability deferred tax assets time determined likely deferred assets realizable valuation allowance reduced accordingly year ended december 31 2011 compared year ended december 31 2010 net loss reported 2011 14 million 005 per diluted share compared 61 million 023 per diluted share 2010 2011 continued achieve improved operating results due revenue growth combined improvements gross profit operating margins revenue grew 21 2011 compared 2010 cost revenue operating expenses declined percentage revenue gross profit following table presents revenue cost revenue gross profit years ended december 31 2011 2010 thousands except percentage revenue 2011 increased 21 1472 million compared 1219 million 2010 ultracapacitor product revenue increased 27 868 million 2011 compared 685 million prior year sales high voltage capacitor products totaled 423 million 2011 18 357 million recorded 2010 revenue microelectronic products relatively flat yearoveryear increase revenue influenced primarily higher volume ultracapacitor product line associated continuing strong demand energy storage power delivery systems hybrid energy electric transit vehicles micro hybrid automotive systems well backup power applications enterprise computing systems sale proprietary electrode material beginning fourth quarter year ended december 31 2011 sales three distributors began recognizing revenue upon collection sales price rather upon shipment due certain arrangements distributors related payment terms sales addition one distributor also beginning fourth quarter year ended december 31 2011 due return rights profit margin protection given distributor began deferring revenue sales time distributor confirms us entitled returns credits result deferred revenue recognition 108 million sales year ended december 31 2011 recognized 32 million previously deferred revenue year whereas revenues similarly deferred year ended december 31 2010 substantial amount revenue generated swiss subsidiary functional currency swiss franc reported revenue materially impacted changes exchange rates swiss franc us dollar reporting currency due weakening us dollar swiss franc 2011 compared 2010 revenue positively impacted 63 million following table presents revenue mix product line years ended december 31 2011 2010 gross profit 2011 increased 102 million 22 571 million compared 2010 percentage revenue gross profit increased 39 2011 compared 38 2010 increase gross profit absolute dollars 84 million related increase volume sales 45 million due net reductions product costs ultracapacitor high voltage product lines offsetting increases decrease gross profit absolute dollars due classification contrarevenue legal settlement expense related customer dispute recorded 2011 26 million well decrease 91000 related net foreign exchange losses recorded 2011 compared net foreign exchange gains recorded 2010 product cost reductions related primarily highvoltage capacitors product line due price increases material cost reductions shift sales mix higher margin products addition product design advancements allowed us continue reduce product costs large cell ultracapacitor product line selling general administrative expense following table presents selling general administrative expense years ended december 31 2011 2010 thousands except percentage selling general administrative expenses 24 revenue 2011 compared 29 2010 total expense decreased 428000 1 decrease absolute dollars driven primarily significant charges 2010 including 51 million charge related settlement fcpa matter 880000 charge related asset impairment offsetting decreases 28 million increase legal fees related certain ongoing legal matters including indemnification certain past officers concerning fcpa matter efforts related protection intellectual property corporate matters addition decrease net foreign exchange losses 12 million primarily due change hedging strategy 2011 recorded net foreign exchange losses 498000 compared 17 million net foreign exchange losses 2010 finally increase 19 million labor costs due headcount growth sales marketing operations research development expense following table presents research development expense years ended december 31 2011 2010 thousands except percentage research development expense 224 million 2011 compared 177 million 2010 increase approximately 46 million 26 percentage revenues research development expense 15 2011 2010 increase absolute dollars driven continued expansion research development activities relates primarily increase 31 million labor expense due headcount additions increase 16 million facilities information technology expenses related expansion research development facilities increase 12 million expenses related new product development research programs partially funded governments increases offset additional government funding research development activities 20 million decrease consulting expenses 288000 related development new products amortization debt discount prepaid debt costs amortization debt discount prepaid debt costs 55000 2011 compared 83000 2010 decrease approximately 28000 amortization period debt discount prepaid debt costs associated original payment terms convertible debentures wherein final payment due december 31 2010 however holder elected defer three quarterly installments 2011 gain embedded derivatives warrants gain embedded derivatives 11 million 2011 compared 23 million 2010 gain recorded embedded derivative warrants primarily represents change fair market value revaluation debenture conversion rights warrants end year conversion dates compared beginning year december 2010 warrants exercised full february 2011 remaining principal balance convertible debentures converted shares common stock following transactions impact consolidated statement operations related fair value measurement derivative instruments warrants provision income taxes recorded income tax provision 19 million year ended december 31 2011 compared 16 million year ended december 31 2010 provision primarily related swiss operations unremitted earnings foreign subsidiaries included consolidated financial statements without giving effect united states taxes may payable anticipated earnings remitted united states company established valuation allowance us federal state deferred tax assets due uncertainty surrounding realization assets evidenced cumulative losses operations december 31 2011 management periodically evaluates recoverability deferred tax assets time determined likely deferred assets realizable valuation allowance reduced accordingly liquidity capital resources changes cash flow following table summarizes cash flows operating investing financing activities past three fiscal years thousands net cash used operating activities 11 million 2012 compared net cash used operating activities 51 million 2011 net cash provided operating activities 87 million 2010 net income 2012 72 million compared net loss 14 million 2011 contributed improvement operating cash flows 2012 compared 2011 improvement operating cash flows 2012 compared 2011 also attributable lower growth accounts receivable 2012 compared 2011 also 2012 2011 made settlement payments sec doj totaling 54 million 67 million respectively whereas similar payments made 2010 usage cash operations 2012 11 million related primarily increased inventory levels 83 million increase accounts receivable balances 49 million offset decrease accounts payable accrued liabilities 31 million increase inventories primarily related increase consigned inventory located distributors deferred revenue recognition sales certain distributors beginning fourth quarter 2011 increase accounts receivable primarily related sales growth 2012 well significant sales occurring last month 2012 decrease accounts payable accrued liabilities primarily relates settlement payments totaling 54 million made sec doj first quarter 2012 net cash used investing activities 152 million year ended december 31 2012 compared 145 million 2011 88 million 2010 capital expenditures 2012 primarily focused investments increased production capacity including equipment new manufacturing facility peoria arizona corporate research development facility san diego california cash used investing activities 2011 2010 primarily related capital expenditures focused investments corporate research development facility information technology infrastructure increased production capacity net cash provided financing activities 156 million year ended december 31 2012 compared 104 million 2011 99 million 2010 year ended december 31 2012 cash proceeds resulted primarily issuance common stock secondary security offering 103 million cash proceeds stockbased compensation plans 18 million year ended december 31 2011 cash provided investing activities included release 80 million restricted cash upon settlement remaining principal balance convertible debentures year ended december 31 2010 received cash proceeds 75 million exercise stock warrants liquidity december 31 2012 approximately 287 million cash equivalents working capital 580 million although credit facility consisting 150 million line credit drawn upon date based events default discussed result restatement previously issued financial statements banks obligation extend credit ceased terminated december 31 2012 39 million outstanding equipment term loan provided credit facility june 2013 entered forbearance agreement bank wherein bank agreed forbear exercise rights remedies credit agreement call outstanding debt obligation connection events default specified period time april 2011 filed shelf registration statement form s3 sec time sell aggregate 125 million common stock warrants debt securities quarter ended march 31 2012 sold total 572510 shares common stock net proceeds 103 million pursuant atthemarket equity offering sales agreement “sales agreement” citadel securities llc “citadel” dated february 2012 since sold shares program result restatement within annual report form 10k previously issued financial statements longer compliance ongoing eligibility requirements shelf registration statement form s3 therefore shelf registration statement longer effective securities may issued pursuant registration statement management believes cash expect generate operations combined available cash balances sufficient fund operations obligations become due capital equipment expenditures least next twelve months addition may choose issue additional debt supplement existing cash balances cash operating activities december 31 2012 accrued 23 million remaining settlement payment made connection past fcpa violations paid first quarter 2013 addition accrual 650000 euro 859000 december 31 2012 settlement customer dispute available customer discount future purchases products december 31 2014 balance original noncash settlement value 13 million euro used product discount december 31 2014 payable cash time capital expenditures expected approximately 224 million 2013 approximately fifty percent planned capital spending focused ultracapacitor production capacity expansion investments improve manufacturing processes twenty five percent planned capital spending focused product development additional ten percent support information technology infrastructure remaining planned capital spending primarily related improvements facilities december 31 2012 amount cash shortterm investments held foreign subsidiaries 80 million funds needed operations us future may required accrue pay taxes repatriate funds rate approximately 5 credit facility december 2011 entered credit agreement whereby obtained secured credit facility form revolving line credit maximum 150 million “revolving line credit” equipment term loan “equipment term loan” together “credit facility” general amounts borrowed credit facility secured lien assets intellectual property addition credit agreement required pledge 65 equity interests swiss subsidiary also agreed encumber intellectual property agreement contains certain restrictive covenants limit ability amongst things incur additional indebtedness guarantees ii create liens encumbrances property iii enter merger similar transaction iv invest another entity v declare pay dividends vi invest fixed assets excess defined dollar amount repayment amounts owed pursuant credit facility may accelerated event violation representations warranties covenants made credit agreement including certain financial covenants financial covenants must meet term credit agreement include quarterly minimum liquidity ratios minimum quick ratios ebitda targets annual net income target borrowings credit facility bear interest payable monthly either banks prime rate ii libor plus 225 option subject certain limitations incur unused commitment fee payable quarterly equal 025 per annum average daily unused amount revolving line credit equipment term loan available finance 80 eligible equipment purchases made april 1 2011 april 30 2012 period borrowed 50 million equipment term loan result restatement prior period financial statements reflected annual report form 10k financial information previously submitted bank since proven materially incorrect default respect terms credit agreement beginning fourth quarter 2011 addition result restatement prior period financial statements compliance financial covenant pertaining annual minimum net income target fiscal year ended december 31 2011 violations represent events default terms credit facility result noncompliance banks obligation extend credit ceased terminated june 2013 entered forbearance agreement bank “the forbearance agreement” pursuant terms forbearance agreement bank agreed forbear exercise rights remedies credit agreement call outstanding debt connection events default period terminating earlier september 30 2013 occurrence additional events default connection execution forbearance agreement june 2013 posted cash deposit 18 million bank granted bank security interest therein remain restricted bank may determine waive existing events defaults discussed loan satisfied december 31 2012 39 million outstanding equipment term loan applicable interest rate libor plus 225 25 december 31 2012 bank exercise right accelerate repayment original terms credit facility principal interest equipment term loan payable 36 equal monthly installments equipment term loan fully repaid maturity date april 30 2015 may prepaid whole part time december 31 2012 amounts outstanding revolving line credit december 31 2012 eligible borrow additional amounts credit facility result events default discussed shortterm borrowings maxwell’s swiss subsidiary maxwell sa 30 million swiss francdenominated approximately 33 million december 31 2012 shortterm loan agreement swiss bank renews semiannually bears interest 220 borrowings shortterm loan agreement unsecured december 31 2012 2011 full amount loan drawn maxwell sa 20 million swiss francdenominated approximately 22 million december 31 2012 credit agreement swiss bank renews annually bears interest 24 borrowings credit agreement unsecured december 31 2012 2011 full amount available credit line drawn maxwell sa also 10 million swiss francdenominated approximately 11 million december 31 2012 credit agreement another swiss bank available balance line withdrawn reduced bank time december 31 2012 2011 amounts drawn credit line interest rates applicable draws line determined time draw longterm borrowings company various financing agreements vehicles agreements threeyear repayment period interest rates ranging 39 51 december 31 2012 2011 159000 164000 respectively outstanding agreements dividends remaining term credit facility scheduled expire april 2015 permitted declare pay dividends contractual obligations 1 operating lease obligations primarily represent building leases 2 purchase commitments primarily represent value noncancelable purchase orders estimate purchase orders canceled would result significant penalty 3 debt obligations represent longterm shortterm borrowings interest payable 232000 4 pension benefit payments represent expected amounts paid pension benefits 5 amount represents payments due connection legal settlements 6 due uncertainty respect timing future cash flows associated unrecognized tax benefits december 31 2012 unable make reasonably reliable estimates period cash settlement respective taxing authorities therefore 243000 unrecognized tax benefits excluded contractual obligations table critical accounting estimates consider accounting estimate critical 1 accounting estimate requires us make assumptions matters uncertain time accounting estimate made 2 changes estimate reasonably likely occur period use different estimates reasonably could used current period would material impact financial condition results operations also see note 1 summary significant accounting policies part ii item 8 financial statements supplementary data annual report form 10k discusses significant accounting policies believe following either critical accounting policies require us make significant estimates assumptions preparation consolidated financial statements ii key accounting policies may require us make difficult subjective judgments revenue recognition nature estimates required sales revenue primarily derived sale products directly customers product revenue recognized criteria revenue recognition met customer agreements terms sale evaluated determine criteria revenue recognition met therefore revenue recognized revenue recognition deferred criteria revenue recognition met assumptions approach used product revenue recognized following criteria met 1 persuasive evidence arrangement exists upon contract signing receipt authorized purchase order customer 2 title passes customer either shipment facilities receipt customer facility depending shipping terms 3 price deemed fixed determinable free contingencies significant uncertainties 4 collectability reasonably assured customer purchase orders andor contracts generally used determine existence arrangement shipping documents used verify product delivery assess whether price fixed determinable based upon payment terms associated transaction assess collectability accounts receivable based primarily upon creditworthiness customer determined credit checks analysis well customer’s payment history beginning fourth quarter 2011 three distributors products offered extended payment terms allowed distributors pay us received payment customer respect certain sales transactions also beginning fourth quarter 2011 one distributor products offered return rights profit margin protection respect certain sales transactions therefore four distributors determined revenue recognition criteria sab 101 104 met time shipment fixed determinable price collection reasonably assured least respect certain sales transactions result three distributors provided extended payment terms provide fixed determinable price determined defer recognition revenue sales beginning fourth quarter 2011 period cash received one distributor provided return rights profit margin protection could estimate exposure determined defer recognition revenue sales beginning fourth quarter 2011 distributor confirms us entitled returns credits deferred revenue recognition approximately 189 million 108 million net sales years ended december 31 2012 december 31 2011 respectively arrangements recognized revenue 127 million 32 million fiscal years 2012 2011 respectively payments customers net sales revenue deferred included deferred revenue amount 64 million 10 million december 31 2012 2011 respectively recorded cost basis related inventory shipped approximately 92 million 55 million december 31 2012 2011 respectively inventory condensed consolidated balance sheets determine future longer appropriate defer revenue recognition time sale respect four distributors related revenue sales deferred therefore recognized earlier periods compared fiscal years 2012 2011 revenue deferred sales excess obsolete inventory nature estimates required estimates principally based assumptions regarding ability sell items inventory due uncertainty potential volatility estimated factors changes assumptions could materially affect results operations assumptions approach used estimate excess obsolete inventory evaluated quarterly basis based rolling historical inventory usage assumptions regarding future product sales requirements actual levels inventory change specific products become slow moving obsolete estimated reserve may materially change pension nature estimates required use several significant assumptions within actuarial models measure pension benefit obligations estimate fair values real estate assets assumptions approach used discount rate expected return assets important elements plan expense asset liability measurement evaluate critical assumptions least annually addition appraise fair value real estate assets annually periodically evaluate assumptions involving demographic factors retirement age mortality turnover update reflect experience expectations future actual results given year often differ actuarial assumptions economic factors projected benefit obligation december 31 2012 300 million fair value plan assets 369 million stockbased compensation nature estimates required stockbased compensation awards include stock options restricted stock restricted stock units shares issued employee stock purchase plan record compensation expense stockbased compensation awards accordance criteria set forth stock compensation subtopic financial accounting standards board fasb accounting standards codification asc guidance fair value employee stock option estimated date grant using option pricing model meets certain requirements although currently grant stock option awards historically used blackscholes option pricing model estimate fair value past stock option grants blackscholes model meets requirements guidance fair values generated model may indicative actual fair values equity awards determination fair value sharebased payment awards utilizing blackscholes model affected stock price number assumptions including expected volatility expected life riskfree interest rate expected dividends fair value restricted stock restricted stock units based closing market price common stock date grant addition restricted stock awards performancebased vesting criteria estimate probability achievement performance criteria recognize compensation expense related awards expected vest compensation expense equal fair value award recognized ratably requisite service period restricted stock awards vesting contingent company performance conditions requisite service period may adjusted changes expected outcomes related performance conditions impact changes recognized cumulative adjustment consolidated statement operations period expectation changes sharebased compensation expense recognized consolidated statement operations based awards ultimately expected vest fasb asc requires forfeitures estimated time grant revised necessary subsequent periods cumulative adjustment actual forfeitures differ estimates assumptions approach used determining value historical stock option grants estimated expected dividend yield zero never paid cash dividends present intention pay cash dividends addition remaining term credit facility scheduled expire april 2015 permitted declare pay dividends expected volatility based historical stock prices using mathematical formula measure standard deviation change natural logarithm underlying stock price expected period time commensurate expected option life riskfree interest rate derived zero coupon rate us treasury instruments option’s expected life expected life calculation based actual life historical stock option grants restricted stock awards vesting contingent achievement company performance conditions amount compensation expense estimated based expected achievement performance condition requires us make estimates likelihood achievement company performance conditions highly judgmental base judgments expected achievement company performance conditions based financial projections company used management business purposes represent best estimate expected company performance unlikely performance condition achieved compensation expense recognized unless later determined achievement performance condition likely requisite service period estimated based expected achievement date performance condition evaluate assumptions used value stockbased awards quarterly basis factors change employ different assumptions stockbased compensation expense may differ significantly recorded past modifications cancellations stockbased awards may required accelerate increase decrease remaining unrecognized stockbased compensation expense extent grant additional stockbased awards compensation expense increase relation fair value additional grants compensation expense may significantly impacted future extent estimates differ actual results income taxes nature estimates required record income tax valuation allowance realization certain deferred tax assets including net operating losses likely included net operating loss deferred tax asset approximately 98 million deferred tax asset attributable stock option exercises restricted stock grants disqualifying dispositions incentive stock options stock issued companys espp according provision within asc 718 stock compensation concerning tax benefits related excess stock option deductions credited paidin capital related valuation allowance cannot reversed even facts circumstances indicate likely deferred tax asset realized valuation allowance reversed related deferred tax asset applied reduce taxes payable assumptions approach used deferred income taxes arise temporary differences tax financial statement recognition revenue expense evaluating ability recover deferred tax assets within jurisdiction arise consider available positive negative evidence including scheduled reversals deferred tax liabilities projected future taxable income taxplanning strategies results recent operations significant judgments estimates required evaluation determine able realize portion deferred tax assets future record adjustment increase recorded value corresponding adjustment increase income additional paid capital appropriate period commitments contingencies nature estimates required involved litigation regulatory proceedings claims prosecute defend matters aggressively however many uncertainties associated litigation assurance actions third party claims us resolved without costly litigation andor substantial settlement charges assumptions approach used disclose information concerning contingent liabilities respect claims proceedings unfavorable outcome remote recognize liabilities claims proceedings appropriate based upon probability loss ability estimate losses fairly present conjunction disclosures matters consolidated financial statements management’s view exposure review outstanding claims proceedings external counsel appropriate assess probability estimates loss recognize liability related claims proceedings time unfavorable outcome becomes probable amount reasonably estimated reasonable estimate range recognized liability best estimate within range amount range better estimate amount minimum amount range recognized reevaluate assessments quarter new significant information becomes available determine whether liability recognized existing liability adjusted actual cost ultimately resolving claim proceeding may substantially different amount recognized liability addition permissible recognize liability loss probable estimable cases may insufficient time recognize liability prior actual incurrence loss upon verdict judgment trial example case quickly negotiated settlement impact inflation believe inflation material impact results operations fiscal years threeyear period ended december 31 2012 however assurance future inflation would adverse impact operating results financial condition pending accounting pronouncements december 2011 fasb issued accounting standards update 201111 disclosures offsetting assets liabilities requires companies disclose information financial instruments offset related arrangements enable users financial statements understand effect arrangements financial position january 2013 fasb issued accounting standards update 201301 clarifying scope disclosures offsetting assets liabilities limits scope new balance sheet offsetting disclosures derivatives repurchase agreements securities lending transactions extent 1 offset financial statements 2 subject enforceable master netting arrangement similar agreement companies required provide net offset amounts gross information notes financial statements relevant assets liabilities offset standard updates effective fiscal years interim periods within years beginning january 1 2013 expect adoption standard updates impact financial position results operations require additional disclosure financial statements february 2013 fasb issued accounting standards update 201302 reporting amounts reclassified accumulated comprehensive income standard requires companies present either single note parenthetically face financial statements effect significant amounts reclassified component accumulated comprehensive income based source income statement line items affected reclassification component required reclassified net income entirety companies would instead cross reference related footnote additional information standard update effective fiscal years interim periods within years beginning january 1 2013 expect adoption standard update impact financial position results operations requires additional disclosure financial statements balance sheet arrangements none item 7aitem 7 management’s discussion analysis financial condition results operations following discussion financial condition results operations years ended december 31 2013 2012 2011 read conjunction consolidated financial statements related notes included item 8 financial statements supplementary data annual report form 10k addition discussion contains forwardlooking statements subject risks uncertainties including estimates based judgment estimates include limited assessing collectability accounts receivable applied unapplied production costs production capacities usage recoverability inventories longlived assets deferred income taxes incurrence warranty obligations stock compensation expense impairment goodwill intangible assets strategies future revenues operating results cash balances access liquidity cost complete certain projects probability performance criteria restricted stock awards met accruals estimated losses legal matters discussion regarding forward looking statements see section annual report form 10k entitled special note regarding forwardlooking statements management’s discussion analysis financial condition results operations “mda” designed provide reader financial statements narrative perspective management financial condition results operations liquidity certain factors may affect future results mda presented following sections • executive overview • 2013 highlights • results operations • liquidity capital resources • contractual obligations • critical accounting estimates • impact inflation • pending accounting pronouncements • balance sheet arrangements executive overview maxwell global leader developing manufacturing marketing advanced energy storage power delivery products transportation industrial information technology applications microelectronic products space satellite applications strategy establish compelling value proposition products designing manufacturing perform reliably minimal maintenance long operational lifetimes three product lines ultracapacitors applications multiple industries including transportation automotive information technology renewable energy consumer industrial electronics highvoltage capacitors applied mainly electrical utility infrastructure radiationhardened microelectronic products space satellite applications primary objective grow revenue profit margins creating satisfying demand ultracapacitorbased energy storage power delivery solutions focusing establishing expanding market opportunities ultracapacitors preferred supplier ultracapacitor products worldwide believe transportation industry represents largest market opportunity ultracapacitors primarily applications related engine starting electrical system augmentation braking energy recuperation hybrid electric drive systems transit buses trucks autos electric rail vehicles backup power quality applications including instantly available power uninterruptible power supply systems stabilizing output renewable energy generation systems may also represent significant market opportunities also seek expand market opportunities highvoltage capacitor radiationhardened microelectronic products market highvoltage capacitors consists mainly expansion upgrading maintenance existing electrical utility infrastructure new infrastructure installations developing countries installations capitalintensive frequently subject regulation availability government funding general economic conditions although market microelectronics products space satellite applications relatively small specialized nature products requirement failurefree reliability allows us generate profit margins significantly higher commodity electronic components 2013 revenues 1935 million representing overall increase 22 compared 2012 growth primarily attributable higher revenue ultracapacitor products revenue increased 42 1363 million 2013 compared 960 million 2012 increase revenues ultracapacitor products primarily attributable revenue growth two primary markets currently sell products hybrid transit vehicle wind energy markets addition increase ultracapacitor revenues partially due net impact deferring revenue certain sales arrangements resulted 113 million additional revenue 2013 2012 net decrease ultracapacitor revenues 61 million related net impact revenue deferrals revenues high voltage capacitor products 433 million 2013 compared 456 million 2012 revenues microelectronics products 139 million 2013 compared 177 million 2012 decline revenue microelectronics products related general decline government funded programs overall gross profit margin fiscal year 2013 decreased 39 compared 41 2012 primarily due sales mix higher portion sales attributable ultracapacitor products earn lower margins product lines operating expenses 35 revenue 2013 35 revenue 2012 december 31 2013 cash equivalents 306 million management believes available cash balance combined cash expect generate operations sufficient fund operations obligations become due capital investments least next twelve months going forward continue focus growing business strengthening market leadership brand recognition penetration existing markets entry new markets development new products primary focus grow ultracapacitor product sales continued market penetration primary applications including automotive transportation renewable energy backup power order achieve growth objectives need overcome risks challenges facing business significant challenge face ability manage dependence small number vertical markets including driven government regulation highly dependent government subsidy programs example large portion current ultracapacitor business concentrated chinese hybrid transit vehicle wind energy markets heavily dependent government regulation subsidy markets may experience slower rates growth changes delays government policies subsidy programs support sales markets 2013 chinese government subsidy program diesel electric hybrid buses concluded announcement renewal replacement subsidy program occurred however chinese bus customers indicated received significant orders batterypowered plugin hybrid buses subject current chinese government subsidy program incorporate ultracapacitor content similar dieselelectric hybrid buses focused supporting plugin hybrid demand contributed sales ultracapacitor products 2013 although believe longterm prospects automotive wind bus markets remain positive pursuing growth opportunities products vertical markets including applications backup power quality heavy vehicle engine starting order diversify market presence augment longterm growth prospects significant risks challenges face include ability maintain profitability ability develop management team product development infrastructure manufacturing capacity facilitate growth competing technologies may capture market share interfere planned growth hiring developing retaining key personnel critical execution strategy attentive risks focus trying grow revenues profits developing new products promoting value proposition products versus competing technologies 2013 highlights 2013 continued focus researching new technologies developing strategic alliances introducing new products increasing production capacity reducing product costs funding capital improvements improving production processes efforts described • march midamerica trucking show kentucky expo center demonstrated ultracapacitorbased engine start module esm delivers quickburst power large diesel engines need crank extreme weather class 4 8 trucks minus 40 degrees fahrenheit esm evaluated 20 truck fleets delivers power hundreds thousands reliable starts cases outlast vehicle • april announced supplying ultracapacitors energysaving braking energy recuperation system american maglev technology installing light rail vehicles operated portland oregon areas tricounty metropolitan transportation district • may announced shanghai isson power quality co ltd installed 126 125v heavy transportation modules power system operates 26 shiptoshore cranes loading unloading container ships yangshan deepwater port installation one largest ultracapacitor installations world biggest asia stabilizes voltage smooths fluctuation power output electric cranes allowing uninterrupted operations • june announced collaboration soitec california energy commissionfunded twophase program demonstrate cost efficiency benefits combining ultracapacitorbased energy storage system soitecs concentrix™ cpv technology • september announced selected supply ultracapacitors caterpillar inc high efficiency energy management system supports caterpillars fuelsaving hydraelectric technology industrys largest ever hydraulic mining shovel 1400 ton shovels energy management system incorporates 98 maxwells 125v ultracapacitor modules • also september announced collaboration celadon inc provide ultracapacitors remote controls ultracapacitors expected lower overall waste create worry free experience end users longer need deal remote control battery replacement disposal • november announced supplying ultracapacitors crosspoint kinetics llc subsidiary cummins crosspoint llc cummins one worlds largest distributors cummins engines parts service store energy deliver power secondgeneration parallel electric hybrid drive system small paratransit bus shuttle bus package delivery vehicle applications results operations following table presents certain statement operations data expressed percentage revenue periods indicated year ended december 31 2013 compared year ended december 31 2012 net income reported 2013 63 million 022 per diluted share compared net income 72 million 025 per diluted share 2012 revenue grew 22 2013 compared 2012 gross profit declined percentage revenue 41 2012 39 2013 total operating expenses generally consistent 2013 compared 2012 revenue gross profit following table presents revenue cost revenue gross profit years ended december 31 2013 2012 thousands except percentage revenue 2013 increased 22 1935 million compared 1593 million 2012 ultracapacitor product revenue increased 42 1363 million 2013 compared 960 million prior year increase revenues ultracapacitor products primarily influenced sales growth two primary markets currently sell products hybrid transit vehicle wind energy markets addition increase ultracapacitor revenues partially due net impact deferring revenue certain sales arrangements resulted 113 million additional revenue 2013 2012 net decrease ultracapacitor revenues 61 million related net impact revenue deferrals future sales levels ultracapacitor products hybrid transit bus market currently uncertain primarily due uncertainty whether chinese government subsidy program diesel hybrid transit vehicles renewed replaced sales high voltage capacitor products totaled 433 million 2013 5 456 million recorded 2012 revenue microelectronic products tend vary widely totaled 139 million 2013 22 177 million recorded 2012 substantial amount revenue generated swiss subsidiary functional currency swiss franc reported revenue materially impacted changes exchange rates swiss franc us dollar reporting currency due weakening us dollar swiss franc 2013 compared 2012 revenue positively impacted 391000 following table presents revenue mix product line years ended december 31 2013 2012 gross profit 2013 increased 102 million 16 753 million compared 2012 percentage revenue gross profit decreased 39 2013 compared 41 2012 decrease gross profit percent revenue primarily due sales mix higher proportion overall sales volume attributable ultracapacitor products earn lower margins product lines increase gross profit absolute dollars 117 million related increase sales partially offset 16 million increase reserve excess obsolete inventory 464000 reserve product rework costs selling general administrative expense following table presents selling general administrative expense years ended december 31 2013 2012 thousands except percentage selling general administrative expenses 23 revenue 2013 compared 21 2012 total expense increased 105 million 31 increase absolute dollars primarily driven increase legal expenses 30 million increase audit tax fees 17 million increase 790000 consulting expenses mainly related audit committees investigation internal review restatement previously issued financial statements increase 32 million payroll expenses related increased headcount including retention new chief operating officer addition increase bonus expense 17 million performance targets 2013 bonus program substantially achieved whereas bonus expense recorded 2012 performance targets 2012 bonus program achieved research development expense following table presents research development expense years ended december 31 2013 2012 thousands except percentage research development expense 225 million 2013 compared 217 million 2012 increase approximately 842000 4 percentage revenues research development expense 12 2013 compared 14 2012 increase absolute dollars primarily driven increase facility costs 843000 due continued expansion research development facilities provision income taxes recorded income tax provision 22 million year ended december 31 2013 compared 23 million year ended december 31 2012 provision primarily related swiss operations unremitted earnings foreign subsidiaries included consolidated financial statements without giving effect united states taxes may payable anticipated earnings remitted united states company established valuation allowance us federal state deferred tax assets well deferred tax assets certain foreign subsidiaries due uncertainty surrounding realization assets evidenced cumulative losses operations december 31 2013 management periodically evaluates recoverability deferred tax assets time determined likely deferred assets realizable valuation allowance reduced accordingly year ended december 31 2012 compared year ended december 31 2011 net income reported 2012 72 million 025 per diluted share compared net loss 14 million 005 per share 2011 revenue grew 8 2012 compared 2011 cost revenue operating expenses declined percentage revenue 2011 recorded reduction revenue settlement legal matter customer 26 million gain embedded derivatives 11 million 2012 continued achieve improved operating results due revenue growth combined continued improvements gross profit operating efficiency revenue gross profit following table presents revenue cost revenue gross profit years ended december 31 2012 2011 thousands except percentage revenue 2012 increased 8 1593 million compared 1472 million 2011 ultracapacitor product revenue increased 10 960 million 2012 compared 868 million prior year increase ultracapacitor revenue influenced primarily sales growth hybrid transit bus market offset lower sales wind energy certain backup power applications addition increase ultracapacitor revenues partially offset net impact deferring revenue certain sales arrangements resulted net decrease revenue 61 million 2012 2011 net decrease ultracapacitor revenues 83 million related net impact revenue deferrals sales high voltage capacitor products totaled 456 million 2012 8 423 million recorded 2011 increase high voltage capacitor revenue primarily due increase sales volume well changes pricing policy resulting denomination sales swiss franc instead euro revenue microelectronic products relatively flat yearoveryear substantial amount revenue generated swiss subsidiary functional currency swiss franc reported revenue materially impacted changes exchange rates swiss franc us dollar reporting currency due strengthening us dollar swiss franc 2012 compared 2011 revenue negatively impacted 27 million following table presents revenue mix product line years ended december 31 2012 2011 gross profit 2012 increased 80 million 14 651 million compared 2011 percentage revenue gross profit increased 41 2012 compared 39 2011 increase gross profit absolute dollars 53 million related increase volume sales 14 million due net reductions product costs high voltage product line addition increase gross profit absolute dollars due classification contrarevenue legal settlement expense related customer dispute recorded 2011 26 million offsetting increases decrease gross profit absolute dollars 13 million related impact changes foreign currency exchange rates primarily changes swiss franc us dollar selling general administrative expense following table presents selling general administrative expense years ended december 31 2012 2011 thousands except percentage selling general administrative expenses 21 revenue 2012 compared 24 2011 total expense decreased 16 million 4 decrease absolute dollars primarily attributable 19 million decrease legal expenses related resolution certain legal matters addition 12 million decrease bonus expense bonus expense recorded 2012 financial targets bonus program achieved 384000 decrease labor expense due lower headcount offsetting decreases advertising costs consulting fees increased 15 million primarily related roll new ultracapacitor product engine start module increased participation trade shows advertising media fees marketing consultants increase net foreign exchange gains 490000 research development expense following table presents research development expense years ended december 31 2012 2011 thousands except percentage research development expense 217 million 2012 compared 224 million 2011 decrease approximately 656000 3 percentage revenues research development expense 14 2012 compared 15 2011 decrease absolute dollars primarily driven 584000 decrease salary contract labor costs primarily related higher development expenses contract labor costs incurred 2011 design engine start module addition bonus expense decreased 474000 bonus expense recorded 2012 financial targets bonus program achieved offsetting decreases 357000 increase information technology expense 242000 increase depreciation amortization expense associated recent investments research development facilities infrastructure gain embedded derivatives year ended december 31 2011 recorded gain embedded derivatives 11 million gain recorded embedded derivatives represented change fair market value revaluation debenture conversion rights dates conversion compared beginning year february 2011 remaining principal balance convertible debentures converted shares common stock impact consolidated statement operations 2012 related fair value measurement derivative instruments provision income taxes recorded income tax provision 23 million year ended december 31 2012 compared 19 million year ended december 31 2011 provision primarily related swiss operations unremitted earnings foreign subsidiaries included consolidated financial statements without giving effect united states taxes may payable anticipated earnings remitted united states company established valuation allowance us federal state deferred tax assets well deferred tax asset foreign subsidiary due uncertainty surrounding realization assets evidenced cumulative losses operations december 31 2012 management periodically evaluates recoverability deferred tax assets time determined likely deferred assets realizable valuation allowance reduced accordingly liquidity capital resources changes cash flow following table summarizes cash flows operating investing financing activities past three fiscal years thousands net cash provided operating activities 199 million 2013 compared net cash used operating activities 11 million 2012 51 million 2011 operating cash flows 2013 related primarily net income 63 million included noncash charges 148 million addition decrease deferred revenue 54 million increase accrued employee compensation 40 million increase inventory 46 million decrease accounts receivable 37 million decrease deferred revenue primarily due recognition revenue sales received cash prior satisfaction criteria revenue recognition increase accrued employee compensation primarily due increase accrued bonus performance targets bonus program substantially achieved 2013 achieved 2012 increase inventory relates buildup inventory meet anticipated demand first half 2014 decrease accounts receivable primarily due improved collections well change shipment linearity shipments occurred evenly end 2013 opposed weighted last month year 2012 increase operating cash flows 2013 compared 2012 relates primarily decrease accounts receivable 2013 compared accounts receivable growth 2012 operating cash flows affected settlement payments sec doj totaling 54 million whereas similar payments made 2013 finally 2013 operating cash flows related net income 63 million included noncash charges 148 million compared 2012 operating cash flows included net income 71 million included noncash charges 95 million net cash used investing activities 169 million year ended december 31 2013 compared 152 million 2012 145 million 2011 capital expenditures 2013 primarily focused investments increased production capacity including equipment new manufacturing facility peoria arizona corporate research development facility san diego california manufacturing facility rossens switzerland cash used investing activities 2012 2011 primarily related investments increased production capacity including equipment new manufacturing facility peoria arizona corporate research development facility san diego california investments information technology infrastructure net cash used financing activities 14 million year ended december 31 2013 compared net cash provided financing activities 156 million 2012 104 million 2011 year ended december 31 2013 net cash used financing activities primarily resulted net payments long term short term borrowings 17 million offset cash proceeds stockbased compensation plans 412000 year ended december 31 2012 cash proceeds resulted primarily issuance common stock secondary security offering 103 million net proceeds long term short term borrowings 38 million associated stockbased compensation plans 18 million year ended december 31 2011 cash provided investing activities resulted primarily release 80 million restricted cash upon settlement remaining principal balance convertible debentures cash proceeds 28 million associated stock compensation plans liquidity december 31 2013 approximately 306 million cash equivalents working capital 633 million management believes cash expect generate operations combined available cash balances sufficient fund operations obligations become due capital equipment expenditures least next twelve months addition may choose issue additional debt supplement existing cash balances cash operating activities accrual 295000 euro 406000 december 31 2013 settlement customer dispute available customer discount future purchases products december 31 2014 balance original noncash settlement value 13 million euro used product discount december 31 2014 payable cash time capital expenditures expected approximately 125 million 2014 approximately 60 planned capital spending focused ultracapacitor production capacity expansion investments improve manufacturing processes additionally 11 planned capital spending focused product development 11 support information technology infrastructure remaining planned capital spending primarily related improvements facilities december 31 2013 amount cash shortterm investments held foreign subsidiaries 225 million funds needed operations us future may required accrue pay taxes repatriate funds rate approximately 5 intend permanently reinvest earnings foreign subsidiaries credit facility december 2011 entered credit agreement whereby obtained secured credit facility form revolving line credit maximum 150 million “revolving line credit” equipment term loan “equipment term loan” together “credit facility” availability revolving line credit expired february 5 2014 borrowed amounts date revolving line credit general amounts borrowed credit facility secured lien assets intellectual property addition credit agreement required pledge 65 equity interests swiss subsidiary also agreed encumber intellectual property agreement contains certain restrictive covenants limit ability among things incur additional indebtedness guarantees ii create liens encumbrances property iii enter merger similar transaction iv invest another entity v declare pay dividends vi invest fixed assets excess defined dollar amount repayment amounts owed pursuant credit facility may accelerated event violation representations warranties covenants made credit agreement including certain financial covenants financial covenants must meet term credit agreement include quarterly minimum liquidity ratios minimum quick ratios ebitda targets annual net income target borrowings credit facility bear interest payable monthly either banks prime rate ii libor plus 225 option subject certain limitations incur unused commitment fee payable quarterly equal 025 per annum average daily unused amount revolving line credit december 31 2013 compliance financial covenant pertaining quarterly ebitda target quarter ended december 31 2013 result noncompliance banks obligation extend credit ceased terminated outstanding debt balance immediately callable bank december 31 2012 compliance credit agreement due restatement previously issued financial statement resulted violation various covenants result events noncompliance borrowings outstanding credit facility classified current obligation accompanying consolidated balance sheets december 31 2012 2013 equipment term loan available finance 80 eligible equipment purchases made april 1 2011 april 30 2012 period borrowed 50 million equipment term loan december 31 2013 22 million outstanding loan applicable interest rate libor plus 225 25 december 31 2012 bank exercise right accelerate repayment original terms credit facility principal interest equipment term loan payable 36 equal monthly installments equipment term loan fully repaid maturity date april 30 2015 may prepaid whole part time shortterm borrowings maxwell’s swiss subsidiary maxwell sa 30 million swiss francdenominated approximately 34 million december 31 2013 shortterm loan agreement swiss bank renews semiannually bears interest 160 borrowings shortterm loan agreement unsecured december 31 2013 2012 full amount loan drawn maxwell sa 20 million swiss francdenominated approximately 22 million december 31 2013 credit agreement swiss bank renews annually bears interest 17 borrowings credit agreement unsecured december 31 2013 2012 full amount available credit line drawn maxwell sa also 10 million swiss francdenominated approximately 11 million december 31 2013 credit agreement another swiss bank available balance line withdrawn reduced bank time december 31 2013 2012 amounts drawn credit line interest rates applicable draws line determined time draw longterm borrowings company various financing agreements vehicles agreements threeyear repayment period interest rates ranging 19 51 december 31 2013 2012 179000 159000 respectively outstanding agreements dividends remaining term equipment term loan scheduled repaid april 2015 permitted declare pay dividends contractual obligations 1 operating lease obligations primarily represent building leases 2 purchase commitments primarily represent value noncancelable purchase orders estimate purchase orders canceled would result significant penalty 3 debt obligations represent longterm shortterm borrowings interest payable 161000 4 pension benefit payments represent expected amounts paid pension benefits 5 foreign tax obligation represents payroll taxes surcharges related operations asia 6 amount represents payments due connection legal settlements critical accounting estimates consider accounting estimate critical 1 accounting estimate requires us make assumptions matters uncertain time accounting estimate made 2 changes estimate reasonably likely occur period use different estimates reasonably could used current period would material impact financial condition results operations also see note 1 summary significant accounting policies part ii item 8 financial statements supplementary data annual report form 10k discusses significant accounting policies believe following either critical accounting policies require us make significant estimates assumptions preparation consolidated financial statements ii key accounting policies may require us make difficult subjective judgments revenue recognition nature estimates required sales revenue primarily derived sale products directly customers product revenue recognized criteria revenue recognition met customer agreements terms sale evaluated determine criteria revenue recognition met therefore revenue recognized revenue recognition deferred criteria revenue recognition met assumptions approach used product revenue recognized following criteria met 1 persuasive evidence arrangement exists upon contract signing receipt authorized purchase order customer 2 title passes customer either shipment facilities receipt customer facility depending shipping terms 3 price deemed fixed determinable free contingencies significant uncertainties 4 collectability reasonably assured customer contracts purchase orders order confirmations generally used determine existence arrangement shipping documents used verify product delivery assess whether price fixed determinable based upon payment terms associated transaction assess collectability accounts receivable based primarily upon creditworthiness customer determined credit checks analysis well customer’s payment history determine particular sale meet criteria revenue recognition revenue deferred criteria determined achieved example determine collectability reasonably assured time sale defer revenue recognition typically period cash received customer beginning fourth quarter 2011 three distributors products offered extended payment terms allowed distributors pay us received payment customer respect certain sales transactions also beginning fourth quarter 2011 one distributor products offered return rights profit margin protection respect certain sales transactions therefore four distributors determined revenue recognition criteria met time delivery fixed determinable price collection reasonably assured least respect certain sales transactions result three distributors provided extended payment terms provide fixed determinable price determined defer recognition revenue sales beginning fourth quarter 2011 period cash received one distributor provided return rights profit margin protection could estimate exposure determined defer recognition revenue sales beginning fourth quarter 2011 distributor confirmed us entitled returns credits third quarter 2013 distributor confirmed us entitled returns credits therefore previously deferred revenue related distributor recognized quarter ended september 30 2013 although deferred revenue significant amount sales four distributors december 31 2011and 2012 amount deferred revenue related distributors december 31 2013 insignificant addition deferred revenue arrangements discussed preceding paragraph revenue recognized sales meet revenue recognition criteria time sale revenue recognized criteria revenue recognition determined met example believe collection sales price reasonably assured time sale defer revenue recognition cash received december 31 2013 december 31 2012 cumulative sales totaling 45 million 158 million respectively yet recognized revenue recorded cost basis inventory shipped customers prior achievement revenue recognition criteria approximately 25 million 92 million december 31 2013 2012 respectively inventory consolidated balance sheets receive cash payment customer prior achievement revenue recognition criteria amount received customer recorded deferred revenue consolidated balance sheets total deferred revenue consolidated balance sheets december 31 2013 2012 10 million 64 million respectively relates cash received customers sales revenue recognition criteria achieved customer advances well less significant customer arrangements requiring deferral revenue excess obsolete inventory nature estimates required estimates principally based assumptions regarding ability sell items inventory due uncertainty potential volatility inherent estimates changes assumptions could materially affect results operations assumptions approach used estimate excess obsolete inventory evaluated quarterly basis based rolling historical inventory usage assumptions regarding future product demand actual levels inventory change specific products become slow moving obsolete estimated reserve may materially change pension nature estimates required use several significant assumptions within actuarial models utilized measuring pension benefit obligation estimate fair values real estate assets held pension plan assumptions approach used discount rate expected return assets estimates impacting plan expense asset liability measurement evaluate critical assumptions least annually addition appraise fair value real estate assets annually periodically evaluate assumptions involving demographic factors retirement age mortality turnover update reflect experience expectations future actual results given year often differ actuarial assumptions economic factors projected benefit obligation december 31 2013 326 million fair value plan assets 431 million company rights assets plan stockbased compensation nature estimates required stockbased compensation awards include stock options restricted stock restricted stock units shares issued employee stock purchase plan record compensation expense stockbased compensation awards accordance criteria set forth stock compensation subtopic financial accounting standards board fasb accounting standards codification asc guidance fair value employee stock option estimated date grant using option pricing model meets certain requirements although grant stock option awards part ordinary compensation program use blackscholes option pricing model estimate fair value stock option grants however fair values generated model may indicative actual fair values stock options determination fair value stock options utilizing blackscholes model affected stock price number assumptions including expected volatility expected term riskfree interest rate expected dividends fair value restricted stock restricted stock units based closing market price common stock date grant addition restricted stock awards performancebased vesting criteria estimate probability achievement performance criteria recognize compensation expense related awards expected vest compensation expense equal fair value award recognized ratably requisite service period restricted stock awards vesting contingent company performance conditions impact changes expected outcomes related performance condition recognized cumulative adjustment consolidated statement operations period expectation changes sharebased compensation expense recognized consolidated statement operations based awards ultimately expected vest fasb asc requires forfeitures estimated time grant revised necessary subsequent periods cumulative adjustment actual forfeitures differ estimates assumptions approach used determining value stock option grants estimate expected dividend yield zero never paid cash dividends present intention pay cash dividends addition remaining term equipment term loan scheduled fully repaid april 2015 permitted declare pay dividends expected volatility based historical stock prices using mathematical formula measure standard deviation change natural logarithm underlying stock price period time commensurate expected option life riskfree interest rate derived zero coupon rate us treasury instruments term commensurate option’s expected life expected term calculation based actual life historical stock option grants restricted stock awards vesting contingent achievement company performance conditions amount compensation expense estimated based expected achievement performance condition requires us make estimates likelihood achievement company performance conditions highly judgmental base judgments expected achievement company performance conditions based financial projections company used management business purposes represent best estimate expected company performance unlikely performance condition achieved compensation expense recognized unless later determined achievement performance condition likely requisite service period estimated based expected achievement date performance condition evaluate assumptions used value stockbased awards quarterly basis factors change employ different assumptions stockbased compensation expense may differ significantly recorded past modifications cancellations stockbased awards may required accelerate increase decrease remaining unrecognized stockbased compensation expense extent grant additional stockbased awards compensation expense increase relation fair value additional grants compensation expense may significantly impacted future extent estimates differ actual results income taxes nature estimates required record income tax valuation allowance realization certain deferred tax assets including net operating losses likely included net operating loss deferred tax asset approximately 98 million gross deferred tax asset attributable stock option exercises restricted stock grants disqualifying dispositions incentive stock options stock issued companys espp according provision within asc 718 stock compensation concerning tax benefits related excess stock option deductions credited paidin capital related valuation allowance cannot reversed even facts circumstances indicate likely deferred tax asset realized valuation allowance reversed related deferred tax asset applied reduce taxes payable record deferred income taxes undistributed earnings foreign subsidiaries based upon intention permanently reinvest undistributed earnings may subject income withholding taxes earnings foreign subsidiaries distributed withholding taxes approximately 27 million would payable upon remittance previously unremitted earnings december 31 2013 assumptions approach used deferred income taxes arise temporary differences tax financial statement recognition revenue expense evaluating ability recover deferred tax assets within jurisdiction arise consider available positive negative evidence including scheduled reversals deferred tax liabilities projected future taxable income taxplanning strategies results recent operations significant judgments estimates required evaluation determine able realize portion deferred tax assets future record adjustment increase recorded value corresponding adjustment increase income additional paid capital appropriate period commitments contingencies nature estimates required involved litigation regulatory proceedings claims prosecute defend matters aggressively however many uncertainties associated litigation assurance actions third party claims us resolved without costly litigation andor substantial settlement charges assumptions approach used disclose information concerning contingent liabilities respect claims proceedings unfavorable outcome remote recognize liabilities claims proceedings appropriate based upon probability loss ability estimate losses fairly present conjunction disclosures matters consolidated financial statements management’s view exposure review outstanding claims proceedings external counsel appropriate assess probability estimates loss recognize liability related claims proceedings time unfavorable outcome becomes probable amount reasonably estimated reasonable estimate range recognized liability best estimate within range amount range better estimate amount minimum amount range recognized reevaluate assessments quarter new significant information becomes available determine whether liability recognized existing liability adjusted actual cost ultimately resolving claim proceeding may substantially different amount recognized liability addition permissible recognize liability loss probable estimable cases may insufficient time recognize liability prior actual incurrence loss upon verdict judgment trial example case quickly negotiated settlement impact inflation believe inflation material impact results operations fiscal years threeyear period ended december 31 2013 however assurance future inflation would adverse impact operating results financial condition pending accounting pronouncements none balance sheet arrangements none item 7aitem 7 management’s discussion analysis financial condition results operations following discussion financial condition results operations years ended december 31 2016 2015 2014 read conjunction consolidated financial statements related notes included item 8 financial statements supplementary data annual report form 10k addition discussion contains forwardlooking statements subject risks uncertainties including estimates based judgment estimates include limited assessing collectability accounts receivable applied unapplied production costs production capacities usage recoverability inventories longlived assets deferred income taxes pension assets liabilities incurrence warranty obligations impairment goodwill estimation cost complete certain projects future revenue operating results cash balances access liquidity accruals estimated losses legal matters estimation value stockbased compensation awards including probability performance criteria equity awards met discussion regarding forward looking statements see section annual report form 10k entitled special note regarding forwardlooking statements management’s discussion analysis financial condition results operations “mda” designed provide reader financial statements narrative perspective management financial condition results operations liquidity certain factors may affect future results mda presented following sections • executive overview • recent highlights • results operations • liquidity capital resources • contractual obligations • critical accounting estimates • impact inflation • recent accounting pronouncements • balance sheet arrangements executive overview maxwell global leader developing manufacturing marketing energy storage power delivery products transportation industrial information technology applications products designed manufactured perform reliably minimal maintenance life applications integrated believe “lifeoftheapplication” reliability gives products competitive advantage enables command higher profit margins commodity products two product lines ultracapacitors applications multiple industries including transportation renewable energy highvoltage capacitors applied mainly electrical utility infrastructure april 2016 sold substantially assets liabilities third product line radiationhardened microelectronic products space satellite applications primary objective grow revenue profit margins creating satisfying demand ultracapacitorbased energy storage power delivery solutions focusing establishing expanding market opportunities ultracapacitors preferred supplier ultracapacitor products worldwide believe transportation industry represents largest market opportunity ultracapacitors primarily applications related electrical system augmentation braking energy recuperation hybrid electric drive systems transit vehicles well engine starting trucks electric rail vehicles addition see increasing demand ultracapacitors use grid related applications backup power quality applications including instantly available power uninterruptible power supply systems stabilizing output renewable energy generation systems may also represent significant market opportunities addition expanding growing opportunities ultracapacitorbased energy storage power delivery solutions also focused demonstrating ability core technology satisfy increasing performance demands energy storage products lithium ion battery cells end 2016 entered “proof concept” joint development agreement sharing shortterm costs developing technology automotive manufacturer tier 1 automotive supplier also seek expand market opportunities revenue highvoltage capacitors market highvoltage capacitors consists mainly expansion upgrading maintenance existing electrical utility infrastructure new infrastructure installations developing countries installations capitalintensive frequently subject regulation availability government funding general economic conditions 2017 plan expand capacity existing highvoltage capacitor production facility rossens switzerland order better meet demand forecasted production volume february 28 2017 announced entered agreement providing acquisition substantially assets business nesscap energy inc “nesscap” developer manufacturer ultracapacitor products use transportation renewable energy industrial consumer markets aggregate purchase price 232 million shall paid full issuance 46 million shares maxwell common stock subject adjustment potential acquisition nesscap add complementary businesses operations expand portfolio products add value customers expect acquisition completed second quarter 2017 subject approval shareholders nesscap regulatory approvals customary closing conditions february 2017 announced restructuring plan implement wide range organizational efficiencies cost reduction opportunities better align costs near term revenue connection restructuring plan expect incur restructuring charges 08 million 10 million primarily related employee severance expect charges cash expenditures expect recognize majority charges first quarter fiscal 2017 anticipate annual cost savings 25 million 30 million result restructuring plan including benefit range 20 million 25 million realized remainder fiscal 2017 2015 2016 executed 2015 restructuring plan consolidated us manufacturing operations reduced headcount operating expenses order align cost structure current business improve operational efficiency plan also included disposition microelectronics product line completed april 2016 cost savings resulting 2015 restructuring activities approximately 5 million 6 million per year 2016 revenue 1212 million compared 1674 million 2015 representing overall decrease 28 decrease primarily attributable lower revenue ultracapacitor products revenue decreased 38 715 million 2016 1145 million 2015 decrease ultracapacitor product revenue primarily due government subsidy program changes china particularly proposed requirement localize product manufacturing significantly decreased sales hybrid transit vehicle applications decrease partially offset increased sales rail transit applications revenue highvoltage capacitor products 452 million 2016 compared 417 million prior year representing increase 8 due sale product line april 2016 microelectronics product revenue decreased 46 million 2016 compared 111 million 2015 december 31 2016 cash equivalents 254 million management believes available cash balance sufficient fund operations obligations become due capital investments least next twelve months addition revolving line credit available maximum 250 million subject borrowing base limitation borrowed amounts facility date future may decide supplement existing cash planned cash flow operations borrowing funds issuing additional debt equity overall gross margin fiscal year 2016 decreased 27 compared 30 2015 primarily associated change product mix includes lower sales higher margin microelectronics products increase product costs due higher unabsorbed fixed costs associated lower sales volume operating expenses 2016 increased 48 revenue compared 41 revenue prior year primarily attributable significantly lower revenue 2016 partially offset lower operating expenses due restructuring cost reduction efforts going forward continue focus growing business strengthening market leadership brand recognition penetration existing markets entry new markets development new products primary focus grow ultracapacitor business increasing sales primary applications including transportation renewable energy backup power order achieve growth objectives need overcome risks challenges facing business significant challenge face ability manage dependence small number vertical markets including driven government policies subsidy programs markets may decline experience slower rates growth changes delays government policies subsidy programs example large portion current ultracapacitor business concentrated chinese hybrid transit bus wind energy markets heavily dependent government regulation subsidy programs chinese government provided subsidy programs vary year targeting plug hybrid dieselelectric buses 2016 chinese government renewed subsidy program provided subsidies large plug hybrid dieselelectric buses reduced reimbursement rate put place new subsidy program medium plug hybrid dieselelectric buses however unclear bus oem’s china adopt ultracapacitor based plug hybrid dieselelectric designs class bus also 2016 chinese government proposed new registration requirement energy storage manufacturers sell automotive heavy transportation markets requiring localization manufacturing released updated subsidy program 2017 subsidies offered require manufacturer registered order customers ultimately building buses qualify subsidy thereby injecting uncertainty whether customers able capture benefit new program determining manufacturers able comply proposed registration requirement 2017 beyond may continue see variability revenue result uncertainty regarding changes potential changes china government subsidy impact sales hybrid transit vehicle market january 2017 ensure maxwell products fully localized support recent china government requirements maxwell licensed module designs targeting china bus market crrcsri exclusively use maxwell’s 27volt 3volt ultracapacitor cells local production lines manufacture modules addition maxwell continue leverage longstanding expertise china bus market jointly design additional nextgeneration products crrcsri manufacture years come also begun experience significant pricing pressure ultracapacitors chinese hybrid transit vehicle market wind energy market historically represented significant portion sales result market factors addition government subsidy programs referenced order remain competitive may required lower prices maintain stronger local presence provide favorable sales terms customers remain focused reducing cost producing ultracapacitors order offset part lower prices offering particular market however shortterm cost reduction efforts expected fully offset impact lower prices although believe longterm prospects automotive wind hybrid transit markets remain positive pursuing growth opportunities products vertical markets including applications backup power quality rail grid heavy vehicle engine starting order diversify market presence augment longterm growth prospects significant risks challenges face include ability achieve profitability ability develop management team product development infrastructure manufacturing capacity facilitate growth competing technologies may capture market share interfere planned growth difficulties executing restructuring plan hiring developing retaining key personnel critical execution strategy attentive risks focus developing new products promoting value proposition products versus competing technologies trying grow revenue profit years come recent highlights continuing focus introducing new products winning new customers developing new product applications adjusting production capacity reducing costs align nearterm revenue forecasts improving production operational processes efforts described • january 2016 announced ultracapacitors selected beijing huadian tianren electric power control technology co ltd subsidiary china guodian corporation core component wind farm energy storage demonstration project one five largest power producers country china guodian corporation’s system first megawattscale ultracapacitorbased wind farm energy storage system world • february 2016 announced newest addition k2 family 3volt 3000farad ultracapacitor cell 31 percent higher power leading 27volt 3000farad cell industrystandard 60 mm cylindrical form factor customers flexibility either increase available power energy volume significantly costoptimize system designs fewer cells modules maintaining power energy • march 2016 duke energy largest electric power holding company united states announced commissioning new hybridenergy storage system utilizing ultracapacitors manage solar smoothing events • april 2016 announced entered definitive agreement sell microelectronics product line data device corporation subsidiary ilc industries inc transaction completed april 27 2016 • july 2016 announced ultracapacitors used regenerative braking energy storage beijing subway system part strategic partnership china railway rolling stock corporation “crrcsri” announced last year continue collaborate develop nextgeneration capacitive energy storage solutions china rail market • july 2016 entered 12month joint development agreement one world’s leading automotive oems develop “proof concept” successful could lead world’s first electric drivetrain based technology targeting 2021 automotive platform launch • october 2016 announced 51volt “51v” module newest addition ultracapacitor product offerings rugged applications 51v module uses leading 285v 3400farad ultracapacitor cell deliver highest energy power density available market today • november 2016 announced first commercial application lithiumion capacitors developed conjunction crrcsri china’s largest rail manufacturer technology used rapid energy regeneration trolley system capital city hunan province china following last year’s announcement strategic partnership crrcsri collaborate developing nextgeneration capacitive energy storage solutions project first leverage new lithiumion technology validates unique value proposition rail applications • december 2016 announced generator starting solutions “gss” product line newest addition ultracapacitorbased product offerings gss modules help start commercial industrial standby backup generators “gensets” first company offer dedicated ultracapacitorbased products provide strong successful genset starts within seconds loss power • january 2017 announced definitive agreement crrcsri localize manufacturing ultracapacitorbased modules use china new energy bus market terms agreement localized production ultracapacitorbased modules expected begin china second half 2017 coinciding peak buying season chinas new energy bus market production bus modules extends strategic partnership crrcsri enable us compete effectively china bus market moving forward results operations comparison years ended december 31 2016 2015 2014 following table presents certain statement operations data expressed percentage revenue periods indicated net loss reported 2016 237 million 074 per share compared net loss 2015 223 million 073 per share net loss 2014 63 million 021 per diluted share increase net loss 14 million 2016 compared 2015 driven decline revenue 28 decline gross profit 35 primarily related changes china’s government subsidy programs effect declines largely offset 67 million gain sale microelectronics product line fully realized savings 2016 restructuring cost reduction efforts despite lower operating expenses absolute dollars resulting restructuring cost reduction efforts operating expenses 2016 increased 48 revenue compared 41 revenue prior year primarily attributable significant decline revenue 2016 increase net loss 161 million 2015 compared 2014 primarily driven decline revenue 10 decline gross profit 26 total operating expenses increased 41 revenue 2015 compared 38 2014 revenue gross profit following table presents revenue cost revenue gross profit years ended december 31 2016 2015 2014 thousands except percentages revenue 2016 revenue decreased 28 1212 million compared 1674 million prior year decrease revenue primarily related lower revenue ultracapacitor product line decreased 430 million 38 715 million 1145 million decrease ultracapacitor product revenue driven lower sales volume 449 million primarily due government subsidy program changes china particularly proposed requirement localize product manufacturing significantly decreased sales hybrid transit vehicle applications lower hybrid transit vehicle volume partially offset higher volume rail transit applications ultracapacitor product revenue also negatively affected lower prices 23 million positively impacted 42 million changes primarily related product mix revenue highvoltage products increased 35 million 452 million 2016 compared 417 million prior year increase primarily driven increased infrastructure renewal investment canadian government revenue microelectronics products decreased 66 million 46 million 2016 compared 111 million 2015 due sale product line april 2016 revenue 2015 decreased 10 1674 million compared 1866 million 2014 decrease influenced primarily lower revenue ultracapacitor product line decreased 1145 million 2015 compared 1356 million prior year decrease ultracapacitor product revenue 2015 primarily related decreased sales rail transit wind energy automotive markets decrease composed lower prices 193 million decreases due product mix factors 18 million volumes 2015 2014 comparable changes china government subsidy program market factors significantly contributed lower pricing 2015 revenue highvoltage capacitor products totaled 417 million 2015 increase 3 404 million recorded 2014 primarily related sales newly developed products 2015 revenue microelectronic products totaled 111 million 2015 5 106 million recorded 2014 revenue product line varied based timing governmental commercial programs following table presents revenue mix product line years ended december 31 2016 2015 2014 substantial amount revenue generated swiss subsidiary functional currency swiss franc reported revenue materially impacted changes exchange rates swiss franc us dollar reporting currency due strengthening us dollar swiss franc 2016 compared 2015 revenue negatively impacted 11 million due strengthening us dollar swiss franc 2015 compared 2014 revenue negatively impacted 20 million gross profit gross margin 2016 gross profit decreased 180 million 35 330 million compared 510 million prior year decrease associated lower revenue primarily due lower sales volume increase product costs due higher unabsorbed fixed costs associated lower sales volume well less significant impact reduction pricing ultracapacitor products percentage revenue gross margin decreased 27 2016 compared 30 prior year decrease primarily associated change product mix longer includes sales higher margin microelectronics products increase product costs due higher unabsorbed fixed costs associated lower sales volume well less significant impact reduction pricing ultracapacitor products 2015 gross profit decreased 175 million 26 510 million compared 684 million 2014 decrease associated lower revenue primarily related lower prices ultracapacitor products sold chinese hybrid transit vehicle market percentage revenue gross margin decreased 30 2015 compared 37 2014 decrease primarily associated reduction pricing ultracapacitor products selling general administrative expense following table presents selling general administrative expense years ended december 31 2016 2015 2014 thousands except percentages selling general administrative expenses 2016 decreased 45 million 11 compared 2015 decrease primarily related decrease 17 million labor costs related headcount reductions connection restructuring sale microelectronics product line decrease 17 million related lower legal costs associated ongoing sec fcpa investigations decrease 13 million related release foreign payroll tax liability due lapse statute limitations well various expense savings related restructuring cost reduction efforts sale microelectronics product line decreases partially offset increase 12 million stock compensation expense related 2016 management bonus plan whereas bonus plan suspended 2015 selling general administrative expenses increased 30 revenue 24 2015 revenue proportionately decreased expenses periods selling general administrative expenses 2015 decreased 23 million 5 compared 2014 decrease primarily related 10 million decrease overall labor costs associated reduced headcount result restructuring efforts elimination management bonus program 2015 addition 11 million reduction recruiting costs 07 million decrease travel costs 07 million decrease consulting costs 05 million decrease information technology facilities costs well expense savings primarily related restructuring cost reduction efforts also third quarter 2015 received 05 million refund valueaddedtaxes related operations china decreases partially offset increase legal fees 26 million incurred 2015 due ongoing sec fcpa investigations selling general administrative expenses 24 revenue 2015 consistent 24 2014 research development expense following table presents research development expense years ended december 31 2016 2015 2014 thousands except percentage research development expenses 2016 decreased 38 million 15 compared 2015 decrease primarily associated decrease 11 million labor headcountrelated costs primarily related restructuring cost reduction efforts sale microelectronics product line increase 09 million thirdparty funding costsharing arrangements well decreases related restructuring cost reduction efforts sale microelectronics product line decrease 07 million outsourced research development services decrease 05 million facilities costs decrease 05 million tool supply expenses research development expenses increased 17 revenue 15 2015 revenue proportionately decreased expenses periods research development expenses 2015 decreased 16 million 6 compared 2014 decrease associated increase thirdparty funding costsharing arrangements 15 million decrease 07 million information technology facilities costs due cost control efforts connection restructuring decreases partially offset increase expense 04 million product evaluation units used support grid energy storage demonstration project 2015 research development expenses increased 15 revenue 2015 14 2014 revenue proportionately decreased expenses periods restructuring exit costs 2015 initiated restructuring plan consolidate us manufacturing operations reduce headcount operating expenses order align cost structure current business forecast improve operational efficiency plan also included disposition microelectronics product line completed april 2016 restructuring plan otherwise substantially completed first quarter 2016 total restructuring exit costs 28 million included 13 million facilities costs related consolidation manufacturing operations 12 million employee severance costs 03 million equipment relocation inventory scrap direct result deconstruction machinery total cash expenditures related restructuring activities approximately 15 million years ended december 31 2016 2015 recorded charges related restructuring plan 03 million 25 million respectively following table summarizes restructuring exit costs years ended december 31 2016 2015 thousands impairment assets year ended december 31 2016 recorded total impairment charges 14 million related property equipment fourth quarter 2016 recorded 12 million impairment charges related machinery longer forecasted utilized remaining useful life based current production forecast fair value approximated zero additionally third quarter 2016 recorded 02 million impairment charges related cancellation project impairments property equipment recorded years ended december 31 2015 2014 provision income taxes effective tax rate differs statutory us federal income tax rate 34 primarily due foreign income taxes valuation allowance domestic deferred tax assets recorded income tax provision 41 million 46 million 43 million years ended december 31 2016 2015 2014 respectively provision primarily related taxes income generated swiss subsidiary december 31 2016 recorded 49 million deferred tax liability swiss withholding taxes associated 976 million undistributed earnings swiss subsidiary longer considered indefinitely reinvested event repatriate funds withholding tax would become payable swiss government years ended december 31 2016 2015 2014 income tax expense associated undistributed earnings swiss subsidiary longer considered indefinitely reinvested 12 million 21 million 16 million respectively december 31 2016 cumulative valuation allowance recorded offsetting worldwide net deferred tax assets 784 million significant majority represents valuation allowance us net deferred tax assets established valuation allowance us federal state deferred tax assets due uncertainty surrounding realization assets management periodically evaluates recoverability deferred tax assets time determined likely us deferred tax assets realizable valuation allowance reduced accordingly liquidity capital resources changes cash flow following table summarizes cash flows operating investing financing activities past three fiscal years thousands 2016 cash used operating activities 144 million related primarily net loss 237 million included noncash charges 98 million decrease accounts payable accrued liabilities 149 million related lower procurement activity 2016 increase inventory 50 million net sale microelectronics product line inventories related timing differences matching production demand decreases cash partially offset decrease accounts receivable 201 million primarily related lower volume sales near end 2016 compared end 2015 cash provided operating activities 94 million related primarily increase accounts payable accrued liabilities 50 million primarily due timing payments decrease inventory 53 million primarily associated efforts reduce inventory levels increases cash partially offset net loss 223 million included noncash charges 206 million cash used operating activities 144 million 2016 compared cash provided operating activities 94 million 2015 cash flows operating activities negatively impacted lower revenue gross profit 2016 additionally 2016 working capital relatively unchanged net impact sale microelectronics product line compared positive cash flows 112 million 2015 mainly changes working capital cash provided operating activities 94 million 2015 compared cash used operating activities 62 million 2014 cash flows operating activities positively impacted working capital changes 112 million 2015 compared negative impact working capital changes 2014 151 million increase cash flows partially offset lower revenue gross profit 2015 compared 2014 cash provided investing activities 147 million 2016 compared cash used investing activities 41 million 2015 70 million 2014 cash provided investing activities 2016 primarily related proceeds sale microelectronics product line 205 million partially offset capital expenditures 60 million capital expenditures 2016 primarily focused investments corporate research development facility san diego california cash used investing activities 2015 related capital expenditures primarily focused manufacturing operations well investments information technology infrastructure cash used investing activities 2014 related capital expenditures primarily focused investments increase production capacity including equipment manufacturing facilities san diego california peoria arizona contract manufacturing operations shenzhen china well investments corporate research development center san diego california cash provided financing activities 08 million 2016 compared 54 million used financing activities 2015 96 million provided financing activities 2014 cash provided financing activities 2016 resulted proceeds purchases employee stock purchase plan 08 million cash used financing activities 2015 primarily resulted net payments long term short term borrowings 158 million offset net proceeds atthemarket equity offering 96 million proceeds exercises employee stock options purchases employee stock purchase plan 09 million 2014 cash provided financing activities primarily resulted net borrowing long term short term debt 81 million proceeds exercises employee stock options purchases employee stock purchase plan 14 million liquidity december 31 2016 approximately 254 million cash equivalents working capital 531 million july 2015 entered loan agreement east west bank “ewb” whereby ewb made available us secured credit facility form revolving line credit revolving line credit available maximum lesser 250 million b certain percentage domestic foreign trade receivables december 31 2016 amount available revolving line credit 114 million amounts borrowed revolving line credit december 31 2016 addition june 2014 filed shelf registration statement form s3 sec time sell 125 million common stock warrants debt securities units june 30 2014 registration statement declared effective sec allows us access capital markets threeyear period following effective date april 23 2015 entered atthemarket equity offering sales agreement “sales agreement” cowen company llc “cowen” pursuant could sell option aggregate 100 million shares common stock cowen sales agent sales agreement agreed pay cowen commission equal 30 gross proceeds sale shares common stock june 11 2015 completed sale approximately 100 million common stock terminated offering approximately 183 million shares sold offering average share price 546 received net proceeds 96 million commissions offering costs 04 million april 2016 completed sale substantially assets liabilities microelectronics product line received cash proceeds 205 million net one year 15 million holdback purchase price capital expenditures expected approximately 100 million 2017 approximately 45 planned capital spending focused product research development 35 focused improving manufacturing processes remaining planned capital spending support information technology infrastructure improvements facilities december 31 2016 amount cash shortterm investments held foreign subsidiaries 188 million funds needed operations us future may required pay taxes repatriate funds rate approximately 5 accrued tax expense associated potential future repatriation funds subsequent year ended december 31 2016 board approved comprehensive restructuring plan businesses includes wide range organizational efficiency initiatives cost reduction opportunities estimate incur total aggregate charges approximately 08 million 10 million restructuring primarily based upon estimated severance related costs expect charges cash expenditures expect recognize charges related restructuring first quarter fiscal 2017 connection potential acquisition substantially assets business nesscap expect incur approximately 35 million 45 million cash expenditures expect acquisition completed second quarter 2017 subject approval shareholders nesscap regulatory approvals customary closing conditions revolving line credit july 2015 entered loan security agreement “loan agreement” related agreements east west bank “ewb” whereby ewb made available us secured credit facility form revolving line credit “revolving line credit” revolving line credit available maximum lesser 250 million b certain percentage domestic foreign trade receivables december 31 2016 amount available revolving line credit 114 million general amounts borrowed revolving line credit secured lien assets including intellectual property well pledge 100 equity interests company’s swiss subsidiary obligations loan agreement guaranteed swiss subsidiary revolving line credit mature july 3 2018 event violation representations warranties covenants made loan agreement including certain financial covenants set forth therein may able utilize revolving line credit repayment amounts owed pursuant loan agreement could accelerated currently compliance financial covenants required meet term credit agreement including minimum fourquarter rolling ebitda quarterly minimum quick ratio minimum cash requirements march 1 2017 entered amendment loan agreement approve acquisition substantially assets business nesscap energy inc modify certain financial covenants amounts borrowed revolving line credit bear interest payable monthly interest shall accrue based upon election subject certain limitations either prime rate plus margin libor rate plus margin ranging 0 050 libor rate plus margin ranging 275 325 specific rate determined based upon leverage ratio time required pay annual commitment fee equal 125000 unused commitment fee average daily unused amount revolving line credit payable monthly equal per annum rate range 030 050 determined leverage ratio last day previous fiscal quarter amounts borrowed revolving line credit december 31 2016 former credit facility december 2011 obtained secured credit facility form revolving line credit “former revolving line credit” equipment term loan “equipment term loan” together “former credit facility” borrowings former credit facility bore interest payable monthly either bank’s prime rate ii libor plus 225 option subject certain limitations equipment term loan available finance 80 eligible equipment purchases made april 1 2011 april 30 2012 period borrowed 50 million equipment term loan balance equipment term loan paid full maturity date april 30 2015 concurrently entering loan agreement described july 2015 repaid outstanding loans former revolving line credit terminated former credit facility incur early termination prepayment penalties former credit facility connection transactions longterm borrowings maxwell sa various financing agreements vehicles agreements original threeyear repayment period interest rates ranging 09 39 december 31 2016 2015 83000 91000 respectively outstanding agreements contractual obligations 1 operating lease obligations primarily represent building leases 2 purchase commitments primarily represent value noncancellable purchase orders estimate purchase orders canceled would result significant penalty 3 debt obligations represent longterm shortterm borrowings related financing agreements vehicles 4 pension benefit payments represent expected amounts paid pension benefits 5 table excludes 03 million liabilities associated uncertain tax positions unable reasonably estimate timing future payments required 6 table excludes deferred tax liability 49 million due uncertainty timing future payments deferred tax liability undistributed earnings foreign subsidiary represents deferred tax expense associated portion unremitted earnings foreign subsidiary considered permanently reinvested critical accounting estimates consider accounting estimate critical 1 accounting estimate requires us make assumptions matters uncertain time accounting estimate made 2 changes estimate reasonably likely occur period use different estimates reasonably could used current period would material impact financial condition results operations also see note 1 summary significant accounting policies part ii item 8 financial statements supplementary data annual report form 10k discusses significant accounting policies believe following either critical accounting policies require us make significant estimates assumptions preparation consolidated financial statements ii key accounting policies may require us make difficult subjective judgments revenue recognition nature estimates required sales revenue primarily derived sale products directly customers product revenue recognized criteria revenue recognition met customer agreements terms sale evaluated determine criteria revenue recognition met therefore revenue recognized revenue recognition deferred criteria revenue recognition met assumptions approach used product revenue recognized following criteria met 1 persuasive evidence arrangement exists according customer contracts sales documents 2 title risk loss pass customer according order’s shipping terms 3 price deemed fixed determinable free significant contingencies uncertainties 4 collectability reasonably assured customer contracts purchase orders order confirmations generally used determine existence arrangement shipping terms determine passage title risk loss occurred assess whether price fixed determinable based upon payment terms associated transaction assess collectability accounts receivable based primarily upon creditworthiness customer determined credit checks analysis well customer’s payment history determine particular sale meet criteria revenue recognition revenue recognized criteria determined achieved portion sales revenue derived sales distributors distributor revenue recognized criteria revenue recognition met generally time shipment distributor returns credits estimable significant total deferred revenue customer deposits consolidated balance sheets december 31 2016 2015 40 million 31 million respectively primarily relates cash received customer connection productiontype contract revenue recognized using percentage completion method payments received joint development agreement recognized offset research development expense services performed excess obsolete inventory nature estimates required estimates principally based assumptions regarding ability sell items inventory due uncertainty potential volatility inherent estimates changes assumptions could materially affect results operations assumptions approach used estimate excess obsolete inventory evaluated quarterly basis based rolling historical inventory usage assumptions regarding future product demand actual levels inventory change specific products become slow moving obsolete estimated reserve may materially change pension nature estimates required use several significant assumptions within actuarial models utilized measuring pension benefit obligations assets held pension plan assumptions approach used discount rate expected return assets estimates impacting plan expense asset liability measurement evaluate critical assumptions least annually periodically evaluate actuarial assumptions involving demographic factors used measure pension obligation retirement age mortality turnover update reflect experience expectations future actual results given year often differ actuarial assumptions economic factors projected benefit obligation december 31 2016 303 million fair value plan assets 391 million company rights assets plan right offset liabilities plan goodwill impairment nature estimates required review goodwill annually reporting unit level time every year event occurs circumstances change reasonably possible impairment may exist established december 31 annual impairment test date first make qualitative assessment whether goodwill impaired likely goodwill impaired perform twostep quantitative impairment analysis determine goodwill impaired may also determine skip qualitative assessment year move directly quantitative test quantitative test determine fair value reporting unit compare fair value reporting unit carrying value carrying value exceeds fair value reporting unit calculate compare implied fair value goodwill carrying amount goodwill record impairment charge excess carrying value implied fair value assumptions approach used determination fair value requires number significant assumptions judgments including assumptions future economic conditions revenue growth operating margins discount rates 2016 performed qualitative analysis high voltage reporting unit concluded likely fair value exceeded carrying value therefore perform quantitative testing reporting unit ultracapacitor reporting unit associated 23 million goodwill skipped qualitative analysis performed first step quantitative analysis quantitative step one goodwill impairment analysis ultracapacitor reporting unit utilized discounted cash flow model calculate fair value reporting unit required us make significant assumptions estimates extent timing future cash flows discount rates growth rates basis goodwill impairment analysis annual budget longrange cash flow projections cash flows estimated significant future period time estimates assumptions subject high degree uncertainty revenue growth assumptions internally developed based detailed market opportunity analysis include successful execution longterm growth strategies localization ultracapacitor modules china bus market believe assumptions estimates used analysis estimate fair value reasonable use different estimates assumptions within discounted cash flow model use methodology discounted cash flow model could result significantly different fair value reporting unit impairment testing conducted 2016 indicated fair value ultracapacitor reporting unit excess carrying value concluded goodwill assigned ultracapacitor reporting unit impaired quantitative testing performed impairments goodwill reported years ended december 31 2016 2015 2014 stockbased compensation nature estimates required stockbased compensation awards include stock options restricted stock restricted stock units shares issued employee stock purchase plan “espp” record compensation expense stockbased compensation awards accordance criteria set forth stock compensation subtopic financial accounting standards board “fasb” accounting standards codification “asc” guidance fair value employee stock option estimated date grant using option pricing model meets certain requirements use blackscholes option pricing model estimate fair value stock option grants determination fair value stock options utilizing blackscholes model affected stock price number assumptions including expected volatility expected life riskfree interest rate expected dividends fair value restricted stock awards “rsas” restricted stock unit awards “rsus” based closing market price common stock date grant compensation expense equal fair value rsa rsu recognized ratably requisite service period rsus vesting contingent achievement company performance conditions use requisite service period likely occur requisite service period estimated based performance period well timebased employee service requirements unlikely performance condition achieved compensation expense recognized unless later determined achievement performance condition likely expense may adjusted changes expected outcomes related performance conditions impact changes recognized cumulative adjustment consolidated statement operations period expectation changes 2016 2014 issued marketcondition rsus certain members executive management since vesting marketcondition rsus dependent stock price performance fair value awards estimated using montecarlo valuation model determination fair value marketcondition rsus utilizing montecarlo valuation model affected stock price number assumptions including expected volatility expected life riskfree interest rate expected dividends stockbased compensation expense recognized consolidated statement operations based equity awards ultimately expected vest estimate forfeitures time grant revise necessary subsequent periods cumulative catch adjustment actual forfeitures differ estimates assumptions approach used determining value stock option marketcondition rsu grants estimate expected dividend yield zero never paid cash dividends present intention pay cash dividends expected term calculation based actual life historical stock option grants expected volatility based historical stock prices using mathematical formula measure standard deviation change natural logarithm underlying stock price period time commensurate expected term riskfree interest rate derived zero coupon rate us treasury instruments term commensurate awards expected term rsus vesting contingent achievement company performance conditions amount compensation expense estimated based expected achievement performance condition requires us make estimates likelihood achievement company performance conditions highly judgmental base judgments expected achievement company performance conditions based financial projections company used management business purposes represent best estimate expected company performance unlikely performance condition achieved compensation expense recognized unless later determined achievement performance condition likely requisite service period estimated based performance period well timebased employee service requirements evaluate assumptions used value stockbased awards quarterly basis factors change employ different assumptions stockbased compensation expense may differ significantly recorded past modifications cancellations stockbased awards may required accelerate increase decrease remaining unrecognized stockbased compensation expense compensation expense may significantly impacted future extent estimates differ actual results income taxes nature estimates required record income tax valuation allowance realization certain deferred tax assets including net operating losses likely included net operating loss deferred tax asset approximately 100 million gross deferred tax asset attributable stock option exercises restricted stock grants disqualifying dispositions incentive stock options stock issued company’s espp reduce taxes payable record us income taxes undistributed earnings foreign subsidiaries unless subsidiaries’ earnings considered indefinitely reinvested outside us december 31 2016 recorded 49 million deferred tax liability swiss withholding taxes associated 976 million undistributed earnings swiss subsidiary longer considered indefinitely reinvested event repatriate funds withholding tax would become payable swiss government december 31 2016 undistributed earnings considered indefinitely reinvested assumptions approach used deferred income taxes arise temporary differences tax financial statement recognition revenue expense evaluating ability recover deferred tax assets within jurisdiction arise consider available positive negative evidence including scheduled reversals deferred tax liabilities projected future taxable income taxplanning strategies results recent operations significant judgments estimates required evaluation determine able realize portion deferred tax assets future record adjustment increase recorded value corresponding adjustment increase income additional paid capital appropriate period commitments contingencies nature estimates required involved litigation regulatory proceedings claims prosecute defend matters aggressively however many uncertainties associated litigation assurance actions thirdparty claims us resolved without costly litigation andor substantial settlement charges assumptions approach used disclose information concerning contingent liabilities respect claims proceedings unfavorable outcome remote recognize liabilities claims proceedings appropriate based upon probability loss ability estimate losses fairly present conjunction disclosures matters consolidated financial statements management’s view exposure review outstanding claims proceedings external counsel appropriate assess probability estimates loss recognize liability related claims proceedings time unfavorable outcome becomes probable amount reasonably estimated reasonable estimate range recognized liability best estimate within range amount range better estimate amount minimum amount range recognized reevaluate assessments quarter new significant information becomes available determine whether liability recognized existing liability adjusted actual cost ultimately resolving claim proceeding may substantially different amount recognized liability addition permissible recognize liability loss probable estimable cases may insufficient time recognize liability prior actual incurrence loss upon verdict judgment trial example case quickly negotiated settlement impact inflation believe inflation material impact results operations fiscal years threeyear period ended december 31 2016 however assurance future inflation would adverse impact operating results financial condition recent accounting pronouncements may 2014 financial accounting standards board “fasb” issued accounting standards update “asu” 201409 revenue contracts customers standard provides companies single model accounting revenue arising contracts customers supersedes current revenue recognition guidance including industryspecific revenue guidance core principle model recognize revenue control goods services transfers customer opposed recognizing revenue risks rewards transfer customer existing revenue guidance permits companies either apply requirements retrospectively prior periods presented apply requirements year adoption cumulative adjustment august 2015 fasb issued asu 201514 deferral effective date defers required adoption date asu 201409 one year result deferred effective date asu 201409 effective us first quarter fiscal 2018 early adoption permitted original effective date new standard first quarter fiscal 2017 following asus subsequently issued fasb clarify implementation guidance areas add practical expedients march 2016 asu 201608 revenue contracts customers principal versus agent considerations april 2016 asu 201610 revenue contracts customers identifying performance obligations licensing may 2016 asu 201612 revenue contracts customers narrow scope improvements practical expedients december 2016 asu 201620 technical corrections improvements revenue contracts customers begun process evaluating standard product sales arrangements yet identified expected material impact timing measurement revenue arrangements adoption standard however yet formalized final conclusions review process still evaluating impact adoption nonproduct sale arrangements represent less five percent revenue also developed comprehensive project plan guide implementation new standard yet determined method adoption new accounting standard february 2016 fasb issued asu 201602 leases standard requires lessee recognize assets liabilities arise operating leases lessee recognize balance sheet liability make lease payments lease liability rightofuse asset representing right use underlying asset lease term leases term 12 months less lessee permitted make accounting policy election class underlying asset recognize lease assets lease liabilities transition lessees lessors required recognize measure leases beginning earliest period presented using modified retrospective approach guidance asu 201602 effective annual interim reporting periods beginning december 15 2018 initial evaluation current leases indicate adoption standard material impact consolidated statements operations expect adoption standard material impact consolidated balance sheets recognition certain operating leases rightofuse assets lease liabilities march 2016 fasb issued asu 201609 improvements employee sharebased payment accounting changes accounting employee sharebased payments including accounting income taxes forfeitures statutory tax withholding requirements well classification statements cash flows new guidance excess tax benefits associated sharebased payment awards recognized income statement awards vest settle rather stockholders’ equity addition increase number shares employer withhold cover income taxes sharebased payment awards still qualify exemption liability classification guidance effective us first quarter fiscal 2017 expect adoption standard result recognition approximately 100 million deferred tax assets related stockbased compensation corresponding increase valuation allowance disclosed notes consolidated financial statements expect adoption standard material effect consolidated financial statements august 2016 fasb issued asu 201615 classification certain cash receipts cash payments provides guidance presentation classification statement cash flows eight specific cash flow issues guidance effective us first quarter fiscal 2018 early adoption permitted annual interim period identified eight specific cash flow issues within consolidated financial statements therefore expect adoption standard material effect consolidated statements cash flows november 2016 fasb issued asu 201618 statement cash flows restricted cash requires entities show changes total cash equivalents restricted cash restricted cash equivalents statement cash flow guidance effective us first quarter fiscal 2018 early adoption permitted including adoption interim period adjustments must reflected beginning fiscal year includes interim period new standard must adopted retrospectively early adopted standard fourth quarter 2016 resulting reclassification restricted cash presentation consolidated statements cash flows january 2017 fasb issued asu 2017 201704 intangibles goodwill eliminates step two annual goodwill impairment test standard effective us first quarter 2020 early adoption permitted january 1 2017 applied prospective basis adoption standard materially impact consolidated financial statements unless step one annual goodwill impairment test fails currently evaluating timing planned adoption standard balance sheet arrangements none item 7aitem 7 management’s discussion analysis financial condition results operations following discussion financial condition results operations years ended december 31 2017 2016 2015 read conjunction consolidated financial statements related notes included item 8 financial statements supplementary data annual report form 10k addition discussion contains forwardlooking statements subject risks uncertainties including estimates based judgment estimates include limited assessing collectability accounts receivable applied unapplied production costs production capacities usage recoverability inventories longlived assets deferred income taxes pension assets liabilities incurrence warranty obligations impairment goodwill estimation cost complete certain projects future revenue operating results cash balances access liquidity accruals estimated losses legal matters estimation value stockbased compensation awards including probability performance criteria equity awards met discussion regarding forward looking statements see section annual report form 10k entitled special note regarding forwardlooking statements management’s discussion analysis financial condition results operations “mda” designed provide reader financial statements narrative perspective management financial condition results operations liquidity certain factors may affect future results mda presented following sections • executive overview • recent highlights • results operations • liquidity capital resources • contractual obligations • critical accounting estimates • impact inflation • recent accounting pronouncements • balance sheet arrangements executive overview maxwell global leader developing manufacturing marketing energy storage power delivery products transportation industrial applications products designed manufactured perform reliably minimal maintenance life applications integrated believe gives products key competitive advantage two product lines energy storage consists primarily ultracapacitors applications multiple industries including transportation grid energy storage highvoltage capacitors applied mainly electrical utility infrastructure addition two existing product lines focused developing dry battery electrode technology leverages core dry electrode process technology used manufacture ultracapacitors many years believe could ground breaking technology lithiumion batteries particularly electric vehicle market primary objective offer innovative products customers diversify business provide increased revenue position company accelerated profitable growth thereby ultimately creating value shareholders key components strategy include 1 commercializing dry battery electrode technology believe unique innovative technology potentially large market opportunity particularly electric vehicles 2 optimizing energy storage product portfolio drive business diversification achieve scale transition higher growth opportunities large growing market 3 maintaining expanding leadership position market share highvoltage product line provides opportunity steady longterm growth solid market dry battery electrode technology focused demonstrating ability core technology satisfy increasing performance demands lithiumion batteries believe dry electrode technology potential significant technology within lithiumion battery industry substantial market opportunity particularly use electric vehicles applying patentprotected proprietary fundamental dry electrode manufacturing technology trade secrets batteries varying chemistries believe create significant performance cost benefits end 2016 entered “proof concept” joint development agreement leading global automotive oem global tier one automotive supplier proofofconcept basis validate dry battery electrode performance pilot scale 2017 materially completed proofofconcept believe demonstrates significant performance cost advantages dry electrode manufacturing process use lithium ionbatteries 2018 plan begin build pilotscale manufacturing facility prove benefits manufacturability technology also highly focus attaining broader scaleup agreements current prospective partners order accelerate commercialization technology order optimize energy storage portfolio last year made steady progress leveraging core competencies diversifying ultracapacitor products solidifying product roadmap innovative new complete system solution offerings transition higher growth market opportunities automotive grid energy storage rail wind 2017 acquired core business operating entities nesscap energy inc “nesscap” order drive customer diversification achieve scale position business win high growth opportunities combined nesscap’s bestinclass small cell product portfolio maxwell’s leadership large cell solutions create complete portfolio available market customers also seek maintain expand market share revenue highvoltage capacitors evolving market trends global highvoltage market particularly united states china india believe projects increase availability electrical energy well infrastructure modernization renovation may continue increase demand highvoltage products solutions years come process expanding capacity existing highvoltage capacitor production facility rossens switzerland order meet projected demand increase revenue potential 2017 issued 460 million aggregate principal amount 550 convertible senior notes due 2022 net proceeds 430 million deducting initial purchaser’s discount offering expenses payable us intend use net proceeds offering general corporate purposes may include research development expenses capital expenditures working capital general administrative expenses april 28 2017 acquired core business operating entities nesscap developer manufacturer ultracapacitor products use transportation renewable energy industrial consumer markets exchange issuance approximately 41 million shares maxwell common stock “share consideration” assumption certain liabilities value share consideration approximately 253 million based closing price common stock april 28 2017 nesscap acquisition adds complementary businesses operations expands portfolio products believe adds value customers shareholders february 2017 announced restructuring plan implement wide range organizational efficiencies cost reduction opportunities better align costs near term revenue connection restructuring plan incurred restructuring charges approximately 09 million primarily related employee severances anticipate annual cost savings 25 million 30 million result restructuring plan including benefit approximately 19 million realized fiscal 2017 following acquisition core business operating entities nesscap september 2017 initiated additional restructuring plan optimize headcount connection acquisition integration nesscap business well implement additional organizational efficiencies total charges september 2017 restructuring plan approximately 12 million primarily related cash expenditures associated employee severances anticipate annual cost savings 07 million 10 million result restructuring plan including benefit 03 million 04 million realized fiscal 2017 revenue 1304 million compared 1212 million 2016 representing overall increase 8 increase primarily attributable higher revenue ultracapacitor products revenue increased 23 877 million 2017 715 million 2016 increase ultracapacitor product revenue primarily due higher sales related wind applications mainly driven nesscap acquisition well higher sales related automotive emerging market applications revenue highvoltage capacitor products 427 million 2017 compared 452 million prior year representing decrease 6 due sale product line april 2016 microelectronics product revenue 2017 compared 46 million 2016 overall gross margin fiscal year 2017 decreased 22 compared 27 2016 primarily associated change product mix 2017 includes lower sales higher margin microelectronics highvoltage products addition recognition acquired inventory fair value amortization acquired intangibles related nesscap acquisition also resulted lower margins operating expenses 2017 increased 51 revenue compared 48 revenue prior year primarily attributable several significant expenses including proposed 28 million settlement sec 2017 related 2011 2012 restatement implementation restructuring plans february september 2017 transaction expenses related acquisition nesscap partially offset lower operating expenses due restructuring cost reduction efforts december 31 2017 cash equivalents 501 million management believes available cash balance sufficient fund operations obligations become due capital investments least next twelve months addition revolving line credit available maximum 250 million subject borrowing base limitation borrowed amounts facility date facility scheduled expire july 2018 future may decide supplement existing cash planned cash flow operations additional debt equity financings going forward intend continue focusing strategic priorities described order achieve strategic objectives need overcome risks challenges facing business significant challenge face ability manage dependence small number vertical markets geographic regions including driven government policies subsidy programs markets may decline experience slower rates growth changes delays government policies subsidy programs specifically chinese hybrid transit bus wind energy markets heavily dependent government regulation subsidy programs past year demand ultracapacitors china hybrid bus market significantly decreased due changes government subsidy program well requirement localize product manufacturing reduce dependency china government influences established localized manufacturing partnership crrcsri positioned support customer demand opportunities may meet return requirement another significant challenge face ultracapacitors relates pricing expectations competition certain markets auto wind places significant pressure pricing margins products continually pursing opportunities reduce cost product order improve competitive position product margins specifically hybrid transit vehicle market ultracapacitors china region historically represented significant portion sales become competitive respect pricing volume requirements accordingly performed thorough analysis current market landscape decided selectively target opportunities market shortterm significant risks challenges face include ability achieve profitability ability develop management team product development infrastructure manufacturing capacity optimization facilitate profitable growth competing technologies may capture market share interfere planned growth difficulties executing restructuring activities hiring developing retaining key personnel critical execution strategy attentive risks focusing overcoming risks order achieve key objectives recent highlights continuing focus introducing new products winning new customers developing new product applications adjusting production capacity reducing costs align nearterm revenue forecasts improving production operational processes efforts described • january 2017 announced definitive agreement crrcsri localize manufacturing ultracapacitorbased modules use china new energy bus market agreement extends strategic partnership crrcsri enables us potentially compete effectively china bus market moving forward • february 2017 announced entered agreement acquire substantially assets business nesscap energy inc developer manufacturer ultracapacitor products use transportation renewable energy industrial consumer markets april 28 2017 completed acquisition issuance approximately 41 million shares maxwell common stock assumption certain liabilities acquisition adds complementary businesses operations expands portfolio products believe adds value customers shareholders • september 2017 announced offering 40 million aggregate principal amount 550 convertible senior notes due 2022 notes private offering qualified institutional buyers pursuant rule 144a securities act 1933 amended also granted initial purchaser notes 30day option purchase additional 60 million aggregate principal amount notes sale notes initial purchaser settled september 25 2017 resulted approximately 373 million net proceeds deducting fees estimated offering expenses payable us • october 2017 announced sale additional 60 million aggregate principal amount notes private offering qualified institutional buyers pursuant rule 144a securities act 1933 amended pursuant initial purchasers exercise option purchase additional notes resulted approximately 57 million additional net proceeds deducting initial purchaser’s discount sale additional notes settled october 11 2017 additional notes sold terms respects 550 convertible senior notes due 2022 previously issued september 25 2017 results operations comparison years ended december 31 2017 2016 2015 following table presents certain statement operations data expressed percentage revenue periods indicated net loss reported 2017 431 million 122 per share compared net loss 2016 237 million 074 per share net loss 2015 223 million 073 per diluted share increase net loss 194 million 2017 compared 2016 primarily related following • 67 million gain 2016 sale microelectronics product line • 42 million decline gross profit associated increase product costs due higher unabsorbed fixed costs related lower production volumes change product mix includes lower sales higher margin microelectronics highvoltage products recognition acquired inventory fair value amortization acquired intangibles related nesscap acquisition well reduction pricing ultracapacitor products • 28 million expense recorded 2017 proposed settlement sec related 2011 2012 restatement • 37 million increase stock compensation expense due difference expected performance 2017 bonus plan compared 2016 plan unusually high forfeitures first quarter 2016 related 2015 restructuring plan well change award mix include marketcondition rsus higher expense • 20 million increase restructuring charges mainly related 2017 restructuring plans implement wide range organizational efficiency optimize headcount connection acquisition integration business nesscap • 19 million transaction costs 2017 related nesscap acquisition • 15 million benefit second quarter 2016 release foreign tax liability due lapse statute limitation • offsetting effect savings operating expenses associated restructuring ongoing cost reduction efforts increase net loss 14 million 2016 compared 2015 driven decline revenue 28 decline gross profit 35 primarily related changes china’s government subsidy programs hybrid transit vehicles effect declines largely offset 67 million gain sale microelectronics product line well savings 2016 restructuring cost reduction efforts revenue gross profit following table presents revenue cost revenue gross profit years ended december 31 2017 2016 2015 thousands except percentages revenue 2017 revenue increased 8 1304 million compared 1212 million prior year increase revenue primarily related higher revenue ultracapacitor product line increased 162 million 23 877 million 715 million increase ultracapacitor product revenue primarily due higher sales related wind applications primarily driven nesscap acquisition well higher sales related automotive emerging market applications increase ultracapacitor product revenue 2017 composed higher volume 198 million partially offset lower prices 36 million revenue highvoltage products decreased 25 million 427 million 2017 compared 452 million prior year decrease due timing certain highvoltage capacitor end user projects associated revenue due sale product line april 2016 microelectronics product revenue year ended december 31 2017 compared 46 million year ended december 31 2016 revenue decreased 28 1212 million compared 1674 million prior year decrease revenue primarily related lower revenue ultracapacitor product line decreased 430 million 38 715 million 1145 million decrease ultracapacitor product revenue 2016 driven lower sales volume 449 million primarily due government subsidy program changes china particularly proposed requirement localize product manufacturing significantly decreased sales hybrid transit vehicle applications lower hybrid transit vehicle volume partially offset higher volume rail transit applications ultracapacitor product revenue also negatively affected lower prices 23 million positively impacted 42 million changes primarily related product mix revenue highvoltage products increased 35 million 452 million 2016 compared 417 million prior year increase primarily driven increased infrastructure renewal investment canadian government revenue microelectronics products decreased 66 million 46 million 2016 compared 111 million 2015 due sale product line april 2016 following table presents revenue mix product line years ended december 31 2017 2016 2015 substantial amount revenue generated swiss subsidiary functional currency swiss franc reported revenue materially impacted changes exchange rates swiss franc us dollar reporting currency due minimal change exchange rates us dollar swiss franc 2017 compared 2016 revenue significantly impacted due strengthening us dollar swiss franc 2016 compared 2015 revenue negatively impacted 11 million gross profit gross margin 2017 gross profit decreased 42 million 13 288 million compared 330 million prior year percentage revenue gross margin decreased 22 2017 compared 27 prior year decreases gross profit gross margin associated increase product costs due higher unabsorbed fixed costs related lower production volumes change product mix includes lower sales higher margin microelectronics highvoltage products recognition acquired inventory fair value amortization acquired intangibles related nesscap acquisition well reduction pricing ultracapacitor products 2016 gross profit decreased 180 million 35 330 million compared 510 million prior year percentage revenue gross margin decreased 27 2016 compared 30 prior year decrease associated lower revenue primarily due lower sales volume change product mix longer includes sales higher margin microelectronics products increase product costs due higher unabsorbed fixed costs associated lower production volumes well less significant impact reduction pricing ultracapacitor products selling general administrative expense following table presents selling general administrative expense years ended december 31 2017 2016 2015 thousands except percentages selling general administrative expenses 2017 increased 95 million 26 compared 2016 selling general administrative expenses increased 35 revenue 30 2016 increase primarily related 29 million increase stock compensation expense due difference expected performance 2017 bonus plan compared 2016 change award mix include marketcondition rsus higher expense unusually high forfeitures first quarter 2016 related 2015 restructuring plan 28 million expense recorded 2017 proposed settlement sec related 2011 2012 restatement 19 million transaction costs related nesscap acquisition 13 million release foreign payroll tax liability second quarter 2016 20 million increase operating expenses associated acquisition business nesscap increases partially offset various decreases related restructuring ongoing cost reduction efforts selling general administrative expenses 2016 decreased 45 million 11 compared 2015 decrease primarily related decrease 17 million labor costs related headcount reductions connection restructuring sale microelectronics product line decrease 17 million related lower legal costs associated ongoing sec fcpa investigations decrease 13 million related release foreign payroll tax liability due lapse statute limitations well various expense savings related restructuring cost reduction efforts sale microelectronics product line decreases partially offset increase 12 million stock compensation expense related 2016 management bonus plan whereas bonus plan suspended 2015 selling general administrative expenses increased 30 revenue 24 2015 research development expense following table presents research development expense years ended december 31 2017 2016 2015 thousands except percentage research development expenses 2017 decreased 25 million 12 compared 2016 research development expenses decreased 14 revenue 17 2016 decrease primarily associated decrease 16 million labor headcountrelated costs primarily related restructuring cost reduction efforts sale microelectronics product line increase 10 million thirdparty funding costsharing arrangements well decreases related restructuring cost reduction efforts decreases expenses partially offset increase 06 million stock compensation expense due difference expected performance 2017 bonus plan compared 2016 change award mix include marketcondition rsus higher expense unusually high forfeitures first quarter 2016 related 2015 restructuring plan research development expenses 2016 decreased 38 million 15 compared 2015 decrease primarily associated decrease 11 million labor headcountrelated costs primarily related restructuring cost reduction efforts sale microelectronics product line increase 09 million thirdparty funding costsharing arrangements well decreases related restructuring cost reduction efforts sale microelectronics product line decrease 07 million outsourced research development services decrease 05 million facilities costs decrease 05 million tool supply expenses research development expenses increased 17 revenue 15 2015 restructuring exit costs september 2017 company initiated restructuring plan optimize headcount connection acquisition integration business nesscap well implement additional organizational efficiencies total charges year ended december 31 2017 september 2017 restructuring plan approximately 12 million february 2017 company implemented comprehensive restructuring plan included wide range organizational efficiency initiatives cost reduction opportunities total charges year ended december 31 2017 february 2017 restructuring plan approximately 09 million charges related 2017 restructuring plans consist employee severance costs paid cash charges recorded within “restructuring exit costs” consolidated statements operations following table summarizes restructuring exit costs related 2017 restructuring plans year ended december 31 2017 thousands 2015 company initiated restructuring plan consolidate us manufacturing operations reduce headcount operating expenses order align company’s cost structure business forecast improve operational efficiency 2015 plan also included disposition company’s microelectronics product line completed april 2016 exception ongoing cost assumptions related exit portion leased facility plan completed 2016 total restructuring exit costs 2015 plan 30 million included 15 million facilities costs related consolidation manufacturing operations 12 million employee severance costs 03 million exit costs company also incurred 06 million accelerated equipment depreciation expense related consolidation manufacturing operations total cash expenditures excluding lease payments related 2015 restructuring plan activities approximately 15 million years ended december 31 2017 2016 2015 company recorded total charges related 2015 restructuring plan 02 million 03 million 25 million respectively within “restructuring exit costs” consolidated statements operations following table summarizes restructuring exit costs related 2015 restructuring plan years ended december 31 2017 2016 2015 thousands impairment assets years ended december 31 2017 2016 recorded total impairment charges 02 million 14 million respectively impairment charges related property equipment longer forecasted utilized remaining useful lives fair values approximated zero impairments property equipment recorded year ended december 31 2015 provision income taxes effective tax rate differs statutory us federal income tax rate primarily due foreign income taxes valuation allowance domestic deferred tax assets recorded income tax provision 37 million 41 million 46 million years ended december 31 2017 2016 2015 respectively provision primarily related taxes income generated swiss subsidiary december 31 2017 recorded 49 million deferred tax liability swiss withholding taxes associated 976 million undistributed earnings swiss subsidiary longer considered indefinitely reinvested event repatriate funds withholding tax would become payable swiss government years ended december 31 2017 2016 2015 income tax expense associated undistributed earnings swiss subsidiary longer considered indefinitely reinvested 0 12 million 21 million respectively december 22 2017 president united states signed law tax cuts jobs act tax legislation significantly changes us tax law among things reducing us federal corporate tax rate 35 21 implementing territorial tax system imposing repatriation tax deemed repatriated earnings foreign subsidiaries due tax legislation remeasured us deferred tax assets liabilities based rates expected reverse future generally 21 recorded provisional decrease related deferred tax assets liabilities 347 million corresponding adjustment valuation allowance year ended december 31 2017 however still analyzing certain aspects act refining calculations could potentially affect measurement balances potentially give rise new deferred tax amounts deferred tax asset offset full valuation allowance change rates impact financial position results operations also recorded provisional amount additional us taxable income 84 million related onetime transition tax result additional tax expense due net operating losses however continuing gather additional information precisely compute amount transition tax significant net operating losses change provisional amount would impact financial position results operations december 31 2017 cumulative valuation allowance recorded offsetting worldwide net deferred tax assets 614 million significant majority represents valuation allowance us net deferred tax assets established valuation allowance us federal state deferred tax assets due uncertainty surrounding realization assets management periodically evaluates recoverability deferred tax assets time determined likely us deferred tax assets realizable valuation allowance reduced accordingly liquidity capital resources changes cash flow following table summarizes cash flows operating investing financing activities past three fiscal years thousands 2017 cash used operating activities 150 million related primarily net loss 431 million included noncash charges 227 million increase accounts receivable 80 million primarily related timing receipts higher sales fourth quarter 2017 compared fourth quarter 2016 decreases cash partially offset increase deferred revenue customer deposits 24 million primarily funding received 2017 localization agreement crrcsri increase accounts payable accrued liabilities 88 million related accrual proposed settlement sec related 2011 2012 restatement addition operations nesscap timing payments decrease inventory 26 million mainly related efforts reduce inventory levels 2016 cash used operating activities 144 million related primarily net loss 237 million included noncash charges 98 million decrease accounts payable accrued liabilities 149 million related lower procurement activity 2016 increase inventory 50 million net sale microelectronics product line inventories related timing differences matching production demand decreases cash partially offset decrease accounts receivable 201 million primarily related lower volume sales near end 2016 compared end 2015 cash provided operating activities 94 million related primarily increase accounts payable accrued liabilities 50 million primarily due timing payments decrease inventory 53 million primarily associated efforts reduce inventory levels increases cash partially offset net loss 223 million included noncash charges 206 million cash used operating activities 150 million 2017 compared cash used operating activities 144 million 2016 cash flows operating activities impacted working capital changes positive effect cash flow 54 million year ended december 31 2017 working capital relatively unchanged 2016 positive effect changes working capital partially offset lower gross profit higher operating expenses 2017 cash used operating activities 144 million 2016 compared cash provided operating activities 94 million 2015 cash flows operating activities negatively impacted lower revenue gross profit 2016 additionally 2016 working capital relatively unchanged net impact sale microelectronics product line compared positive cash flows 112 million 2015 changes working capital cash used investing activities 44 million 2017 compared cash provided investing activities 147 million 2016 cash used investing activities 41 million 2015 cash used investing activities 2017 primarily related capital expenditures 58 million partially offset release holdback proceeds 2016 sale microelectronics product line 15 million capital expenditures 2017 primarily related factory expansion laboratory upgrades highvoltage capacitor production facility rossens switzerland well new technology investments corporate research development facility san diego california cash provided investing activities 2016 primarily related proceeds sale microelectronics product line 205 million partially offset capital expenditures 60 million capital expenditures 2016 primarily focused investments corporate research development facility san diego california cash used investing activities 2015 related capital expenditures primarily focused manufacturing operations well investments information technology infrastructure cash provided financing activities 433 million 2017 compared 08 million provided financing activities 2016 54 million used financing activities 2015 cash provided financing activities 2017 primarily resulted net proceeds 430 million issuance convertible debt 2017 well proceeds purchases employee stock purchase plan 03 million cash provided financing activities 2016 resulted proceeds purchases employee stock purchase plan 08 million cash used financing activities 2015 primarily resulted net payments long term short term borrowings 158 million offset net proceeds atthemarket equity offering 96 million proceeds exercises employee stock options purchases employee stock purchase plan 09 million liquidity september 25 2017 issued 40 million aggregate principal amount 550 convertible senior notes due 2022 “notes” sale notes generated net proceeds approximately 373 million deducting initial purchaser’s discount estimated offering expenses payable us notes bear interest rate 550 per year payable semiannually arrears march 15 september 15 year commencing march 15 2018 october 2017 issued additional 60 million convertible senior notes 30day option purchase additional 60 million aggregate principal amount convertible senior notes terms exercised october 2017 sale additional convertible senior notes generated net proceeds approximately 57 million deducting initial purchaser’s discount december 31 2017 approximately 501 million cash equivalents working capital 684 million july 2015 entered loan agreement east west bank “ewb” whereby ewb made available us secured credit facility form revolving line credit revolving line credit available maximum lesser 250 million b certain percentage domestic foreign trade receivables december 31 2017 amount available revolving line credit 133 million amounts borrowed revolving line credit december 31 2017 facility scheduled expire july 2018 addition june 2014 filed shelf registration statement form s3 sec time sell 125 million common stock warrants debt securities units june 30 2014 registration statement declared effective sec allowed us access capital markets threeyear period following effective date april 23 2015 entered atthemarket equity offering sales agreement “sales agreement” cowen company llc “cowen” pursuant could sell option aggregate 100 million shares common stock cowen sales agent sales agreement agreed pay cowen commission equal 30 gross proceeds sale shares common stock june 11 2015 completed sale approximately 100 million common stock terminated offering approximately 183 million shares sold offering average share price 546 received net proceeds 96 million commissions offering costs 04 million november 2017 filed new shelf registration statement form s3 sec time sell 125 million common stock warrants debt securities units november 16 2017 registration statement declared effective sec allows us access capital markets threeyear period following effective date april 2016 completed sale substantially assets liabilities microelectronics product line received cash proceeds 205 million net oneyear 15 million holdback purchase price received 2017 capital expenditures expected range 150 million 250 million 2018 approximately 50 planned capital spending related process development infrastructure associated dry battery electrode technology 30 related improving manufacturing processes factory expansion existing products 15 related product research development investments remaining planned capital spending support information technology infrastructure facilities improvements december 31 2017 amount cash shortterm investments held foreign subsidiaries 91 million funds needed operations us future may required pay taxes repatriate funds rate approximately 5 accrued tax expense associated potential future repatriation funds september 2017 initiated restructuring plan optimize headcount connection acquisition integration business nesscap well implement additional organizational efficiencies total charges september 2017 restructuring plan approximately 12 million incurred 2017 february 2017 implemented restructuring plan included wide range organizational efficiencies cost reduction opportunities connection february 2017 restructuring plan incurred net restructuring charges approximately 09 million recognized 2017 september february 2017 restructuring plan charges consist employee severance costs paid cash connection restructuring plans made cash payments 13 million year ended december 31 2017 expect make additional cash payments 08 million 2018 related september 2017 restructuring plan connection nesscap acquisition incurred approximately 35 million cash expenditures paid year ended december 31 2017 acquisition completed second quarter 2017 debt credit facilities convertible senior notes september october 2017 issued 460 million 550 convertible senior unsecured notes due 2022 “notes” received net proceeds deducting underwriting discounts fees expenses payable company approximately 430 million convertible senior notes bear interest rate 550 per year payable semiannually arrears march 15 september 15 year commencing march 15 2018 convertible senior notes mature september 25 2022 unless earlier purchased company redeemed converted believe sufficient capital resources cash flows operations support scheduled interest payments debt revolving line credit july 2015 entered loan security agreement “loan agreement” related agreements east west bank “ewb” whereby ewb made available us secured credit facility form revolving line credit “revolving line credit” revolving line credit available maximum lesser 250 million b certain percentage domestic foreign trade receivables december 31 2017 amount available revolving line credit 133 million general amounts borrowed revolving line credit secured lien assets including intellectual property well pledge 100 equity interests company’s swiss subsidiary obligations loan agreement guaranteed swiss subsidiary revolving line credit mature july 3 2018 event violation representations warranties covenants made loan agreement including certain financial covenants set forth therein may able utilize revolving line credit repayment amounts owed pursuant loan agreement could accelerated currently compliance financial covenants required meet term credit agreement including minimum fourquarter rolling ebitda quarterly minimum quick ratio minimum cash requirements march 1 2017 entered amendment loan agreement approve acquisition substantially assets business nesscap energy inc modify certain financial covenants amounts borrowed revolving line credit bear interest payable monthly interest shall accrue based upon election subject certain limitations either prime rate plus margin libor rate plus margin ranging 0 050 libor rate plus margin ranging 275 325 specific rate determined based upon leverage ratio time required pay annual commitment fee equal 125000 unused commitment fee average daily unused amount revolving line credit payable monthly equal per annum rate range 030 050 determined leverage ratio last day previous fiscal quarter amounts borrowed revolving line credit december 31 2017 former credit facility december 2011 obtained secured credit facility form revolving line credit “former revolving line credit” equipment term loan “equipment term loan” together “former credit facility” borrowings former credit facility bore interest payable monthly either bank’s prime rate ii libor plus 225 option subject certain limitations equipment term loan available finance 80 eligible equipment purchases made april 1 2011 april 30 2012 period borrowed 50 million equipment term loan balance equipment term loan paid full maturity date april 30 2015 concurrently entering loan agreement described july 2015 repaid outstanding loans former revolving line credit terminated former credit facility incur early termination prepayment penalties former credit facility connection transactions longterm borrowings maxwell sa various financing agreements vehicles agreements original threeyear repayment period interest rates ranging 09 19 december 31 2017 2016 115000 83000 respectively outstanding agreements contractual obligations 1 operating lease obligations primarily represent building leases 2 purchase commitments primarily represent value noncancellable purchase orders estimate purchase orders canceled would result significant penalty 3 convertible debt represents convertible senior notes due september 2022 assumes notes converted prior september 15 2022 maturity date 4 represents 55 interest due semiannually convertible senior notes due september 2022 assumes interest paid notes converted prior september 15 2022 due date 5 debt obligations represent longterm shortterm borrowings related financing agreements vehicles 6 pension defined benefit plan payments represent expected amounts paid maxwell sa pension plan korea defined benefit plan 7 table excludes 03 million liabilities associated uncertain tax positions unable reasonably estimate timing future payments required 8 table excludes deferred tax liability 49 million due uncertainty timing future payments deferred tax liability undistributed earnings foreign subsidiary represents deferred tax expense associated portion unremitted earnings foreign subsidiary considered permanently reinvested critical accounting estimates consider accounting estimate critical 1 accounting estimate requires us make assumptions matters uncertain time accounting estimate made 2 changes estimate reasonably likely occur period use different estimates reasonably could used current period would material impact financial condition results operations also see note 1 summary significant accounting policies part ii item 8 financial statements supplementary data annual report form 10k discusses significant accounting policies believe following either critical accounting policies require us make significant estimates assumptions preparation consolidated financial statements ii key accounting policies may require us make difficult subjective judgments revenue recognition nature estimates required sales revenue primarily derived sale products directly customers product revenue recognized criteria revenue recognition met customer agreements terms sale evaluated determine criteria revenue recognition met therefore revenue recognized revenue recognition deferred criteria revenue recognition met assumptions approach used product revenue recognized following criteria met 1 persuasive evidence arrangement exists according customer contracts sales documents 2 title risk loss pass customer according order’s shipping terms 3 price deemed fixed determinable free significant contingencies uncertainties 4 collectability reasonably assured customer contracts purchase orders order confirmations generally used determine existence arrangement shipping terms determine passage title risk loss occurred assess whether price fixed determinable based upon payment terms associated transaction assess collectability accounts receivable based primarily upon creditworthiness customer determined credit checks analysis well customer’s payment history determine particular sale meet criteria revenue recognition revenue recognized criteria determined achieved portion sales revenue derived sales distributors distributor revenue recognized criteria revenue recognition met generally time shipment distributor returns credits typically estimable significant certain distributor agreements nesscap korea provide significant rights return price adjustment revenue related distributors deferred period distributor sells inventory end customer total deferred revenue customer deposits consolidated balance sheets december 31 2017 2016 67 million 40 million respectively primarily relates cash received related localization agreement crrcsri cash received customer connection productiontype contract revenue recognized using percentage completion method excess obsolete inventory nature estimates required estimates principally based assumptions regarding ability sell items inventory due uncertainty potential volatility inherent estimates changes assumptions could materially affect results operations assumptions approach used estimate excess obsolete inventory evaluated quarterly basis based rolling historical inventory usage assumptions regarding future product demand actual levels inventory change specific products become slow moving obsolete estimated reserve may materially change pension defined benefit plan liability nature estimates required use several significant assumptions within actuarial models utilized measuring pension assets obligations swiss pension plan korean defined benefit plan obligations assumptions approach used discount rate expected return assets estimates impacting plan expense asset liability measurement evaluate critical assumptions least annually periodically evaluate actuarial assumptions involving demographic factors used measure swiss pension plan korean defined benefit plan obligations retirement age mortality turnover update reflect experience expectations future actual results given year often differ actuarial assumptions economic factors projected swiss pension benefit obligation december 31 2017 317 million fair value plan assets 434 million company rights assets plan right offset liabilities plan projected korean defined benefit plan obligation december 31 2017 40 million goodwill impairment nature estimates required review goodwill annually reporting unit level time every year event occurs circumstances change reasonably possible impairment may exist established december 31 annual impairment test date first make qualitative assessment whether goodwill impaired likely goodwill impaired perform quantitative impairment analysis determine goodwill impaired may also determine skip qualitative assessment year move directly quantitative test quantitative test determine fair value reporting unit compare fair value reporting unit carrying value goodwill impairment recorded excess reporting units carrying amount fair value exceed total amount goodwill allocated reporting unit assumptions approach used determination fair value requires number significant assumptions judgments including assumptions future economic conditions revenue growth operating margins discount rates 2017 performed qualitative assessment reporting units included evaluation changes industry market macroeconomic conditions well consideration reporting unit’s financial performance significant trends qualitative assessment indicated likely goodwill impaired noted significant negative trends decreases longrange plan would indicate different result compared 2016 quantitative analysis ultracapacitor reporting unit 2016 performed qualitative analysis highvoltage reporting unit concluded likely fair value exceeded carrying value therefore perform quantitative testing reporting unit ultracapacitor reporting unit associated 23 million goodwill skipped qualitative analysis performed quantitative analysis quantitative step one goodwill impairment analysis ultracapacitor reporting unit utilized discounted cash flow model calculate fair value reporting unit required us make significant assumptions estimates extent timing future cash flows discount rates growth rates basis goodwill impairment analysis annual budget longrange cash flow projections cash flows estimated significant future period time estimates assumptions subject high degree uncertainty revenue growth assumptions internally developed based detailed market opportunity analysis include successful execution longterm growth strategies localization ultracapacitor modules china bus market believe assumptions estimates used analysis estimate fair value reasonable use different estimates assumptions within discounted cash flow model use methodology discounted cash flow model could result significantly different fair value reporting unit impairment testing conducted 2016 indicated fair value ultracapacitor reporting unit excess carrying value concluded goodwill assigned ultracapacitor reporting unit impaired quantitative testing performed impairments goodwill reported years ended december 31 2017 2016 2015 business combinations nature estimates required apply provisions asc 805 business combinations accounting acquisitions requires us recognize separately goodwill assets acquired liabilities assumed acquisition date fair values goodwill acquisition date measured excess consideration transferred net acquisition date fair values assets acquired liabilities assumed use best estimates assumptions accurately value assets acquired liabilities assumed acquisition date well contingent consideration applicable estimates inherently uncertain subject refinement result measurement period may one year acquisition date may record adjustments assets acquired liabilities assumed corresponding offset goodwill upon conclusion measurement period final determination values assets acquired liabilities assumed whichever comes first subsequent adjustments required recorded consolidated statements operations assumptions approach used accounting business combinations requires management make significant estimates assumptions especially acquisition date including estimates intangible assets contractual obligations assumed preacquisition contingencies contingent consideration applicable although believe assumptions estimates made past reasonable appropriate based part historical experience information obtained management acquired company inherently uncertain examples critical estimates valuing certain intangible assets acquired include limited future expected cash flows assumed contracts future expected cash flow estimates include estimated cash flow amounts time periods cash flows expected received estimated retention renewal rates existing customer contracts assumed part acquisition estimated costs sell market deliver support assumed contracts among estimates future expected cash flows acquired developed technology including estimated amounts received developed technology time period cash flows expected received among estimates discount rates unanticipated events circumstances may occur may affect accuracy validity assumptions estimates actual results convertible debt nature estimates required account convertible debt instruments may settled cash upon conversion separating liability equity components instruments manner reflects nonconvertible debt borrowing rate assumptions approach used september october 2017 issued 460 million aggregate principal amount 550 convertible senior notes due 2022 fair value liability component estimated discounting future interest principal payments income approach due notes discount rate 1200 interest rate equal estimated borrowing rate similar nonconvertible debt determined nonconvertible debt borrowing rate using level 3 inputs including utilization credit assumptions high yield bond indices determining fair value debt component requires use accounting estimates assumptions estimates assumptions judgmental nature could significant impact determination debt component associated noncash interest expense difference face value notes fair value debt component results us recording debt discount amortizing debt discount life notes additional noncash interest expense utilizing effective interest method stockbased compensation nature estimates required stockbased compensation awards include stock options restricted stock restricted stock units shares issued employee stock purchase plan “espp” record compensation expense stockbased compensation awards accordance criteria set forth stock compensation subtopic financial accounting standards board “fasb” accounting standards codification “asc” guidance fair value employee stock option estimated date grant using option pricing model meets certain requirements use blackscholes option pricing model estimate fair value stock option grants determination fair value stock options utilizing blackscholes model affected stock price number assumptions including expected volatility expected life riskfree interest rate expected dividends fair value restricted stock awards “rsas” restricted stock unit awards “rsus” based closing market price common stock date grant compensation expense equal fair value rsa rsu recognized ratably requisite service period rsus vesting contingent achievement company performance conditions use requisite service period likely occur requisite service period estimated based performance period well timebased employee service requirements unlikely performance condition achieved compensation expense recognized unless later determined achievement performance condition likely expense may adjusted changes expected outcomes related performance conditions impact changes recognized cumulative adjustment consolidated statement operations period expectation changes 2017 2016 issued marketcondition rsus certain members executive management since vesting marketcondition rsus dependent stock price performance fair value awards estimated using montecarlo valuation model determination fair value marketcondition rsus utilizing montecarlo valuation model affected stock price number assumptions including expected volatility expected life riskfree interest rate expected dividends stockbased compensation expense recognized consolidated statement operations based equity awards ultimately expected vest estimate forfeitures time grant based historical experience expectation future forfeitures revise necessary subsequent periods cumulative catch adjustment actual forfeitures differ estimates assumptions approach used determining value stock option marketcondition rsu grants estimate expected dividend yield zero never paid cash dividends present intention pay cash dividends expected term calculation based actual life historical stock option grants expected volatility based historical stock prices using mathematical formula measure standard deviation change natural logarithm underlying stock price period time commensurate expected term riskfree interest rate derived zero coupon rate us treasury instruments term commensurate awards expected term rsus vesting contingent achievement company performance conditions amount compensation expense estimated based expected achievement performance condition requires us make estimates likelihood achievement company performance conditions highly judgmental base judgments expected achievement company performance conditions based financial projections company used management business purposes represent best estimate expected company performance unlikely performance condition achieved compensation expense recognized unless later determined achievement performance condition likely requisite service period estimated based performance period well timebased employee service requirements evaluate assumptions used value stockbased awards quarterly basis factors change employ different assumptions stockbased compensation expense may differ significantly recorded past modifications cancellations stockbased awards may required accelerate increase decrease remaining unrecognized stockbased compensation expense compensation expense may significantly impacted future extent estimates differ actual results income taxes nature estimates required record income tax valuation allowance realization certain deferred tax assets including net operating losses likely record us income taxes undistributed earnings foreign subsidiaries unless subsidiaries’ earnings considered indefinitely reinvested outside us december 31 2017 recorded 49 million deferred tax liability swiss withholding taxes associated 976 million undistributed earnings swiss subsidiary longer considered indefinitely reinvested event repatriate funds withholding tax would become payable swiss government december 31 2017 118 million undistributed earnings considered indefinitely reinvested december 22 2017 president united states signed law tax cuts jobs act legislation significantly changes us tax law among things reducing us federal corporate tax rate 35 21 implementing territorial tax system imposing repatriation tax deemed repatriated earnings foreign subsidiaries pursuant sec’s staff accounting bulletin 118 income tax accounting implications tax cuts jobs act “sab 118” given amount complexity changes tax law resulting tax legislation finalized accounting income tax effects tax legislation includes provisional amounts recorded related transition tax remeasurement deferred taxes impact tax legislation may differ estimate oneyear measurement period due among things refinement calculations changes interpretations assumptions made guidance may issued actions may take result tax legislation assumptions approach used deferred income taxes arise temporary differences tax financial statement recognition revenue expense evaluating ability recover deferred tax assets within jurisdiction arise consider available positive negative evidence including scheduled reversals deferred tax liabilities projected future taxable income taxplanning strategies results recent operations significant judgments estimates required evaluation determine able realize portion deferred tax assets future record adjustment increase recorded value corresponding adjustment increase income additional paid capital appropriate period due recent tax legislation remeasured us deferred tax assets liabilities based rates expected reverse future generally 21 recorded provisional decrease related deferred tax assets liabilities 347 million corresponding adjustment valuation allowance year ended december 31 2017 however still analyzing certain aspects act refining calculations could potentially affect measurement balances potentially give rise new deferred tax amounts deferred tax asset offset full valuation allowance change rates impact financial position results operations onetime transition tax based total post1986 earnings profits “ep” previously deferred us income taxes determine amount transition tax must determine addition factors amount post1986 ep relevant subsidiaries recorded provisional amount additional us taxable income 84 million result additional tax expense due net operating losses however continuing gather additional information precisely compute amount transition tax significant net operating losses change provisional amount would impact financial position results operations commitments contingencies nature estimates required involved litigation regulatory proceedings claims prosecute defend matters aggressively however many uncertainties associated litigation assurance actions thirdparty claims us resolved without costly litigation andor substantial settlement charges assumptions approach used disclose information concerning contingent liabilities respect claims proceedings unfavorable outcome remote recognize liabilities claims proceedings appropriate based upon probability loss ability estimate losses fairly present conjunction disclosures matters consolidated financial statements management’s view exposure review outstanding claims proceedings external counsel appropriate assess probability estimates loss recognize liability related claims proceedings time unfavorable outcome becomes probable amount reasonably estimated reasonable estimate range recognized liability best estimate within range amount range better estimate amount minimum amount range recognized reevaluate assessments quarter new significant information becomes available determine whether liability recognized existing liability adjusted actual cost ultimately resolving claim proceeding may substantially different amount recognized liability addition permissible recognize liability loss probable estimable cases may insufficient time recognize liability prior actual incurrence loss upon verdict judgment trial example case quickly negotiated settlement impact inflation believe inflation material impact results operations fiscal years threeyear period ended december 31 2017 however assurance future inflation would adverse impact operating results financial condition recent accounting pronouncements may 2014 financial accounting standards board “fasb” issued accounting standards update “asu” 201409 revenue contracts customers standard provides companies single model accounting revenue arising contracts customers supersedes current revenue recognition guidance including industryspecific revenue guidance core principle model recognize revenue control goods services transfers customer opposed recognizing revenue risks rewards transfer customer existing revenue guidance permits companies either apply requirements retrospectively prior periods presented apply requirements year adoption cumulative adjustment august 2015 fasb issued asu 201514 deferral effective date defers required adoption date asu 201409 one year result deferred effective date asu 201409 effective us first quarter fiscal 2018 early adoption permitted original effective date new standard first quarter fiscal 2017 following asus subsequently issued fasb clarify implementation guidance areas add practical expedients march 2016 asu 201608 revenue contracts customers principal versus agent considerations april 2016 asu 201610 revenue contracts customers identifying performance obligations licensing may 2016 asu 201612 revenue contracts customers narrow scope improvements practical expedients december 2016 asu 201620 technical corrections improvements revenue contracts customers currently finalizing evaluation standard product sales arrangements identified adoption impact related revenue certain distributor agreements deferred period distributor sells inventory end customer connection adoption asu 201409 change recognition sales distributors whereby revenue estimated recognized period transfer control product distributor adoption impact expected material impact identified expected impact timing measurement revenue standard product sales arrangements adoption standard currently formalizing final conclusions also formalizing evaluation impact adoption nonproduct sales arrangements represent less five percent revenue also developed used comprehensive project plan guide implementation new standard currently completing assessment adopt new accounting standard using modified retrospective transition method effective january 1 2018 february 2016 fasb issued asu 201602 leases standard requires lessee recognize assets liabilities arise operating leases lessee recognize balance sheet liability make lease payments lease liability rightofuse asset representing right use underlying asset lease term leases term 12 months less lessee permitted make accounting policy election class underlying asset recognize lease assets lease liabilities transition lessees lessors required recognize measure leases beginning earliest period presented using modified retrospective approach guidance asu 201602 effective annual interim reporting periods beginning december 15 2018 initial evaluation current leases indicate adoption standard material impact consolidated statements operations expect adoption standard material impact consolidated balance sheets recognition certain operating leases rightofuse assets lease liabilities march 2016 fasb issued asu 201609 improvements employee sharebased payment accounting changes accounting employee sharebased payments including accounting income taxes forfeitures statutory tax withholding requirements well classification statements cash flows new guidance excess tax benefits associated sharebased payment awards recognized income statement awards vest settle rather stockholders’ equity addition increase number shares employer withhold cover income taxes sharebased payment awards still qualify exemption liability classification guidance effective us first quarter fiscal 2017 adoption standard resulted recognition 100 million gross deferred tax assets related stockbased compensation corresponding increase valuation allowance elected account forfeitures sharebased payments estimating number awards expected forfeited time grant adjusting estimate reflect changes expected vesting shares november 2016 fasb issued asu 201618 statement cash flows restricted cash requires entities show changes total cash equivalents restricted cash restricted cash equivalents statement cash flow guidance effective us first quarter fiscal 2018 early adoption permitted including adoption interim period adjustments must reflected beginning fiscal year includes interim period new standard must adopted retrospectively early adopted standard fourth quarter 2016 accordance early adoption asu 201618 retrospective restatement limited including restricted cash balances amount 04 million beginning cash equivalents restricted cash balances year ended december 31 2016 consolidated statements cash flows retrospective adoption impact reported net loss otherwise material impact presentation overall financial statements january 2017 fasb issued asu 201704 intangibles goodwill eliminates step two annual goodwill impairment test standard effective us first quarter 2020 early adoption permitted january 1 2017 applied prospective basis adoption standard materially impact consolidated financial statements unless step one annual goodwill impairment test fails early adopted standard january 1 2017 adoption effect consolidated financial statements march 2017 fasb issued asu 201707 improving presentation net periodic pension cost net periodic postretirement benefit cost changes employers sponsor defined benefit pension postretirement benefit plans present net periodic benefit cost statement operations new guidance requires entities report service cost component line item items compensation costs components net benefit cost required presented statement operations separately service cost component outside subtotal loss operations asu 201707 also provides service cost component eligible capitalization standard effective us first quarter 2018 adoption applied retrospective basis 2017 2016 loss operations restated increase 07 million 05 million respectively due reclassification nonservice cost components net benefit cost moved line loss operations impact net loss net loss per share consolidated statements operations applied practical expedient estimation basis reclassification may 2017 fasb issued asu 201709 compensationstock compensation scope modification accounting provides clarification modification accounting used changes terms conditions sharebased payment award asu change accounting modifications clarifies modification accounting guidance applied change value vesting conditions award classification would required changes considered nonsubstantive amendments asu effective us first quarter 2018 early adoption permitted adoption asu 201709 expected impact consolidated financial statements august 2017 fasb issued asu 201712 derivatives hedging targeted improvements accounting hedging activities modifies presentation disclosure hedging results provides partial relief timing certain aspects hedge documentation eliminates requirement recognize hedge ineffectiveness separately income amendments asu effective us first quarter 2019 expect asu material impact consolidated financial statements balance sheet arrangements none item 7aitem 7 management’s discussion analysis financial condition results operations following discussion financial condition results operations years ended december 31 2018 2017 read conjunction consolidated financial statements related notes included item 8 financial statements supplementary data annual report form 10k addition discussion contains forwardlooking statements subject risks uncertainties including estimates based judgment estimates include limited assessing collectability accounts receivable applied unapplied production costs production capacities usage recoverability inventories longlived assets deferred income taxes pension assets liabilities incurrence warranty obligations impairment goodwill estimation cost complete certain projects future revenue operating results cash balances access liquidity accruals estimated losses legal matters estimation value stockbased compensation awards including probability performance criteria equity awards met discussion regarding forward looking statements see section annual report form 10k entitled special note regarding forwardlooking statements management’s discussion analysis financial condition results operations “mda” designed provide reader financial statements narrative perspective management financial condition results operations liquidity certain factors may affect future results mda presented following sections • merger agreement tesla • executive overview • recent highlights • results operations • liquidity capital resources • contractual obligations • critical accounting estimates • impact inflation • recent accounting pronouncements • balance sheet arrangements merger agreement tesla february 3 2019 entered agreement plan merger “merger agreement” among maxwell tesla inc delaware corporation “tesla” cambria acquisition corp delaware corporation wholly owned subsidiary tesla “merger sub” contemplates acquisition maxwell tesla merger sub merger agreement contemplates tesla commence stock exchange offer issued outstanding shares maxwell “offer” followed merger sub maxwell pursuant maxwell survive whollyowned subsidiary tesla “merger” offer maxwell stockholder elects participate offer receive fractional share common stock tesla 0001 par value “tesla common stock” share maxwell common stock par value 010 “maxwell common stock” exchanged offer tesla merger sub commence offer purchase issued outstanding share maxwell common stock fraction share tesla common stock equal quotient obtained dividing 475 volume weighted average closing sale price one 1 share tesla common stock reported nasdaq global select market “nasdaq” five 5 consecutive trading days ending including second trading day immediately preceding expiration offer “tesla trading price” however event tesla trading price equal less 24590 share maxwell common stock shall exchanged 00193 share tesla common stock shares tesla common stock plus cash paid lieu fractional shares tesla common stock referred “offer consideration” effective time merger “effective time” outstanding option purchase maxwell common stock outstanding unexercised unexpired immediately prior effective time “maxwell option” shall automatically assumed tesla converted become option acquire tesla common stock terms conditions applicable maxwell option immediately prior effective time subject adjustment number shares exercise price pursuant maxwell option converted tesla common stock effective time maxwell restricted share unit “maxwell rsu” outstanding immediately prior effective time shall assumed tesla converted automatically become restricted stock unit covering shares tesla common stock terms conditions applicable maxwell rsu immediately prior effective time subject adjustment number shares rsu converted tesla common stock soon practicable following day consummation offer subject satisfaction waiver conditions set forth merger agreement merger sub merged company “merger” company surviving merger indirect whollyowned subsidiary tesla merger governed section 251h delaware general corporation law “dgcl” effected without vote company’s stockholders executive overview maxwell global leader developing manufacturing marketing energy storage power delivery products transportation industrial applications products designed manufactured perform reliably minimal maintenance life applications integrated believe gives products key competitive advantage one commercialized product line energy storage consists primarily ultracapacitors applications multiple industries including transportation grid energy storage addition existing energy storage product line focused developing commercializing dry battery electrode technology leverages core dry electrode process technology used manufacture ultracapacitors many years believe could ground breaking technology lithiumion batteries particularly electric vehicle market primary objective offer innovative products customers diversify business provide increased revenue position company accelerated profitable growth thereby ultimately creating value shareholders key components strategy include 1 commercializing dry battery electrode technology believe unique innovative technology potentially large market opportunity particularly electric vehicles 2 optimizing energy storage product portfolio drive business diversification achieve scale transition higher growth opportunities large growing market dry battery electrode technology focused demonstrating ability core technology satisfy increasing performance demands lithiumion batteries believe dry electrode technology potential significant technology within lithiumion battery industry substantial market opportunity particularly use electric vehicles applying patentprotected proprietary fundamental dry electrode manufacturing technology trade secrets batteries varying chemistries believe create significant performance cost benefits end 2016 entered “proof concept” joint development agreement leading global automotive oem global tier one automotive supplier proofofconcept basis validate dry battery electrode performance pilot scale completed proofofconcept believe demonstrates significant performance cost advantages dry electrode manufacturing process use lithium ionbatteries 2019 plan begin build pilotscale manufacturing facility prove benefits manufacturability technology order achieve strategic objectives fourth quarter 2018 divested high voltage product line december 19 2018 company entered share purchase agreement rn c holding sa special purpose holding entity affiliate renaissance investment foundation “renaissance” providing sale 100 shares swiss subsidiary maxwell technologies sa “maxwell sa” high voltage capacitor product line renaissance transaction simultaneously closed signing share purchase agreement december 19 2018 upfront purchase price approximately 551 million certain reductions transactionrelated expenses resulted net cash proceeds approximately 478 million additionally renaissance agreed make milestone payments 75 million per year based achievement specific revenue targets related high voltage capacitor product line fiscal years 2019 2020 resulting potential aggregate milestone payments approximately 15 million except specifically indicated discussion company operations excludes high voltage product line high voltage product line classified discontinued operations results operations high voltage product line years ended december 31 2018 2017 excluded continuing operating results years ended december 31 2018 2017 high voltage product line represented 20 33 total revenues 49 81 total gross profit respectively reclassification high voltage discontinued operations august 2018 completed public offering 7590000 shares common stock public offering price 325 per share received total net proceeds approximately 230 million offering deducting underwriting discounts commissions offering expenses offering net proceeds used general corporate purposes including research development expenses capital expenditures working capital repayment debt general administrative expenses september october 2017 issued 460 million aggregate principal amount 550 convertible senior notes due 2022 net proceeds 430 million deducting initial purchaser’s discount offering expenses payable us net proceeds offering used general corporate purposes including research development expenses capital expenditures working capital general administrative expenses april 28 2017 acquired core business operating entities nesscap developer manufacturer ultracapacitor products use transportation renewable energy industrial consumer markets exchange issuance approximately 41 million shares maxwell common stock “share consideration” assumption certain liabilities value share consideration approximately 253 million based closing price common stock april 28 2017 nesscap acquisition added complementary businesses operations expanded portfolio products believe adds value customers shareholders february 2017 announced restructuring plan implement wide range organizational efficiencies cost reduction opportunities better align costs near term revenue connection restructuring plan incurred restructuring charges approximately 09 million primarily related employee severances restructuring plan resulted estimated annual cost savings 25 million 30 million following acquisition core business operating entities nesscap september 2017 initiated additional restructuring plan optimize headcount connection acquisition integration nesscap business well implement additional organizational efficiencies total charges september 2017 restructuring plan approximately 11 million primarily related cash expenditures associated employee severances expect realize annual cost savings 07 million 10 million result additional restructuring plan 2018 revenue 905 million compared 877 million 2017 representing overall increase 3 increase revenue primarily related new customers ramp recent design wins including significant newly launched hybrid system nonchina bus market well new product launches grid storage systems increases partially offset decrease wind revenue due competitive pressure china weakened wind sales europe gross margin fiscal year 2018 increased 11 compared 6 2017 increase gross margin associated decrease product costs mainly due higher absorption fixed costs related higher production volumes improved utilization manufacturing facilities product transitions synergies associated acquisition nesscap product mix shifts including favorable impact full year koreanmanufactured product margins 2018 improvements partially offset reductions pricing ultracapacitor products select markets operating expenses 2018 decreased 56 revenue compared 65 revenue prior year primarily attributable several significant expenses incurred 2017 including acquisition transaction costs implementation restructuring plans settlement sec related 2011 2012 restatement december 31 2018 cash equivalents 580 million addition company revolving line credit expiring may 2021 borrowings currently outstanding 2018 order supplement existing cash fund investment plans forecasted negative cash flow operations raised cash via equity offering august 2018 sale high voltage product line december 2018 discussed management believes available cash balance sufficient fund operations obligations become due capital investments least next twelve months going forward intend continue focusing strategic priorities described order achieve strategic objectives need overcome risks challenges facing business significant challenge face ability manage dependence small number vertical markets geographic regions including driven government policies subsidy programs markets may decline experience slower rates growth changes delays government policies subsidy programs specifically chinese wind energy market represents significant proportion historical sales heavily dependent government regulation subsidy programs changes regulations programs could significant impact revenues regional market another significant challenge face ultracapacitors relates pricing expectations competition certain markets auto wind places significant pressure pricing margins products continually pursing opportunities reduce cost product order improve competitive position product margins specifically wind market ultracapacitors china region historically represented significant portion sales become competitive respect pricing requirements accordingly expanded product line address changing demands secure position market additionally recent tariffs trade disputes resulted increased uncertainty related business uncertainty caused decrease delays purchases products may continue customers determine extent impact tariffs business cannot predict actions may ultimately taken respect tariffs trade relations products may affected therefore believe decreases delays temporary significant uncertainty continuing impact tariffs trade disputes revenues gross margins business operations significant risks challenges face include ability achieve profitability ability develop management team product development infrastructure manufacturing capacity optimization facilitate profitable growth competing technologies may capture market share interfere planned growth difficulties executing restructuring activities hiring developing retaining key personnel critical execution strategy attentive risks focusing overcoming risks order achieve key objectives recent highlights merger agreement tesla continue focus introducing new products winning new customers developing new product applications adjusting production capacity reducing costs align nearterm revenue forecasts improving production operational processes efforts described • april 2018 announced technology partnership zhejiang geely holding group geely parent company leading brands volvo geely auto collaboration kicks inclusion ultracapacitorbased peak power subsystem five mildhybrid plugin hybrid vehicles initially available north america europe production ramp vehicles slated begin late 2019 marks significant milestone automotive market history • june 2018 announced launch two new highly scalable products deliver reliable fast responding long lifetime storage grids microgrids new grid cell pack grid energy storage system inject absorb power cycle timeframes designed stabilize voltage frequency firm renewable power output provide bridging ramping services improve generator response products deployed standalone energy storage systems combination energy storage assets improve project business cases including stacked functionality extension battery life lower capital expense operating expense lifetime cost systems designed utilized greenfield storage projects well support existing deployed storage systems • august 2018 completed public offering 7590000 shares common stock public offering price 325 per share received total net proceeds approximately 230 million offering deducting underwriting discounts commissions estimated offering expenses offering net proceeds used general corporate purposes including research development expenses capital expenditures working capital repayment debt general administrative expenses • august 2018 announced switzerlandbased product line delivering high voltage capacitors major oems involved dc grid initiative called zhangbei project first largest 550kv dc meshed grid project world project secure power supply beijing variety renewable sources including wind solar power high voltage capacitors resistors key components dc circuit breakers dc voltage dividers reinforcing dc circuit breaker switching capability dc voltage divider accurate measurements long term stability temperature control outstanding insulation design high voltage capacitors voltage dividers help customers handle variable working conditions high altitude hvdc substations • september 2018 announced grid energy storage subsystem designin siemens deliver economical fast responding long life grid voltage frequency support solutions new siemens static var compensator plus frequency stabilizer svc plus fs enables isos electric utilities transmission system operators better control grids reduce risk blackouts due rapid response time high power levels long lifetime minimal maintenance ultracapacitors selected energy storage asset choice provide grid frequency voltage support svc plus fs built siemens enabled ultracapacitor solution secures energy bridging reserves necessary provide protection emergency grid system imbalances result grid reliability increases operational expenses fossil based short duration mustrun generation well ghg co2 emissions reduced system highly adaptable flexible face evolving grid demands • december 2018 announced signed closed definitive agreement sell high voltage product line renaissance investment foundation renaissance terms agreement sold shares swiss subsidiary maxwell technologies sa condis® line high voltage capacitors 551 million cash 15 million potential future milestone payments renaissance certain reductions transactionrelated expenses received net upfront cash proceeds approximately 478 million • january 2019 announced launch new fullfeatured 30volt 30v product platform introduction next generation ultracapacitors users ability increase energy power form factor 27volt product line significantly costoptimize system designs using fewer ultracapacitor cells modules alternatively users upgrade 30v solution extend expected life products 30v platform designed singlecell applications well multicell complex module systems results operations comparison years ended december 31 2018 2017 following table presents certain statement operations data expressed percentage revenue periods indicated loss continuing operations reported 2018 444 million 108 per share compared loss continuing operations 2017 539 million 152 per share decrease loss 94 million 2018 compared 2017 primarily related following • 47 million increase gross profit associated decrease product costs mainly due higher absorption fixed costs related higher production volumes improved utilization manufacturing facilities product transitions synergies associated acquisition nesscap product mix shifts including favorable impact full year koreanmanufactured product margins 2018 partially offset reductions pricing • 28 million expense recorded 2017 proposed settlement sec related 2011 2012 restatement • 23 million decrease restructuring expense due february 2017 september 2017 restructuring plans • 19 million transaction costs 2017 related nesscap acquisition • 11 million decrease shareholder related expenses including legal advisory costs well settlement shareholder connection issuance convertible senior notes recorded third quarter 2017 • savings operating expenses associated restructuring ongoing cost reduction efforts • offsetting effect related 30 million increase interest expense mostly related convertible senior notes issued september october 2017 revenue gross profit following table presents revenue cost revenue gross profit years ended december 31 2018 2017 thousands except percentages revenue 2018 revenue increased 3 905 million compared 877 million prior year increase revenue primarily related new customers ramp recent design wins including significant newly launched hybrid system nonchina bus market well new product launches grid storage systems increases partially offset decrease wind revenue due competitive pressure china weakened wind sales europe increase revenue composed higher volume 85 million offset lower prices 58 million portion revenue generated korean subsidiary functional currency korean reported revenue materially impacted changes exchange rates subsidiary’s local currency us dollar reporting currency due weakening us dollar korean year ended december 31 2018 compared period one year ago revenue positively impacted 03 million gross profit gross margin 2018 gross profit increased 47 million 89 100 million compared 53 million prior year percentage revenue gross margin increased 11 2018 compared 6 prior year increase gross margin associated decrease product costs mainly due higher absorption fixed costs related higher production volumes improved utilization manufacturing facilities product transitions synergies associated acquisition nesscap product mix shifts including favorable impact full year koreanmanufactured product margins 2018 improvements partially offset reductions pricing ultracapacitor products select markets selling general administrative expense following table presents selling general administrative expense years ended december 31 2018 2017 thousands except percentages selling general administrative expenses 2018 decreased 76 million 20 compared 2017 selling general administrative expenses decreased 34 revenue 43 2017 decreases year ended december 31 2018 included decrease 28 million due settlement 2017 sec related 2011 2012 restatement decrease 19 million related acquisition expenses 2017 decrease 16 million labor headcountrelated costs mainly resulting restructuring cost reduction efforts decrease 11 million related shareholder proxy advisement fees settlement costs 2017 05 million transaction expenses third quarter 2017 recognized upon termination sdic agreement decreases related restructuring ongoing cost reduction efforts research development expense following table presents research development expense years ended december 31 2018 2017 thousands except percentage research development expenses 2018 increased 36 million 22 compared 2017 research development expenses increased 22 revenue 19 2017 increase primarily associated decrease 22 million thirdparty funding costsharing arrangements increase approximately 06 million related acquisition operations nesscap increased automotive market development project activity increases partially offset various decreases related restructuring cost reduction efforts restructuring exit costs september 2017 initiated restructuring plan optimize headcount connection acquisition integration nesscap well implement additional organizational efficiencies total charges september 2017 restructuring plan approximately 11 million primarily incurred third quarter 2017 total net charges year ended december 31 2018 september 2017 restructuring plan 112000 represented restructuring charges 45000 adjusted reversals expense 157000 plan completed third quarter 2018 february 2017 implemented comprehensive restructuring plan included wide range organizational efficiency initiatives cost reduction opportunities total charges restructuring plan approximately 09 million plan completed third quarter 2017 charges related 2017 restructuring plans consist employee severance costs paid cash following table summarizes changes liabilities september 2017 restructuring plan year ended december 31 2018 thousands additionally 2018 recognized additional facilities costs 01 million restructuring charges record changes lease liability sublease income assumption included estimated future rent obligation leased peoria az manufacturing facility provision income taxes effective tax rate differs statutory us federal income tax rate primarily due foreign income taxes valuation allowance domestic deferred tax assets recorded income tax benefit 11 million income tax provision 06 million years ended december 31 2018 2017 respectively income tax benefit 2018 primarily related continuing operations tax benefit recorded connection sale high voltage product line december 2018 partially offset chinese income taxes related specialized services contract income tax provision 2017 primarily related chinese income taxes related specialized services contract december 22 2017 president united states signed law tax cuts jobs act tax legislation significantly changes us tax law among things reducing us federal corporate tax rate 35 21 implementing territorial tax system imposing repatriation tax deemed repatriated earnings foreign subsidiaries december 2017 sec staff issued staff accounting bulletin 118 income tax accounting implications tax cuts jobs act sab 118 allowed us record provisional amounts measurement period extend beyond one year enactment date result previously recorded provisional estimate effect tax act financial statements fourth quarter 2018 completed analysis determine effect tax act recorded immaterial adjustments december 22 2018 tax act created new requirement global intangible lowtaxed income “gilti” earned foreign subsidiaries must included gross us taxable income account period incurred period cost method due tax legislation remeasured us deferred tax assets liabilities based rates expected reverse future generally 21 recorded decrease related deferred tax assets liabilities 347 million corresponding adjustment valuation allowance year ended december 31 2017 deferred tax asset offset full valuation allowance change rates impact financial position results operations also recorded additional us taxable income 84 million year ended december 31 2017 related onetime transition tax result additional tax expense due net operating losses december 31 2018 cumulative valuation allowance recorded offsetting worldwide net deferred tax assets 670 million significant majority represents valuation allowance us net deferred tax assets established valuation allowance us federal state deferred tax assets due uncertainty surrounding realization assets management periodically evaluates recoverability deferred tax assets time determined likely us deferred tax assets realizable valuation allowance reduced accordingly income discontinued operations order achieve strategic objectives fourth quarter 2018 divested high voltage product line high voltage product line classified discontinued operations results operations high voltage product line years ended december 31 2018 2017 excluded continuing operating results years ended december 31 2018 2017 high voltage product line represented 20 33 total revenues 49 81 total gross profit respectively reclassification high voltage discontinued operations 2018 54 million gain sale net income taxes related divestiture high voltage product line included within income discontinued operations following reconciliation purchase price net proceeds received gain recognized income discontinued operations thousands liquidity capital resources changes cash flow following table summarizes cash flows operating investing financing activities past two fiscal years thousands fourth quarter 2018 sold high voltage product line received net cash proceeds approximately 478 million historically high voltage product line contributed significantly cash flows provided operating activities including positive contribution 78 million 2017 therefore compared 2017 prior years expect nearterm divestiture high voltage product line result higher cash used operating activities 2018 uncertainties related us tax reform legislation tariffs significantly reduced revenue high voltage product line cash flow used operating activities product line 28 million 2018 cash used operating activities 508 million related primarily net loss 444 million included noncash charges 200 million decrease accounts payable accrued liabilities 95 million related timing payments large accrual end 2017 settlement sec related 2011 2012 restatement increase inventory 123 million mainly related contract manufacturer transition 2018 included recording significant consigned inventory december 31 2018 per terms contract manufacturer agreement 2017 cash used operating activities 228 million related primarily net loss 539 million included noncash charges 204 million increase accounts receivable 94 million primarily related timing receipts higher volume sales near end 2017 compared end 2016 decreases cash partially offset increase accounts payable accrued liabilities 110 million due acquisition operations nesscap large accrual end 2017 settlement sec related 2011 2012 restatement additionally increases deferred revenue various liabilities partially offset cash used operating activities cash used operating activities 508 million 2018 compared cash used operating activities 228 million 2017 cash flows operating activities impacted working capital changes negative effect cash flow 264 million year ended december 31 2018 cash used investing activities 103 million 2018 compared cash used investing activities 20 million 2017 cash used investing activities 2018 primarily related capital expenditures 103 million associated ultracapacitor new product testing production equipment san diego california expansion nesscap korea facility cash used investing activities 2017 primarily related 34 million capital expenditures related new technology investments corporate research development facility san diego california cash used investing activities 2017 partially offset release holdback proceeds 2016 sale microelectronics product line 15 million cash provided financing activities 230 million 2018 compared 433 million provided financing activities 2017 2018 received net proceeds 230 million completion public offering 7590000 shares common stock august 2018 cash provided financing activities 2017 primarily resulted net proceeds 430 million issuance convertible debt 2017 remaining net cash provided financing activities years primarily related proceeds employee stock purchase plan liquidity december 19 2018 company entered share purchase agreement rn c holding sa special purpose holding entity affiliate renaissance investment foundation “renaissance” providing sale 100 shares company’s swiss subsidiary maxwell technologies sa “maxwell sa” high voltage capacitor product line renaissance transaction simultaneously closed signing share purchase agreement december 19 2018 upfront purchase price approximately 551 million certain reductions transactionrelated expenses resulted net upfront cash proceeds approximately 478 million august 2018 completed public offering 7590000 shares common stock public offering price 325 per share received total net proceeds approximately 230 million offering deducting underwriting discounts commissions estimated offering expenses proceeds offering used general corporate purposes including research development expenses capital expenditures working capital repayment debt general administrative expenses september 25 2017 october 11 2017 issued 400 million 60 million respectively 550 convertible senior notes due 2022 “notes” received net proceeds deducting initial purchaser’s discount offering expenses approximately 430 million notes bear interest rate 550 per year payable semiannually arrears march 15 september 15 year payments commencing march 15 2018 november 2017 filed shelf registration statement allows us sell aggregate 125 million combination common stock warrants debt securities units registration statement may access capital markets threeyear period ending november 15 2020 december 31 2018 247 million securities issued shelf registration statement balance 1003 million remains available future issuance pursuant shelf registration statement december 31 2018 approximately 580 million cash equivalents working capital 861 million addition revolving line credit east west bank “revolving line credit” providing maximum borrowing amount 150 million subject borrowing base limitation borrowings outstanding december 31 2018 december 31 2018 amount available revolving line credit 105 million facility scheduled expire may 2021 management believes available cash balance sufficient fund operations obligations become due capital investments least next twelve months capital expenditures expected range 40 million 60 million 2019 approximately 40 planned capital spending related production infrastructure associated lithium capacitor technology 50 related improving manufacturing processes capacity new existing products 10 related product research development investments support information technology infrastructure facilities improvements december 31 2018 amount cash shortterm investments held foreign subsidiaries 24 million funds needed operations us future may required pay taxes repatriate funds would material debt credit facilities convertible senior notes september october 2017 issued 460 million 550 convertible senior unsecured notes due 2022 “notes” received net proceeds deducting underwriting discounts fees expenses payable company approximately 430 million convertible senior notes bear interest rate 550 per year payable semiannually arrears march 15 september 15 year commencing march 15 2018 convertible senior notes mature september 25 2022 unless earlier purchased company redeemed converted believe sufficient capital resources cash flows operations support scheduled interest payments debt revolving line credit loan security agreement “loan agreement” east west bank “ewb” whereby ewb made available us secured credit facility form revolving line credit february 14 2019 entered amendment loan agreement amend restate revolving line credit “revolving line credit” revolving line credit matures may 8 2021 available maximum lesser 150 million b certain percentage domestic foreign trade receivables december 31 2018 prior february 2019 amendment revolving line credit available maximum lesser 250 million b certain percentage domestic foreign trade receivables plus twelve months ending may 8 2019 lesser 50 million b certain portion company’s cash equivalents december 31 2018 amount available revolving line credit 105 million general amounts borrowed revolving line credit secured lien assets including intellectual property well pledge 65 equity interests korean subsidiary obligations loan agreement also guaranteed directly korean subsidiary event violation representations warranties covenants made loan agreement including certain financial covenants set forth therein may able utilize revolving line credit repayment amounts owed pursuant loan agreement could accelerated december 31 2018 compliance financial covenants required meet term credit agreement including minimum twoquarter rolling ebitda minimum liquidity requirements amounts borrowed revolving line credit bear interest payable monthly interest shall accrue based upon election subject certain limitations either prime rate plus margin libor rate plus margin ranging 0 050 libor rate plus margin ranging 275 325 specific rate determined based upon leverage ratio time required pay annual commitment fee equal 125000 unused commitment fee average daily unused amount revolving line credit payable monthly equal per annum rate range 030 050 determined leverage ratio last day previous fiscal quarter borrowings outstanding revolving line credit december 31 2018 longterm borrowings 2018 connection contract manufacturer transition agreement contract manufacturer included provision met lease definition criteria reference approximately 19 million manufacturing equipment located contract manufacturer’s facility terms equipment agreement yet finalized however anticipate make even quarterly payments 3 years time title equipment transfer us december 31 2018 arrangement recorded capital lease utilized discount rate 50 calculate effective interest borrowing december 31 2018 15 million capital lease liability outstanding arrangement critical accounting estimates consider accounting estimate critical 1 accounting estimate requires us make assumptions matters uncertain time accounting estimate made 2 changes estimate reasonably likely occur period use different estimates reasonably could used current period would material impact financial condition results operations also see note 1 summary significant accounting policies part ii item 8 financial statements supplementary data annual report form 10k discusses significant accounting policies believe following either critical accounting policies require us make significant estimates assumptions preparation consolidated financial statements ii key accounting policies may require us make difficult subjective judgments revenue recognition nature estimates required revenues primarily result sale manufactured products reflect consideration expect entitled record revenue based fivestep model accordance asc 606 customer contracts identify performance obligations determine transaction price allocate contract transaction price performance obligations recognizes revenue control goods services transferred customer assumptions approach used product sales purchase order represents contract customer product sold customer typically represents distinct performance obligation contract’s transaction price allocated distinct performance obligation recognized revenue performance obligation satisfied majority product sales subject exworks defined incoterms 2010 delivery terms revenue recorded point time products picked customers freight forwarder determined point time control transfers customer certain customers shipping terms control transfer product delivered customer’s location transactions revenue recognized time product delivered customer’s location provisions customer volume discounts product returns rebates allowances variable consideration estimated recorded reduction revenue period related product revenue recorded provisions calculated using historical averages adjusted expected changes due current business conditions provide assurancetype warranties product sales terms ranging one eight years accrue estimated warranty costs time sale based historical warranty experience plus known expected changes warranty exposure approximately five percent total revenue derived nonproduct sales contracts customers require specialized services deliverables separately identifiable promises contracts therefore distinct nondistinct obligations accounted single performance obligation performance obligations satisfy time revenue recognized consistently applying method measuring progress toward complete satisfaction performance obligation use input method recognize revenue basis efforts inputs satisfaction performance obligation relative total inputs expected satisfy performance obligation use actual costs incurred relative total estimated costs determine progress towards contract completion excess obsolete inventory nature estimates required estimates principally based assumptions regarding ability sell items inventory due uncertainty potential volatility inherent estimates changes assumptions could materially affect results operations assumptions approach used estimate excess obsolete inventory evaluated quarterly basis based rolling historical inventory usage assumptions regarding future product demand actual levels inventory change specific products become slow moving obsolete estimated reserve may materially change defined benefit plan liability nature estimates required use several significant assumptions within actuarial models utilized measuring pension assets obligations korean defined benefit plan obligations assumptions approach used discount rate certain assumptions estimates impact plan expense asset liability measurement evaluate critical assumptions least annually periodically evaluate actuarial assumptions involving demographic factors used measure korean defined benefit plan obligations retirement age mortality turnover update reflect experience expectations future actual results given year often differ actuarial assumptions economic factors projected korean defined benefit plan obligation december 31 2018 45 million goodwill impairment nature estimates required review goodwill annually reporting unit level time every year event occurs circumstances change reasonably possible impairment may exist established december 31 annual impairment test date first make qualitative assessment whether goodwill impaired likely goodwill impaired perform quantitative impairment analysis determine goodwill impaired may also determine skip qualitative assessment year move directly quantitative test quantitative test determine fair value reporting unit compare fair value reporting unit carrying value goodwill impairment recorded excess reporting units carrying amount fair value exceed total amount goodwill allocated reporting unit assumptions approach used determination fair value requires number significant assumptions judgments including assumptions future economic conditions revenue growth operating margins discount rates 2018 2017 performed qualitative assessments reporting units included evaluation changes industry market macroeconomic conditions well consideration reporting unit’s financial performance longrange plan significant trends 2018 substantially integrated operations related nesscap acquisition 2017 therefore determined one reporting unit represented combination two reporting units prior year assessment first assessed former reporting separately combined single reporting unit qualitative assessments indicated likely goodwill impaired impairments goodwill reported years ended december 31 2018 2017 business combinations nature estimates required apply provisions asc 805 business combinations accounting acquisitions requires us recognize separately goodwill assets acquired liabilities assumed acquisition date fair values goodwill acquisition date measured excess consideration transferred net acquisition date fair values assets acquired liabilities assumed use best estimates assumptions accurately value assets acquired liabilities assumed acquisition date well contingent consideration applicable estimates inherently uncertain subject refinement result measurement period may one year acquisition date may record adjustments assets acquired liabilities assumed corresponding offset goodwill upon conclusion measurement period final determination values assets acquired liabilities assumed whichever comes first subsequent adjustments required recorded consolidated statements operations assumptions approach used accounting business combinations requires management make significant estimates assumptions especially acquisition date including estimates intangible assets contractual obligations assumed preacquisition contingencies contingent consideration applicable although believe assumptions estimates made past reasonable appropriate based part historical experience information obtained management acquired company inherently uncertain examples critical estimates valuing certain intangible assets acquired include limited future expected cash flows assumed contracts future expected cash flow estimates include estimated cash flow amounts time periods cash flows expected received estimated retention renewal rates existing customer contracts assumed part acquisition estimated costs sell market deliver support assumed contracts among estimates future expected cash flows acquired developed technology including estimated amounts received developed technology time period cash flows expected received among estimates discount rates unanticipated events circumstances may occur may affect accuracy validity assumptions estimates actual results convertible debt nature estimates required account convertible debt instruments may settled cash upon conversion separating liability equity components instruments manner reflects nonconvertible debt borrowing rate assumptions approach used september october 2017 issued 460 million aggregate principal amount 550 convertible senior notes due 2022 fair value liability component estimated discounting future interest principal payments income approach due notes discount rate 1200 interest rate equal estimated borrowing rate similar nonconvertible debt determined nonconvertible debt borrowing rate using level 3 inputs including utilization credit assumptions high yield bond indices determining fair value debt component requires use accounting estimates assumptions estimates assumptions judgmental nature could significant impact determination debt component associated noncash interest expense difference face value notes fair value debt component results us recording debt discount amortizing debt discount life notes additional noncash interest expense utilizing effective interest method stockbased compensation nature estimates required stockbased compensation awards include stock options restricted stock restricted stock units shares issued employee stock purchase plan “espp” record compensation expense stockbased compensation awards accordance criteria set forth stock compensation subtopic financial accounting standards board “fasb” accounting standards codification “asc” guidance fair value employee stock option estimated date grant using option pricing model meets certain requirements use blackscholes option pricing model estimate fair value stock option grants determination fair value stock options utilizing blackscholes model affected stock price number assumptions including expected volatility expected life riskfree interest rate expected dividends fair value restricted stock awards “rsas” restricted stock unit awards “rsus” based closing market price common stock date grant compensation expense equal fair value rsa rsu recognized ratably requisite service period rsus vesting contingent achievement company performance conditions use requisite service period likely occur requisite service period estimated based performance period well timebased employee service requirements unlikely performance condition achieved compensation expense recognized unless later determined achievement performance condition likely expense may adjusted changes expected outcomes related performance conditions impact changes recognized cumulative adjustment consolidated statement operations period expectation changes issue marketcondition rsus certain members executive management since vesting marketcondition rsus dependent stock price performance fair value awards estimated using montecarlo valuation model determination fair value marketcondition rsus utilizing montecarlo valuation model affected stock price number assumptions including expected volatility expected life riskfree interest rate expected dividends stockbased compensation expense recognized consolidated statement operations based equity awards ultimately expected vest estimate forfeitures time grant based historical experience expectation future forfeitures revise necessary subsequent periods cumulative catch adjustment actual forfeitures differ estimates assumptions approach used determining value stock option marketcondition rsu grants estimate expected dividend yield zero never paid cash dividends present intention pay cash dividends expected term calculation based actual life historical stock option grants expected volatility based historical stock prices using mathematical formula measure standard deviation change natural logarithm underlying stock price period time commensurate expected term riskfree interest rate derived zero coupon rate us treasury instruments term commensurate awards expected term rsus vesting contingent achievement company performance conditions amount compensation expense estimated based expected achievement performance condition requires us make estimates likelihood achievement company performance conditions highly judgmental base judgments expected achievement company performance conditions based financial projections company used management business purposes represent best estimate expected company performance unlikely performance condition achieved compensation expense recognized unless later determined achievement performance condition likely requisite service period estimated based performance period well timebased employee service requirements evaluate assumptions used value stockbased awards quarterly basis factors change employ different assumptions stockbased compensation expense may differ significantly recorded past modifications cancellations stockbased awards may required accelerate increase decrease remaining unrecognized stockbased compensation expense compensation expense may significantly impacted future extent estimates differ actual results income taxes nature estimates required record income tax valuation allowance realization certain deferred tax assets including net operating losses likely december 22 2017 president united states signed law tax cuts jobs act legislation significantly changes us tax law among things reducing us federal corporate tax rate 35 21 implementing territorial tax system imposing repatriation tax deemed repatriated earnings foreign subsidiaries december 2017 sec staff issued staff accounting bulletin 118 income tax accounting implications tax cuts jobs act sab 118 allowed us record provisional amounts measurement period extend beyond one year enactment date result previously recorded provisional estimate effect tax act financial statements fourth quarter 2018 completed analysis determine effect tax act recorded immaterial adjustments december 22 2018 tax act created new requirement global intangible lowtaxed income “gilti” earned foreign subsidiaries must included gross us taxable income account period incurred period cost method assumptions approach used deferred income taxes arise temporary differences tax financial statement recognition revenue expense evaluating ability recover deferred tax assets within jurisdiction arise consider available positive negative evidence including scheduled reversals deferred tax liabilities projected future taxable income taxplanning strategies results recent operations significant judgments estimates required evaluation determine able realize portion deferred tax assets future record adjustment increase recorded value corresponding adjustment increase income additional paid capital appropriate period due recent tax legislation year ended december 31 2017 remeasured us deferred tax assets liabilities based rates expected reverse future generally 21 recorded decrease related deferred tax assets liabilities 347 million corresponding adjustment valuation allowance year ended december 31 2017 deferred tax asset offset full valuation allowance change rates impact financial position results operations onetime transition tax based total post1986 earnings profits “ep” previously deferred us income taxes determine amount transition tax determined addition factors amount post1986 ep relevant subsidiaries 2017 recorded additional us taxable income 84 million result additional tax expense due net operating losses commitments contingencies nature estimates required involved litigation regulatory proceedings claims prosecute defend matters aggressively however many uncertainties associated litigation assurance actions thirdparty claims us resolved without costly litigation andor substantial settlement charges assumptions approach used disclose information concerning contingent liabilities respect claims proceedings unfavorable outcome remote recognize liabilities claims proceedings appropriate based upon probability loss ability estimate losses fairly present conjunction disclosures matters consolidated financial statements management’s view exposure review outstanding claims proceedings external counsel appropriate assess probability estimates loss recognize liability related claims proceedings time unfavorable outcome becomes probable amount reasonably estimated reasonable estimate range recognized liability best estimate within range amount range better estimate amount minimum amount range recognized reevaluate assessments quarter new significant information becomes available determine whether liability recognized existing liability adjusted actual cost ultimately resolving claim proceeding may substantially different amount recognized liability addition permissible recognize liability loss probable estimable cases may insufficient time recognize liability prior actual incurrence loss upon verdict judgment trial example case quickly negotiated settlement impact inflation believe inflation material impact results operations fiscal years two year period ended december 31 2018 however assurance future inflation would adverse impact operating results financial condition recent accounting pronouncements may 2014 financial accounting standards board “fasb” issued accounting standards update “asu” 201409 revenue contracts customers asu 201409 related amendments provide companies single model accounting revenue arising contracts customers supersedes prior revenue recognition guidance including industryspecific revenue guidance core principle model recognize revenue control goods services transfers customer opposed recognizing revenue risks rewards transfer customer existing revenue guidance permits companies either apply requirements retrospectively prior periods presented apply requirements year adoption cumulative adjustment adopted new accounting standard using modified retrospective transition method effective january 1 2018 recorded 03 million impact “accumulated deficit” consolidated balance sheet february 2016 fasb issued asu 201602 leases standard requires lessee recognize assets liabilities arise operating leases lessee recognize balance sheet liability make lease payments lease liability rightofuse asset representing right use underlying asset lease term leases term 12 months less lessee permitted make accounting policy election class underlying asset recognize lease assets lease liabilities transition lessees lessors originally required recognize measure leases beginning earliest period presented using modified retrospective approach july 2018 fasb issued asu 201811 targeted improvements update still requires modified retrospective transition however adds option initially apply new standard adoption date recognize cumulativeeffect adjustment current period instead beginning earliest period presented guidance asu 201602 effective annual interim reporting periods beginning december 15 2018 process finalizing evaluation current leases quantifying impact balance sheet expect adoption standard material impact consolidated balance sheet recognition certain operating leases rightofuse assets lease liabilities expect adoption standard material impact consolidated statements operations adopt new accounting standard using modified retrospective transition option effective january 1 2019 march 2017 fasb issued asu 201707 improving presentation net periodic pension cost net periodic postretirement benefit cost changes employers sponsor defined benefit pension postretirement benefit plans present net periodic benefit cost statement operations new guidance requires entities report service cost component line item items compensation costs components net benefit cost required presented statement operations separately service cost component outside subtotal loss operations asu 201707 also provides service cost component eligible capitalization standard impact loss operations material impact net loss net loss per share standard effective us first quarter 2018 adoption applied retrospective basis adopted asu 201707 january 1 2018 adoption applied retrospective basis used practical expedient permits us use amounts previously disclosed defined benefit plans note prior comparative periods basis applying retrospective presentation requirements connection adoption year ended december 31 2017 reclassified 39000 8000 excluding discontinued operations net nonservice costs income cost revenue selling general administrative expense research development expense respectively “other components defined benefit plans net” february 2018 fasb issued asu 201802 income statementreporting comprehensive income amends previous guidance allow certain tax effects “stranded” accumulated comprehensive income impacted tax cuts jobs act reclassified accumulated comprehensive income retained earnings amendment pertains items impacted new tax law apply future tax effects stranded accumulated comprehensive income standard effective us first quarter 2019 early adoption permitted expect asu material impact consolidated financial statements march 2018 fasb issued asu 201805 income taxes amendments sec paragraphs pursuant sec staff accounting bulletin 118 amendments update add various sec paragraphs pursuant issuance sec staff accounting bulletin 118 income tax accounting implications tax cuts jobs act “sab 118” sab 118 directs taxpayers consider implications tax cuts jobs act provisional necessary information available prepared analyzed reasonable detail complete accounting change tax law recognized provisional tax impacts tax cuts jobs act fourth quarter 2017 therefore subsequent adoption asu 201805 first quarter 2018 impact accounting income taxes fourth quarter 2018 accounting change tax law considered complete longer provisional june 2018 fasb issued asu 201807 improvements nonemployee sharebased payment accounting simplifies accounting nonemployee sharebased payments aligning accounting requirements employee sharebased compensation standard effective us first quarter 2019 early adoption permitted expect asu material impact consolidated financial statements august 2018 fasb issued asu 201813 changes disclosure requirements fair value measurement asu eliminates adds modifies certain disclosure requirements fair value measurements part disclosure framework project standard effective entities financial statements issued fiscal years beginning december 15 2019 interim periods within fiscal years early adoption permitted adoption guidance expected material impact financial statements august 2018 fasb issued asu 201814 compensation retirement benefits defined benefit plans general asu modifies disclosure requirements defined benefit postretirement plans asu eliminates certain disclosures associated accumulated comprehensive income plan assets related parties effects interest rate basis point changes assumed health care costs disclosures added address significant gains losses related changes benefit obligations asu also clarifies disclosure requirements projected benefit accumulated benefit obligations amendments asu effective fiscal years ending december 15 2020 interim periods therein early adoption permitted adoption retrospective basis periods presented required currently evaluating impact adoption financial statement disclosures balance sheet arrangements none item 7aitem 7 managements discussion analysis financial condition results operations see index included item 14 exhibits financial statement schedules reports form 8k item 8item 7 management’s discussion analysis financial condition results operations following discussion financial condition results operations years ended december 31 2009 2008 2007 read conjunction consolidated financial statements related notes included item 8 financial statements supplementary data annual report form 10k addition discussion historical information contain forwardlooking statements subject risks uncertainties including estimates based judgment estimates include limited assessing collectability accounts receivable applied unapplied production costs production capacities usage recoverability inventories longlived assets deferred income taxes incurrence losses warranty costs stock compensation expense impairment goodwill intangible assets estimations cost complete certain projects research development projects estimation probability performance criteria restricted stock awards met fair value warrants embedded conversion options related convertible debentures estimation liquidity fiscal year 2010 may significantly different actual results negative changes revenues affect estimation cost sales research development selling general administrative aspects business management’s discussion analysis financial condition results operations mda designed provide reader financial statements narrative perspective management financial condition results operations liquidity certain factors may affect future results mda presented following sections • overview • 2009 highlights • results operations • liquidity capital resources • contractual obligations • critical accounting estimates • pending accounting pronouncements • balance sheet arrangements • outlook overview maxwell technologies inc delaware corporation headquartered san diego california originally incorporated 1965 name maxwell laboratories inc 1996 changed name maxwell technologies inc develop manufacture market energy storage power delivery products transportation industrial telecommunications applications microelectronic products space satellite applications maxwell two manufacturing locations san diego california rossens switzerland addition contract manufacturer longgang district shenzhen china maxwell operates one operating segment called high reliability comprised three product lines • ultracapacitors primary focus ultracapacitors energy storage devices possess unique combination high power density long operational life ability charge discharge rapidly boostcap® ultracapacitor cells multicell modules provide highly reliable energy storage power delivery solutions applications multiple industries including transportation automotive telecommunications energy consumer industrial electronics • highvoltage capacitors condis® highvoltage capacitors extremely robust devices designed manufactured perform reliably decades climates products include grading coupling capacitors capacitive voltage dividers used ensure safety reliability electric utility infrastructure applications involving transport distribution measurement highvoltage electrical energy • radiationmitigated microelectronic products radiationmitigated microelectronic products include highperformance highdensity power modules memory modules single board computers incorporate proprietary radpak® packaging shielding technology novel architectures enable withstand effects environmental radiation perform reliably space goal meet exceed life application product service needs customers continuous improvements effectiveness business processes aim design manufacture products perform reliably life products systems integrated seek achieve high reliability application proprietary technologies rigorously controlled design development manufacturing test processes high reliability strategy emphasizes development marketing products could enable us achieve higher profit margins commodity electronic components systems 2009 highlights 2009 reported revenue 1013 million compared 804 million 2008 2009 reported net loss 229 million 094 per diluted share including 93 million 038 per diluted share accrual potential settlement us foreign corrupt practices act “fcpa” violations versus net loss 148 million 071 per diluted share fiscal 2008 fiscal 2009 continued focus developing strategic alliances introducing new products increasing production capacity meet anticipated future demand reducing product costs funding capital improvements augmenting executive management improving production processes efforts described • december reached significant milestone delivery onemillionth large cell boostcap® ultracapacitor • december began increasing production capacity small cell boostcap® ultracapacitors satisfy demand several leading producers high performance solidstate drives ssd using ultracapacitors supply integrated backup power enterprise storage products • october announced availability pc10 ultracapacitor proprietary electrode enhancing reliability backup power enterprise storage powering smart utility meters benefiting variety industrial applications • september announced continental ag one world’s leading automotive electronics mechatronics suppliers selected maxwell’s boostcap® ultracapacitors energy storage element voltage stabilization system developed automobiles • august announced promotion george kreigler iii new position chief operating officer overall responsibility operations us europe asia • july announced appointment sacha jenny vice president general manager swiss subsidiary maxwell technologies sa • july entered global catalog distribution agreement mouser electronics inc known rapid introduction newest products • may raised money sale two million shares common stock public offering underwritten roth capital partners june underwriter exercised option purchase additional 300000 shares total sold 23 million shares total 186 million net expenses • april received purchase orders total value approximately 135 million three china’s leading transit bus producers boostcap® ultracapacitor modules support braking energy recuperation torque assist functions dieselelectric hybrid transit buses • march announced appointment kevin royal senior vice president chief financial officer treasurer secretary mr royal began employment maxwell april 20 2009 • january announced vanner inc manufacturer electrical power conversion products selected boostcap® ultracapacitor modules provide burst power retrofit diesel engine starter system installed chicago transit buses results operations following table presents certain statement operations data expressed percentage revenue periods indicated year ended december 31 2009 compared year ended december 31 2008 2009 loss operations 141 million included accrual potential settlement us fcpa violations 93 million excluding 93 million loss operations improved 86 million 64 compared period one year ago various items influenced improvement operations primary influences include increase gross profit decreases sga rd percentage revenue specifics areas discussed 2009 net loss increased 81 million 55 compared period one year ago net loss reported fiscal 2009 229 million 094 per share net loss 148 million 071 per share period one year ago increase net loss impacted accrual 93 million potential settlement us fcpa violations 65 million higher losses embedded derivatives warrants year ended december 31 2009 compared period one year ago revenue gross profit following table presents revenue cost sales gross profit years ended december 31 2009 2008 thousands except percentage revenue fiscal 2009 increased 26 1013 million compared 804 million period one year ago product revenue increased 29 229 million license fee service revenue decreased 100 20 million increase total revenue influenced primarily higher volume ultracapacitor microelectronic product lines increases ultracapacitor volumes driven primarily continuing strong demand ultracapacitorbased energy storage systems wind turbines hybrid busses increase volume microelectronic revenue driven timing certain satellite projects management expect higher level volume continue substantial amount revenue generated swiss subsidiary reported revenue materially impacted fluctuation swiss franc us dollar reporting currency however impact comparing revenue 2009 compared 2008 less half one percent weightedaverage foreign exchange rate us dollar swiss franc 092113 per swiss franc year ended december 31 2009 compared 092561 per swiss franc period one year ago following table presents revenue mix product line years ended december 31 2009 2008 gross profit 2009 increased 102 million 41 353 million compared 2008 percentage revenue gross profit increased 35 2009 compared 31 2008 higher gross profit resulted increase volume sales 65 million increase 37 million due net reduction product costs cost reductions driven primarily advancements manufacturing process product design using greater mix ocean freight rather air freight outsourcing assembly products chinese manufacturers product design advancements allowed us improve performance large cell ultracapacitor product line maintaining form function well reducing cost product selling general administrative sga expense following table presents selling general administrative sga expense years ended december 31 2009 2008 thousands except percentage sga expenses 33 revenue 2009 compared 29 2008 total expense increased 98 million 42 comparing 2009 2008 several material items occurred 2009 2008 considered fourth quarter 2009 accrued 93 million potential settlement fcpa violations 2009 incurred approximately 700000 legal professional services related international investigation fcpa violations approximately 500000 paid executive severance 2009 addition new items labor expense increased approximately 12 million 2009 compared 2008 increase driven primarily increases selling marketing personnel consistent increase revenues increases 2009 sga expense compared 2008 partially offset greater foreign currency transaction gains 15 million decrease 400000 travel expenses research development rd expense following table presents research development rd expense years ended december 31 2009 2008 thousands except percentage rd expense 160 million 2009 compared 148 million 2008 increase approximately 11 million 7 however percentage revenues rd expense 16 2009 compared 19 2008 increase absolute dollars 11 million driven primarily increases labor costs due focus product development well improvements manufacturing processes provision benefit income taxes recorded income tax provision 25 million year ended december 31 2009 compared income tax benefit 226000 period 2008 provision related swiss operations 2009 tax provision included onetime noncash tax provision 17 million associated transfer certain intellectual property switzerland us order maximize utilization us federal state net operating loss carryforwards unremitted earnings foreign subsidiaries included consolidated financial statements without giving effect united states taxes may payable anticipated earnings remitted united states year ended december 31 2008 compared year ended december 31 2007 revenue gross profit following table presents revenue cost sales gross profit years ended december 31 2008 2007 thousands except percentage revenue fiscal 2008 increased 42 804 million compared 567 million fiscal 2007 product revenue increased 45 242 million license fee service revenue decreased 20 505000 based yearly weightedaverage foreign exchange rate swiss franc us dollar value swiss franc increased 11 09255 per swiss franc year ended december 31 2008 08353 per swiss franc year ended december 31 2007 revenues reported year ended december 31 2008 increased 55 million due increase us dollar swiss franc exchange rate revenue mix product line years ended december 31 2008 2007 gross profit 2008 increased 114 million 83 251 million compared 2007 percentage revenue gross profit increased 31 2008 compared 24 2007 higher gross profit resulted increase volume sales 57 million increase 57 million due higher average selling prices andor net reduction product costs increase gross profit negatively impacted increases freight expenses 15 million selling general administrative sga expense following table presents selling general administrative sga expense years ended december 31 2008 2007 thousands except percentage selling general administrative sga expenses 29 revenue 2008 compared 31 2007 total expense increased 54 million 30 increase absolute dollars driven increases 19 million personnel costs 16 million greater foreign exchange transaction losses 2008 compared 2007 893000 foreign currency transaction losses due increase exchange rates 421000 travel expenses increase personnel costs due increase headcount reflects increase sales research development rd expense following table presents research development rd expense years ended december 31 2008 2007 thousands except percentage research development rd expenses 148 million 2008 compared 113 million 2007 increase 35 million 32 however percentage revenues rd expense 19 2008 compared 20 2007 increase 35 million primarily driven increases 14 million personnel costs 830000 travel expenses 816000 design development costs 298000 related increase exchange rates increase personnel costs related increase headcount reflects increase revenue well decrease work previously outsourced rd spending continues represent significant percentage revenue focused mainly boostcap® product development microelectronics single board computer product development provision benefit income taxes recorded income tax benefit 226000 2008 compared income tax provision 65000 2007 provision swiss us operations unremitted earnings foreign subsidiaries included consolidated financial statements without giving effect united states taxes may payable distribution united states anticipated earnings remitted united states remitted additional united states taxes paid would material commitments contingencies result international operations subject fcpa prohibits companies making improper payments foreign officials purpose obtaining keeping business result internal review currently conducting inquiry nature certain payments made former independent sales agent china respect sales high voltage capacitor products produced swiss subsidiary payments equaled difference quoted price certain products amount independent sales agent able sell products certain customers china payments previously recorded commissions however portion payments may actually rebated directly indirectly customers recorded commissions agent 585000 18 million 653000 years ended december 31 2009 2008 2007 respectively commissions based sales 31 million 82 million 34 million years ended december 31 2009 2008 2007 respectively amounts recorded reduction revenue periods presented 2008 amounts recorded commission expense included selling general administrative expense condensed consolidated statement operations independent sales agent also worked independent sales agent metar see note 13 notes consolidated financial statements included part ii item 8 report terminated relationship independent sales agent may 20 2009 process evaluating payments treated fcpa purposes could harm business internal review focused thorough examination international operations business practices well review compliance programs taken certain remedial actions including terminating relationship independent sales agent china well terminating relationship metar could harm business yet completed internal review progress voluntarily sharing information related internal review securities exchange commission “sec” department justice “doj” provided certain documents requested sec connection review matter event internal review governmental investigation identifies violations law doj sec governmental authorities could seek civil andor criminal sanctions including monetary fines penalties company andor employees well additional changes business practices compliance programs could material adverse effect business results operations financial condition fourth quarter 2009 connection internal review matters described recorded accrual 93 million potential settlement sec doj amount recorded based estimation loss required us generally accepted accounting principles “gaap” discussions government agencies discussions resulted estimate potential settlement range 93 million 200 million top end range 200 million represents combined first offer settlement recently put forth relevant governmental agencies discussions sec doj ongoing effort resolve matters whether agreement reached terms uncertain amount disgorgements penalties andor fines could face depends number eventual factors currently known us yet resolved relevant government authorities including findings relevant authorities regarding amount nature scope improper payments amount pecuniary gain involved ability pay level cooperation provided government authorities investigations assurance settlement reached final settlement amount less accrual 93 million actual payments government agencies connection settlement could material adverse effect business results operations financial condition events assess company’s goodwill intangible assets annually economic conditions warrant assessment determined impairment also assess impairment longterm assets accordingly goodwill asset impairments recognized years ended december 31 2009 2008 2007 amortization patents 353000 364000 224000 years ended december 31 2009 2008 2007 respectively net interest expense years ended december 31 2009 2008 2007 254000 481000 11 million respectively decrease interest expense driven primarily decrease outstanding principal convertible debt well decrease interest rate convertible debt equal federal funds rate plus 1125 per annum result registration rights shares would acquired upon debt conversion warrant exercises fair value embedded conversion features warrants recorded liabilities initial fair value 92 million december 20 2005 treated discount 25 million debenture addition 13 million costs related issuance convertible debt also amortized remaining current life note term debenture may adjusted based holder’s election extend payment terms quarterly payment deferred 24 month period final payment debt extended december 2011 holder elected delay payments due june september december 2009 june september december 2011 respectively amortization debt discount deferred costs totaled 737000 24 million 36 million years ended december 31 2009 2008 2007 respectively fair value calculation december 31 2009 2008 impacted change maxwell’s stock price increase time holder exercise rights fair value embedded conversion features warrants recalculated reporting period difference value prior period reflected statement operations future impact fair value recalculations difficult predict given historical volatility maxwell’s stock price however noncash item impact cash flow liquidity capital resources changes cash flow following table summarizes cash flows operating investing financing activities past three fiscal years thousands net cash used operating activities 10 million year ended december 31 2009 compared 70 million 2008 146 million 2007 improvement operating cash flows 2009 compared prior year due primarily net working capital inflows 83 million increase netnon cash charges 58 million partially offset increase net loss 81 million net working capital inflows driven increases accounts payable accrued liabilities deferred income taxes well decrease inventory accounts payable accrued liabilities increased due 93 million accrual potential settlement fcpa violations inventory decreased due timing shipments end 2009 working capital inflows offset increase accounts receivable increase due greater sales volume well timing customer billings end 2009 compared end 2008 net cash used investing activities 50 million year ended december 31 2009 compared 381000 provided investing activities year ended december 31 2008 91 million used investing activities year ended december 31 2007 cash used investing activities 2009 due capital expenditures 2009 capital expenditures focused advancements manufacturing processes increasing production capacity test equipment rd net cash provided financing activities 227 million year ended december 31 2009 compared 41 million 2008 297 million 2007 change 2009 due primarily increases cash proceeds issuance common stock partially offset greater principal payments longterm shortterm borrowings cash proceeds issuance common stock year ended december 31 2009 driven primarily underwritten public offering sold 23 million shares common stock increase principal payments longterm shortterm borrowings driven primarily cash payments convertible debenture paid common stock 2008 liquidity december 31 2009 approximately 296 million cash equivalents additional 80 million restricted cash total 376 million cash restriction released convertible debenture repaid working capital increased 321 million december 31 2009 176 million december 31 2008 november 2006 filed s3 securities exchange commission time sell aggregate 125 million company’s common stock warrants debt securities “shelf registration statement” 2007 company received 266 million cash sale 27 million shares common stock august 2008 entered equity distribution agreement “eda“ ubs securities llc “ubs” time sell 15 million common stock received 56 million cash sale 687000 shares common stock since entering eda suspended april 2009 may 2009 raised 186 million cash sale 23 million shares common stock public offering underwritten roth capital partners january 2010 shelf registration statement longer effective discussed company accrued 93 million potential settlement fcpa violations principal payments convertible debenture 83 million due throughout 2011 final payment due december 31 2011 additionally 80 million restricted cash released debenture repaid management believes cash operating activities combined available cash balances sufficient maxwell fund working capital requirements settlement fcpa violations debenture payments obligations become due capital equipment additions product development expenditures next several years debentures shortterm long term borrowings convertible debentures december 20 2005 company issued 25 million aggregate principal amount senior subordinated convertible debentures “debentures” along warrants purchase shares maxwell common stock net proceeds issuance totaled approximately 237 million direct placement costs approximately 13 million debenture payable quarterly installments 28 million march 2008 december 2009 holder option delay installment 24 months holder elected delay quarterly payments due june september december 2009 june september december 2011 respectively warrants initially issued purchase 395000 shares maxwell common stock debentures convertible 13 million shares maxwell’s common stock time option holder strike price 1900 per share number warrants conversion shares strike price subject adjustment upon certain events sale equity securities maxwell price strike price 1900 per share december 31 2009 warrants exercise price 1622 per share interest due quarterly interest rate tied federal funds rate plus 1125 per annum portion accrued unpaid interest may paid shares maxwell’s common stock company’s option fiscal year ended december 31 2009 made principal payments 28 million cash holder converted 28 million principal 171000 shares common stock 2009 made interest payments 92000 18000 shares common stock well 122000 cash eighteen months issue date maxwell may require specified amount principal debentures converted certain conditions satisfied period 20 consecutive trading days none conditions occurred since issuance debentures change fair value revaluation debenture conversion rights warrant liabilities represents difference fair value warrants debenture conversion two measurement dates using blackscholes calculation effect fair market value adjustment recorded “gain loss embedded derivative liabilities” net fair value holder’s maxwell’s conversion rights december 31 2009 2008 liabilities 30 million 357000 respectively amounts included “convertible debenture longterm debt” balance sheet warrants issued connection issuance debentures fair value december 31 2009 2008 25 million 318000 respectively included “stock warrants” balance sheet warrants exercisable time december 20 2010 warrants exercised december 31 2009 long debentures outstanding required maintain cash balance 80 million classified restricted cash december 31 2009 2008 december 31 2008 restricted cash classified current asset however since holder debenture elected delay payments due 2009 2011 restricted cash classified noncurrent asset december 31 2009 shortterm borrowings maxwell’s european subsidiary maxwell technologies sa 20 million swiss francs approximately 19 million december 31 2009 bank credit agreement swiss bank renews annually borrowings credit agreement bear interest 39 repayment terms extending beyond one month date funding borrowings credit agreement unsecured december 31 2009 2008 full amount available credit line drawn maxwell technologies sa 10 million swiss francs approximately 966000 december 31 2009 overdraft credit agreement swiss bank renews quarterly borrowings credit agreement bear interest 205 borrowings credit agreement unsecured december 31 2009 full amount overdraft credit line drawn maxwell technologies sa 20 million swiss francs approximately 19 million december 31 2009 shortterm loan swiss bank renews quarterly borrowings shortterm loan agreement bear interest 205 borrowings shortterm loan agreement unsecured december 31 2009 2008 full amount credit line drawn longterm borrowings maxwell technologies sa lending agreement acquisition manufacturing equipment 15 million swiss francs acquisition equipment completed agreement converted 48 monthly payments 34302 swiss francs interest rate 222 december 31 2009 2008 balance obligation 543000 863000 respectively final payment due 2011 various financing agreements vehicles switzerland agreements five year repayment period interest rates 49 70 december 31 2009 2008 84000 112000 respectively outstanding minority equity interests subsidiaries purepulse suspended operations 2002 classified discontinued operations 2006 minority equity investors former employees issued shares purepulse originally incorporated former employees exercised stock options entity december 31 2009 2008 minority investors owned approximately 11 outstanding stock purepulse contractual obligations 1 operating lease obligations represent building leases us switzerland locations 2 purchase commitments primarily represent value noncancelable purchase orders estimate purchase orders cancelled would result significant penalty company 3 debt obligations represent longterm shortterm borrowings current portion longterm debt 138 million interest 373000 4 pension benefit payments represent expected amounts paid pension benefits critical accounting policies estimates consider accounting estimate critical 1 accounting estimate requires us make assumptions matters uncertain time accounting estimate made 2 changes estimate reasonably likely occur period use different estimates reasonably could used current period would material impact financial condition results operations also see note 1 summary significant accounting policies part ii item 8 financial statements supplementary data annual report form 10k discusses significant accounting policies believe following either critical accounting policies require us make significant estimates assumptions preparation consolidated financial statements ii key accounting policies may require us make difficult subjective judgments revenue recognition nature estimates required sales revenue derived sale manufactured products directly customers certain longterm contracts revenue recognized time costs incurred license fees service revenue recognize revenue performance requirements met assumptions approach used product revenue recognized following criteria met 1 persuasive evidence arrangement exists upon contract signing receipt authorized purchase order customer 2 title passes customer either shipment facilities receipt customer facility depending shipping terms 3 price deemed fixed determinable free contingencies significant uncertainties 4 collectability reasonably assured customer purchase orders andor contracts generally used determine existence arrangement shipping documents used verify product delivery assess whether price fixed determinable based upon payment terms associated transaction volume discount offered revenue recognized lowest price customer assess collectability accounts receivable based primarily upon creditworthiness customer determined credit checks analysis well customer’s payment history revenue generated certain longterm fixed price contracts recognized time costs incurred calculated percentage completion basis measured percentage cost incurred date estimated costs contract limited funding prime contractor provisions estimated losses incomplete contracts made period losses determined estimated contract costs based historical experience assumptions regarding future contractual obligations regularly review estimates consider impact recurring business risks uncertainties inherent contracts implementation delays due factors within outside control time entered multipledeliverable contractual arrangements elements software essential functionality delivered elements additionally contracts elements agreement need delivered accepted customer prior revenue recognized agreement recognize revenue delivered elements vendorspecific objective evidence “vsoe” fair value undelivered elements exists entered one contract whereby delivered certain elements vsoe fair value undelivered elements exist changes cost estimates fair values certain deliverables could negatively impact operating results addition unforeseen conditions could arise contract term may significant impact operating results excess obsolete inventory nature estimates required estimates principally based assumptions regarding ability sell items inventory due uncertainty potential volatility estimated factors changes assumptions could materially affect results operations assumptions approach used estimate evaluated quarterly basis based rolling historical inventory usage assumptions regarding future product sales requirements actual levels inventory change specific products become slow moving obsolete resulting outcomes factored estimated reserve value warrants convertible debt conversion features nature estimates required reporting period value holder’s conversion option forced conversion option convertible debenture along associated warrants derivative liabilities calculate value features use blackscholes pricing model along z factor statistical model used calculate probability forced conversion option assumptions approach used blackscholes pricing model requires estimation expected term variables dependent expected term used based weighted average estimated holding period principal payment december 31 2009 estimated payment outstanding due date however certain conditions satisfied period 20 consecutive trading days may require specified amount outstanding principal debenture converted furthermore holder’s election portion outstanding principal may converted shares common stock anytime either scenarios could reduce expected term therefore effect estimated liability additionally changes estimates impact estimate probability forced conversion option conversion based current variance market stock price exercise price would indicate likelihood conversion equity prior final payment holding period estimate also impacts variables expected volatility riskfree interest rate variables could potentially significant impact carrying value debt warrants materially affect results operations december 31 2009 estimated holding period 17 years resulted estimation net fair value liability holders maxwell’s conversion rights liability 30 million effect fair value adjustment 48 million loss year ended december 31 2009 management estimated 1 year holding period fair value liability holder’s maxwell’s conversion rights would reported 23 million effect fair value adjustment would 37 million loss pension nature estimates required assumptions significant inputs actuarial models measure pension benefit obligations fair values real estate assets appraised assumptions approach used discount rate expected return assets important elements plan expense asset liability measurement annually appraise fair value real estate assets evaluate critical assumptions least annually periodically evaluate assumptions involving demographic factors retirement age mortality turnover update reflect experience expectations future actual results given year often differ actuarial assumptions economic factors example december 31 2008 estimated benefit payments approximately 12 million would paid 2009 actual benefits paid 2009 373000 projected benefit obligation december 31 2009 195 million fair value plan assets 272 million warranty nature estimates required estimated warranty reserve established time revenue recognized products typically carry one two year warranty estimates principally based assumptions regarding warranty costs sale cases new product little claims experience may exist due uncertainty potential volatility estimated factors changes assumptions could materially affect results operations assumptions approach used estimate warranty evaluated quarterly basis based prior experience data return rates historical costs although engage extensive product quality programs processes warranty obligation may future affected product failure rates product recalls repair field replacement costs additional development costs incurred correcting product failure actual product failure rates use materials service delivery costs differ estimates additional warranty reserves could required event gross profit gross margins would reduced extent actual experience varies estimates specific data becomes available used modify reserve estimated based historical averages ensure reserves within range likely outcomes stockbased compensation nature estimates required stockbased awards include stock option grants restricted stock employee stock purchase plan restricted unit awards record compensation expense stockbased awards accordance criteria set forth stock compensation subtopic financial accounting standards board accounting standards codification guidance fair value employee stock option estimated date grant using option pricing model meets certain requirements currently use blackscholes option pricing model estimate fair value stock options blackscholes model meets requirements guidance fair values generated model may indicative actual fair values equity awards determination fair value sharebased payment awards utilizing blackscholes model affected stock price number assumptions including expected volatility expected life riskfree interest rate expected dividends assumptions approach used expected dividend yield zero never paid cash dividends present intention pay cash dividends expected volatility based historical stock prices using mathematical formula measure standard deviation change natural logarithm underlying stock price expected period time commensurate option life riskfree interest rate derived zero coupon rate us treasury instruments options expected life expected life calculation based history exercised options previous equitybased share option grants sharebased compensation expense recognized consolidated statement operations based options awards ultimately expected vest guidance requires forfeitures estimated time grant revised necessary subsequent periods actual forfeitures differ estimates cumulative catch adjustment fair value restricted stock restricted stock units based closing market price common stock date grant evaluate assumptions used value stockbased awards quarterly basis factors change employ different assumptions stockbased compensation expense may differ significantly recorded past modifications cancellations underlying unvested securities may required accelerate increase cancel remaining unearned stockbased compensation expense extent grant additional equity securities stockbased compensation expense increase fair value additional grants compensation expense recognized awards expected vest therefore estimate forfeiture rate revise estimates subsequent periods actual forfeitures probability milestone achievement restricted stock differs prior estimates income taxes nature estimates required record income tax valuation allowance realization certain deferred tax assets including net operating losses likely assumptions approach used significant judgment required evaluating federal state foreign tax positions determination tax provision despite belief valuation allowance unrecognized tax benefits adequate often difficult predict final outcome timing resolution particular tax matters may adjust allowance relevant circumstances evolve guidance relevant tax authority tax advisors resolution issues courts adjustments recognized component income tax expense entirely period identified commitments contingencies nature estimates required involved litigation regulatory proceedings claims prosecute defend matters aggressively however many uncertainties associated litigation assurance actions third party claims us resolved without costly litigation andor substantial settlement charges assumptions approach used disclose information concerning contingent liabilities respect claims proceedings unfavorable outcome remote recognize liabilities claims proceedings appropriate based upon probability loss ability estimate losses fairly present conjunction disclosures matters consolidated financial statements management’s view exposure review outstanding claims proceedings external counsel appropriate assess probability estimates loss recognize within selling general administrative expenses liability related claims proceedings time unfavorable outcome becomes probable amount reasonably estimated reasonable estimate range recognized liability best estimate within range amount range better estimate amount minimum amount range recognized reevaluate assessments quarter new significant information becomes available determine whether liability recognized existing liability adjusted actual cost ultimately resolving claim proceeding may substantially different amount recognized liability addition permissible recognize liability loss probable estimable cases may insufficient time recognize liability prior actual incurrence loss upon verdict judgment trial example case quickly negotiated settlement impact inflation believe inflation material impact results operations fiscal years threeyear period ended december 31 2009 however assurance future inflation would adverse impact operating results financial condition recent accounting pronouncements august 2009 financial accounting standards board “fasb” issued accounting standards update “asu” 200905 measuring liabilities fair value provides amendments fair value measurements disclosuresoverall subtopic fasb accounting standards codification “asc” fair value measurement liabilities update provides clarification fair value measurement liabilities quoted market price active market identical liability available amendments update clarify estimating fair value liability reporting entity required include separate input adjustment inputs relating existence restriction prevents transfer liability amendments update also clarify quoted price active market identical liability measurement date quoted price identical liability traded asset active market adjustments quoted price asset required level 1 fair value measurements guidance provided update effective first reporting period including interim periods beginning issuance adoption update material impact company’s financial statements june 2009 fasb issued asu 200901 generally accepted accounting principles approved fasb accounting standards codification “codification” single source authoritative nongovernmental us gaap codification change previous us gaap intended simplify user access authoritative us gaap providing authoritative literature related particular topic one place prior accounting standard documents superseded accounting literature included codification considered nonauthoritative asu 200901 effective interim annual periods ending september 15 2009 implementation update impact company’s consolidated financial statements may 2009 fasb updated adopted subsequent events topic fasb asc establish general standards accounting disclosure events occur balance sheet date financial statements issued available issued topic requires disclosure date entity evaluated subsequent events basis date whether date represents date financial statements issued available issued topic effective first interim period ending june 15 2009 adoption update material impact company’s financial statements april 2009 fasb updated fair value measurements disclosures topic fasb asc provide guidelines making fair value measurements consistent principles presented topic update provides additional authoritative guidance determining whether market active inactive whether transaction distressed applicable assets liabilities ie financial nonfinancial require enhanced disclosures pronouncement effective periods ending june 15 2009 adoption update material impact company’s financial statements april 2009 fasb updated investmentsdebt equity securities topic fasb asc give additional guidance provide greater clarity credit noncredit component otherthantemporary impairment event effectively communicate otherthantemporary impairment event occurred update applies debt securities also modifies requirements recognizing otherthantemporary impaired debt securities revises existing impairment model securities modifying current “intent ability” indicator determining whether debt security otherthantemporarily impaired pronouncement effective periods ending june 15 2009 adoption update material impact company’s financial statements april 2009 fasb updated financial instruments topic fasb asc require disclosures fair value financial instruments interim well annual financial statements update also requires disclosures interim financial statements update disclosurerelated impact financial position results operations december 2008 fasb updated retirement benefits topic fasb asc require detailed disclosures employers’ plan assets defined benefit pension postretirement plan including employers’ investment strategies major categories plan assets concentrations risk within plan assets inputs valuation techniques used measure fair value plan assets update also requires fair value measurements using significant unobservable inputs level 3 disclosure effect measurements changes plan assets period disclosures plan assets required update must provided fiscal years ending december 15 2009 update disclosurerelated impact financial position results operations pending accounting pronouncements january 2010 fasb issued asu 201006 fair value measurements disclosures improve disclosures fair value measurements update requires company disclose separately amounts significant transfers level 1 level 2 fair value measurements describe reasons transfers reconciliation fair value measurements using significant unobservable inputs level 3 company required present separately information purchases sales issuances settlements gross basis rather one net number update provides clarification level disaggregation determining appropriate classes assets liabilities update clarifies disclosures inputs valuation techniques level 2 level 3 fair value measurements new disclosures clarifications existing disclosures effective interim reporting periods beginning december 15 2009 except disclosures purchases sales issuances settlements roll forward activity level 3 fair value measurements disclosures effective fiscal years beginning december 15 2010 interim periods within fiscal years update disclosurerelated impact financial position results operations september 2009 fasb reached consensus asu 200913 multipledeliverable revenue arrangements asu 200914 certain revenue arrangements include software elements asu 200913 modifies requirements must met entity recognize revenue sale delivered item part multipleelement arrangement items yet delivered asu 200913 eliminates requirement undelivered elements must either vendorspecific objective evidence “vsoe” ii thirdparty evidence “tpe” entity recognize portion overall arrangement consideration attributable items already delivered absence vsoe tpe standalone selling price one delivered undelivered elements multipleelement arrangement entities required estimate selling prices elements overall arrangement consideration allocated element delivered undelivered items based relative selling prices regardless whether selling prices evidenced vsoe tpe based entity’s estimated selling price residual method allocating arrangement consideration eliminated asu 200914 modifies software revenue recognition guidance exclude scope tangible products contain software nonsoftware components function together deliver product’s essential functionality new updates effective revenue arrangements entered materially modified fiscal years beginning june 15 2010 early adoption permitted new pronouncement would allow us recognize revenue multipledeliverable arrangements earlier previous years although unable estimate amounts future amounts recognized multipledeliverable revenue arrangements approximately 0 896000 11 million years ended december 31 2009 2008 2007 respectively december 31 2009 2008 recorded approximately 21 million 19 million respectively deferred revenue related multipledeliverable revenue arrangements balance sheet arrangements none outlook continue focus ultracapacitor product line 2010 develop new applications ultracapacitors multiple industries including transportation automotive telecommunications energy consumer industrial electronics increasing production capacity small cell ultracapacitors satisfy demand several leading producers high performance solidstate drives using ultracapacitors supply integrated backup power enterprise storage expect modest growth large cells enhanced sales voltage stabilization idlestopstart functionality micro hybrid automobiles expect revenue continue grow 2010 although moderate pace nearly revenue growth 2010 expected come ultracapacitor products technology advances manufacturing processes design large cell ultracapacitor products well expanding production capacity expected continue improvement manufacturing cost structure expect additional cost savings move production china expect gross profit percentage sales continue increase 2010 moderate pace growth 2009 continue increase revenue expect sga expenses increase addition sales personnel well customer facing application engineers work improving ultracapacitor applications developing new applications also expect rd expenses increase focus product design develop new products ultracapacitor product line although operating expenses expected increase absolute dollars expect operating expenses remain consistent 2009 operating expenses percentage revenue combined increases revenue gross profit improvements expect achieve positive profit operations 2010 capital expenditures expected approximately 85 million 2010 forty percent planned capital spending focused advances manufacturing processes increases production capacity ultracapacitor products increasing production capacity based current product mix highvoltage capacitors makes another twenty percent planned capital spending additional fifteen percent planned capital spending related erp financial planning analysis application improvement initiatives support expected growth ultracapacitor product line remaining capital expenditures support rd microelectronics product line item 7aitem 7 management’s discussion analysis financial condition results operations following discussion financial condition results operations years ended december 31 2015 2014 2013 read conjunction consolidated financial statements related notes included item 8 financial statements supplementary data annual report form 10k addition discussion contains forwardlooking statements subject risks uncertainties including estimates based judgment estimates include limited assessing collectability accounts receivable applied unapplied production costs production capacities usage recoverability inventories longlived assets deferred income taxes pension assets liabilities incurrence warranty obligations stock compensation expense impairment goodwill strategies future revenues operating results cash balances access liquidity probability performance criteria equity awards met accruals estimated losses legal matters discussion regarding forward looking statements see section annual report form 10k entitled special note regarding forwardlooking statements management’s discussion analysis financial condition results operations “mda” designed provide reader financial statements narrative perspective management financial condition results operations liquidity certain factors may affect future results mda presented following sections • executive overview • 2015 highlights • results operations • liquidity capital resources • contractual obligations • critical accounting estimates • impact inflation • recent accounting pronouncements • balance sheet arrangements executive overview maxwell global leader developing manufacturing marketing energy storage power delivery products transportation industrial information technology applications microelectronic products space satellite applications products designed manufactured perform reliably minimal maintenance life applications integrated believe “lifeoftheapplication” reliability gives products competitive advantage enables command higher profit margins commodity products three product lines ultracapacitors applications multiple industries including transportation renewable energy highvoltage capacitors applied mainly electrical utility infrastructure radiationhardened microelectronic products space satellite applications primary objective grow revenue profit margins creating satisfying demand ultracapacitorbased energy storage power delivery solutions focused establishing expanding market opportunities ultracapacitors preferred supplier ultracapacitor products worldwide believe transportation industry represents largest market opportunity ultracapacitors primarily applications related braking energy recuperation torqueaugmentation systems hybridelectric buses trucks autos electric rail vehicles vehicle power network smoothing stabilization engine starting systems internal combustion vehicles burst power stopstart idle elimination systems backup power quality applications including instantly available power uninterruptible power supply systems stabilizing output renewable energy generation systems may also represent significant market opportunities also seek expand market opportunities revenue highvoltage capacitor products market highvoltage capacitors consists mainly expansion upgrading maintenance existing electrical utility infrastructure new infrastructure installations developing countries installations capitalintensive frequently subject regulation availability government funding general economic conditions 2015 management initiated restructuring plan consolidate us manufacturing operations reduce headcount operating expenses order align cost structure current business forecast improve operational efficiency anticipate cost savings 5 million 6 million per year result restructuring activities expect fully realized second quarter 2016 connection restructuring plan expect incur total restructuring charges 26 million 33 million anticipated charges include approximately 12 million 19 million facilities costs related consolidation manufacturing operations 13 million employee severance costs 125000 relocation costs also expect incur 560000 accelerated equipment depreciation expense related restructuring upon completion plan anticipated substantially completed end first quarter 2016 total cash expenditures related restructuring activities expected approximately 14 million year ended december 31 2015 paid 10 million restructuring expenses addition restructuring expenses expect incur approximately 16 million capital expenditures associated restructuring activities 2015 revenues 1674 million compared 1866 million 2014 representing overall decrease 10 decrease primarily attributable lower revenues ultracapacitor products revenue decreased 16 1145 million 2015 1356 million 2014 decrease primarily related decreased sales rail transit wind energy automotive markets 2015 sales hybrid transit vehicle market sales volume increased 2015 changes china government subsidy program market factors caused us lower pricing historical annual price reduction levels revenues highvoltage capacitor products increased 14 million 417 million 2015 compared 404 million 2014 revenues microelectronics products increased 541000 111 million 2015 compared 106 million 2014 overall gross profit margin fiscal year 2015 decreased 30 compared 37 2014 primarily related lower prices ultracapacitor products sold hybrid transit vehicle market result changes china government subsidy program market factors operating expenses increased 41 revenue 2015 38 revenue 2014 primarily due decrease revenues well restructuring expenses incurred 2015 december 31 2015 cash equivalents 244 million management believes available cash balance sufficient fund operations obligations become due capital investments least next twelve months addition revolving line credit available maximum 250 million borrowed amounts facility date future may decide supplement existing cash planned cash flow operations borrowing funds issuing additional debt equity going forward continue focus growing business strengthening market leadership brand recognition penetration existing markets entry new markets development new products primary focus grow ultracapacitor business increasing sales primary applications including automotive transportation renewable energy backup power order achieve growth objectives need overcome risks challenges facing business significant challenge face ability manage dependence small number vertical markets including driven government policies subsidy programs example large portion current ultracapacitor business concentrated chinese hybrid transit bus wind energy markets heavily dependent government regulation subsidy markets may decline experience slower rates growth changes delays government policies subsidy programs mid2013 chinese government subsidy program provided subsidies dieselelectric hybrid buses concluded chinese government put place another subsidy program include subsidies dieselelectric hybrid buses however chinese bus customers began incorporating ultracapacitor products plugin hybrid buses subsidized revised subsidy program end 2015 chinese government subsidy program renewed 2016 reduced reimbursement rate 2016 may see variability revenue result uncertainty regarding new china government subsidy impact sales hybrid transit vehicle market recently beginning experience pricing pressure chinese hybrid transit vehicle market historically represented significant portion sales result changes government subsidy program market factors order remain competitive may required lower prices provide favorable sales terms customers remain focused reducing cost producing ultracapacitors order offset part lower prices may required offer particular market however initially cost reduction efforts expected fully offset impact lower prices although believe longterm prospects automotive wind hybrid transit markets remain positive pursuing growth opportunities products vertical markets including applications backup power quality rail grid heavy vehicle engine starting order diversify market presence augment longterm growth prospects significant risks challenges face include ability achieve profitability ability develop management team product development infrastructure manufacturing capacity facilitate growth competing technologies may capture market share interfere planned growth difficulties executing restructuring plan hiring developing retaining key personnel critical execution strategy attentive risks focus developing new products promoting value proposition products versus competing technologies trying grow revenues profits years come 2015 highlights 2015 continued focus introducing new products winning new customers new product applications increasing production capacity meet anticipated future demand reducing product costs making capital investments facilitate growth improving production processes efforts described • february announced signed agreement purkeys electrical systems solutions provider trucking industry distribution maxwells ultracapacitorbased engine start module esm product line north american heavy duty trucking industry • also february announced freqcon gmbh german developer distributor renewable energy systems deployed energy storage system tallaght smart grid testbed ireland uses maxwell ultracapacitors lithiumion batteries support grid stability residential industrial settings • march announced ultracapacitorbased esm offered factoryinstalled option new kenworth t680 t880 trucks kenworth first original equipment manufacturer offer maxwells esm factoryinstalled option • april introduced 24volt ultracapacitorbased esm industrial equipment new product expands maxwells engine starting solutions line build success 12volt esm deliver benefits diesel engine vehicles used transportation construction military agricultural forestry mining industries • july announced selected exclusive capacitive energy storage supplier china qingdao sifang rolling stock research institute subsidiary one largest rail vehicle manufacturers world strategic partnership agreement examine multiyear collaboration activities two companies jointly develop new applicationspecific nextgeneration capacitive energy storage solutions • august announced peterbilt motors company leading designer manufacturer premium trucks offering maxwells ultracapacitorpowered esm new model 579 567 trucks factoryinstalled option • september announced continental automotive systems maxwellpowered voltage stabilization system standard feature 2016 cadillac ats cts sedans ats coupes excluding atsv ctsv ct6 models general motors first north american automotive original equipment manufacturer integrate continental ultracapacitorbased voltage stabilization part enhanced startstop system lowers fuel costs improves performance reduces emissions delivering overall superior ownerdriver experience • october announced ultracapacitors selected caf power automation global manufacturer railway vehicles equipment standard component energystorage system acr rapid charge accumulator used power lightrail cars among latest projects cafs acr energystorage system used first 100 percent catenaryfree lightrail line currently construction kaohsiung taiwan new tramways existing rail line tallinn estonia energysaving purposes results operations following table presents certain statement operations data expressed percentage revenue periods indicated year ended december 31 2015 compared year ended december 31 2014 net loss reported 2015 223 million 073 per share compared net loss 63 million 021 per diluted share 2014 increase net loss primarily driven decrease revenue 10 2015 1674 million compared 1866 million 2014 decline gross profit percentage revenue 30 2015 37 2014 total operating expenses increased 41 revenue 2015 compared 38 2014 revenue gross profit following table presents revenue cost revenue gross profit years ended december 31 2015 2014 thousands except percentage revenue 2015 decreased 10 1674 million compared 1866 million 2014 decrease revenue influenced primarily lower revenues ultracapacitor product line 1145 million 2015 compared 1356 million prior year decrease primarily related decreased sales rail transit wind energy automotive markets 2015 regard impact changes price volume sales volume hybrid transit vehicle market increased 2015 changes china government subsidy program market factors caused us lower pricing historical annual price reduction levels 2016 may see variability revenue result uncertainty regarding new china government subsidy impact sales hybrid transit vehicle market revenue highvoltage capacitor products totaled 417 million 2015 increase 3 404 million recorded 2014 primarily related sales newly developed products 2015 revenues microelectronic products totaled 111 million 2015 5 106 million recorded 2014 revenue product line vary based timing governmental commercial programs incorporating products substantial amount revenue generated swiss subsidiary functional currency swiss franc reported revenue materially impacted changes exchange rates swiss franc us dollar reporting currency due strengthening us dollar swiss franc 2015 compared 2014 revenue negatively impacted 20 million following table presents revenue mix product line years ended december 31 2015 2014 gross profit decreased 175 million 26 510 million 2015 compared 684 million 2014 decrease gross profit absolute dollars primarily associated lower revenues well lower prices ultracapacitor products sold chinese hybrid transit vehicle market percentage revenue gross profit decreased 30 2015 compared 37 2014 decrease gross profit percentage revenue primarily due reduction pricing ultracapacitor products selling general administrative expense following table presents selling general administrative expense years ended december 31 2015 2014 thousands except percentage selling general administrative expenses 24 revenue 2015 consistent 24 2014 total expenses decreased 23 million 5 2015 compared 2014 decrease absolute dollars included 10 million decrease overall labor costs associated reduced headcount result restructuring efforts elimination management bonus program 2015 addition 11 million reduction recruiting costs 711000 decrease travel costs 698000 decrease consulting costs 538000 decrease information technology facilities costs well expense savings primarily related restructuring cost reduction efforts also third quarter 2015 received 475000 refund valueaddedtaxes related operations china decreases partially offset increase legal fees 26 million incurred 2015 due ongoing sec fcpa investigations despite decline absolute dollars selling general administrative expenses 24 revenue 2015 consistent 24 2014 result lower revenue 2015 research development expense following table presents research development expense years ended december 31 2015 2014 thousands except percentage research development expenses 15 revenue 2015 14 2014 total expenses decreased 16 million 6 2015 compared 2014 decrease absolute dollars associated increase thirdparty funding costsharing arrangements 15 million decrease 675000 information technology facilities costs due cost control efforts connection restructuring decreases expense partially offset increase expense 447000 product evaluation units used support grid energy storage demonstration project 2015 despite decline absolute dollars research development expenses increased 15 revenue 2015 14 2014 result lower revenue 2015 restructuring exit costs year ended december 31 2015 management initiated restructuring plan consolidate us manufacturing operations reduce headcount operating expenses order align cost structure current business forecast improve operational efficiency connection restructuring plan expect incur total restructuring related charges 26 million 33 million anticipated charges include approximately 12 million 19 million facilities costs related consolidation manufacturing operations 13 million employee severance costs 125000 relocation costs also expect incur 560000 accelerated equipment depreciation expense related restructuring upon completion plan anticipated substantially completed end first quarter 2016 total cash expenditures related restructuring activities expected approximately 14 million year ended december 31 2015 paid 10 million restructuring expenses related employee severance costs restructuring charges year ended december 31 2015 include 12 million future rent obligations net estimated sublease income associated exit portion leased facility 13 million employee severance costs work force reductions following table summarizes restructuring exit costs year ended december 31 2015 thousands provision income taxes effective tax rate differs statutory us federal income tax rate 34 primarily due foreign income taxes valuation allowance domestic deferred tax assets recorded income tax provision 46 million year ended december 31 2015 compared 43 million year ended december 31 2014 provision primarily related taxes income generated swiss subsidiary result changes financial projections changed estimate amounts considered permanently reinvested therefore years ended december 31 2015 2014 recorded deferred tax liability 21 million 16 million respectively associated 417 million 318 million respectively unremitted earnings foreign subsidiary longer considered indefinitely reinvested event repatriate funds withholding tax would become payable swiss government december 31 2015 cumulative valuation allowance recorded offsetting worldwide net deferred tax assets 681 million significant majority represents valuation allowance us net deferred tax assets established valuation allowance us federal state deferred tax assets due uncertainty surrounding realization assets management periodically evaluates recoverability deferred tax assets time determined likely us deferred tax assets realizable valuation allowance reduced accordingly year ended december 31 2014 compared year ended december 31 2013 net loss reported 2014 63 million 021 per share compared net income 63 million 022 per diluted share 2013 revenue decreased 4 2014 compared 2013 although revenues 2013 included 113 million related recognition revenue prior year’s ultracapacitor shipments net amount shipped 2013 revenue deferred end year gross profit declined percentage revenue 39 2013 37 2014 total operating expenses increased 38 revenue 2014 compared 35 2013 revenue gross profit following table presents revenue cost revenue gross profit years ended december 31 2014 2013 thousands except percentage revenue 2014 decreased 4 1866 million compared 1935 million 2013 ultracapacitor product revenue 1356 million 2014 compared 1363 million prior year however revenues 2013 included 113 million related recognition revenue prior year’s ultracapacitor shipments net amount shipped 2013 revenue deferred end year 2014 ultracapacitor sales rail transit wind energy automotive applications increased significantly offset decline sales chinese hybrid transit vehicle applications decline sales chinese hybrid transit vehicle market primarily related expiration chinese government subsidy program dieselelectric hybrid buses middle 2013 chinese government put place new subsidy program include subsidies dieselelectric hybrid buses however chinese bus customers began incorporating ultracapacitor products plugin hybrid buses covered subsidy program sales highvoltage capacitor products totaled 404 million 2014 7 433 million recorded 2013 experienced reduction global demand highvoltage products 2014 revenue microelectronic products totaled 106 million 2014 24 139 million recorded 2013 2014 fewer space satellite programs delays programs incorporate microelectronics products substantial amount revenue generated swiss subsidiary functional currency swiss franc reported revenue materially impacted changes exchange rates swiss franc us dollar reporting currency due weakening us dollar swiss franc 2014 compared 2013 revenue positively impacted 356000 following table presents revenue mix product line years ended december 31 2014 2013 gross profit 2014 decreased 69 million 9 684 million compared 2013the decrease gross profit absolute dollars related primarily decrease volume ultracapacitor revenues recognized 113 million revenue 2013 related previous years sales decline microelectronics product sales well decline average selling prices ultracapacitor products 2014 compared 2013 percentage revenue gross profit decreased 37 2014 compared 39 2013 decrease gross profit percentage revenue primarily result decrease sales highvoltage capacitor microelectronics products earn higher margins ultracapacitor products additionally decrease gross profit percentage revenues affected decline ultracapacitor average selling prices selling general administrative expense following table presents selling general administrative expense years ended december 31 2014 2013 thousands except percentage selling general administrative expenses 24 revenue 2014 23 2013 total expenses decreased 521000 1 2014 compared 2013 decrease absolute dollars primarily driven decrease legal audit tax consulting fees higher 2013 47 million mainly related audit committees investigation internal review restatement previously issued financial statements impact offset increase labor expenses 15 million 2014 compared 2013 primarily related additional headcount sales marketing additionally recruiting expenses increased 822000 primarily due search new chief executive officer additional staff san diego asia facilities addition advertising promotion expenses increased 819000 mainly related increased focus advertising newer engine starting product travel expenses increased 658000 mainly related customer relations sales efforts despite decline absolute dollars selling general administrative expenses increased 24 revenue 2014 23 2013 result lower revenues 2014 research development expense following table presents research development expense years ended december 31 2014 2013 thousands except percentage research development expenses 14 revenue 2014 12 2013 total expenses increased 38 million 17 2014 compared 2013 increase absolute dollars primarily driven increases 18 million labor expenses 18 million contracted research development services increases support efforts improve manufacturing processes develop enhance products addition increase absolute dollars research development expenses increased 14 revenue 2014 12 2013 expenses higher revenues lower 2014 provision income taxes recorded income tax provision 43 million year ended december 31 2014 compared 22 million year ended december 31 2013 provision primarily related taxes income generated swiss subsidiary result changes financial projections fourth quarter 2014 company changed estimate amount foreign earnings considered permanently reinvested therefore quarter ended december 31 2014 recorded 16 million deferred tax expense associated portion unremitted earnings foreign subsidiary considered permanently reinvested event repatriate earnings withholding tax would become payable company established valuation allowance us federal state deferred tax assets well deferred tax asset foreign subsidiary due uncertainty surrounding realization assets evidenced cumulative losses operations december 31 2014 management periodically evaluates recoverability deferred tax assets time determined likely deferred assets realizable valuation allowance reduced accordingly liquidity capital resources changes cash flow following table summarizes cash flows operating investing financing activities past three fiscal years thousands net cash provided operating activities 94 million 2015 compared net cash used operating activities 62 million 2014 net cash provided operating activities 199 million 2013 operating cash flows 2015 related primarily net loss 223 million included noncash charges 206 million addition increase accounts payable accrued liabilities 50 million decrease inventory 53 million increase accounts payable accrued liabilities primarily due timing payments decrease inventories primarily associated efforts reduce inventory levels increase operating cash flows 2015 compared 2014 primarily related significant increase accounts receivable 2014 due sales growth shipments heavily weighted towards end 2014 well significant decrease inventory 2015 associated efforts reduce inventory levels however offsetting decrease operating cash flows 2015 incurred significantly higher net loss compared 2014 net cash used investing activities 41 million year ended december 31 2015 compared 70 million 2014 169 million 2013 investing activities related capital expenditures year 2015 capital expenditures primarily focused investments manufacturing operations corporate research development center san diego california cash used investing activities 2014 2013 primarily focused investments increase production capacity including equipment manufacturing facilities san diego california peoria arizona contract manufacturing operations shenzhen china well investments corporate research development center san diego california net cash used financing activities 58 million year ended december 31 2015 compared net cash provided financing activities 96 million 2014 net cash used financing activities 14 million 2013 year ended december 31 2015 net cash used financing activities primarily resulted net payments long term short term debt 158 million partially offset net proceeds common stock offering 96 million cash proceeds stockbased compensation plans 875000 year ended december 31 2014 net cash provided financing activities primarily resulted net borrowing long term short term debt 81 million cash proceeds associated stockbased compensation plans 14 million year ended december 31 2013 net cash used financing activities primarily resulted net payments long term short term debt 17 million partially offset cash proceeds associated stockbased compensation plans 412000 liquidity december 31 2015 approximately 244 million cash equivalents working capital 658 million july 2015 entered loan agreement east west bank “ewb” whereby ewb made available us secured credit facility form revolving line credit line credit available maximum lesser 250 million b certain percentage domestic foreign trade receivables december 31 2015 amount available line credit 227 million amounts borrowed facility december 31 2015 addition exploring opportunities sell net assets associated microelectronics product line successful could provide us cash infusion support ongoing operations well investments business june 3 2014 filed shelf registration statement form s3 sec time sell 125 million common stock warrants debt securities units april 23 2015we entered atthemarket equity offering sales agreement “sales agreement” cowen company llc “cowen” pursuant could sell option aggregate 100 million shares common stock cowen sales agent sales agreement agreed pay cowen commission equal 30 gross proceeds sale shares common stock june 11 2015 completed sale approximately 100 million common stock terminated offering approximately 183 million shares sold offering average share price 546 received net proceeds 96 million commissions offering costs 406000 due late form 8k filing us june 1 2015 due may 29 2015 currently ineligible use shelf registration statement beginning filing date annual report form 10k expect eligible june 1 2016 capital expenditures expected approximately 93 million 2016 approximately 45 planned capital spending focused product research development 35 focused improving manufacturing processes remaining planned capital spending support information technology infrastructure improvements facilities december 31 2015 amount cash shortterm investments held foreign subsidiaries 163 million funds needed operations us future may required pay taxes repatriate funds rate approximately 5 already accrued tax expense associated potential future repatriation funds revolving line credit july 2015 entered loan security agreement “loan agreement” related agreements east west bank “ewb” whereby ewb made available us secured credit facility form revolving line credit “revolving line credit” revolving line credit available maximum lesser 250 million b certain percentage domestic foreign trade receivables december 31 2015 amount available revolving line credit 227 million general amounts borrowed revolving line credit secured lien assets including intellectual property well pledge 100 equity interests company’s swiss subsidiary obligations loan agreement guaranteed swiss subsidiary revolving line credit mature july 3 2018 however repayment amounts owed pursuant loan agreement may accelerated event violation representations warranties covenants made loan agreement including certain financial covenants set forth therein financial covenants required meet term credit agreement include minimum fourquarter rolling ebitda quarterly minimum liquidity ratio minimum cash requirement amounts borrowed revolving line credit bear interest payable monthly interest shall accrue based upon election subject certain limitations either prime rate plus margin ranging 0 050 libor rate plus margin ranging 275 325 specific rate determined periodically based upon leverage ratio required pay annual commitment fee equal 125000 unused commitment fee average daily unused amount revolving line credit payable monthly equal per annum rate range 030 050 determined leverage ratio last day previous fiscal quarter amounts borrowed revolving line credit december 31 2015 former credit facility december 2011 obtained secured credit facility form revolving line credit “former revolving line credit” equipment term loan “equipment term loan” together “former credit facility” borrowings former credit facility bore interest payable monthly either banks prime rate ii libor plus 225 option subject certain limitations equipment term loan available finance 80 eligible equipment purchases made april 1 2011 april 30 2012 period borrowed 50 million equipment term loan balance equipment term loan paid full maturity date april 30 2015 concurrently entering loan agreement described july 2015 repaid outstanding loans former revolving line credit terminated former credit facility incur early termination prepayment penalties former credit facility connection transactions longterm borrowings maxwell sa various financing agreements vehicles agreements original threeyear repayment period interest rates ranging 19 51 december 31 2015 2014 91000 82000 respectively outstanding agreements contractual obligations 1 operating lease obligations primarily represent building leases 2 purchase commitments primarily represent value noncancellable purchase orders estimate purchase orders canceled would result significant penalty 3 debt obligations represent longterm shortterm borrowings 4 pension benefit payments represent expected amounts paid pension benefits 5 table excludes 522000 liabilities associated uncertain tax positions unable reasonably estimate timing future payments required 6 table excludes deferred tax liability 37 million due uncertainty timing future payments deferred tax liability undistributed earnings foreign subsidiary represents deferred tax expense associated portion unremitted earnings foreign subsidiary considered permanently reinvested critical accounting estimates consider accounting estimate critical 1 accounting estimate requires us make assumptions matters uncertain time accounting estimate made 2 changes estimate reasonably likely occur period use different estimates reasonably could used current period would material impact financial condition results operations also see note 1 summary significant accounting policies part ii item 8 financial statements supplementary data annual report form 10k discusses significant accounting policies believe following either critical accounting policies require us make significant estimates assumptions preparation consolidated financial statements ii key accounting policies may require us make difficult subjective judgments revenue recognition nature estimates required sales revenue primarily derived sale products directly customers product revenue recognized criteria revenue recognition met customer agreements terms sale evaluated determine criteria revenue recognition met therefore revenue recognized revenue recognition deferred criteria revenue recognition met assumptions approach used product revenue recognized following criteria met 1 persuasive evidence arrangement exists according customer contracts sales documents 2 title risk loss pass customer according orders shipping terms 3 price deemed fixed determinable free significant contingencies uncertainties 4 collectability reasonably assured customer contracts purchase orders order confirmations generally used determine existence arrangement shipping terms determine passage title risk loss occurred assess whether price fixed determinable based upon payment terms associated transaction assess collectability accounts receivable based primarily upon creditworthiness customer determined credit checks analysis well customer’s payment history determine particular sale meet criteria revenue recognition revenue recognized criteria determined achieved portion sales revenue derived sales distributors distributor revenue recognized criteria revenue recognition met generally time shipment distributor returns credits estimable significant total deferred revenue customer deposits consolidated balance sheets december 31 2015 2014 3066000 703000 respectively relates cash received customers sales revenue recognition criteria achieved customer advances well less significant customer arrangements requiring deferral revenue excess obsolete inventory nature estimates required estimates principally based assumptions regarding ability sell items inventory due uncertainty potential volatility inherent estimates changes assumptions could materially affect results operations assumptions approach used estimate excess obsolete inventory evaluated quarterly basis based rolling historical inventory usage assumptions regarding future product demand actual levels inventory change specific products become slow moving obsolete estimated reserve may materially change pension nature estimates required use several significant assumptions within actuarial models utilized measuring pension benefit obligations assets held pension plan assumptions approach used discount rate expected return assets estimates impacting plan expense asset liability measurement evaluate critical assumptions least annually periodically evaluate actuarial assumptions involving demographic factors used measure pension obligation retirement age mortality turnover update reflect experience expectations future actual results given year often differ actuarial assumptions economic factors projected benefit obligation december 31 2015 332 million fair value plan assets 390 million company rights assets plan right offset liabilities plan stockbased compensation nature estimates required stockbased compensation awards include stock options restricted stock restricted stock units shares issued employee stock purchase plan espp record compensation expense stockbased compensation awards accordance criteria set forth stock compensation subtopic financial accounting standards board fasb accounting standards codification asc guidance fair value employee stock option estimated date grant using option pricing model meets certain requirements use blackscholes option pricing model estimate fair value stock option grants determination fair value stock options utilizing blackscholes model affected stock price number assumptions including expected volatility expected life riskfree interest rate expected dividends fair value restricted stock awards rsas restricted stock unit awards rsus based closing market price common stock date grant compensation expense equal fair value rsa rsu recognized ratably requisite service period rsa rsu awards vesting contingent achievement company performance conditions use requisite service period likely occur requisite service period estimated based performance period well timebased employee service requirements unlikely performance condition achieved compensation expense recognized unless later determined achievement performance condition likely expense may adjusted changes expected outcomes related performance conditions impact changes recognized cumulative adjustment consolidated statement operations period expectation changes 2014 issued marketcondition rsus certain members executive management since vesting marketcondition rsus dependent stock price performance fair value awards estimated using montecarlo valuation model determination fair value marketcondition rsus utilizing montecarlo valuation model affected stock price number assumptions including expected volatility expected life riskfree interest rate expected dividends stockbased compensation expense recognized consolidated statement operations based equity awards ultimately expected vest fasb asc requires forfeitures estimated time grant revised necessary subsequent periods cumulative catch adjustment actual forfeitures differ estimates assumptions approach used determining value stock option marketcondition rsu grants estimate expected dividend yield zero never paid cash dividends present intention pay cash dividends expected term calculation based actual life historical stock option grants expected volatility based historical stock prices using mathematical formula measure standard deviation change natural logarithm underlying stock price period time commensurate expected term riskfree interest rate derived zero coupon rate us treasury instruments term commensurate awards expected term rsa rsus vesting contingent achievement company performance conditions amount compensation expense estimated based expected achievement performance condition requires us make estimates likelihood achievement company performance conditions highly judgmental base judgments expected achievement company performance conditions based financial projections company used management business purposes represent best estimate expected company performance unlikely performance condition achieved compensation expense recognized unless later determined achievement performance condition likely requisite service period estimated based performance period well timebased employee service requirements evaluate assumptions used value stockbased awards quarterly basis factors change employ different assumptions stockbased compensation expense may differ significantly recorded past modifications cancellations stockbased awards may required accelerate increase decrease remaining unrecognized stockbased compensation expense compensation expense may significantly impacted future extent estimates differ actual results income taxes nature estimates required record income tax valuation allowance realization certain deferred tax assets including net operating losses likely included net operating loss deferred tax asset approximately 100 million gross deferred tax asset attributable stock option exercises restricted stock grants disqualifying dispositions incentive stock options stock issued companys espp according provision within asc 718 stock compensation concerning tax benefits related excess stock option deductions credited paidin capital related valuation allowance cannot reversed even facts circumstances indicate likely deferred tax asset realized valuation allowance reversed related deferred tax asset applied reduce taxes payable record us income taxes undistributed earnings foreign subsidiaries unless subsidiaries’ earnings considered indefinitely reinvested outside us result changes financial projections changed estimate amounts considered permanently reinvested therefore years ended december 31 2015 2014 recorded deferred tax liability 21 million 16 million respectively associated 417 million 318 million respectively unremitted earnings foreign subsidiaries longer considered indefinitely reinvested event repatriate funds withholding tax would become payable swiss government december 31 2015 cumulative amount undistributed earnings considered indefinitely reinvested 102 million assumptions approach used deferred income taxes arise temporary differences tax financial statement recognition revenue expense evaluating ability recover deferred tax assets within jurisdiction arise consider available positive negative evidence including scheduled reversals deferred tax liabilities projected future taxable income taxplanning strategies results recent operations significant judgments estimates required evaluation determine able realize portion deferred tax assets future record adjustment increase recorded value corresponding adjustment increase income additional paid capital appropriate period commitments contingencies nature estimates required involved litigation regulatory proceedings claims prosecute defend matters aggressively however many uncertainties associated litigation assurance actions thirdparty claims us resolved without costly litigation andor substantial settlement charges assumptions approach used disclose information concerning contingent liabilities respect claims proceedings unfavorable outcome remote recognize liabilities claims proceedings appropriate based upon probability loss ability estimate losses fairly present conjunction disclosures matters consolidated financial statements management’s view exposure review outstanding claims proceedings external counsel appropriate assess probability estimates loss recognize liability related claims proceedings time unfavorable outcome becomes probable amount reasonably estimated reasonable estimate range recognized liability best estimate within range amount range better estimate amount minimum amount range recognized reevaluate assessments quarter new significant information becomes available determine whether liability recognized existing liability adjusted actual cost ultimately resolving claim proceeding may substantially different amount recognized liability addition permissible recognize liability loss probable estimable cases may insufficient time recognize liability prior actual incurrence loss upon verdict judgment trial example case quickly negotiated settlement impact inflation believe inflation material impact results operations fiscal years threeyear period ended december 31 2015 however assurance future inflation would adverse impact operating results financial condition recent accounting pronouncements may 2014 financial accounting standards board “fasb” issued accounting standards update asu 201409 revenue contracts customers standard provides companies single model accounting revenue arising contracts customers supersedes current revenue recognition guidance including industryspecific revenue guidance core principle model recognize revenue control goods services transfers customer opposed recognizing revenue risks rewards transfer customer existing revenue guidance permits companies either apply requirements retrospectively prior periods presented apply requirements year adoption cumulative adjustment august 2015 fasb issued asu 201514 deferral effective date defers required adoption date asu 201409 one year result deferred effective date asu 201409 effective us first quarter fiscal 2018 early adoption permitted original effective date new standard first quarter fiscal 2017 process evaluating transition method elected impact adoption consolidated financial statements august 2014 fasb issued asu 201415 disclosure uncertainties entity’s ability continue going concern standard requires management perform interim annual assessments entity’s ability continue going concern within one year date financial statements issued provides guidance determining disclose going concern uncertainties financial statements certain disclosures required conditions give rise substantial doubt entity’s ability continue going concern asu 201415 applies entities effective annual interim reporting periods ending december 15 2016 early adoption permitted expect adoption standard material effect financial statements april 2015 fasb issued asu 201503 simplifying presentation debt issuance costs update changes presentation debt issuance costs direct deduction related debt liability rather asset amortization costs continue reported interest expense asu 201503 effective annual interim reporting periods ending december 15 2015 early adoption permitted new guidance applied retrospective basis prior periods expect adoption standard material effect financial statements july 2015 fasb issued asu 201511 simplifying measurement inventory new guidance issued closely align measurement inventory us gaap measurement inventory international financial reporting standards core principle updated guidance entity measure inventory lower cost net realizable value net realizable value estimated selling prices ordinary course business less reasonably predictable costs completion disposal transportation amendments asu 201511 apply inventory measured using firstin firstout average cost methods asu 201511 effective annual interim reporting periods ending december 15 2016 including interim periods within fiscal years applied prospectively early adoption permitted beginning interim annual reporting period expect adoption standard material effect financial statements november 2015 fasb issued asu 201517 balance sheet classification deferred taxes simplify presentation deferred taxes amendment requires deferred tax assets liabilities along related valuation allowances classified noncurrent balance sheet asu 201517 effective annual interim reporting periods ending december 15 2017 early adoption permitted new guidance may applied either prospectively retrospectively adopted guidance prospectively december 31 2015 therefore prior periods adjusted reflect adoption january 2016 fasb issued asu 201601 financial instrumentsoverall subtopic 82510 standard makes several modifications subtopic 82510 including elimination availableforsale classification equity investments requires equity investments readily determinable fair values measured fair value changes fair value recognized net income effective interim annual periods beginning december 15 2017 expect adoption standard material effect financial statements balance sheet arrangements none item 7aitem 7 management’s discussion analysis financial condition results operations following discussion financial condition results operations years ended december 31 2011 2010 2009 read conjunction consolidated financial statements related notes included item 8 financial statements supplementary data annual report form 10k addition discussion contains forwardlooking statements subject risks uncertainties including estimates based judgment estimates include limited assessing collectability accounts receivable applied unapplied production costs production capacities usage recoverability inventories longlived assets deferred income taxes incurrence warranty obligations stock compensation expense impairment goodwill intangible assets cost complete certain projects probability performance criteria restricted stock awards met accruals estimated losses legal matters management’s discussion analysis financial condition results operations “mda” designed provide reader financial statements narrative perspective management financial condition results operations liquidity certain factors may affect future results mda presented following sections • executive overview • 2011 highlights • results operations • liquidity capital resources • contractual obligations • critical accounting estimates • pending accounting pronouncements • balance sheet arrangements • outlook executive overview maxwell global leader developing manufacturing marketing advanced energy storage power delivery products transportation industrial information technology applications microelectronic products space satellite applications strategy establish compelling value proposition products designing manufacturing perform reliably minimal maintenance long operational lifetimes three product lines ultracapacitors applications multiple industries including transportation automotive information technology renewable energy consumer industrial electronics highvoltage capacitors primarily applied electrical utility infrastructure radiationhardened microelectronic products space satellite applications primary objective grow revenue profit margins creating satisfying demand ultracapacitorbased energy storage power delivery solutions focusing establishing expanding market opportunities ultracapacitors preferred supplier ultracapacitor products worldwide believe transportation industry represents largest market opportunity ultracapacitors primarily applications related engine starting electrical system augmentation braking energy recuperation hybrid electric drive systems transit buses trucks autos electric rail vehicles various backup power applications including instantly available power uninterruptible power supply wind turbine blade pitch systems also represent significant market opportunity also seek expand market opportunities highvoltage capacitor radiationhardened microelectronic products market highvoltage capacitors consists mainly expansion upgrading maintenance existing electrical utility infrastructure new infrastructure installations developing countries installations capitalintensive frequently subject regulation availability government funding general economic conditions although market microelectronics products space satellite applications relatively small specialized nature products requirement failurefree reliability allows us opportunity generate profit margins significantly higher commodity electronic components 2011 revenues 1573 million representing increase 29 compared 2010 revenue growth primarily attributable increased ultracapacitor product sales grew 2011 42 compared 2010 overall gross profit 2011 39 compared 38 2010 increase gross margin driven mainly significantly improved profitability ultracapacitor products related increased sales volume reduced manufacturing costs december 31 2011 cash equivalents 293 million believe sufficient fund operations least next twelve months however future may decide supplement planned cash flow provided operations issuing debt equity going forward continue focus growing business strengthening market leadership brand recognition penetration existing markets entry new markets development new products primary focus grow ultracapacitor business continued market penetration primary applications including automotive transportation backup power order achieve growth objectives need overcome risks challenges facing business significant risks challenges face include ability maintain profitability ability develop management team product development infrastructure manufacturing capacity facilitate growth competing technologies may capture market share interfere planned growth hiring developing retaining key personnel critical execution strategy attentive risks focus achieving higher profits developing new products promoting value proposition products competing technologies addition augmenting current manufacturing capacity infrastructure believe sufficient accommodate planned growth believe company well positioned sustain financial operational progress exhibited results operations 2011 highlights 2011 continued focus researching new technologies developing strategic alliances introducing new products increasing production capacity reducing product costs funding capital improvements improving production processes efforts described • november announced swiss subsidiary evaluate use graphene commercialscale electrode material european union eufunded technology development program entitled electrograph • september announced zhengzhou yutong bus co ltd yutong china’s largest bus manufacturer selected maxwell ultracapacitors energy storage power delivery fuelefficient lowemission dieselelectric hybrid buses yutong producing public transit agencies worldwide • june introduced 12volt ultracapacitor module ensures reliable engine starting commercial trucks heavy vehicles • may announced selected supply ultracapacitors flextronics automotive segment flextronics leading global automotive supplier energy storage module recuperation system flextronics automotive produce reduce fuel consumption emissions commercial vehicles • april announced shinmaywa industries ltd leading japanese producer special purpose trucks designed maxwell’s ultracapacitors allelectric loading mechanism garbage trucks eliminates fuel consumption co2 emissions noise loading unloading • march announced north american office united kingdom’s vehicle certification agency granted european economic community type approval conformity production clearance maxwell’s 125volt heavy transportation module • march announced awarded 7 million costshared technology development contract united states advanced battery consortium llc develop advanced energy storage system powerassist hybrid electric vehicles • february announced leading producer instrument transformers russian utility grid selected condis®capacitive voltage dividers produced maxwell’s swiss subsidiary integration thousands capacitive voltage transformers installed next several years part multibillion dollar renovation russia’s utility infrastructure • february introduced 56volt ultracapacitor module designed specifically address shortterm ridethrough bridge power requirements uninterruptible power supply systems missioncritical installations data centers hospitals factories telecommunication facilities results operations following table presents certain statement operations data expressed percentage revenue periods indicated year ended december 31 2011 compared year ended december 31 2010 net income reported 2011 849000 003 per share net loss 61 million 023 per share 2010 2011 continued achieve improved operating results due revenue growth combined improvements gross profit operating margins 2011 achieved positive income operations 18 million compared operating loss 65 million 2010 revenue grew 29 2011 compared 2010 cost revenue operating expenses declined percentage revenue gross profit following table presents revenue cost revenue gross profit years ended december 31 2011 2010 thousands except percentage revenue 2011 increased 29 1573 million compared 1219 million 2010 ultracapacitor product revenue increased 42 970 million 2011 compared 685 million prior year sales high voltage capacitor products totaled 423 million 2011 18 357 million recorded 2010 revenue microelectronic products relatively flat yearoveryear increase revenue influenced primarily higher volume ultracapacitor product line associated continuing strong demand energy storage power delivery systems hybrid energy electric transit vehicles micro hybrid automotive systems well backup power applications enterprise computing systems sale proprietary electrode material substantial amount revenue generated swiss subsidiary functional currency swiss franc reported revenue materially impacted changes exchange rates swiss franc us dollar reporting currency due weakening us dollar swiss franc 2011 compared 2010 revenue positively impacted 63 million following table presents revenue mix product line years ended december 31 2011 2010 gross profit 2011 increased 152 million 32 621 million compared 2010 percentage revenue gross profit increased 39 2011 compared 38 2010 increase gross profit absolute dollars 136 million related increase volume sales 27 million due net reductions product costs offsetting increases decrease gross profit absolute dollars 12 million related net foreign exchange losses recorded 2011 compared net foreign exchange gains recorded 2010 hedge intercompany thirdparty asset liability balances denominated currencies local currency net foreign exchange gains losses recognized transaction gains losses incurred hedged assets liabilities net gains losses realized hedge contracts product cost reductions related primarily highvoltage capacitors product line due price increases material cost reductions shift sales mix higher margin products addition product design advancements allowed us continue reduce product costs large cell ultracapacitor product line selling general administrative expense following table presents selling general administrative expense years ended december 31 2011 2010 thousands except percentage selling general administrative expenses 24 revenue 2011 compared 29 2010 total expense increased 23 million 7 increase absolute dollars driven primarily increase 28 million legal fees increase 14 million labor costs due headcount growth sales marketing operations increased legal fees 2011 related certain ongoing legal matters including indemnification certain past officers concerning fcpa matter efforts related protection intellectual property corporate matters addition experienced increase recruiting expenses information technology expenses marketing consulting fees selling expenses totaling approximately 18 million related ongoing growth business 2011 also recorded accrual anticipated settlement customer dispute 23 million offsetting increases decrease net foreign exchange losses 12 million primarily due change hedging strategy 2011 recorded net foreign exchange losses 498000 compared 17 million net foreign exchange losses 2010 offsetting increases decreases associated 51 million charge 2010 related settlement fcpa matter asset impairment 880000 related equipment reclassified heldforsale heldandused research development expense following table presents research development expense years ended december 31 2011 2010 thousands except percentage research development expense 223 million 2011 compared 177 million 2010 increase approximately 46 million 26 however percentage revenues research development expense 14 2011 compared 15 2010 increase absolute dollars driven continued expansion research development activities including primarily increase 35 million labor expense due headcount additions increase 16 million facilities information technology expenses related expansion research development facilities increase 12 million expenses related new product development research programs partially funded governments increases offset additional government funding research development activities 20 million amortization debt discount prepaid debt costs amortization debt discount prepaid debt costs 55000 2011 compared 83000 2010 decrease approximately 28000 amortization period debt discount prepaid debt costs associated original payment terms convertible debentures wherein final payment due december 31 2010 however holder elected defer three quarterly installments 2011 gain loss embedded derivatives warrants gain embedded derivatives 11 million 2011 compared 23 million 2010 gain loss recorded embedded derivative warrants primarily represents change fair market value revaluation debenture conversion rights warrants end year conversion dates compared beginning year december 2010 warrants exercised full february 2011 remaining principal balance convertible debentures converted shares common stock following transactions impact consolidated statement operations related fair value measurement derivative instruments warrants provision income taxes recorded income tax provision 19 million year ended december 31 2011 compared 16 million year ended december 31 2010 provision primarily related swiss operations unremitted earnings foreign subsidiaries included consolidated financial statements without giving effect united states taxes may payable anticipated earnings remitted united states company established valuation allowance us federal state deferred tax assets due uncertainty surrounding realization assets evidenced cumulative losses operations december 31 2011 management periodically evaluates recoverability deferred tax assets time determined likely deferred assets realizable valuation allowance reduced accordingly year ended december 31 2010 compared year ended december 31 2009 2010 net loss decreased 169 million 74 compared prior year net loss reported 2010 61 million 023 per share net loss 229 million 094 per share 2009 decrease net loss driven primarily increase revenues combined improvements gross profit operating margins addition decrease 42 million accruals settlement us fcpa violations 2010 recorded 23 million gain versus 53 million loss 2009 embedded derivatives warrants offsetting improvements incurred 14 million charge related impairment depreciation adjustment assets longer believe probable sale reclassified fourth quarter heldforsale heldandused revenue gross profit following table presents revenue cost revenue gross profit years ended december 31 2010 2009 thousands except percentage revenue 2010 increased 20 1219 million compared 1013 million 2009 ultracapacitor revenue increased 56 685 million 2010 compared 438 million prior year sales high voltage capacitor products totaled 357 million 2010 10 398 million recorded 2009 revenue microelectronic products flat yearoveryear increase revenue ultracapacitor product line influenced primarily continuing strong demand energy storage power delivery systems wind energy hybrid electric transit vehicles micro hybrid automotive systems backup power wireless communications decline high voltage capacitor product revenues result shift mix high voltage product sales lower priced products substantial amount revenue generated swiss subsidiary functional currency swiss franc reported revenue materially impacted changes exchange rates swiss franc us dollar reporting currency due weakening us dollar swiss franc 2010 compared 2009 revenue positively impacted 24 million following table presents revenue mix product line years ended december 31 2010 2009 gross profit 2010 increased 116 million 33 469 million compared 2009 percentage revenue gross profit increased 38 2010 compared 35 2009 increase gross profit absolute dollars 72 million related increase volume sales 27 million due net reductions product costs 17 million related net foreign exchange gains recorded 2010 compared net foreign exchange losses recorded 2009 hedge intercompany thirdparty asset liability balances denominated currencies local currency net foreign exchange gains losses recognized transaction gains losses incurred hedged assets liabilities net gains losses realized hedge contracts product cost reductions driven primarily advancements manufacturing process product design product design advancements allowed us reduce product cost large cell ultracapacitor product line selling general administrative expense following table presents selling general administrative expense years ended december 31 2010 2009 thousands except percentage selling general administrative expenses 29 revenue 2010 compared 33 2009 total expense increased 23 million 7 increase absolute dollars driven primarily 21 million higher labor costs due increases sales marketing operations increase net foreign exchanges losses 2010 recorded net foreign exchange losses 17 million compared 396000 net foreign exchange gains 2009 addition facilitiesrelated expenses increased 550000 2010 travelrelated expenses increased 421000 also recorded asset impairment 880000 2010 related equipment reclassified heldforsale heldandused increases offset 42 million decrease expense accrual settlement fcpa matter 2010 recorded accruals settlement fcpa matter 51 million 2009 recorded accruals settlement fcpa matter 93 million research development expense following table presents research development expense years ended december 31 2010 2009 thousands except percentage research development expense 177 million 2010 compared 160 million 2009 increase approximately 18 million 11 however percentage revenues research development expense 15 2010 compared 16 2009 increase absolute dollars driven primarily increase expenses 870000 related consulting services materials used product development increase 590000 labor expense increase 439000 facilities information technology expenses 2010 continued expand efforts develop existing new products amortization debt discount prepaid debt costs amortization debt discount prepaid debt costs 83000 2010 compared 737000 2009 decrease approximately 654000 amortization period debt discount prepaid debt costs associated original payment terms convertible debentures wherein final payment due december 31 2010 however holder elected defer three quarterly installments 2011 gain loss embedded derivatives warrants gain embedded derivatives 23 million 2010 compared loss 53 million 2009 gain loss recorded embedded derivative warrants primarily represents change fair market value revaluation debenture conversion rights warrants end year compared beginning year december 2010 warrants exercised full february 2011 remaining principal balance convertible debentures converted shares common stock following transactions impact consolidated statement operations related fair value measurement derivative instruments warrants provision income taxes recorded income tax provision 16 million year ended december 31 2010 compared 25 million year ended december 31 2009 provision primarily related swiss operations 2009 tax provision included onetime noncash tax provision 17 million associated transfer certain intellectual property switzerland us order maximize utilization us federal state net operating loss carryforwards unremitted earnings foreign subsidiaries included consolidated financial statements without giving effect united states taxes may payable anticipated earnings remitted united states determination amount unrecognized deferred income tax liability temporary difference practicable complexities hypothetical calculation liquidity capital resources changes cash flow following table summarizes cash flows operating investing financing activities past three fiscal years thousands net cash used operating activities 51 million 2011 usage cash related primarily increased inventory levels 81 million increase accounts receivable balances 91 million increase accounts receivable due revenue growth well significant sales last month 2011 increase inventories relates anticipated sales growth well change inventory management strategy ensure able meet customers’ delivery requirements addition made settlement payments totaling 67 million sec doj first quarter 2011 excluding cash outflow 96 million increase accounts payable accrued liabilities longterm liabilities primarily correlating increase inventory positively impacted cash flows addition included 2011 net income 849000 net noncash charges 92 million negatively impact statement operations impact cash net cash provided operating activities 87 million 2010 net cash used operating activities 10 million 2009 although achieved positive net income 2011 849000 compared net loss 61 million 2010 contributed improvement operating cash flows improvement cash flows offset settlement payments 2011 sec doj 67 million well significant consumption cash related increased accounts receivable inventory balances compared 2010 net cash used investing activities 145 million year ended december 31 2011 compared 88 million 2010 50 million 2009 capital expenditures 2011 primarily focused investments corporate research development facility information technology infrastructure increased production capacity cash used investing activities 2010 2009 primarily related capital expenditures focused increasing production capacity meet future demand net cash provided financing activities 104 million year ended december 31 2011 compared 99 million 2010 227 million 2009 year ended december 31 2011 cash proceeds resulted primarily issuance common stock stockbased compensation plans 28 million well release 80 million restricted cash upon settlement remaining principal balance convertible debentures year ended december 31 2010 received cash proceeds 75 million exercise stock warrants liquidity december 31 2011 approximately 293 million cash equivalents working capital 462 million addition credit facility provides aggregate borrowings 275 million 15 million available fund operations 125 million available finance capital expenditures april 30 2012 december 31 2011 amounts outstanding credit facility therefore full amount available us however subject certain financial covenants requirements credit agreement fail meet requirements credit facility may available us management believes cash expect generate operations combined available cash balances sufficient fund operations obligations become due capital equipment expenditures least next twelve months addition may choose access funds credit facility supplement existing cash balances cash operating activities future may also issue equity april 2011 filed shelf registration statement form s3 sec time sell aggregate 125 million common stock warrants debt securities december 31 2011 accrued 77 million settlement fcpa violations 54 million paid first quarter 2012 23 million payable first quarter 2013 addition accrued approximately 23 million anticipated settlement customer dispute approximately 648000 anticipated paid cash first half 2012 remaining amount available customer discount future purchases products december 31 2014 balance used product discount december 31 2014 would payable cash time settlement yet final therefore subject change written agreement parties executed december 31 2011 amount cash shortterm investments held foreign subsidiaries 106 million funds needed operations us future may required accrue pay us taxes repatriate funds however due company’s substantial net operating loss carryforwards repatriation would immaterial impact company’s current tax rate cash flows credit facility december 2011 entered credit agreement whereby obtained secured credit facility form revolving line credit maximum 150 million “revolving line credit” equipment term loan maximum 125 million “equipment term loan” together “credit facility” general amounts borrowed credit facility secured lien assets intellectual property addition credit agreement required pledge 65 equity interests swiss subsidiary also agreed encumber intellectual property agreement also contains certain restrictive covenants limit ability amongst things incur additional indebtedness guarantees ii create liens encumbrances property iii enter merger similar transaction iiii invest another entity iv declare pay dividends v invest fixed assets excess defined dollar amount repayment amounts owed pursuant credit facility may accelerated event violation representations warranties covenants made credit agreement including certain financial covenants financial covenants must meet quarterly basis term credit agreement include minimum liquidity ratio minimum quick ratio quarterly ebitda net income targets uncertain whether able meet financial covenants term credit agreement fail comply terms conditions credit agreement credit facility may withdrawn bank could require us immediately repay outstanding obligation revolving line credit may use borrowings revolving line credit general working capital corporate purposes amounts borrowed revolving line credit bear interest payable monthly either bank’s prime rate ii libor plus 225 option subject certain limitations must also pay unused commitment fee payable quarterly equal 025 per annum average daily unused amount revolving line credit revolving line credit matures december 5 2013 may prepaid whole part time equipment term loan may use borrowings equipment term loan finance 80 eligible equipment purchases made april 1 2011 april 30 2012 amounts borrowed equipment term loan bear interest either bank’s prime rate ii libor plus 225 option subject certain limitations interest equipment term loan payable monthly april 30 2012 time principal interest owned shall repaid 36 equal monthly installments equipment term loan fully repaid maturity date april 30 2015 may prepaid whole part time december 31 2011 amounts outstanding either revolving line credit equipment term loan december 31 2011 company compliance terms credit agreement therefore full amount credit facility available us borrowings shortterm borrowings maxwell’s swiss subsidiary maxwell sa 30 million swiss francdenominated approximately 32 million december 31 2011 shortterm loan agreement swiss bank renews semiannually bears interest 225 borrowings shortterm loan agreement unsecured december 31 2011 2010 full amount loan drawn maxwell sa 20 million swiss francdenominated approximately 21 million december 31 2011 credit agreement swiss bank renews annually bears interest 25 borrowings credit agreement unsecured december 31 2011 2010 full amount available credit line drawn maxwell sa also 10 million swiss francdenominated approximately 11 million december 31 2011 credit agreement another swiss bank available balance line withdrawn reduced bank time december 31 2011 2010 amounts drawn credit line interest rates applicable draws line determined time draw maxwell sa entered lending agreement acquisition manufacturing equipment amount 15 million swiss francs acquisition equipment completed agreement converted 48 monthly payments 34302 swiss francs interest rate 222 december 31 2011 2010 balance obligation 0 210000 respectively final payment made second quarter 2011 longterm borrowings company various financing agreements vehicles agreements five year repayment period interest rates ranging 49 70 december 31 2011 2010 164000 177000 respectively outstanding agreements dividends remaining term credit facility scheduled expire april 2015 permitted declare pay dividends contractual obligations 1 operating lease obligations primarily represent building leases 2 purchase commitments primarily represent value noncancelable purchase orders estimate purchase orders cancelled would result significant penalty 3 debt obligations represent longterm shortterm borrowings interest payable 137000 4 pension benefit payments represent expected amounts paid pension benefits 5 amounts represent remaining settlement payments due sec doj respect fcpa matter 6 due uncertainty respect timing future cash flows associated unrecognized tax benefits december 31 2011 unable make reasonably reliable estimates period cash settlement respective taxing authorities therefore 448000 unrecognized tax benefits excluded contractual obligations table critical accounting estimates consider accounting estimate critical 1 accounting estimate requires us make assumptions matters uncertain time accounting estimate made 2 changes estimate reasonably likely occur period use different estimates reasonably could used current period would material impact financial condition results operations also see note 1 summary significant accounting policies part ii item 8 financial statements supplementary data annual report form 10k discusses significant accounting policies believe following either critical accounting policies require us make significant estimates assumptions preparation consolidated financial statements ii key accounting policies may require us make difficult subjective judgments revenue recognition nature estimates required sales revenue primarily derived sale products directly customers certain longterm contracts revenue recognized ratably costs incurred upon delivery final work products satisfaction contractuallydefined milestones license fees services revenue recognized performance requirements met assumptions approach used product revenue recognized following criteria met 1 persuasive evidence arrangement exists upon contract signing receipt authorized purchase order customer 2 title passes customer either shipment facilities receipt customer facility depending shipping terms 3 price deemed fixed determinable free contingencies significant uncertainties 4 collectability reasonably assured customer purchase orders andor contracts generally used determine existence arrangement shipping documents used verify product delivery assess whether price fixed determinable based upon payment terms associated transaction volume discount offered revenue recognized lowest price offered customer assess collectability accounts receivable based primarily upon creditworthiness customer determined credit checks analysis well customer’s payment history revenue recognized percentage completion basis measured percentage cost incurred date estimated costs contract limited funding primary contractor provisions estimated losses incomplete contracts made period losses determined estimated contract costs based historical experience assumptions regarding future contractual obligations regularly review estimates consider impact recurring business risks uncertainties inherent contracts implementation delays due factors within outside control milestone method revenue recognized contractual consideration contingent upon achievement milestone entirety revenue period milestone achieved milestone determined substantive excess obsolete inventory nature estimates required estimates principally based assumptions regarding ability sell items inventory due uncertainty potential volatility estimated factors changes assumptions could materially affect results operations assumptions approach used estimate excess obsolete inventory evaluated quarterly basis based rolling historical inventory usage assumptions regarding future product sales requirements actual levels inventory change specific products become slow moving obsolete estimated reserve may materially change pension nature estimates required use several significant assumptions within actuarial models measure pension benefit obligations estimate fair values real estate assets assumptions approach used discount rate expected return assets important elements plan expense asset liability measurement evaluate critical assumptions least annually addition appraise fair value real estate assets annually periodically evaluate assumptions involving demographic factors retirement age mortality turnover update reflect experience expectations future actual results given year often differ actuarial assumptions economic factors projected benefit obligation december 31 2011 267 million fair value plan assets 331 million stockbased compensation nature estimates required stockbased awards include stock option grants restricted stock restricted stock units employee stock purchase plan record compensation expense stockbased awards accordance criteria set forth stock compensation subtopic financial accounting standards board accounting standards codification guidance fair value employee stock option estimated date grant using option pricing model meets certain requirements currently use blackscholes option pricing model estimate fair value stock options blackscholes model meets requirements guidance fair values generated model may indicative actual fair values equity awards determination fair value sharebased payment awards utilizing blackscholes model affected stock price number assumptions including expected volatility expected life riskfree interest rate expected dividends fair value restricted stock restricted stock units based closing market price common stock date grant assumptions approach used estimate expected dividend yield zero never paid cash dividends present intention pay cash dividends addition remaining term credit facility scheduled expire april 2015 permitted declare pay dividends expected volatility based historical stock prices using mathematical formula measure standard deviation change natural logarithm underlying stock price expected period time commensurate expected option life riskfree interest rate derived zero coupon rate us treasury instruments option’s expected life expected life calculation based actual life historical stock option grants stockbased compensation expense recognized consolidated statement operations based options awards ultimately expected vest guidance requires forfeitures estimated time grant revised necessary subsequent periods actual forfeitures differ estimates cumulative catch adjustment evaluate assumptions used value stockbased awards quarterly basis factors change employ different assumptions stockbased compensation expense may differ significantly recorded past modifications cancellations stockbased awards may required accelerate increase cancel remaining unrecognized stockbased compensation expense extent grant additional equity securities stockbased compensation expense increase fair value additional grants compensation expense recognized awards expected vest therefore estimate forfeiture rate revise estimates subsequent periods actual forfeitures differs prior estimates addition restricted stock awards performancebased vesting criteria estimate probability achievement performance criteria recognize compensation expense related awards expected vest compensation expense may significantly impacted future extent estimates differ actual results income taxes nature estimates required record income tax valuation allowance realization certain deferred tax assets including net operating losses likely included net operating loss deferred tax asset approximately 88 million deferred tax asset attributable excess stock option deductions according provision within accounting standards codification 718 stock compensation concerning tax benefits related excess stock option deductions credited paidin capital related valuation allowance cannot reversed even facts circumstances indicate likely deferred tax asset realized valuation allowance reversed related deferred tax asset applied reduce taxes payable assumptions approach used deferred income taxes arise temporary differences tax financial statement recognition revenue expense evaluating ability recover deferred tax assets within jurisdiction arise consider available positive negative evidence including scheduled reversals deferred tax liabilities projected future taxable income taxplanning strategies results recent operations significant judgments estimates required evaluation determine able realize portion deferred tax assets future record adjustment increase recorded value corresponding adjustment increase income additional paid capital appropriate period commitments contingencies nature estimates required involved litigation regulatory proceedings claims prosecute defend matters aggressively however many uncertainties associated litigation assurance actions third party claims us resolved without costly litigation andor substantial settlement charges assumptions approach used disclose information concerning contingent liabilities respect claims proceedings unfavorable outcome remote recognize liabilities claims proceedings appropriate based upon probability loss ability estimate losses fairly present conjunction disclosures matters consolidated financial statements management’s view exposure review outstanding claims proceedings external counsel appropriate assess probability estimates loss recognize liability related claims proceedings time unfavorable outcome becomes probable amount reasonably estimated reasonable estimate range recognized liability best estimate within range amount range better estimate amount minimum amount range recognized reevaluate assessments quarter new significant information becomes available determine whether liability recognized existing liability adjusted actual cost ultimately resolving claim proceeding may substantially different amount recognized liability addition permissible recognize liability loss probable estimable cases may insufficient time recognize liability prior actual incurrence loss upon verdict judgment trial example case quickly negotiated settlement minority equity interests subsidiaries purepulse suspended operations 2002 classified discontinued operations 2006 minority equity investors former employees issued shares purepulse originally incorporated former employees exercised stock options entity december 31 2011 2010 minority investors owned approximately 11 outstanding stock purepulse however since purepulse suspended operations 2002 consolidation entity nominal impact financial statements impact inflation believe inflation material impact results operations fiscal years threeyear period ended december 31 2011 however assurance future inflation would adverse impact operating results financial condition pending accounting pronouncements june 2011 financial accounting standards board “fasb” issued accounting standards update 201105 comprehensive income topic 220 presentation comprehensive income amends current comprehensive income guidance accounting update eliminates option present components comprehensive income loss part statement shareholders’ equity instead must report comprehensive income loss either single continuous statement comprehensive income loss contains two sections net income loss comprehensive income loss two separate consecutive statements december 2011 fasb indefinitely deferred specific requirement present items reclassified accumulated comprehensive income net income separately respective components net income comprehensive income new guidance deferral effective fiscal years interim periods beginning december 15 2011 expect adoption standard update impact financial position results operations requires change format presentation may 2011 fasb issued accounting standards update 201104 fair value measurement topic 820 amendments achieve common fair value measurement disclosure requirements us gaap ifrss new guidance results consistent definition fair value common requirements measurement disclosure fair value us gaap international financial reporting standards many amendments us gaap expected significant effect practice new guidance changes fair value measurement principles disclosure requirements new guidance effective fiscal years interim periods beginning december 15 2011 expect adoption standard update significant impact financial position results operations december 2011 fasb issued accounting standards update 201111 balance sheet topic 210 disclosures offsetting assets liabilities requires companies disclose information financial instruments offset related arrangements enable users financial statements understand effect arrangements financial position companies required provide net offset amounts gross information notes financial statements relevant assets liabilities offset standard effective fiscal years interim periods within years beginning january 1 2013 expect adoption standard update impact financial position results operations requires additional disclosure financial statements balance sheet arrangements none outlook continue focus growth opportunities ultracapacitor product line 2012 identifying pursuing new expanded applications multiple industries including transportation automotive renewable energy backup power industrial electronics increased production capacity ultracapacitor products internally offshore contract assembly relationships expect growth large cell ultracapacitor products augmented 2012 increasing sales voltage stabilization idlestopstart functionality micro hybrid automobiles expect total revenue continue grow 2012 rate similar experienced 2011 driven primarily increasing sales ultracapacitor products however first quarter 2012 considering impact normal seasonal softness including impact chinese new year expect revenue growth lower expected annual rate advances manufacturing processes design enhancements large mediumsize ultracapacitor products lowcost offshore assembly material sourcing increasing sales volume contributed improvement manufacturing cost structure recent years 2012 expect maintain slightly improve gross profit level 39 achieved 2010 continue increase revenue expect selling general administrative expenses increase addition sales personnel well customer facing application engineers assist customers implementing current ultracapacitor applications developing new applications also expect research development expenses ultracapacitor product line increase continue focus material science new product design development 2012 although operating expenses expected increase absolute dollars expect operating expenses remain consistent decline slightly 2011 operating expenses percentage revenue expect continued revenue growth gross profit improvement enable company generate profit operations 2012 capital expenditures expected approximately 235 million 2012 fifty five percent planned capital spending focused ultracapacitor production capacity expansion investments improve manufacturing processes increasing high voltage capacitor production capacity based current product mix makes another twenty percent planned capital spending additional twenty percent support research development microelectronics product line remaining five percent planned capital spending related completion new corporate research development facility implementation financial planning analysis application well applications support expected growth item 7aitem 7 management’s discussion analysis financial condition results operations following discussion financial condition results operations years ended december 31 2014 2013 2012 read conjunction consolidated financial statements related notes included item 8 financial statements supplementary data annual report form 10k addition discussion contains forwardlooking statements subject risks uncertainties including estimates based judgment estimates include limited assessing collectability accounts receivable applied unapplied production costs production capacities usage recoverability inventories longlived assets deferred income taxes incurrence warranty obligations stock compensation expense impairment goodwill strategies future revenues operating results cash balances access liquidity probability performance criteria equity awards met accruals estimated losses legal matters discussion regarding forward looking statements see section annual report form 10k entitled special note regarding forwardlooking statements management’s discussion analysis financial condition results operations “mda” designed provide reader financial statements narrative perspective management financial condition results operations liquidity certain factors may affect future results mda presented following sections • executive overview • 2014 highlights • results operations • liquidity capital resources • contractual obligations • critical accounting estimates • impact inflation • pending accounting pronouncements • balance sheet arrangements executive overview maxwell global leader developing manufacturing marketing energy storage power delivery products transportation industrial information technology applications microelectronic products space satellite applications products designed manufactured perform reliably minimal maintenance life applications integrated believe lifeoftheapplication reliably gives products competitive advantage enables command higher profit margins commodity products three product lines ultracapacitors applications multiple industries including transportation automotive information technology renewable energy consumer industrial electronics highvoltage capacitors applied mainly electrical utility infrastructure radiationhardened microelectronic products space satellite applications primary objective grow revenue profit margins creating satisfying demand ultracapacitorbased energy storage power delivery solutions focusing establishing expanding market opportunities ultracapacitors preferred supplier ultracapacitor products worldwide believe transportation industry represents largest market opportunity ultracapacitors primarily applications related engine starting electrical system augmentation braking energy recuperation hybrid electric drive systems transit buses trucks autos electric rail vehicles backup power quality applications including instantly available power uninterruptible power supply systems stabilizing output renewable energy generation systems may also represent significant market opportunities also seek expand market opportunities revenue highvoltage capacitors radiationhardened microelectronic products market highvoltage capacitors consists mainly expansion upgrading maintenance existing electrical utility infrastructure new infrastructure installations developing countries installations capitalintensive frequently subject regulation availability government funding general economic conditions although market microelectronics products space satellite applications relatively small specialized nature products requirement failurefree reliability allows us generate profit margins significantly higher commodity electronic components 2014 revenues 1866 million compared 1935 million 2013 representing overall decrease 4 decrease primarily attributable lower revenues highvoltage capacitor products 7 2013 lower revenues microelectronic products 24 2013 revenues highvoltage capacitor products decreased 30 million 404 million 2014 compared 433 million 2013 currently experiencing reduced global demand products revenues microelectronics products decreased 33 million 106 million 2014 compared 139 million 2013 2014 fewer space satellite programs delays programs incorporate microelectronics products revenues ultracapacitor products 1356 million 2014 relatively comparable revenues 1363 million 2013 however 2013 ultracapacitor revenues included 113 million related recognition revenue prior year’s ultracapacitor shipments net amount shipped 2013 revenue deferred end year 2014 ultracapacitor sales rail transit wind energy automotive applications increased significantly offset decline sales chinese hybrid transit vehicle applications overall gross profit margin fiscal year 2014 decreased 37 compared 39 2013 primarily related decreases revenues highvoltage capacitor microelectronic products resulting higher proportion overall sales volume attributable ultracapacitor products earn lower margins product lines operating expenses increased 38 revenue 2014 35 revenue 2013 primarily due decrease revenues increase research development spending december 31 2014 cash equivalents 247 million management believes available cash balance sufficient fund operations obligations become due capital investments least next twelve months future may decide supplement existing cash planned cash flow operations borrowing additional funds issuing additional debt equity going forward continue focus growing business strengthening market leadership brand recognition penetration existing markets entry new markets development new products primary focus grow ultracapacitor business increasing sales primary applications including automotive transportation renewable energy backup power order achieve growth objectives need overcome risks challenges facing business significant challenge face ability manage dependence small number vertical markets including driven government policies subsidy programs example large portion current ultracapacitor business concentrated chinese hybrid transit bus wind energy markets heavily dependent government regulation subsidy markets may decline experience slower rates growth changes delays government policies subsidy programs mid2013 chinese government subsidy program provided subsidies dieselelectric hybrid buses concluded chinese government put place new subsidy program include subsidies dieselelectric hybrid buses however chinese bus customers began incorporating ultracapacitor products plugin hybrid buses subsidized new subsidy program current subsidy program scheduled expire end 2015 although may renewed replaced recently beginning experience significant competition pricing pressure chinese hybrid transit vehicle market historically represented significant portion sales mainly result increased competition local chinese competitors order remain competitive may required lower prices provide favorable sales terms customers remain focused reducing cost producing ultracapacitors order offset part lower prices may required offer particular market however initially cost reduction efforts expected fully offset impact lower prices therefore profit margins expected decline near term although believe longterm prospects automotive wind hybrid bus markets remain positive pursuing growth opportunities products vertical markets including applications backup power quality heavy vehicle engine starting order diversify market presence augment longterm growth prospects significant risks challenges face include ability achieve profitability ability develop management team product development infrastructure manufacturing capacity facilitate growth competing technologies may capture market share interfere planned growth hiring developing retaining key personnel critical execution strategy attentive risks focus developing new products promoting value proposition products versus competing technologies trying grow revenues profits years come 2014 highlights 2014 continued focus introducing new products winning new customers new product applications increasing production capacity meet anticipated future demand reducing product costs making capital investments facilitate growth improving production processes efforts described • february announced supplied seven powerful single board computers providing processing power european space agencys gaia satellite lifted december 19 2013 • also february announced supplying ultracapacitorbased engine start modules idle free systems inc leader antiidling solutions trucking industry provide cranking power new antiidling system vocational markets across north america • march introduced ultracapacitorbased engine start module medium duty diesel trucks consistent current engine start module new product provides benefits class 3 6 medium duty trucks • april announced supplying ultracapacitors abb global leader power automation solutions abb incorporate maxwell ultracapacitors new hybrid version highefficiency energy recovery storage system light rail system serving greater philadelphia area • may announced board directors appointed dr franz fink president chief executive officer well board directors • june introduced new 285 volt 3400farad ultracapacitor cell incorporates durabluetm advanced shock vibration technology newest innovation ultracapacitor reliability performance • august introduced new electronic voltage transformer evt smart grid applications evt provides integrators utilities smaller lowerweight solution compact substations provides accurate grid measurement • also august announced win inertia engineering firm specializing power electronics energy storage control communication systems using ultracapacitors stationary wayside braking energy recuperation system electric rail system cerro negro spain • october announced energy storage north america esna innovation award honors energy storage projects north america help solve challenge creating stable dynamic electricity grid maxwells project provide ultracapacitors abb global leader power automation solutions allows philadelphiaarea rail lines energy efficient project earned esna innovation award mobility project category • also october announced joint development agreement corning incorporated goal advancing state capacitive energy storage technology addressing challenges frequently cited ultracapacitor customers including energy density lifetime operating environment form factor cost • november announced awarded 268 million costshared technology development contract united states advanced battery consortium llc usabc develop highperformance hybrid ultracapacitorlithiumion battery stopstart idleelimination microhybrid autos results operations following table presents certain statement operations data expressed percentage revenue periods indicated year ended december 31 2014 compared year ended december 31 2013 net loss reported 2014 63 million 021 per share compared net income 63 million 022 per diluted share 2013 revenue decreased 4 2014 compared 2013 although revenues 2013 included 113 million related recognition revenue prior year’s ultracapacitor shipments net amount shipped 2013 revenue deferred end year gross profit declined percentage revenue 39 2013 37 2014 total operating expenses increased 38 revenue 2014 compared 35 2013 revenue gross profit following table presents revenue cost revenue gross profit years ended december 31 2014 2013 thousands except percentage revenue 2014 decreased 4 1866 million compared 1935 million 2013 ultracapacitor product revenue 1356 million 2014 compared 1363 million prior year however revenues 2013 included 113 million related recognition revenue prior year’s ultracapacitor shipments net amount shipped 2013 revenue deferred end year 2014 ultracapacitor sales rail transit wind energy automotive applications increased significantly offset decline sales chinese hybrid transit vehicle applications decline sales chinese hybrid transit vehicle market primarily related expiration chinese government subsidy program dieselelectric hybrid buses middle 2013 chinese government put place new subsidy program include subsidies dieselelectric hybrid buses however chinese bus customers began incorporating ultracapacitor products plugin hybrid buses subsidized new subsidy program current subsidy program scheduled expire end 2015 although may renewed replaced sales highvoltage capacitor products totaled 404 million 2014 7 433 million recorded 2013 experienced reduction global demand highvoltage products 2014 revenue microelectronic products totaled 106 million 2014 24 139 million recorded 2013 2014 fewer space satellite programs delays programs incorporate microelectronics products substantial amount revenue generated swiss subsidiary functional currency swiss franc reported revenue materially impacted changes exchange rates swiss franc us dollar reporting currency due weakening us dollar swiss franc 2014 compared 2013 revenue positively impacted 356000 following table presents revenue mix product line years ended december 31 2014 2013 gross profit 2014 decreased 69 million 9 684 million compared 2013the decrease gross profit absolute dollars related primarily decrease volume ultracapacitor revenues recognized 113 million revenue 2013 related previous years sales decline microelectronics product sales well decline average selling prices ultracapacitor products 2014 compared 2013 percentage revenue gross profit decreased 37 2014 compared 39 2013 decrease gross profit percentage revenue primarily result decrease sales highvoltage capacitor microelectronics products earn higher margins ultracapacitor products additionally decrease gross profit percentage revenues affected decline ultracapacitor average selling prices selling general administrative expense following table presents selling general administrative expense years ended december 31 2014 2013 thousands except percentage selling general administrative expenses 24 revenue 2014 23 2013 total expenses decreased 338000 1 2014 compared 2013 decrease absolute dollars primarily driven decrease legal audit tax consulting fees higher 2013 47 million mainly related audit committees investigation internal review restatement previously issued financial statements impact offset increase labor expenses 15 million 2014 compared 2013 primarily related additional headcount sales marketing additionally recruiting expenses increased 822000 primarily due search new chief executive officer additional staff san diego asia facilities addition advertising promotion expenses increased 819000 mainly related increased focus advertising newer engine starting product travel expenses increased 658000 mainly related customer relations sales efforts despite decline absolute dollars selling general administrative expenses increased 24 revenue 2014 23 2013 result lower revenues 2014 research development expense following table presents research development expense years ended december 31 2014 2013 thousands except percentage research development expenses 14 revenue 2014 12 2013 total expenses increased 38 million 17 2014 compared 2013 increase absolute dollars primarily driven increases 18 million labor expenses 18 million contracted research development services increases support efforts improve manufacturing processes develop enhance products addition increase absolute dollars research development expenses increased 14 revenue 2014 12 2013 expenses higher revenues lower 2014 provision income taxes effective tax rate differs statutory us federal income tax rate 34 primarily due foreign income tax valuation allowance company’s domestic deferred tax assets recorded income tax provision 43 million year ended december 31 2014 compared 22 million year ended december 31 2013 provision primarily related taxes income generated swiss subsidiary result changes business circumstances fourth quarter 2014 company changed estimate amount foreign earnings considered permanently reinvested therefore quarter ended december 31 2014 recorded 16 million deferred tax expense associated portion unremitted earnings foreign subsidiary considered permanently reinvested event repatriate earnings withholding tax would become payable company established valuation allowance us federal state deferred tax assets well deferred tax asset foreign subsidiary due uncertainty surrounding realization assets evidenced cumulative losses operations december 31 2014 management periodically evaluates recoverability deferred tax assets time determined likely deferred assets realizable valuation allowance reduced accordingly december 31 2014 cumulative valuation allowance recorded offsetting worldwide net deferred tax assets 642 million significant majority represents valuation allowance us net deferred tax asset established valuation allowance us federal state deferred tax assets due uncertainty surrounding realization assets management periodically evaluates recoverability deferred tax assets time determined likely us deferred tax assets realizable valuation allowance reduced accordingly year ended december 31 2013 compared year ended december 31 2012 net income reported 2013 63 million 022 per diluted share compared net income 72 million 025 per diluted share 2012 revenue grew 22 2013 compared 2012 gross profit declined percentage revenue 41 2012 39 2013 total operating expenses generally consistent 2013 compared 2012 revenue gross profit following table presents revenue cost revenue gross profit years ended december 31 2013 2012 thousands except percentage revenue 2013 increased 22 1935 million compared 1593 million 2012 ultracapacitor product revenue increased 42 1363 million 2013 compared 960 million prior year increase revenues ultracapacitor products primarily influenced increased sales hybrid transit vehicle wind energy markets addition increase ultracapacitor revenues partially due net impact deferring revenue certain sales arrangements resulted 113 million additional revenue 2013 2012 net decrease ultracapacitor revenues 61 million related net impact revenue deferrals sales highvoltage capacitor products totaled 433 million 2013 5 456 million recorded 2012 revenue microelectronic products tend vary widely totaled 139 million 2013 22 177 million recorded 2012 substantial amount revenue generated swiss subsidiary functional currency swiss franc reported revenue materially impacted changes exchange rates swiss franc us dollar reporting currency due weakening us dollar swiss franc 2013 compared 2012 revenue positively impacted 391000 following table presents revenue mix product line years ended december 31 2013 2012 gross profit 2013 increased 102 million 16 753 million compared 2012 percentage revenue gross profit decreased 39 2013 compared 41 2012 decrease gross profit percent revenue primarily due sales mix higher proportion overall sales volume attributable ultracapacitor products earn lower margins product lines increase gross profit absolute dollars 117 million related increase sales partially offset 16 million increase reserve excess obsolete inventory 464000 reserve product rework costs selling general administrative expense following table presents selling general administrative expense years ended december 31 2013 2012 thousands except percentage selling general administrative expenses 23 revenue 2013 compared 21 2012 total expenses increased 105 million 31 increase absolute dollars primarily driven increase legal expenses 30 million increase audit tax fees 17 million increase 790000 consulting expenses mainly related audit committees investigation internal review restatement previously issued financial statements increase 32 million payroll expenses related increased headcount including retention chief operating officer addition increase bonus expense 17 million performance targets 2013 bonus program substantially achieved whereas bonus expense recorded 2012 performance targets 2012 bonus program achieved research development expense following table presents research development expense years ended december 31 2013 2012 thousands except percentage research development expenses 12 revenue 2013 compared 14 2012 total expenses increased 225 million 2013 compared 217 million 2012 increase approximately 842000 4 percentage revenues research development expenses 12 2013 compared 14 2012 increase absolute dollars primarily driven increase facility costs 843000 due continued expansion research development facilities provision income taxes recorded income tax provision 22 million year ended december 31 2013 compared 23 million year ended december 31 2012 provision primarily related taxes income generated swiss subsidiary unremitted earnings foreign subsidiaries included consolidated financial statements without giving effect united states taxes may payable established valuation allowance us federal state deferred tax assets well deferred tax assets certain foreign subsidiaries due uncertainty surrounding realization assets evidenced cumulative losses operations december 31 2013 management periodically evaluates recoverability deferred tax assets time determined likely deferred assets realizable valuation allowance reduced accordingly liquidity capital resources changes cash flow following table summarizes cash flows operating investing financing activities past three fiscal years thousands net cash used operating activities 62 million 2014 compared net cash provided operating activities 199 million 2013 net cash used operating activities 11 million 2012 operating cash flows 2014 related primarily net loss 63 million included noncash charges 152 million addition increase accounts receivable 151 million increase inventory 15 million increase accounts receivable primarily due sales growth well shipment linearity shipments weighted last two months 2014 increase inventories primarily relates lower demand fourth quarter 2014 anticipated decrease operating cash flows 2014 compared 2013 relates primarily net loss 63 million along noncash charges 152 million 2014 versus net income 63 million along noncash charges 148 million 2013 2014 cash flows affected increase accounts receivable 151 million compared decrease 37 million accounts receivable 2013 net cash used investing activities 70 million year ended december 31 2014 compared 169 million 2013 152 million 2012 capital expenditures 2014 primarily focused investments increased production capacity including equipment manufacturing facilities san diego california peoria arizona contract manufacturing operations shenzhen china well investments corporate research development center san diego california cash used investing activities 2013 2012 primarily focused investments increase production capacity including equipment manufacturing facilities peoria arizona rossens switzerland well investments corporate research development facility san diego california net cash provided financing activities 96 million year ended december 31 2014 compared net cash used financing activities 14 million 2013 net cash provided financing activities 156 million 2012 year ended december 31 2014 net cash provided financing activities primarily resulted net borrowing long term short term debt 81 million cash proceeds stockbased compensation plans 14 million year ended december 31 2013 net cash used financing activities primarily resulted net payments long term short term debt 17 million offset cash proceeds stockbased compensation plans 412000 year ended december 31 2012 net cash provided financing activities primarily resulted issuance common stock secondary security offering 103 million net proceeds long term short term debt 38 million cash proceeds associated stockbased compensation plans 18 million liquidity december 31 2014 approximately 247 million cash equivalents working capital 620 million management believes available cash balances sufficient fund operations obligations become due capital equipment expenditures least next twelve months addition may choose issue additional debt equity supplement existing cash balances total 156 million debt outstanding december 31 2014 99 million outstanding 100 million line credit 559000 outstanding equipment term loan bank amounts immediately callable bank result event noncompliance discussed line credit otherwise scheduled expire february 28 2015 equipment term loan scheduled mature april 30 2015 working bank expect able obtain waiver event default extend term credit facility expect outstanding debt obligation called bank june 3 2014 filed shelf registration statement form s3 sec time sell 125 million common stock warrants debt securities units date raised funds shelf registration statement future may decide supplement existing cash planned cash flows borrowing additional funds issuing additional debt equity capital expenditures expected approximately 65 million 2015 approximately 50 planned capital spending focused product research development 30 focused improving manufacturing processes remaining planned capital spending support information technology infrastructure improvements facilities december 31 2014 amount cash shortterm investments held foreign subsidiaries 174 million funds needed operations us future may required accrue pay taxes repatriate portion funds rate approximately 5 year ended december 31 2014 recorded 16 million deferred tax expense associated portion unremitted earnings foreign subsidiary considered permanently reinvested credit facility december 2011 obtained secured credit facility form revolving line credit “revolving line credit” equipment term loan “equipment term loan” together “credit facility” amended revolving line credit available maximum 100 million general amounts borrowed credit facility secured lien assets intellectual property addition credit agreement amended required pledge 100 equity interests swiss subsidiary also agreed encumber intellectual property agreement contains certain restrictive covenants limit ability amongst things incur additional indebtedness guarantees ii create liens encumbrances property iii enter merger similar transaction iv invest another entity v declare pay dividends vi invest fixed assets excess defined dollar amount repayment amounts owed pursuant credit facility may accelerated event violation representations warranties covenants made credit agreement including certain financial covenants financial covenants must meet term credit agreement amended include quarterly minimum liquidity ratios minimum cash requirements net loss targets borrowings credit facility bear interest payable monthly either banks prime rate ii libor plus 225 option subject certain limitations incur unused commitment fee payable quarterly equal 025 per annum average daily unused amount revolving line credit equipment term loan available finance 80 eligible equipment purchases made april 1 2011 april 30 2012 period borrowed 50 million equipment term loan 2014 borrowed 99 million revolving line credit december 31 2013 compliance financial covenant pertaining quarterly ebitda target quarter ended december 31 2013 result noncompliance borrowings outstanding credit facility classified current obligation consolidated balance sheet december 31 2013 december 31 2014 compliance financial covenant pertaining quarterly net loss target 10 million quarter ended december 31 2014 result noncompliance borrowings outstanding credit facility immediately callable bank revolving line credit otherwise scheduled expire february 28 2015 equipment term loan scheduled mature april 30 2015 december 31 2014 99 million outstanding revolving line credit applicable interest rate libor plus 300 325 december 31 2014 amount outstanding revolving line credit scheduled repaid february 28 2015 december 31 2014 559000 outstanding equipment term loan applicable interest rate libor plus 225 25 december 31 2014 principal interest equipment term loan payable 36 equal monthly installments equipment term loan fully repaid maturity date april 30 2015 may prepaid whole part time shortterm borrowings maxwell’s swiss subsidiary maxwell sa 30 million swiss francdenominated approximately 30 million december 31 2014 shortterm loan agreement swiss bank renews semiannually bears interest 14 borrowings shortterm loan agreement unsecured december 31 2014 2013 full amount loan drawn addition maxwell sa 20 million swiss francdenominated approximately 20 million december 31 2014 credit agreement swiss bank renews annually bears interest 17 borrowings credit agreement unsecured december 31 2014 2013 full amount available credit line drawn maxwell sa also 10 million swiss francdenominated approximately 10 million december 31 2014 credit agreement another swiss bank available balance line withdrawn reduced bank time december 31 2014 2013 amounts drawn credit line interest rates applicable draws line determined time draw longterm borrowings maxwell sa various financing agreements vehicles agreements original threeyear repayment period interest rates ranging 19 51 december 31 2014 2013 82000 179000 respectively outstanding agreements dividends remaining term equipment term loan scheduled repaid april 2015 permitted declare pay dividends contractual obligations 1 operating lease obligations primarily represent building leases 2 purchase commitments primarily represent value noncancelable purchase orders estimate purchase orders canceled would result significant penalty 3 debt obligations represent longterm shortterm borrowings interest payable 424000 4 pension benefit payments represent expected amounts paid pension benefits 5 year ended december 31 2014 recorded 16 million deferred tax expense associated portion unremitted earnings foreign subsidiary considered permanently reinvested 6 amount represents estimated contractual commitments research development arrangement critical accounting estimates consider accounting estimate critical 1 accounting estimate requires us make assumptions matters uncertain time accounting estimate made 2 changes estimate reasonably likely occur period use different estimates reasonably could used current period would material impact financial condition results operations also see note 1 summary significant accounting policies part ii item 8 financial statements supplementary data annual report form 10k discusses significant accounting policies believe following either critical accounting policies require us make significant estimates assumptions preparation consolidated financial statements ii key accounting policies may require us make difficult subjective judgments revenue recognition nature estimates required sales revenue primarily derived sale products directly customers product revenue recognized criteria revenue recognition met customer agreements terms sale evaluated determine criteria revenue recognition met therefore revenue recognized revenue recognition deferred criteria revenue recognition met assumptions approach used product revenue recognized following criteria met 1 persuasive evidence arrangement exists according customer contracts sales documents 2 title risk loss pass customer according orders shipping terms 3 price deemed fixed determinable free significant contingencies uncertainties 4 collectability reasonably assured customer contracts purchase orders order confirmations generally used determine existence arrangement shipping terms determine passage title risk loss occurred assess whether price fixed determinable based upon payment terms associated transaction assess collectability accounts receivable based primarily upon creditworthiness customer determined credit checks analysis well customer’s payment history determine particular sale meet criteria revenue recognition revenue recognized criteria determined achieved example determine collectability reasonably assured time sale defer revenue recognition typically period cash received customer beginning fourth quarter 2011 three distributors products offered extended payment terms allowed distributors pay us received payment customer respect certain sales transactions also beginning fourth quarter 2011 one distributor products offered return rights profit margin protection respect certain sales transactions therefore four distributors determined revenue recognition criteria met time delivery fixed determinable price collection reasonably assured least respect certain sales transactions result three distributors provided extended payment terms provide fixed determinable price determined defer recognition revenue sales beginning fourth quarter 2011 period cash received one distributor provided return rights profit margin protection could estimate exposure determined defer recognition revenue sales beginning fourth quarter 2011 distributor confirmed us entitled returns credits third quarter 2013 distributor confirmed us entitled returns credits therefore previously deferred revenue related distributor recognized quarter ended september 30 2013 although deferred revenue significant amount sales four distributors prior years amount deferred revenue related distributors december 31 2013 2014 insignificant addition revenue arrangements discussed preceding paragraph revenue recognized sales meet revenue recognition criteria time sale revenue recognized criteria revenue recognition determined met example believe collection sales price reasonably assured time sale defer revenue recognition cash received december 31 2014 december 31 2013 cumulative sales totaling 445000 45 million respectively yet recognized revenue recorded cost basis inventory shipped customers prior achievement revenue recognition criteria approximately 184000 25 million december 31 2014 2013 respectively inventory consolidated balance sheets total deferred revenue consolidated balance sheets december 31 2013 2012 703000 10 million respectively relates cash received customers sales revenue recognition criteria achieved customer advances well less significant customer arrangements requiring deferral revenue excess obsolete inventory nature estimates required estimates principally based assumptions regarding ability sell items inventory due uncertainty potential volatility inherent estimates changes assumptions could materially affect results operations assumptions approach used estimate excess obsolete inventory evaluated quarterly basis based rolling historical inventory usage assumptions regarding future product demand actual levels inventory change specific products become slow moving obsolete estimated reserve may materially change pension nature estimates required use several significant assumptions within actuarial models utilized measuring pension benefit obligation estimate fair values real estate assets held pension plan assumptions approach used discount rate expected return assets estimates impacting plan expense asset liability measurement evaluate critical assumptions least annually addition appraise fair value real estate assets annually periodically evaluate assumptions involving demographic factors used measure pension obligation retirement age mortality turnover update reflect experience expectations future actual results given year often differ actuarial assumptions economic factors projected benefit obligation december 31 2014 330 million fair value plan assets 404 million company rights assets plan stockbased compensation nature estimates required stockbased compensation awards include stock options restricted stock restricted stock units shares issued employee stock purchase plan record compensation expense stockbased compensation awards accordance criteria set forth stock compensation subtopic financial accounting standards board fasb accounting standards codification asc guidance fair value employee stock option estimated date grant using option pricing model meets certain requirements although granted stock options since 2013 use blackscholes option pricing model estimate fair value stock option grants determination fair value stock options utilizing blackscholes model affected stock price number assumptions including expected volatility expected life riskfree interest rate expected dividends fair value restricted stock restricted stock units rsu based closing market price common stock date grant compensation expense equal fair value restricted stock rsu award recognized ratably requisite service period restricted stock rsu awards vesting contingent achievement company performance conditions use requisite service period likely occur requisite service period estimated based expected achievement date performance condition unlikely performance condition achieved compensation expense recognized unless later determined achievement performance condition likely requisite service period may adjusted changes expected outcomes related performance conditions impact changes recognized cumulative adjustment consolidated statement operations period expectation changes 2014 issued marketcondition rsu awards certain members executive management since vesting marketcondition rsus dependent stock price performance fair values awards estimated using montecarlo valuation model determination fair value marketcondition rsus utilizing montecarlo valuation model affected stock price number assumptions including expected volatility expected life riskfree interest rate expected dividends stockbased compensation expense recognized consolidated statement operations based equity awards ultimately expected vest fasb asc requires forfeitures estimated time grant revised necessary subsequent periods cumulative catch adjustment actual forfeitures differ estimates assumptions approach used determining value stock option marketcondition rsu grants estimate expected dividend yield zero never paid cash dividends present intention pay cash dividends addition remaining term equipment term loan scheduled fully repaid april 2015 permitted declare pay dividends expected term calculation based actual life historical stock option grants expected volatility based historical stock prices using mathematical formula measure standard deviation change natural logarithm underlying stock price period time commensurate expected term riskfree interest rate derived zero coupon rate us treasury instruments term commensurate awards expected term restricted stock rsu awards vesting contingent achievement company performance conditions amount compensation expense estimated based expected achievement performance condition requires us make estimates likelihood achievement company performance conditions highly judgmental base judgments expected achievement company performance conditions based financial projections company used management business purposes represent best estimate expected company performance unlikely performance condition achieved compensation expense recognized unless later determined achievement performance condition likely requisite service period estimated based expected achievement date performance condition evaluate assumptions used value stockbased awards quarterly basis factors change employ different assumptions stockbased compensation expense may differ significantly recorded past modifications cancellations stockbased awards may required accelerate increase decrease remaining unrecognized stockbased compensation expense extent grant additional stockbased awards compensation expense increase relation fair value additional grants compensation expense may significantly impacted future extent estimates differ actual results income taxes nature estimates required record income tax valuation allowance realization certain deferred tax assets including net operating losses likely included net operating loss deferred tax asset approximately 100 million gross deferred tax asset attributable stock option exercises restricted stock grants disqualifying dispositions incentive stock options stock issued companys espp according provision within asc 718 stock compensation concerning tax benefits related excess stock option deductions credited paidin capital related valuation allowance cannot reversed even facts circumstances indicate likely deferred tax asset realized valuation allowance reversed related deferred tax asset applied reduce taxes payable record deferred income taxes portion undistributed earnings foreign subsidiaries considered indefinitely reinvested based decision permanently reinvest undistributed earnings may subject income withholding taxes earnings foreign subsidiaries distributed additional withholding taxes approximately 38 million would payable upon remittance previously unremitted earnings december 31 2014 result changes business circumstances fourth quarter 2014 company changed estimate amount foreign earnings considered permanently reinvested therefore quarter ended december 31 2014 recorded 16 million deferred tax expense associated portion unremitted earnings foreign subsidiary management longer considers permanently reinvested event repatriate earnings withholding tax would become payable assumptions approach used deferred income taxes arise temporary differences tax financial statement recognition revenue expense evaluating ability recover deferred tax assets within jurisdiction arise consider available positive negative evidence including scheduled reversals deferred tax liabilities projected future taxable income taxplanning strategies results recent operations significant judgments estimates required evaluation determine able realize portion deferred tax assets future record adjustment increase recorded value corresponding adjustment increase income additional paid capital appropriate period commitments contingencies nature estimates required involved litigation regulatory proceedings claims prosecute defend matters aggressively however many uncertainties associated litigation assurance actions thirdparty claims us resolved without costly litigation andor substantial settlement charges assumptions approach used disclose information concerning contingent liabilities respect claims proceedings unfavorable outcome remote recognize liabilities claims proceedings appropriate based upon probability loss ability estimate losses fairly present conjunction disclosures matters consolidated financial statements management’s view exposure review outstanding claims proceedings external counsel appropriate assess probability estimates loss recognize liability related claims proceedings time unfavorable outcome becomes probable amount reasonably estimated reasonable estimate range recognized liability best estimate within range amount range better estimate amount minimum amount range recognized reevaluate assessments quarter new significant information becomes available determine whether liability recognized existing liability adjusted actual cost ultimately resolving claim proceeding may substantially different amount recognized liability addition permissible recognize liability loss probable estimable cases may insufficient time recognize liability prior actual incurrence loss upon verdict judgment trial example case quickly negotiated settlement impact inflation believe inflation material impact results operations fiscal years threeyear period ended december 31 2014 however assurance future inflation would adverse impact operating results financial condition recent accounting pronouncements may 2014 financial accounting standards board “fasb” issued accounting standards update asu 201409 revenue contracts customers “asu 201409” standard provides companies single model accounting revenue arising contracts customers supersedes current revenue recognition guidance including industryspecific revenue guidance core principle model recognize revenue control goods services transfers customer opposed recognizing revenue risks rewards transfer customer existing revenue guidance asu 201409 effective annual reporting periods beginning december 15 2016 early adoption permitted guidance permits companies either apply requirements retrospectively prior periods presented apply requirements year adoption cumulative adjustment process evaluating impact adoption consolidated financial statements august 2014 fasb issued asu 201415 disclosure uncertainties entity’s ability continue going concern standard requires management perform interim annual assessments entity’s ability continue going concern within one year date financial statements issued provides guidance determining disclose going concern uncertainties financial statements certain disclosures required conditions give rise substantial doubt entity’s ability continue going concern asu 201415 applies entities effective annual interim reporting periods ending december 15 2016 early adoption permitted expect adoption standard material effect financial statements balance sheet arrangements none item 7a nannannanitem 7a quantitative qualitative disclosure market risk company entered invested instruments subject market risk companys bank lineofcredit agreement bears interest rate varies based libor banks prime rate item 8item 7a quantitative qualitative disclosure market risk entered invested instruments subject market risk except follows face exposure financial market risks including adverse movements foreign currency exchange rates changes interest rates exposures may change time could material adverse impact financial results primary foreign currency exposure related local currency revenue operating expenses europe result international operations changes foreign currency exchange rates impact united states dollar amount revenue expenses historically hedged specific currency exposures gains losses foreign currency transactions material date december 31 2000 227 million outstanding related variable rate us dollar denominated shortterm debt carrying value shortterm borrowings approximates fair value due short maturities instruments assuming hypothetical 10 adverse change interest rate annual interest expense shortterm borrowings amount outstanding remained unchanged would increase approximately 220000 item 8item 7a quantitative qualitative disclosure market risk entered invested instruments subject market risk except follows face exposure financial market risks including adverse movements foreign currency exchange rates changes interest rates exposures may change time could material adverse impact financial results primary foreign currency exposure related local currency revenue operating expenses europe result international operations changes foreign currency exchange rates impact united states dollar amount revenue expenses historically hedged specific currency exposures gains losses foreign currency transactions material date december 31 2001 6 million outstanding related variable rate us dollar denominated term debt carrying value debt approximates fair value due variable rate assuming hypothetical 10 adverse change interest rate annual interest expense amount outstanding remained unchanged would increase approximately 30000 invest excess cash debt instruments us government agencies highquality corporate issuers primary objective investment activities preserve principal maximizing yields without significantly increasing risk current policies allow use interest rate derivative instruments manage exposure interest rate changes third party manages approximately 10 million shortterm investment portfolio guidelines approved companys board directors remaining portfolio invested cds mature first half 2002 money market accounts item 8item 7a quantitative qualitative disclosures market risk entered invested instruments subject market risk except follows face exposure financial market risks including adverse movements foreign currency exchange rates changes interest rates exposures may change time could material adverse impact financial results primary foreign currency exposure related subsidiary switzerland maxwell sa euro local currency swiss franc revenue local currency operating expenses changes currency exchange rates impact us dollar amount revenue expenses hedge currency exposures december 31 2002 30 million outstanding related variable rate us dollar denominatedterm debt carrying value shortterm borrowings approximates fair value due short maturities instruments assuming hypothetical 10 adverse change interest rate annual interest expense shortterm borrowings amount outstanding remained unchanged would increase approximately 03 million invest excess cash debt instruments us government agencies highquality corporate issuers money market accounts primary objective investment activities preserve principal maximizing yields without significantly increasing risk current policies allow use interest rate derivative instruments manage exposure interest rate changes third party manages approximately 7 million investment portfolio guidelines approved company’s board directors balance cash invested money market accounts banks item 8item 7a quantitative qualitative disclosures market risk entered invested instruments subject market risk except follows face exposure financial market risks including adverse movements foreign currency exchange rates changes interest rates exposures may change time could material adverse impact financial results foreign currency risk primary foreign currency exposure related subsidiary switzerland maxwell technologies sa euro local currency swiss franc revenue local currency operating expenses changes currency exchange rates impact us dollar amount revenue expenses hedge currency exposures interest rate risk december 31 2003 16 million 2 million swiss franc denominatedterm debt carrying value shortterm borrowings approximates fair value due short maturity dates instrument anticipate significant interest rate swings near future however exchange loss gain may significantly affect balance sheet statement operations invest excess cash debt instruments us government agencies highquality corporate issuers money market accounts primary objective investment activities preserve principal maximizing yields without significantly increasing risk current policies allow use interest rate derivative instruments manage exposure interest rate changes december 31 2003 third party manages approximately 25 million investment portfolio guidelines approved company’s board directors balance cash invested money market accounts banks item 8item 7a quantitative qualitative disclosures market risk face exposure financial market risks including adverse movements foreign currency exchange rates changes interest rates exposures may change time could material adverse impact financial results entered invested instruments subject market risk except follows foreign currency risk primary foreign currency exposure related subsidiary switzerland maxwell technologies sa euro local currency swiss franc revenue local currency operating expenses loans changes currency exchange rates impact us dollar amount revenue expenses debt hedge currency exposures interest rate risk december 31 2004 approximately 28 million 315 million swiss franc denominateddebt 813000 classified longterm debt carrying value borrowings approximates fair value due short maturity dates instruments anticipate significant interest rate swings near future however exchange loss gain may affect consolidated balance sheet statement operations 10 increase interest rate debt would material effect related interest expense invest excess cash debt instruments us government agencies highquality corporate issuers money market accounts primary objective investment activities preserve principal maximizing yields without significantly increasing risk current policies allow use interest rate derivative instruments manage exposure interest rate changes december 31 2004 third parties manage approximately 80 million investment portfolio guidelines approved company’s board directors balance cash invested money market accounts banks 10 increase interest rate marketable securities would material effect interest income item 8item 7a quantitative qualitative disclosures market risk face exposure financial market risks including adverse movements foreign currency exchange rates changes interest rates exposures may change time could material adverse impact financial results entered invested instruments subject market risk except follows foreign currency risk primary foreign currency exposure related subsidiary switzerland maxwell technologies sa euro local currency swiss franc revenue local currency operating expenses loans changes currency exchange rates impact us dollar amount revenue expenses debt hedge currency exposures interest rate risk december 31 2005 approximately 22 million 29 million swiss franc denominateddebt 524000 classified longterm debt carrying value borrowings approximates fair value due short maturity dates instruments also 25 million longterm debt convertible debentures issued december 20 2005 222 million classified longterm debt anticipate significant interest rate swings near future however exchange loss gain may affect consolidated balance sheet statement operations increase interest rates 5375 15375 debt would 27 million effect related interest expense invest excess cash debt instruments us government agencies highquality corporate issuers money market accounts primary objective investment activities preserve principal maximizing yields without significantly increasing risk current policies allow use interest rate derivative instruments manage exposure interest rate changes december 31 2005 third parties manage approximately 696000 investment portfolio guidelines approved company’s board directors balance cash invested money market accounts banks 10 change interest rate marketable securities would material effect interest income company expects invest funds raised december 20 2005 marketable securities therefore 10 change interest rate would material effect interest income future item 8item 7a quantitative qualitative disclosures market risk face exposure financial market risks including adverse movements foreign currency exchange rates changes interest rates exposures may change time could material adverse impact financial results entered invested instruments subject market risk except follows foreign currency risk primary foreign currency exposure related subsidiary switzerland maxwell technologies sa euro local currency swiss franc revenue local currency operating expenses loans changes currency exchange rates impact us dollar amount revenue expenses debt hedge currency exposures interest rate risk december 31 2006 approximately 282 million debt 225 million classified longterm debt anticipate significant interest rate swings near future however occur may affect consolidated balance sheet statement operations impact earnings cash flow next fiscal year change 1000 basis points interest rate would 28 million effect related interest expense invest excess cash debt instruments us government agencies highquality corporate issuers money market accounts primary objective investment activities preserve principal maximizing yields without significantly increasing risk current policies allow use interest rate derivative instruments manage exposure interest rate changes december 31 2006 third parties manage approximately 32 million investment portfolio guidelines approved company’s board directors balance cash invested money market accounts banks 1000 basis point change interest rate marketable securities would material effect interest income fair value risk record adjustment convertible debenture adjusting fair value embedded conversion options stock warrants change instruments primarily impacted price stock end reporting period adjustment creates noncash effect statement operations may significant impact item 8item 7a quantitative qualitative disclosures market risk face exposure financial market risks including adverse movements foreign currency exchange rates changes interest rates exposures may change time could material adverse impact financial results entered invested instruments subject market risk except follows foreign currency risk primary foreign currency exposure related subsidiary switzerland maxwell sa euro local currency swiss franc revenue local currency operating expenses loans year ended december 31 2007 maxwell sa revenue approximately 119 million euro 197 million swiss franc changes currency exchange rates impact us dollar amount revenue expenses debt hedge currency exposures interest rate risk december 31 2007 approximately 300 million debt 135 million classified longterm debt anticipate significant interest rate swings near future however occur may affect consolidated balance sheet statement operations estimated impact earnings cash flow next fiscal year change 100 basis points interest rate would 300000 effect related interest expense invest excess cash debt instruments us government agencies highquality corporate issuers money market accounts primary objective investment activities preserve principal maximizing yields without significantly increasing risk current policies allow use interest rate derivative instruments manage exposure interest rate changes december 31 2007 third parties manage approximately 214 million investment portfolio guidelines approved board directors balance cash invested money market accounts banks 100 basis point change interest rate marketable securities would 214000 effect interest income fair value risk record adjustment convertible debenture adjusting fair value embedded conversion options stock warrants change instruments primarily impacted price stock end reporting period adjustment creates noncash effect statement operations may significant impact item 8item 7a quantitative qualitative disclosures market risk face exposure financial market risks including adverse movements foreign currency exchange rates changes interest rates exposures may change time could material adverse impact financial results entered invested instruments subject market risk except follows foreign currency risk primary foreign currency exposure related subsidiary switzerland maxwell sa euro local currency swiss francs revenue operating expenses well loans swiss francs changes currency exchange rates impact us dollar amount revenue expenses debt company certain long term contracts currency us dollars change 100 basis points 1 customer local currency would impact value contracts approximately 106000 hedge currency exposures interest rate risk december 31 2008 approximately 195 million debt 582000 classified longterm debt anticipate significant interest rate swings near future however occur may affect consolidated balance sheet statement operations estimated impact earnings cash flow next fiscal year change 100 basis points interest rate would 195000 effect related interest expense fair value risk record adjustment convertible debenture adjusting fair value embedded conversion options stock warrants change value instruments primarily impacted price stock end reporting period adjustment creates noncash effect statement operations may significant impact item 8item 7a quantitative qualitative disclosures market risk face exposure financial market risks including adverse movements foreign currency exchange rates changes interest rates exposures may change time could material adverse impact financial results entered invested instruments subject market risk except follows foreign currency risk primary foreign currency exposure related subsidiary switzerland maxwell sa euro local currency swiss franc revenue operating expenses well local currency loans changes currency exchange rates impact reported amount us dollar revenue expenses debt part risk management strategy use forward contracts hedge certain foreign currency exposures objective offset gains losses resulting exposures gains losses forward contracts thereby reducing volatility earnings use forward contracts hedge certain monetary assets liabilities primarily receivables payables denominated foreign currency change fair value instruments represents natural hedge gains losses offset changes underlying fair value monetary assets liabilities due movements currency exchange rates interest rate risk december 31 2010 approximately 161 million debt 126 million classified longterm debt changes interest rates may affect consolidated balance sheet statement operations impact earnings cash flow next fiscal year change 100 basis points 1 interest rate would 58000 effect interest expense calculating impact 83 million principal balance convertible debentures outstanding december 31 2010 excluded amount converted shares common stock february 2011 fair value risk record quarterly adjustment convertible debentures adjust change fair value embedded conversion options change fair value conversion options primarily impacted price stock end reporting period adjustment creates noncash effect statement operations may significant impact pension asset 53 million december 31 2010 including plan assets 307 million recorded fair value plan assets consist 55 debt equity securities 37 real estate 8 cash equivalents fair value measurement real estate subject real estate market forces switzerland fair value debt equity securities determined based quoted prices active markets identical assets subject interest rate risk manage risk diversified portfolio see note 11 consolidated financial statements discussion pension assets item 8item 7a quantitative qualitative disclosures market risk face exposure financial market risks including adverse movements foreign currency exchange rates changes interest rates exposures may change time could material adverse impact financial results entered invested instruments subject market risk except follows foreign currency risk primary foreign currency exposure related subsidiary switzerland maxwell sa euro local currency swiss franc revenue operating expenses well local currency loans changes currency exchange rates impact reported amount us dollar revenue expenses debt part risk management strategy use forward contracts hedge certain foreign currency exposures objective offset gains losses resulting exposures gains losses forward contracts thereby reducing volatility earnings use forward contracts hedge certain monetary assets liabilities primarily receivables payables denominated foreign currency change fair value instruments represents natural hedge gains losses partially offset changes fair value underlying monetary assets liabilities due movements currency exchange rates december 31 2012 impact theoretical detrimental change foreign currency exchange rates 10 foreign currency forward contracts would result hypothetical loss 38 million however considering offsetting impact theoretical change exchange rates underlying assets liabilities hedged hypothetical loss 14000 would recorded income continuing operations consolidated statement operations local currency debt carried swiss subsidiary impact hypothetical 10 detrimental change foreign currency exchange rates would result hypothetical loss 620000 would recorded accumulated comprehensive income consolidated balance sheet interest rate risk december 31 2012 approximately 95 million debt 83000 classified longterm debt changes interest rates may affect consolidated balance sheet statement operations impact earnings cash flow next fiscal year change 100 basis points 1 interest rate would 95000 effect interest expense fair value risk net pension asset 69 million december 31 2012 including plan assets 369 million recorded fair value plan assets consist 56 debt equity securities 39 real estate 5 cash equivalents fair value measurement real estate subject real estate market forces switzerland fair value debt equity securities determined based quoted prices active markets identical assets subject interest rate risk manage risk diversified portfolio see note 13 consolidated financial statements discussion pension assets item 8item 7a quantitative qualitative disclosures market risk face exposure financial market risks including adverse movements foreign currency exchange rates changes interest rates exposures may change time could material adverse impact financial results entered invested instruments subject market risk except follows foreign currency risk primary foreign currency exposure related subsidiary switzerland maxwell sa euro local currency swiss franc revenue operating expenses well local currency loans changes currency exchange rates impact reported amount us dollar revenue expenses debt part risk management strategy use forward contracts hedge certain foreign currency exposures objective offset gains losses resulting exposures gains losses forward contracts thereby reducing volatility earnings use forward contracts hedge certain monetary assets liabilities primarily receivables payables denominated foreign currency change fair value instruments represents natural hedge gains losses partially offset changes fair value underlying monetary assets liabilities due movements currency exchange rates december 31 2013 impact theoretical detrimental change foreign currency exchange rates 10 foreign currency forward contracts would result hypothetical loss 34 million however considering offsetting impact theoretical change exchange rates underlying assets liabilities hedged hypothetical loss 11000 would recorded income continuing operations consolidated statement operations local currency debt carried swiss subsidiary impact hypothetical 10 detrimental change foreign currency exchange rates would result hypothetical loss 636000 would recorded accumulated comprehensive income consolidated balance sheet interest rate risk december 31 2013 approximately 80 million debt 100000 classified longterm debt changes interest rates may affect consolidated balance sheet statement operations impact earnings cash flow next fiscal year change 100 basis points 1 interest rate would 80000 effect interest expense fair value risk net pension asset 106 million december 31 2013 including plan assets 431 million recorded fair value plan assets consist 57 debt equity securities 40 real estate 3 cash equivalents fair value measurement real estate subject real estate market forces switzerland fair value debt equity securities determined based quoted prices active markets identical assets subject interest rate risk manage risk diversified portfolio see note 12 consolidated financial statements discussion pension assets item 8item 7a quantitative qualitative disclosures market risk face exposure financial market risks including adverse movements foreign currency exchange rates changes interest rates exposures may change time could material adverse impact financial results entered invested instruments subject market risk except follows foreign currency risk primary foreign currency exposure related subsidiary switzerland maxwell sa euro local currency swiss franc revenue operating expenses well local currency loans changes currency exchange rates impact reported amount us dollar revenue expenses debt december 31 2016 impact theoretical detrimental change foreign currency exchange rates 10 would result hypothetical loss 01 million local currency debt carried swiss subsidiary impact hypothetical 10 detrimental change foreign currency exchange rates would result hypothetical loss 8000 would recorded accumulated comprehensive income consolidated balance sheet interest rate risk december 31 2016 approximately 83000 debt 43000 classified longterm debt outstanding related vehicle financing agreements due minimal amounts outstanding changes interest rates would significantly impact financial results fair value risk net pension asset 89 million december 31 2016 including plan assets 391 million recorded fair value plan assets consist 52 debt equity securities 43 real estate investment funds 5 cash equivalents fair value measurement real estate investment funds subject real estate market forces switzerland fair value debt equity securities determined based quoted prices active markets identical assets subject interest rate risk manage risk diversified portfolio see note 13 consolidated financial statements discussion pension assets item 8item 7a quantitative qualitative disclosures market risk face exposure financial market risks including adverse movements foreign currency exchange rates changes interest rates exposures may change time could material adverse impact financial results entered invested instruments subject market risk except follows foreign currency risk primary foreign currency exposure related subsidiaries switzerland korea subsidiaries euro us dollar local currency revenue operating expenses well local currency loans changes currency exchange rates impact reported amount us dollar revenue expenses debt december 31 2017 impact theoretical detrimental change foreign currency exchange rates 10 would result hypothetical loss 02 million local currency debt carried swiss subsidiary minor changes foreign currency rates would significantly impact financial results interest rate risk december 31 2017 outstanding balance revolving line credit various financing agreements vehicles agreements fiveyear repayment period interest rates ranging 09 19 december 31 2017 approximately 115000 outstanding financing agreements 82000 classified longterm debt borrowings minor changes interest rates would significantly impact financial results year ended 2017 company issued 460 million 550 convertible senior notes due 2022 “notes” interest notes fixed 55 per year payable semiannually arrears march 15 september 15 year payments commencing march 15 2018 fair value risk net pension asset 117 million december 31 2017 including plan assets 434 million recorded fair value plan assets consist 54 debt equity securities 39 real estate investment funds 7 cash equivalents fair value measurement real estate investment funds subject real estate market forces switzerland fair value debt equity securities determined based quoted prices active markets identical assets subject interest rate risk manage risk diversified portfolio see note 14 consolidated financial statements discussion pension assets item 8item 7a quantitative qualitative disclosures market risk applicable “smaller reporting company” defined rule 12b2 securities exchange act 1934 amended item 8nanitem 7a quantitative qualitative disclosures market risk face exposure financial market risks including adverse movements foreign currency exchange rates changes interest rates exposures may change time could material adverse impact financial results entered invested instruments subject market risk except follows foreign currency risk primary foreign currency exposure related subsidiary switzerland maxwell technologies sa euro local currency swiss francs revenue operating expenses well loans swiss francs changes currency exchange rates impact us dollar amount revenue expenses debt company certain long term contracts currency us dollars change 100 basis points 1 customer local currency would impact value contracts approximately 41000 part risk management strategy use forward contracts hedge certain foreign currency exposures objective offset gains losses resulting exposures gains losses forward contracts thereby reducing volatility earnings use forward contracts hedge certain monetary assets liabilities primarily receivables payables denominated foreign currency change fair value instruments represents natural hedge gains losses offset changes underlying fair value monetary assets liabilities due movements currency exchange rates interest rate risk december 31 2009 approximately 167 million debt includes 115 million longterm debt anticipate significant interest rate swings near future however occur may affect consolidated balance sheet statement operations estimated impact earnings cash flow next fiscal year change 100 basis points interest rate would 167000 effect related interest expense fair value risk record adjustment convertible debenture adjusting fair value embedded conversion options stock warrants change value instruments primarily impacted price stock end reporting period adjustment creates noncash effect statement operations may significant impact prepaid pension asset 77 million december 31 2009 including plan assets 272 million recorded fair value plan assets consist 49 debt equity securities 37 real estate 14 cash equivalents fair value measurement real estate subject real estate market forces switzerland debt equity securities fair value determined based quoted prices active markets identical assets subject interest rate risk manage risk diversified portfolio see note 12 consolidated financial statements discussion pension assets item 8item 7a quantitative qualitative disclosures market risk face exposure financial market risks including adverse movements foreign currency exchange rates changes interest rates exposures may change time could material adverse impact financial results entered invested instruments subject market risk except follows foreign currency risk primary foreign currency exposure related subsidiary switzerland maxwell sa euro local currency swiss franc revenue operating expenses well local currency loans changes currency exchange rates impact reported amount us dollar revenue expenses debt part risk management strategy use forward contracts hedge certain foreign currency exposures objective offset gains losses resulting exposures gains losses forward contracts thereby reducing volatility earnings use forward contracts hedge certain monetary assets liabilities primarily receivables payables denominated foreign currency change fair value instruments represents natural hedge gains losses partially offset changes fair value underlying monetary assets liabilities due movements currency exchange rates contracts considered economic hedges designated hedges derivatives hedging topic fasb asc therefore change fair value instruments recognized currently consolidated statements operations december 31 2015 impact theoretical detrimental change foreign currency exchange rates 10 foreign currency forward contracts would result hypothetical loss 203000 however loss offset effect theoretical change exchange rates underlying assets liabilities hedged local currency debt carried swiss subsidiary impact hypothetical 10 detrimental change foreign currency exchange rates would result hypothetical loss 9000 would recorded accumulated comprehensive income consolidated balance sheet interest rate risk december 31 2015 approximately 91000 debt 49000 classified longterm debt outstanding related vehicle financing agreements due minimal amounts outstanding changes interest rates would significantly impact financial results fair value risk net pension asset 58 million december 31 2015 including plan assets 390 million recorded fair value plan assets consist 52 debt equity securities 43 real estate real estate investment funds 5 cash equivalents fair value measurement real estate investment funds subject real estate market forces switzerland fair value debt equity securities determined based quoted prices active markets identical assets subject interest rate risk manage risk diversified portfolio see note 11 consolidated financial statements discussion pension assets item 8item 7a quantitative qualitative disclosures market risk face exposure financial market risks including adverse movements foreign currency exchange rates changes interest rates exposures may change time could material adverse impact financial results entered invested instruments subject market risk except follows foreign currency risk primary foreign currency exposure related subsidiary switzerland maxwell sa euro local currency swiss franc revenue operating expenses well local currency loans changes currency exchange rates impact reported amount us dollar revenue expenses debt part risk management strategy use forward contracts hedge certain foreign currency exposures objective offset gains losses resulting exposures gains losses forward contracts thereby reducing volatility earnings use forward contracts hedge certain monetary assets liabilities primarily receivables payables denominated foreign currency change fair value instruments represents natural hedge gains losses offset changes underlying fair value monetary assets liabilities due movements currency exchange rates enter foreign currency forward contracts last business day calendar quarter therefore december 31 2011 impact theoretical change foreign currency exchange rates hedged monetary assets liabilities would equally offset gains losses foreign currency forward contracts interest rate risk december 31 2011 approximately 55 million debt 68000 classified longterm debt changes interest rates may affect consolidated balance sheet statement operations impact earnings cash flow next fiscal year change 100 basis points 1 interest rate would 55000 effect interest expense fair value risk pension asset 64 million december 31 2011 including plan assets 331 million recorded fair value plan assets consist 86 debt equity securities 12 real estate 2 cash equivalents fair value measurement real estate subject real estate market forces switzerland fair value debt equity securities determined based quoted prices active markets identical assets subject interest rate risk manage risk diversified portfolio see note 12 consolidated financial statements discussion pension assets item 8item 7a quantitative qualitative disclosures market risk face exposure financial market risks including adverse movements foreign currency exchange rates changes interest rates exposures may change time could material adverse impact financial results entered invested instruments subject market risk except follows foreign currency risk primary foreign currency exposure related subsidiary switzerland maxwell sa euro local currency swiss franc revenue operating expenses well local currency loans changes currency exchange rates impact reported amount us dollar revenue expenses debt part risk management strategy use forward contracts hedge certain foreign currency exposures objective offset gains losses resulting exposures gains losses forward contracts thereby reducing volatility earnings use forward contracts hedge certain monetary assets liabilities primarily receivables payables denominated foreign currency change fair value instruments represents natural hedge gains losses partially offset changes fair value underlying monetary assets liabilities due movements currency exchange rates december 31 2014 impact theoretical detrimental change foreign currency exchange rates 10 foreign currency forward contracts would result hypothetical loss 44 million however considering offsetting impact theoretical change exchange rates underlying assets liabilities hedged hypothetical loss 20000 would recorded income continuing operations consolidated statement operations local currency debt carried swiss subsidiary impact hypothetical 10 detrimental change foreign currency exchange rates would result hypothetical loss 575000 would recorded accumulated comprehensive income consolidated balance sheet interest rate risk december 31 2014 approximately 156 million debt 20000 classified longterm debt changes interest rates may affect consolidated balance sheet statement operations impact earnings cash flow next fiscal year change 100 basis points 1 interest rate would 156000 effect interest expense fair value risk net pension asset 74 million december 31 2014 including plan assets 404 million recorded fair value plan assets consist 55 debt equity securities 40 real estate 5 cash equivalents fair value measurement real estate subject real estate market forces switzerland fair value debt equity securities determined based quoted prices active markets identical assets subject interest rate risk manage risk diversified portfolio see note 11 consolidated financial statements discussion pension assets item 8 item 8 financial statements supplementary data following consolidated financial statements registrant subsidiary included proxy statement appendix pages a6 a20 incorporated herein reference 1 report ernst young llp independent auditors 2 consolidated balance sheet july 31 1995 1994 3 consolidated statement income years ended july 31 1995 1994 1993 4 consolidated statement shareholders equity three years ended july 31 1995 5 consolidated statement cash flows years ended july 31 1995 1994 1993 6 notes consolidated financial statements item 9item 8 financial statements supplementary data following consolidated financial statements registrant subsidiary included proxy statement appendix pages a8 a24 incorporated herein reference 1 report ernst young llp independent auditors 2 consolidated balance sheet july 31 1996 1995 3 consolidated statement income years ended july 31 1996 1995 1994 4 consolidated statement shareholders equity three years ended july 31 1996 5 consolidated statement cash flows years ended july 31 1996 1995 1994 6 notes consolidated financial statements item 9item 8 financial statements supplementary data see index included item 14 exhibits financial statement schedules reports form 8k item 9item 8 consolidated financial statements index consolidated financial statements maxwell technologies inc report ernst young llp independent auditors board directors stockholders maxwell technologies inc audited accompanying consolidated balance sheets maxwell technologies inc subsidiaries december 31 1999 july 31 1999 july 31 1998 related consolidated statements operations stockholders equity cash flows five months ended december 31 1999 three years period ended july 31 1999 financial statements responsibility companys management responsibility express opinion financial statements based audits conducted audits accordance auditing standards generally accepted united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion financial statements referred present fairly material respects consolidated financial position maxwell technologies inc subsidiaries december 31 1999 july 31 1999 july 31 1998 consolidated results operations cash flows five months ended december 31 1999 three years period ended july 31 1999 conformity accounting principles generally accepted united states ernst young llp san diego california february 19 2000 except first paragraph note 10 date february 29 2000 maxwell technologies inc subsidiaries consolidated balance sheets thousands except per share data see accompanying notes maxwell technologies inc subsidiaries consolidated statements operations thousands except per share data see accompanying notes maxwell technologies inc subsidiaries consolidated statements stockholders equity fivemonth period ended december 31 1999 three years ended july 31 1999 thousands except share data see accompanying notes maxwell technologies inc subsidiaries consolidated statements cash flows thousands maxwell technologies inc subsidiaries notes consolidated financial statements note 1 description business summary significant accounting policies description business maxwell technologies inc maxwell company applies industryleading capabilities power computing develop market products services customers multiple industries including energy satellite defense telecommunications consumer electronics medical bioprocessing markets november 1999 companys board directors adopted resolution change companys fiscal year calendar year effective january 1 2000 company previously reported results fiscal year august 1 july 31 fivemonth transition period august 1 december 31 1999 short fiscal year company adopted plan restructure operations restructuring plan restructuring plan consolidates certain commercial business operations improves manufacturing operational capabilities ii focuses defense contracting business pulsed power systems computerbased analysis government national laboratories iii focuses application purebrightr technology bioprocessing medical consumer water markets iv provides sale certain nonstrategic business operations accompanying consolidated financial statements reclassified present financial position results operations continuing businesses company businesses company intends sell discontinue certain businesses sold discontinued company prior periods classified discontinued operations accompanying consolidated financial statements see notes 9 10 basis presentation consolidated financial statements include accounts maxwell technologies inc subsidiaries significant intercompany transactions account balances eliminated consolidation cash equivalents company classifies highly liquid investments maturity three months less purchased cash equivalents inventories stated lower cost principally average cost method market property plant equipment property plant equipment carried cost generally depreciated using straightline method depreciation amortization provided estimated useful lives related assets three thirty years depreciation amortization property plant equipment amounted 2148000 4723000 3559000 2525000 short fiscal year fiscal years 1999 1998 1997 respectively maxwell technologies inc subsidiaries notes consolidated financial statements note 1 description business summary significant accounting policies continued concentration credit risk financial instruments subject company potential concentrations credit risk consist principally investments cash equivalents companys accounts receivable company invests excess cash major corporate financial institutions united states government backed securities company established guidelines relative diversification maturities maintain safety liquidity experienced losses investments companys accounts receivable result contracts united states government well contract product sales nongovernment customers various industries company performs ongoing credit evaluations selected nongovernment customers generally requires collateral balances billed paid customers pursuant retainage provisions longterm contracts due upon completion contracts acceptance customers substantially unbilled receivables december 31 1999 expected become due payable within next year revenue recognition company recognizes substantially revenue sale manufactured products shortterm fixed price contracts upon shipment products completion services revenues including estimated profits longterm fixed price contracts recognized costs incurred revenues including fees earned cost plus contracts also recognized costs incurred contract license revenue reflected companys sales includes amounts received united states government commercial customers funded research development efforts company provisions made current basis fully recognize anticipated losses contracts foreign currencies company foreign subsidiaries conduct manufacturing sales activities foreign countries specifically united kingdom france germany result companys financial results could significantly affected factors changes foreign currency exchange rates weak economic conditions european markets company serves operating results company exposed changes exchange rates united states dollar british pound french franc german mark company currently hedge foreign exchange risk significant time assets liabilities companys foreign subsidiaries translated functional currencies united states dollars exchange rates effect balance sheet date revenues expenses translated weightedaverage rates prevailing period income loss per share company reports basic diluted earnings per share accordance financial accounting standards board statement 128 earnings per share statement 128 basic earnings per share calculated using weighted average number common shares outstanding diluted earnings per share calculated basis weighted average number common shares outstanding plus dilutive effect outstanding stock options assuming exercise using treasury stock method convertible preferred shares outstanding certain subsidiaries company assuming conversion short fiscal year potentially dilutive securities excluded calculation diluted loss per share inclusion would antidilutive maxwell technologies inc subsidiaries notes consolidated financial statements note 1 description business summary significant accounting policies continued following table sets forth computation basic diluted income per share comprehensive income loss company reports displays comprehensive income loss components accordance statement financial accounting standards 130 reporting comprehensive income statement 130 foreign currency translation adjustments companys component comprehensive income loss maxwell technologies inc subsidiaries notes consolidated financial statements continued note 1 description business summary significant accounting policies continued use estimates preparation financial statements conformity generally accepted accounting principles requires management make estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities dates financial statements reported amounts revenues expenses reporting periods several industries company operates characterized rapid technological change short product life cycles result estimates required provide product returns product obsolescence well matters historically actual amounts recorded varied significantly estimated amounts selected financial data fivemonth periods ended december 31 1999 following selected financial data short fiscal year comparable prior year period note 2 business combinations january 1999 company acquired space electronics inc sei closely held company specializes manufacture radiationhardened microelectronics commercial space market terms agreement accounted poolingofinterests maxwell purchased outstanding stock sei exchange approximately 681000 shares maxwell common stock valued approximately 25 million closing date company incurred direct acquisition costs approximately 11 million charged operations fiscal year 1999 also january 1999 company purchased german company formerly distributor companys industrial computer business acquisition accounted poolingofinterests consisted purchase outstanding stock german company exchange approximately 114000 shares maxwell common stock valued approximately 5 million closing date company incurred direct acquisition costs approximately 75000 charged operations fiscal year 1999 historical results operations acquired company material relation maxwell financial information prior periods restated reflect merger retained earnings beginning companys fiscal year 1999 second quarter restated reflect retained earnings acquired company approximately 184000 date december 1998 company acquired kd components inc kd privately held company develops manufactures high voltage multilayer ceramic capacitors switch mode power supply capacitors military aerospace medical applications terms agreement accounted poolingofinterests maxwell purchased outstanding stock kd exchange approximately 145000 shares maxwell common stock valued approximately 55 million closing date company incurred direct acquisition costs approximately 120000 charged operations fiscal year 1999 maxwell technologies inc subsidiaries notes consolidated financial statements continued note 2 business combinations continued april 1998 company acquired majority assets electromagnetic systems group primex physics international company pi cash 10 million assumption certain liabilities direct acquisition costs 175000 pi specializes highenergy pulsed power technology primarily performing research development us government acquisition accounted purchase price allocated estimated fair values new assets acquired approximately 25 million charged acquired inprocess rd fiscal year 1998 value assigned intangible assets 37 million amortized straightline basis estimated economic lives march 1998 company acquired trimap international ltd trimap privatelyheld united kingdombased manufacturer industrialgrade pccompatible computer systems trimap acquired stockforstock exchange accounted poolingofinterests aggregate 290000 shares maxwell common stock valued approximately 70 million company incurred direct transaction costs approximately 06 million charged operations fiscal year 1998 also march 1998 company acquired phoenix power systems inc phoenix power privatelyheld manufacturer power quality protection products terms agreement maxwell purchased outstanding stock phoenix power approximately 4 million 13 million cash 100679 shares maxwell common stock valued approximately 27 million acquisition accounted purchase direct acquisition costs approximately 95000 purchase price allocated estimated fair values net tangible intangible assets acquired approximately 3 million charged acquired inprocess rd fiscal year 1998 value assigned intangible assets 16 million amortized straightline basis estimated economic lives terms agreement provided additional contingent purchase price based upon financial performance phoenix power following acquisition january 2000 company agreed pay 5 million additional purchase price 45 million paid cash june 30 2000 company issued 45506 shares common stock january 2000 representing remaining 500000 additional purchase price additional purchase price assigned intangible assets note 3 balance sheet details trade accounts receivable consists following inventories consist following maxwell technologies inc subsidiaries notes consolidated financial statements continued note 3 balance sheet details continued property plant equipment consists following goodwill noncurrent assets consist following accounts payable accrued liabilities consists following maxwell technologies inc subsidiaries notes consolidated financial statements continued note 4 credit agreement company unsecured bank lineofcredit agreement amended expires january 2001 company may borrow 20 million banks prime rate libor plus 175 776 december 31 1999 december 31 1999 company amounts outstanding line lineofcredit agreement provides neither company subsidiaries may directly indirectly make distributions cash dividends lineofcredit agreement also requires company comply various financial covenants company compliance covenants december 31 1999 december 31 1999 company contingently liable outstanding letters credit aggregating approximately 13 million expire april 2000 note 5 stock activity stock plans stock option plans december 1995 company adopted 1995 stock option plan 500000 shares common stock reserved future grant subsequent dates aggregate additional shares 1890000 including 400000 shares january 2000 reserved future issuance plan companys 1999 director stock option plan adopted 1999 approved shareholders january 2000 provide granting either incentive stock options nonqualified stock options employees nonemployee members companys board directors respectively december 1999 company adopted executive stock option plan 294030 options granted companys new president ceo options also outstanding expired stock option plans superceded current plans options granted stock option plans purchase common stock company less stocks fair market value date grant employee options generally exercisable cumulative annual installments 20 30 percent options director option plan exercisable full one year date grant options terms five ten years december 31 1999 prior additional reservation shares january 2000 company options available future grant stock option plans maxwell technologies inc subsidiaries notes consolidated financial statements continued note 5 stock activity stock plans continued following table summarizes company stock option activity period august 1 1996 december 31 1999 following table summarizes information concerning outstanding exercisable company stock options december 31 1999 addition company established separate stock option plans five principal operating subsidiaries options purchase shares subsidiary stock granted primarily fiscal year 1997 options outstanding december 31 1999 total 9 14 various subsidiaries outstanding common stock maxwell technologies inc subsidiaries notes consolidated financial statements continued note 5 stock activity stock plans continued company adopted disclosureonly provisions fasb statement 123 accounting stockbased compensation statement 123 accordance provisions statement 123 company applies accounting principles board opinion 25 related interpretations accounting stock option plans accordingly compensation expense recognized stock options granted short fiscal year fiscal years ended july 31 1999 1998 1997 stock options granted current fair market value company elected recognize compensation cost based fair value method prescribed statement 123 companys net income loss continuing operations diluted income loss continuing operations per share would adjusted proforma amounts indicated impact outstanding nonvested stock options granted prior 1997 excluded pro forma calculations accordingly pro forma adjustments shown indicative future period pro forma adjustments calculation reflect applicable stock options fair value company options date grant estimated using blackscholes optionpricing model assumptions follows short fiscal year riskfree interest rate 50 dividend yield 0 volatility factor 106 weighted average expected term five years july 31 1999 riskfree interest rate 50 dividend yield 0 volatility factor 66 weighted average expected term five years 1998 riskfree interest rate 55 dividend yield 0 volatility factor 54 weightedaverage expected term four years 1997 riskfree interest rate 60 dividend yield 0 volatility factor 52 weightedaverage expected term three years fair value subsidiary options date grant estimated using blackscholes model assumptions based assumptions estimated weighted average fair value grant date company options granted short fiscal year fiscal years 1999 1998 1997 913 1253 1200 737 per option respectively stock purchase plans december 1994 company established 1994 employee stock purchase plan director stock purchase plan employee plan permits substantially employees purchase common stock payroll deductions 85 lower trading price stock beginning end sixmonth offering period director plan permits nonemployee directors purchase common stock 100 trading price stock date request purchase received fiscal years ended july 31 1999 1998 1997 48388 40795 39129 shares respectively issued two plans aggregate proceeds company 970000 759000 442000 respectively shares issued plans short fiscal year december 31 1999 250152 shares reserved future issuance plans maxwell technologies inc subsidiaries notes consolidated financial statements continued note 5 stock activity stock plans continued deferred compensation 1997 1996 executive officer company granted shares companys common stock subject certain restrictions shares granted vest ratably fouryear period grant dates shares fair value approximately 190000 645000 respectively values net accumulated amortization shown deferred compensation accompanying consolidated balance sheets consolidated statements stockholders equity deferred compensation amortized expense fouryear vesting periods amortization totaled 87000 209000 173000 short fiscal year fiscal years 1999 1998 1997 respectively stockholder rights plan october 1999 company adopted new stockholder rights plan successor previous plan expired june 1999 accordance new plan company distributed one nonvoting common stock purchase right outstanding share common stock rights exercisable trade separately common stock unless person group acquires makes tender offer 15 companys common stock initially right entitles registered holder purchase one share company common stock price 75 per share subject certain antidilution adjustments rights become exercisable certain conditions met right owned acquiring person group entitle holder receive upon exercise company common stock market value twice exercise price right addition company may redeem rights price 001 per right subject certain restrictions new stockholder rights plan expires october 21 2009 january 2000 board adopted companys shareholders subsequently approved companys management equity ownership program executive officers company members senior management selected committee offered loans company used purchase stock company loans bear interest must repaid annual installments principal interest fouryear period repayment loans secured shares purchased loan proceeds february 1 2000 loans aggregate amount 900000 bearing interest 656 made connection aggregate purchase 74995 newly issued shares companys common stock 1200 per share closing market price date purchase maxwell technologies inc subsidiaries notes consolidated financial statements continued note 6 income taxes provision credit income taxes continuing operations follows deferred income taxes reflect net tax effects temporary differences carrying amounts assets liabilities financial reporting purposes amounts used income tax purposes primary components companys deferred tax assets liabilities follows maxwell technologies inc subsidiaries notes consolidated financial statements continued note 6 income taxes continued company cannot carry losses back prior years fiscal year 1998 company provided valuation allowance future tax benefits net operating loss carryforwards net deferred income tax assets realization future benefits deemed uncertain based companys earnings continuing operations fiscal years 1999 1998 1997 management determined likely company receive future benefits net deferred income tax assets including tax credits remaining net operating loss carryforwards fiscal year 1999 company reversed valuation allowance recorded net deferred income tax assets approximately 107 million 46 million recorded credit additional paidin capital tax benefits relating employee stock option stock purchase plan activity current prior years current income tax expense short fiscal year fiscal year ended july 31 1999 primarily due foreign taxes profits companys united kingdom subsidiary certain minimum state income franchise taxes companys fiscal year 1998 1997 provisions income taxes relate primarily taxes businesses acquired fiscal year 1999 using poolingofinterests method december 31 1999 company net operating loss carryforwards federal state income tax approximately 72 million 102 million respectively federal loss carryforward begins expire calendar year 2011 state loss carryforwards expire calendar years 2000 2006 addition company research development tax credit carryforwards federal state income tax purposes 63 million 96 million begin expire 2004 provision credit income taxes accompanying consolidated statements operations differs amount calculated applying statutory income tax rate 35 income loss continuing operations income taxes minority interest primary components difference follows maxwell technologies inc subsidiaries notes consolidated financial statements continued note 7 leases rental expense amounted 2064000 5459000 3676000 2101000 short fiscal year fiscal years 1999 1998 1997 respectively incurred primarily facility rental future annual minimum rental commitments december 31 1999 follows thousands certain leases include renewal options periods ranging one twentyfive years subject rental adjustment based consumer price indices substantially leases provide company pay property taxes insurance repairs maintenance company also subleases certain leased facilities noncancellable subleases 2001 future annual amounts due company subleases follows calendar year 2000 143000 calendar year 2001 98000 connection restructuring plan company intends lease two new facilities san diego consolidate reduce total number leased facilities maintains san diego area combination sublease activities negotiating early lease terminations note 8 employee benefit plans substantially united states employees eligible elect coverage contributory employee savings plans provide company matching contributions based onehalf employee contributions certain plan limits companys matching contributions plans totaled 464000 927000 705000 497000 short fiscal year fiscal years 1999 1998 1997 respectively note 9 restructuring acquisition charges connection restructuring plan company undertaken various actions reduce cost structure company result company recorded restructuring related charges short fiscal year totaling approximately 50 million charges determined accordance staff accounting bulletin 100 restructuring impairment charges emerging issues task force 943 liability recognition certain employee termination benefits costs exit activity including certain costs incurred restructuring charges include severance costs related reduction work force closure combination certain facilities writeoff certain nonperforming operating assets company expects record additional restructuringrelated charges next three fiscal quarters company completes restructuring plan finalizes consolidation integration operations related facilities maxwell technologies inc subsidiaries notes consolidated financial statements continued note 9 restructuring acquisition charges continued following table summarizes restructuring related charges recorded december 1999 approximately 09 million included accrued liabilities december 31 1999 thousands fiscal year 1999 company recorded restructuring acquisition charges approximately 31 million charges approximately 16 million consisted direct acquisition costs business combinations accounted using poolingofinterests method remaining 15 million charge consists primarily amounts provided revised estimates costs resolve certain environmental legal contingencies occurred prior years well restructuring provisions including employee facility expenses related decisions made july 1999 reduce certain administrative infrastructure company europe united states company recorded 63 million charge fiscal year 1998 related acquisition three businesses including transaction costs business combination accounted poolingofinterest appraised amount acquired inprocess research development two business combinations accounted purchases note 10 discontinued operations discussed note 9 company adopted plan divest high voltage wound film capacitors high voltage power supplies time card job cost accounting software glasstometal seals businesses connection decision sell businesses company recorded pretax charges 47 million including provisions 38 million estimated losses sale businesses 09 million severance costs involuntary employee terminations provisions contractual employment obligations continuing benefit february 29 2000 company sold high voltage wound film capacitors high voltage power supplies businesses cash 35 million approximately net book value net assets sold date anticipated disposal remaining businesses expected occur end second quarter calendar year 2000 operating results discontinued operations shown net tax separately accompanying consolidated statements operations provision credit income taxes related discontinued operations 21 million 02 million short fiscal year fiscal year 1999 respectively provision income taxes provided fiscal years 1998 1997 businesses included discontinued operations sales aggregating 94 million 260 million 172 million 159 million short fiscal year fiscal years 1999 1998 1997 respectively amounts included net sales accompanying consolidated statements operations maxwell technologies inc subsidiaries notes consolidated financial statements continued note 10 discontinued operations continued fiscal year 1999 company recorded pretax charge 28 million related revised estimates final costs necessary complete certain criminal justice information system contracts complete discontinuation business segment discontinued fiscal year 1998 revision affected costs complete terminate contracts well business shutdown costs including employeerelated costs fiscal year 1998 company reorganized operations within former information products services business segment including refocusing certain operations along lines business segments discontinuation certain businesses related pretax charges including discontinued operations amounted 26 million assets liabilities discontinued operations consisted following net assets discontinued operations separately classified accompanying consolidated balance sheet december 31 1999 prior year consolidated financial statements restated conform current year presentation note 11 environmental matter 1992 company approximately 40 potentially responsible parties signed consent order state california respect costs incurred recycling facility characterize remediate hazardous substances date site characterized company potentially responsible parties paid substantially respective shares costs characterization estimated cost monitoring remediation activities companys share currently estimated approximately 33 totals approximately 23 million approximately 21 million amount consist maintenance monitoring related costs incurred 2530 year period company accrued share estimated costs basis amounts accrued company managements opinion additional liability resulting situation material effect companys consolidated financial statements maxwell technologies inc subsidiaries notes consolidated financial statements continued note 12 business segments accordance requirements guidelines statement financial accounting standards 131 disclosure segments enterprise related information statement 131 maxwells operations classified business segments connection companys restructuring plan company integrated businesses new operating divisions accordingly company defined four new reporting segments follows prior year segment information restated conform new segmentation power computing systems part restructuring plan company integrating ibus inc phoenix power systems inc subsidiaries ibusphoenix new ibusphoenix operation expand industrial computer product line ibus inc complementary power quality products broaden global reach power quality products part restructuring plan company combining san diego operations two subsidiaries single facility san diego new san diego facility designed highlyefficient manufacturing improved processes improved personnel training disciplined cost control practices company designs manufactures supplies standard custom semicustom industrial computer modules platforms fullyintegrated systems oems worldwide basis companys ibusphoenix product line ranges enclosures cpu boards backplanes fully integrated highly customized computer systems product line primarily employs passive backplane architecture complemented newlyintroduced compactpci line products ibusphoenix power quality products consist power distribution units power conditioners inverters uninterruptible power supplies ups power protection products designed engineered company customer applications primarily medical telecommunications markets electronic components restructuring plan organizes highreliability electronic components group electronic components group within company combining powercache ultracapacitor business sierrakd emi filter ceramic capacitor business space electronics inc sei highreliability radiationhardened microelectronics business businesses involve manufacturing highreliability electronic components based companys core competencies power computing current fiscal year company integrate powercache ultracapacitor business microelectronics components business one manufacturing site san diego emi filters ceramic capacitors continue manufactured companys facility carson city nevada facilities designed highlyefficient manufacturing improved process improved personnel training disciplined cost control practices components group developing powercache ultracapacitor provide bursts power rapid injection energy required application powercache ultracapacitor scalable manufactured broad range shapes sizes currently company developing ultracapacitors submatchbook size cells measuring 2 x 2 x 6 maintaining high energy storage per unit volume powercache ultracapacitors also linked together modules supply higher power applications automotive power quality systems maxwell technologies inc subsidiaries notes consolidated financial statements continued note 12 business segments continued electronic components group designs manufactures sells line ceramic capacitor filters absorb electromagnetic fields signals generated electronic devices interfere disrupt functioning electronic devices including implantable medical devices pacemakers defibrillators aerospace guidance communications systems products block emi entering electronic device opening used example power leads sensors fiscal year 1999 maxwell acquired sei san diegobased designer manufacturer high reliability radiation hardened microelectronic components assemblies primarily space market sei unit electronic components group provides integrated circuits multichip modules designed adapted space flight high reliability applications space market sei products used satellites experience extreme environmental conditions often radiationintense orbits government systems division maxwell engaged variety research development programs pulsed power pulsed power systems design construction weapons effects simulation services primarily supplied united states government agencies including air force defense threat reduction agency systems division also provides systems services national laboratories industrial defense companies systems division typically performs research development contracts allow company apply developed technology commercial markets sterilization purification systems companys purepulse technologies inc subsidiary applies purebright intense broad spectrum pulsed light technology kill viruses microorganisms water blood plasma biopharmaceutical medical products medical product packaging material part restructuring plan purepulse pursue purebright applications medical biopharmaceutical consumer water markets purebright applications involving food packaging industrial water applications niche markets medical packaging well applications involving coolpureregistered trademark pulsed electric field technology deemphasized possibly sold licensed maxwell intends seek equity financing directly purepulse finance product development activities operations maxwells management evaluates performance allocates resources based measure segment operating profit loss excluding restructuring acquisition charges accounting policies reportable segments described summary significant accounting policies maxwell evaluate segment performance amounts provided restructuring acquisition charges items income expense operating profit loss accordingly items segregated operating segment maxwell technologies inc subsidiaries notes consolidated financial statements continued note 12 business segments continued business segment financial data short fiscal year three fiscal years ended july 31 follows maxwell technologies inc subsidiaries notes consolidated financial statements continued note 12 business segments continued intersegment sales insignificant corporate expenses include total restructuring acquisition charges identifiable assets segment include assets directly identified segments corporate assets consist primarily cash equivalents deferred tax assets credits centralized telecommunications networking information technology equipment company sales united states government contracts subcontracts primarily government systems business segment aggregated 155 million 470 million 398 million 337 million short fiscal year fiscal years 1999 1998 1997 respectively sales customers excess 10 total company sales included sales united states air force amounting 11 14 company sales fiscal years 1998 1997 respectively additionally customer power computing systems business segment represented 11 companys sales fiscal year 1997 international sales amounted 114 million 310 million 194 million 114 million short fiscal year fiscal years 1999 1998 1997 respectively principally customers united kingdom countries europe pacific rim company assets located outside united states totaled approximately 89 million 91 million 42 million december 31 1999 july 31 1999 1998 respectively company foreign operations 1997 note 13 related party transaction february 1999 company loaned 20 million chairman former ceo full recourse promissory note agreement note bears interest 5 per year principal accumulated interest due payable february 2001 secured part pledge company stock owned chairman item 9item 8 financial statements index consolidated financial statements report ernst young llp independent auditors board directors stockholders maxwell technologies inc audited accompanying consolidated balance sheets maxwell technologies inc subsidiaries december 31 1999 2000 related consolidated statements operations stockholders equity cash flows two years period ended july 31 1999 five months ended december 31 1999 year ended december 31 2000 financial statements responsibility companys management responsibility express opinion financial statements based audits conducted audits accordance auditing standards generally accepted united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion financial statements referred present fairly material respects consolidated financial position maxwell technologies inc subsidiaries december 31 1999 2000 consolidated results operations cash flows two years period ended july 31 1999 five months ended december 31 1999 year ended december 31 2000 conformity accounting principles generally accepted united states ernst young llp san diego california february 9 2001 except note 4 date february 26 2001 note 12 date march 16 2001 maxwell technologies inc subsidiaries consolidated balance sheets thousands except per share data maxwell technologies inc subsidiaries consolidated statements operations thousands except per share data see accompanying notes maxwell technologies inc subsidiaries consolidated statements stockholders equity two years ended july 31 1999 five months ended december 31 1999 year ended december 31 2000 thousands except share data see accompanying notes maxwell technologies inc subsidiaries consolidated statements cash flows thousands see accompanying notes maxwell technologies inc subsidiaries notes consolidated financial statements information full year ended december 31 1999 unaudited note 1 description business summary significant accounting policies description business maxwell technologies inc maxwell company applies industryleading capabilities power computing develop commercialize electronic components power computing systems original equipment manufacturer oem customers multiple industries including transportation telecommunications consumer industrial electronics medical aerospace december 1999 company adopted plan restructure operations restructuring plan restructuring plan consolidated certain commercial business operations improved manufacturing operational capabilities ii focused defense contracting business pulsed power systems computerbased analysis government national laboratories iii focused application purebright broadspectrum pulsed light technology bioprocessing medical consumer water markets iv provided sale certain nonstrategic business operations company also changed fiscal year calendar year effective january 1 2000 company previously reported results fiscal year august 1 july 31 restructuring plan intended make maxwell productdriven highgrowth company improving operating results beginning fourth quarter calendar year 2000 since january 2000 company recruited 50 key managers extensive commercial experience engineering manufacturing material procurement supply chain management information technology financial controls sales marketing company also invested 11 million build outfit stateoftheart production facilities including information technology infrastructure implement new manufacturing business processes systems increase production capacity improve efficiency product quality company experienced high level change made significant progress since beginning 2000 achieve objectives restructuring plan schedule october 2000 company completed facilities organizational consolidation program essentially completed companys restructuring plan basis presentation consolidated financial statements include accounts maxwell technologies inc subsidiaries significant intercompany transactions account balances eliminated consolidation accompanying consolidated financial statements reclassified present financial position results operations continuing businesses company businesses company intends sell discontinue certain businesses sold discontinued company current prior periods classified discontinued operations accompanying consolidated financial statements note 10 cash equivalents company classifies highly liquid investments maturity three months less purchased cash equivalents inventories stated lower cost market inventory cost determined principally using average cost firstin firstout method maxwell technologies inc subsidiaries notes consolidated financial statements information full year ended december 31 1999 unaudited note 1 description business summary significant accounting policies continued property plant equipment property plant equipment carried cost generally depreciated using straightline method depreciation amortization provided estimated useful lives related assets three thirty years depreciation amortization property plant equipment amounted 21 million 31 million 15 million 31 million fiscal years ended july 31 1998 1999 five months ended december 31 1999 year ended december 31 2000 respectively concentration credit risk financial instruments subject company potential concentrations credit risk consist principally companys accounts receivable companys accounts receivable result product sales customers various industries various geographical areas domestic foreign company performs ongoing credit evaluations customers generally requires collateral revenue recognition company derives substantially revenue sale manufactured products revenue typically recognized upon shipment products december 1999 sec issued staff accounting bulletin 101 revenue recognition financial statements sab 101 sab 101 provides guidance applying generally accepted accounting principles revenue recognition financial statements adoption sab 101 current fiscal year material effect companys financial statements foreign currencies company foreign subsidiaries conduct manufacturing sales activities foreign countries specifically united kingdom france germany result companys financial results could significantly affected factors changes foreign currency exchange rates weak economic conditions european markets company serves operating results company exposed changes exchange rates united states dollar euro british pound french franc german mark company currently hedge foreign exchange risk significant time assets liabilities companys foreign subsidiaries translated functional currencies united states dollars exchange rates effect balance sheet date revenues expenses translated weightedaverage rates prevailing period income loss per share company reports basic diluted income loss per share accordance financial accounting standards board statement 128 earnings per share statement 128 basic income loss per share calculated using weighted average number common shares outstanding diluted income loss per share calculated basis weighted average number common shares outstanding plus dilutive effect outstanding stock options company certain subsidiaries assuming exercise using treasury stock method convertible preferred shares outstanding certain subsidiaries company assuming conversion original dates issuance maxwell technologies inc subsidiaries notes consolidated financial statements information full year ended december 31 1999 unaudited note 1 description business summary significant accounting policies continued following table sets forth computation basic diluted income loss per share thousands except per share amounts maxwell technologies inc subsidiaries notes consolidated financial statements information full year ended december 31 1999 unaudited note 1 description business summary significant accounting policies continued new accounting pronouncements june 1998 financial accounting standards board fasb issued statement 133 accounting derivative instruments hedging activities later amended statement nos 137 138 statement 133 required adopted company beginning january 1 2001 statement 133 requires company recognize derivatives either assets liabilities measured fair value accounting changes fair value derivative depends use derivative company adopted statement 133 january 1 2001 companys minimal use derivatives hedges management anticipate adoption statement 133 significant effect results operations financial position company march 2000 fasb issued fasb interpretation 44 accounting certain transactions involving stock compensation fin 44 fin 44 clarifies certain issues application accounting principles board opinion 25 accounting stock issued employees fin 44 effective july 1 2000 certain provisions cover specific events occur either december 15 1998 january 12 2000 adoption fin 44 material impact companys financial statements use estimates preparation financial statements conformity accounting principles generally accepted united states requires management make estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities dates financial statements reported amounts revenues expenses reporting periods several industries company operates characterized rapid technological change short product life cycles result estimates required provide product returns product obsolescence well matters historically actual amounts recorded varied significantly estimated amounts note 2 business combinations september 2000 companys subsidiary ibusphoenix inc acquired gateworks corporation gateworks designs supplies embedded computer boards transaction accounted purchase closing date ibusphoenix inc paid 500000 cash issued 855153 new shares ibusphoenix inc common stock selling shareholders gateworks exchange outstanding shares gateworks additional purchase consideration may due future based upon sales revenue gateworks calendar year 2001 connection acquisition ibusphoenix inc granted certain rights selling gateworks shareholders permit shareholders january 2002 require ibusphoenix inc repurchase certain ibusphoenix inc shares issued shareholders closing date cash exceed 29 million total number ibusphoenix inc shares issued selling gateworks shareholders adjusted first quarter 2002 reflect final purchase price based upon actual gateworks ibusphoenix inc 2001 revenue purchase accounting purposes closing date payment valued approximately 44 million 01 million allocated net liabilities acquired 40 million allocated goodwill identifiable intangible assets amortized period five years remaining 05 million related acquired technologies achieved technological commercial feasibility closing date charged operations closing date pro forma results operations company gateworks assuming gateworks acquired january 1 2000 would materially different reported results maxwell technologies inc subsidiaries notes consolidated financial statements information full year ended december 31 1999 unaudited note 2 business combinations continued january 1999 company acquired space electronics inc sei closely held company specialized manufacture radiationshielded microelectronics commercial space market terms agreement accounted poolingofinterests maxwell purchased outstanding stock sei exchange approximately 681000 shares maxwell common stock valued approximately 25 million closing date company incurred direct acquisition costs approximately 11 million charged operations fiscal year ended july 31 1999 also january 1999 company purchased german company formerly distributor companys applied computing business acquisition accounted poolingofinterests consisted purchase outstanding stock german company exchange approximately 114000 shares maxwell common stock valued approximately 5 million closing date company incurred direct acquisition costs approximately 75000 charged operations fiscal year ended july 31 1999 historical results operations acquired company material relation maxwell financial information prior periods restated reflect merger fiscal year ended july 31 1999 companys retained earnings restated reflect retained earnings acquired company acquisition date approximately 184000 december 1998 company acquired kd components inc kd privately held company developed manufactured highvoltage multilayer ceramic capacitors switch mode power supply capacitors military aerospace medical applications terms agreement accounted poolingofinterests maxwell purchased outstanding stock kd exchange approximately 145000 shares maxwell common stock valued approximately 55 million closing date company incurred direct acquisition costs approximately 120000 charged operations fiscal year ended july 31 1999 march 1998 company acquired trimap international ltd trimap privately held united kingdombased manufacturer industrialgrade pccompatible computer systems trimap acquired stockforstock exchange accounted poolingofinterests aggregate 290000 shares maxwell common stock valued approximately 70 million company incurred direct transaction costs approximately 06 million charged operations fiscal year ended july 31 1998 also march 1998 company acquired phoenix power systems inc phoenix power privately held manufacturer power quality protection products terms agreement maxwell purchased outstanding stock phoenix power approximately 4 million 13 million cash 100679 shares maxwell common stock valued approximately 27 million acquisition accounted purchase direct acquisition costs approximately 95000 purchase price allocated estimated fair values net tangible intangible assets acquired approximately 3 million charged acquired inprocess technology fiscal year ended july 31 1998 value assigned intangible assets 16 million amortized straightline basis estimated economic lives terms agreement provided additional contingent purchase price based upon financial performance phoenix power following acquisition january 2000 company agreed pay 50 million additional purchase price paid form 45506 shares companys common stock issued january 2000 valued aggregate 500000 45 million cash paid july 2000 additional purchase price initially assigned intangible assets book value intangible assets reduced 48 million third quarter 2000 amount representing current appraised value assets date note 9 maxwell technologies inc subsidiaries notes consolidated financial statements information full year ended december 31 1999 unaudited note 3 balance sheet details maxwell technologies inc subsidiaries notes consolidated financial statements information full year ended december 31 1999 unaudited note 4 credit agreement outstanding borrowings companys bank credit agreement 227 million december 31 2000 weighted average interest rate 110 february 26 2001 agreement terminated repaid full proceeds new bank credit agreement credit agreement credit agreement provides revolving borrowings 150 million subject borrowing base computation may 2002 bearing interest libor plus 3 banks reference rate plus 1 ii term loan additional 150 million june 15 2001 bearing interest banks reference rate plus 15 term loan borrowings credit agreement secured companys assets united states except real property pledge twothirds stock certain foreign subsidiaries company required comply certain financial covenants effective march 31 2001 company intends repay term loan proceeds sale defense contracting business expected completed march 31 2001 note 10 sale completed june 15 2001 proceeds inadequate repay term loan full company bank negotiate terms term loan may extended terms expected include pledge companys real property note 5 stock activity stock plans stock option plans december 1995 company adopted 1995 stock option plan amended 3340000 shares common stock reserved future grant companys 1999 director stock option plan 75000 shares reserved future grant adopted 1999 approved companys shareholders january 2000 plans provide granting either incentive stock options nonqualified stock options employees nonemployee members companys board directors respectively december 1999 company granted 294030 nonqualified options companys new president chief executive officer outside companys option plans options also outstanding expired stock option plans superceded current plans options granted stock option plans purchase common stock company less stocks fair market value date grant employee options generally exercisable cumulative annual installments 20 30 percent options director option plan exercisable full one year date grant options terms five ten years december 31 2000 company 693726 shares available future grant stock option plans maxwell technologies inc subsidiaries notes consolidated financial statements information full year ended december 31 1999 unaudited note 5 stock activity stock plans continued following table summarizes total aggregate stock option activity period july 31 1997 december 31 2000 following table summarizes information concerning outstanding exercisable company common stock options december 31 2000 companys subsidiaries minority equity investors former strategic partners former stockholders businesses acquired using subsidiary stock former current employees exercised stock options entities december 31 2000 minority investors owned outstanding shares approximately 51 maxwell electronic components group inc 63 ibusphoenix inc 193 percent purepulse technologies inc addition subsidiary employee stock option plan providing issuance incentive nonqualified stock options purchase subsidiary common stock option programs ibusphoenix inc purepulse technologies inc active respect current grants options mid2000 certain employees ibusphoenix inc purepulse technologies inc eligible option grants respective subsidiary plans eligible grants maxwell level certain corporate maxwell electronic components group inc employees eligible option grants maxwell level subsidiaries maxwell technologies inc subsidiaries notes consolidated financial statements information full year ended december 31 1999 unaudited note 5 stock activity stock plans continued subsidiary option plans intend encourage entrepreneurial atmosphere business segment providing focused incentives appreciate equity value business options inthemoney subsidiary level negative impact maxwells earnings per share company expects report diluted earnings per share future periods due inthemoney subsidiary options except extent exercised however subsidiary options affect maxwells consolidated net income reported consolidated statement operations options exercised dilute maxwells actual ownership interest subsidiaries thus reducing maxwells share net income loss potential dividends distributions proceeds sale disposition subsidiary equity interest upon exercise stock options subsidiaries accounted minority interest based current programs potential percentage ownership interest attributable exercisable subsidiary options december 31 2000 diluted basis approximately 3 maxwell electronic components group inc 3 percent ibusphoenix inc 5 purepulse technologies inc company adopted disclosure provisions fasb statement 123 accounting stockbased compensation statement 123 accordance provisions statement 123 company applies accounting principles board opinion 25 related interpretations accounting stock option plans accordingly compensation expense recognized stock options granted fiscal years ended july 31 1998 1999 five months ended december 31 1999 year ended december 31 2000 stock options granted current fair market value company elected recognize compensation based fair value method prescribed statement 123 companys net income loss continuing operations diluted income loss continuing operations per share would adjusted pro forma amounts indicated thousands except per share amounts impact outstanding nonvested stock options granted prior 1997 excluded pro forma calculations accordingly pro forma adjustments shown indicative future period pro forma adjustments calculation reflect applicable stock options fair value company options date grant estimated using blackscholes optionpricing model assumptions follows maxwell technologies inc subsidiaries notes consolidated financial statements information full year ended december 31 1999 unaudited note 5 stock activity stock plans continued based assumptions estimated weighted average fair value grant date company options granted fiscal years ended july 31 1998 1999 five months ended december 31 1999 year ended december 31 2000 1200 1253 913 1001 per option respectively stock purchase plans december 1994 company established 1994 employee stock purchase plan director stock purchase plan employee plan permits substantially employees purchase common stock payroll deductions 85 lower trading price stock beginning end sixmonth offering period director plan permits nonemployee directors purchase common stock 100 trading price stock date request purchase received fiscal years ended july 31 1998 1999 year ended december 31 2000 aggregate shares 40795 48388 118666 respectively issued two plans aggregate proceeds company 759000 970000 997000 respectively shares issued plans five months ended december 31 1999 december 31 2000 131486 shares reserved future issuance plans january 2000 board adopted companys stockholders subsequently approved companys management equity ownership program executive officers company members senior management selected committee offered fullrecourse loans company used purchase stock company loans bear interest must repaid annual installments principal interest fouryear period repayment loans secured shares purchased loan proceeds february 1 2000 loans aggregate amount 900000 bearing interest 656 made connection aggregate purchase 74995 newly issued shares companys common stock 1200 per share closing market price date purchase deferred compensation 1996 1997 chairman company granted shares companys common stock subject certain restrictions shares granted vest ratably fouryear period grant dates shares fair value approximately 645000 190000 respectively values net accumulated amortization shown deferred compensation accompanying consolidated balance sheets consolidated statements stockholders equity deferred compensation amortized expense fouryear vesting periods amortization totaled 209000 87000 102000 fiscal years ended july 31 1998 1999 five months ended december 31 1999 year ended december 31 2000 respectively stockholder rights plan october 1999 company adopted new stockholder rights plan successor previous plan expired june 1999 accordance new plan company distributed one nonvoting common stock purchase right outstanding share common stock rights exercisable trade separately common stock unless person group acquires makes tender offer 15 companys common stock initially right entitles registered holder purchase one share company common stock price 75 per share subject certain antidilution adjustments rights become exercisable certain conditions met right owned acquiring person group entitle holder receive upon exercise company common stock market value twice exercise price right addition company may redeem rights price 001 per right subject certain restrictions new stockholder rights plan expires october 21 2009 maxwell technologies inc subsidiaries notes consolidated financial statements information full year ended december 31 1999 unaudited note 6 income taxes provision credit income taxes based income losses continuing operations follows thousands deferred income taxes reflect net tax effects temporary differences carrying amounts assets liabilities financial reporting purposes amounts used income tax purposes primary components companys deferred tax assets liabilities follows thousands maxwell technologies inc subsidiaries notes consolidated financial statements information full year ended december 31 1999 unaudited note 6 income taxes continued company cannot carry losses back prior years fiscal year ended july 31 1998 company provided valuation allowance future tax benefits net operating loss carryforwards net deferred income tax assets realization future benefits deemed uncertain based companys earnings continuing operations fiscal years ended july 31 1998 1999 management determined july 1999 likely company would receive future benefits net deferred income tax assets including tax credits remaining net operating loss carryforwards accordingly fiscal year 1999 company reversed valuation allowance recorded net deferred income tax assets approximately 89 million 46 million recorded credit additional paidin capital tax benefits relating employee stock option stock purchase plan activity current prior years management believes realization companys deferred tax assets primarily comprised net operating loss carryforwards tax credits likely based expected gains disposition discontinued operations future taxable income december 31 2000 company net operating loss carryforwards federal state income tax approximately 518 million 305 million respectively federal loss carryforward begins expire calendar year 2011 state loss carryforwards begin expire 2001 expire 2010 addition company research development tax credit carryforwards federal state income tax purposes 20 million 09 million begin expire 2004 provision credit income taxes accompanying consolidated statements operations differs amount calculated applying statutory income tax rate 35 income loss continuing operations income taxes minority interest primary components difference follows thousands maxwell technologies inc subsidiaries notes consolidated financial statements information full year ended december 31 1999 unaudited note 7 leases rental expense amounted 17 million 24 million 10 million 26 million fiscal years ended july 31 1998 1999 five months ended december 31 1999 year ended december 31 2000 respectively incurred primarily facility rental future annual minimum rental commitments december 31 2000 follows thousands certain leases include renewal options periods ranging one ten years subject rental adjustment based consumer price indices substantially leases provide company pay property taxes insurance repairs maintenance company also subleases certain leased facilities noncancelable subleases 2003 future annual amounts due company subleases aggregating 2001000 follows calendar year 2001 1044000 2002 863000 2003 94000 note 8 employee benefit plans substantially united states employees eligible elect coverage contributory employee savings plans provide company matching contributions based onehalf employee contributions certain plan limits companys matching contributions plans totaled 345000 446000 269000 387000 fiscal years ended july 31 1998 1999 five months ended december 31 1999 year ended december 31 2000 respectively note 9 restructuring acquisition charges connection restructuring plan company undertaken various actions consolidate facilities reduce cost structure company result company recorded restructuring related charges year ended december 31 2000 approximately 87 million charges determined accordance staff accounting bulletin 100 restructuring impairment charges emerging issues task force 943 liability recognition certain employee termination benefits costs exit activity including certain costs incurred restructuring charges include severance costs related reduction workforce closure combination certain facilities writeoff certain nonperforming operating assets including goodwill balances 48 million related previous acquisition based current appraisal acquired business company completed restructuring plan october 2000 finalized consolidation integration operations related facilities accordingly company expect record additional restructuring related charges september 2000 company also recorded charge 05 million related writeoff inprocess technology acquired connection acquisition gateworks note 2 maxwell technologies inc subsidiaries notes consolidated financial statements information full year ended december 31 1999 unaudited note 9 restructuring acquisition charges continued following table summarizes restructuring acquisition charges recorded activity related charges five months ended december 1999 year ended december 31 2000 thousands fiscal year ended july 31 1999 company recorded restructuring acquisition charges approximately 26 million charges approximately 16 million consisted direct acquisition costs business combinations accounted using poolingofinterests method remaining 10 million charge consists primarily amounts provided revised estimates costs resolve certain environmental legal contingencies occurred prior years well restructuring provisions including employee facility expenses related decisions made july 1999 reduce certain administrative infrastructure company europe united states company recorded 39 million charge fiscal year ended july 31 1998 related acquisition two businesses including 09 million transaction costs business combination accounted poolingofinterests 30 million related appraised amount acquired inprocess technology business combination accounted purchase note 10 discontinued operations connection restructuring plan company divested high voltage wound film capacitors high voltage power supplies time card job cost accounting software businesses 2000 february 2000 company sold high voltage wound film capacitors high voltage power supplies businesses cash 35 million approximately book value net assets sold date addition buyer assumed certain liabilities businesses including longterm lease facility businesses occupied extended 2006 annual rent approximately 05 million november 2000 company sold time card job cost accounting software business cash 25 million certain minority shares common stock buyer immaterial value fourth quarter 2000 company also received cash approximately 07 million related equity investment unconsolidated entity classified discontinued operation december 1999 company recorded provisions approximately 21 million net tax estimated losses sale discontinued businesses based actual proceeds received net assets discontinued businesses respective dates sale company reversed provisions recorded december 1999 recorded aggregate gain sales 29 million net tax year ended december 31 2000 including reversal maxwell technologies inc subsidiaries notes consolidated financial statements information full year ended december 31 1999 unaudited note 10 discontinued operations continued late 2000 company decided focus electronic components group ibusphoenix segments note 11 accordingly late 2000 company offered sale defense contracting business signed letters intent sell business separate transactions two buyers transactions expected completed march 31 2001 company also seeking strategic alternatives purepulse business company expects result sale majority companys interest business 2001 accordingly defense contracting business purepulse previously classified separate segment classified discontinued operations financial reporting purposes operating results discontinued operations shown separately net tax accompanying consolidated statements operations provision credit income taxes related discontinued operations 06 million 42 million fiscal year ended july 31 1999 five months ended december 31 1999 respectively fiscal year ended july 31 1999 provision income taxes net credit 17 million representing reversal valuation allowance provided previous years certain deferred tax assets discontinued operations provision income taxes provided discontinued operations fiscal year ended july 31 1998 calendar year ended december 31 2000 businesses included discontinued operations sales aggregating 626 million 768 million 247 million 472 million fiscal years ended july 31 1998 1999 five months ended december 31 1999 year ended december 31 2000 respectively amounts included net sales accompanying consolidated statements operations assets liabilities discontinued operations consisted following thousands net assets discontinued operations separately classified accompanying consolidated balance sheets december 31 1999 2000 prior year consolidated financial statements restated conform current year presentation maxwell technologies inc subsidiaries notes consolidated financial statements information full year ended december 31 1999 unaudited note 11 business segments accordance requirements guidelines statement financial accounting standards 131 disclosure segments enterprise related information maxwells operations classified two business segments follows electronic components group part restructuring plan company organized electronic components group combining numerous business units product lines powercache ultracapacitors emi filtered feedthroughs ceramic capacitors radiationshielded microelectronics october 2000 company integrated powercache ultracapacitor operations radiationshielded microelectronics operations one new manufacturing site san diego emi filters ceramic capacitors manufactured companys facility carson city nevada redesigned 2000 facilities designed highly efficient manufacturing improved processes improved personnel training disciplined cost control practices electronic components group consists primarily following power delivery high reliability devices product lines ultracapacitors electrical energy storage delivery peak power variety applications emi filtered feedthroughs cardiac pacemakers defibrillators implantable medical devices high temperature ceramic capacitors filters used oil exploration radiationshielded microelectronics including integrated circuits power modules single board computers space military markets ibusphoenix power computing systems part restructuring plan company integrated ibus inc phoenix power systems inc subsidiaries ibusphoenix organization operations us europe asia new ibusphoenix operation focused providing high availability custom computing systems power quality products part restructuring plan company combined san diego operations two businesses single facility october 2000 new facility designed highly efficient manufacturing improved processes improved personnel training disciplined cost control practices companys ibusphoenix product offerings include applied computing systems power distribution systems power conditioning units products sold mainly oems serving telecommunications internet infrastructure industrial automation broadcasting medical imaging markets maxwells management evaluates performance allocates resources based measure segment operating profit loss excluding restructuring acquisition charges accounting policies reportable segments described summary significant accounting policies maxwell evaluate segment performance amounts provided restructuring acquisition charges items income expense operating income loss accordingly items segregated operating segment maxwell technologies inc subsidiaries notes consolidated financial statements information full year ended december 31 1999 unaudited note 11 business segments continued business segment financial data follows thousands intersegment sales insignificant identifiable assets segment include assets directly identified segments corporate assets consist primarily cash equivalents deferred tax assets credits centralized telecommunications networking information technology equipment company international sales amounted 148 million 240 million 107 million 258 million fiscal years ended july 31 1998 1999 five months ended december 31 1999 year ended december 31 2000 respectively made principally customers united kingdom europe pacific rim company assets located outside united states totaled approximately 89 million 105 million december 31 1999 2000 respectively maxwell technologies inc subsidiaries notes consolidated financial statements information full year ended december 31 1999 unaudited note 11 business segments continued company made sales one major customer ibusphoenix power computing systems segment aggregated 131 167 186 84 total company sales fiscal year ended july 31 1999 five months ended december 31 1999 years ended december 31 1999 2000 respectively addition one major customer ibusphoenix power computing systems segment accounted 102 total company sales fiscal year ended july 31 1998 note 12 related party transactions february 1999 company loaned 20 million chairman former ceo full recourse promissory note agreement bearing interest 5 per year secured part pledge company stock owned chairman principal accumulated interest paid full january 2001 january 2001 company borrowed 15 million chief executive officer unsecured promissory note bearing interest 110 note accrued interest fully repaid march 2001 maxwell technologies inc subsidiaries notes consolidated financial statements information full year ended december 31 1999 unaudited note 13 unaudited quarterly results operations following summary unaudited quarterly results operations years ended december 31 1999 2000 respectively unaudited financial information reflects normal recurring adjustments opinion management necessary fair statement results interim periods thousands except per share amounts per share amounts quarters full years calculated separately accordingly quarterly amounts may add annual amounts presented elsewhere report differences average common shares outstanding period regard diluted per share amounts inclusion effect potentially dilutive securities periods effect would dilutive item 9item 8 financial statements index consolidated financial statements report ernst young llp independent auditors board directors stockholders maxwell technologies inc audited accompanying consolidated balance sheets maxwell technologies inc subsidiaries december 31 2000 2001 related consolidated statements operations stockholders equity cash flows year ended july 31 1999 five months ended december 31 1999 two years period ended december 31 2001 audits also included financial statement schedule listed index item 14a consolidated financial statements schedule responsibility companys management responsibility express opinion financial statements schedule based audits conducted audits accordance auditing standards generally accepted united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion financial statements referred present fairly material respects consolidated financial position maxwell technologies inc subsidiaries december 31 2000 2001 consolidated results operations cash flows year ended july 31 1999 five months ended december 31 1999 two years period ended december 31 2001 conformity accounting principles generally accepted united states also opinion related financial statement schedule considered relation basic financial statements taken whole presents fairly material respects information set forth therein ernst young llp san diego california february 8 2002 maxwell technologies inc subsidiaries consolidated balance sheets thousands except per share data see accompanying notes maxwell technologies inc subsidiaries consolidated statements operations thousands except per share data see accompanying notes maxwell technologies inc subsidiaries consolidated statements stockholders equity year ended july 31 1999 five months ended december 31 1999 years ended december 31 2000 2001 thousands except share data see accompanying notes maxwell technologies inc subsidiaries consolidated statements cash flows thousands see accompanying notes maxwell technologies inc subsidiaries notes consolidated financial statements note 1description business summary significant accounting policies description business maxwell develops manufactures markets high reliability electronic components power computing systems use transportation telecommunications consumer industrial electronics medical aerospace industries products include powercache® ultracapacitors radiationshielded microelectronics custom power computing systems original equipment manufacturers oems company focused business following areas •power delivery components •high reliability specialized electronic components space military applications •high availability customized applied computing power systems companys strategy apply expertise proprietary technology power computing component system level develop manufacture market products specialized high value applications companys electronic components ibusphoenix power computing systems businesses generate companys revenues continuing operations company sold defense contracting business march 2001 note 13 emi filtered feed throughs ceramic capacitors business june 2001 note 4 focus operations exclusively productdriven commercial opportunities areas power computing companys purepulse business focused opportunities application purebright® technology pathogen inactivation medical bioprocessing markets consumer drinking water applications company committed pursuing alternatives purepulse result sale majority interest business spinoff companys shareholders 2002 basis presentation consolidated financial statements include accounts maxwell technologies inc subsidiaries significant intercompany transactions account balances eliminated consolidation accompanying consolidated financial statements reclassified present financial position results operations continuing businesses company businesses company intends sell discontinue certain businesses sold discontinued company current prior periods classified discontinued operations accompanying consolidated financial statements note 13 cash equivalents shortterm investments company invests excess cash debt instruments us government agencies highquality corporate issuers highly liquid instruments original maturity three months less purchase considered cash equivalents original maturities greater three months date purchase considered shortterm investments companys shortterm investments marketable securities classified availableforsale reported fair value unrealized gains losses recorded stockholders equity separate component comprehensive income realized gains losses permanent declines value availableforsale securities reported income expense incurred company uses specific identification method sales investments inventories stated lower cost market inventory cost determined principally using average cost firstin firstout method property plant equipment property plant equipment carried cost generally depreciated using straightline method depreciation amortization provided estimated useful lives related assets three thirty years depreciation amortization property plant equipment amounted 31 million 15 million 31 million 41 million fiscal years ended july 31 1999 five months ended december 31 1999 years ended december 31 2000 2001 respectively goodwill amortized straightline basis estimated useful life asset range 5 15 years longlived assets company periodically evaluates carrying value unamortized balances longlived assets determine whether impairment assets occurred whether revision related amortization periods made evaluation based managements projections undiscounted future cash flows associated class asset managements evaluation indicates carrying values assets impaired impairment recognized reduction applicable asset carrying value estimated fair value expensed operations income taxes company accounts income taxes accordance sfas 109 accounting income taxes requires use liability method accounting deferred income taxes method deferred income taxes recorded reflect tax consequences future years temporary differences tax bases assets liabilities financial reporting amounts period end likely portion deferred tax asset realized valuation allowance recognized stockbased compensation company accounts stockbased employee compensation arrangements accordance provisions accounting principles board opinion 25 accounting stock issued employees complies disclosure provisions sfas 123 accounting stockbased compensation apb 25 compensation cost recognized vesting period based excess date grant deemed fair value companys stock employees exercise price concentration credit risk financial instruments subject company potential concentrations credit risk consist principally companys accounts receivable companys accounts receivable result product sales customers various industries various geographical areas domestic foreign company performs ongoing credit evaluations customers generally requires collateral revenue recognition company derives substantially revenue sale manufactured products directly customers revenue typically recognized upon shipment products general company offer discounts right return company provide installation services incur postsale obligations product warranty accrued time sale prior years certain continuing discontinued segments recorded revenue longterm shortterm fixed price contracts cost plus contracts us government directly prime contractor revenues including estimated profits recognized cost incurred included provisions anticipated losses december 1999 sec issued staff accounting bulletin 101 revenue recognition financial statements sab 101 sab 101 provides guidance accounting principles generally accepted united states revenue recognition financial statements adoption sab 101 year 2000 material effect companys financial statements foreign currencies company foreign subsidiaries conduct manufacturing sales activities foreign countries specifically united kingdom france germany result companys financial results could significantly affected factors changes foreign currency exchange rates weak economic conditions european markets company serves operating results company exposed changes exchange rates united states dollar euro british pound company currently hedge foreign exchange risk assets liabilities companys foreign subsidiaries translated functional currencies united states dollars exchange rates effect balance sheet date revenues expenses translated weightedaverage rates prevailing period comprehensive income company adopted provisions sfas 130 reporting comprehensive income sfas 130 establishes standards reporting comprehensive income components financial statement comprehensive income defined includes changes equity net assets period nonowner sources net loss comprehensive loss including foreign currency translation adjustments unrealized gains losses investments shall reported net related tax effect arrive comprehensive loss income loss per share company reports basic diluted income loss per share accordance financial accounting standards board statement 128 earnings per share statement 128 basic income loss per share calculated using weighted average number common shares outstanding diluted income loss per share calculated basis weighted average number common shares outstanding plus dilutive effect outstanding stock options company certain subsidiaries assuming exercise using treasury stock method convertible preferred shares outstanding certain subsidiaries company assuming conversion original dates issuance following table sets forth computation basic diluted income loss per share thousands except per share amounts new accounting pronouncements july 2001 financial accounting standards board issued statements financial accounting standards 141 business combinations sfas 141 142 goodwill intangible assets sfas 142 sfas 141 requires business combinations initiated june 30 2001 accounted using purchase method sfas 142 goodwill intangible assets indefinite lives longer amortized reviewed annually frequently impairment indicators arise impairment separable intangible assets deemed indefinite lives continue amortized useful lives maximum life amortization provisions sfas 142 apply immediately goodwill intangible assets acquired june 30 2001 companies required adopt sfas 142 fiscal years beginning december 15 2001 accordingly company adopt sfas 142 january 1 2002 connection adoption sfas 142 company required perform transitional goodwill impairment assessment company currently evaluating effect adoption provisions sfas 142 results operations financial position august 2001 fasb issued sfas 144 accounting impairment disposal longlived assets sfas 144 addresses financial accounting reporting impairment disposal longlived assets sfas 144 supersedes sfas 121 retains sfas 121s fundamental provisions recognition measurement impairment longlived assets held used measurement longlived assets disposed sale sfas 144 also supersedes accounting reporting provisions accounting principles board apb opinion 30 segments business disposed retains apb opinion 30s requirement report discontinued operations separately continuing operations extends reporting component entity either disposed classified held sale sfas 144 became effective company beginning january 1 2002 adoption sfas 144 january 1 2002 material impact companys financial position results operations use estimates preparation financial statements conformity accounting principles generally accepted united states requires management make estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities dates financial statements reported amounts revenues expenses reporting periods estimates required provide product obsolescence well matters note 2cash cash equivalents shortterm investments note 3business combinations september 2000 companys subsidiary ibusphoenix inc acquired gateworks corporation gateworks designs supplies embedded computer boards transaction accounted purchase closing date ibusphoenix inc paid 500000 cash issued 855153 new shares ibusphoenix inc common stock selling shareholders gateworks exchange outstanding shares gateworks total number ibusphoenix inc shares issued selling gateworks shareholders adjusted additional 342450 newly issued shares ibusphoenix inc first quarter 2002 reflect final purchase price based upon actual gateworks ibusphoenix inc 2001 revenues value additional shares accrued december 2001 connection acquisition ibusphoenix inc granted certain rights selling gateworks shareholders permitted shareholders january 2002 require ibusphoenix inc repurchase 193624 ibusphoenix inc shares issued shareholders closing date 12 million purchase accounting purposes closing date payment valued approximately 44 million final payment valued 14 million 01 million allocated net liabilities acquired 59 million allocated goodwill amortized period five years remaining 05 million related acquired technologies achieved technological commercial feasibility closing date charged operations closing date pro forma results operations company gateworks assuming gateworks acquired january 1 2000 would materially different reported results january 1999 company acquired space electronics inc sei closely held company specialized manufacture radiationshielded microelectronics commercial space market terms agreement accounted poolingofinterests maxwell purchased outstanding stock sei exchange approximately 681000 shares maxwell common stock valued approximately 25 million closing date company incurred direct acquisition costs approximately 11 million charged operations fiscal year ended july 31 1999 also january 1999 company purchased german company formerly distributor companys applied computing business acquisition accounted poolingofinterests consisted purchase outstanding stock german company exchange approximately 114000 shares maxwell common stock valued approximately 5 million closing date company incurred direct acquisition costs approximately 75000 charged operations fiscal year ended july 31 1999 historical results operations acquired company material relation maxwell financial information prior periods restated reflect merger fiscal year ended july 31 1999 companys retained earnings restated reflect retained earnings acquired company acquisition date approximately 184000 note 4sale business june 18 2001 closing date companys majorityowned subsidiary maxwell electronic components group inc ecg sold substantially assets except accounts receivable liabilities business operations sierra kd components division carson city nevada sierra gb acquisition co inc whollyowned subsidiary wilson greatbatch technologies inc wgt sierra manufactured commercialized ceramic filter capacitors wire feedthroughs implantable medical devices ceramic capacitors aerospace commercial applications aggregate purchase price 469 million received cash closing egc retained accounts receivable sierra closing date amounted 25 million net assets sold net book value 64 million closing date company recorded pretax gain sale assets 391 million net accrued transaction costs 14 million including certain sale bonuses amounts paid cancel certain ecg employee stock options held employees transferring wgt company used 157 million aggregate proceeds repay amounts outstanding closing date credit facility comerica bank remaining proceeds invested cash equivalents shortterm investments used finance companys ongoing liquidity requirements note 5balance sheet details amounts thousands trade accounts receivable net inventory property plant equipment goodwill noncurrent assets accounts payable accrued liabilities note 6shortterm borrowings debt shortterm borrowings company bank credit agreement credit agreement revolving borrowings 5 million december 2004 bearing interest banks reference rate plus 1 borrowings credit agreement secured companys assets united states except real property pledge twothirds stock certain foreign subsidiaries credit agreement requires company comply certain financial covenants december 31 2001 company compliance covenants borrowings outstanding longterm borrowings consist following december 2001 company entered term loan term loan secured deed trust real estate property term loan company borrowed 6 million bearing interest prime plus 05 per annum 525 december 31 2001 maturity principal interest payable monthly installments december 2004 mortgage also subject compliance financial covenants credit agreement principal maturities longterm debt december 31 2001 summarized follows thousands note 7stock activity stock plans stock option plans december 1995 company adopted 1995 stock option plan amended 3340000 shares common stock reserved future grant companys 1999 director stock option plan 75000 shares reserved future grant adopted 1999 approved companys shareholders january 2000 plans provide granting either incentive stock options nonqualified stock options employees nonemployee members companys board directors respectively december 1999 company granted 294030 nonqualified options companys new president chief executive officer outside companys option plans options also outstanding expired stock option plans superceded current plans options granted stock option plans purchase common stock company less stocks fair market value date grant employee options generally exercisable cumulative annual installments 20 30 percent options director option plan exercisable full one year date grant options terms five ten years december 31 2001 company 1080689 shares available future grant stock option plans following table summarizes total aggregate stock option activity period july 31 1999 december 31 2001 following table summarizes information concerning outstanding exercisable company common stock options december 31 2001 companys subsidiaries minority equity investors former strategic partners former stockholders businesses acquired using subsidiary stock former current employees exercised stock options entities december 31 2001 minority investors owned outstanding shares approximately 54 maxwell electronic components group inc 65 ibusphoenix inc 152 percent purepulse technologies inc addition subsidiary employee stock option plan providing issuance incentive nonqualified stock options purchase subsidiary common stock option programs ibusphoenix inc purepulse technologies inc active respect current grants options mid2000 certain employees ibusphoenix inc purepulse technologies inc eligible option grants respective subsidiary plans eligible grants maxwell level certain corporate maxwell electronic components group inc employees eligible option grants maxwell level subsidiaries options inthemoney subsidiary level negative impact maxwells earnings per share company expects report diluted earnings per share future periods due inthemoney subsidiary options except extent exercised however subsidiary options affect maxwells consolidated net income reported consolidated statement operations options exercised dilute maxwells actual ownership interest subsidiaries thus reducing maxwells share net income loss potential dividends distributions proceeds sale disposition subsidiary equity interest upon exercise stock options subsidiaries accounted minority interest based current programs potential percentage ownership interest attributable exercisable subsidiary options december 31 2001 diluted basis approximately 2 maxwell electronic components group inc 33 ibusphoenix inc 46 purepulse technologies inc company adopted disclosure provisions fasb statement 123 accounting stockbased compensation statement 123 accordance provisions statement 123 company applies accounting principles board opinion 25 related interpretations accounting stock option plans accordingly compensation expense recognized stock options granted fiscal year ended july 31 2001 five months ended december 31 1999 years ended december 31 2000 2001 stock options granted current fair market value company elected recognize compensation based fair value method prescribed statement 123 companys net income loss continuing operations diluted income loss continuing operations per share would adjusted pro forma amounts indicated thousands except per share amounts pro forma adjustments shown indicative future period pro forma adjustments calculation reflect applicable stock options fair value company options date grant estimated using blackscholes optionpricing model assumptions follows based assumptions estimated weighted average fair value grant date company options granted fiscal years ended july 31 1999 five months ended december 31 1999 years ended december 31 2000 2001 1253 913 1001 859 per option respectively stock purchase plans december 1994 company established 1994 employee stock purchase plan director stock purchase plan employee plan permits substantially employees purchase common stock payroll deductions 85 lower trading price stock beginning end sixmonth offering period director plan permits nonemployee directors purchase common stock 100 trading price stock date request purchase received fiscal year ended july 31 1999 years ended december 31 2000 2001 aggregate shares 48388 118666 56975 respectively issued two plans aggregate proceeds company 759000 970000 997000 respectively shares issued plans five months ended december 31 1999 december 31 2001 277050 shares reserved future issuance plans january 2000 board adopted companys stockholders subsequently approved companys management equity ownership program executive officers company members senior management selected committee offered fullrecourse loans company used purchase stock company loans bear interest must repaid annual installments principal interest fouryear period repayment loans secured shares purchased loan proceeds february 1 2000 loans aggregate amount 900000 bearing interest 656 made connection aggregate purchase 74995 newly issued shares companys common stock 1200 per share closing market price date purchase deferred compensation 1996 1997 chairman company granted shares companys common stock subject certain restrictions shares granted vest ratably fouryear period grant dates shares fair value approximately 645000 190000 respectively values net accumulated amortization shown deferred compensation accompanying consolidated balance sheets consolidated statements stockholders equity deferred compensation fully recognized december 31 2001 amortized expense fouryear vesting periods amortization totaled 87000 102000 15000 fiscal year ended july 31 1999 years ended december 31 2000 2001 respectively stockholder rights plan october 1999 company adopted new stockholder rights plan successor previous plan expired june 1999 accordance new plan company distributed one nonvoting common stock purchase right outstanding share common stock rights exercisable trade separately common stock unless person group acquires makes tender offer 15 companys common stock initially right entitles registered holder purchase one share company common stock price 75 per share subject certain antidilution adjustments rights become exercisable certain conditions met right owned acquiring person group entitle holder receive upon exercise company common stock market value twice exercise price right addition company may redeem rights price 001 per right subject certain restrictions new stockholder rights plan expires october 21 2009 note 8income taxes provision credit income taxes based income losses continuing operations follows thousands deferred income taxes reflect net tax effects temporary differences carrying amounts assets liabilities financial reporting purposes amounts used income tax purposes primary components companys deferred tax assets liabilities within continuing operations follows thousands company cannot carry losses back prior years fiscal year ended july 31 1998 company provided valuation allowance future tax benefits net operating loss carryforwards net deferred income tax assets realization future benefits deemed uncertain fiscal year 1999 company reversed valuation allowance recorded net deferred income tax assets approximately 89 million 46 million recorded credit additional paidin capital tax benefits relating employee stock option stock purchase plan activity current prior years cumulative losses operations july 31 1999 december 31 2001 company established valuation allowance 188 million december 31 2001 valuation allowance established realizability deferred tax assets longer assessed management likely pursuant internal revenue code sections 382 383 use companys federal net operating loss credit carryforwards may limited due cumulative change ownership 50 within threeyear period december 31 2001 company net operating loss carryforwards federal state income tax approximately 389 million 64 million respectively federal loss carryforward begins expire calendar year 2011 state loss carryforwards begin expire 2002 2010 addition company research development tax credit carryforwards federal state income tax purposes december 31 2001 27 million 16 million respectively begin expire 2004 net operating loss carryforwards tax credits disclosed paragraph include 55 million 10 million respectively relating discontinued operations valuation allowance includes future tax benefit approximately 362000 related 2001 stock option deductions recognized allocated additional paidin capital provision credit income taxes accompanying consolidated statements operations differs amount calculated applying statutory income tax rate income loss continuing operations income taxes minority interest primary components difference follows thousands note 9leases rental expense amounted 24 million 10 million 26 million 19 million fiscal year ended july 31 1999 five months ended december 31 1999 years ended december 31 2000 2001 respectively incurred primarily facility rental future annual minimum rental commitments december 31 2001 follows thousands certain leases include renewal options periods ranging one ten years subject rental adjustment based consumer price indices substantially leases provide company pay property taxes insurance repairs maintenance company also subleases certain leased facilities noncancelable subleases 2003 future annual amounts due company subleases aggregating 957000 follows calendar year 2002863000 200394000 note 10employee benefit plans substantially united states employees eligible elect coverage contributory employee savings plans provide company matching contributions based onehalf employee contributions certain plan limits companys matching contributions plans totaled 446000 269000 387000 275000 fiscal year ended july 31 1999 five months ended december 31 1999 years ended december 31 2000 2001 respectively note 11restructuring charges company undertaken various actions consolidate facilities reduce cost structure company result company recorded restructuring related charges five months ended december 31 1999 year ended december 31 2000 33 million included termination approximately 75 employees cutbacks impacted segments classes employees charges determined accordance staff accounting bulletin 100 restructuring impairment charges emerging issues task force 943 liability recognition certain employee termination benefits costs exit activity including certain costs incurred restructuring charges include severance costs related reduction workforce closure combination certain facilities company end 2000 finalized consolidation integration operations related facilities following table summarizes restructuring charges recorded activity related charges five months ended december 1999 years ended december 31 2000 2001 thousands note 12other charges following table summarizes charges thousands 2000 charges consisted writeoff certain nonperforming operating assets writedown goodwill balances 48 million related previous acquisition phoenix power based current appraisal acquired business company also recorded charge 05 million related writeoff inprocess technology acquired connection acquisition gateworks note 2 company abandoned 09 million equipment leasehold improvements due consolidation factories discontinuance certain older products conjunction decision cancel certain older products company wrote 07 million inventory primarily power computing products five months ended december 1999 company wrote 18 million abandoned equipment related decision upgrade ultracapacitor product line changing certain internal components resulted write equipment associated old process year ended july 31 1999 charges consisted approximately 13 million direct acquisition costs business combinations accounted using poolingofinterests method note 2 remaining 11 million consisted primarily 04 million accrued costs resolve certain environmental contingency 04 million legal settlements occurred prior years amounts settled note 13discontinued operations connection companys decision 2000 focus future company electronic components group ibusphoenix company sold high voltage wound film capacitors high voltage power supplies business time card job cost accounting software business addition company offered sale defense contracting business committed strategic alternatives purepulse result sale majority interest business spinoff companys shareholders 2002 accordingly defense contracting business purepulse previously classified separate segment high voltage wound film capacitors high voltage power supplies business time card job cost accounting software business classified discontinued operations financial reporting purposes february 2000 company sold high voltage wound film capacitors high voltage power supplies businesses cash 35 million approximately book value net assets sold date addition buyer assumed certain liabilities businesses including longterm lease facility businesses occupied extended 2006 annual rent approximately 05 million november 2000 company sold time card job cost accounting software business cash 25 million certain minority shares common stock buyer immaterial value fourth quarter 2000 company also received cash approximately 07 million related equity investment unconsolidated entity classified discontinued operation december 1999 company recorded provisions approximately 21 million net tax estimated losses sale discontinued businesses based actual proceeds received net assets discontinued businesses respective dates sale company reversed provisions recorded december 1999 recorded aggregate gain sales 29 million net tax year ended december 31 2000 including reversal march 2001 company sold assets defense contracting business separate transactions two buyers aggregate purchase price approximately 207 million total purchase price approximately 95 million received cash march 2001 additional 98 million received cash april 2001 remaining 14 million received october 2001 following expiration holdback periods certain indemnifications contingencies provided sales agreements buyers assumed certain liabilities ongoing contractual obligations business hired employees business company retained certain leases lease obligations expiring 2006 certain assets liabilities business including estimated amounts provided closing expenses transaction net costs winding remaining activities business company recorded gain net tax approximately 39 million first quarter 2001 representing net gain disposition assets net income operations discontinued business based current projected vacancies leased facilities company revised previously estimated costs written related leasehold improvements charges totaled 28 million recorded september 2001 included loss discontinued operations net lease obligations 74 million run 2006 operating results discontinued operations shown separately net tax accompanying consolidated statements operations provision credit income taxes related discontinued operations 06 million 42 million fiscal year ended july 31 1999 five months ended december 31 1999 respectively fiscal year ended july 31 1999 provision income taxes net credit 17 million representing reversal valuation allowance provided previous years certain deferred tax assets discontinued operations provision income taxes provided discontinued operations year ended december 31 2000 fiscal years ended december 2001 provision income taxes 46 million businesses included discontinued operations sales aggregating 626 million 768 million 247 million 472 million 117 million fiscal years ended july 31 1998 1999 five months ended december 31 1999 years ended december 31 2000 2001 respectively amounts included net sales accompanying consolidated statements operations assets liabilities discontinued operations consisted following thousands net assets liabilities discontinued operations separately classified accompanying consolidated balance sheets december 31 2000 2001 results discontinued operations segment consisted following thousands note 14business segments accordance requirements guidelines statement financial accounting standards 131 disclosure segments enterprise related information maxwells operations classified two business segments follows •electronic components 2000 company organized electronic components group combining numerous business units product lines consists primarily following power delivery high reliability devices product lines •ultracapacitors electrical energy storage delivery peak power variety applications •high reliability specialized electronic components including integrated circuits power modules single board computers space military markets •emi filtered feedthroughs cardiac pacemakers defibrillators implantable medical devices high temperature ceramic capacitors filters used oil exploration product line sold june 2001 •ibusphoenix power computing systems 2000 company integrated ibus inc phoenix power systems inc subsidiaries new ibusphoenix operation focused providing high availability custom computing systems power quality products companys ibusphoenix product offerings include applied computing systems power distribution systems power conditioning units products sold mainly oems serving telecommunications internet infrastructure industrial automation broadcasting medical imaging markets maxwells management evaluates performance allocates resources based measure segment operating profit loss excluding restructuring acquisition charges accounting policies reportable segments described summary significant accounting policies maxwell evaluate segment performance amounts provided restructuring acquisition charges items income expense operating income loss accordingly items segregated operating segment business segment financial data follows thousands intersegment sales insignificant identifiable assets segment include assets directly identified segments corporate assets consist primarily cash equivalents deferred tax assets credits centralized telecommunications networking information technology equipment company international sales amounted 240 million 107 million 258 million 218 million fiscal year ended july 31 1999 five months ended december 31 1999 years ended december 31 2000 2001 respectively made principally customers united kingdom europe pacific rim company assets located outside united states totaled approximately 79 million 105 million december 31 2001 2000 respectively company made sales one major customer ibusphoenix power computing systems segment aggregated 13 17 8 39 total company sales fiscal year ended july 31 1999 five months ended december 31 1999 years ended december 31 2000 2001 respectively note 15related party transactions february 1999 company loaned 20 million chairman former chief executive officer full recourse promissory note agreement bearing interest 5 per year secured part pledge company stock owned chairman principal accumulated interest paid full january 2001 january 2001 company borrowed 15 million chief executive officer unsecured promissory note bearing interest 110 note accrued interest fully repaid march 2001 note 16unaudited quarterly results operations following summary unaudited quarterly results operations years ended december 31 2000 2001 unaudited financial information reflects normal recurring adjustments opinion management necessary fair statement results interim periods thousands except per share amounts per share amounts quarters full years calculated separately accordingly quarterly amounts may add annual amounts presented elsewhere report differences average common shares outstanding period regard diluted per share amounts inclusion effect potentially dilutive securities periods effect would dilutive note 17subsequent events january 2002 company adopted plan complete merger transaction electronic components group ibusphoenix inc whereby minority shareholdings options would converted shares options maxwell technologies merger would result issuance 565000 additional common shares maxwell technologies 537000 options acquire shares maxwell technologies february 2002 pacificorp largest minority shareholder electronic components group exchanged preferred shares electronic components group 518000 common shares maxwell technologies item 9item 8 financial statements index consolidated financial statements report ernst young llp independent auditors consolidated balance sheets december 31 2001 december 31 2002 consolidated statements operations years ended december 31 2000 2001 2002 consolidated statements stockholders’ equity years ended december 31 2000 2001 2002 consolidated statements cash flows years ended december 31 2000 2001 2002 notes consolidated financial statements report ernst young llp independent auditors board directors stockholders maxwell technologies inc audited accompanying consolidated balance sheets maxwell technologies inc subsidiaries december 31 2001 2002 related consolidated statements operations stockholders’ equity cash flows three years period ended december 31 2002 audits also included financial statement schedule listed index item 15a2 consolidated financial statements schedule responsibility company’s management responsibility express opinion financial statements schedule based audits conducted audits accordance auditing standards generally accepted united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion financial statements referred present fairly material respects consolidated financial position maxwell technologies inc subsidiaries december 31 2001 2002 consolidated results operations cash flows three years period ended december 31 2002 conformity accounting principles generally accepted united states also opinion related financial statement schedule considered relation basic financial statements taken whole presents fairly material respects information set forth therein discussed note 8 consolidated financial statements effective january 1 2002 company adopted financial accounting standards board statement 142 “goodwill intangible assets” ernst young llp san diego california february 7 2003 maxwell technologies inc subsidiaries consolidated balance sheets thousands except per share data see accompanying notes maxwell technologies inc subsidiaries condensed consolidated statements operations thousands except per share data see accompanying notes maxwell technologies inc subsidiaries consolidated statements stockholders equity thousands maxwell technologies inc subsidiaries consolidated statements cash flows thousands maxwell technologies inc subsidiaries notes consolidated financial statements note 1 description business summary significant accounting policies description business maxwell develops manufactures markets highreliability power microelectronic products original equipment manufacturers oems multiple industries power products address applications transportation telecommunications consumer industrial electronics electric utility infrastructure medical imaging microelectronics products primarily address applications aerospace power product lines comprised ultracapacitors highvoltage capacitors custom power energy storage systems microelectronic product lines comprised radiationshielded power modules memory modules asics single board computers also sell automated accelerated life testers permit customers determine intrinsic reliability microelectronics financial statement presentation consolidated financial statements include accounts maxwell technologies inc subsidiaries significant intercompany transactions account balances eliminated consolidation company’s defense contracting business sold march 2001 purepulse business shut september 2002 previously reported separate segment classified discontinued operations accompanying consolidated financial statements note 14 results operations businesses sold otherwise disposed previously reported separate segments included continuing operations date sale preparation financial statements conformity accounting principles generally accepted united states requires management make estimates assumptions affect reported amounts related disclosures estimates include assessing collectibility accounts receivable usage recoverability inventories longlived assets incurrence losses warranty costs vacant leased facilities offered sale markets company’s products extremely competitive characterized rapid technological change new product development product obsolescence evolving industry standards addition price competition intense significant price erosion generally occurs life product respect vacant leased facilities offered sale commercial real estate markets depressed due continued poor economic conditions spending reductions businesses government agencies result factors actual results could differ estimates used management certain prior year amounts reclassified conform current year presentation company’s fiscal quarters generally 13 weeks ending sunday closest march 31 june 30 september 30 company completes fiscal year actual day december 31 cash equivalents shortterm investments company invests excess cash debt instruments us government agencies highquality corporate issuers highly liquid instruments original maturity three months less purchase considered cash equivalents original maturities greater three months date purchase considered shortterm investments company’s shortterm investments marketable securities classified availableforsale reported fair value unrealized gains losses recorded stockholders’ equity separate component comprehensive income realized gains losses permanent declines value availableforsale securities reported income expense incurred company recognized 82000 22000 net realized gains years ended december 312001 2002 respectively company uses specific identification method sales investments maturities gross unrealized gains losses shortterm investments december 31 2002 follows thousands shortterm investments allowance doubtful accounts allowance doubtful accounts reflects management’s best estimate probable losses inherent account receivable balance management determines allowance based known troubled accounts historical experience currently available evidence inventories stated lower cost market inventory values based standard costs approximate average costs firstin firstout method property plant equipment property plant equipment carried cost generally depreciated using straightline method depreciation amortization provided estimated useful lives related assets three ten years longlived assets goodwill longlived assets property plant equipment intangible assets reviewed impairment whenever events changes business circumstances indicate carrying value linglived asset may recoverable company determines carrying value longlived assed may recoverable permanent impairment charge recorded amount carrying value longlived asset exceeds fair value management believes estimates fair value reasonable however changes business circumstances estimates cash flows fair value could materially impact reported results assessing recoverability goodwill completed annually make assumptions regarding future cash flows factors determine fair value addition periodically independent appraisals business segments performed compare fair value carrying value estimates related assumptions change future may required record impairment charges income taxes company accounts income taxes accordance statement financial accounting standards sfas 109 “accounting income taxes” requires use liability method accounting deferred income taxes method deferred income taxes recorded reflect tax consequences future years temporary differences tax bases assets liabilities financial reporting amounts period end likely portion deferred tax asset realized valuation allowance recognized concentration credit risk financial instruments subject company potential concentrations credit risk consist principally company’s accounts receivable company’s accounts receivable result product sales customers various industries various geographical areas domestic foreign company performs ongoing credit evaluations customers generally requires collateral revenue recognition company derives substantially revenue sale manufactured products revenue typically recognized products shipped title passes customer general company offer discounts right return company provide installation services incurpostsale obligations product warranty accrued time sale prior years certain continuing discontinued segments recorded revenue longterm shortterm fixed price contracts cost plus contracts us government directly prime contractor revenues including estimated profits recognized costs incurred included provisions anticipated losses foreign currencies functional currency company’s nonus based subsidiaries local currency adjustments resulting translation financial statements reflected accumulated comprehensive income loss comprehensive income company adopted provisions sfas 130 “reporting comprehensive income” sfas 130 establishes standards reporting comprehensive income components financial statements comprehensive income defined includes changes equity net assets period nonowner sources net loss comprehensive loss including foreign currency translation adjustments unrealized gains losses investments shall reported net related tax effect arrive comprehensive loss december 31 2002 accumulated comprehensive gain consisted 229000 gain foreign currency translation 109000 unrealized gains investments income loss per share company reports basic diluted income loss per share accordance sfas 128 “earnings per share” basic income loss per share calculated using weighted average number common shares outstanding diluted income loss per share calculated basis weighted average number common shares outstanding plus dilutive effect outstanding stock options company certain subsidiaries assuming exercise using “treasury stock” method convertible preferred shares outstanding certain subsidiaries company assuming conversion original dates issuance following table sets forth computation basic diluted income loss per share thousands except per share data stock compensation company adopted disclosure provisions fasb statement 123 accounting stockbased compensation “statement 123” accordance provisions statement 123 company applies accounting principles board opinion 25 related interpretations accounting stock option plans accordingly compensation expense recognized stock options granted years ended december 31 2000 2001 2002 stock options granted current fair market value company elected recognize compensation based fair value method prescribed statement 123 company’s net income loss continuing operations diluted income loss continuing operations per share would adjusted pro forma amounts indicated thousands except per share amounts pro forma adjustments shown indicative future period pro forma adjustments calculation reflect applicable stock options fair value company options date grant estimated using blackscholes optionpricing model assumptions follows new accounting pronouncements august 2001 financial accounting standards board fasb issued sfas 144 “accounting impairment disposal longlived assets” sfas 144 addresses financial accounting reporting impairment disposal longlived assets sfas 144 supersedes sfas 121 retains sfas 121’s fundamental provisions recognition measurement impairment longlived assets held used measurement longlived assets disposed sale sfas 144 also supersedes accounting reporting provisions accounting principles board “apb” opinion 30 segments business disposed retains apb opinion 30’s requirement report discontinued operations separately continuing operations extends reporting component entity either disposed classified held sale sfas 144 became effective company beginning january 1 2002 adoption sfas 144 january 1 2002 material impact company’s financial position results operations june 2002 fasb issued sfas 146 “accounting costs associated exit disposal activities” sfas 146 statement supercedes emerging issues task force eitf issue 943 “liabilities recognition certain employee termination benefits costs exit activity including certain costs incurred restructuring” sfas 146 requires liability cost associated exit disposal activity recognized date entity commits exit plan sfas 146 also establishes liability initially measured recorded fair value provisions sfas 146 effective exit disposal activities initiated december 31 2002 december 2002 fasb issued sfas 148 “accounting stockbased compensation transition disclosure amendment fasb statement 123” sfas 148 statement amends sfas 123 “accounting stock based compensation” sfas123 provide alternative methods voluntarily transitioning fair value based method accounting stockbased employee compensation sfas 148 also amends disclosure requirements sfas 123 require disclosure method used account stockbased employee compensation effects method reported results annual interim financial statements disclosure provisions effective company’s year ended december 31 2003 company yet completed final evaluation options presented sfas 148 however within next year company expects reach determination whether change company’s existing accounting stockbased compensation fair value method accordance transition alternatives sfas 148 note 2 business combinations july 5 2002 company acquired montena components swiss corporation principal facility rossens switzerland transaction company acquired outstanding shares capital stock montena components parent company montena sa swiss corporation exchange 2250000 shares maxwell common stock issued directly montena sa ii additional 300000 shares maxwell common stock held company collateral 3 million loan montena sa purpose loan assist montena sa acquiring minority montena components’ outstanding stock already owned montena sa facilitating acquisition outstanding shares montena components’ stock original agreement montena sa committed sell 300000 shares promptly practical closing repay loan instead requiring montena sa sell shares company accepted return shares satisfaction loan addition provided montena components achieves least 20 million revenues four quarters ended june 30 2003 company agreed issue contingent consideration montena sa follows extent share maxwell stock issued part purchase price held montena sa september 1 2003 market value based average 30 tradingday closing price ending september 1 2003 “30 day measurement price” less 9 per share company provide montena sa additional consideration equal total value difference 9 30 day measurement price multiplied ii number shares held montena sa september 1 2003 provided however additional consideration event greater 500000 shares maxwell common stock based 30 day measurement price cash equal value 500000 shares maxwell common stock valued 30 day measurement price additional consideration may provided company discretion cash shares maxwell common stock subject following conditions company shall provide additional consideration shares maxwell common stock authority issuance approved shareholders maxwell event montena sa votes shares maxwell common stock matter montena sa agreed vote shares approve use maxwell common stock additional consideration results operations montena components included consolidated statement operations date acquisition purchase price allocated follows thousands pro forma results following unaudited pro forma information assumes acquisition montena components occurred january 1 2001 unaudited pro forma results prepared comparative purposes purport indicative results operations would actually resulted combination effect january 1 2001 future results operations unaudited pro forma results years ended december 31 2001 2002 follows thousands september 2000 company’s subsidiary ibusphoenix inc acquired gateworks corporation “gateworks” designs supplies embedded computer boards transaction accounted purchase closing date ibusphoenix inc paid 500000 cash issued 855153 new shares ibusphoenix inc common stock selling shareholders gateworks exchange outstanding shares gateworks total number ibusphoenix inc shares issued selling gateworks shareholders adjusted additional 342450 newly issued shares ibusphoenix inc first quarter 2002 reflect final purchase price based upon actual gateworks ibusphoenix inc 2001 revenues value additional shares accrued december 2001 connection acquisition ibusphoenix inc granted certain rights selling gateworks shareholders permitted shareholders january 2002 require ibusphoenix inc repurchase 193624 ibusphoenix inc shares issued shareholders closing date 12 million purchase accounting purposes closing date payment valued approximately 44 million final payment valued 14 million 01 million allocated net liabilities acquired 59 million allocated goodwill amortized period five years prior adoption sfas 141 remaining 05 million related acquired technologies achieved technological commercial feasibility closing date charged operations closing date pro forma results operations company gateworks assuming gateworks acquired january 1 2000 would materially different reported results note 3 divestitures assets heldforsale september 29 2002 company’s ibusphoenix subsidiary sold substantially assets liabilities business operations applied computing business located principally san diego california tangmere united kingdom ibus corporation new company whose principal shareholders former ibusphoenix senior managers applied computing business designs manufactures sells applied computing systems mainly original equipment manufacturers serving telecommunications broadcasting industrial automation markets business sold 8 senior subordinated note aggregate principal amount 7 million terms 1 million payable plus 50 accrued interest march 30 2004 3 million payable plus 100 accrued interest march 30 2005 march 30 2006 ii warrant purchase 199 common stock new ibus corporation exercisable time june 30 2004 fair market value per share time exercise iii additional contingent purchase price payment 1 million new ibus corporation sells computing business prior full payment 8 senior subordinated note referred ibusphoenix also agreed reimburse ibus corporation certain shutdown restructuring costs provide back working capital credit facility amount 300000 september 2003 company assigned value subordinated debt collectibility uncertain record collections note gain date collection table details loss recognized company related sale addition company incurred related restructuring charges discussed note 12 impairment charges discussed note 13 result decision sell ibus computing business company committed plans sell manufacturing administrative facility san diego contained ibusphoenix’s us operations september 29 2002 company determined plan sell criteria sfas 144 “accounting impairment disposal longlived assets” met facility classified assets held sale financial statements carried net book value 74 million amount considered closely reflect anticipated selling price facility less cost sell company believes facility sold later end third quarter 2003 facility subject 3 million dollar mortgage see note 5 september 30 2002 company sold substantially assets liabilities business operations teknaseal glasstometal seals division minneapolis minnesota group private investors teknaseal designs manufactures sells hermetic glasstometal seals vacuum components battery headers implantable medical devices specialty applications aggregate purchase price 55 million cash 1 million held escrow account december 31 2002 calendar quarter following sale escrow agent release escrow amount equal 40 sales quarter certain key customers december 31 2002 company 253000 receivable escrow released company january 2003 sales customers occur calendar quarter term escrow remaining sums held escrow paid buyers escrow terminated escrow otherwise terminates amounts held thereunder paid maxwell approximately 384000 55 million payable certain teknaseal employees teknaseal incentive program june 18 2001 “closing date” company’s former majorityowned subsidiary maxwell electronic components group inc “ecg” sold substantially assets except accounts receivable liabilities business operations sierra kd components division carson city nevada “sierra” gb acquisition co inc whollyowned subsidiary wilson greatbatch technologies inc “wgt” sierra manufactured commercialized ceramic filter capacitors wire feedthroughs implantable medical devices ceramic capacitors aerospace commercial applications aggregate purchase price 469 million received cash closing egc retained accounts receivable sierra closing date amounted 25 million net assets sold net book value 64 million closing date company recorded pretax gain sale assets 391 million net accrued transaction costs 14 million including certain sale bonuses amounts paid cancel certain ecg employee stock options held employees transferring wgt company used 157 million aggregate proceeds repay amounts outstanding closing date credit facility comerica bank note 4 balance sheet details amounts thousands note 5 shortterm borrowings debt shortterm borrowings maxwell sa bank credit agreement two swiss banks borrowings credit agreement bear interest bank’s prime rate plus 10 interest rate december 31 2002 65 credit agreement also eligible borrow fixed term loans libor rate plus 25 repayment terms extending beyond one month date funding borrowings credit agreement secured assets montena components december 31 2002 outstanding borrowings credit agreement 300000 assigned letters guarantee company available borrowing balance 33 million longterm borrowings consist following december 2001 company entered term loan “term loan” secured deed trust real estate property term loan company borrowed 6 million bearing interest prime plus 05 per annum 475 december 31 2002 maturity principal interest payable monthly installments december 2004 july 2002 company paid 28 million reduce outstanding term loan 30 million term loan agreement contains covenants restricting ability among things • sell dispose part business sales ordinary course business sales proceeds exceed 2 million • engage business businesses currently engaged • merge consolidate acquire businesses unless use equity meet financial covenants combined proforma basis • incur debt except 5 million incurred foreign subsidiaries 2 million debt • make investments except investments certain marketable debt securities guaranteed united states federal state agency certain commercial paper certificates deposit bank money market accounts investments foreign subsidiaries exceed 2 million 2 million investments • pay dividends • incur liens except liens securing amounts agreement also requires us maintain minimum tangible net worth 24 million principal maturities longterm debt december 31 2002 summarized follows thousands note 6 stock activity stock plans stock option plans december 1995 company adopted 1995 stock option plan amended 3340000 shares common stock reserved future grant company’s 1999 director stock option plan 75000 shares reserved future grant adopted 1999 approved company’s shareholders january 2000 plans provide granting either incentive stock options nonqualified stock options employees nonemployee members company’s board directors respectively december 1999 company granted 294030 nonqualified options company’s new president chief executive officer outside company’s option plans april 2002 conjunction purchase shares ibusphoenix electronic components group subsidiaries already owned see note 7 company issued 520000 options purchase maxwell common stock exchange options purchase subsidiary common stock issuance stock options outside company’s option plans options also outstanding expired stock option plans superceded current plans options granted stock option plans purchase common stock company less stock’s fair market value date grant employee options generally exercisable cumulative annual installments 20 30 percent options director option plan exercisable full one year date grant options terms five ten years december 31 2002 company 2021314 shares available future grant stock option plans november 2002 board directors approved company established program restore equity incentives key employees outside directors november 2002 853461 options strike prices 10 held senior management outside directors voluntarily cancelled option holders exchange future issuance late may 2003 substitute stock options strike price equal thenprevailing market price common stock employees hold options strike prices 10 eligible special option grant late may 2003 determined time board directors ensure meaningful equity incentives following table summarizes total aggregate stock option activity period january 1 2000 december 31 2002 following table summarizes information concerning outstanding exercisable company common stock options december 31 2002 based assumptions estimated weighted average fair value grant date company options granted years ended december 31 2000 2001 2002 1001 859 623 per option respectively stock purchase plans december 1994 company established 1994 employee stock purchase plan director stock purchase plan employee plan permits substantially employees purchase common stock payroll deductions 85 lower trading price stock beginning end sixmonth offering period director plan permits nonemployee directors purchase common stock 100 trading price stock date request purchase received years ended december 31 2000 2001 2002 aggregate shares 118666 56975 44660 respectively issued two plans aggregate proceeds company 970000 997000 353000 respectively december 31 2002 279880 shares reserved future issuance plans june 2002 part completing consolidation ownership company ibusphoenix four employees one consultant ibusphoenix granted 19500 shares company’s common stock subject certain restrictions shares granted vest next two years fair market value 182000 date grant result divestiture applied computing business operations completed 2002 third fiscal quarter vesting accelerated balance deferred compensation fully amortized january 2000 board adopted company’s stockholders subsequently approved company’s management equity ownership program “program” program executive officers company members senior management selected committee offered fullrecourse loans company used purchase stock company loans bear interest must repaid annual installments principal interest fouryear period repayment loans secured shares purchased loan proceeds february 1 2000 loans aggregate amount 900000 bearing interest 656 made connection aggregate purchase 74995 newly issued shares company’s common stock 1200 per share closing market price date purchase january 29 2002 loans aggregate amount 75000 bearing interest 485 made connection aggregate purchase 9258 newly issued shares company’s common stock 810 per share closing market price date purchase june 3 2002 company determined extinguish program cancelled 74000 shares 970000 loan balance outstanding plan company recorded expense 116000 related cancellation notes deferred compensation 1996 1997 chairman company granted shares company’s common stock subject certain restrictions shares granted vest ratably fouryear period grant dates shares fair value approximately 645000 190000 respectively values net accumulated amortization shown deferred compensation accompanying consolidated balance sheets consolidated statements stockholders’ equity deferred compensation fully recognized december 31 2001 amortized expense fouryear vesting periods amortization totaled 102000 15000 years ended december 31 2000 2001 respectively stockholder rights plan october 1999 company adopted new stockholder rights plan successor previous plan expired june 1999 accordance new plan company distributed one nonvoting common stock purchase right “right” outstanding share common stock rights exercisable trade separately common stock unless person group acquires makes tender offer 15 company’s common stock initially right entitles registered holder purchase one share company common stock price 75 per share subject certain antidilution adjustments rights become exercisable certain conditions met right owned acquiring person group entitle holder receive upon exercise company common stock market value twice exercise price right addition company may redeem rights price 001 per right subject certain restrictions new stockholder rights plan expires october 21 2009 note 7 consolidation subsidiary ownership february 2002 pacificorp energy ventures inc largest minority shareholder electronic components group exchanged preferred shares electronic components group 518000 common shares maxwell pursuant right original investment agreement april 15 2002 company completed merger transactions electronic components group subsidiary ibusphoenix subsidiary whereby remaining minority shareholdings options subsidiaries converted shares options maxwell conversion ratio established independent appraisal fair market value subsidiaries average trading price maxwell’s stock time appraisal company issued 86000 shares electronic components group minority shareholders exchange ownership value stock issuance determined 795000 based closing price maxwell shares day merger result transactions relating ecg group company recorded 3826000 excess purchase price based value maxwell common shares minority interest balance sheet 2839000 allocated goodwill related tekna seal division sold september 2002 987000 allocated ultracapacitor intellectual property company issued 479000 shares ibusphoenix minority shareholders exchange ownership value stock issuance determined 44 million based closing price maxwell shares day merger company recorded 11 million excess purchase price based value maxwell’s common shares minority interest balance sheet 422000 allocated goodwill associated ibus computing systems business considered impaired written conjuction sale september 2002 balance allocated goodwill related power systems business november 2002 electronic components group merged maxwell ceased separate legal entity note 8 adoption sfas 141 142 goodwill intangibles july 2001 financial accounting standards board issued statements financial accounting standards 141 sfas 141 “business combinations” 142 sfas 142 “goodwill intangible assets” effective fiscal years beginning december 15 2001 new rules goodwill longer amortized subject annual impairment tests accordance statements company implemented sfas 141 sfas 142 began applying new rules accounting goodwill intangible assets effective january 1 2002 december 31 2001 intangible assets comprised solely goodwill following table presents reconciliation net income loss per share data would reported new rules effect year ended december 31 2000 2001in thousands changes carrying amount goodwill year ended december 31 2002 follows thousands pursuant gateworks acquisition agreement completed september 2000 see note 2 business combinations additional purchase consideration consisting 342450 shares ibusphoenix inc common stock issued first fiscal quarter 2002 additional consideration valued 13 million allocated goodwill additional consideration 840000 502000 booked year ended december 31 2001 2002 respectively march 2002 sellers gateworks exercised cash put option acquisition agreement surrendered 193624 shares 12 million cash additional purchase consideration valued 438 booked 2001 2002 amount 314000 124000 respectively b first second fiscal quarter 2002 company entered several transactions consolidate 100 ownership ibusphoenix inc subsidiary electronic components inc subsidiary see note 7 consolidation subsidiary ownership c third fiscal quarter 2002 company acquired montena components ltd see note 2 business combinations third fiscal quarter 2002 ibusphoenix inc sold computing systems assets liabilities related business see note 3 divestitures fourth fiscal quarter electronic components group sold business related assets liabilities teknaseal division see note 4 divestitures aligned product groups new segments described note 14 business segments remaining goodwill allocated high reliability products segment goodwill tested impairment annually company’s fourth fiscal quarter assessing recoverability goodwill 2002 made assumptions regarding future cash flows factors determine fair value goodwill associated ibus computing systems written conjunction disposition business remaining goodwill mainly attributable acquisition montena components completed july 2002 analysis completed early fourth quarter 2002 based determination circumstances since recently completed acquisition montena materially changed company’s fair market value date significantly excess carrying value assets including goodwill acquired intangible assets subject amortization december 31 2002 follows thousands amortization expense intangible assets 543000 year ended december 31 2002 estimated amortization next five succeeding years ended december 31 196000 note 9 income taxes provision credit income taxes based income losses continuing operations follows thousands deferred income taxes reflect net tax effects temporary differences carrying amounts assets liabilities financial reporting purposes amounts used income tax purposes primary components company’s deferred tax assets liabilities within continuing operations follows thousands cumulative losses operations july 31 1999 december 31 2001 company established valuation allowance 188 million december 31 2001 valuation allowance established realizability deferred tax assets longer assessed management likely company continued record valuation allowance deferred tax assets generated 2002 pursuant internal revenue code sections 382 383 use company’s federal net operating loss credit carryforwards may limited due cumulative change ownership 50 within threeyear period december 31 2002 company net operating loss carryforwards federal state income tax approximately 716 million 302 million respectively federal loss carryforward begins expire calendar year 2011 state loss carryforwards continue expire 2010 addition company research development tax credit carryforwards federal state income tax purposes december 31 2002 33 million 30 million respectively begin expire 2004 provision credit income taxes accompanying consolidated statements operations differs amount calculated applying statutory income tax rate income loss continuing operations income taxes minority interest primary components difference follows thousands note 10 leases rental expense amounted 26 million 19 million 19 million years ended december 31 2000 2001 2002 respectively incurred primarily facility rental future annual minimum rental commitments december 31 2002 follows thousands certain leases include renewal options periods ranging one ten years subject rental adjustment based consumer price indices substantially leases provide company pay property taxes insurance repairs maintenance company also subleases certain leased facilities noncancelable subleases 2003 note 11 employee benefit plans substantially united states employees eligible elect coverage contributory employee savings plans provide company matching contributions based onehalf employee contributions certain plan limits company’s matching contributions plans totaled 387000 275000 283000 years ended december 31 2000 2001 2002 respectively note 12 restructuring charges first half 2002 ibusphoenix introduced new applied computing products developed 2001 however market applied computing products particularly telecommunications deteriorated throughout 2002 company responded poor market conditions computing systems capital goods restructuring ibusphoenix june 2002 company began implementing restructuring plan recorded restructuring charges 707000 quarter ended june 30 2002 comprised severance payments employee related expenses 269000 ii impairment assets longer used facility lease terminations closure cost related certain facilities europe totaling 438000 addition company also determined certain components inventory adversely impacted accordingly company recorded inventory charge 30 million certain excess obsolete raw material components finished goods charge classified “cost sales” accompanying consolidated statements operations third fiscal quarter 2002 company decided sell applied computing business ibusphoenix new company organized former ibusphoenix senior managers preparation sale configure ibusphoenix computing business selfsupporting ibusphoenix consolidated production applied computing products facility tangmere united kingdom reduced worldwide personnel result plan company recorded restructuring charges 922000 quarter ended september 2002 date sale 245000 restructuring reserves disposed part sale 1999 2000 company undertaken various actions consolidate facilities reduce cost structure result company recorded restructuring related charges five months ended december 31 1999 year ended december 31 2000 33 million included termination approximately 75 employees cutbacks impacted segments classes employees charges determined accordance staff accounting bulletin 100 restructuring impairment charges emerging issues task force 943 liability recognition certain employee termination benefits costs exit activity including certain costs incurred restructuring charges include severance costs related reduction workforce closure combination certain facilities following table summarizes restructuring charges recorded activity related charges years ended december 31 2000 2001 2002 thousands note 13 impairment charges 2002 connection sale ibus computing division see note 3 company recorded 76 million impairment charges related long livedassets write impaired assets consisted 53 million goodwill associated computing systems business company conducted extensive review fixed assets supporting multiple businesses including computing systems business part reviews company determined carrying values related longlived assets excess fair market value result asset impairment charge 23 million recorded investment impairment 05 million recorded 2001 relates maxwell’s ownership approximately 1 privately held company involved support services areas information technology system software integration engineering technical services contract various government agencies upon review annual financial statements discussions cfo informed company negative net worth decided restructure operations discontinue information technology software integration engineering businesses focus government contracting based facts uncertainty surrounding ability return profitability concluded investment impaired fully reserved investment 2000 charges consisted writeoff certain nonperforming operating assets writedown goodwill balances 48 million related previous acquisition phoenix power maxwell technologies acquired phoenix power march 1998 4 million terms agreement provided additional contingent purchase price based upon financial performance phoenix power following acquisition february 28 2000 pursuant agreement january 2000 company paid additional consideration 5 million recorded additional goodwill additional consideration based projection made company december 1999 phoenix power would provide lease 16 million adjusted pretax income 12month period ended february 2000 subsequent reviews actual results revealed adjusted pretax income closer 05 million threshold additional consideration per acquisition agreement however agreement provide return additional consideration based facts revised lower full year projections requested received third party appraisal determined impairment existed accordingly company reduced goodwill 48 million company also recorded charge 05 million related writeoff inprocess technology acquired connection acquisition gateworks note 2 company abandoned 09 million equipment leasehold improvements due consolidation factories discontinuance certain older products conjunction decision cancel certain older products company wrote 07 million inventory primarily power computing products cost sales note 14 discontinued operations connection company’s decision 2000 focus future company electronic components group ibusphoenix company sold high voltage wound film capacitors high voltage power supplies business time card job cost accounting software business addition company offered sale defense contracting business decided seek strategic alternatives purepulse technologies inc subsidiary accordingly defense contracting business purepulse previously classified separate segment high voltage wound film capacitors high voltage power supplies business time card job cost accounting software business classified discontinued operations financial reporting purposes september 2002 company decided suspend operations purepulse designing developing systems generate extremely intense broadspectrum pulsed light purify water inactivate viruses pathogens contaminate vaccines products sourced human animal tissues plasma derivatives transfusion blood components biopharmaceuticals company plans preserve intellectual property certain technology assets possible future sale assets march 2001 company sold assets defense contracting business separate transactions two buyers aggregate purchase price approximately 207 million total purchase price approximately 95 million received cash march 2001 additional 98 million received cash april 2001 remaining 14 million received october 2001 following expiration holdback periods certain indemnifications contingencies provided sales agreements buyers assumed certain liabilities ongoing contractual obligations business hired employees business company retained certain leases lease obligations expiring 2006 certain assets liabilities business including estimated amounts provided closing expenses transaction net costs winding remaining activities business company recorded gain net tax approximately 39 million first quarter 2001 representing net gain disposition assets net income operations discontinued business based current projected vacancies leased facilities company revised previously estimated costs written related leasehold improvements charges totaled 28 million recorded september 2001 included loss discontinued operations net lease obligations 16 million run 2006 503000 reserved december 31 2002 reasonably possible change estimate occur near term february 2000 company sold high voltage wound film capacitors high voltage power supplies businesses cash 35 million approximately book value net assets sold date addition buyer assumed certain liabilities businesses including longterm lease facility businesses occupied extended 2006 annual rent approximately 05 million november 2000 company sold time card job cost accounting software business cash 25 million certain minority shares common stock buyer immaterial value fourth quarter 2000 company also received cash approximately 07 million related equity investment unconsolidated entity classified discontinued operation december 1999 company recorded provisions approximately 21 million net tax estimated losses sale discontinued businesses based actual proceeds received net assets discontinued businesses respective dates sale company reversed provisions recorded december 1999 recorded aggregate gain sales 29 million net tax year ended december 31 2000 including reversal operating results discontinued operations shown separately net tax accompanying consolidated statements operations provision income taxes provided discontinued operations years ended december 31 2000 2002 fiscal year ended december 2001 provision income taxes 46 million businesses included discontinued operations sales aggregating 472 million 117 million 758000 years ended december 31 2000 2001 2002 respectively amounts included net sales accompanying consolidated statements operations assets liabilities discontinued operations consisted following thousands net liabilities discontinued operations separately classified accompanying consolidated balance sheets december 31 2001 2002 results discontinued operations segment consisted following thousands note 15 business segments based strategy develop manufacture market highreliability power microelectronic products original equipment manufacturers oems multiple industries reorganized company four reportable segments accordance requirements guidelines statement financial accounting standards 131 “disclosure segments enterprise related information” restated segment results reflect following new reporting segments acquisition montena components dispositions ibus computing systems business teknaseal glasstometal seals business completed third fourth quarters 2002 respectively company’s businesses organized two segments high reliability segment winding equipment segment high reliability segment consists • ultracapacitors electrical energy storage delivery peak power variety applications • highvoltage grading coupling capacitors used electric utility infrastructure highvoltage laboratories applications involving transport distribution measurement high voltage electrical energy • radiationshielded microelectronics including integrated circuits power modules memory modules single board computers aerospace military applications • power distribution conditioning modules integration larger medical imaging industrial systems delivery consistent high quality power medical imaging markets winding equipment segment makes winding machines automated assembly lines used manufacture metalized film capacitors lithium batteries prior sale computing systems business end third quarter 2002 company’s ibusphoenix power computing systems segment designed manufactured marketed applied computing systems power distribution power conditioning systems mainly oems serving telecommunications industrial automation broadcasting medical imaging markets power distribution conditioning systems part high reliability segment restated ibus computing systems segment consists computing business sold september 2002 june 2001 company sold substantially assets except accounts receivable liabilities business operations sierra kd components division carson city nevada “sierra” sierra manufactured commercialized ceramic filter capacitors wire feedthroughs implantable medical devices ceramic capacitors aerospace commercial applications september 30 2002 company sold noncore teknaseal glasstometal seals business minneapolis minnesota businesses previously reported former electronic components segment combined segment reporting purposes called sierra teknaseal segment maxwell’s management evaluates performance allocates resources based measure segment profit loss excluding interest taxes restructuring acquisition charges accounting policies reportable segments described summary significant accounting policies business segment financial data follows thousands intersegment sales insignificant identifiable assets segment include assets directly identified segments corporate assets consist primarily cash equivalents shortterm investments deferred tax assets liabilities centralized telecommunications networking information technology equipment company international sales amounted 258 million 218 million 251 million years ended december 31 2000 2001 2002 respectively made principally customers united kingdom europe pacific rim company assets located outside united states totaled approximately 79 million 298 million december 31 2001 2002 respectively company made sales one major customer high reliability segment aggregated 17 24 20 total company sales years ended december 31 2000 2001 2002 respectively note 16 related party transactions february 1999 company loaned 20 million chairman former chief executive officer full recourse promissory note agreement bearing interest 5 per year secured part pledge company stock owned chairman principal accumulated interest paid full january 2001 january 2001 company borrowed 15 million chief executive officer unsecured promissory note bearing interest 110 note accrued interest fully repaid march 2001 montena sa former parent company montena components significant shareholder maxwell technologies inc lessor company’s headquarters rossens switzerland year ended december 31 2002 company paid 346000 rental fees montena sa future rental commitments december 31 2002 47 million note 17 unaudited quarterly results operations following summary unaudited quarterly results operations years ended december 31 2001 2002 unaudited financial information reflects normal recurring adjustments opinion management necessary fair statement results interim periods thousands except per share amounts per share amounts quarters full years calculated separately accordingly quarterly amounts may add annual amounts presented elsewhere report differences average common shares outstanding period regard diluted per share amounts inclusion effect potentially dilutive securities periods effect would dilutive item 9item 8 financial statements supplementary data see pages item 9item 8 financial statements supplementary data consolidated financial statements notes thereto appear pages 45 78 annual report form 10k maxwell technologies inc subsidiaries index consolidated financial statements report independent registered public accounting firm board directors maxwell technologies inc san diego california audited consolidated balance sheet maxwell technologies inc december 31 2004 related consolidated statements operations stockholders’ equity comprehensive loss cash flows year ended audit also included 2004 financial statement schedule listed item 15 financial statements schedule responsibility company’s management responsibility express opinion financial statements schedule based audit conducted audit accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audit provides reasonable basis opinion consolidated financial statements referred present fairly material respects financial position maxwell technologies inc december 31 2004 results operations cash flows year ended conformity us generally accepted accounting principles also opinion financial statement schedule considered relation basic consolidated financial statements taken whole presents fairly material respects information set forth therein also audited accordance standards public company accounting oversight board united states effectiveness maxwell technologies inc’s internal control financial reporting december 31 2004 based criteria established internal controlintegrated framework issued committee sponsoring organizations treadway commission coso report dated march 15 2005 expressed unqualified opinion management’s assessment effectiveness maxwell technologies inc’s internal control financial reporting opinion maxwell technologies inc maintained effective internal control financial reporting december 31 2004 based criteria established internal controlintegrated framework issued committee sponsoring organizations treadway commission coso mcgladrey pullen llp san diego california march 15 2005 report independent registered public accounting firm board directors stockholders maxwell technologies inc audited accompanying consolidated balance sheet maxwell technologies inc subsidiaries “company” december 31 2003 related consolidated statements operations shareholders’ equity comprehensive loss cash flows year ended audit also included 2003 financial statement schedule listed item 15 financial statements financial statement schedule responsibility company’s management responsibility express opinion financial statements financial statement schedule based audit conducted audit accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audit provides reasonable basis opinion consolidated financial statements present fairly material respects financial position maxwell technologies inc subsidiaries december 31 2003 results operations cash flows year ended conformity accounting principles generally accepted united states america also opinion financial statement schedule considered relation basic consolidated financial statements taken whole presents fairly material respects information set forth therein discussed note 1 consolidated financial statements effective january 1 2003 company changed method accounting swiss pension plan conform statement financial accounting standards 87 amended deloitte touche llp san diego california march 29 2004 report independent registered public accounting firm board directors stockholders maxwell technologies inc audited accompanying consolidated statements operations stockholders’ equity cash flows maxwell technologies inc subsidiaries year ended december 31 2002 audit also included financial statement schedule listed item 15a2 consolidated financial statements schedule responsibility company’s management responsibility express opinion financial statements schedule based audit conducted audit accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement engaged perform audit company’s internal control financial reporting audit includes consideration internal control financial reporting basis designing audit procedures appropriate circumstances purpose expressing opinion effectiveness company’s internal control financial reporting accordingly express opinion audit also includes examining test basis evidence supporting amounts disclosures financial statements assessing accounting principles used significant estimates made management evaluating overall financial statement presentation believe audit provides reasonable basis opinion financial statements referred present fairly material respects consolidated results operations cash flows maxwell technologies inc subsidiaries year ended december 31 2002 conformity us generally accepted accounting principles also opinion related financial statement schedule considered relation basic financial statements taken whole presents fairly material respects information set forth therein ernst young llp san diego california february 7 2003 except 3 paragraphs caption “restatement consolidated financial statements year ended december 31 2002” note 1 3rd paragraph note 7 date march 15 2005 maxwell technologies inc subsidiaries consolidated balance sheets thousands except per share data see accompanying notes consolidated financial statements maxwell technologies inc subsidiaries consolidated statements operations thousands except per share data see accompanying notes consolidated financial statements maxwell technologies inc subsidiaries consolidated statements stockholders’ equity comprehensive loss thousands see accompanying notes consolidated financial statements maxwell technologies inc subsidiaries consolidated statements cash flows thousands see accompanying notes consolidated financial statements maxwell technologies inc subsidiaries notes consolidated financial statements note 1description business summary significant accounting policies description business maxwell technologies inc “company” “maxwell” delaware corporation originally incorporated 1965 name “maxwell laboratories inc” 1996 company changed name maxwell technologies inc presently headquartered san diego california maxwell developer manufacturer innovative costeffective energy storage power delivery solutions maxwell’s high reliability business segment comprised two manufacturing locations san diego california rossens switzerland three product lines • ultracapacitors maxwell’s primary product ultracapacitors includes boostcap® ultracapacitor cells multicell modules powercache® backup power systems provide highly reliable power solutions applications consumer industrial electronics transportation telecommunications • highvoltage capacitors maxwell’s condis® highvoltage grading coupling capacitors used electric utility infrastructure applications involving transport distribution measurement highvoltage electrical energy • radiationmitigated microelectronic products maxwell’s radpak® radiationmitigated microelectronic products include power modules memory modules singleboard computers applications space satellite industries company’s products designed manufactured perform reliably life products systems integrated company achieves high reliability application proprietary technologies rigorously controlled design development manufacturing test processes high reliability strategy emphasizes development marketing products enables maxwell achieve higher profit margins commodity electronic components systems financial statement presentation consolidated financial statements include accounts maxwell technologies inc subsidiaries significant intercompany transactions account balances eliminated consolidation purepulse business discontinued september 2002 previously reported separate segment winding equipment segment sold december 2003 recorded continuing operations first quarter fiscal year 2004 reclassified discontinued operations note 15 results operations business units meet criteria classified discontinued operation sold otherwise disposed included continuing operations date sale result reclassification winding equipment business company operating single reportable segment preparation financial statements conformity accounting principles generally accepted united states america requires management make estimates assumptions affect reported amounts related disclosures estimates include assessing collectability accounts receivable usage recoverability inventories longlived assets incurrence losses warranty costs vacant leased facilities offered sale markets company’s products extremely competitive characterized rapid technological change new product development product obsolescence evolving industry standards addition price competition intense significant price erosion generally occurs life product result factors actual results could differ estimates used management certain prior year amounts reclassified conform current year presentation effect total stockholders’ equity net loss company’s fiscal quarters end last day calendar month march 31 june 30 september 30 december 31 restatement consolidated financial statements year ended december 31 2002 company restated consolidated financial statements year ended december 31 2002 previously reported form 10k adjustments giving rise company’s need restate financial statements year ended december 31 2002 relate stockbased compensation arising april 2002 repurchase remaining minority interests merger ibusphoenix electronic components group subsidiaries connection transactions company exchanged outstanding vested unvested options purchase shares common stock subsidiaries options acquire shares maxwell result fully described note 7 stockbased compensation expense totaling approximately 19 million incurred connection exchange vested subsidiary stock options based difference fair market value maxwell’s common stock respective merger date exercise price modified stock option tax effect result stockbased compensation deferred tax asset arising deferred tax benefit nonqualified options offset increase valuation allowance management assessed impact error company’s historical financial statements concluded required restate financial statements result company restated consolidated financial statements year ended december 31 2002 effect restatement net impact stockholders’ equity following impact net loss per share year ended december 31 2002 thousands except per share data cash equivalents investments marketable securities company invests excess cash debt instruments us government agencies highquality corporate issuers highly liquid instruments original maturity three months less purchase considered cash equivalents original maturities greater three months date purchase considered investments marketable securities company’s investments marketable securities classified availableforsale reported fair value unrealized gains losses included stockholders’ equity separate component accumulated comprehensive income realized gains losses otherthantemporary declines value availableforsale securities reported income expense incurred company recognized zero 49000 22000 net realized gains years ended december 31 2004 2003 2002 respectively company uses specific identification method sales investments maturities gross unrealized gains investments marketable securities december 31 2004 2003 follows thousands fair value financial instruments company’s financial instruments consist principally cash equivalents investments marketable securities accounts receivable accounts payable borrowings company believes financial instruments’ recorded values approximate current values nature respective durations fair value marketable securities determined using quoted market prices securities similar financial instruments fair value longterm debt based quoted market prices similar issues current rates offered company debt remaining maturities similar collateral requirements allowance doubtful accounts allowance doubtful accounts reflects management’s best estimate probable losses inherent accounts receivable balance management determines allowance based known troubled accounts historical experience currently available evidence inventories stated lower cost market inventory values based standard costs approximate average costs firstin firstout method property equipment property equipment carried cost depreciated using straightline method depreciation amortization provided estimated useful lives related assets three ten years leasehold improvements amortized shorter estimated useful lives terms lease longlived assets longlived assets property equipment reviewed impairment whenever events changes business circumstances indicate carrying value longlived asset may recoverable company determines carrying value longlived asset may recoverable permanent impairment charge recorded amount carrying value longlived asset exceeds fair value goodwill intangible assets goodwill represents excess cost acquired business net fair value assigned assets acquired liabilities assumed amortized instead goodwill assessed impairment statement financial accounting standards sfas 142 goodwill intangible assets note 8 intangible assets finite lives continue amortized straightline basis useful lives 10 12 years evaluated impairment whenever events changes circumstances indicate carrying value may recoverable sfas 144 accounting impairment disposal longlived assets warranty obligation company generally provides warranty customers one two years normal course business company accrues estimated warranty time sale based historical warranty expenses estimated warranty liability calculated based historical warranty expenses plus known warranty exposure income taxes company accounts income taxes accordance sfas 109 accounting income taxes requires use liability method accounting deferred income taxes method deferred income taxes recorded reflect tax consequences future years temporary differences tax bases assets liabilities financial reporting amounts period end likely portion deferred tax asset realized valuation allowance recognized concentration credit risk company maintains cash balances various financial institutions primarily california balances commonly exceed 100000 insured amount federal deposit insurance corporation company experienced losses accounts management believes company exposed significant credit risk respect cash equivalents financial instruments subject company potential concentrations credit risk consist principally company’s accounts receivable company’s accounts receivable result product sales customers various industries various geographical areas domestic foreign company performs ongoing credit evaluations customers generally requires collateral one customer abb ltd provided 36 13 revenue 2004 2003 respectively comprised 23 17 accounts receivable balances december 31 2004 2003 respectively sales general electric medical systems gems amounted approximately 20 total revenue 2002 certain financial information geographic region based company locations provided revenue recognition company derives substantially revenue sale manufactured products product revenue recognized products shipped title passes customer revenues licensing arrangements became significant 2003 result company’s strategic alliance yec paid right manufacture proprietary boostcap® ultracapacitors license fee revenue recognized performance requirements met fee fixed determinable collection fees probable general company offer discounts right return company provide installation services incur post sale obligations product warranty accrued time sale prior years certain continuing discontinued segments recorded revenue longterm shortterm fixed price contracts cost plus contracts us government directly prime contractor revenues including estimated profits recognized costs incurred included provisions anticipated losses research development expense research development expenditures expensed period incurred advertising expense advertising costs expensed period incurred advertising expense 326000 276000 152000 fiscal 2004 2003 2002 respectively foreign currencies company’s primary foreign currency exposure related subsidiary switzerland maxwell technologies sa euro local currency swiss franc revenue operating expenses changes currency exchange rates impact us dollar amount revenue expenses assets liabilities maxwell’s swiss subsidiary translated yearend exchange rates revenues expenses gains losses translated rates exchange approximate rate effect time transaction company hedge currency exposures comprehensive income loss comprehensive income loss defined includes changes equity period nonowner sources net loss comprehensive loss including foreign currency translation adjustments unrealized gains losses investments marketable securities reported net related tax effect arrive comprehensive loss december 31 2004 accumulated comprehensive income consisted 62 million unrealized gain foreign currency translation 11000 unrealized gain investments marketable securities income loss per share income loss per share calculated using weighted average number common shares outstanding diluted income loss per share calculated basis weighted average number common shares outstanding plus dilutive effect outstanding stock options company certain subsidiaries assuming exercise using “treasury stock” method following table sets forth computation basic diluted income loss per share thousands except per share data fiscal years 2004 2003 2002 incremental equivalent shares common stock options 211826 143560 87955 respectively included computation diluted earnings per share impact would antidilutive stock compensation company adopted disclosure provisions sfas 123 accounting stockbased compensation amended sfas 148 accounting stock based compensationtransitions disclosure accordance provisions sfas 123 company applies accounting principles board opinion 25 related interpretations accounting stock option plans accordingly compensation expense recognized stock options granted employees years ended december 31 2004 2003 2002 stock options granted employees exercise prices equal fair value underlying common stock time grant company elected recognize compensation cost based fair value method prescribed sfas 123 company’s net loss per share would adjusted pro forma amounts indicated thousands except per share amounts pro forma adjustments shown indicative future period pro forma adjustments calculation reflect applicable stock options fair value company options date grant estimated using blackscholes optionpricing model assumptions follows recent accounting pronouncements december 2004 financial accounting standards board fasb issued sfas 123 revised 2004 sharebased payment sfas 123r revision sfas 123 accounting stockbased compensation sfas 123 sfas 123r requires sharebased payments employees including grants employee stock options recognized financial statements based fair values allow previously permitted pro forma disclosure alternative financial statement recognition sfas 123r supercedes accounting principles board opinion 25 accounting stock issued employees related interpretations amends sfas 95 statement cash flows sfas 123r scheduled effective beginning third quarter fiscal 2005 sfas 123r allows either prospective recognition compensation expense retroactive recognition may date back original issuance sfas 123 interim periods year adoption company currently evaluating transition methods impact adoption sfas 123r cannot predicted time depend method adoption elected fair value number sharebased payments granted future however company adopted sfas 123r prior periods magnitude impact standard would approximated impact sfas 123 assuming application blackscholes model described disclosure pro forma net loss pro forma loss per share note 1 notes consolidated financial statements sfas 123r also requires benefits tax deductions excess recognized compensation cost reported financing cash flow rather operating cash flow required current literature requirement reduce net operating cash flows increase net financing cash flows periods adoption november 2004 fasb issued sfas 151 inventory costs amendment arb 43 chapter 4 requiring companies treat idle facility costs abnormal handling costs freight wasted materials current period charges rather portion inventory costs sfas 151 effective annual periods beginning june 15 2005 company evaluated sfas 151 management believes impact company’s results operations financial position accounting change effective january 1 2003 company adopted sfas 87 employers’ accounting pensions amended accordance emerging issues task force eitf 034 determining classification benefit attribution method “cash balance” pension plan related swiss pension plan statement required standardization method measuring net periodic pension cost recognizing compensation cost employee’s pension employee’s approximate service period relating cost directly terms plan statement requires immediate recognition liability minimum liability accumulated benefit obligation exceeds fair value plan assets statement also requires expanded disclosures pension plan assets obligations benefits payments contributions net benefit cost adoption sfas 87 january 1 2003 resulted cumulative effect accounting change net tax 878000 note 12 business enterprise segments company operates one reportable operating segment high reliability sfas 131 disclosures segments enterprise related information establishes standards way public business enterprises report information operating segments annual consolidated financial statements although company two operating segments december 31 2004 determined two locations segment managers responsible operating results san diego california rossens switzerland aggregation criteria set forth sfas 131 company operates one reportable operating segment note 2business combinations july 5 2002 company acquired montena components ltd montena swiss corporation principal facility rossens switzerland transaction company acquired outstanding shares capital stock montena parent company montena sa swiss corporation exchange 2250000 shares maxwell common stock issued directly montena sa ii additional 300000 shares maxwell common stock originally held company collateral 3 million loan montena sa iii additional 464927 shares maxwell common stock issued based montena achieving revenues least 20 million four quarters ended june 30 2003 value stock september 1 2003 described calculation third final common stock issuance montena sa calculated using following formula extent share maxwell stock issued part purchase price held montena sa september 1 2003 market value based average 30day trading closing price ending september 1 2003 “30 day measurement price” less 9 per share company provide montena sa additional consideration equal total value difference 9 30day measurement price multiplied ii number shares held montena sa september 1 2003 provided however additional consideration event greater 500000 shares maxwell common stock based 30day measurement price cash equal value 500000 shares maxwell common stock valued 30day measurement price according formula september 2003 464927 shares common stock issued montena sa result purchase transaction montena sa held approximately 16 18 maxwell common stock december 31 2004 2003 respectively results operations montena included consolidated statements operations since july 5 2002 date acquisition purchase price allocated follows thousands note 3divestitures following divestitures occurred three years ended december 31 2004 divestitures meet criteria accounted discontinued operations except winding equipment business segment discussed june 2003 company decided discontinue marketing supporting product line electronic components testers recorded charges cost sales 444000 primarily related excess inventory equipment 393000 primarily related warranty buyouts 259000 related expected future warranty returns quarters ended june 30 2003 september 30 2003 december 31 2003 respectively sales accelerated life testers product line immaterial periods presented december 2003 company’s maxwell technologies sa subsidiary sold fixed assets substantially inventory except work process inventory warranty employee agreement obligations metar winding equipment business segment located matran switzerland metar sa new company whose principal shareholder former ceo montena sa company received 324000 cash recognized loss sale net tax 529000 included within “income loss discontinued operations” accompanying consolidated statements operations new metar company completed january june 2004 certain work progress related customer orders received maxwell technologies sa date sale company concluded continuing involvement winding equipment business second quarter 2004 shipment final metar product order owned company accordance sfas 144 results operations related winding equipment business recorded continuing operations first quarter 2004 reclassified discontinued operations fiscal 2004 2003 2002 note 15 december 2003 company sold manufacturing administrative facility san diego contained ibusphoenix operations proceeds sale facility 90 million closing expenses 387000 resulting net gain sale facility 12 million net cash proceeds sale facility 59 million payment closing expenses repayment 27 million term loan secured deed trust facility september 29 2002 company’s ibusphoenix inc subsidiary sold substantially assets liabilities business operations applied computing business located principally san diego california tangmere united kingdom ibus corporation new company whose principal shareholders former ibusphoenix senior managers applied computing business designs manufactures sells applied computing systems mainly original equipment manufacturers serving telecommunications broadcasting industrial automation markets business sold 8 senior subordinated note aggregate principal amount 70 million terms 10 million payable plus 50 accrued interest march 30 2004 3 million payable plus 100 accrued interest march 30 2005 march 30 2006 ii warrant purchase 199 common stock new ibus corporation exercisable time june 30 2004 fair market value per share time exercise iii additional contingent purchase price payment 10 million new ibus corporation sells computing business prior full payment 8 senior subordinated note referred ibusphoenix also agreed reimburse ibus corporation certain shutdown restructuring costs provide back working capital credit facility amount 300000 september 2003 company assigned value subordinated debt collectability uncertain record collections note gain date collection table details loss recognized company 2002 related sale addition company incurred related restructuring charges discussed note 13 impairment charges discussed note 14 2003 company received final settlement payments 475000 new ibus corporation partial recovery 70 million subordinated note fully reserved 2002 recovery reflected “gain loss sale businesses” accompanying consolidated statements operations september 30 2002 company sold substantially assets liabilities business operations teknaseal glasstometal seals division minneapolis minnesota group private investors teknaseal designs manufactures sells hermetic glasstometal seals vacuum components battery headers implantable medical devices specialty applications aggregate selling price 55 million cash 10 million held escrow account december 31 2002 company’s involvement teknaseal ended year ended december 31 2003 company recognized gain 695000 included “gain loss sale businesses” accompanying consolidated statement operations upon receipt funds released escrow amounts held escrow released company december 31 2003 note 4balance sheet details thousands warranty reserve analysis note 5shortterm longterm borrowings shortterm borrowings maxwell technologies sa 20 million swiss franc approximately 18 million bank credit agreement swiss bank renews annually borrowings credit agreement bear interest libor plus 175 repayment terms extending beyond one month date funding borrowings credit agreement secured assets maxwell technologies sa december 31 2004 2003 full amount credit agreement drawn interest rate funds borrowed december 31 2004 248 approximately 334000 400000 letters guarantee primarily related customer deposits outstanding december 31 2004 2003 respectively company entered us loan security agreement february 2004 provides overall credit limit 30 million subject oneyear repayment period borrowings secured eligible accounts receivable balances calculated reported monthly basis march 2005 credit line renewed substantially terms prior credit line borrowings credit agreement bear interest prime rate plus 175 provided rate less 575 agreement requires company maintain minimum tangible net worth 205 million plus 50 consideration future equity debt transactions plus 50 net income fiscal quarter date agreement december 31 2004 company required maintain 85 banking activities investment balances bank provides us loan december 31 2004 company reduced investment balance bank less 70 company’s total investment value march 7 2005 us loan security agreement amended require 50 company’s total investment balance maintained bank amounts drawn credit line december 31 2004 2003 longterm borrowings maxwell technologies sa term loan maximum draw 115 million swiss francs approximately 10 million financing specific capital equipment expenditures borrowings term loan secured equipment purchased credit agreement bears interest swiss interbank borrowing rate plus 20 term loan borrowed quarterly advances maximum limit repaid one five years december 31 2004 full amount term loan drawn weighted average interest rate funds borrowed december 31 2004 376 maxwell technologies sa loan montena sa pension plan 300000 swiss francs approximately 265000 paid 2004 payments due borrowings five years subsequent december 31 2004 follow thousands note 6stock activity stock plans stock sale november 2004 company raised approximately 101 million deduction expenses fees sale approximately 12 million shares common stock institutional investors company sold shares directly investors negotiated transaction underwriters used placement shares previously registered securities act 1933 amended pursuant shelf registration statement filed form s3 securities exchange commission september 2004 approximately 55 million securities available future issuance registration statement december 31 2004 stock option plans december 1995 company adopted 1995 stock option plan amended 3340000 shares common stock reserved future grant company’s 1999 director stock option plan 75000 shares reserved future grant adopted 1999 approved company’s shareholders january 2000 plans provide granting either incentive stock options nonqualified stock options employees nonemployee members company’s board directors respectively december 1999 company granted 294030 nonqualified options company’s new president chief executive officer mr eibl outside company’s option plans april 2002 conjunction purchase shares ibusphoenix electronic components group subsidiaries already owned see note 7 company issued options purchase approximately 520000 shares maxwell common stock exchange options purchase subsidiary common stock issuance stock options outside company’s option plans options also outstanding expired stock option plans superceded current plans options granted stock option plans purchase common stock company less stock’s fair market value date grant employee options generally exercisable cumulative annual installments 2030 percent options 1999 director stock option plan fully exercisable one year date grant options terms five ten years december 31 2004 company 380933 shares available future grant stock option plans november 2002 board directors approved company established program restore equity incentives key employees outside directors november 2002 options purchase 853461 shares common stock strike prices 10 held senior management outside directors voluntarily cancelled option holders exchange future issuance late may 2003 substitute stock options strike price equal thenprevailing market price common stock following table summarizes total aggregate stock option activity period january 1 2002 december 31 2004 following table summarizes information concerning outstanding exercisable company common stock options december 31 2004 number shares options exercisable december 31 2004 2003 2002 1879188 1202931 732745 respectively weighted average exercise prices 803 831 1062 respectively estimated weighted average fair value grant date company options granted years ended december 31 2004 2003 2002 493 831 623 per share respectively stock purchase plans december 1994 company established 1994 employee stock purchase plan director stock purchase plan employee plan permits substantially employees purchase common stock payroll deductions 85 lower trading price stock beginning end six month offering period director plan permits nonemployee directors purchase common stock 100 trading price stock date request purchase received years ended december 31 2004 2003 2002 aggregate shares 22160 23404 44660 respectively issued two plans aggregate proceeds company 120000 117000 353000 respectively december 31 2004 234316 shares reserved future issuance plans june 2002 part completing consolidation ownership company ibusphoenix four employees one consultant ibusphoenix granted 19500 shares company’s common stock subject certain restrictions shares granted vest next two years fair market value 182000 date grant result divestiture applied computing business operations completed 2002 third fiscal quarter vesting accelerated balance deferred compensation fully amortized january 2000 board adopted company’s stockholders subsequently approved company’s management equity ownership program “program” program executive officers company members senior management selected committee offered fullrecourse loans company used purchase stock company loans bear interest must repaid annual installments principal interest fouryear period repayment loans secured shares purchased loan proceeds february 1 2000 loans aggregate amount 900000 bearing interest 656 made connection aggregate purchase 74995 newly issued shares company’s common stock 1200 per share closing market price date purchase january 29 2002 loans aggregate amount 75000 bearing interest 485 made connection aggregate purchase 9258 newly issued shares company’s common stock 810 per share closing market price date purchase june 2002 company decided extinguish program cancelled 74000 shares 970000 loan balance outstanding plan company recorded expense 116000 related cancellation notes 2002 deferred compensation 2003 company former chairman board entered services agreement whereby former chairman received option acquire 94251 shares fair market value date grant options fully vested fixed life four years accordingly company recorded compensation expense 313000 representing fair value options pursuant blackscholes valuation model stockholder rights plan november 1999 company adopted stockholder rights plan successor previous plan expired june 1999 accordance plan company distributed one nonvoting common stock purchase right “right” outstanding share common stock rights exercisable trade separately common stock unless person group acquires makes tender offer 20 company’s common stock initially right entitles registered holder purchase one share company common stock price 75 per share subject certain antidilution adjustments rights become exercisable certain conditions met right owned acquiring person group entitle holder receive upon exercise company common stock market value twice exercise price right addition company may redeem rights price 001 per right subject certain restrictions stockholder rights plan expires october 21 2009 note 7consolidation subsidiary ownership february 2002 pacificorp energy ventures inc largest minority shareholder company’s electronic components group “ecg group” subsidiary exchanged preferred shares electronic components group 518000 common shares maxwell pursuant right original investment agreement april 15 2002 company completed merger transactions electronic components group subsidiary ibusphoenix subsidiary whereby remaining minority shareholdings options subsidiaries converted shares options maxwell conversion ratio established company’s analysis fair market value subsidiaries average trading price maxwell’s stock time analysis company issued 86000 shares electronic components group minority shareholders exchange ownership value stock issuance determined 795000 based closing price maxwell shares day merger result transactions relating ecg group company recorded 38 million excess purchase price based value maxwell common shares minority interest balance sheet 28 million allocated goodwill related teknaseal division sold september 2002 987000 allocated ultracapacitor intellectual property patents addition company issued 479000 shares ibusphoenix minority shareholders exchange ownership value stock issuance determined 44 million based closing price maxwell shares day merger company recorded 11 million excess purchase price based value maxwell’s common shares minority interest balance sheet 422000 allocated goodwill associated ibus computing systems business considered impaired written conjunction sale september 2002 balance allocated goodwill related power systems business connection merger transactions company assumed outstanding vested unvested options purchase shares common stock subsidiaries option assumed company continued subject terms conditions generally applicable immediately prior merger provided option shall exercisable number whole shares company’s common stock equal product number shares subsidiary’s common stock issuable upon exercise assumed option immediately prior merger multiplied conversion ratio b per share exercise price shares company’s common stock issuable upon exercise assumed option equal quotient determined dividing exercise price per subsidiary option share conversion ratio result options purchase approximately 302505 shares 982761 shares common stock ecg ibusphoenix subsidiaries respectively assumed mergers became options purchase 127052 393104 shares maxwell’s common stock respectively weightedaverage exercise prices modified options 501 798 respectively result stockbased compensation expense totaling 19 million recorded connection assumption exchange vested subsidiary stock options based difference fair market value company’s common stock respective merger date exercise price modified stock option unvested stock options intrinsic value date exchange forfeited prior vesting note 8goodwill intangibles company implemented sfas 142 began applying rules accounting goodwill intangible assets effective january 1 2002 sfas 142 goodwill impairment test twostep process first step consists estimating fair value reporting unit comparing estimated fair values carrying values includes allocated goodwill fair value less carrying value second step performed compute amount impairment determining implied fair value goodwill implied fair value goodwill residual fair value derived deducting fair value reporting unit’s assets liabilities estimated fair value calculated step one impairment charge represents excess carrying amount reporting unit’s goodwill implied fair value goodwill sfas 142 requires goodwill tested annually time every year event occurs circumstances change reasonably possible impairment may exist company selected december 31 annual testing date result company’s annual assessment december 31 2004 2003 using market discounted cash flow approaches impairment indicated assessing recoverability goodwill 2002 company made assumptions regarding future cash flows factors determine fair value goodwill associated ibus computing systems business written conjunction disposition business note 14 remaining goodwill mainly attributable acquisition montena completed july 2002 change carrying amount goodwill january 1 2003 december 31 2004 follows thousands acquired intangible assets subject amortization december 31 2004 2003 follows thousands amortization expense intangible assets 197000 543000 years ended december 31 2004 2003 2002 respectively estimated amortization next five years ended december 31 follows thousands actual amortization expense reported future periods could differ estimates result foreign currency translation adjustments impairments factors note 9income taxes provision benefit income taxes based loss continuing operations follows thousands provision benefit income taxes accompanying consolidated statements operations differs amount calculated applying statutory income tax rate loss continuing operations income taxes primary components difference follows thousands company established valuation allowance deferred tax assets due uncertainty surrounding realization assets evidenced cumulative losses operations december 31 2004 management periodically evaluates recoverability deferred tax assets time determined likely deferred assets realizable valuation allowance reduced accordingly company recorded valuation allowance 394 million december 31 2004 reflect estimated amount deferred tax assets may realized company increased valuation allowance 44 million year ended december 31 2004 valuation allowance includes stock option deductions benefit eventually credited equity pursuant internal revenue code sections 382 383 use company’s federal net operating loss credit carryforwards may limited due cumulative change ownership 50 within threeyear period december 31 2004 company net operating loss carryforwards federal state income tax purposes approximately 845 million 359 million respectively federal loss carryforward begins expire calendar year 2011 state loss carryforwards continue expire 2005 2014 addition company research development tax credit carryforwards federal state income tax purposes december 31 2004 35 million 24 million respectively begin expire 2005 company also foreign net operating carryforwards approximately 150000 unremitted earnings foreign subsidiaries included consolidated financial statements without giving effect united states taxes may payable distribution united states anticipated earnings remitted united states remitted additional united states taxes paid would material deferred income taxes reflect net tax effects temporary differences carrying amounts assets liabilities financial reporting purposes amounts used income tax purposes primary components company’s deferred tax assets liabilities within continuing operations follows thousands note 10commitments contingencies company subject government audits two businesses sold discontinued 2001 contract assumed acquirers company’s former defense contract business entered 1990 completed late 1990s currently audited defense department’s auditing services company submitted documentation supporting approximately 550000 costs charged contract company believes costs properly charged internal revenue service irs assessed company penalty approximately 262000 failure file form w2s business sold 2001 acquiring company’s former business write irs stating would responsible filing 2001 form w2s company submitted documentation irs assurance defense department’s auditing services irs accept documentation submitted matters resolved favor company management believes resolution matters significant adverse effect company’s financial position results operations cash flows company enters indemnification agreements ordinary course business indemnified party held harmless reimbursed losses incurred claims third parties connection divestitures certain assets businesses company often provides indemnities buyer respect certain matters including example environmental liabilities unidentified liabilities related periods prior disposition due uncertain nature indemnities maximum liability cannot quantified liabilities obligations recorded appropriate probable reasonably estimated historically company made significant payments obligations note 11leases rental expense amounted 14 million 15 million 19 million years ended december 31 2004 2003 2002 respectively incurred primarily facility rental company’s facilities leases expire july 2007 san diego california facility june 2009 rossens switzerland facility future annual minimum rental commitments automobile leases december 31 2004 follows thousands note 12pension postretirement benefit plans foreign plans july 2002 company acquired montena including pension plan covering swiss employees note 2 plan provides pension benefits employees terms plan required swiss law regulations plan characteristics defined benefit defined contribution cash balance plans year ended december 31 2002 plan treated defined contribution plan however year ended december 31 2003 accordance eitf 034 plan classified defined benefit pension plan adoption eitf 034 accounted effect adopting new accounting principle beginning year january 1 2003 resulted cumulative effect accounting change net tax 878000 year ended december 31 2003 pension benefit based compensation length service credited investment earnings plan guarantees minimum rate return well minimum annuity purchase rates company’s funding policy respect pension plan contribute amount required swiss law using required percentage applied employee’s compensation addition employee required contribute identical amount pension plan company made pension contributions 296000 302000 2004 2003 respectively plan measurement date december 31 2003 approximately 46 former employees montena left plan paid participant balances accordance terms plan resulted settlement gain 154000 2003 amount shown development change benefit obligation december 2003 company sold winding equipment business segment result approximately 50 employees left company resulted curtailment gain approximately 20 million company obligated fiscal 2004 pay obligation employees based upon participant balances date termination plus amounts allocable result plan operating results prior settlement curtailment gain amount shown development change benefit obligation fiscal 2003 following benefit payments reflect expected future service appropriate expected paid thousands accumulated benefit obligation 121 million 143 million december 31 2004 2003 respectively company expects contribute 289000 foreign pension plan fiscal 2005 us plans company post retirement benefit plans covering substantially employees united states substantially us employees eligible elect coverage contributory employee savings plans provide company matching contributions based onehalf employee contributions certain plan limits company’s matching contributions plans totaled 157000 190000 283000 years ended december 31 2004 2003 2002 respectively note 13restructuring charges restructuring charges balance january 1 2002 relates various restructuring actions undertaken 1999 2000 2003 restructuring reserves fully utilized company paid 216000 severance 42000 taxes remaining restructuring liability outstanding december 31 2003 2004 first half 2002 ibusphoenix introduced new applied computing products developed 2001 however market applied computing products particularly telecommunications deteriorated throughout 2002 company responded poor market conditions computing systems capital goods restructuring ibusphoenix june 2002 company began implementing restructuring plan recorded restructuring charges 707000 included “asset impairment restructuring charges” accompanying consolidated statements operations 2002 comprised severance payments employee related expenses 269000 ii impairment assets longer used facility lease terminations closure cost related certain facilities europe totaling 438000 addition company also determined certain components inventory adversely impacted accordingly company recorded inventory charge 30 million certain excess obsolete raw material components finished goods charge classified “cost sales” accompanying consolidated statements operations third fiscal quarter 2002 company decided sell applied computing business ibusphoenix new company organized former ibusphoenix senior managers preparation sale configure ibusphoenix computing business selfsupporting ibusphoenix consolidated production applied computing products facility tangmere united kingdom reduced worldwide personnel result plan company recorded restructuring charges 922000 2002 included “asset impairment restructuring charges” accompanying consolidated statements operations date sale 245000 restructuring reserves disposed part sale following table summarizes restructuring charges recorded activity related charges years ended december 31 2002 2003 thousands note 14impairment charges 2002 connection sale ibusphoenix inc business notes 3 8 company recorded 76 million impairment charges related long livedassets write impaired assets consisted 53 million goodwill associated computing systems business company conducted extensive review fixed assets supporting multiple businesses including computing systems business part reviews company determined carrying values related longlived assets excess fair market value result asset impairment charge 23 million recorded investment impairment 500000 recorded 2001 relating maxwell’s ownership approximately 1 privately held company involved support services areas information technology system software integration engineering technical services contract various government agencies late 2003 maxwell sold stock company gain 184000 note 15discontinued operations march 2001 company sold assets defense contracting business separate transactions two buyers aggregate sales price approximately 207 million proceeds recorded 2001 buyers assumed certain liabilities ongoing contractual obligations business hired employees business company retained certain leases lease obligations expiring 2006 certain assets liabilities business including estimated amounts provided closing expenses transaction net costs winding remaining activities business company recorded gain net tax approximately 39 million 2001 representing net gain disposition assets net income operations discontinued business based current projected vacancies leased facilities company revised previously estimated costs written related leasehold improvements charges totaled 28 million recorded 2001 included loss discontinued operations december 31 2004 net lease obligations 650000 run 2006 608000 reserved company increased reserves net lease obligations 720000 2003 485000 2004 covers lease payments 2005 owner vacant facility actively marketing property sale lease additional reserves may required marketing activities result sale lease end 2005 september 2002 company decided suspend operations purepulse technologies inc subsidiary purepulse designing developing systems generate extremely intense broadspectrum pulsed light purify water inactivate viruses pathogens contaminate vaccines products sourced human animal tissues plasma derivatives transfusion blood components biopharmaceuticals company plans preserve intellectual property certain technology assets possible future sale assets carrying value assets december 31 2004 zero december 2003 company’s maxwell technologies sa subsidiary sold fixed assets substantially inventory except work process inventory warranty employee agreement obligations metar winding equipment business segment located matran switzerland metar sa new company whose principal shareholder former ceo montena sa company received 324000 cash recognized loss sale net tax 529000 included “loss disposal net tax” accompanying 2003 consolidated statements operations new metar company completed january june 2004 certain work progress related customer orders received maxwell technologies sa date sale company concluded continuing involvement winding equipment business second quarter 2004 shipment final metar product order owned company accordance sfas 144 results operations related winding equipment business recorded continuing operations first quarter 2004 reclassified discontinued operations fiscal 2004 2003 2002 operating results discontinued operations shown separately net tax accompanying consolidated statements operations businesses included discontinued operations sales aggregating 11 million 102 million 43 million years ended december 31 2004 2003 2002 respectively amounts included net sales accompanying consolidated statements operations net liabilities discontinued operations separately classified accompanying consolidated balance sheets december 31 2004 2003 amounts 10 million 15 million respectively net liability balances discontinued operations comprised 608000 lease obligations 437000 minority interest purepulse december 31 2004 december 31 2003 net liability balance comprised 600000 lease obligations 894000 minority interest results discontinued operations business unit consisted following thousands note 16related party transactions company’s chief executive officer received 120000 loan date hire august 1999 forgivable 36 months thereafter provided resign terminated cause company prior time loan forgiveness extended july 1 2002 june 30 2004 loan forgiven june 22 2004 company previously expensed loan receivable 2001 likely loan would forgiven montena sa former parent company montena significant shareholder maxwell technologies inc lessor company’s headquarters rossens switzerland years ended december 31 2004 2003 2002 company paid 795000 809000 346000 respectively rental fees montena sa future rental commitments december 31 2004 39 million maxwell technologies sa loan montena sa pension plan 300000 swiss francs approximately 265000 paid 2004 note 17legal proceedings company’s subsidiary ibusphoenix inc named defendant suit filed march 4 2004 superior court state california county san luis obispo suit edmonds vs ibusphoenix inc filed plaintiff behalf alleges damages concerning repurchase ibusphoenix inc shares company’s legal counsel cannot express opinion matter management believes liability company may arise respect matter significant adverse effect consolidated financial position results operations cash flows company note 18unaudited quarterly results operations thousands except per share amounts year ended december 31 2004 completed discontinuation company’s winding equipment business segment therefore following financial information fiscal 2004 2003 include reclassification winding equipment business discontinued operations includes license fees 1 million b includes charges 500000 440000 14 million customer orders received first third fourth quarters 2004 respectively priced company’s production cost well charges 450000 159000 third fourth quarters respectively slow moving small cell boostcap® inventory 733000 fourth quarter excess obsolete inventory c includes charges 250000 235000 second fourth quarters respectively lease obligations related vacant facilities discontinued operations includes charges 10 million audit consulting fees related compliance activities pursuant section 404 sarbanesoxley act 2002 fourth quarter charges 150000 bad debt provisions third quarter e includes charge 720000 lease obligations related vacant facilities discontinued operations f includes charge 444000 write inventory equipment second quarter charge 393000 third quarter warranty buyouts relate discontinuation accelerated life testers product line g includes charge 327000 severance payable former chief executive officer first quarter charge 313000 compensation expense related options provided former chairman board second quarter h includes license fee 4 million includes gain sale property 12 million gain sale business 475000 recovery ibus note receivable gain sale business 695000 payments received sale teknaseal pension curtailment settlement gain 22 million schedule ii valuation qualifying accounts thousands item 9item 8 financial statements supplementary data consolidated financial statements notes thereto appear pages 43 73 annual report form 10k maxwell technologies inc subsidiaries index consolidated financial statements report independent registered public accounting firm board directors maxwell technologies inc san diego california audited consolidated balance sheets maxwell technologies inc december 31 2005 2004 related consolidated statements operations stockholders’ equity comprehensive loss cash flows two years period ended december 31 2005 audits also included 2005 2004 financial statement schedule listed item 15 financial statements schedule responsibility company’s management responsibility express opinion financial statements schedule based audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provided reasonable basis opinion consolidated financial statements referred present fairly material respects financial position maxwell technologies inc december 31 2005 2004 results operations cash flows two years period ended december 31 2005 conformity us generally accepted accounting principles also opinion financial statement schedule considered relation basic consolidated financial statements taken whole presents fairly material respects information set forth therein also audited accordance standards public company accounting oversight board united states effectiveness maxwell technologies inc’s internal control financial reporting december 31 2005 based criteria established internal controlintegrated framework issued committee sponsoring organizations treadway commission coso report dated march 15 2006 expressed unqualified opinion management’s assessment effectiveness maxwell technologies inc’s internal control financial reporting unqualified opinion effectiveness maxwell technologies inc’s internal control financial reporting mcgladrey pullen llp san diego california march 15 2006 report independent registered public accounting firm board directors stockholders maxwell technologies inc audited accompanying consolidated statements operations shareholders’ equity comprehensive loss cash flows maxwell technologies inc subsidiaries “company” year ended december 31 2003 audit also included 2003 financial statement schedule listed item 15 financial statements financial statement schedule responsibility company’s management responsibility express opinion financial statements financial statement schedule based audit conducted audit accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audit provides reasonable basis opinion consolidated financial statements present fairly material respects results operations cash flows maxwell technologies inc subsidiaries year ended december 31 2003 conformity accounting principles generally accepted united states america also opinion financial statement schedule considered relation basic consolidated financial statements taken whole presents fairly material respects information set forth therein discussed note 1 consolidated financial statements effective january 1 2003 company changed method accounting swiss pension plan conform statement financial accounting standards 87 amended deloitte touche llp san diego california march 29 2004 maxwell technologies inc subsidiaries consolidated balance sheets thousands except per share data see accompanying notes consolidated financial statements maxwell technologies inc subsidiaries consolidated statements operations thousands except per share data 1 included within cost sales selling general administrative research development rental fees related party montena sa totaling 797000 795000 809000 years ended december 31 2005 2004 2003 respectively see accompanying notes consolidated financial statements maxwell technologies inc subsidiaries consolidated statements stockholders’ equity comprehensive loss thousands see accompanying notes consolidated financial statements maxwell technologies inc subsidiaries consolidated statements cash flows thousands see accompanying notes consolidated financial statements maxwell technologies inc subsidiaries notes consolidated financial statements note 1description business summary significant accounting policies description business maxwell technologies inc “company” “maxwell” delaware corporation originally incorporated 1965 name “maxwell laboratories inc” 1996 company changed name maxwell technologies inc presently headquartered san diego california maxwell developer manufacturer innovative costeffective energy storage power delivery solutions maxwell operates single operating segment high reliability comprised two manufacturing locations san diego california rossens switzerland three product lines • ultracapacitors primary focus ultracapacitors energy storage devices possess unique combination high power density extremely long operational life ability charge discharge rapidly boostcap® ultracapacitor cells multicell packs modules provide highly reliable energy storage power delivery solutions applications multiple industries including transportation energy consumer industrial electronics telecommunications • highvoltage capacitors condis® highvoltage capacitors extremely robust devices designed manufactured perform reliably decades climates products include grading coupling capacitors capacitive voltage dividers used ensure safety reliability electric utility infrastructure applications involving transport distribution measurement highvoltage electrical energy • radiationmitigated microelectronic products radiationmitigated microelectronic products include highperformance highdensity power modules memory modules single board computers incorporate proprietary radpak® packaging shielding technology novel architectures enable withstand environmental radiation effects perform reliably space company’s products designed manufactured perform reliably life products systems integrated company achieves high reliability application proprietary technologies rigorously controlled design development manufacturing test processes high reliability strategy emphasizes development marketing products enables maxwell achieve higher profit margins commodity electronic components systems financial statement presentation consolidated financial statements include accounts maxwell technologies inc subsidiaries significant intercompany transactions account balances eliminated consolidation purepulse business discontinued september 2002 previously reported separate segment winding equipment segment sold december 2003 recorded continuing operations first quarter fiscal year 2004 reclassified discontinued operations note 12 results operations business units meet criteria classified discontinued operation sold otherwise disposed included continuing operations date sale result reclassification winding equipment business company operating single reportable segment preparation financial statements conformity accounting principles generally accepted united states america requires management make estimates assumptions affect reported amounts related disclosures estimates include assessing collectability accounts receivable usage recoverability inventories longlived assets incurrence losses warranty costs fair value warrants embedded conversion options related convertible debentures vacant leased facilities offered sale markets company’s products extremely competitive characterized rapid technological change new product development product obsolescence evolving industry standards addition price competition intense significant price erosion generally occurs life product result factors actual results could differ estimates used management certain prior year amounts reclassified conform current year presentation effect total stockholders’ equity net loss company’s fiscal quarters end last day calendar month march 31 june 30 september 30 december 31 cash equivalents investments marketable securities company invests excess cash debt instruments us government agencies highquality corporate issuers highly liquid instruments original maturity three months less purchase considered cash equivalents original maturities greater three months date purchase considered investments marketable securities company’s investments marketable securities classified availableforsale reported fair value unrealized gains losses included stockholders’ equity separate component accumulated comprehensive income realized gains losses otherthantemporary declines value availableforsale securities reported income expense incurred company recognized zero 49000 net realized gains years ended december 31 2005 2004 2003 respectively company uses specific identification method sales investments maturities gross unrealized gains investments marketable securities december 31 2005 2004 follows thousands restricted cash company’s convertible debentures agreement requires company maintain minimum cash balances least 80 million amount classified restricted cash december 31 2005 cash balances restricted december 31 2004 fair value financial instruments company’s financial instruments consist principally cash equivalents investments marketable securities accounts receivable accounts payable borrowings company believes financial instruments’ recorded values approximate current values nature respective durations fair value marketable securities determined using quoted market prices securities similar financial instruments fair value longterm debt based quoted market prices similar issues current rates offered company debt remaining maturities similar collateral requirements convertible debentures issued december 20 2005 evaluated determined conventional convertible therefore certain terms provisions including liquidating damages associated registration rights agreement embedded conversion option bifurcated accounted derivative liability instrument stock warrants issued conjunction convertible debt december 20 2005 also evaluated determined derivative instrument therefore classified liability balance sheet accounting guidance also requires conversion feature warrants recorded fair value reporting period changes fair value recorded statement operations fair value embedded conversion options stock warrants based blackscholes fair value calculation fair value convertible debentures based discounted cash flows principal interest payments allowance doubtful accounts allowance doubtful accounts reflects management’s best estimate probable losses inherent accounts receivable balance management determines allowance based known troubled accounts historical experience currently available evidence inventories stated lower cost market inventory values based standard costs approximate average costs firstin firstout method property equipment property equipment carried cost depreciated using straightline method depreciation amortization provided estimated useful lives related assets three ten years leasehold improvements amortized shorter estimated useful lives terms lease longlived assets longlived assets property equipment reviewed impairment whenever events changes business circumstances indicate carrying value longlived asset may recoverable company determines carrying value longlived asset may recoverable permanent impairment charge recorded amount carrying value longlived asset exceeds fair value goodwill intangible assets goodwill represents excess cost acquired business net fair value assigned assets acquired liabilities assumed amortized instead goodwill assessed impairment statement financial accounting standards sfas 142 goodwill intangible assets note 7 intangible assets finite lives continue amortized straightline basis useful lives 10 12 years evaluated impairment whenever events changes circumstances indicate carrying value may recoverable sfas 144 accounting impairment disposal longlived assets warranty obligation company generally provides warranty customers one two years normal course business company accrues estimated warranty time sale based historical warranty expenses estimated warranty liability calculated based historical warranty expenses plus known warranty exposure income taxes company accounts income taxes accordance sfas 109 accounting income taxes requires use liability method accounting deferred income taxes method deferred income taxes recorded reflect tax consequences future years temporary differences tax bases assets liabilities financial reporting amounts period end likely portion deferred tax asset realized valuation allowance recognized concentration credit risk company maintains cash balances various financial institutions primarily california balances commonly exceed 100000 insured amount federal deposit insurance corporation company experienced losses accounts management believes company exposed significant credit risk respect cash equivalents financial instruments subject company potential concentrations credit risk consist principally company’s accounts receivable company’s accounts receivable result product sales customers various industries various geographical areas domestic foreign company performs ongoing credit evaluations customers generally requires collateral one customer abb ltd provided 23 36 revenue 2005 2004 respectively comprised 28 23 accounts receivable balances december 31 2005 2004 respectively certain financial information geographic region based company locations provided revenue recognition fiscal year ended december 31 2005 substantially revenue derived sale manufactured products directly customers revenue recognized time costs incurred certain longterm contracts licensing fees received right manufacture proprietary boostcap® ultracapacitors another revenue category fiscal years ended december 31 2004 2003 product revenue recognized according guidelines staff accounting bulletin numbers 101 104 title passes customer either shipment facilities receipt facility depending shipping terms provided collectability reasonably assured general discounts offered right return revenue recognized time costs incurred calculated percentage completion basis accordance statement position 811 “accounting performance constructiontype certain productiontype contracts” limited funding prime contractor license fee revenues recognized performance requirements met fee fixed determinable collection fees probable prior years certain continuing discontinued segments involved revenues longterm shortterm fixed price contracts cost plus contracts us government directly prime contractor revenues including estimated profits recognized time costs incurred included provisions anticipated losses contracts subject rate audits could result reduction revenue excess estimated provisions turn could increase losses periods reduction occurs research development expense research development expenditures expensed period incurred advertising expense advertising costs expensed period incurred advertising expense 265000 326000 276000 fiscal 2005 2004 2003 respectively foreign currencies company’s primary foreign currency exposure related subsidiary switzerland maxwell technologies sa euro local currency swiss franc revenue operating expenses changes currency exchange rates impact us dollar amount revenue expenses assets liabilities maxwell’s swiss subsidiary translated yearend exchange rates revenues expenses gains losses translated rates exchange approximate rate effect time transaction company hedge currency exposures comprehensive income loss comprehensive income loss defined includes changes equity period nonowner sources net loss comprehensive loss including foreign currency translation adjustments unrealized gains losses investments marketable securities reported net related tax effect arrive comprehensive loss december 31 2005 accumulated comprehensive income consisted 21 million unrealized gain foreign currency translation 1000 unrealized gain investments marketable securities income loss per share income loss per share calculated using weighted average number common shares outstanding diluted income loss per share calculated basis weighted average number common shares outstanding plus dilutive effect outstanding stock options company certain subsidiaries assuming exercise using “treasury stock” method following table sets forth computation basic diluted income loss per share thousands except per share data fiscal years 2005 2004 2003 incremental equivalent shares common stock options 981844 211826 143560 respectively included computation diluted earnings per share impact would antidilutive shares issuable conversion convertible debentures 1315790 also excluded computation diluted earnings per share impact would antidilutive stock compensation company adopted disclosure provisions sfas 123 accounting stockbased compensation amended sfas 148 accounting stock based compensationtransitions disclosure accordance provisions sfas 123 company applies accounting principles board opinion 25 related interpretations accounting stock option plans accordingly compensation expense recognized stock options granted employees years ended december 31 2005 2004 2003 however 361000 compensation expense recognized restricted stock awards year ended december 31 2005 company elected recognize compensation cost based fair value method prescribed sfas 123 company’s net loss per share would adjusted pro forma amounts indicated thousands except per share amounts pro forma adjustments shown indicative future period pro forma adjustments calculation reflect applicable stock options fair value company options date grant estimated using blackscholes optionpricing model assumptions follows recent accounting pronouncements december 2004 financial accounting standards board fasb issued sfas 123 revised 2004 sharebased payment sfas 123r revision sfas 123 accounting stockbased compensation sfas 123 sfas 123r requires sharebased payments including grants employee stock options recognized financial statements based fair values allow previously permitted pro forma disclosure alternative financial statement recognition sfas 123r supercedes accounting principles board opinion 25 accounting stock issued employees related interpretations amends sfas 95 statement cash flows sfas 123r allows either modified prospective recognition compensation expense retroactive recognition may date back original issuance sfas 123 interim periods year adoption company planning adopt modified prospective transition method april 15 2005 securities exchange commission issued final rule effective dates application sfas 123r sfas 123r effective beginning first interim annual reporting period company’s first fiscal year beginning june 15 2005 presently company elected adopt statement effective january 1 2006 impact adoption sfas 123r cannot predicted time depend method adoption elected fair value number sharebased payments granted future however company adopted sfas 123r prior periods magnitude impact standard would approximated impact sfas 123 assuming application blackscholes model described disclosure pro forma net loss pro forma loss per share sfas 123r also requires benefits tax deductions excess recognized compensation cost reported financing cash flow rather operating cash flow required current literature requirement reduce net operating cash flows increase net financing cash flows periods adoption november 2004 fasb issued sfas 151 inventory costs amendment arb 43 chapter 4 requiring companies treat idle facility costs abnormal handling costs freight wasted materials current period charges rather portion inventory costs sfas 151 effective annual periods beginning june 15 2005 company implemented sfas 151 impact company’s results operations financial position may 2005 fasb issued sfas 154 accounting changes error corrections replacement apb opinion 20 fasb statement 3 statement replaces apb opinion 20 accounting changes fasb statement 3 reporting accounting changes interim financial statements changes requirements accounting reporting change accounting principle company implemented sfas 154 impact company’s results operations financial position june 2005 emerging issues task force issued eitf 052 meaning “conventional convertible debt instrument” issue 0019 provides guidance application sfas 133 accounting derivative instruments hedging activities eitf 052 applied new instruments entered instruments modified periods beginning june 29 2005 company implemented eitf 052 impact require classification conversion features convertible debentures derivative instruments september 2005 emerging issues task force issued eitf 058 income tax consequences issuing convertible debt beneficial conversion feature provides guidance application sfas 109 accounting income taxes eitf 058 applied financial statements beginning first interim annual reporting period beginning december 15 2005 company implemented eitf 058 impact require recognition deferred tax asset deferred tax liability approximately 25 million related embedded conversion features convertible debentures february 2006 fasb issued sfas 155 accounting certain hybrid financial instruments statement amends fasb statements 133 accounting derivative instruments hedging activities 140 accounting transfers servicing financial assets extinguishments liabilities statement resolves issues addressed statement 133 implementation issue d1 applications statement 133 beneficial interests securitized financial assets company still evaluating impact sfas 155 accounting change effective january 1 2003 company adopted sfas 87 employers’ accounting pensions amended accordance emerging issues task force eitf 034 determining classification benefit attribution method “cash balance” pension plan related swiss pension plan statement required standardization method measuring net periodic pension cost recognizing compensation cost employee’s pension employee’s approximate service period relating cost directly terms plan statement requires immediate recognition liability minimum liability accumulated benefit obligation exceeds fair value plan assets statement also requires expanded disclosures pension plan assets obligations benefits payments contributions net benefit cost adoption sfas 87 january 1 2003 resulted cumulative effect accounting change net tax 878000 business enterprise segments company operates one reportable operating segment high reliability according sfas 131 disclosures segments enterprise related information establishes standards way public business enterprises report information operating segments annual consolidated financial statements note 2divestitures following divestitures occurred three years ended december 31 2005 divestitures meet criteria accounted discontinued operations except winding equipment business segment discussed june 2003 company decided discontinue marketing supporting product line electronic components testers recorded charges cost sales 444000 primarily related excess inventory equipment 393000 primarily related warranty buyouts 259000 related expected future warranty returns quarters ended june 30 2003 september 30 2003 december 31 2003 respectively reversed 177000 warranty reserves related tester business q4 2005 sales accelerated life testers product line immaterial periods presented december 2003 company’s maxwell technologies sa subsidiary sold fixed assets substantially inventory except work process inventory warranty employee agreement obligations metar winding equipment business segment located matran switzerland metar sa new company whose principal shareholder former ceo montena sa company received 324000 cash recognized loss sale net tax 529000 included within “income loss discontinued operations” accompanying consolidated statements operations new metar company completed january june 2004 certain work progress related customer orders received maxwell technologies sa date sale company concluded continuing involvement winding equipment business second quarter 2004 shipment final metar product order owned company accordance sfas 144 results operations related winding equipment business recorded continuing operations first quarter 2004 reclassified discontinued operations fiscal 2004 2003 2002 note 12 december 2003 company sold manufacturing administrative facility san diego contained ibusphoenix operations proceeds sale facility 90 million closing expenses 387000 resulting net gain sale facility 12 million net cash proceeds sale facility 59 million payment closing expenses repayment 27 million term loan secured deed trust facility september 29 2002 company’s ibusphoenix inc subsidiary sold substantially assets liabilities business operations applied computing business located principally san diego california tangmere united kingdom ibus corporation new company whose principal shareholders former ibusphoenix senior managers 2003 company received final settlement payments 475000 new ibus corporation partial recovery 70 million subordinated note fully reserved 2002 recovery reflected “gain sale businesses” accompanying consolidated statements operations september 30 2002 company sold substantially assets liabilities business operations teknaseal glasstometal seals division minneapolis minnesota group private investors aggregate selling price 55 million cash company’s involvement teknaseal ended year ended december 31 2003 company recognized gain 695000 included “gain loss sale businesses” accompanying consolidated statement operations upon receipt funds released escrow amounts held escrow released company december 31 2003 note 3balance sheet details thousands warranty reserve analysis note 4convertible debentures december 20 2005 company issued 25 million aggregate principal amount senior subordinated convertible debentures due payable quarterly installments december 2007 december 2009 “debentures” warrants purchase 394737 shares maxwell common stock net proceeds issuance totaled approximately 237 million direct placement costs approximately 13 million debentures convertible 1315790 shares maxwell’s common stock time option holder shares associated subordinated convertible debt stock warrants required registered march 20 2006 penalty 12500 per day accrue shares registered deadline interest due quarterly starting april 1 2006 interest rate federal funds rate plus 1125 per annum issuance december 31 2005 interest rate debentures 5375 portion accrued unpaid interest may paid shares maxwell’s common stock company’s option december 31 2005 interest paid 40000 accrued issuance date debentures convertible holder time common shares price 1900 per share subject adjustment upon certain events sale equity securities maxwell price conversion price debenture eighteen months issue date maxwell may require specified amount principal debentures converted certain conditions satisfied period 20 consecutive trading days maxwell accounting conversion option debentures associated warrants derivative liabilities accordance sfas 133 accounting derivative instruments hedging activities eitf 0019 accounting derivative financial instruments indexed potentially settled company’s stock eitf 052 meaning “conventional convertible debt instrument” issue 0019 discount attributable issuance date aggregate fair value conversion options warrants totaling 92 million amortized using effective interest method term debentures change fair value revaluation debenture conversion rights warrant liabilities represents difference fair value warrants debenture conversion features original issue date fair value december 31 2005 using blackscholes holder’s maxwell’s conversion rights warrants adjusted respective fair market values december 31 2005 fair value holder’s maxwell’s conversion rights december 31 2005 58 million included “convertible debentures longterm debt” balance sheet effect fair market value adjustment 800000 gain recorded “gain embedded derivative liabilities” warrants issued connection issuance debentures exercise price 1900 issuance date subject adjustment upon certain events sale equity securities maxwell price current exercise price december 31 2005 exercise price 1900 per share total 75 million warrants exercisable time december 20 2010 warrants exercised december 31 2005 event default fundamental change defined debentures holder entitled require maxwell redeem debentures portion thereof price equal greater applicable redemption premium ranging 103115 ii product x number shares debenture convertible using 1900 per share conversion price closing price maxwell’s common stock day preceding default fundamental change long debentures outstanding company required maintain cash balance excess 80 million amount classified restricted cash december 31 2005 note 5shortterm longterm borrowings shortterm borrowings maxwell’s european subsidiary maxwell technologies sa 20 million swiss franc approximately 15 million december 31 2005 bank credit agreement swiss bank renews annually borrowings credit agreement bear interest 252 repayment terms extending beyond one month date funding borrowings credit agreement unsecured december 31 2005 2004 full amount available credit line drawn maxwell sa 10 million swiss francs approximately 760000 december 31 2005 overdraft credit agreement swiss bank renews annually borrowings credit agreement bear interest 50 borrowings credit agreement unsecured december 31 2005 none overdraft credit line drawn approximately 49000 334000 letters guarantee primarily related customer deposits outstanding december 31 2005 2004 respectively february 2004 secured 30 million credit line us bank working capital purposes subject oneyear repayment period march 2005 credit line renewed substantially terms prior credit line used date management decided renew line 2006 expired january 31 2006 line secured accounts receivable assets company bore interest bank’s prime rate plus 175 subject minimum interest rate 575 agreement required us maintain minimum tangible net worth 357 million plus 50 consideration future equity debt transactions plus 50 net income fiscal quarter date agreement december 31 2005 company required maintain 50 banking activities investment balances bank providing credit line company compliance covenants december 31 2005 longterm borrowings maxwell technologies sa term loan maximum draw 115 million swiss francs approximately 874000 financing specific capital equipment expenditures borrowings term loan secured equipment purchased credit agreement bears interest swiss interbank borrowing rate plus 20 term loan borrowed quarterly advances maximum limit repaid one five years december 31 2005 approximately 699000 outstanding weighted average interest rate funds borrowed december 31 2005 40 maxwell technologies sa loan montena sa pension plan 300000 swiss francs approximately 265000 paid 2004 payments due borrowings including convertible debentures five years subsequent december 31 2005 follow thousands note 6stock activity stock plans stock sale july 2005 company sold 488888 shares common stock 1125 per share pursuant prospectus supplement filed securities exchange commission “sec” represented remaining amount available sale form s3 registration statement filed september 2004 company received proceeds approximately 54 million net offering expenses company intends use working capital purchase equipment general corporate purposes november 2004 company raised approximately 101 million deduction expenses fees sale approximately 12 million shares common stock institutional investors company sold shares directly investors negotiated transaction underwriters used placement shares previously registered securities act 1933 amended pursuant shelf registration statement filed form s3 securities exchange commission september 2004 stock option plans december 1995 company adopted 1995 stock option plan amended 3340000 shares common stock reserved future grant company’s 1999 director stock option plan 75000 shares reserved future grant adopted 1999 approved company’s shareholders january 2000 plans provide granting either incentive stock options nonqualified stock options employees nonemployee members company’s board directors respectively december 1999 company granted 294030 nonqualified options company’s new president chief executive officer mr eibl outside company’s option plans april 2002 conjunction purchase shares ibusphoenix electronic components group subsidiaries already owned company issued options purchase approximately 520000 shares maxwell common stock exchange options purchase subsidiary common stock issuance stock options outside company’s option plans options also outstanding expired stock option plans superseded current plans options granted stock option plans purchase common stock company less stock’s fair market value date grant employee options generally exercisable cumulative annual installments 2030 percent options 1999 director stock option plan fully exercisable one year date grant options terms five ten years november 2002 board directors approved company established program restore equity incentives key employees outside directors november 2002 options purchase 853461 shares common stock strike prices 10 held senior management certain outside directors voluntarily cancelled option holders exchange future issuance late may 2003 substitute stock options strike price equal thenprevailing market price common stock company’s 2005 omnibus equity incentive plan “incentive plan” approved shareholders provides grant stock based awards including incentive stock options nonqualified stock options stock appreciation rights performance awards restricted stock restricted stock unit awards total 750000 shares reserved issuance incentive plan december 31 2005 197500 shares issued restricted stock awards members executive management board directors additionally 105400 shares cancelled expired 1995 stock option plan 1000 shares 1999 directors’ plan available issuance restricted stock subject certain performance goals minimum oneyear vesting period unvested restricted stock forfeited upon voluntary termination cause company made estimates regarding whether achievement performance goals probable expects goals achieved stock compensation expense recognized ratably date milestone achievement vesting date using variable plan accounting based fair market value common stock end reporting period company recorded unearned compensation totaling 24 million component stockholders’ equity connection restricted stock awards company recognized compensation expense 361000 twelve month period ended december 31 2005 related restricted stock awards december 31 2005 company 470900 shares available future grant stock option plans following table summarizes total aggregate stock option activity period january 1 2003 december 31 2005 following table summarizes information concerning outstanding exercisable company common stock options december 31 2005 number shares options exercisable december 31 2005 2004 2003 1954167 1879188 1202931 respectively weighted average exercise prices 816 803 831 respectively estimated weighted average fair value grant date company options granted years ended december 31 2005 2004 2003 610 493 831 per share respectively stock purchase plans 2004 company established 2004 employee stock purchase plan director stock purchase plan employee plan permits substantially employees purchase common stock payroll deductions 85 lower trading price stock beginning end sixmonth offering period director plan permits nonemployee directors purchase common stock 100 trading price stock date request purchase received years ended december 31 2005 2004 2003 aggregate shares 18045 22160 23404 respectively issued employee plan aggregate proceeds company 156000 120000 117000 respectively december 31 2005 216271 shares reserved future issuance plans deferred compensation 2003 company former chairman board entered services agreement whereby former chairman received option acquire 94251 shares fair market value date grant options fully vested fixed life four years accordingly company recorded compensation expense 313000 2003 representing fair value options pursuant blackscholes valuation model options granted former chairman board exercised december 31 2005 stockholder rights plan november 1999 company adopted stockholder rights plan successor previous plan expired june 1999 accordance plan company distributed one nonvoting common stock purchase right “right” outstanding share common stock rights exercisable trade separately common stock unless person group acquires makes tender offer 20 company’s common stock initially right entitles registered holder purchase one share company common stock price 75 per share subject certain antidilution adjustments rights become exercisable certain conditions met right owned acquiring person group entitle holder receive upon exercise company common stock market value twice exercise price right addition company may redeem rights price 001 per right subject certain restrictions stockholder rights plan expires october 21 2009 share reservations following table summarizes reservation authorized unissued shares issuance upon exercise conversion outstanding instruments note 7goodwill intangibles company implemented sfas 142 goodwill intangible assets began applying rules accounting goodwill intangible assets effective january 1 2002 sfas 142 goodwill impairment test twostep process first step consists estimating fair value reporting unit comparing estimated fair values carrying values includes allocated goodwill fair value less carrying value second step performed compute amount impairment determining implied fair value goodwill implied fair value goodwill residual fair value derived deducting fair value reporting unit’s assets liabilities estimated fair value calculated step one impairment charge represents excess carrying amount reporting unit’s goodwill implied fair value goodwill sfas 142 requires goodwill tested annually time every year event occurs circumstances change reasonably possible impairment may exist company selected december 31 annual testing date result company’s annual assessment december 31 2005 2004 using market approach impairment indicated 641 change carrying amount goodwill january 1 2004 december 31 2005 follows thousands acquired intangible assets subject amortization december 31 2005 2004 follows thousands amortization expense intangible assets 207000 197000 years ended december 31 2005 2004 2003 estimated amortization next five years ended december 31 follows thousands actual amortization expense reported future periods could differ estimates result foreign currency translation adjustments impairments factors note 8income taxes provision benefit income taxes based loss continuing operations follows thousands provision benefit income taxes accompanying consolidated statements operations differs amount calculated applying statutory income tax rate loss continuing operations income taxes primary components difference follows thousands company established valuation allowance deferred tax assets due uncertainty surrounding realization assets evidenced cumulative losses operations december 31 2005 management periodically evaluates recoverability deferred tax assets time determined likely deferred assets realizable valuation allowance reduced accordingly company recorded valuation allowance 432 million december 31 2005 reflect estimated amount deferred tax assets may realized company increased valuation allowance 38 million year ended december 31 2005 valuation allowance includes stock option deductions totalling 12 million benefit eventually credited equity pursuant internal revenue code sections 382 383 use company’s federal net operating loss credit carryforwards may limited due cumulative change ownership 50 within threeyear period december 31 2005 company net operating loss carryforwards federal state income tax purposes approximately 948 million 456 million respectively federal loss carryforward begins expire calendar year 2011 state loss carryforwards continue expire 2006 2015 addition company research development tax credit carryforwards federal state income tax purposes december 31 2005 36 million 25 million respectively unremitted earnings foreign subsidiaries included consolidated financial statements without giving effect united states taxes may payable distribution united states anticipated earnings remitted united states remitted additional united states taxes may required paid anticipated material deferred income taxes reflect net tax effects temporary differences carrying amounts assets liabilities financial reporting purposes amounts used income tax purposes primary components company’s deferred tax assets liabilities within continuing operations follows thousands note 9commitments contingencies company subject government audits two businesses sold discontinued 2001 contract assumed acquirers company’s former defense contract business entered 1990 completed late 1990s audited defense department’s auditing agency defense department’s audit completed 2005 company reimbursed immaterial amount finalize audit internal revenue service irs assessed company penalty approximately 262000 failure file form w2s business sold 2001 acquiring company former business write irs stating would responsible filing 2001 form w2s 2005 irs fully released company 262000 penalty defense department’s auditing agency auditing contract entered microelectronics group subcontractor 1995 completed 1999 company requested release liability prime contractor assurance release obtained company incur liability management anticipate unfavorable settlement matters unfavorable results remaining audit would result adverse impact company’s cash flow company enters indemnification agreements ordinary course business indemnified party held harmless reimbursed losses incurred claims third parties connection divestitures certain assets businesses company often provides indemnities buyer respect certain matters including example environmental liabilities unidentified liabilities related periods prior disposition due uncertain nature indemnities maximum liability cannot quantified liabilities obligations recorded appropriate probable reasonably estimated historically company made significant payments obligations 2005 customer brought attention possible defect product source another manufacturer resell customer process investigating matter yet able determine warranty exposure maxwell may therefore recorded warranty reserve provision carry insurance believe would cover portion obligation might ultimately arise matter note 10leases rental expense amounted 15 million 14 million 15 million years ended december 31 2005 2004 2003 respectively incurred primarily facility rental company’s facilities leases expire july 2007 san diego california facility june 2009 rossens switzerland facility future annual minimum rental commitments automobile leases december 31 2005 follows thousands note 11pension postretirement benefit plans foreign plans july 2002 company acquired montena including pension plan covering swiss employees plan provides pension benefits employees terms plan required swiss law regulations plan characteristics defined benefit defined contribution cash balance plans year ended december 31 2002 plan treated defined contribution plan however year ended december 31 2003 accordance eitf 034 plan classified defined benefit pension plan adoption eitf 034 accounted effect adopting new accounting principle beginning year january 1 2003 resulted cumulative effect accounting change net tax 878000 year ended december 31 2003 pension benefit based compensation length service credited investment earnings plan guarantees minimum rate return well minimum annuity purchase rates company’s funding policy respect pension plan contribute amount required swiss law using required percentage applied employee’s compensation addition participating employees required contribute identical amount pension plan company made pension contributions 282000 296000 302000 2005 2004 2003 respectively plan measurement date december 31 december 2003 company sold winding equipment business segment result approximately 50 employees left company resulted curtailment gain approximately 20 million company obligated fiscal 2004 pay obligation employees based upon participant balances date termination plus amounts allocable result plan operating results prior settlement following table reflects changes pension benefits years ended december 31 2005 2004 components net periodic benefit cost company plan follows following benefit payments reflect expected future service appropriate expected paid thousands noted table accumulated benefit obligation 116 million 121 million december 31 2005 2004 respectively company expects contribute 358000 foreign pension plan fiscal 2006 us plans company post retirement benefit plans covering substantially employees united states substantially us employees eligible elect coverage contributory employee savings plans provide company matching contributions based onehalf employee contributions certain plan limits company’s matching contributions plans totaled 187000 157000 190000 years ended december 31 2005 2004 2003 respectively note 12discontinued operations march 2001 company sold assets defense contracting business separate transactions two buyers aggregate sales price approximately 207 million proceeds recorded 2001 buyers assumed certain liabilities ongoing contractual obligations business hired employees business company retained certain leases lease obligations expiring 2006 certain assets liabilities business including estimated amounts provided closing expenses transaction net costs winding remaining activities business december 31 2005 net lease obligations 204000 run april 2006 company increased reserves net lease obligations 720000 2003 485000 2004 123000 2005 covers lease payments end lease september 2002 company decided suspend operations majority owned purepulse technologies inc subsidiary purepulse designing developing systems generate extremely intense broadspectrum pulsed light purify water inactivate viruses pathogens contaminate vaccines products sourced human animal tissues plasma derivatives transfusion blood components biopharmaceuticals company plans preserve intellectual property certain technology assets possible future sale assets carrying value assets december 31 2005 2004 zero december 2003 company’s maxwell technologies sa subsidiary sold fixed assets substantially inventory except work process inventory warranty employee agreement obligations metar winding equipment business segment located matran switzerland metar sa new company whose principal shareholder former ceo montena sa company received 324000 cash recognized loss sale net tax 529000 new metar company completed january june 2004 certain work progress related customer orders received maxwell technologies sa date sale company concluded continuing involvement winding equipment business second quarter 2004 shipment final metar product order owned company accordance sfas 144 results operations related winding equipment business recorded continuing operations first quarter 2004 reclassified discontinued operations fiscal 2004 2003 2002 operating results discontinued operations shown separately net tax accompanying consolidated statements operations businesses included discontinued operations sales aggregating 11 million 102 million years ended december 31 2004 2003 respectively amounts included net sales accompanying consolidated statements operations net liabilities discontinued operations separately classified accompanying consolidated balance sheets december 31 2005 2004 amounts 527000 10 million respectively comprised 204000 lease obligations 323000 minority interest purepulse december 31 2005 december 31 2004 net liability balance comprised 608000 lease obligations 437000 minority interest results discontinued operations business unit consisted following thousands note 13related party transactions montena sa former parent company montena significant shareholder maxwell technologies inc lessor company’s headquarters rossens switzerland years ended december 31 2005 2004 2003 company paid 797000 795000 809000 respectively rental fees montena sa future rental commitments december 31 2005 26 million january 2006 montena sa sold building unrelated third party maxwell technologies sa loan montena sa pension plan 300000 swiss francs approximately 265000 paid 2004 note 14legal proceedings company’s subsidiary ibusphoenix inc named defendant suit filed march 4 2004 superior court state california county san luis obispo suit edmonds vs ibusphoenix inc filed plaintiff behalf alleges damages concerning repurchase ibusphoenix inc shares company’s legal counsel cannot express opinion matter management believes liability company may arise respect matter significant adverse effect consolidated financial position results operations cash flows company note 15unaudited quarterly results operations year ended december 31 2004 completed discontinuation company’s winding equipment business segment therefore following financial information fiscal 2004 includes reclassification winding equipment business discontinued operations includes charges 572000 46000 first third quarters 2005 respectively customer orders priced company’s production cost b includes credits 260000 use reserves customer orders priced cost 2004 161000 use reserves excess obsolete inventory c includes credit 800000 gain embedded derivative liabilities includes charge 123000 lease obligations related vacant facilities discontinued operations e includes license fees 1 million f includes charges 500000 440000 14 million customer orders received first third fourth quarters 2004 respectively priced company’s production cost well charges 450000 159000 third fourth quarters respectively slow moving small cell boostcap® inventory 733000 fourth quarter excess obsolete inventory g includes charges 250000 235000 second fourth quarters respectively lease obligations related vacant facilities discontinued operations h includes charges 10 million audit consulting fees related compliance activities pursuant section 404 sarbanesoxley act 2002 fourth quarter charges 150000 bad debt provisions third quarter note 16subsequent events maxwell received customer order subsequent december 31 2005 priced projected production costs require reserve approximately 352000 first quarter 2006 schedule ii valuation qualifying accounts thousands 741 item 9item 8 financial statements supplementary data consolidated financial statements notes thereto appear pages 43 73 annual report form 10k maxwell technologies inc subsidiaries index consolidated financial statements report independent registered public accounting firm board directors maxwell technologies inc san diego california audited consolidated balance sheets maxwell technologies inc december 31 2006 2005 related consolidated statements operations stockholders’ equity comprehensive loss cash flows three years period ended december 31 2006 audits also included financial statement schedule maxwell technologies inc listed item 15a financial statements financial statement schedule responsibility company’s management responsibility express opinion financial statements based audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion consolidated financial statements referred present fairly material respects financial position maxwell technologies inc december 31 2006 2005 results operations cash flows three years period ended december 31 2006 conformity us generally accepted accounting principles also opinion related financial statement schedule considered relation basic consolidated financial statements taken whole presents fairly material respects information set forth therein discussed note 1 consolidated financial statements company changed method accounting stockbased compensation 2006 also audited accordance standards public company accounting oversight board united states effectiveness maxwell technologies inc’s internal control financial reporting december 31 2006 based criteria established internal controlintegrated framework issued committee sponsoring organizations treadway commission coso report dated march 15 2007 expressed unqualified opinion management’s assessment effectiveness maxwell technologies inc’s internal control financial reporting opinion maxwell technologies inc maintained effective internal control financial reporting december 31 2006 based criteria established internal controlintegrated framework issued committee sponsoring organizations treadway commission coso mcgladrey pullen llp san diego california march 15 maxwell technologies inc subsidiaries consolidated balance sheets thousands except per share data accompanying notes integral part consolidated financial statements maxwell technologies inc subsidiaries consolidated statements operations thousands except per share data accompanying notes integral part consolidated financial statements maxwell technologies inc subsidiaries consolidated statements stockholders’ equity comprehensive loss thousands accompanying notes integral part consolidated financial statements maxwell technologies inc subsidiaries consolidated statements cash flows thousands accompanying notes integral part consolidated financial statements maxwell technologies inc subsidiaries notes consolidated financial statements unless context otherwise requires references “maxwell” “company” “we” “us” “our” refer maxwell technologies inc subsidiaries references “maxwell sa” refer european subsidiary maxwell technologies sa references “electronic components group” refer former subsidiary maxwell electronic components group inc merged maxwell references “ibusphoenix” refer subsidiary ibusphoenix inc subsidiaries references “purepulse” refer nonoperating subsidiary purepulse technologies inc note 1description business summary significant accounting policies description business maxwell technologies inc delaware corporation originally incorporated 1965 name “maxwell laboratories inc” 1996 company changed name maxwell technologies inc headquartered san diego california maxwell operates single operating segment high reliability comprised two manufacturing locations san diego california rossens switzerland three product lines • ultracapacitors primary focus ultracapacitors energy storage devices possess unique combination high power density extremely long operational life ability charge discharge rapidly boostcap® ultracapacitor cells multicell packs modules provide highly reliable energy storage power delivery solutions applications multiple industries including transportation energy consumer industrial electronics telecommunications • highvoltage capacitors condis® highvoltage capacitors extremely robust devices designed manufactured perform reliably decades climates products include grading coupling capacitors capacitive voltage dividers used ensure safety reliability electric utility infrastructure applications involving transport distribution measurement highvoltage electrical energy • radiationmitigated microelectronic products radiationmitigated microelectronic products include highperformance highdensity power modules memory modules single board computers incorporate proprietary radpak® packaging shielding technology novel architectures enable withstand environmental radiation effects perform reliably space company’s products designed manufactured perform reliably life products systems integrated company achieves high reliability application proprietary technologies rigorously controlled design development manufacturing test processes financial statement presentation consolidated financial statements include accounts maxwell technologies inc subsidiaries significant intercompany transactions account balances eliminated consolidation purepulse business discontinued september 2002 previously reported separate segment winding equipment segment sold december 2003 recorded continuing operations first quarter fiscal year 2004 reclassified discontinued operations results operations business units meet criteria classified discontinued operation sold otherwise disposed included continuing operations date sale result reclassification winding equipment business company operating single reportable segment preparation financial statements conformity accounting principles generally accepted united states america requires management make estimates assumptions affect reported amounts related disclosures estimates include assessing collectability accounts receivable usage recoverability inventories longlived assets including deferred income tax incurrence losses warranty costs stock compensation expense fair value warrants embedded conversion options related convertible debentures markets company’s products extremely competitive characterized rapid technological change new product development product obsolescence evolving industry standards addition price competition intense significant price erosion generally occurs life product result factors actual results could differ estimates used management certain prior year amounts reclassified conform current year presentation effect total stockholders’ equity net loss company’s fiscal year ends december 31 it’s fiscal quarters end last day calendar months march june september december cash equivalents investments marketable securities company invests excess cash debt instruments us government agencies bank certificates deposit commercial paper highquality corporate issuers highly liquid instruments original maturity three months less purchase considered cash equivalents original maturities greater three months date purchase considered investments marketable securities company’s investments marketable securities classified availableforsale reported fair value unrealized gains losses included stockholders’ equity separate component accumulated comprehensive income realized gains losses otherthantemporary declines value availableforsale securities reported income expense incurred company recognized net realized gains years ended december 31 2006 2005 2004 company uses specific identification method sales investments maturities gross unrealized gains investments marketable securities december 31 2006 2005 follows thousands restricted cash company’s convertible debentures agreement requires company maintain minimum cash balances least 80 million amount classified restricted cash december 31 2006 2005 cash balances restricted december 31 2004 fair value financial instruments convertible debentures issued december 20 2005 evaluated determined conventional convertible therefore certain terms provisions including liquidating damages associated registration rights agreement embedded conversion option bifurcated accounted derivative liability instrument stock warrants issued december 20 2005 conjunction convertible debt also evaluated determined derivative instrument therefore classified liability balance sheet accounting guidance also requires conversion feature warrants recorded fair value reporting period changes fair value recorded statement operations fair value embedded conversion options stock warrants based blackscholes fair value calculation carrying value fair value convertible debentures december 31 2006 approximately 190 million 25 million respectively december 31 2005 carrying value fair value convertible debentures approximately 159 million 25 million respectively fair value convertible debentures based discounted cash flows principal interest payments discount value determined issue date december 20 2005 amortized term debt carrying value restricted cash short term borrowings approximates fair value allowance doubtful accounts allowance doubtful accounts reflects management’s best estimate probable losses inherent accounts receivable balance management determines allowance based known troubled accounts historical experience currently available evidence inventories stated lower cost market finished goods workinprocess inventory values based standard costs approximate average costs firstin firstout method property equipment property equipment carried cost depreciated using straightline method depreciation amortization provided estimated useful lives related assets three ten years leasehold improvements amortized shorter estimated useful lives terms lease longlived assets longlived assets property equipment reviewed impairment whenever events changes business circumstances indicate carrying value longlived asset may recoverable company determines carrying value longlived asset may recoverable permanent impairment charge recorded amount carrying value longlived asset exceeds fair value goodwill intangible assets goodwill represents excess cost acquired business net fair value assigned assets acquired liabilities assumed amortized instead goodwill assessed impairment statement financial accounting standards sfas 142 goodwill intangible asset company tests goodwill indefinite lived intangible assets impairment established december 31 annual impairment test date using fair value approach intangible assets finite lives continue amortized straightline basis useful lives 10 12 years evaluated impairment whenever events changes circumstances indicate carrying value may recoverable sfas 144 accounting impairment disposal longlived assets warranty obligation company provides product warranties conjunction certain product sales majority company’s warranties one two years normal course business company accrues estimated warranty time sale based historical warranty expenses estimated warranty liability calculated based historical warranty expenses plus known expected change warranty exposure income taxes company accounts income taxes accordance sfas 109 accounting income taxes requires use liability method accounting deferred income taxes method deferred income taxes recorded reflect tax consequences future years temporary differences tax bases assets liabilities financial reporting amounts period end likely portion deferred tax asset realized valuation allowance recognized concentration credit risk company maintains cash balances various financial institutions primarily california balances commonly exceed 100000 insured amount federal deposit insurance corporation company experienced losses accounts management believes company exposed significant credit risk respect cash equivalents financial instruments subject company potential concentrations credit risk consist principally company’s accounts receivable company’s accounts receivable result product sales customers various industries various geographical areas domestic foreign company performs ongoing credit evaluations customers generally requires collateral one customer provided 18 23 revenue 2006 2005 respectively comprised 18 28 accounts receivable balances december 31 2006 2005 respectively certain financial information company locations provided revenue recognition fiscal year ended december 31 2006 substantially revenue derived sale manufactured products directly customers revenue recognized time costs incurred certain longterm contracts licensing fees received right manufacture products based proprietary ultracapacitors design revenue category fiscal years ended december 31 2006 2004 product revenue recognized according guidelines sec staff accounting bulletin numbers 101 revenue recognition financial statements 104 revenue recognition title passes customer either shipment facilities receipt customer facility depending shipping terms provided collectability reasonably assured method consistently applied period right return revenue fixed price government contracts recognized time costs incurred calculated percentage completion basis accordance statement position 811 accounting performance constructiontype certain productiontype contracts limited funding prime contractor prior years certain continuing discontinued segments involved revenues longterm shortterm fixed price contracts cost plus contracts us government directly prime contractor revenues including estimated profits recognized time costs incurred included provisions anticipated losses contracts subject rate audits could result reduction revenue excess estimated provisions turn could increase losses periods reduction occurs fiscal year ended december 31 2006 company recognized revenue relates specific deliverables accordance eitf 0021 accounting revenue arrangements multiple deliverables revenue involves contract grants license manufacture market products mainland china using maxwell’s proprietary large cell multicell module technology separate brand contract obligates manufacturer source ultracapacitor electrode material maxwell agreement general right return allows refunds research development expense research development expenditures expensed period incurred advertising expense advertising costs expensed period incurred advertising expense 374000 265000 326000 fiscal 2006 2005 2004 respectively shipping handling company recognizes shipping handling costs component cost sales total shipping handling costs years ended 2006 2005 2004 1044000 511000 190000 respectively patent defense costs company assesses case individually however may capitalize legal costs associated patent defense lawsuits favorable outcome probable foreign currencies company’s primary foreign currency exposure related subsidiary switzerland maxwell technologies sa euro local currency swiss franc revenue operating expenses changes currency exchange rates impact us dollar amount revenue expenses functional currency swiss subsidiary swiss franc assets liabilities maxwell’s swiss subsidiary translated yearend exchange rates revenues expenses gains losses translated rates exchange approximate rate effect time transaction company hedge currency exposures comprehensive income loss comprehensive income loss defined includes changes equity period nonowner sources net loss comprehensive loss including foreign currency translation adjustments unrealized gains losses investments marketable securities reported net related tax effect arrive comprehensive loss december 31 2006 accumulated comprehensive income consisted 44 million unrealized gain foreign currency translation 28 million sfas 158 pension adjustment 1000 unrealized gain investments marketable securities income loss per share basic loss per share calculated using weighted average number common shares outstanding diluted loss per share calculated basis weighted average number common shares outstanding plus dilutive effect outstanding stock options restricted stock awards company assuming exercise using “treasury stock” method following table sets forth computation basic diluted income loss per share thousands except per share data fiscal years 2006 2005 2004 incremental equivalent shares common stock options 1145952 981844 211826 respectively included computation diluted earnings per share impact would antidilutive shares issuable conversion convertible debentures 1315790 also excluded computation diluted earnings per share impact would antidilutive stock compensation effective january 1 2006 company adopted fair value recognition provisions revised statement financial accounting standards 123 revised sfas 123r sharebased payment establishes accounting sharebased awards exchanged employee services requires companies expense estimated grant date fair value awards requisite employee service period company elected modified prospective method provides certain changes method valuing sharebased compensation modified prospective method prior periods revised comparative purposes expense recognition provisions sfas 123r apply new awards unvested awards outstanding effective date subsequently modified cancelled estimated compensation expense awards outstanding effective date recognized remaining service period using compensation cost calculated pro forma disclosure purposes sfas 123 accounting stockbased compensation november 10 2005 fasb issued fasb staff position sfas 123r3 transition election related accounting tax effects sharebased payment awards company elected simplified method calculate hypothetical beginning balance additional paidin capital pool apic pool related tax effects employee sharebased compensation available absorb tax deficiencies recognized subsequent adoption sfas 123r hypothetical apic pool calculated zero prior period disclosure provisions sfas 123 amended sfas 148 accounting stock based compensationtransitions disclosure accordance provisions sfas 123 company applied accounting principles board opinion 25 related interpretations accounting stock option plans accordingly 361000 zero compensation expense recognized year ended december 31 2005 2004 company elected recognize compensation cost based fair value method prescribed sfas 123 company’s net loss per share would adjusted pro forma amounts indicated thousands except per share amounts pending accounting pronouncements july 2006 fasb issued interpretation 48 accounting uncertainty income taxes fin 48 fin 48 clarifies accounting reporting income taxes recognized accordance sfas 109 accounting income taxes interpretation prescribes comprehensive model financial statement recognition measurement presentation disclosure uncertain tax positions taken expected taken income tax returns fin 48 effective fiscal years beginning december 15 2006 company expect adoption fin 48 material impact company’s financial position results operations september 2006 fasb issued sfas 157 fair value measurements “sfas 157” sfas 157 provides new single authoritative definition fair value provides enhanced guidance measuring fair value assets liabilities requires additional disclosures related extent companies measure assets liabilities fair value information used measure fair value effect fair value measurements earnings sfas 157 effective company january 1 2008 company currently assessing impact sfas 157 consolidated financial statements september 2006 fasb issued sfas 158 employers’ accounting defined benefit pension postretirement plansan amendment fasb statements 87 88 106 132r” “sfas 158” sfas 158 requires balance sheet recognition funded status pension postretirement benefit plans sfas 158 actuarial gains losses prior service costs credits remaining transition assets obligations recognized previous accounting standards must recognized component accumulated comprehensive income loss within stockholders’ equity net tax effects amortized component net periodic benefit cost addition measurement date plan assets benefit obligation measured required company’s fiscal year end sfas 158 effective company december 31 2007 except measurement date provisions effective december 31 2009 plan reported financial statement regulated swiss government equally funded employees company february 2007 fasb issued sfas 159 fair value option financial assets financial liabilitiesincluding amendment fasb statement 115 permits entities choose measure many financial instruments certain items fair value sfas 159 also includes amendment sfas 115 “accounting certain investments debt equity securities” applies entities availableforsale trading securities statement effective beginning entity’s first fiscal year begins november 15 2007 company anticipate material impact consolidated financial statements upon adoption standard business enterprise segments company operates one reportable operating segment high reliability according sfas 131 disclosures segments enterprise related information establishes standards way public business enterprises report information operating segments annual consolidated financial statements chief operating decision maker regularly review discrete financial information consolidated level revenue product line provided thousands note 2divestitures following divestitures occurred three years ended december 31 2006 divestitures meet criteria accounted discontinued operations except winding equipment business segment discussed december 2003 company’s maxwell technologies sa subsidiary sold fixed assets substantially inventory except work process inventory warranty employee agreement obligations metar winding equipment business segment located matran switzerland metar sa new company whose principal shareholder former ceo montena sa company received 324000 cash recognized loss sale net tax 529000 new metar company completed january june 2004 certain work progress related customer orders received maxwell technologies sa date sale company concluded continuing involvement winding equipment business second quarter 2004 shipment final metar product order owned company accordance sfas 144 results operations related winding equipment business recorded continuing operations first quarter 2004 reclassified discontinued operations fiscal 2006 2005 2004 note 3balance sheet details thousands warranty reserve analysis note 4convertible debentures december 20 2005 company issued 25 million aggregate principal amount senior subordinated convertible debentures principal due payable quarterly installments beginning december 2007 december 2009 “debentures” warrants purchase 394737 shares maxwell common stock net proceeds issuance totaled approximately 237 million direct placement costs approximately 13 million debentures convertible 1315790 shares maxwell’s common stock time option holder interest due quarterly beginning april 1 2006 interest rate federal funds rate plus 1125 per annum portion accrued unpaid interest may paid shares maxwell’s common stock company’s option fiscal year ended december 31 2006 2005 interest rate debentures 6375 5375 respectively fiscal year ended december 31 2006 41573 shares stock issued inlieu cash pay interest accrued interest 402000 40000 accrued december 31 2006 2005 respectively issuance date debentures convertible holder time common shares price 1900 per share subject adjustment upon certain events sale equity securities maxwell price conversion price debenture eighteen months issue date maxwell may require specified amount principal debentures converted certain conditions satisfied period 20 consecutive trading days warrants issued connection issuance debentures exercise price 1900 issuance date subject adjustment upon certain events sale equity securities maxwell price current exercise price 1900 per share total 75 million warrants exercisable time december 20 2010 warrants exercised december 31 2006 maxwell accounting conversion option debentures associated warrants derivative liabilities accordance sfas 133 accounting derivative instruments hedging activities eitf 0019 accounting derivative financial instruments indexed potentially settled company’s stock eitf 052 meaning “conventional convertible debt instrument” issue 0019 discount attributable issuance date aggregate fair value conversion options warrants totaling 92 million amortized using effective interest method term debentures change fair value revaluation debenture conversion rights warrant liabilities represents difference fair value warrants debenture conversion features december 31 2005 fair value fiscal yearend using blackscholes pricing model fair value warrants december 31 2006 2005 19 26 million respectively included “stock warrants” balance sheet net fair value liability holders maxwell’s conversion rights december 31 2006 2005 liabilities 46 58 million respectively included “convertible debentures longterm debt” balance sheet effect fair market value adjustment 20 million 800000 gains fiscal year ended december 31 2006 2005 recorded “gain embedded derivative warrants” event default fundamental change defined debentures holder entitled require maxwell redeem debentures portion thereof price equal greater applicable redemption premium ranging 103115 ii product x number shares debenture convertible using 1900 per share conversion price closing price maxwell’s common stock day preceding default fundamental change long debentures outstanding company required maintain cash balance excess 80 million amount classified restricted cash december 31 2006 2005 note 5shortterm longterm borrowings shortterm borrowings maxwell’s european subsidiary maxwell technologies sa 20 million swiss franc approximately 16 million december 31 2006 bank credit agreement swiss bank renews annually borrowings credit agreement bear interest 395 repayment terms extending beyond one month date funding borrowings credit agreement unsecured december 31 2006 2005 full amount available credit line drawn maxwell sa 10 million swiss francs approximately 820000 december 31 2006 overdraft credit agreement swiss bank renews annually borrowings credit agreement bear interest 34 borrowings credit agreement unsecured december 31 2006 779000 overdraft credit line drawn approximately 26000 49000 letters guarantee primarily related customer deposits outstanding december 31 2006 2005 respectively company 30 million credit line us bank working capital purposes subject oneyear repayment period line used management decided renew line expired january 31 2006 longterm borrowings maxwell technologies sa term loan maximum draw 12 million swiss francs approximately 943000 financing specific capital equipment expenditures borrowings term loan secured equipment purchased credit agreement bears interest swiss interbank borrowing rate plus 20 term loan borrowed quarterly advances maximum limit repaid one five years december 31 2006 approximately 566000 outstanding weighted average interest rate funds borrowed december 31 2006 41 maxwell sa lease agreement acquisition manufacturing equipment amount 15 million swiss francs approximately 12 million december 31 2006 lease agreement borrowings minimum purchase 250000 swiss francs lease secured equipment purchased leasing fee 222 acquisition price plus vat residual value 5 acquisition price equipment suppliers paid directly bank interest payable rate 675 per annum entire purchased amount borrowed time lending arrangement converts lease december 31 2006 593000 credit agreement paid suppliers december 2006 secured 10 million credit line us bank capital equipment purchases subject threeyear repayment period agreement bears interest rate us government treasury note plus 825 basis points december 31 2006 entire line credit drawn december 2006 company secured loan us bank amount 26000 vehicle loan subject five year repayment period agreement bears interest rate 49 december 31 2006 26000 outstanding following table summarizes convertible debentures debt thousands payments due borrowings including convertible debentures five years subsequent december 31 2006 follow thousands note 6stock activity stock plans stock sale november 2006 company filed s3 security exchange commission time sell aggregate 1250000000 company’s common stock warrants debt securities december 31 2006 company raised capital filing july 2005 company sold 488888 shares it’s common stock 1125 per share pursuant prospectus supplement filed securities exchange commission represented remaining amount available sale form s3 registration statement filed september 2004 company received proceeds approximately 55 million net offering expenses november 2004 company raised approximately 103 million deduction expenses fees sale approximately 12 million shares common stock institutional investors company sold shares directly investors negotiated transaction underwriters used placement shares previously registered securities act 1933 amended pursuant shelf registration statement filed form s3 securities exchange commission september 2004 stock option plans company two active sharebased compensation plans december 31 2006 2004 espp 2005 omnibus equity incentive plan incentive stock options nonqualified stock options employee stock purchase plan espp restricted stock awards granted employees generally stock options restricted stock awards vest periods one four years maximum contractual period ten years company granted equity incentive stock options plans include • 1995 stock option plan amended 3340000 shares common stock reserved future grant • company’s 1999 director stock option plan 75000 shares reserved future grant adopted 1999 approved company’s shareholders january 2000 • december 1999 company granted 294030 nonqualified options company’s new president chief executive officer mr eibl outside company’s option plans • april 2002 conjunction purchase shares ibusphoenix electronic components group subsidiaries already owned company issued options purchase approximately 520000 shares maxwell common stock exchange options purchase subsidiary common stock issuance stock options outside company’s option plans • november 2002 options purchase 853461 shares common stock strike prices 10 per share previously held senior management certain outside directors voluntarily cancelled exchange future issuance may 2003 substitute stock options strike price equal thenprevailing market price common stock expense stock based compensation charged income year ended december 31 2006 2005 27 million 361000 respectively year ended december 31 2006 tax benefits associated exercise nonqualified stock options disqualifying dispositions incentive stock options stock acquired company’s employee stock purchase plan approximately 35 million information employee stock options espp presented modified prospective portion grants allows company use sharebased compensation accounting outlined sfas 123r options espp shares granted december 31 2005 employee stock purchase plan espp 2004 company established 2004 espp aggregate number shares common stock may purchased plan shall exceed five hundred thousand 500000 shares common stock company december 31 2006 company issued total 34470 shares common stock current espp year ended december 31 2006 2005 2004 company issued 18239 18045 22160 shares stock espp respectively plan permits substantially employees purchase common stock payroll deductions 85 lower trading price stock beginning end sixmonth offering period commencing january 1 july 1 number shares purchased based participants’ contributions made offering period fair value “look back” option espp estimated based stock price first day offering period using blackscholes valuation model following assumptions used valuation model two six months periods ended june 30 december 31 2006 expected dividend zero expected volatility 43 54 respectively average riskfree interest rate 422 504 respectively option life 5 years based actual life forfeiture rate 0 number shares purchased calculated based employee contributions fair value espp shares granted year ended december 31 2006 calculated 15 discount stock price using blackscholes valuation model call put option attributes espp resulted total value 393 606 per share two six months periods ended june 30 december 31 2006 total compensation expense recognized espp year ended december 31 2006 76000 total intrinsic value 83000 employee stock options plan company’s 2005 omnibus equity incentive plan “incentive plan” approved shareholders provides grant stock based awards including incentive stock options nonqualified stock options stock appreciation rights performance awards restricted stock restricted stock unit awards incentive plan initial 750000 shares reserved issuance additional shares added plan shares forfeited 1995 plan may increase number shares available granted fair value option award granted estimated date grant using blackscholes valuation model following assumptions dividend yield zero based fact never paid cash dividends present intention pay cash dividends expected volatility based historical company stock prices using mathematical formula measure standard deviation change natural logarithm underlying stock price expected period time commensurate option life expressed annual percentage rate required optionpricing model year ended december 31 2006 2005 weighted average volatility 595 57 respectively company consider implied volatility due low volume traded stock options riskfree interest rate derived zero coupon rate option expected life expected life calculation based company’s history exercised options previous equitybased share option grants sharebased compensation expense recognized consolidated statement operations fiscal 2006 based awards ultimately expected vest sfas 123r requires forfeitures estimated time grant revised necessary subsequent periods actual forfeitures differ estimates cumulative catch adjustment following table summarizes total aggregate stock option activity period january 1 2006 december 31 2006 number shares options exercisable december 31 2006 2005 2004 1669398 1954167 1879188 respectively weighted average exercise prices 821 816 803 respectively options exercised issue new shares weightedaverage grant date fair value employee options granted company options granted years ended december 31 2006 2005 2004 911 610 493 per share respectively total intrinsic value options exercised december 31 2006 2005 2004 38 million 10 million 700000 respectively december 31 2006 23 million total unrecognized compensation cost related nonvested sharebased compensation arrangements granted employee option plan cost expected recognized weighted average period 217 years compensation cost employee options recognized year ended december 31 2006 26 cash received options exercised sharebased payment arrangements year ended december 31 2006 35 million restricted stock awards beginning 2005 company awarded directors selected senior management restricted stock awards company’s 2005 omnibus equity incentive plan vesting restricted stock awards contingent upon meeting various departmental company market performance conditions requires one year service period restricted stock awards contractual life ten years number shares available issuance restricted stock awards employee stock options combined initial 750000 shares additional 121902 shares cancelled expired 1995 stock option plan 1000 shares 1999 directors’ plan added total available issuance fair value restricted stock award calculated date grant using stock price date grant fair value awards market conditions determined using monte carlo calculation performance conditions estimated achievement dates compensation expense recognized requisite service period greater estimated achievement date minimum 12month vesting period requisite service period determined based analysis terms conditions grant company uses requisite service period likely occur including likelihood restricted stock award earned initial requisite service period may adjusted changes expected outcomes related service performance conditions changes recognized cumulative catchup adjustment sharebased compensation expense recognized consolidated statement operations based awards ultimately expected vest sfas 123r requires forfeitures estimated time grant revised necessary subsequent periods actual forfeitures differ estimates based historical experience prevesting award cancellations assumed annualized forfeiture rate restricted stock awards 58 trueup provisions sfas 123r actual forfeiture rate higher estimated recovery prior expense recorded actual forfeiture rate lower estimated additional expense recorded company’s forfeiture rate change immaterial year ended december 31 2006 adjustment recorded year ended december 31 2005 company recognized 361000 compensation expense restricted stock awards accordance apb 25 company required calculate restricted stock award expense based market price company’s stock end reporting period sfas 123r company determines fair value grant date expenses amount requisite service period prescribed sfas 123r company reassessed restricted stock award active earned january 1 2006 determined appropriate sharebased expense treatment sfas 123r following table summarizes activity restricted stock plan total grant date fair value restricted stock awards granted year ended december 31 2006 2005 19 million respectively awards vested year ended december 31 2006 2005 109000 zero respectively total fair value shares vested 2006 906000 december 31 2006 12 million total unrecognized compensation cost related nonvested restricted stock awards granted plan cost expected recognized weighted average period 064 years stockholder rights plan november 1999 company adopted stockholder rights plan successor previous plan expired june 1999 accordance plan company distributed one nonvoting common stock purchase right “right” outstanding share common stock rights exercisable trade separately common stock unless person group acquires makes tender offer 20 company’s common stock initially right entitles registered holder purchase one share company common stock price 75 per share subject certain antidilution adjustments rights become exercisable certain conditions met right owned acquiring person group entitle holder receive upon exercise company common stock market value twice exercise price right addition company may redeem rights price 001 per right subject certain restrictions stockholder rights plan expires october 21 2009 share reservations following table summarizes reservation authorized unissued shares issuance upon exercise conversion outstanding instruments note 7goodwill intangibles company implemented sfas 142 goodwill intangible assets began applying rules accounting goodwill intangible assets effective january 1 2002 sfas 142 goodwill impairment test twostep process first step consists estimating fair value reporting unit comparing estimated fair values carrying values includes allocated goodwill fair value less carrying value second step performed compute amount impairment determining implied fair value goodwill implied fair value goodwill residual fair value derived deducting fair value reporting unit’s assets liabilities estimated fair value calculated step one impairment charge represents excess carrying amount reporting unit’s goodwill implied fair value goodwill sfas 142 requires goodwill tested annually time every year event occurs circumstances change reasonably possible impairment may exist company selected december 31 annual testing date result company’s annual assessment december 31 2006 2005 using market approach impairment indicated change carrying amount goodwill january 1 2005 december 31 2006 follows thousands acquired intangible assets subject amortization december 31 2006 2005 follows thousands amortization expense intangible assets 206000 207000 years ended december 31 2006 2005 2004 respectively estimated amortization next five years ended december 31 follows thousands actual amortization expense reported future periods could differ estimates result foreign currency translation adjustments impairments factors note 8income taxes provision benefit income taxes based loss continuing operations follows thousands provision benefit income taxes accompanying consolidated statements operations differs amount calculated applying statutory income tax rate loss continuing operations income taxes primary components difference follows thousands company established valuation allowance deferred tax assets due uncertainty surrounding realization assets evidenced cumulative losses operations december 31 2006 management periodically evaluates recoverability deferred tax assets time determined likely deferred assets realizable valuation allowance reduced accordingly company recorded valuation allowance 504 million december 31 2006 reflect estimated amount deferred tax assets may realized company increased valuation allowance 72 million year ended december 31 2006 pursuant internal revenue code sections 382 383 use company’s federal net operating loss credit carryforwards may limited due cumulative change ownership 50 within threeyear period december 31 2006 company net operating loss carryforwards federal state income tax purposes approximately 1149 million 696 million respectively federal loss carryforward begins expire calendar year 2011 state loss carryforwards begin expire 2010 addition company research development tax credit carryforwards federal state income tax purposes december 31 2006 2005 37 million 27 million respectively begin expire 2014 year ended december 31 2006 tax benefits associated exercise nonqualified stock options disqualifying dispositions incentive stock options stock acquired company’s employee stock purchase plan approximate amount 35 million reduce current income taxes payable accordingly included deferred tax asset relating net operating loss nol carryforwards included federal california nol carryforwards disclosed footnote tax benefits associated stock options deductions 1998 2006 approximate amount 189 million recorded additional paidin capital realization likely occur consequently valuation allowance recorded entire benefit unremitted earnings foreign subsidiaries included consolidated financial statements without giving effect united states taxes may payable distribution united states anticipated earnings remitted united states remitted additional united states taxes may required paid anticipated material deferred income taxes reflect net tax effects temporary differences carrying amounts assets liabilities financial reporting purposes amounts used income tax purposes primary components company’s deferred tax assets liabilities within continuing operations follows thousands note 9commitments contingencies company subject government audits two businesses sold discontinued 2001 contract assumed acquirers company’s former defense contract business entered 1990 completed late 1990s audited defense department’s auditing agency defense department’s audit completed 2005 company reimbursed immaterial amount finalize audit defense department’s auditing agency audited contract entered microelectronics group subcontractor 1995 completed 1999 company contracted subcontractor received letter december 31 2006 releasing obligations primary contractor received verbal release subcontractor requested provide letter releasing maxwell obligations audit based information received believe company longer needs carry contingent liability therefore 464000 liability reversed fourth quarter 2006 company enters indemnification agreements ordinary course business indemnified party held harmless reimbursed losses incurred claims third parties connection divestitures certain assets businesses company often provides indemnities buyer respect certain matters including example environmental liabilities unidentified liabilities related periods prior disposition due uncertain nature indemnities maximum liability cannot quantified liabilities obligations recorded appropriate probable reasonably estimated historically company made significant payments obligations 2005 customer brought attention possible defect product source another manufacturer resell customer process investigating matter yet able determine warranty exposure maxwell may therefore recorded warranty reserve provision carry insurance believe would cover portion obligation might ultimately arise matter march 2006 customer sent us demand letter requesting payment 535000 tester product initially sold 2002 company believes request merit accrual made financial statements communicated position customer date filing resolution note 10leases rental expense amounted 17 million 15 million 14 million years ended december 31 2006 2005 2004 respectively incurred primarily facility rental company’s headquarter san diego california facility leases expire july 2007 also occupy 16500squarefoot production annex san diego lease expires november 2010 rossens switzerland facility lease expires june 2009 future annual minimum rental commitments december 31 2005 follows thousands note 11pension postretirement benefit plans foreign plans september 2006 fasb issued sfas 158 employers’ accounting defined benefit pension postretirement plansan amendment fasb statements 87 88 106 132r” “sfas 158” sfas 158 requires balance sheet recognition funded status pension postretirement benefit plans sfas 158 actuarial gains losses prior service costs credits remaining transition assets obligations recognized previous accounting standards must recognized component accumulated comprehensive income loss within stockholders’ equity net tax effects amortized component net periodic benefit cost addition measurement date plan assets benefit obligation measured required company’s fiscal year end sfas 158 effective company december 31 2006 plan reported financial statement regulated swiss government equally funded employees company pension benefit based compensation length service credited investment earnings plan guarantees minimum rate return well minimum annuity purchase rates company’s funding policy respect pension plan contribute amount required swiss law using required percentage applied employee’s compensation addition participating employees required contribute identical amount pension plan company made pension contributions 336000 282000 296000 2006 2005 2004 respectively plan measurement date december 31 reported asset increased 49 million year ended december 31 2005 103 million year ended december 31 2006 40 million increase implementation fasb 158 company rights asset one half assets contributed employees plan regulated swiss government asset reported company balance sheet comply accounting pronouncements require us disclose amount balance sheet following table shows incremental effect applying sfas 158 individual line items company’s december 31 2006 consolidated balance sheet thousand dollars following table reflects changes pension benefits years ended december 31 2006 2005 components net periodic benefit cost company plan follows following benefit payments reflect expected future service appropriate expected paid thousands noted table accumulated benefit obligation 144 million 116 million december 31 2006 2005 respectively company expects contribute 437000 foreign pension plan fiscal 2007 us plans company post retirement benefit plans covering substantially employees united states substantially us employees eligible elect coverage contributory employee savings plans provide company matching contributions based onehalf employee contributions certain plan limits company’s matching contributions plans totaled 172000 187000 157000 years ended december 31 2006 2005 2004 respectively note 12discontinued operations march 2001 company sold assets defense contracting business separate transactions two buyers aggregate sales price approximately 207 million proceeds recorded 2001 buyers assumed certain liabilities ongoing contractual obligations business hired employees business company retained certain leases lease obligations expiring 2006 certain assets liabilities business including estimated amounts provided closing expenses transaction net costs winding remaining activities business net lease obligations discontinued operations december 31 2006 2005 2004 company increased reserves net lease obligations 123000 485000 respectively september 2002 company decided suspend operations majority owned purepulse technologies inc subsidiary purepulse designing developing systems generate extremely intense broadspectrum pulsed light purify water inactivate viruses pathogens contaminate vaccines products sourced human animal tissues plasma derivatives transfusion blood components biopharmaceuticals company plans preserve intellectual property certain technology assets possible future sale assets carrying value assets december 31 2006 2005 zero december 2003 company’s maxwell technologies sa subsidiary sold fixed assets substantially inventory except work process inventory warranty employee agreement obligations metar winding equipment business segment located matran switzerland metar sa new company whose principal shareholder former ceo montena sa company received 324000 cash recognized loss sale net tax 529000 new metar company completed january june 2004 certain work progress related customer orders received maxwell technologies sa date sale company concluded continuing involvement winding equipment business second quarter 2004 shipment final metar product order owned company accordance sfas 144 results operations related winding equipment business recorded continuing operations first quarter 2004 reclassified discontinued operations fiscal 2004 operating results discontinued operations shown separately net tax accompanying consolidated statements operations businesses included discontinued operations sales aggregating 11 million year ended december 31 2004 amounts included net sales accompanying consolidated statements operations net liabilities discontinued operations separately classified accompanying consolidated balance sheets december 31 2006 2005 amounts 63000 527000 respectively comprised defense contracting business 63000 december 31 2006 december 31 2005 net liability balance comprised 204000 lease obligations 255000 minority interest purepulse 68000 defense contracting business results discontinued operations business unit consisted following thousands note 13related party transactions montena sa former parent company montena significant shareholder maxwell technologies inc lessor company’s headquarters rossens switzerland years ended december 31 2006 2005 2004 company paid zero 797000 795000 respectively rental fees montena sa january 2006 montena sa sold building unrelated third party payments rossens property lease made unrelated party 2006 maxwell technologies sa loan montena sa pension plan 300000 swiss francs approximately 265000 repaid 2004 note 14legal proceedings october 2006 maxwell filed patent infringement lawsuit nesscap united states district court southern district california alleging nesscap’s sales ultracapacitors united states violate maxwell patents maxwell seeking monetary damages injunction stop nesscap’s sales infringing products company capitalized legal cost lawsuit counsel believes favorable outcome probable december 31 2006 capitalized 418000 legal costs december 2006 nesscap filed lawsuit maxwell united states district court district delaware wilmington delaware claiming maxwell infringed nesscap’s patented intellectual property consider counter suit nesscap merit named defendant suit filed march 4 2004 superior court state california county san luis obispo suit edmonds vs ibusphoenix inc filed plaintiff behalf allege damages concerning repurchase ibusphoenix inc shares september 12 2006 california jury ruled favor plaintiff amount 231000 company paid 435000 settle lawsuit payment included interest judgment expense included discontinued operations note 15unaudited quarterly results operations includes loss embedded derivatives 35 million non cash expense stock options 936000 amortization debt discount 904000 b includes license fee 61500 494000 338000 second third fourth quarter respectively c includes gain embedded derivatives 400000 non cash expense stock options 693000 amortization debt discount 904000 includes gain embedded derivatives 50000 non cash expense stock options 710000 amortization debt discount 904000 e includes gain embedded derivatives 50 million non cash expense stock options 368000 amortization debt discount 904000 reversal 464000 contingency accrual f includes charges 572000 46000 first third quarters 2005 respectively customer orders priced company’s production cost g includes credits 260000 use reserves customer orders priced cost 2004 161000 use reserves excess obsolete inventory h includes credit 800000 gain embedded derivative liabilities includes charge 123000 lease obligations related vacant facilities discontinued operations note 16subsequent events defense department’s auditing agency audited contract entered microelectronics group subcontractor 1995 completed 1999 company contracted subcontractor received letter december 31 2006 releasing obligations primary contractor received verbal release subcontractor requested provide letter releasing maxwell obligations audit based information received believe company longer needs carry contingent liability therefore 464000 liability reversed fiscal year ending 2006 schedule ii valuation qualifying accounts thousands item 9item 8 financial statements supplementary data consolidated financial statements notes thereto appear pages 49 80 annual report form 10k maxwell technologies inc subsidiaries index consolidated financial statements report independent registered public accounting firm board directors stockholders maxwell technologies inc audited consolidated balance sheets maxwell technologies inc subsidiaries december 31 2007 2006 related consolidated statements operations stockholders’ equity comprehensive loss cash flows three years period ended december 31 2007 audits also included financial statement schedule maxwell technologies inc listed item 15a financial statements financial statement schedule responsibility company’s management responsibility express opinion financial statements schedule based audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion consolidated financial statements referred present fairly material respects financial position maxwell technologies inc subsidiaries december 31 2007 2006 results operations cash flows three years period ended december 31 2007 conformity us generally accepted accounting principles also opinion related financial statement schedule considered relation basic consolidated financial statements taken whole present fairly material respects information set forth therein discussed note 1 consolidated financial statements company changed method accounting stockbased compensation 2006 also audited accordance standards public company accounting oversight board united states maxwell technologies inc’s subsidiaries’ internal control financial reporting december 31 2007 based criteria established internal controlintegrated framework issued committee sponsoring organizations treadway commission coso report dated february 29 2008 expressed unqualified opinion effectiveness maxwell technologies inc’s subsidiaries’ internal control financial reporting mcgladrey pullen llp san diego california february 29 2008 maxwell technologies inc subsidiaries consolidated balance sheets thousands except per share data accompanying notes integral part consolidated financial statements maxwell technologies inc subsidiaries consolidated statements operations thousands except per share data accompanying notes integral part consolidated financial statements maxwell technologies inc subsidiaries consolidated statements stockholders’ equity comprehensive loss thousands accompanying notes integral part consolidated financial statements maxwell technologies inc subsidiaries consolidated statements cash flows thousands accompanying notes integral part consolidated financial statements maxwell technologies inc subsidiaries notes consolidated financial statements unless context otherwise requires references “maxwell” “company” “we” “us” “our” refer maxwell technologies inc subsidiaries references “maxwell sa” refer european subsidiary maxwell technologies sa references “electronic components group” refer former subsidiary maxwell electronic components group inc merged maxwell references “ibusphoenix” refer subsidiary ibusphoenix inc subsidiaries references “purepulse” refer nonoperating subsidiary purepulse technologies inc note 1description business summary significant accounting policies description business maxwell technologies inc delaware corporation originally incorporated 1965 name “maxwell laboratories inc” 1996 company changed name maxwell technologies inc headquartered san diego california maxwell operates single operating segment high reliability comprised two manufacturing locations san diego california rossens switzerland three product lines • ultracapacitors primary focus ultracapacitors energy storage devices possess unique combination high power density extremely long operational life ability charge discharge rapidly boostcap® ultracapacitor cells multicell packs modules provide highly reliable energy storage power delivery solutions applications multiple industries including transportation energy consumer industrial electronics telecommunications • highvoltage capacitors condis® highvoltage capacitors extremely robust devices designed manufactured perform reliably decades climates products include grading coupling capacitors capacitive voltage dividers used ensure safety reliability electric utility infrastructure applications involving transport distribution measurement highvoltage electrical energy • radiationmitigated microelectronic products radiationmitigated microelectronic products include highperformance highdensity power modules memory modules single board computers incorporate proprietary radpak® packaging shielding technology novel architectures enable withstand environmental radiation effects perform reliably space company’s products designed manufactured perform reliably life products systems integrated company achieves high reliability application proprietary technologies rigorously controlled design development manufacturing test processes financial statement presentation consolidated financial statements include accounts maxwell technologies inc subsidiary significant intercompany transactions account balances eliminated consolidation purepulse business discontinued september 2002 previously reported separate segment winding equipment segment sold december 2003 recorded continuing operations first quarter fiscal year 2004 reclassified discontinued operations results operations business units meet criteria classified discontinued operation sold otherwise disposed included continuing operations date sale result reclassification winding equipment business company operating single reportable segment preparation financial statements conformity accounting principles generally accepted united states america requires management make estimates assumptions affect reported amounts related disclosures estimates include assessing collectability accounts receivable usage recoverability inventories longlived assets including deferred income taxes incurrence losses warranty costs stock compensation expense fair value warrants embedded conversion options related convertible debentures markets company’s products extremely competitive characterized rapid technological change new product development product obsolescence evolving industry standards addition price competition intense significant price erosion generally occurs life product result factors actual results could differ estimates used management cash equivalents investments marketable securities company invests excess cash debt instruments us government agencies bank certificates deposit commercial paper highquality corporate issuers highly liquid instruments original maturity three months less purchase considered cash equivalents original maturities greater three months date purchase considered investments marketable securities company’s investments marketable securities classified availableforsale reported fair value unrealized gains losses included stockholders’ equity separate component accumulated comprehensive income realized gains losses otherthantemporary declines value availableforsale securities reported income expense incurred company recognized net realized gains years ended december 31 2007 2006 company uses specific identification method sales investments maturities gross unrealized gains investments marketable securities december 31 2007 2006 follows thousands restricted cash company’s convertible debentures agreement requires company maintain minimum cash balances least 80 million amount classified restricted cash december 31 2007 2006 2005 presentation cash flows beginning net loss prior second quarter fiscal 2007 presented consolidated statement cash flows beginning loss continuing operations rather net loss sfas 95 statement cash flows prescribes use net loss second quarter fiscal 2007 revised prior periods consistent current year presentation statement cash flows begins net loss accordance sfas 95 fair value financial instruments convertible debentures issued december 20 2005 evaluated determined conventional convertible therefore certain terms provisions including liquidating damages associated registration rights agreement embedded conversion option bifurcated accounted derivative liability instrument stock warrants issued december 20 2005 conjunction convertible debt also evaluated determined derivative instrument therefore classified liability balance sheet accounting guidance also requires conversion feature warrants recorded fair value reporting period changes fair value recorded statement operations fair value embedded conversion options stock warrants based blackscholes fair value calculation carrying value fair value convertible debentures december 31 2007 approximately 222 million 237 million respectively december 31 2006 carrying value fair value convertible debentures approximately 190 million 229 million respectively fair value convertible debentures based discounted cash flows principal interest payments discount value determined issue date december 20 2005 amortized term debt carrying value restricted cash shortterm borrowings approximates fair value accounts receivables trade receivables stated gross invoiced amount less discounts allowances provision uncollectible accounts allowance doubtful accounts allowance doubtful accounts reflects management’s best estimate probable losses inherent accounts receivable balance management determines allowance based known troubled accounts historical experience currently available evidence inventories stated lower cost firstin firstout basis market finished goods workinprocess inventory values include cost raw materials labor manufacturing overhead inventory written market value establishes new cost basis value subsequently increased based upon changes underlying facts circumstances company makes adjustments reduce cost inventory net realizable value required estimated excess obsolete inventories factors influencing adjustments include inventories onhand compared estimated future usage sales existing new products assumptions likelihood obsolescence property equipment property equipment carried cost depreciated using straightline method depreciation amortization provided estimated useful lives related assets three ten years leasehold improvements amortized shorter estimated useful lives terms lease leasehold improvements funded landlord recorded assets deferred liabilities amortized lease term longlived assets property equipment reviewed impairment whenever events changes business circumstances indicate carrying value property equipment may recoverable company determines carrying value property equipment may recoverable permanent impairment charge recorded amount carrying value longlived asset exceeds fair value goodwill intangible assets goodwill represents excess cost acquired business net fair value assigned assets acquired liabilities assumed amortized instead goodwill assessed impairment statement financial accounting standards sfas 142 goodwill intangible asset company tests goodwill established december 31 annual impairment test date using fair value approach intangible assets finite lives continue amortized straightline basis useful lives 10 12 years evaluated impairment whenever events changes circumstances indicate carrying value may recoverable sfas 144 accounting impairment disposal longlived assets warranty obligation company provides product warranties conjunction certain product sales majority company’s warranties one two years normal course business company accrues estimated warranty time sale based historical warranty expenses estimated warranty liability calculated based historical warranty expenses plus known expected change warranty exposure accordance sfas 48 revenue recognition right return exists historical evidence warranty returns exists company defer revenue warranty costs estimable warranty period passed income taxes company accounts income taxes accordance sfas 109 accounting income taxes requires use liability method accounting deferred income taxes method deferred income taxes recorded reflect tax consequences future years temporary differences tax bases assets liabilities financial reporting amounts period end likely portion deferred tax asset realized valuation allowance recognized july 2006 fasb issued interpretation 48 fin 48 “accounting uncertainty income taxes” fin 48 interpretation “statement financial accounting standards 109” provides criteria recognition measurement presentation disclosures uncertain tax positions tax benefit uncertain tax position may recognized “more likely not” position sustainable based solely technical merits company adopted fin 48 january 1 2007 concentration credit risk company maintains cash balances various financial institutions primarily california balances commonly exceed 100000 insured amount federal deposit insurance corporation company experienced losses accounts management believes company exposed significant credit risk respect cash equivalents financial instruments subject company potential concentrations credit risk consist principally company’s accounts receivable company’s accounts receivable result product sales customers various industries various geographical areas domestic foreign company performs ongoing credit evaluations customers generally requires collateral one customer provided 18 revenue 2007 2006 respectively comprised 13 18 accounts receivable balances december 31 2007 2006 respectively revenue recognition derive revenue sale manufactured products directly customers certain longterm contracts revenue recognized time costs incurred licensing fees recognize revenue right manufacture products based proprietary ultracapacitor design product revenue recognized according guidelines sec staff accounting bulletin numbers 101 revenue recognition financial statements 104 revenue recognition title passes customer either shipment facilities receipt customer facility depending shipping terms provided collectability reasonably assured volume discount offered revenue recognized lowest price customer method consistently applied period right return revenue fixed price government contracts recognized time costs incurred calculated percentage completion basis similar contract accounting statement position 811 accounting performance constructiontype certain productiontype contracts limited funding prime contractor prior years certain continuing discontinued segments involved revenues longterm shortterm fixed price contracts cost plus contracts us government directly prime contractor revenues including estimated profits recognized time costs incurred included provisions anticipated losses contracts subject rate audits could result reduction revenue excess estimated provisions turn could increase losses periods reduction occurs recognize revenue relates multiple element contracts accordance eitf 0021 accounting revenue arrangements multiple deliverables revenue guidance applies includes contract grants license manufacture market products mainland china using maxwell’s proprietary large cell multicell module technology separate brand contract obligates manufacturer source ultracapacitor electrode material maxwell agreement general right return allows refunds additionally contracts elements agreement need delivered accepted customer prior revenue recognized deliverables time company entered multipleelement contractual arrangements elements software essential functionality delivered elements company recognizes revenue delivered elements vendorspecific objective evidence vsoe fair value undelivered elements exists accordance statement position 972 software revenue recognition sop 972 fiscal 2007 company entered two contracts whereby delivered certain elements vsoe fair value undelivered elements exist december 31 2007 company recorded approximately 574000 deferred revenue related contracts contract research development arrangements contain upfront milestonebased payments recognize revenue using proportional performance method based percentage costs incurred relative total costs estimated incurred complete contract revenue recognition computed methodology compared amount nonrefundable cash payments received contractually receivable reporting date lesser two amounts recognized revenue reporting date proportional performance methodology applied company utilizes input based measure specifically costs incurred date determine proportional performance believe use input measure reasonable surrogate proportional performance compared output based measure milestones amounts billed advance recorded deferred revenue balance sheet since payments received generally nonrefundable termination contract customer prior completion could result immediate recognition deferred revenue relating payments already received previously recognized revenue research development expense research development expenditures expensed period incurred advertising expense advertising costs expensed period incurred advertising expense 206000 374000 265000 fiscal 2007 2006 2005 respectively shipping handling company recognizes shipping handling costs component cost sales total shipping handling costs years ended 2007 2006 2005 857000 1044000 511000 respectively patent defense costs company capitalizes patent legal defense costs additional cost patents successful outcome patent defense case probable company ultimately unsuccessful costs would charged expense legal expenses associated patent infringement lawsuit nesscap united states district court southern district california capitalized management believes favorable outcome probable additionally believe value intellectual property involved lawsuit greater costs associated lawsuit result successful outcome december 31 2007 capitalized total 21 million legal costs included intangible assets consolidated balance sheet recovery costs upon successful outcome reduce asset carrying value foreign currencies company’s primary foreign currency exposure related subsidiary switzerland maxwell sa euro local currency swiss franc revenue operating expenses changes currency exchange rates impact us dollar amount revenue expenses functional currency swiss subsidiary swiss franc assets liabilities maxwell sa translated yearend exchange rates revenues expenses gains losses translated rates exchange approximate rate effect time transaction company hedge currency exposures company certain long term contracts currency us dollars change 100 basis points 1 customer local currency would impact cash flow contract approximately 160000 hedge currency exposures comprehensive income loss comprehensive income loss defined includes changes equity period nonowner sources net loss comprehensive loss including foreign currency translation adjustments pension accounting unrealized gains losses investments marketable securities reported net related tax effect arrive comprehensive loss december 31 2007 accumulated comprehensive income consisted 71 million unrealized gain foreign currency translation 170000 pension adjustment 1000 unrealized gain investments marketable securities fiscal yearend 2006 implemented fasb statement 158 employers’ accounting defined benefit pension postretirement plans sfas 158 effect sfas 158 implemented show entire surplus swiss employees retirement plan footnotes onto balance sheet additional asset part entry direct addition ending balance accumulated comprehensive income however also disclosed amount component comprehensive loss year ended december 31 2006 transitional implementation sfas 158 disclosure revised clarify proper implementation line revised comprehensive loss consolidated statement stockholders’ equity comprehensive loss year ended december 31 2006 shown loss per share basic loss per share calculated using weighted average number common shares outstanding diluted loss per share calculated basis weighted average number common shares outstanding plus dilutive effect outstanding stock options restricted stock awards company assuming exercise using “treasury stock” method following table sets forth computation basic diluted income loss per share thousands except per share data fiscal years 2007 2006 2005 incremental equivalent shares common stock options 699401 1145952 981844 respectively included computation diluted earnings per share impact would antidilutive shares issuable conversion convertible debentures 1398132 also excluded computation diluted earnings per share impact would antidilutive stock compensation effective january 1 2006 company adopted fair value recognition provisions revised statement financial accounting standards 123 revised sfas 123r sharebased payment establishes accounting sharebased awards exchanged employee services requires companies expense estimated grant date fair value awards requisite employee service period company used modified prospective method provides certain changes method valuing sharebased compensation modified prospective method accordingly prior periods revised comparative purposes expense recognition provisions sfas 123r apply new awards unvested awards outstanding effective date subsequently modified cancelled estimated compensation expense awards outstanding effective date recognized remaining service period using compensation cost calculated pro forma disclosure purposes sfas 123 accounting stockbased compensation 2005 company applied disclosure provisions sfas 123 amended sfas 148 accounting stock based compensationtransitions disclosure accordance provisions sfas 123 company applied accounting principles board opinion 25 related interpretations accounting stock option plans recorded 361000 compensation expense year ended december 31 2005 company elected recognize compensation cost based fair value method prescribed sfas 123 company’s net loss per share would adjusted pro forma amounts indicated thousands except per share amounts pending accounting pronouncements september 2006 fasb issued sfas 157 fair value measurements “sfas 157” sfas 157 provides new single authoritative definition fair value provides enhanced guidance measuring fair value assets liabilities requires additional disclosures related extent companies measure assets liabilities fair value information used measure fair value effect fair value measurements earnings provisions sfas 157 effective company january 1 2008 company currently assessing impact consolidated financial statements february 2007 fasb issued sfas 159 fair value option financial assets financial liabilitiesincluding amendment fasb statement 115 permits entities choose measure many financial instruments certain items fair value sfas 159 also includes amendment sfas 115 “accounting certain investments debt equity securities” applies entities availableforsale trading securities statement effective beginning entity’s first fiscal year begins november 15 2007 company anticipate material impact consolidated financial statements upon adoption standard december 2007 fasb issued sfas 141 revised business combinations “sfas 141r” changes business combinations accounted impact financial statements acquisition date subsequent periods sfas 141r effective january 1 2009 company apply pronouncement prospectively impact adopting sfas 141r depend nature terms future acquisitions business enterprise information company operates one reportable operating segment high reliability according sfas 131 disclosures segments enterprise related information establishes standards way public business enterprises report information operating segments annual consolidated financial statements chief operating decision maker regularly review discrete financial information consolidated level revenue product line provided thousands note 2balance sheet details thousands warranty reserve analysis leasehold improvements certain leasehold improvements funded landlord recorded assets deferred liabilities amortized lease term december 31 2007 2006 679000 114000 respectively unamortized leasehold improvements funded landlord amounts 535000 included longterm liabilities december 31 2007 note 3goodwill intangibles company implemented sfas 142 goodwill intangible assets began applying rules accounting goodwill intangible assets effective january 1 2002 sfas 142 goodwill impairment test twostep process first step consists estimating fair value reporting unit comparing estimated fair values carrying values includes allocated goodwill fair value less carrying value second step performed compute amount impairment determining implied fair value goodwill implied fair value goodwill residual fair value derived deducting fair value reporting unit’s assets liabilities estimated total fair value calculated step one impairment charge represents excess carrying amount reporting unit’s goodwill implied fair value goodwill sfas 142 requires goodwill tested annually time every year event occurs circumstances change reasonably possible impairment may exist company selected december 31 annual testing date result company’s annual assessment december 31 2007 2006 impairment indicated change carrying amount goodwill january 1 2006 december 31 2007 follows thousands acquired intangible assets subject amortization december 31 2007 2006 follows thousands amortization expense intangible assets 360000 206000 207000 years ended december 31 2007 2006 2005 respectively estimated amortization next five years ended december 31 follows thousands actual amortization expense reported future periods could differ estimates result foreign currency translation adjustments impairments factors note 4convertible debentures december 20 2005 company issued 25 million aggregate principal amount senior subordinated convertible debentures “debentures” due payable quarterly installments march 2008 december 2009 holder election defer quarterly payment one time 24 month period final installment payments maybe delayed holders’ election december 2011 holder elected delay first payment 28 million due december 2007 interest due quarterly interest rate tied federal funds rate plus 1125 per annum portion accrued unpaid interest may paid shares maxwell’s common stock company’s option fiscal year ended december 31 2007 2006 interest rate debentures 5375 6375 respectively debenture payable quarterly installments 28 million march 2008 december 2009 holder option delay installment 24 months holder elected delay first payment due december 2007 fiscal year ended december 31 2007 2006 65248 41573 shares stock issued inlieu cash pay interest december 31 2007 2006 accrued interest 356000 402000 respectively issuance date debentures convertible holder time 1315789 common shares also issued 394737 warrants connection issuance debentures exercise price 1900 issuance date exercise price number convertible shares warrants subject adjustment upon certain events sale equity securities maxwell price current exercise price 1900 per share june 2007 maxwell sold total 115 million shares october 2007 sold 15 million shares price 1900 caused adjustment price number warrants convertible debenture shares relating convertible debt price warrants adjusted 1788 number warrants increased 419440 shares convertible debenture increased 1398132 shares debentures convertible holder time common shares however eighteen months issue date maxwell may require specified amount principal debentures converted certain conditions satisfied period 20 consecutive trading days determine fair value forced conversion company applies z factor theoretical measurement probability occurrence z factor used december 31 2007 2006 09 166 respectively forced conversion 50 conversion option 135 exercise price zero 56 respectively forced conversion remaining conversion option 175 exercise price warrants issued connection issuance debentures exercisable time december 20 2010 warrants exercised december 31 2007 maxwell accounting conversion option debentures associated warrants derivative liabilities accordance sfas 133 accounting derivative instruments hedging activities eitf 0019 accounting derivative financial instruments indexed potentially settled company’s stock eitf 052 meaning “conventional convertible debt instrument” issue 0019 unamortized discount attributable issuance date aggregate fair value conversion options warrants 28 million 60 million december 31 2007 2006 respectively amortized using effective interest method term debentures change fair value revaluation debenture conversion rights warrant liabilities represents difference fair value end year fair value beginning year using value calculated blackscholes pricing model fair value warrants december 31 2007 2006 577000 19 million respectively included “stock warrants” balance sheet net fair value liability holders maxwell’s conversion rights december 31 2007 2006 liabilities 13 46 million respectively included “convertible debentures longterm debt” balance sheet effect fair market value adjustment 45 million 20 million gains fiscal year ended december 31 2007 2006 respectively recorded “gain embedded derivative warrants” fair value warrants embedded conversion option estimated balance sheet date using blackscholes valuation model following assumptions event default fundamental change defined debentures holder entitled require maxwell redeem debentures portion thereof price equal greater applicable redemption premium ranging 103115 ii product x number shares debenture convertible using 1788 per share conversion price closing price maxwell’s common stock day preceding default fundamental change company shall pay holder registrable securities related embedded conversion feature warrants liquidated damages 15 aggregate purchase price every 30th day maintenance failure registration securities damages continue 30 days pro rated registration failure cured december 31 2007 company compliance would incur damages 375000 every 30 days cured maintenance failure addition damages paid 30 days due company would incur interest 10 per month outstanding damages long debentures outstanding company required maintain cash balance excess 80 million amount classified restricted cash december 31 2007 2006 note 5shortterm longterm borrowings shortterm borrowings maxwell’s european subsidiary maxwell sa 20 million swiss franc approximately 18 million december 31 2007 bank credit agreement swiss bank renews annually borrowings credit agreement bear interest 465 repayment terms extending beyond one month date funding borrowings credit agreement unsecured december 31 2007 2006 full amount available credit line drawn maxwell sa 10 million swiss francs approximately 888000 december 31 2007 overdraft credit agreement swiss bank renews annually borrowings credit agreement bear interest 445 borrowings credit agreement unsecured december 31 2007 843000 overdraft credit line drawn maxwell sa 20 million swiss francs approximately 18 million december 31 2007 shortterm loan swiss bank borrowings shortterm loan agreement bear interest 455 borrowings shortterm loan agreement unsecured december 31 2007 full amount credit line drawn december 31 2007 2006 company zero 26000 respectively outstanding letters guarantee primarily related customer deposits longterm borrowings maxwell sa term loan maximum draw 12 million swiss francs approximately 10 million december 31 2007 financing specific capital equipment expenditures borrowings term loan secured equipment purchased credit agreement bears interest swiss interbank borrowing rate plus 20 term loan borrowed quarterly advances maximum limit repaid one five years december 31 2007 approximately 408000 outstanding weighted average interest rate funds borrowed december 31 2007 42 maxwell sa lending agreement acquisition manufacturing equipment cost financing 222 acquisition price plus vat july 2007 lending arrangement converted total 48 payments 34302 swiss francs december 31 2007 balance obligation 11 million december 2006 company secured 10 million credit line us bank capital equipment purchases subject threeyear repayment period agreement bears interest rate us government treasury note plus 825 basis points december 31 2007 interest rate 1299 amount outstanding 511000 december 2006 company secured loan us bank amount 26000 vehicle loan subject five year repayment period agreement bears interest rate 49 december 31 2007 21000 outstanding following table summarizes convertible debentures debt thousands payments due borrowings five years subsequent december 31 2007 follows amount 2008 2009 including 111 million respectively convertible debentures payments may delayed 24 months borrowers discretion thousands note 6stock activity stock plans stock sales november 2006 company filed s3 securities exchange commission time sell aggregate 125 million company’s common stock warrants debt securities fiscal year ended december 31 2007 company’s additional paid capital increased 316 million majority increase 266 million sale 115 million shares common stock second quarter 2007 15 million shares common stock fourth quarter 2007 sales common stock pursuant prospectus supplement filed securities exchange commission remainder increase paid capital due sale stock company’s employee stock purchase plan exercise stock options stockbased compensation conversion interest payable common stock july 2005 company sold 488888 shares common stock 1125 per share pursuant prospectus supplement filed securities exchange commission represented remaining amount available sale form s3 registration statement filed september 2004 company received proceeds approximately 54 million net offering expenses stock option plans company two active sharebased compensation plans december 31 2007 2004 espp 2005 omnibus equity incentive plan incentive stock options nonqualified stock options employee stock purchase plan espp restricted stock awards granted employees generally stock options restricted stock awards vest periods one four years maximum contractual period ten years option share award plans provide accelerated vesting change control stock options granted price equal market price company stock date grant company also granted equity incentive stock options plans include • company’s 1999 director stock option plan 75000 shares reserved future grant adopted 1999 approved company’s shareholders january 2000 • december 1999 company granted 294030 nonqualified options company’s new president chief executive officer mr eibl outside company’s option plans expense stock based compensation charged income years ended december 31 2007 2006 2005 29 million 27 million 361000 respectively year ended december 31 2007 tax benefits associated exercise nonqualified stock options disqualifying dispositions incentive stock options stock acquired company’s employee stock purchase plan approximately 15 million tax benefit recognized 2007 2006 2005 employee stock option plan company’s 2005 omnibus equity incentive plan “incentive plan” approved shareholders amended 2007 annual meeting stockholders may 3 2007 meeting replenish equity incentive pool increasing number shares common stock reserved issuance incentive plan 750000 shares 1750000 shares incentive plan provides grant stock based awards including incentive stock options nonqualified stock options stock appreciation rights performance awards restricted stock restricted stock unit awards incentive plan shares reserved issuance also replenished shares forfeited 139000 shares cancelled expired 1995 stock option plan 1000 shares 1999 directors’ plan added total available issuance fair value option award granted estimated date grant using blackscholes valuation model following assumptions dividend yield zero based fact company never paid cash dividends present intention pay cash dividends expected volatility based historical company stock prices using mathematical formula measure standard deviation change natural logarithm underlying stock price expected period time commensurate option life expressed annual percentage rate required optionpricing model year ended december 31 2007 2006 weighted average volatility 506 595 respectively company consider implied volatility due low volume traded stock options riskfree interest rate derived zero coupon rate us treasury instruments option expected life expected life calculation based company’s history exercised options previous equitybased share option grants sharebased compensation expense recognized consolidated statement operations based awards ultimately expected vest sfas 123r requires forfeitures estimated time grant revised necessary subsequent periods actual forfeitures differ estimates cumulative catch adjustment following table summarizes total aggregate stock option activity period january 1 2006 december 31 2007 number shares option exercisable december 31 2007 2006 2005 1573704 1669398 1954167 respectively weighted average exercise prices 872 821 816 respectively company’s policy issue new shares options exercised weightedaverage grant date fair value employee options granted years ended december 31 2007 2006 2005 613 911 610 per share respectively total intrinsic value options exercised december 31 2007 2006 2005 13 million 38 million 10 million respectively december 31 2007 28 million 17 million adjusted estimated forfeitures total unrecognized compensation cost related nonvested sharebased compensation arrangements granted employee option plan cost expected recognized weighted average period 27 years compensation cost employee stock option arrangements recognized year ended december 31 2007 29 million cash received options exercised sharebased payment arrangements year ended december 31 2007 19 million restricted stock awards beginning 2005 company awarded directors selected senior management restricted stock awards incentive plan vesting restricted stock awards contingent upon period service meeting various departmental company performance market conditions requires one year service period restricted stock awards contractual life ten years fair value restricted stock award calculated date grant using stock price date grant fair value awards market conditions determined using monte carlo calculation performance conditions estimated achievement dates compensation expense recognized requisite service period greater estimated achievement date minimum 12month vesting period requisite service period determined based analysis terms conditions grant company uses requisite service period likely occur including likelihood restricted stock award earned initial requisite service period may adjusted changes expected outcomes related service performance conditions changes recognized cumulative catchup adjustment based historical experience prevesting award cancellations management changed assumed forfeiture rate 58 zero restricted stock awards trueup provisions sfas 123r actual forfeiture rate higher estimated recovery prior expense recorded actual forfeiture rate lower estimated additional expense recorded company’s forfeiture rate change trueup provision recorded increased sharebased compensation expense restricted awards 103000 year ended december 31 2007 year ended december 31 2005 company recognized 361000 compensation expense restricted stock awards accordance apb 25 company required calculate restricted stock award expense based market price company’s stock end reporting period sfas 123r company determines fair value grant date expenses amount requisite service period prescribed sfas 123r company reassessed restricted stock award active earned january 1 2006 determined appropriate sharebased expense treatment sfas 123r following table summarizes activity restricted stock plan thousands except per share amounts total grant date fair value restricted stock awards granted year ended december 31 2007 service performance based awards 17 million 14 million respectively year ended december 31 2006 service performance based awards zero 19 million respectively year ended december 31 2005 service performance based awards zero 28 million respectively weighted average grant date fair value shares granted years ended december 31 2007 2006 1245 1532 respectively fair value nonvested shares determined based closing trading price company shares grant date awards vested year ended december 31 2007 2006 2005 75000 109000 zero respectively awards vested performance type awards vest date fair value 926000 906000 zero years ended december 31 2007 2006 2005 respectively december 31 2007 16 million total unrecognized compensation cost related nonvested restricted stock awards granted plan cost expected recognized weighted average period 17 years employee stock purchase plan espp 2004 company established 2004 espp aggregate number shares common stock may purchased plan shall exceed five hundred thousand 500000 shares common stock company december 31 2007 company issued total 49806 shares common stock current espp year ended december 31 2007 2006 2005 company issued 25453 18239 18045 shares stock espp purchases respectively plan permits substantially employees purchase common stock payroll deductions 85 lower trading price stock beginning end sixmonth offering period commencing january 1 july 1 number shares purchased based participants’ contributions made offering period fair value “look back” option espp estimated based fair value espp shares granted offering period using blackscholes valuation model call put option share price used model 15 discount stock price first day offering period number shares purchased calculated based employee contributions using following assumptions sharebased compensation expense recognized consolidated statement operation compensation cost restricted stock awards employee stock options espp nonemployee stock compensation included cost sales selling general administrative research development thousands stockholder rights plan november 1999 company adopted stockholder rights plan successor previous plan expired june 1999 accordance plan company distributed one nonvoting common stock purchase right “right” outstanding share common stock rights exercisable trade separately common stock unless person group acquires makes tender offer 20 company’s common stock initially right entitles registered holder purchase one share company common stock price 75 per share subject certain antidilution adjustments rights become exercisable certain conditions met right owned someone acquiring person group entitle holder receive upon exercise company common stock market value twice exercise price right addition company may redeem rights price 001 per right subject certain restrictions stockholder rights plan expires october 21 2009 share reservations following table summarizes reservation authorized unissued shares issuance upon exercise conversion outstanding instruments note 7income taxes provision benefit income taxes based loss continuing operations follows thousands provision benefit income taxes accompanying consolidated statements operations differs amount calculated applying statutory income tax rate loss continuing operations income taxes primary components difference follows thousands company established valuation allowance us federal state deferred tax assets due uncertainty surrounding realization assets evidenced cumulative losses operations december 31 2007 management periodically evaluates recoverability deferred tax assets time determined likely deferred assets realizable valuation allowance reduced accordingly company recorded valuation allowance 546 million december 31 2007 reflect estimated amount deferred tax assets may realized company increased valuation allowance 42 million year ended december 31 2007 pursuant internal revenue code sections 382 383 use company’s federal net operating loss credit carryforwards may limited due cumulative change ownership 50 within threeyear period december 31 2007 company federal state foreign tax net operating loss carryforwards approximately 1322 million 870 million 06 million respectively federal tax loss begin expire 2020 state tax loss carryforwards begin expire 2020 foreign tax loss carryforward expire 2013 cumulative tax benefits associated exercise nonqualified stock options restricted stock grants disqualifying dispositions incentive stock option stock acquired company’s employee stock purchase plan 2007 2006 approximate amount 13 million 35 million respectively reduce current income taxes payable accordingly included deferred tax asset relating net operating loss nol carryforwards included federal state nol carryforwards disclosed footnote tax benefits associated stock options deductions 1998 2005 approximate amount 155 million recorded additional paidin capital realization likely occur consequently valuation allowance recorded entire benefit addition company research development tax credit carryforwards federal state income tax purposes december 31 2007 38 million 28 million respectively begin expire 2014 unremitted earnings foreign subsidiaryies included consolidated financial statements without giving effect united states taxes may payable distribution united states anticipated earnings remitted united states remitted additional united states taxes paid would material items give rise significant portions deferred tax accounts follows thousands company adopted provisions financial accounting standards board fasb interpretation 48 “accounting uncertainty income taxes” january 1 2007 date adoption company 317 million unrecognized tax benefits total unrecognized benefits adoption date entire amount 317 million recorded reduction deferred tax assets caused corresponding reduction company’s valuation allowance 317 million extent portion unrecognized tax benefits recognized time valuation allowance longer exists recognition would reduce effective tax rate company anticipate amount unrecognized tax benefits december 31 2007 significantly increase decrease within 12 months company recognizes interest penalties component income tax expense interest penalties december 31 2007 years ended december 31 2007 2006 2005 zero company’s united states federal income tax returns tax years since 2005 subject examination internal revenue service state income tax returns since 2004 subject examination state tax authorities company’s foreign tax returns since 2000 subject examination foreign tax authorities net operating losses years statute limitations expired 2005 prior federal 2004 prior state could adjusted event taxing jurisdictions challenge amounts net operating loss carryforwards years reconciliation beginning ending amount unrecognized tax benefits follows thousands note 8commitments contingencies company enters indemnification agreements ordinary course business indemnified party held harmless reimbursed losses incurred claims third parties connection divestitures certain assets businesses company often provides indemnities buyer respect certain matters including example environmental liabilities unidentified liabilities related periods prior disposition due uncertain nature indemnities maximum liability cannot quantified liabilities obligations recorded appropriate probable reasonably estimated historically company made significant payments obligations note 9leases rental expense amounted 19 million 17 million 15 million years ended december 31 2007 2006 2005 respectively incurred primarily facility rental san diego headquarters principal research manufacturing marketing facility occupies approximately 45000 square feet renewable lease expires july 2010 company also occupies 16500squarefoot production annex san diego renewable lease expires november 2010 addition company leases research manufacturing marketing facilities occupying 68620 square feet rossens switzerland renewable lease expires december 2014 future annual minimum rental commitments december 31 2007 follows thousands note 10pension postretirement benefit plans foreign plan september 2006 fasb issued sfas 158 employers’ accounting defined benefit pension postretirement plansan amendment fasb statements 87 88 106 132r” “sfas 158” sfas 158 requires balance sheet recognition total funded status pension postretirement benefit plans sfas 158 actuarial gains losses prior service costs credits remaining transition assets obligations recognized previous accounting standards must recognized component accumulated comprehensive income loss within stockholders’ equity net tax effects amortized component net periodic benefit cost plan regulated swiss government funded employees company pension benefit based compensation length service credited investment earnings plan guarantees minimum rate return well minimum annuity purchase rates company’s funding policy respect pension plan contribute amount required swiss law using required percentage applied employee’s compensation addition participating employees required contribute pension plan company made pension contributions 498000 336000 282000 2007 2006 2005 respectively plan measurement date december 31 reported prepaid pension asset decreased 104 million 84 million year ended december 31 2007 decrease worse expected asset performance increase plan liabilities caused increase plan population change assumptions company rights asset 45 50 contributions plan made employees following table reflects changes pension benefits years ended december 31 2007 2006 components net periodic benefit cost company plan follows pension plan’s overall strategy investment policy managed board plan overall longterm rate based historical information assumes rate return 32 swiss bonds 54 unhedged foreign bonds 50 real property 79 swiss equities 75 global equities based target asset allocation 10 swiss bonds 15 nonswiss bonds 14 global equities 45 real estate 3 alternative investments 5 cash shortterm investments expected longterm pension asset return currently 50 following benefit payments reflect expected future service appropriate expected paid thousands noted table projected benefit obligation 190 million 144 million december 31 2007 2006 respectively company expects contribute 520000 foreign pension plan fiscal 2008 us plan company post retirement benefit plans covering employees united states substantially us employees eligible elect coverage contributory employee savings plan provide company matching contributions based onehalf employee contributions certain plan limits company’s matching contributions plan totaled 197000 172000 187000 years ended december 31 2007 2006 2005 respectively note 11discontinued operations september 2002 company decided suspend operations majority owned purepulse technologies inc subsidiary purepulse designing developing systems generate extremely intense broadspectrum pulsed light purify water inactivate viruses pathogens contaminate vaccines products sourced human animal tissues plasma derivatives transfusion blood components biopharmaceuticals company plans preserve intellectual property certain technology assets possible future sale assets carrying value assets december 31 2007 2006 zero reported operating loss discontinued operations zero 195000 40000 years ended december 31 2007 2006 2005 respectively revenue discontinued operations zero years ended december 31 2007 2006 2005 note 12related party transactions montena sa former parent company montena significant shareholder maxwell technologies inc lessor company’s headquarters rossens switzerland end 2005 company paid 797000 rental fees montena sa january 2006 montena sa sold building unrelated third party payments rossens property lease made unrelated party since january 1 2006 note 13legal proceedings time maxwell technologies inc becomes involved litigation arising operations october 2006 maxwell filed patent infringement lawsuit nesscap united states district court southern district california seeking monetary damages injunction stop nesscap’s sales infringing products based four maxwell’s patents april 2007 us district judge considered first four patents granted preliminary injunction prohibit nesscap making using selling offering sale “prismatic” ultracapacitor products united states subsequently nesscap filed motion stay preliminary injunction pending appeal united states court appeals federal circuit appeal court denied nesscap’s motion maxwell posted injunction bond cover possible loss suffered nesscap result injunction unlikely event court renders holding noninfringement second third fourth patents remain pending nesscap’s products december 2006 nesscap filed lawsuit maxwell united states district court district delaware claiming maxwell infringed nesscap’s patented intellectual property maxwell moved alternate forum lawsuit transferred district court san diego maxwell’s claims pending maxwell subsequently filed motion summary judgment asserting noninfringement nesscap’s patents hearing held november 2007 december 2007 court denied maxwell’s motion summary judgment deciding instead wait court considers additional briefing issue patent claim interpretation court set hearing claim interpretation april 2008 legal expenses associated two lawsuits capitalized management believes favorable outcome probable additionally company believes final rulings favor maxwell provide increase value intellectual property involved substantial enough outweigh legal costs incurred date december 31 2007 maxwell capitalized total 21 million legal costs included intangible assets consolidated balance sheet 2005 customer brought attention possible defect product company sourced another manufacturer resold customer movement resolution issue maxwell’s subsidiary maxwell sa late 2007 initiated proceeding germany product manufacturer company currently discovery phase analysis product manufactured product manufactured november 2007 “expert” appointed conduct analysis allegedly defective product determine defect b defect one stemming manufacturing operating conditions expert’s opinion expected earlier june 2008 matter resolved company yet able determine warranty exposure maxwell may therefore warranty reserve provision recorded company carries insurance may cover portion entire obligation might ultimately arise matter december 2007 maxwell along 150 defendants named environmental suit angeles chemical company inc et al v omega chemical prp group llc et al filed plaintiffs united states district court central district california alleging damages related hazardous waste contamination plaintiffs’ land plaintiff alleges prior service provider maxwell’s improperly disposed hazardous material maxwell included suit result earlier suit settled 1999 suit maxwell potentially responsible party prp site short distance current site suit settled maxwell paying approximately 37000 maxwell’s legal counsel cannot provide assurance likely outcome matter early stage liability arise matter maxwell believe liability would materially affect financial position results operations cash flows maxwell adverse manner accrue environmentalrelated obligations probable amounts reasonably estimated feasibility study completed site therefore liability known estimable available information sufficient estimate amount liability estimate would used information sufficient establish range probable liability point within range likely lower end range would used note 14unaudited quarterly results operations includes license fee 272000 281000 first second quarter respectively b includes gain embedded derivatives 15 million non cash expense stock options 12 million amortization debt discount 904000 c includes loss embedded derivatives 14 million non cash expense stock options 841000 amortization debt discount 904000 includes gain embedded derivatives 21 million non cash expense stock options 544000 amortization debt discount 904000 e includes gain embedded derivatives 23 million non cash expense stock options 401000 amortization debt discount 855000 f includes license fee 61500 494000 338000 second third fourth quarter respectively g includes loss embedded derivatives 35 million non cash expense stock options 936000 amortization debt discount 904000 h includes gain embedded derivatives 400000 non cash expense stock options 693000 amortization debt discount 904000 includes gain embedded derivatives 50000 non cash expense stock options 710000 amortization debt discount 904000 j includes gain embedded derivatives 50 million non cash expense stock options 368000 amortization debt discount 904000 reversal 464000 contingency accrual note 15subsequent events none schedule ii valuation qualifying accounts thousands item 9item 8 financial statements supplementary data consolidated financial statements notes thereto appear pages 52 89 annual report form 10k maxwell technologies inc subsidiaries index consolidated financial statements report independent registered public accounting firm board directors stockholders maxwell technologies inc audited consolidated balance sheets maxwell technologies inc subsidiaries december 31 2008 2007 related consolidated statements operations stockholders’ equity comprehensive loss cash flows three years period ended december 31 2008 audits also included financial statement schedule maxwell technologies inc listed item 15a financial statements financial statement schedule responsibility company’s management responsibility express opinion financial statements schedule based audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion consolidated financial statements referred present fairly material respects financial position maxwell technologies inc subsidiaries december 31 2008 2007 results operations cash flows three years period ended december 31 2008 conformity us generally accepted accounting principles also opinion related financial statement schedule considered relation basic consolidated financial statements taken whole present fairly material respects information set forth therein also audited accordance standards public company accounting oversight board united states maxwell technologies inc’s subsidiaries’ internal control financial reporting december 31 2008 based criteria established internal controlintegrated framework issued committee sponsoring organizations treadway commission coso report dated february 19 2009 expressed unqualified opinion effectiveness maxwell technologies inc’s subsidiaries’ internal control financial reporting mcgladrey pullen llp san diego california february 19 2009 maxwell technologies inc subsidiaries consolidated balance sheets thousands except per share data accompanying notes integral part consolidated financial statements maxwell technologies inc subsidiaries consolidated statements operations thousands except per share data accompanying notes integral part consolidated financial statements maxwell technologies inc subsidiaries consolidated statements stockholders’ equity comprehensive loss thousands accompanying notes integral part consolidated financial statements maxwell technologies inc subsidiaries consolidated statements cash flows thousands accompanying notes integral part consolidated financial statements maxwell technologies inc subsidiaries notes consolidated financial statements unless context otherwise requires references “maxwell” “company” “we” “us” “our” refer maxwell technologies inc subsidiaries references “maxwell sa” refer european subsidiary maxwell technologies sa references “electronic components group” refer former subsidiary maxwell electronic components group inc merged maxwell references “ibusphoenix” refer subsidiary ibusphoenix inc subsidiaries references “purepulse” refer nonoperating subsidiary purepulse technologies inc note 1description business summary significant accounting policies description business maxwell technologies inc delaware corporation originally incorporated 1965 name “maxwell laboratories inc” 1996 company changed name maxwell technologies inc headquartered san diego california maxwell operates single operating segment high reliability comprised two manufacturing locations san diego california rossens switzerland three product lines • ultracapacitors primary focus ultracapacitors energy storage devices possess unique combination high power density extremely long operational life ability charge discharge rapidly boostcap® ultracapacitor cells multicell packs modules provide highly reliable energy storage power delivery solutions applications multiple industries including transportation energy consumer industrial electronics telecommunications • highvoltage capacitors condis® highvoltage capacitors extremely robust devices designed manufactured perform reliably decades climates products include grading coupling capacitors capacitive voltage dividers used ensure safety reliability electric utility infrastructure applications involving transport distribution measurement highvoltage electrical energy • radiationmitigated microelectronic products radiationmitigated microelectronic products include highperformance highdensity power modules memory modules single board computers incorporate proprietary radpak® packaging shielding technology novel architectures enable withstand environmental radiation effects perform reliably space company’s products designed manufactured perform reliably life products systems integrated company achieves high reliability application proprietary technologies rigorously controlled design development manufacturing test processes financial statement presentation consolidated financial statements include accounts maxwell technologies inc subsidiary significant intercompany transactions account balances eliminated consolidation liquidity management’s plan december 31 2008 company approximately 126 million cash equivalents additional 80 million restricted cash total 206 million cash restriction released convertible debenture repaid company 1 million swiss francs approximately 947000 december 31 2008 line credit swiss bank working capital approximately 917000 line utilized december 31 2008 november 2006 company filed s3 securities exchange commission time sell aggregate 125 million company’s common stock warrants debt securities 2007 company received 266 million cash sale 27 million shares common stock august 2008 company entered eda ubs securities llc “ubs” time sell 15 million common stock received 56 million cash sale 687000 shares common stock since entering eda company continues experience negative cash flows operations ability meet cash requirements may adversely impacted diminished credit availability extreme volatility security prices result current deterioration global financial markets response conditions management commenced implementation numerous programs anticipates company may generate positive cash flows operations 2009 sufficient finance operations anticipated improvements cash flows primarily combination inventory management manufacturing quality improvements product cost reductions including shift offshore manufacturing china overall improvement operating results driven primarily increased revenues improved gross margins company’s boostcap product line company’s cash balances sufficient cover activities obligations become due management required attempt raise additional funds certainties company successful efforts currently management’s belief company several options raise capital include continued sale shares eda negotiations eliminate current restriction 8 million cash using capital leases finance new equipment bridge financing andor private placement public offering common stock strategic partner investment sale various assets debt connection eda response high level volatility securities pricing current marketplace management believes company still able obtain additional funding future eda regardless potential declines company’s common stock price resulting potential continued declines overall economy addition management discussions financial institutions investment banks expressed interest providing additional sources funding company consolidated financial statements include adjustments might result outcome uncertainty company may consider negotiations eliminate current restriction 8 million cash balances acknowledge eliminating restriction may require company incur future economic obligations company considers viable option secure additional funding sources credit availability diminish based company’s assessment potential financing alternatives believe adequate resources fund working capital requirements obligations become due capital equipment additions product development expenditures next 12 months use estimates preparation financial statements conformity accounting principles generally accepted united states america requires management make estimates assumptions affect reported amounts related disclosures estimates include limited assessing collectability accounts receivable applies unapplied production costs production capacities usage recoverability inventories longlived assets including deferred income taxes incurrence losses warranty costs stock compensation expense impairment goodwill intangible assets estimations cost complete certain projects research development projects estimation probability performance criteria restricted stock awards met fair value warrants embedded conversion options related convertible debentures markets company’s products extremely competitive characterized rapid technological change new product development product obsolescence evolving industry standards addition price competition intense significant price erosion generally occurs life product result factors actual results could differ estimates used management revenue recognition derive revenue sale manufactured products directly customers certain longterm contracts revenue recognized time costs incurred licensing fees recognize revenue right manufacture products based proprietary ultracapacitor design product revenue recognized according guidelines sec staff accounting bulletin numbers 101 revenue recognition financial statements 104 revenue recognition title passes customer either shipment facilities receipt customer facility depending shipping terms provided collectability reasonably assured volume discount offered revenue recognized lowest price customer method consistently applied period right return revenue fixed price government contracts recognized time costs incurred calculated percentage completion basis similar contract accounting statement position 811 accounting performance constructiontype certain productiontype contracts limited funding prime contractor prior years certain continuing discontinued segments involved revenues longterm shortterm fixed price contracts cost plus contracts us government directly prime contractor revenues including estimated profits recognized time costs incurred included provisions anticipated losses contracts subject rate audits could result reduction revenue excess estimated provisions turn could increase losses periods reduction occurs recognize revenue relates multiple element contracts accordance eitf 0021 accounting revenue arrangements multiple deliverables revenue guidance applies includes contract grants license manufacture market products mainland china using maxwell’s proprietary large cell multicell module technology separate brand contract obligates manufacturer source ultracapacitor electrode material maxwell agreement general right return allows refunds additionally contracts elements agreement need delivered accepted customer prior revenue recognized deliverables time company entered multipleelement contractual arrangements elements software essential functionality delivered elements company recognizes revenue delivered elements vendorspecific objective evidence vsoe fair value undelivered elements exists accordance statement position 972 software revenue recognition sop 972 fiscal 2007 company entered two contracts whereby delivered certain elements vsoe fair value undelivered elements exist december 31 2008 one contracts remained open company recorded approximately 19 million deferred revenue related contracts contract research development arrangements contain upfront milestonebased payments recognize revenue using proportional performance method based percentage costs incurred relative total costs estimated incurred complete contract revenue recognition computed methodology compared amount nonrefundable cash payments received contractually receivable reporting date lesser two amounts recognized revenue reporting date proportional performance methodology applied company utilizes input based measure specifically costs incurred date determine proportional performance believe use input measure reasonable surrogate proportional performance compared output based measure milestones amounts billed advance recorded deferred revenue balance sheet since payments received generally nonrefundable termination contract customer prior completion could result immediate recognition deferred revenue relating payments already received previously recognized revenue cash equivalents investments marketable securities company invests excess cash debt instruments us government agencies bank certificates deposit commercial paper highquality corporate issuers highly liquid instruments original maturity three months less purchase considered cash equivalents original maturities greater three months date purchase considered investments marketable securities company’s investments marketable securities classified availableforsale reported fair value unrealized gains losses included stockholders’ equity separate component accumulated comprehensive income realized gains losses otherthantemporary declines value availableforsale securities reported income expense incurred company recognized net realized gains years ended december 31 2008 2007 company uses specific identification method sales investments maturities gross unrealized gains investments marketable securities december 31 2008 2007 follows thousands restricted cash company’s convertible debentures agreement requires company maintain minimum cash balances least 80 million amount classified current restricted cash december 31 2008 restricted cash december 31 2007 fair value financial instruments convertible debentures issued december 20 2005 evaluated determined conventional convertible debentures therefore certain terms provisions including liquidating damages associated registration rights agreement embedded conversion option bifurcated accounted derivative liability instrument stock warrants issued december 20 2005 conjunction convertible debt also evaluated determined derivative instrument therefore classified liability balance sheet accounting guidance also requires conversion feature warrants recorded fair value reporting period changes fair value recorded statement operations fair value embedded conversion options stock warrants based blackscholes fair value calculation practicable estimate fair value convertible debentures december 31 2008 based current liquidity crisis specific terms associated debt carrying value restricted cash shortterm borrowings approximates fair value accounts receivable trade receivables stated gross invoiced amount less discounts allowances provision uncollectible accounts allowance doubtful accounts allowance doubtful accounts reflects management’s best estimate probable losses inherent accounts receivable balance management determines allowance based known troubled accounts historical experience currently available evidence inventories stated lower cost firstin firstout basis market finished goods workinprocess inventory values include cost raw materials labor manufacturing overhead inventory written market value establishes new cost basis value subsequently increased based upon changes underlying facts circumstances company makes adjustments reduce cost inventory net realizable value required estimated excess obsolete inventories factors influencing adjustments include inventories onhand compared estimated future usage sales existing new products assumptions likelihood obsolescence unabsorbed underabsorbed costs treated expense period incurred property equipment property equipment carried cost depreciated using straightline method depreciation amortization provided estimated useful lives related assets three ten years leasehold improvements amortized shorter estimated useful lives terms lease leasehold improvements funded landlord recorded assets deferred liabilities amortized lease term longlived assets property equipment reviewed impairment whenever events changes business circumstances indicate carrying value property equipment may recoverable company determines carrying value property equipment recoverable permanent impairment charge recorded amount carrying value longlived asset exceeds fair value goodwill intangible assets goodwill represents excess cost acquired business net fair value assigned assets acquired liabilities assumed amortized instead goodwill assessed impairment statement financial accounting standards “sfas” 142 goodwill intangible asset company tests goodwill established december 31 annual impairment test date using fair value approach intangible assets finite lives continue amortized straightline basis useful lives 10 12 years evaluated impairment whenever events changes circumstances indicate carrying value may recoverable sfas 144 accounting impairment disposal longlived assets warranty obligation company provides product warranties conjunction certain product sales majority company’s warranties one two years normal course business company accrues estimated warranty time sale based historical warranty expenses estimated warranty liability calculated based historical warranty expenses plus known expected change warranty exposure income taxes company accounts income taxes accordance sfas 109 accounting income taxes requires use liability method accounting deferred income taxes method deferred income taxes recorded reflect tax consequences future years temporary differences tax bases assets liabilities financial reporting amounts period end likely portion deferred tax asset realized valuation allowance recognized july 2006 fasb issued interpretation 48 fin 48 “accounting uncertainty income taxes” fin 48 interpretation “statement financial accounting standards 109” provides criteria recognition measurement presentation disclosures uncertain tax positions tax benefit uncertain tax position may recognized “more likely not” position sustainable based solely technical merits company adopted fin 48 january 1 2007 effect operations stockholders’ equity concentration credit risk company maintains cash balances various financial institutions primarily california balances commonly exceed 250000 insured amount federal deposit insurance corporation company experienced losses accounts management believes company exposed significant credit risk respect cash equivalents financial instruments subject company potential concentrations credit risk consist principally company’s accounts receivable company’s accounts receivable result product sales customers various industries various geographical areas domestic foreign company performs ongoing credit evaluations customers generally requires collateral one customer provided 15 18 revenue 2008 2007 2006 respectively comprised 15 13 accounts receivable balances december 31 2008 2007 respectively research development expense research development expenditures expensed period incurred advertising expense advertising costs expensed period incurred advertising expense 70000 206000 374000 fiscal 2008 2007 2006 respectively shipping handling company recognizes shipping handling costs component cost sales total shipping handling cost sales 13 million 857000 10 million years ended 2008 2007 2006 respectively patent defense costs company capitalizes patent legal defense costs additional cost patents successful outcome patent defense case probable company ultimately unsuccessful costs would charged expense legal expenses associated patent infringement lawsuit nesscap united states district court southern district california capitalized management believes favorable outcome probable additionally believe value intellectual property involved lawsuit greater costs associated lawsuit result successful outcome december 31 2008 capitalized total 25 million legal costs included intangible assets consolidated balance sheet recovery costs upon successful outcome reduce asset carrying value foreign currencies company’s primary foreign currency exposure related subsidiary switzerland maxwell sa euro local currency swiss franc revenue operating expenses changes currency exchange rates impact us dollar amount revenue expenses well loans swiss francs functional currency swiss subsidiary swiss franc assets liabilities maxwell sa translated yearend exchange rates revenues expenses gains losses translated rates exchange approximate rate effect time transaction translation adjustments resulting process shown separately component accumulated comprehensive income loss within shareholders’ equity condensed consolidated balance sheets foreign currency transaction gains losses reported income expense net condensed consolidated statements operations company hedge currency exposures company certain long term contracts currency us dollars comprehensive income loss comprehensive income loss defined includes changes equity period nonowner sources net loss comprehensive loss including foreign currency translation adjustments pension accounting unrealized gains losses investments marketable securities reported net related tax effect arrive comprehensive loss accumulated comprehensive income consisted following thousands fiscal yearend 2006 implemented fasb statement 158 employers’ accounting defined benefit pension postretirement plans sfas 158 effect sfas 158 implemented show entire surplus swiss employees retirement plan footnotes onto balance sheet additional asset part entry direct addition ending balance accumulated comprehensive income however also disclosed amount component comprehensive loss year ended december 31 2006 transitional implementation sfas 158 disclosure revised clarify proper implementation line revised comprehensive loss consolidated statement stockholders’ equity comprehensive loss year ended december 31 2006 shown loss per share basic loss per share calculated using weighted average number common shares outstanding diluted loss per share calculated basis weighted average number common shares outstanding plus dilutive effect outstanding stock options restricted stock awards company assuming exercise using “treasury stock” method following table sets forth computation basic diluted loss per share thousands except per share data following table summarizes instruments may convertible common shares included denominator used diluted net loss per share calculation would antidilutive thousands stockbased compensation company’s primary types sharebased compensation consist stock options restricted stock employee stock purchase plan accounted accordance sfas 123 revised 2004 sharebased payment “sfas 123r” recent accounting pronouncements fasb statement 159 “the fair value option financial assets financial liabilities” “sfas 159” effective january 1 2008 standard permitted elect measure financial instruments certain items fair value change fair value recorded earnings elected measure eligible items using fair value option accordance sfas 159 elect fair value option financial instruments therefore sfas 159 impact consolidated financial condition results operations fasb statement 157 “fair value measurements” “sfas 157” effective january 1 2008 sfas 157 defines fair value price would received sell asset paid transfer liability ie “exit price” orderly transaction market participants measurement date establishes framework make measurement fair value consistent comparable february 2008 fasb issued fsp 1572 allows companies elect one year deferral adoption sfas 157 nonfinancial assets nonfinancial liabilities recognized disclosed fair value financial statements nonrecurring basis october 2008 fasb issued fsp 1573 “determining fair value financial asset market asset active” clarify application sfas 157 entity would determine fair value inactive market company adopted sfas 157 january 1 2008 exception application statement nonrecurring nonfinancial assets nonfinancial liabilities determined fair value measurements financial assets accordance requirements sfas 157 implementation sfas 157 material impact consolidated financial condition results operations refer note 4 discussion pending accounting pronouncements december 2007 fasb issued sfas 141r business combinations “sfas 141r” sfas 141r establishes principles requirements acquirer recognizes measures financial statements identifiable assets acquired liabilities assumed noncontrolling interest acquiree goodwill acquired sfas 141r also establishes disclosure requirements enable evaluation nature financial effects business combination sfas 141r effective fiscal years beginning december 15 2008 currently evaluating potential impact adoption sfas 141r consolidated financial condition results operations april 2008 fasb issued fasb staff position “fsp” fas 1423 determination useful life intangible assets fsp amends factors considered developing renewal extension assumptions used determine useful life recognized intangible asset fasb statement 142 goodwill intangible assets intent fsp improve consistency useful life recognized intangible asset statement 142 period expected cash flows used measure fair value asset fasb statement 141r us generally accepted accounting principles fsp effective interim annual financial statements beginning november 15 2008 expect adoption fsp material impact company’s financial statements march 2008 fasb issued sfas 161 disclosures derivative instruments hedging activities “sfas 161” sfas 161 amends expands disclosure requirements sfas 133 accounting derivative instruments hedging activities sfas 161 requires qualitative disclosures objectives strategies using derivatives quantitative disclosures fair value amounts gains losses derivative instruments disclosures creditriskrelated contingent features derivative agreements statement effective financial statements issued fiscal years beginning november 15 2008 adoption sfas 161 affect consolidated financial condition results operations may require additional disclosures enter derivative hedging activities may 2008 fasb issued fasb statement 162 hierarchy generally accepted accounting principles statement identifies sources accounting principles framework selecting principles used preparation financial statements nongovernmental entities presented conformity generally accepted accounting principles us gaap statement effective 60 days following sec’s approval public company accounting oversight board “pcaob” amendments au section 411 meaning present fairly conformity generally accepted accounting principles expect adoption statement material impact company’s financial statements may 2008 fasb issued staff position apb 141 accounting convertible debt instruments may settled cash upon conversion including partial cash settlement fsp apb 141 fsp apb 141 requires liability equity components convertible debt instruments may settled cash upon conversion including partial cash settlement separately accounted manner reflects issuer’s nonconvertible debt borrowing rate resulting debt discount amortized period convertible debt expected outstanding additional noncash interest expense fsp apb 141 effective financial statements issued fiscal years beginning december 15 2008 interim periods within fiscal years provisions fsp apb 141 required applied retrospectively periods presented company required adopt fsp apb 141 beginning first quarter 2009 currently evaluating potential impact adoption sfas 141r consolidated financial condition results operations december 2008 fasb issued staff position fas 132r1 employers’ disclosures postretirement benefit plan assets fsp fas 132r1 fsp fas 132r1 requires detailed disclosures employers’ plan assets defined benefit pension postretirement plan including employers’ investment strategies major categories plan assets concentrations risk within plan assets inputs valuation techniques used measure fair value plan assets fsp fas 132r1 also requires fair value measurements using significant unobservable inputs level 3 disclosure effect measurements changes plan assets period disclosures plan assets required fsp fas 132r1 must provided fiscal years ending december 15 2009 pronouncement disclosurerelated impact financial position results operations june 2008 fasb ratified emerging issues task force eitf issue 075 “determining whether instrument embedded feature indexed entity’s stock” eitf 075 eitf 075 mandates twostep process evaluating whether equitylinked financial instrument embedded feature indexed entity’s stock effective fiscal years beginning december 15 2008 interim periods within fiscal years first quarter 2009 company currently evaluating impact adoption eitf 075 financial position results operations cash flows business enterprise information company operates one reportable operating segment high reliability according sfas 131 disclosures segments enterprise related information establishes standards way public business enterprises report information operating segments annual consolidated financial statements chief operating decision maker regularly review discrete financial information consolidated level revenue product line provided thousands note 2balance sheet details thousands warranty reserve analysis leasehold improvements certain leasehold improvements funded landlord recorded assets deferred liabilities amortized shorter estimated useful life lease term december 31 2008 2007 628000 679000 respectively unamortized leasehold improvements funded landlord amounts 476000 included longterm liabilities december 31 2008 note 3goodwill intangibles company annually reviews impairment goodwill sfas 142 goodwill intangible assets sfas 142 goodwill impairment test twostep process first step consists estimating fair value reporting unit comparing estimated fair value carrying value includes goodwill fair value less carrying value second step performed compute amount impairment determining implied fair value goodwill implied fair value goodwill residual fair value derived deducting fair value reporting unit’s assets liabilities estimated total fair value calculated step one impairment charge would represent excess carrying amount reporting unit’s goodwill implied fair value goodwill sfas 142 requires goodwill tested annually time every year event occurs circumstances change reasonably possible impairment may exist company selected december 31 annual testing date result company’s annual assessment december 31 2008 2007 impairment indicated change carrying amount goodwill january 1 2007 december 31 2008 follows thousands acquired intangible assets subject amortization december 31 2008 2007 follows thousands amortization expense intangible assets 571000 360000 206000 years ended december 31 2008 2007 2006 respectively estimated amortization next five years ended december 31 follows thousands actual amortization expense reported future periods could differ estimates result foreign currency translation adjustments impairments factors note 4fair value measurement september 2006 fasb issued sfas 157 fair value measurements “sfas 157” sfas 157 provides enhanced guidance using fair value measure assets liabilities expands disclosure respect fair value measurements statement originally effective fiscal years beginning november 15 2007 february 2008 fasb issued fsp 1572 allows companies elect one year deferral adoption sfas 157 nonrecurring nonfinancial assets nonfinancial liabilities recognized disclosed fair value financial statements october 2008 fasb issued fsp 1573 “determining fair value financial asset market asset active” clarify application sfas 157 entity would determine fair value inactive market company adopted sfas 157 january 1 2008 exception application statement nonrecurring nonfinancial assets nonfinancial liabilities nonrecurring nonfinancial assets nonfinancial liabilities include long lived asset impairment assessments sfas 157 clarifies fair value refers price would received sell asset paid transfer liability orderly transaction market participants market reporting entity transacts sfas 157 fair value based assumptions market participants would use pricing asset liability establishes fair value hierarchy requires entity maximize use observable inputs minimize use unobservable inputs measuring fair value observable inputs market participants would use pricing asset liability developed based market data obtained sources independent company unobservable inputs reflect assumptions market participants would use pricing asset liability developed based best information available circumstances three levels fair value hierarchy defined sfas 157 follows • level 1valuations based quoted prices active markets identical assets liabilities entity ability access • level 2valuations based quoted prices similar assets liabilities quoted prices markets active inputs observable corroborated observable data substantially full term assets liabilities • level 3valuations based inputs supported little market activity significant fair value assets liabilities december 31 2008 financial instruments sfas 157 applied financial liabilities conversion feature convertible debenture warrants liabilities held company measured fair value recurring basis summarized follows thousands financial instruments significant level 3 inputs following table summarizes activity period investment type refer note 5convertible debenture valuation model unobservable data used calculate fair value conversion features convertible debenture warrants issued company note 5convertible debentures december 20 2005 company issued 25 million aggregate principal amount senior subordinated convertible debentures “debentures” due payable quarterly installments march 2008 december 2009 holder election defer quarterly payment one time 24 month period final installment payments maybe delayed holders’ election december 2011 interest due quarterly interest rate tied federal funds rate plus 1125 per annum subject certain limitations debenture portion accrued unpaid interest may paid shares maxwell’s common stock company’s option december 31 2008 2007 interest rate debentures 1375 5375 respectively debenture payable quarterly installments 28 million march 2008 december 2009 holder option delay installment 24 months holder elected delay first payment due december 2007 december 31 2008 2007 accrued interest 91600 356000 respectively issuance date debentures convertible holder time 1315789 common shares also issued 394737 warrants connection issuance debentures exercise price 1900 issuance date exercise price number convertible shares warrants subject adjustment upon certain events sale equity securities maxwell price current exercise price 1900 per share 2007 maxwell sold 27 million shares 2008 sold 687000 shares price 1900 caused adjustment price number warrants convertible debenture shares relating convertible debt price warrants adjusted 1742 number warrants increased 430496 shares outstanding balance convertible debenture adjusted 797215 shares december 31 2008 principal interest paid shares common stock cash follows thousands debentures convertible holder time common shares however eighteen months issue date maxwell may require specified amount principal debentures converted certain conditions satisfied period 20 consecutive trading days determine fair value forced conversion company applies z factor theoretical measurement probability occurrence z factor used december 31 2008 2007 00 09 respectively forced conversion 50 conversion option 135 exercise price zero forced conversion remaining conversion option 175 exercise price warrants issued connection issuance debentures exercisable time december 20 2010 warrants exercised december 31 2008 maxwell accounting conversion option debentures associated warrants derivative liabilities accordance sfas 133 accounting derivative instruments hedging activities eitf 0019 accounting derivative financial instruments indexed potentially settled company’s stock eitf 052 meaning “conventional convertible debt instrument” issue 0019 unamortized discount attributable issuance date aggregate fair value conversion options warrants 757000 28 million december 31 2008 2007 respectively amortized using effective interest method term debentures change fair value revaluation debenture conversion rights warrant liabilities represents difference fair value end year fair value beginning year using value calculated blackscholes pricing model fair value warrants december 31 2008 2007 318000 577000 respectively included “stock warrants” balance sheet net fair value liability holders maxwell’s conversion rights december 31 2008 2007 liabilities 357000 13 million respectively included “shortterm borrowings current portion longterm debt” balance sheet effect fair market value adjustment 12 million 45 million gains fiscal year ended december 31 2008 2007 respectively recorded “gain embedded derivative warrants” fair value warrants embedded conversion option estimated balance sheet date using blackscholes valuation model following assumptions event default fundamental change defined debentures holder entitled require maxwell redeem debentures portion thereof price equal greater applicable redemption premium ranging 103115 ii product x number shares debenture convertible using 1742 per share conversion price closing price maxwell’s common stock day preceding default fundamental change company shall pay holder registrable securities related embedded conversion feature warrants liquidated damages 15 aggregate purchase price every 30th day maintenance failure registration securities damages continue 30 days pro rated registration failure cured december 31 2008 company compliance would incur damages 208000 every 30 days cured maintenance failure addition damages paid 30 days due company would incur interest 10 per month outstanding damages long debentures outstanding company required maintain cash balance excess 80 million amount classified restricted cash december 31 2008 2007 note 6shortterm longterm borrowings shortterm borrowings maxwell’s european subsidiary maxwell sa 20 million swiss franc approximately 19 million december 31 2008 bank credit agreement swiss bank renews annually borrowings credit agreement bear interest 390 repayment terms extending beyond one month date funding borrowings credit agreement unsecured december 31 2008 2007 full amount available credit line drawn maxwell sa 10 million swiss francs approximately 947000 december 31 2008 overdraft credit agreement swiss bank renews annually borrowings credit agreement bear interest 440 borrowings credit agreement unsecured december 31 2008 917000 overdraft credit line drawn maxwell sa 20 million swiss francs approximately 19 million december 31 2008 shortterm loan swiss bank borrowings shortterm loan agreement bear interest 285 borrowings shortterm loan agreement unsecured december 31 2008 full amount credit line drawn maxwell sa term loan maximum draw 12 million swiss francs approximately 11 million december 31 2008 financing specific capital equipment expenditures borrowings term loan secured equipment purchased credit agreement bears interest swiss inter bank borrowing rate plus 20 term loan borrowed quarterly advances maximum limit repaid one five years december 31 2008 approximately 218000 outstanding weighted average interest rate funds borrowed december 31 2008 376 various shortterm financing agreements insurance premiums agreements typically nine month period interest rate 425 december 31 2008 84000 outstanding final payment due 2011 longterm borrowings maxwell sa lending agreement acquisition manufacturing equipment 15 million swiss francs acquisition equipment completed agreement converted 48 monthly payments 34302 swiss francs interest rate 79 december 31 2008 balance obligation 863000 various financing agreements vehicles us switzerland agreements five year repayment period interest rates 49 70 december 31 2008 112000 outstanding following table summarizes convertible debentures debt thousands payments due borrowings five years subsequent december 31 2008 follows amount 2009 includes 139 million convertible debentures payments four final five payments may delayed 24 months lender’s discretion thousands note 7stock activity stock plans stock sale equity distribution agreement november 2006 company filed registration statement form s3 securities exchange commission time sell aggregate 125 million company’s common stock warrants debt securities 2007 received approximately 266 million sale common stock pursuant registration statement form s3 august 8 2008 company entered equity distribution agreement “eda” ubs securities llc “ubs” eda provides may offer sell shares common stock par value 010 per share aggregate offering price 15 million “shares” time ubs sales agent exchange services sales agent pay ubs commission equal 35 gross sales price shares sold terms eda may also sell shares time ubs principal account price agreed upon time sale shares ubs principal would pursuant terms separate terms agreement substantially form attached annex 1 eda terms eda obligate us sell minimum number shares ubs year ended december 31 2008 company issued 687000 shares ubs eda exchange proceeds 5569000 net commissions 202000 change additional paid capital year ended december 31 2008 additional paid capital increased 193 million consisted primarily interest principal paid shares common stock convertible debt 102 million proceeds issuance common stock 54 million eda 39 million company’s stock plans year ended december 31 2007 additional paid capital increased 316 million consisted primarily proceeds issuance common stock 266 million 47 million company’s stock plans interest paid shares common stock convertible debt 788000 stock option plans company two active sharebased compensation plans december 31 2008 2004 espp 2005 omnibus equity incentive plan incentive stock options nonqualified stock options employee stock purchase plan espp restricted stock awards granted employees generally stock options restricted stock awards vest periods one four years maximum contractual period ten years option share award plans provide accelerated vesting change control stock options granted price equal market price company stock date grant company also granted equity incentive stock options plans include • company’s 1999 director stock option plan 75000 shares reserved future grant adopted 1999 approved company’s shareholders january 2000 • december 1999 company granted 294030 nonqualified options company’s new president chief executive officer mr eibl outside company’s option plans expense stock based compensation charged income years ended december 31 2008 2007 2006 27 million 29 million 27 million respectively year ended december 31 2008 tax benefits associated exercise nonqualified stock options restricted stock grants disqualifying dispositions incentive stock options stock acquired company’s employee stock purchase plan approximately 19 million tax benefit recognized 2008 2007 2006 employee stock option plan company’s 2005 omnibus equity incentive plan “incentive plan” approved shareholders amended 2007 annual meeting stockholders may 3 2007 meeting replenish equity incentive pool increasing number shares common stock reserved issuance incentive plan 750000 shares 1750000 shares incentive plan provides grant stock based awards including incentive stock options nonqualified stock options stock appreciation rights performance awards restricted stock restricted stock unit awards incentive plan shares reserved issuance also replenished shares forfeited 152000 shares cancelled expired 1995 stock option plan 1000 shares 1999 directors’ plan added total available issuance fair value option award granted estimated date grant using blackscholes valuation model following assumptions dividend yield zero company never paid cash dividends present intention pay cash dividends expected volatility based historical company stock prices using mathematical formula measure standard deviation change natural logarithm underlying stock price expected period time commensurate option life expressed annual percentage rate required optionpricing model year ended december 31 2008 2007 2006 weighted average volatility 526 506 595 respectively company consider implied volatility due low volume traded stock options riskfree interest rate derived zero coupon rate us treasury instruments option expected life expected life calculation based company’s history exercised options previous equitybased share option grants sharebased compensation expense recognized consolidated statement operations based awards ultimately expected vest sfas 123r requires forfeitures estimated time grant revised necessary subsequent periods actual forfeitures differ estimates cumulative catch adjustment following table summarizes total aggregate stock option activity period december 31 2007 december 31 2008 number shares option exercisable december 31 2008 2007 2006 1639300 1573704 1669398 respectively weighted average exercise prices 920 872 821 respectively company’s policy issue new shares options exercised weightedaverage grant date fair value employee options granted years ended december 31 2008 2007 2006 388 613 911 per share respectively total intrinsic value options exercised december 31 2007 2006 2005 13 million 38 million 10 million respectively december 31 2008 22 million 12 million adjusted estimated forfeitures total unrecognized compensation cost related nonvested sharebased compensation arrangements granted employee option plan cost expected recognized weighted average period 235 years cash received options exercised sharebased payment arrangements year ended december 31 2008 12 million restricted stock awards beginning 2005 company awarded directors selected senior management restricted stock awards incentive plan vesting restricted stock awards contingent upon period service meeting various departmental company performance market conditions requires one year service period restricted stock awards contractual life ten years fair value restricted stock award calculated date grant using stock price date grant fair value awards market conditions determined using monte carlo calculation performance conditions estimated achievement dates compensation expense recognized requisite service period greater estimated achievement date minimum 12month vesting period requisite service period determined based analysis terms conditions grant company uses requisite service period likely occur including likelihood restricted stock award earned initial requisite service period may adjusted changes expected outcomes related service performance conditions changes recognized cumulative catchup adjustment based historical experience prevesting award cancellations 2007 management changed assumed forfeiture rate 58 zero restricted stock awards trueup provisions sfas 123r actual forfeiture rate higher estimated recovery prior expense recorded actual forfeiture rate lower estimated additional expense recorded company’s forfeiture rate change trueup provision recorded increased sharebased compensation expense restricted awards 103000 year 2007 following table summarizes activity restricted stock plan thousands except per share amounts total grant date fair value restricted stock awards granted year ended december 31 2008 service performance based awards 280000 16 million respectively year ended december 31 2007 service performance based awards 17 14 million respectively year ended december 31 2006 service performance based awards zero 19 million respectively weighted average grant date fair value shares granted years ended december 31 2008 2007 2006 1051 1245 1532 respectively fair value nonvested shares determined based closing trading price company shares grant date awards vested year ended december 31 2008 2007 2006 79000 75000 109000 respectively awards vesting 2008 vest date fair value service performance based awards 768000 295000 respectively awards vested performance type awards vest date fair value 926000 906000 years ended december 31 2007 2006 respectively december 31 2008 20 million total unrecognized compensation cost related nonvested restricted stock awards granted plan cost expected recognized weighted average period 10 years employee stock purchase plan espp 2004 company established 2004 espp aggregate number shares common stock may purchased plan shall exceed five hundred thousand 500000 shares common stock company december 31 2008 company issued total 104469 shares common stock current espp year ended december 31 2008 2007 2006 company issued 54663 25453 18239 shares stock espp purchases respectively plan permits substantially employees purchase common stock payroll deductions 85 lower trading price stock beginning end sixmonth offering period commencing january 1 july 1 number shares purchased based participants’ contributions made offering period fair value “look back” option espp estimated based fair value espp shares granted offering period using blackscholes valuation model call put option share price used model 15 discount stock price first day offering period number shares purchased calculated based employee contributions using following assumptions sharebased compensation expense recognized consolidated statement operation compensation cost restricted stock awards employee stock options espp nonemployee stock compensation included cost sales selling general administrative research development thousands stockholder rights plan november 1999 company adopted stockholder rights plan successor previous plan expired june 1999 accordance plan company distributed one nonvoting common stock purchase right “right” outstanding share common stock rights exercisable trade separately common stock unless person group acquires makes tender offer 20 company’s common stock initially right entitles registered holder purchase one share company common stock price 75 per share subject certain antidilution adjustments rights become exercisable certain conditions met right owned someone acquiring person group entitle holder receive upon exercise company common stock market value twice exercise price right addition company may redeem rights price 001 per right subject certain restrictions current plan amended replaced stockholder rights plan expire october 21 2009 share reservations following table summarizes reservation authorized unissued shares issuance upon exercise conversion outstanding instruments december 31 2008 note 8income taxes provision benefit income taxes based loss continuing operations follows thousands provision benefit income taxes accompanying consolidated statements operations differs amount calculated applying statutory income tax rate loss continuing operations income taxes primary components difference follows thousands company established valuation allowance us federal state deferred tax assets due uncertainty surrounding realization assets evidenced cumulative losses operations december 31 2008 management periodically evaluates recoverability deferred tax assets time determined likely deferred assets realizable valuation allowance reduced accordingly company recorded valuation allowance 511 million december 31 2008 reflect estimated amount deferred tax assets may realized company decreased valuation allowance 36 million year ended december 31 2008 pursuant internal revenue code sections 382 383 use company’s federal net operating loss credit carryforwards may limited due cumulative change ownership 50 within threeyear period december 31 2008 company federal state foreign tax net operating loss carryforwards approximately 1303 million 850 million 14 million respectively federal tax loss begin expire 2020 state tax loss carryforwards begin expire 2012 foreign tax loss carryforward expire 2014 excess tax benefits associated exercise nonqualified stock options restricted stock grants disqualifying dispositions incentive stock option stock acquired company’s employee stock purchase plan 2008 2007 approximate amount 19 million 18 million respectively reduce current income taxes payable accordingly included deferred tax asset relating net operating loss nol carryforwards included federal state nol carryforwards disclosed footnote tax benefits associated stock options deductions 1998 2005 approximate amount 155 million recorded additional paidin capital realization likely occur consequently valuation allowance recorded entire benefit addition company research development tax credit carryforwards federal state income tax purposes december 31 2008 39 million 31 million respectively begin expire 2014 unremitted earnings foreign subsidiaryies included consolidated financial statements without giving effect united states taxes may payable distribution united states anticipated earnings remitted united states remitted additional united states taxes paid would material items give rise significant portions deferred tax accounts follows thousands company adopted provisions financial accounting standards board “fasb” interpretation 48 “accounting uncertainty income taxes” january 1 2007 date adoption company 317 million unrecognized tax benefits total unrecognized benefits december 31 2008 approximately 71 million recorded reduction deferred tax assets caused corresponding reduction company’s valuation allowance 71 million extent portion unrecognized tax benefits recognized time valuation allowance longer exists recognition entire 71 million would reduce effective tax rate company anticipate amount unrecognized tax benefits december 31 2008 significantly increase decrease within 12 months company recognizes interest penalties component income tax expense interest penalties december 31 2008 years ended december 31 2008 2007 zero company’s united states federal income tax returns tax years since 2005 subject examination internal revenue service state income tax returns since 2004 subject examination state tax authorities company’s foreign tax returns since 2000 subject examination foreign tax authorities net operating losses years statute limitations expired 2005 prior federal 2004 prior state could adjusted event taxing jurisdictions challenge amounts net operating loss carryforwards years reconciliation beginning ending amount unrecognized tax benefits follows thousands note 9commitments contingencies company enters indemnification agreements ordinary course business indemnified party held harmless reimbursed losses incurred claims third parties connection divestitures certain assets businesses company often provides indemnities buyer respect certain matters including example environmental liabilities unidentified liabilities related periods prior disposition due uncertain nature indemnities maximum liability cannot quantified liabilities obligations recorded appropriate probable reasonably estimated historically company made significant payments obligations note 10leases rental expense amounted 20 million 19 million 17 million years ended december 31 2008 2007 2006 respectively incurred primarily facility rental san diego headquarters principal research manufacturing marketing facility occupies approximately 45000 square feet renewable lease expires july 2010 company also occupies 16500squarefoot production annex san diego renewable lease expires november 2010 addition company leases research manufacturing marketing facilities occupying 68620 square feet rossens switzerland renewable lease expires december 2014 future annual minimum rental commitments december 31 2008 follows thousands note 11pension postretirement benefit plans foreign plan september 2006 fasb issued sfas 158 employers’ accounting defined benefit pension postretirement plansan amendment fasb statements 87 88 106 132r” “sfas 158” sfas 158 requires balance sheet recognition total funded status pension postretirement benefit plans sfas 158 actuarial gains losses prior service costs credits remaining transition assets obligations recognized previous accounting standards must recognized component accumulated comprehensive income loss within stockholders’ equity net tax effects amortized component net periodic benefit cost plan regulated swiss government funded employees company pension benefit based compensation length service credited investment earnings plan guarantees minimum rate return well minimum annuity purchase rates company’s funding policy respect pension plan contribute amount required swiss law using required percentage applied employee’s compensation addition participating employees required contribute pension plan company made pension contributions 577000 498000 336000 2008 2007 2006 respectively 45 50 contributions plan made employees plan measurement date december 31 company rights asset reported prepaid pension asset decreased 84 million 26 million year ended december 31 2008 decrease combination increase plan liabilities caused increase plan participants decrease plan assets caused negative return assets 2008 following table reflects changes pension benefits years ended december 31 2008 2007 components net periodic benefit cost company plan follows plan assets held december 31 2008 included large portion cash shortterm investments recent sales certain real estate property reinvested year end pension plan’s overall strategy investment policy managed board plan overall longterm rate based historical information assumes rate return 33 swiss bonds 51 unhedged foreign bonds 50 real property 68 swiss equities 72 global equities based target asset allocation 10 swiss bonds 15 nonswiss bonds 14 global equities 45 real estate 3 alternative investments 5 cash shortterm investments expected longterm pension asset return currently 50 following benefit payments reflect expected future service appropriate expected paid thousands noted pension benefits table projected benefit obligation 241 million 190 million december 31 2008 2007 respectively company expects contribute approximately 607000 foreign pension plan fiscal 2009 us plan company post retirement benefit plans covering employees united states substantially us employees eligible elect coverage contributory employee savings plan provide company matching contributions based onehalf employee contributions certain plan limits company’s matching contributions plan totaled 236000 197000 172000 years ended december 31 2008 2007 2006 respectively note 12discontinued operations september 2002 company decided suspend operations majority owned purepulse technologies inc subsidiary purepulse designing developing systems generate extremely intense broadspectrum pulsed light purify water inactivate viruses pathogens contaminate vaccines products sourced human animal tissues plasma derivatives transfusion blood components biopharmaceuticals company plans preserve intellectual property certain technology assets possible future sale assets carrying value assets december 31 2008 2007 zero reported operating loss discontinued operations zero 195000 years ended december 31 2008 2007 2006 respectively revenue discontinued operations zero years ended december 31 2008 2007 2006 note 13related party transactions maxwell sa made payments metar machines metar commissions sales high voltage products metar established business relationships asia provide additional sales opportunity high voltage products montena ltd minority shareholder metar machines member maxwell technologies inc board directors josé cortes majority shareholder montena ltd total expense nonexclusive sales commission recognized years ended december 31 2008 2007 260000 119000 respectively included accounts payable amounts 39000 27000 december 31 2008 2007 respectively expenses classified sales marketing expense statement operations maxwell sa pension plan provided long term loan 700000 swiss francs 633000 december 31 2008 montena properties sa montena properties sa 100 owned montena sa loan negotiated completely repaid december 12 2010 bears interest rate 425 member maxwell technologies inc’s board directors jose cortes also director montena sa well stockholder loan provided montena properties sa prior mr cortes becoming director maxwell montena note 14legal proceedings october 2006 maxwell filed patent infringement lawsuit nesscap united states district court southern district california seeking monetary damages injunction stop nesscap’s sales infringing products based four maxwell’s patents april 2007 us district judge considered first four patents granted preliminary injunction prohibit nesscap making using selling offering sale “prismatic” ultracapacitor products united states subsequently nesscap filed motion stay preliminary injunction pending appeal united states court appeals federal circuit appeal court denied nesscap’s motion maxwell posted 700000 injunction bond cover possible losses suffered nesscap result injunction unlikely event court renders holding noninfringement second third fourth patent cases remain pending nesscap’s products december 2006 nesscap filed lawsuit maxwell united states district court district delaware claiming maxwell products infringe nesscap’s patented intellectual property maxwell moved alternate forum lawsuit transferred district court san diego maxwell’s patent claims nesscap pending maxwell subsequently filed motion summary judgment asserting noninfringement nesscap’s patents hearing held november 2007 december 2007 court denied maxwell’s motion summary judgment deciding instead wait court considers additional briefs issue patent claim interpretation court held claim construction hearing subsequently issued ruling april 2008 mandatory settlement conference scheduled may 2008 however prior conference maxwell technologies inc nesscap co ltd announced companies agreed framework settling patent disputes relating respective ultracapacitor products companies signed memorandum understanding including provision immediately halt ongoing patent infringement litigation companies proposed settlement terms remain confidential pending final agreement execution definitive agreements date activities two parties progressing according terms milestones memorandum understanding legal expenses associated two lawsuits capitalized announcement amend treatment legal costs matter december 31 2008 maxwell capitalized total 25 million legal costs included intangible assets condensed consolidated balance sheet 2005 customer brought attention possible defect product produced maxwell contract another manufacturer resold customer effort resolve matter maxwell’s subsidiary maxwell technologies sa initiated legal proceeding germany late 2007 product manufacturer suit currently discovery phase time allegedly defective product analyzed expert tasked determining defect b defect one stemming manufacturing operating conditions recently german courts held meeting parties subject proceeding confer expert meeting expert issue report findings event determination made defect exists potential liability would depend upon nature defect actual amount damages would determined subsequent legal proceeding since matter still preliminary stages yet able determine warranty exposure maxwell may therefore recorded warranty reserve provision maxwell however carry insurance may cover portion warranty liability might ultimately arise matter december 2007 maxwell along 150 defendants named environmental suit angeles chemical company inc et al v omega chemical prp group llc et al filed plaintiffs united states district court central district california alleging damages related hazardous waste contamination plaintiffs’ land plaintiff alleges prior service provider maxwell’s improperly disposed hazardous material march 2008 maxwell joined adopted motion dismiss filed defendants omega chemical prp group llc omega chemical prp group motion denied however court elected grant motion stay proceedings action court appears granted part due overwhelming flow paper created 150 defendants regarding case part plaintiff yet perform feasibility study september 2008 angeles chemical company filed motion lift stay leave file first amended complaint motion denied meantime maxwell’s outside counsel conferring codefendants’ counsel finalize joint defense agreement whereby related defendants share information effort reduce cost defending suit date plaintiff yet complete feasibility study therefore actions related defending matter placed hold maxwell included suit result earlier suit settled 1999 suit maxwell potentially responsible party prp site short distance current site suit settled maxwell paying approximately 37000 maxwell’s legal counsel cannot provide assurance likely outcome matter early stage liability arise matter maxwell believe liability would materially affect financial position results operations cash flows maxwell adverse manner company evaluate amount accrue probable liability upon analysis feasibility study according recent communication plaintiff’s counsel yet completed unrelated angeles chemical matter yet pertaining original omega chemical matter united states government lodged two amendments consent decree approved us district court central district california february 23 2001 maxwell named defendant first amendment primarily amends statement work previously approved consent decree add certain responsive activities necessary address indoor contamination observed facility located adjacent omega chemical corporation superfund site second amendment adds additional settling work defendants settling cash defendants covered consent decree amendments submitted lodging thereby opening public comment period order allow opportunity public review comment comments lodged public comment period consequently united states moved final approval amendments maxwell’s outside counsel opinion neither amendment significant impact upon maxwell liability respect omega chemical site note 15unaudited quarterly results operations includes loss embedded derivatives 993000 noncash expense stock options 569000 amortization debt discount 728000 b includes gain embedded derivatives 33000 noncash expense stock options 576000 amortization debt discount 641000 c includes loss embedded derivatives 10 million noncash expense stock options 911000 amortization debt discount 553000 includes gain embedded derivatives 32 million noncash expense stock options 661000 amortization debt discount 466000 e includes license fee 272000 281000 first second quarter respectively f includes gain embedded derivatives 15 million noncash expenses stock options 12 million amortization debt discount 904000 g includes loss embedded derivatives 14 million noncash expense stock options 841000 amortization debt discount 904000 h includes gain embedded derivatives 21 million noncash expense stock options 544000 amortization debt discount 904000 includes gain embedded derivatives 23 million noncash expense stock options 401000 amortization debt discount 855000 schedule ii valuation qualifying accounts thousands item 9item 8 financial statements supplementary data consolidated financial statements notes thereto appear pages 50 84 annual report form 10k maxwell technologies inc subsidiaries index consolidated financial statements report independent registered public accounting firm board directors stockholders maxwell technologies inc audited accompanying consolidated balance sheets maxwell technologies inc subsidiaries december 31 2010 2009 related consolidated statements operations stockholders’ equity comprehensive loss cash flows three years period ended december 31 2010 audits also included financial statement schedule maxwell technologies inc listed item 15a financial statements financial statement schedule responsibility company’s management responsibility express opinion financial statements schedule based audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion consolidated financial statements referred present fairly material respects financial position maxwell technologies inc subsidiaries december 31 2010 2009 results operations cash flows three years period ended december 31 2010 conformity us generally accepted accounting principles also opinion related financial statement schedule considered relation basic consolidated financial statements taken whole presents fairly material respects information set forth therein also audited accordance standards public company accounting oversight board united states maxwell technologies inc’s subsidiaries’ internal control financial reporting december 31 2010 based criteria established internal controlintegrated framework issued committee sponsoring organizations treadway commission report dated march 10 2011 expressed unqualified opinion effectiveness maxwell technologies inc’s internal control financial reporting mcgladrey pullen llp san diego california march 10 2011 maxwell technologies inc subsidiaries consolidated balance sheets thousands except per share data accompanying notes integral part consolidated financial statements maxwell technologies inc subsidiaries consolidated statements operations thousands except per share data accompanying notes integral part consolidated financial statements maxwell technologies inc subsidiaries consolidated statements stockholders’ equity comprehensive loss thousands accompanying notes integral part consolidated financial statements maxwell technologies inc subsidiaries consolidated statements cash flows thousands accompanying notes integral part consolidated financial statements maxwell technologies inc subsidiaries notes consolidated financial statements unless context otherwise requires references “maxwell” “company” “we” “us” “our” refer maxwell technologies inc subsidiaries references “maxwell sa” refer swiss subsidiary maxwell technologies sa references “purepulse” refer nonoperating subsidiary purepulse technologies inc note 1description business summary significant accounting policies description business maxwell technologies inc delaware corporation originally incorporated 1965 name maxwell laboratories inc 1983 company completed initial public offering 1996 changed name maxwell technologies inc company headquartered san diego california two manufacturing locations san diego california rossens switzerland addition company two contract manufacturers located china maxwell operates one operating segment called high reliability comprised three product lines • ultracapacitors primary focus ultracapacitors energy storage devices possess unique combination high power density extremely long operational life ability charge discharge rapidly boostcap® ultracapacitor cells multicell packs modules provide highly reliable energy storage power delivery solutions applications multiple industries including transportation energy consumer industrial electronics telecommunications • highvoltage capacitors condis® highvoltage capacitors extremely robust devices designed manufactured perform reliably decades climates products include grading coupling capacitors capacitive voltage dividers used ensure safety reliability electric utility infrastructure applications involving transport distribution measurement highvoltage electrical energy • radiationhardened microelectronic products radiationhardened microelectronic products include highperformance highdensity power modules memory modules single board computers incorporate proprietary radpak® packaging shielding technology novel architectures enable withstand environmental radiation effects perform reliably space company’s products designed manufactured perform reliably life products systems integrated company achieves high reliability application proprietary technologies rigorously controlled design development manufacturing test processes financial statement presentation accompanying consolidated financial statements include accounts maxwell technologies inc subsidiaries prepared accordance accounting principles generally accepted united states “us gaap” intercompany transactions account balances eliminated consolidation liquidity december 31 2010 company approximately 398 million cash equivalents additional 80 million restricted cash total 478 million cash restriction released february 2011 remaining principal balance company’s convertible debentures converted shares company’s common stock january 2011 company reached settlements sec us department justice “doj” respect charges asserted sec doj relating antibribery books records internal controls disclosure provisions fcpa securities law violations terms settlement sec company pay total 635 million profit disgorgement prejudgment interest two installments 3175 million paid first quarter 2011 remaining 3175 million payable first quarter 2012 terms settlement doj company pay total 80 million penalties three installments 35 million paid first quarter 2011 225 million payable first quarters 2012 2013 based company’s assessment current longterm obligations management believes adequate resources fund operations obligations become due capital equipment expenditures least next twelve months reclassifications certain prior period amounts consolidated statements operations reclassified conform current period presentation reclassifications impact reported net loss material impact presentation overall financial statements use estimates preparation financial statements conformity accounting principles generally accepted united states america requires management make estimates assumptions affect reported amounts related disclosures estimates include limited assessing collectability accounts receivable applied unapplied production costs production capacities usage recoverability inventories longlived assets including deferred income taxes incurrence warranty obligations stock based compensation expense impairment goodwill intangible assets estimation cost complete certain projects estimation probability performance criteria restricted stock awards met fair value warrants embedded conversion options related convertible debentures revenue recognition revenue derived primarily sale manufactured products directly customers certain longterm contracts revenue recognized time costs incurred product revenue recognized according guidelines securities exchange commission “sec” staff accounting bulletin “sab” numbers 101 revenue recognition financial statements 104 revenue recognition following criteria met 1 persuasive evidence arrangement exists upon contract signing receipt authorized purchase order customer 2 title passes customer either shipment company’s facilities receipt customer facility depending shipping terms 3 customer payment deemed fixed determinable free contingencies significant uncertainties 4 collectability reasonably assured volume discount offered revenue recognized lowest price customer method consistently applied period right return revenue generated fixed price contracts recognized percentage completion basis measured percentage cost incurred date estimated costs contract required constructiontype productiontype contracts subtopic financial accounting standards board accounting standards codification “fasb asc” limited funding prime contractor provisions estimated losses incomplete contracts made period losses determined time company entered multipleelement contractual arrangements elements software essential functionality delivered elements additionally company contracts elements agreement need delivered accepted customer prior revenue recognized agreement company recognizes revenue delivered elements vendorspecific objective evidence “vsoe” fair value undelivered elements exists accordance software revenue recognition subtopic fasb asc 2007 company entered contract whereby company delivered certain elements vsoe fair value undelivered elements exist time certain elements delivered year ended december 31 2010 company recorded 30 million revenue previously deferred related contract cash equivalents company invests excess cash debt instruments us government agencies bank certificates deposit commercial paper highquality corporate issuers highly liquid instruments original maturity three months less purchase considered cash equivalents restricted cash company’s convertible debenture agreement requires company maintain minimum cash balance least 80 million amount classified restricted cash december 31 2010 2009 february 2011 holder company’s convertible debentures elected convert remaining principal balance convertible debentures shares company’s common stock result conversion restricted cash balance 80 million consolidated balance sheets longer restricted accounts receivable allowance doubtful accounts trade receivables stated gross invoiced amount less discounts allowances allowance uncollectible accounts allowance doubtful accounts reflects management’s best estimate probable losses inherent accounts receivable balance management determines allowance doubtful accounts based known troubled accounts historical experience currently available evidence inventories stated lower cost firstin firstout basis market finished goods workinprocess inventory values include cost raw materials labor manufacturing overhead inventory written market value establishes new cost basis value subsequently increased based upon changes underlying facts circumstances company makes adjustments reduce cost inventory net realizable value required estimated excess obsolete inventories factors influencing adjustments include inventories onhand compared historical estimated future sales existing new products assumptions likelihood obsolescence unabsorbed underabsorbed costs treated expense period incurred property equipment property equipment carried cost depreciated using straightline method depreciation amortization provided estimated useful lives related assets three ten years leasehold improvements amortized shorter estimated useful lives terms lease leasehold improvements funded landlord recorded assets deferred liabilities amortized lease term december 31 2010 2009 company 745000 466000 respectively unamortized leasehold improvements funded landlord company related amount deferred rent 871000 included accrued liabilities longterm liabilities december 31 2010 goodwill represents excess cost acquired business net fair value assigned assets liabilities amortized instead goodwill assessed impairment intangiblesgoodwill topic fasb asc company established december 31 annual impairment test date tests goodwill using fair value approach impairments goodwill reported years ended december 31 2010 2009 2008 longlived assets intangible assets property equipment intangible assets reviewed impairment whenever events changes circumstances indicate carrying value assets may recoverable company determines carrying value asset recoverable permanent impairment charge recorded amount carrying value longlived intangible asset exceeds fair value intangible assets finite lives amortized straightline basis useful lives ten thirteen years 2010 company recorded impairment property equipment 880000 reduce carrying value equipment estimated fair value impairment charge related reclassification assets previously classified heldforsale heldandused fourth quarter 2010 impairments property equipment intangible assets recorded years ended december 31 2009 2008 warranty obligation company provides product warranties conjunction certain product sales majority company’s warranties one two years normal course business company accrues estimated warranty time sale based historical warranty experience plus known expected changes warranty exposure income taxes company accounts income taxes accordance income taxes topic fasb asc requires use liability method accounting deferred income taxes method deferred income taxes recorded reflect tax consequences future years temporary differences tax basis assets liabilities reported amounts period end likely portion deferred tax asset realized valuation allowance recognized guidance also provides criteria recognition measurement presentation disclosures uncertain tax positions tax benefit uncertain tax position may recognized “more likely not” position sustainable based solely technical merits concentration credit risk company maintains cash balances various financial institutions primarily california balances commonly exceed 250000 federal deposit insurance corporation insurance limit company experienced losses accounts management believes company exposed significant credit risk respect cash equivalents financial instruments subject company potential concentrations credit risk consist principally company’s accounts receivable company’s accounts receivable result product sales customers various industries various geographical areas domestic foreign company performs credit evaluations customers generally requires collateral sales single customer amounting 10 total revenue year ended december 31 2010 one customer accounted 10 15 total revenue 2009 2008 respectively comprised 8 15 accounts receivable balance december 31 2009 2008 respectively research development expense research development expenditures expensed period incurred advertising expense advertising costs expensed period incurred advertising expense 256000 52000 70000 years ended december 31 2010 2009 2008 respectively shipping handling expense company recognizes shipping handling costs component cost revenue total shipping handling expense included cost revenue 13 million 878000 13 million years ended 2010 2009 2008 respectively patent defense costs company capitalizes patent defense costs additional cost patents successful outcome patent defense case probable company ultimately unsuccessful costs would charged expense legal expenses associated previous patent infringement lawsuit nesscap capitalized amortized remaining life patents february 2009 company entered settlement agreement nesscap whereby maxwell nesscap agreed drop pending claims entered ten year worldwide cross license company’s patents part settlement agreement nesscap must pay 1 million maxwell annual installments 200000 2013 2010 nesscap posted letter credit remaining settlement payments owed company accordance terms settlement case company capitalized patent defense costs additional cost patents full settlement amount 1 million netted capitalized patent defense costs net amount amortized remaining lives patents december 31 2010 unamortized patent defense costs 617000 classified intangible assets consolidated balance sheet foreign currencies company’s primary foreign currency exposure related subsidiary switzerland euro local currency swiss franc revenue operating expenses local currency loans changes currency exchange rates impact reported us dollar amount revenue expenses debt functional currency swiss subsidiary swiss franc assets liabilities swiss subsidiary translated monthend exchange rates revenues expenses gains losses translated rates exchange approximate rate effect time transaction translation adjustments resulting process shown separately component accumulated comprehensive income loss within stockholders’ equity consolidated balance sheets foreign currency transaction gains losses reported cost revenue selling general administrative expenses consolidated statements operations foreign currency derivative instruments part risk management strategy company uses forward contracts hedge certain foreign currency exposures maxwell’s objective offset gains losses resulting exposures opposing gains losses forward contracts thereby reducing volatility earnings created foreign currency exposures accordance derivatives hedging topic fasb asc fair values forward contracts estimated based quoted market prices forward contracts recorded “prepaid expenses current assets” “accounts payable accrued liabilities” consolidated balance sheets fair value gains losses recognized contracts recorded “cost revenue” “selling general administrative” expense consolidated statements operations comprehensive income loss comprehensive income loss represents changes equity period nonowner sources includes net loss foreign currency translation adjustments pension adjustments unrealized gains losses investments marketable securities net related tax effect accumulated comprehensive income consists following thousands net loss per share basic net loss per share calculated using weighted average number common shares outstanding period diluted net loss per share calculated using weighted average number common shares outstanding plus dilutive potential common shares related outstanding stock options restricted stock awards restricted stock unit awards warrants purchase common shares assuming exercise using treasury stock method prescribed earnings per share topic fasb asc diluted weightedaverage shares outstanding also include shares issuable upon potential conversion company’s convertible debentures following table sets forth computation basic diluted net loss per share thousands except per share data following table summarizes instruments may convertible common shares included denominator used diluted net loss per share calculation would antidilutive thousands stockbased compensation company’s primary types stockbased compensation awards include stock options restricted stock awards restricted stock units employee stock purchase plan company records compensation expense stockbased awards accordance criteria set forth stock compensation subtopic fasb asc guidance fair value stock option estimated date grant using option pricing model meets certain requirements company uses blackscholes option pricing model estimate fair value stock options determination fair value stock options utilizing blackscholes model affected company’s stock price number assumptions including expected volatility expected life riskfree interest rate expected dividends fair value restricted stock restricted stock units based closing market price company’s common stock date grant sharebased compensation expense recognized consolidated statement operations based stock options restricted stock ultimately expected vest guidance requires forfeitures estimated time grant revised necessary subsequent periods cumulative catch adjustment actual forfeitures differ estimates pending accounting pronouncements january 2010 fasb issued asu 201006 fair value measurements disclosures improve disclosures fair value measurements standard requires company disclose separately amounts significant transfers level 1 level 2 fair value measurements describe reasons transfers reconciliation fair value measurements using significant unobservable inputs level 3 company required present separately information purchases sales issuances settlements gross basis rather one net number update provides clarification level disaggregation determining appropriate classes assets liabilities update clarifies disclosures inputs valuation techniques level 2 level 3 fair value measurements new disclosures clarifications existing disclosures effective interim reporting periods beginning december 15 2009 except disclosures purchases sales issuances settlements roll forward activity level 3 fair value measurements disclosures effective years beginning december 15 2010 interim periods within fiscal year adoption update disclosurerelated expected significant impact financial position results operations september 2009 fasb reached consensus asu 200913 multipledeliverable revenue arrangements asu 200914 certain revenue arrangements include software elements asu 200913 modifies requirements must met entity recognize revenue sale delivered item part multipleelement arrangement items yet delivered asu 200913 eliminates requirement undelivered elements must either vsoe ii thirdparty evidence “tpe” entity recognize portion overall arrangement consideration attributable items already delivered absence vsoe tpe standalone selling price one delivered undelivered elements multipleelement arrangement entities required estimate selling prices elements overall arrangement consideration allocated element delivered undelivered items based relative selling prices regardless whether selling prices evidenced vsoe tpe based entity’s estimated selling price residual method allocating arrangement consideration eliminated asu 200914 modifies software revenue recognition guidance exclude scope tangible products contain software nonsoftware components function together deliver product’s essential functionality new updates effective revenue arrangements entered materially modified fiscal years beginning june 15 2010 early adoption permitted new pronouncement allow company recognize revenue multipledeliverable arrangements earlier previous years although company unable estimate amounts future amount recognized multipledeliverable revenue arrangements 30 million 0 896000 years ended december 31 2010 2009 2008 respectively december 31 2010 2009 0 21 million respectively deferred revenue related multipledeliverable revenue arrangements business enterprise information company operates one operating segment high reliability according disclosures segments enterprise related information topic fasb asc establishes standards way public business enterprises report information operating segments annual consolidated financial statements company’s chief operating decision maker regularly review discrete financial information consolidated level revenues product line geographic area presented thousands 1 revenue external customers located countries included “all countries” individually compromise 10 total revenues years presented longlived assets geographic location follows thousands note 2balance sheet details thousands note 3goodwill intangibles company reviews goodwill impairment annually according intangiblesgoodwill topic fasb asc goodwill impairment test twostep process first step consists estimating fair value comparing estimated fair value carrying value reporting unit fair value less carrying value second step performed compute amount impairment determining implied fair value goodwill implied fair value goodwill residual fair value derived deducting fair value reporting unit’s assets liabilities estimated total fair value calculated step one impairment charge would represent excess carrying amount reporting unit’s goodwill implied fair value goodwill guidance requires goodwill tested annually time every year event occurs circumstances change reasonably possible impairment may exist company selected december 31 annual testing date result company’s annual assessments december 31 2010 2009 2008 impairment indicated change carrying amount goodwill 2009 2010 follows thousands intangible assets reviewed impairment whenever events changes circumstances indicate carrying value assets may recoverable company determines carrying value asset recoverable permanent impairment charge recorded amount carrying value intangible asset exceeds fair value composition intangible assets subject amortization december 31 2010 2009 follows thousands amortization expense intangible assets 535000 643000 571000 years ended december 31 2010 2009 2008 respectively estimated amortization next five years ended december 31 follows thousands actual amortization expense reported future periods could differ estimates result intangible asset acquisitions foreign currency translation adjustments impairments factors note 4convertible debentures december 20 2005 company issued 25 million aggregate principal amount senior subordinated convertible debentures “debentures” due payable quarterly installments 28 million commenced december 2008 however holder election could defer quarterly payment one time 24 month period holder elected defer quarterly installments outstanding principal debentures december 31 2010 83 million amount converted shares company’s common stock february 2011 december 31 2010 2009 interest rate debentures 1375 accrued interest 29000 34000 respectively issuance date debentures convertible holder time 1315789 common shares company also issued 394737 warrants connection issuance debentures warrants expiration date december 20 2010 exercise price 1900 issuance date exercise price number convertible shares warrants subject adjustment upon certain events sale equity securities company since issuance date company sold 61 million shares various offerings price 1900 adjusted conversion warrant price 1622 change warrant price increased number warrants 462461 december 31 2010 debentures convertible 513845 shares february 2011 holder debentures converted remaining 83 million principal balance 514086 shares company’s common stock conversion price 1621 per share december 2010 holders warrants exercised right purchase 462461 shares common stock resulting cash proceeds 75 million company exercise date common stock fair value 86 million based closing market price exercise warrants resulted settlement stock warrants liability fourth quarter 2009 holder debentures converted 28 million principal 171000 shares common stock conversion dates common stock fair value 32 million based closing market price conversion resulted loss 436000 recorded “gain loss embedded derivative warrants” consolidated statement operations principal interest paid cash paid converted shares common stock proceeds warrant exercises follows thousands conversion remaining principal balance debentures february 2011 principal balance convertible holder time common shares addition eighteen months issue date company could required specified amount principal debentures converted certain conditions satisfied period 20 consecutive trading days determine fair value forced conversion company applied z factor theoretical measurement probability occurrence z factor used december 31 2010 2009 215 352 respectively forced conversion 50 conversion option 135 exercise price 47 224 respectively forced conversion remaining conversion option 175 exercise price warrants issued connection debentures exercisable time december 20 2010 warrants exercised december 31 2010 maxwell accounted conversion options debentures associated warrants derivative liabilities accordance derivatives hedging topic fasb asc remaining unamortized discount attributable issuance date aggregate fair value conversion options warrants 47000 118000 december 31 2010 2009 respectively amortized using effective interest method term debentures change fair value revaluation debentures conversion rights warrant liabilities represents difference fair value end year exercise date fair value beginning year using value calculated blackscholes pricing model fair value warrants december 31 2009 25 million included “stock warrants” consolidated balance sheet net fair value holder’s maxwell’s conversion rights december 31 2010 2009 liability 21 million 30 million respectively december 31 2010 convertible debenture balance along fair value conversion features classified within longterm liabilities component “longterm debt excluding current portion” consolidated balance sheet effect fair market value adjustment 23 million gain 48 million loss year ended december 31 2010 2009 respectively recorded “gain loss embedded derivative warrants” consolidated statements operations fair values warrants embedded conversion options estimated balance sheet dates using blackscholes valuation model following assumptions long debentures outstanding company required maintain minimum cash balance 80 million amount classified restricted cash december 31 2010 2009 note 5fair value measurement convertible debentures issued december 20 2005 evaluated determined conventional convertible debentures therefore certain terms provisions including liquidating damages associated registration rights agreement embedded conversion features bifurcated accounted derivative liability instruments stock warrants issued december 20 2005 conjunction convertible debt also evaluated determined derivative instrument therefore classified liability balance sheet exercised december 2010 accounting guidance also requires conversion features warrants recorded fair value reporting period changes fair value recorded consolidated statement operations fair values embedded conversion options stock warrants based blackscholes fair value calculation discount value determined issue date december 20 2005 amortized term debt carrying value fair value convertible debentures approximately 83 million 80 million respectively december 31 2010 fair value convertible debentures based discounted cash flows principal interest payments using interest rate 588 carrying value restricted cash shortterm longterm borrowings convertible debentures approximates fair value relative short maturity instruments interest rates company could currently obtain company records certain liabilities fair value accordance fair value measurements disclosures topic fasb asc december 31 2010 financial instruments topic applied financial liabilities conversion features convertible debentures stock warrants foreign currency forward contracts foreign currency derivative instruments valued using quoted market prices december 31 2010 fair value foreign currency derivative instruments nominal liabilities held company measured fair value recurring basis summarized follows thousands financial instruments significant level 3 inputs following table summarizes activity period investment type refer note 4convertible debentures valuation model unobservable data used calculate fair value conversion features convertible debentures warrants note 6shortterm longterm borrowings shortterm borrowings maxwell’s swiss subsidiary maxwell sa 30 million swiss francdenominated approximately 32 million december 31 2010 credit agreement swiss bank renews semiannually bears interest 195 borrowings shortterm loan agreement unsecured december 31 2010 2009 full amount loan drawn maxwell sa also 10 million swiss francdenominated approximately 11 million december 31 2010 credit agreement another swiss bank available balance line withdrawn reduced bank time december 31 2010 2009 amounts drawn credit line interest rates applicable draws line determined time draw maxwell sa entered lending agreement acquisition manufacturing equipment amount 15 million swiss francs approximately 16 million december 31 2010 acquisition equipment completed agreement converted 48 monthly payments 34302 swiss francs interest rate 222 december 31 2010 2009 balance obligation 210000 543000 respectively final payment due 2011 longterm borrowings maxwell sa 20 million swiss francdenominated approximately 21 million december 31 2010 credit agreement swiss bank renews every two years bears interest 25 borrowings credit agreement unsecured december 31 2010 2009 full amount available credit line drawn company various financing agreements vehicles agreements five year repayment period interest rates ranging 49 70 december 31 2010 2009 177000 84000 respectively outstanding agreements following table summarizes debt outstanding thousands contractually scheduled payments due borrowings subsequent december 31 2010 follows thousands february 2011 remaining principal balance convertible debentures 83 million converted shares company’s common stock accordingly balance classified longterm december 31 2010 note 7foreign currency derivative instruments maxwell uses forward contracts hedge certain monetary assets liabilities primarily receivables payables denominated foreign currency change fair value instruments represents natural hedge gains losses offset changes underlying fair value monetary assets liabilities due movements currency exchange rates contracts generally expire one month contracts considered economic hedges designated hedges derivatives hedging topic fasb asc therefore change fair value instruments recognized currently consolidated statement operations net gains losses foreign currency forward contracts included cost revenue selling general administrative expense follows thousands december 31 2010 total notional amount foreign currency forward contracts designated hedges 433 million fair value derivatives nominal december 31 2010 contracts entered close proximity year end spot rates approximating current exchange rates additional information refer note 5fair value measurement net gains losses foreign currency derivative contracts partially offset net gains losses underlying monetary assets liabilities foreign currency gains losses underlying monetary assets liabilities included cost revenue selling general administrative expense thousands note 8stock activity stock plans stock sale equity distribution agreement november 2006 company filed shelf registration statement form s3 securities exchange commission time sell aggregate 125 million company’s common stock warrants debt securities august 8 2008 company entered equity distribution agreement “eda” ubs securities llc “ubs” eda provided company could sell aggregate 15 million company’s common stock time ubs exchange services sales agent company paid ubs commission equal 35 gross sales price shares sold april 2009 company suspended eda program january 2010 shelf registration statement longer effective may 2009 company issued two million shares common stock par value 010 per share public offering underwritten roth capital partners “roth” overallotment option purchase additional 300000 shares exchange services underwriter company paid roth commission 7 gross sales price shares sold year ended december 31 2009 company raised 266 million shelf registration statement eda equity incentive plans 266 million consists 186 million cash sale 23 million shares net offering costs 24 million sale 473000 shares eda net offering costs 49 million exercise stock options 671000 company’s employee stock purchase plan equity incentive plans company two active sharebased compensation plans december 31 2010 2004 employee stock purchase plan “espp” 2005 omnibus equity incentive plan incentive stock options nonqualified stock options restricted stock awards restricted stock units granted employees nonemployee directors generally stock options restricted stock awards restricted stock unit awards vest periods one four years maximum contractual period ten years 2005 omnibus equity incentive plan provides accelerated vesting change control stock options granted price equal market price company’s stock date grant stockbased compensation expense recorded consolidated statement operations years ended december 31 2010 2009 2008 26 million 27 million 27 million respectively year ended december 31 2010 tax benefit associated exercise nonqualified stock options restricted stock grants disqualifying dispositions incentive stock options stock issued company’s espp approximately 75 million tax benefit recognized 2010 2009 2008 excess tax benefits realized company stock options company’s 2005 omnibus equity incentive plan “incentive plan” amended provides equity incentive pool 2750000 shares reserved issuance replenished forfeited shares additionally equity awards forfeited company’s 1995 stock option plan added total available issuance incentive plan fair value stock options estimated date grant using blackscholes valuation model following assumptions dividend yield zero company never paid cash dividends present intention pay cash dividends expected volatility based historical volatility company’s stock measured period commensurate expected option term company consider implied volatility due low volume publicly traded stock options riskfree interest rate derived zero coupon rate us treasury instruments terms comparable option’s expected term expected term based company’s historical experience previous stock option grants stockbased compensation expense recognized consolidated statement operations based awards ultimately expected vest guidance requires forfeitures estimated time grant revised necessary subsequent periods cumulative catch adjustment actual forfeitures differ estimates following table summarizes total aggregate stock option activity period december 31 2009 december 31 2010 number shares exercisable december 31 2010 2009 2008 928380 998097 1639300 respectively weighted average exercise prices 1044 987 920 respectively weightedaverage grant date fair value stock options granted years ended december 31 2010 2009 2008 927 517 388 per share respectively total intrinsic value options exercised years ended december 31 2010 2009 2008 23 million 26 million 279000 respectively december 31 2010 32 million 21 million adjusted estimated forfeitures total unrecognized compensation cost related nonvested stock options granted incentive plan cost expected recognized weighted average period 24 years cash proceeds option exercises year ended december 31 2010 28 million restricted stock awards beginning 2005 company awarded directors board certain senior management members restricted stock awards incentive plan vesting restricted stock awards contingent upon period service meeting various performance conditions restricted stock awards contractual life ten years fair value restricted stock award determined date grant based closing stock price performance conditions estimated achievement dates compensation expense recognized requisite service period greater estimated achievement date minimum 12month vesting period requisite service period determined based analysis terms conditions grant company uses requisite service period likely occur including likelihood restricted stock award earned initial requisite service period may adjusted changes expected outcomes related performance conditions changes recognized trueup adjustment consolidated statement operations based company’s historical experience prevesting award cancellations management estimated forfeitures occur restricted stock awards actual forfeitures differ estimate trueup adjustment recorded reflect expense awards ultimately vest following table summarizes restricted stock award activity thousands except per share amounts total grant date fair value servicebased restricted stock awards granted year ended december 31 2010 503000 performancebased restricted stock awards granted 2010 weighted average grant date fair value shares granted years ended december 31 2010 2009 2008 1571 1091 1051 respectively share awards released years ended december 31 2010 2009 170000 202000 respectively share awards vested 2010 2009 2008 vest date fair value 434000 502000 768000 respectively servicebased awards 22 million 20 million 295000 respectively performancebased awards december 31 2010 518000 unrecognized compensation cost related nonvested restricted stock awards granted incentive plan expected vest cost expected recognized weighted average period 06 year employee stock purchase plan 2004 company established 2004 employee stock purchase plan “espp” aggregate number shares common stock may purchased espp shall exceed five hundred thousand 500000 shares common stock company december 31 2010 company issued total 249668 shares common stock current espp years ended december 31 2010 2009 company issued 44664 100535 shares respectively espp permits substantially employees purchase common stock payroll deductions 85 lower trading price stock beginning end sixmonth offering period commencing january 1 july 1 number shares purchased based participants’ contributions made offering period fair value “look back” option espp shares issued offering period estimated using blackscholes valuation model call put option share price used model 15 discount stock price first day offering period number shares purchased calculated based employee contributions using following assumptions restricted stock units january 1 2009 nonemployee directors company longer paid quarterly retainer cash instead company granted restricted stock unit “rsu” awards 2005 omnibus equity incentive plan last trading day calendar quarter nonemployee director full quarter automatically received rsu award number shares determined dividing 6250 closing price company’s common stock last trading day calendar quarter quarterly rsu awards fully vested date grant rsu award granted pursuant retainer program settled shares issued thereunder earliest occur february 15 calendar year following calendar year granted ii 60 days director’s service terminates iii occurrence change control company determines fair value grant date expenses amount immediately since rsus vested upon date grant fair value based closing market price company’s stock date grant following table summarizes amount compensation expense recognized years ended december 31 2010 2009 thousands except share data stockbased compensation expense compensation cost restricted stock restricted stock units employee stock options espp included cost revenue selling general administrative expense research development expense follows thousands share reservations following table summarizes reservation shares issuance upon exercise vesting release sharebased compensation awards december 31 2010 note 9income taxes financial reporting purposes net loss income taxes includes following components thousands provision benefit income taxes based loss continuing operations follows thousands provision benefit income taxes accompanying consolidated statements operations differs amount calculated applying statutory income tax rate loss continuing operations income taxes primary components difference follows thousands company established valuation allowance us federal state deferred tax assets due uncertainty surrounding realization assets evidenced cumulative losses operations december 31 2010 management periodically evaluates recoverability deferred tax assets time determined likely deferred assets realizable valuation allowance reduced accordingly recorded tax benefit exception 155 million result additional paid capital discussed company recorded valuation allowance 656 million december 31 2010 reflect estimated amount deferred tax assets may realized company increased valuation allowance 41 million year ended december 31 2010 pursuant internal revenue code sections 382 383 use company’s federal net operating loss credit carryforwards may limited due cumulative change ownership 50 within threeyear period december 31 2010 company federal state net operating loss carryforwards approximately 1587 million 1068 million respectively federal tax loss carryforwards begin expire 2020 state tax loss carryforwards begin expire 2012 excess tax benefits associated exercise nonqualified stock options restricted stock grants disqualifying dispositions incentive stock option stock acquired company’s employee stock purchase plan 2010 2009 amount 28 million 27 million respectively reduce current income taxes payable accordingly included deferred tax asset relating net operating loss “nol” carryforwards included federal state nol carryforwards disclosed footnote tax benefits associated stock option deductions 1998 2005 amount 155 million recorded additional paidin capital realization likely occur consequently valuation allowance recorded entire benefit addition company research development tax credit carryforwards federal state income tax purposes december 31 2010 49 million 43 million respectively federal credits begin expire 2011 unless utilized state credits indefinite life unremitted earnings foreign subsidiaries included consolidated financial statements without giving effect us taxes may payable distribution us anticipated earnings remitted us remitted additional us taxes paid would material items give rise significant portions deferred tax accounts follows thousands company adopted provisions accounting uncertainty income taxes topic fasb asc january 1 2007 total unrecognized benefits december 31 2010 approximately 89 million recorded reduction deferred tax assets caused corresponding reduction company’s valuation allowance 89 million extent unrecognized tax benefits recognized time valuation allowance exist recognition tax benefit would reduce effective tax rate company anticipate amount unrecognized tax benefits december 31 2010 significantly increase decrease within 12 months reconciliation beginning ending amount unrecognized tax benefits follows thousands company recognizes interest penalties component income tax expense interest penalties year ended december 31 2010 14000 years ended december 31 2009 2008 zero company’s us federal income tax returns tax years subsequent 2007 subject examination internal revenue service state income tax returns subsequent 2006 subject examination state tax authorities company’s foreign tax returns subsequent 2001 subject examination foreign tax authorities net operating losses years statute limitations expired 2005 prior federal 2004 prior state could adjusted event taxing jurisdictions challenge amounts net operating loss carryforwards years note 10leases rental expense amounted 25 million 21 million 20 million years ended december 31 2010 2009 2008 respectively incurred primarily facility leases future annual minimum rental commitments december 31 2010 follows thousands note 11pension postretirement benefit plans foreign plan compensationretirement benefits subtopic fasb asc requires balance sheet recognition total funded status pension postretirement benefit plans guidance actuarial gains losses prior service costs credits remaining transition assets obligations recognized previous accounting standards must recognized component accumulated comprehensive income loss within stockholders’ equity net tax effects amortized component net periodic benefit cost company’s plan regulated swiss government funded employees company pension benefit based compensation length service credited investment earnings plan guarantees minimum rate return well minimum annuity purchase rates company’s funding policy respect pension plan contribute amount required swiss law using required percentage applied employee’s compensation addition participating employees required contribute pension plan company made pension contributions 635000 589000 577000 2010 2009 2008 respectively 45 contributions plan made employees plan measurement date december 31 company rights assets plan reported pension asset decreased 77 million 53 million year ended december 31 2010 asset decrease combination actuarial loss due participant experience loss due assumption changes actual loss return assets year ended december 31 2009 total lump sum benefits paid plan greater employer service costs plus interest cost settlement recognition required related restructuring program additionally plan population actually increased year related curtailment accumulated benefit obligation approximately 240 million 187 million december 31 2010 2009 respectively following table reflects changes pension benefit obligation plan assets amounts recognized consolidated balance sheets years ended december 31 2010 2009 thousands amounts recognized consolidated balance sheets consist components net periodic pension cost income amounts recognized comprehensive loss income taxes follows thousands assumptions used determine benefit obligation net periodic benefit cost follows plan assets held december 31 2009 included large portion cash shortterm investments recent sales certain real estate property reinvested december 31 2009 increase percentage invested equity securities 2010 occurred investment year end cash position held 2009 pension plan’s overall strategy investment policy managed board plan overall longterm rate based target asset allocation 10 swiss bonds 15 nonswiss bonds 10 unhedged 5 hedged 8 swiss equities 14 global equities 45 real estate 3 alternative investments 5 cash shortterm investments 2011 expected future longterm rate return estimated 50 based historical asset rate returns asset allocation classification 19 rate swiss bonds 29 unhedged foreign bonds 13 hedged foreign bonds 56 real property 76 swiss equities 84 global equities 56 alternative investments 19 cash 2010 expected longterm rate return 55 based historical asset rates return 27 swiss bonds 37 unhedged foreign bonds 29 hedged foreign bonds 57 real property 81 swiss equities 91 global equities 21 cash following benefit payments reflect expected future service appropriate expected paid thousands company expects contribute approximately 659000 pension plan 2011 investment objectives primary investment goal pension plan achieve total annualized return 5 longterm investments evaluated compared benchmarked plans similar investment strategies plan also attempts minimize risk single security class securities disproportionate impact plan guideline assets diversified asset classes equity fixed income real estate alternative investments fair value plans assets december 31 2010 asset category follows fair value assets level 1 observable inputs quoted prices active markets identical assets level 2 inputs quoted prices observable asset liability either directly indirectly include quoted prices similar assets liabilities active markets quoted prices identical similar assets liabilities markets active level 3 unobservable inputs reflect reporting entity’s assumptions investments include real estate owned pension plan stated appraised value obtained independent source plan company real estate investment potential long term investment liquidation processes hedge funds might monthly quarterly annual restraints redemptions may require advance notice redemption financial instruments significant level 3 inputs following table summarizes activity prior year period investment type total unrealized losses reported component accumulated comprehensive income consolidated statement stockholders’ equity us plan company post retirement benefit plans covering employees united states substantially us employees eligible elect coverage contributory employee savings plan provides company matching contributions based onehalf employee contributions certain plan limits company’s matching contributions plan totaled 379000 384000 236000 years ended december 31 2010 2009 2008 respectively note 12related party transactions years ended december 31 2009 2008 company’s swiss subsidiary maxwell sa made payments related party metar machines “metar” commissions certain product sales march 22 2009 montena sa “montena” majority shareholder metar member company’s board directors josé cortes also director montena mr cortes also minority shareholder genturica ltd majority shareholder montena march 22 2009 montena sold interest metar may 14 2009 company terminated agreement metar therefore metar longer related party total expense recognized sales commission years ended december 31 2009 2008 128000 260000 respectively classified selling general administrative expense accompanying consolidated statements operations maxwell sa’s pension plan provided long term loan 700000 swiss francs approximately 749000 december 31 2010 montena properties sa 100 owned montena stated earlier member company’s board directors josé cortes also director indirect minority stockholder montena loan provided montena properties sa prior mr cortes becoming director maxwell montena loan repaid full march 2011 note 13legal proceedings nesscap patent infringement matter october 2006 company filed patent infringement lawsuit nesscap co ltd nesscap inc “nesscap” united states district court southern district california seeking monetary damages injunction stop nesscap’s sales infringing products based four company’s patents december 2006 nesscap filed lawsuit company united states district court district delaware claiming company’s products infringe nesscap’s patented intellectual property february 2009 company entered definitive settlement agreement nesscap settlement agreement parties agreed release claims issues related lawsuit agreed ten year worldwide cross license certain patent rights company following execution definitive settlement agreement matters formally concluded dismissing pending matters district court united states court appeals part settlement agreement nesscap must pay company 1 million annual installments 200000 2013 2010 nesscap posted letter credit remaining settlement payments owed accordance terms settlement case company capitalized patent defense costs additional cost patents full settlement amount 1 million netted capitalized patent defense costs net amount amortized remaining lives patents december 31 2010 400000 received nesscap settlement remaining 600000 receivable accrued consolidated balance sheet december 31 2010 product defect matter 2005 customer claimed possible defect product produced company’s swiss subsidiary maxwell sa contract third party manufacturer epcos ag resold customer effort resolve matter maxwell sa initiated legal proceeding germany late 2007 epcos ag suit currently independent pretrial discovery phase time courtappointed technical expert collected evidence issued opinion defect substantial number products existed b defect one stemming manufacturing products operating conditions end use system epcos ag opposed validity expert’s opinion standard practice within type proceeding expert expected submit followup written opinion addressing detail basis expert’s conclusions identified since matter still preliminary stages quantified damages assertions formally made company yet able determine warranty exposure may therefore recorded warranty provision angeles chemical omega chemical matters december 2007 company named environmental suit along 150 defendants suit angeles chemical company inc et al v omega chemical prp group llc et al filed plaintiffs united states district court central district california alleging damages related hazardous waste contamination plaintiffs’ land “angeles site” plaintiff alleges prior service provider company improperly disposed hazardous material property upstream plaintiffs’ land “omega site” august 2009 unrelated angeles chemical matter yet pertaining original omega site omega prp organized group “opog” initiated additional clean efforts remediate omega site consequently submitted good faith offer letter additional clean efforts parties previously settled liability related omega site 100 respective liabilities december 2010 company joined several parties executing settlement agreement opog allocates company’s settlement liability amount 120000 includes indemnification current future remediation efforts omega site well conditional indemnification angeles chemical matter along additional matters pertaining activities stemming omega site settlement amount 120000 paid full december 31 2010 shareholder derivative suit august 2010 shareholder derivative action filed superior court san diego county california allegedly behalf benefit company certain company’s current former officers directors alleging among claims breach fiduciary duty waste corporate assets unjust enrichment complaint titled lozides v schramm et al alleged individual defendants allowed company violate us foreign corrupt practices act “fcpa” failed maintain internal controls accounting systems compliance fcpa september 2010 washtenaw county employees’ retirement system v guyett et al another derivative action filed court certain company’s current former officers directors well member company’s management team alleging substantially similar claims october 2010 two actions consolidated joint stipulation filed shortly thereafter setting forth proposed schedule responding consolidated action consolidated action derivative nature seek monetary damages company however company may required throughout term action advance legal fees costs incurred individual defendants incur financial obligations preliminary stage company cannot predict ultimate outcome action therefore company accrued amount potential expenses associated action fcpa matter result international operations company subject us foreign corrupt practices act “fcpa” prohibits companies making improper payments foreign officials purpose obtaining keeping business previously disclosed company’s sec filings company conducted internal review payments made company’s former independent sales agent china respect sales company’s high voltage capacitor products produced company’s swiss subsidiary january 2011 company reached settlements sec us department justice “doj” respect charges asserted sec doj relating antibribery books records internal controls disclosure provisions fcpa securities law violations company settled civil charges sec agreeing injunction violations fcpa terms settlement sec company pay total 635 million profit disgorgement prejudgment interest two installments 3175 million paid first quarter 2011 remaining 3175 million payable first quarter 2012 terms settlement doj company pay total 80 million penalties three installments 35 million paid first quarter 2011 225 million payable first quarters 2012 2013 part settlement company entered threeyear deferred prosecution agreement “dpa” doj company remains compliance terms dpa conclusion term charges company dismissed prejudice terms agreements company periodically report sec doj company’s internal compliance program concerning antibribery settlement amounts fully accrued september 30 2010 december 31 2010 67 million included accrued liabilities 77 million included longterm liabilities accompanying consolidated balance sheet note 14unaudited quarterly results operations includes gain embedded derivatives 32 million noncash expense stockbased compensation 623000 amortization debt discount 21000 b includes additional accrual potential settlement fcpa violations 34 million gain embedded derivatives 12 million noncash expense stockbased compensation 743000 amortization debt discount 20000 c includes additional accrual potential settlement fcpa violations 17 million loss embedded derivatives 814000 noncash expense stockbased compensation 677000 amortization debt discount 21000 includes asset impairment related depreciation charge totaling 14 million loss embedded derivatives 13 million noncash expense stockbased compensation 584000 amortization debt discount 21000 e includes loss embedded derivatives 607000 noncash expense stockbased compensation 738000 amortization debt discount 379000 f includes loss embedded derivatives 38 million noncash expense stockbased compensation 841000 amortization debt discount 243000 g includes loss embedded derivatives 28 million noncash expense stockbased compensation 899000 amortization debt discount 73000 h includes accrual potential settlement fcpa violations 93 million gain embedded derivatives 19 million noncash expense stockbased compensation 222000 amortization debt discount 42000 note 15subsequent events settlement foreign corrupt practices act “fcpa” matter january 2011 company reached settlements sec doj respect charges asserted sec doj relating antibribery books records internal controls disclosure provisions fcpa securities law violations terms settlement sec company pay total 635 million profit disgorgement prejudgment interest two installments 3175 million paid first quarter 2011 remaining 3175 million payable first quarter 2012 terms settlement doj company pay total 80 million penalties three installments 35 million paid first quarter 2011 225 million payable first quarters 2012 2013 conversion remaining principal balance convertible debentures february 24 2011 holder company’s convertible debentures sandell asset management corp elected convert remaining principal balance 83 million convertible debentures 514086 shares company’s common stock conversion price 1621 per share result conversion restricted cash balance 80 million consolidated balance sheets longer restricted following financial information gives effect transaction took place december 31 2010 proforma condensed consolidated balance sheet thousands pro forma adjustments follows 1 reclassify restricted cash nonrestricted cash 2 write balance unamortized debt issue costs 3 record conversion outstanding convertible debentures balance shares company’s common stock amount includes principal balance 83 million unamortized debt discount 47000 fair value holder’s company’s conversion rights 21 million 4 net pro forma impact consolidated statement operations conversion convertible debentures actual gain recorded 2011 differ reflect conversion convertible debentures shares company’s common stock market value actual conversion date february 24 2011 schedule ii valuation qualifying accounts thousands item 9item 8 financial statements supplementary data consolidated financial statements notes thereto appear pages 50 103 annual report form 10k maxwell technologies inc index consolidated financial statements report independent registered public accounting firm board directors stockholders maxwell technologies inc audited accompanying consolidated balance sheets maxwell technologies inc subsidiaries december 31 2012 2011 related consolidated statements operations comprehensive income loss stockholders’ equity cash flows three years period ended december 31 2012 connection audits financial statements also audited financial statement schedule maxwell technologies inc listed item 15a financial statements financial statement schedule responsibility company’s management responsibility express opinion financial statements schedule based audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion consolidated financial statements referred present fairly material respects financial position maxwell technologies inc subsidiaries december 31 2012 2011 results operations cash flows three years period ended december 31 2012 conformity us generally accepted accounting principles also opinion related financial statement schedule considered relation basic consolidated financial statements taken whole presents fairly material respects information set forth therein also audited accordance standards public company accounting oversight board united states maxwell technologies inc’s subsidiaries’ internal control financial reporting december 31 2012 based criteria established internal controlintegrated framework issued committee sponsoring organizations treadway commission report dated august 1 2013 expressed adverse opinion effectiveness maxwell technologies inc’s internal control financial reporting bdo usa llp san diego california august 1 2013 maxwell technologies inc consolidated balance sheets thousands except per share data accompanying notes integral part consolidated financial statements maxwell technologies inc consolidated statements operations thousands except per share data accompanying notes integral part consolidated financial statements maxwell technologies inc consolidated statements comprehensive income loss thousands accompanying notes integral part consolidated financial statements maxwell technologies inc consolidated statements stockholders’ equity thousands accompanying notes integral part consolidated financial statements maxwell technologies inc consolidated statements cash flows thousands accompanying notes integral part consolidated financial statements maxwell technologies inc notes consolidated financial statements unless context otherwise requires references “maxwell” “company” “we” “us” “our” refer maxwell technologies inc subsidiaries references “maxwell sa” refer swiss subsidiary maxwell technologies sa note 1description business summary significant accounting policies description business maxwell technologies inc delaware corporation originally incorporated 1965 name maxwell laboratories inc 1983 company completed initial public offering 1996 changed name maxwell technologies inc company headquartered san diego california two manufacturing facilities located san diego california rossens switzerland process opening manufacturing facility peoria arizona addition company two contract manufacturers located china maxwell operates one operating segment called high reliability comprised three product lines • ultracapacitors primary focus ultracapacitors energy storage devices possess unique combination high power density extremely long operational life ability charge discharge rapidly ultracapacitor cells multicell packs modules provide highly reliable energy storage power delivery solutions applications multiple industries including transportation automotive information technology renewable energy industrial electronics • highvoltage capacitors condis® highvoltage capacitors designed manufactured perform reliably decades climates products include grading coupling capacitors capacitive voltage dividers used ensure safety reliability electric utility infrastructure applications involving transport distribution measurement highvoltage electrical energy • radiationhardened microelectronic products radiationhardened microelectronic products satellites spacecraft include single board computers components highdensity memory power modules many products incorporate proprietary radpak® packaging shielding technology novel architectures enable withstand effects environmental radiation perform reliably space company’s products designed manufactured perform reliably life products systems integrated company achieves high reliability application proprietary technologies rigorously controlled design development manufacturing test processes financial statement presentation accompanying consolidated financial statements include accounts maxwell technologies inc subsidiaries prepared accordance accounting principles generally accepted united states “us gaap” intercompany transactions account balances eliminated consolidation liquidity december 31 2012 company approximately 287 million cash equivalents although company credit facility providing 150 million line credit drawn upon date based events default discussed note 7 result restatement previously issued financial statements described note 2 banks obligation extend credit ceased terminated december 31 2012 39 million outstanding equipment term loan provided credit facility june 2013 company entered forbearance agreement bank wherein bank agreed forbear exercise rights remedies credit agreement call outstanding debt balance connection events default specified period time april 2011 company filed shelf registration statement form s3 securities exchange commission sec time sell aggregate 125 million common stock warrants debt securities date company sold 572510 shares pursuant registration statement net proceeds 103 million result restatement previously issued financial statements described note 2 company longer compliance ongoing eligibility requirements shelf registration statement form s3 therefore longer effective future company may supplement available sources cash issuing additional debt equity december 31 2012 company cash equivalents 287 million management believes available cash balance combined cash company expects generate operations sufficient fund operations obligations become due capital investments least next twelve months reclassifications certain prior period amounts consolidated statements operations reclassified conform current period presentation reclassifications impact reported net income loss otherwise material impact presentation overall financial statements use estimates preparation financial statements conformity accounting principles generally accepted united states america requires management make estimates assumptions affect reported amounts related disclosures estimates include limited assessing collectability accounts receivable applied unapplied production costs production capacities usage recoverability inventories longlived assets including deferred income taxes incurrence warranty obligations impairment goodwill intangible assets estimation cost complete certain projects accruals estimated losses legal matters estimation value stockbased compensation awards including probability performance criteria restricted stock awards met revenue recognition revenue derived primarily sale manufactured products directly customers product revenue recognized according guidelines securities exchange commission “sec” staff accounting bulletin “sab” numbers 101 revenue recognition financial statements 104 revenue recognition following criteria met 1 persuasive evidence arrangement exists upon contract signing receipt authorized purchase order customer 2 title passes customer either shipment company’s facilities receipt customer facility depending shipping terms 3 customer payment deemed fixed determinable free contingencies significant uncertainties 4 collectability reasonably assured policy consistently applied period beginning fourth quarter 2011 three distributors companys products company offered extended payment terms allowed distributors pay us received payment customer respect certain sales transactions also beginning fourth quarter 2011 one distributor companys products company offered return rights profit margin protection respect certain sales transactions therefore four distributors company determined revenue recognition criteria sab 101 104 met time shipment fixed determinable price collection reasonably assured least respect certain sales transactions result three distributors provided extended payment terms provide fixed determinable price company determined defer recognition revenue sales beginning fourth quarter 2011 period cash received one distributor provided return rights profit margin protection company could estimate exposure company determined defer recognition revenue sales beginning fourth quarter 2011 distributor confirms company entitled returns credits company deferred revenue recognition net sales approximately 189 million 108 million years ended december 31 2012 2011 respectively arrangements company recognized revenue 127 million 32 million fiscal years 2012 2011 respectively payments customers net sales revenue deferred included deferred revenue amount 64 million 10 million december 31 2012 2011 respectively company recorded cost basis related inventory shipped approximately 92 million 55 million december 31 2012 2011 respectively inventory condensed consolidated balance sheets cash equivalents company invests excess cash debt instruments us government agencies bank certificates deposit commercial paper highquality corporate issuers highly liquid instruments original maturity three months less purchase considered cash equivalents accounts receivable allowance doubtful accounts trade receivables stated gross invoiced amount less allowance uncollectible accounts allowance doubtful accounts reflects management’s best estimate probable losses inherent accounts receivable balance management determines allowance doubtful accounts based known troubled accounts historical experience currently available evidence inventories stated lower cost firstin firstout basis market finished goods workinprocess inventory values include cost raw materials labor manufacturing overhead consigned inventory includes finished goods delivered customers related sale met revenue recognition criteria revenue deferred inventory written market value establishes new cost basis value subsequently increased based upon changes underlying facts circumstances company makes adjustments reduce cost inventory net realizable value required estimated excess obsolete inventories factors influencing adjustments include inventories onhand compared historical estimated future sales existing new products assumptions likelihood obsolescence unabsorbed underabsorbed costs treated expense period incurred property equipment property equipment carried cost depreciated using straightline method depreciation provided estimated useful lives related assets three ten years leasehold improvements depreciated shorter estimated useful life term lease leasehold improvements funded landlords recorded property equipment depreciated shorter estimated useful life asset lease term deferred rent amortized lease term december 31 2012 2011 net book value leasehold improvements funded landlords 59 million 37 million respectively december 31 2012 2011 unamortized balance deferred rent related landlord funding leasehold improvements 27 million 21 million respectively included accounts payable accrued liabilities longterm liabilities consolidated balance sheets goodwill represents excess cost acquired business net fair value assigned assets liabilities amortized instead goodwill assessed impairment intangiblesgoodwill topic fasb asc company established december 31 annual impairment test date company first makes qualitative assessment whether goodwill impaired likely goodwill impaired company performs twostep quantitative impairment analysis determine goodwill impaired company may also determine skip qualitative assessment year move directly quantitative test impairments goodwill reported years ended december 31 2012 2011 2010 impairment longlived assets intangible assets property equipment intangible assets reviewed impairment whenever events changes circumstances indicate carrying value assets may recoverable company determines carrying value asset recoverable permanent impairment charge recorded amount carrying value longlived intangible asset exceeds fair value intangible assets finite lives amortized straightline basis useful lives ten thirteen years impairments property equipment intangible assets recorded years ended december 31 2012 2011 2010 company recorded impairment property equipment 880000 reduce carrying value equipment estimated fair value impairment charge related reclassification assets previously classified heldforsale heldandused fourth quarter 2010 warranty obligation company provides warranties product sales majority company’s warranties one two years normal course business company accrues estimated warranty costs time sale based historical warranty experience plus known expected changes warranty exposure income taxes deferred income taxes provided liability method accordance income taxes topic fasb asc whereby deferred tax assets recognized deductible temporary differences deferred tax liabilities recognized taxable temporary differences method deferred income taxes recorded reflect tax consequences future years temporary differences tax basis assets liabilities reported amounts period end likely portion deferred tax asset realized valuation allowance recognized guidance also provides criteria recognition measurement presentation disclosures uncertain tax positions tax benefit uncertain tax position may recognized “more likely not” position sustainable based solely technical merits concentration credit risk company maintains cash balances various financial institutions primarily california switzerland california cash balances commonly exceed 250000 federal deposit insurance corporation insurance limit switzerland banks company cash deposits either governmentowned case cash deposited nongovernment banks deposits insured 100000 swiss francs company experienced losses accounts management believes company exposed significant credit risk respect cash equivalents financial instruments subject company potential concentrations credit risk consist principally company’s accounts receivable company’s accounts receivable result product sales customers various industries various geographical areas domestic foreign company performs credit evaluations customers generally requires collateral one customer shenzhen xinlikang supply china management co ltd accounted 18 total revenue 2012 sales single customer amounting 10 total revenue years ended december 31 2011 2010 three customers shenzhen xinlikang supply china management co ltd xiamen golden dragon bus co ltd abb accounted 26 15 11 respectively total accounts receivable december 31 2012 customer accounted 10 total accounts receivable december 31 2011 research development expense research development expenditures expensed period incurred thirdparty funding research development expense costsharing arrangements recorded offset research development expense period expenses incurred advertising expense advertising costs expensed period incurred advertising expense 12 million 287000 256000 years ended december 31 2012 2011 2010 respectively shipping handling expense company recognizes shipping handling expenses component cost revenue total shipping handling expense included cost revenue 14 million 29 million 13 million years ended december 31 2012 2011 2010 respectively patent defense costs company capitalizes patent defense costs additional cost patents successful outcome patent defense case probable company ultimately unsuccessful costs would charged expense legal expenses associated previous patent infringement lawsuit capitalized intangible asset company settled lawsuit 2009 1 million consideration company received settlement netted capitalized patent defense costs net amount amortized remaining lives patents december 31 2012 unamortized patent defense costs 362000 classified intangible assets consolidated balance sheet foreign currencies company’s primary foreign currency exposure related subsidiary switzerland euro local currency swiss franc revenue operating expenses local currency loans changes currency exchange rates impact reported us dollar amount revenue expenses debt functional currency swiss subsidiary swiss franc assets liabilities swiss subsidiary translated monthend exchange rates revenues expenses gains losses translated rates exchange approximate rate effect time transaction translation adjustments resulting process presented separately component accumulated comprehensive income within stockholders’ equity consolidated balance sheets foreign currency transaction gains losses reported cost revenue selling general administrative expense consolidated statements operations foreign currency derivative instruments part risk management strategy company uses forward contracts hedge certain foreign currency exposures companys objective offset gains losses resulting exposures opposing gains losses forward contracts thereby reducing volatility earnings created foreign currency exposures accordance derivatives hedging topic fasb asc fair values forward contracts estimated period end based quoted market prices recorded “prepaid expenses current assets” “accounts payable accrued liabilities” consolidated balance sheets gains losses recognized contracts recorded “cost revenue” “selling general administrative” expense consolidated statements operations net income loss per share accordance earnings per share topic fasb asc basic net income loss per share calculated using weighted average number common shares outstanding period diluted net income per share includes impact additional common shares would outstanding dilutive potential common shares issued potentially dilutive securities considered calculation diluted net loss per share inclusion would antidilutive following table sets forth computation basic diluted net income loss per share thousands except per share data following table summarizes instruments may convertible common shares included denominator used diluted net income loss per share calculation would antidilutive thousands stockbased compensation company issued stockbased compensation awards employees nonemployee directors including stock options restricted stock restricted stock units shares employee stock purchase plan company records compensation expense stockbased awards accordance criteria set forth stock compensation subtopic fasb asc although company granted stock options since 2010 company used blackscholes option pricing model estimate fair value historical stock option grants determination fair value stock options utilizing blackscholes model affected company’s stock price number assumptions including expected volatility expected life riskfree interest rate expected dividends fair value restricted stock restricted stock units based closing market price company’s common stock date grant compensation expense equal fair value restricted stock award recognized ratably requisite service period restricted stock awards vesting contingent company performance conditions company uses requisite service period likely occur requisite service period estimated based expected achievement date performance condition unlikely performance condition achieved compensation expense recognized unless later determined achievement performance condition likely requisite service period may adjusted changes expected outcomes related performance conditions impact changes recognized cumulative adjustment consolidated statement operations period expectation changes sharebased compensation expense recognized consolidated statement operations based equity awards ultimately expected vest fasb asc requires forfeitures estimated time grant revised necessary subsequent periods cumulative catch adjustment actual forfeitures differ estimates pending accounting pronouncements december 2011 fasb issued accounting standards update 201111 disclosures offsetting assets liabilities requires companies disclose information financial instruments offset related arrangements enable users financial statements understand effect arrangements financial position january 2013 fasb issued accounting standards update 201301 clarifying scope disclosures offsetting assets liabilities limits scope new balance sheet offsetting disclosures derivatives repurchase agreements securities lending transactions extent 1 offset financial statements 2 subject enforceable master netting arrangement similar agreement companies required provide net offset amounts gross information notes financial statements relevant assets liabilities offset standard updates effective fiscal years interim periods within years beginning january 1 2013 company expect adoption standard updates impact financial position results operations require additional disclosure company’s financial statements february 2013 fasb issued accounting standards update 201302 reporting amounts reclassified accumulated comprehensive income standard requires companies present either single note parenthetically face financial statements effect significant amounts reclassified component accumulated comprehensive income based source income statement line items affected reclassification component required reclassified net income entirety companies would instead cross reference related footnote additional information standard update effective fiscal years interim periods within years beginning january 1 2013 company expect adoption standard update impact financial position results operations requires additional disclosure company’s financial statements business enterprise information company operates one operating segment high reliability according disclosures segments enterprise related information topic fasb asc establishes standards way public business enterprises report information operating segments annual consolidated financial statements company’s chief operating decision maker regularly review discrete financial information consolidated level revenues product line geographic area presented thousands 1 revenue external customers located countries included “all countries” individually compromise 10 total revenues years presented longlived assets geographic location follows thousands note 2restatement previously issued financial statements financial information background restatement audit committees investigation january 2013 following receipt information concerning potential revenue recognition issues audit committee board directors engaged independent legal counsel forensic accountants conduct investigation concerning potential issues work management determine potential impact accounting revenue february 2013 result findings audit committees investigation date company determined certain employees engaged conduct resulted revenue recorded periods prior criteria revenue recognition us generally accepted accounting principles satisfied investigation revealed arrangements three companys distributors regarding extended payment terms one companys distributors regarding return rights profit margin protection sales distributors respect certain transactions addition arrangements revealed one nondistributor customer honor transfer title date later customers purchase orders indicated based results investigation audit committee determined arrangements communicated companys finance accounting department companys ceo therefore considered revenue originally recorded based terms agreements customers known companys finance accounting department companys policy record revenue related shipments title passed either shipment companys facilities receipt customers facility assuming revenue recognition criteria achieved addition arrangements noted investigation uncovered error individual transaction customer given extended payment terms considered revenue originally recognized result arrangements discovered investigation company believe fixed determinable sales price existed time shipment collection reasonably assured least respect certain transactions addition revenue related certain shipments one nondistributor customer recorded actual transfer title satisfaction companys obligation deliver products therefore revenue sales recognized time shipment based arrangements customers revealed investigation considered revenue originally recognized company determined following • beginning period investigation revealed arrangements regarding extended payment terms certain sales three distributors company determined appropriate defer revenue recognition sales distributors period shipment period cash receipt distributors revenue recognition period cash receipt determined appropriate beginning fourth quarter 2011 • beginning period investigation revealed return rights profit margin protection one distributor company determined appropriate defer revenue recognition company determines distributor entitled returns credits distributor deferral revenue company determines distributor entitled returns credits determined appropriate beginning fourth quarter 2011 time determination made currently anticipated occur second half fiscal year 2013 previous sales revenue deferred net credits returns may made distributor recognized revenue • arrangements nondistributor customer honor transfer title date later customers purchase order indicated company determined appropriate defer revenue recognition period company agreed honor transfer title • individual transaction customer given extended payment terms considered revenue originally recognized first quarter 2011 revenue recognition cash received second quarter 2011 determined appropriate managements subsequent internal review audit committee investigation complete company conducted review beginning first quarter 2009 first quarter 2013 ensure sales arrangements detected accounted appropriately review company noted number quarter end revenue cutoff errors wherein revenue recorded prior transfer title customer satisfaction companys obligation deliver products company corrected errors occurring first quarter 2011 third quarter 2012 moving revenue recognition items period delivery actually occurred results audit committees investigation managements internal review based findings investigation previously reported companys current report form 8k dated march 7 2013 audit committee consultation management board directors concluded companys previously issued financial statements contained annual report form 10k year ended december 31 2011 quarterly reports form 10q quarters ended march 31 2011 june 30 2011 september 30 2011 march 31 2012 june 30 2012 september 30 2012 longer relied upon accordingly accompanying consolidated financial statements first three quarters fiscal year ended december 31 2012 fiscal year ended december 31 2011 interim periods within fiscal year ended december 31 2011 restated annual report form 10k result audit committees investigation certain employees terminated companys sr vice president sales marketing resigned reported companys current report form 8k dated march 7 2013 connection errors identified investigation resulting restatement previously reported financial statements company identified control deficiencies internal control financial reporting constitute material weaknesses discussion disclosure controls procedures material weaknesses identified see part ii item 9a controls procedures annual report form 10k companys previously filed annual report form 10k fiscal year ended december 31 2011 quarterly reports form 10q periods affected restatements amended accordingly investors longer rely upon companys previously released financial statements quarterly annual periods including march 31 2011 earnings releases communications relating periods see note 15 unaudited quarterly financial information notes consolidated financial statements annual report impact adjustments full fiscal year ended december 31 2011 first three quarters fiscal year ended december 31 2012 quarterly periods fiscal year ended december 31 2011 respectively restatement adjustments restatement adjustments related sales arrangements several adjustments made companys previously filed consolidated financial statements result restatement order reflect revenue recognition appropriate periods discussed accordingly subject sales transactions revenue accounts receivable balances reduced equivalent amount period sale originally recorded revenue increased subsequent period criteria revenue recognition met subject sales transactions cost revenue reduced inventory increased period sale originally recorded revenue cost revenue increased inventory reduced period sale ultimately recorded revenue however sales one distributor revenue deferred company determines distributor entitled returns credits discussed increase revenue related reduction inventory increase cost revenue recorded future period determination made adjustments also reflect impacts adjusting companys returns reserves certain stock rotation rights distributors adjusting companys reserves allowances doubtful accounts well commissions expense although changes material addition adjustments revenue accounts receivable inventory cost revenue inventory reserves balances cost revenue adjusted relation adjustments inventory discussed order reflect inventory ultimately recorded balance sheets lower cost market value restatement adjustments since companys determination restate previously issued financial statements constituted event default terms credit facility bank right require immediate payment outstanding borrowings result restatement adjustments recorded reclassify amounts outstanding credit facility longterm debt current liabilities respective balance sheet date addition insignificant amount debt issuance costs reclassified longterm asset shortterm asset consistent classification related debt june 2013 company entered forbearance agreement bank wherein bank agreed forbear exercise rights remedies call outstanding debt credit facility connection events default period terminating earlier september 30 2013 occurrence additional events default restatement adjustment made reclassify legal settlement customer selling general administrative expense contrarevenue second quarter 2011 amount 26 million certain immaterial adjustments made connection restatement resulted 153000 decrease net loss recorded year ended december 31 2011 170000 decrease net incomeloss ninemonths ended september 30 2012 restatement adjustments impact companys previously reported tax provision benefit affected periods 54000 decrease income tax provision quarter ended september 30 2012 restatement adjustments related us operations significant net operating loss carryforwards recorded income tax expense benefit period date however restatement adjustments impact composition deferred tax assets liabilities december 31 2011 presented note 10 income taxes notes consolidated financial statements included annual report effects restatement fiscal year ended december 31 2011 restatement adjustments decreased revenue 101 million decreased previously reported net income 23 million 008 per diluted share net loss 14 million june 30 2013 collected related accounts receivable sales transactions subject restatement year ended december 31 2011 exception insignificant amount subsequently credited certain customers following pages present effects restatement adjustments companys previously reported consolidated balance sheet statement operations statement cash flows fiscal year ended december 31 2011 maxwell technologies inc consolidated balance sheet thousands except per share data maxwell technologies inc consolidated statement operations thousands except per share data maxwell technologies inc consolidated statement cash flows thousands restated financial information product line geographic area fiscal year 2011 presented thousands note 3balance sheet details thousands note 4goodwill intangibles company reviews goodwill impairment annually according intangiblesgoodwill topic fasb asc company makes qualitative evaluation likelihood goodwill impairment concludes likely carrying amount single reporting unit greater fair value required perform first step twostep quantitative impairment test otherwise performing twostep impairment test unnecessary first step consists estimating fair value comparing estimated fair value carrying value reporting unit fair value less carrying value second step performed compute amount impairment determining implied fair value goodwill implied fair value goodwill residual fair value derived deducting fair value reporting unit’s assets liabilities estimated total fair value calculated step one impairment charge would represent excess carrying amount reporting unit’s goodwill implied fair value goodwill guidance requires goodwill reviewed annually time every year event occurs circumstances change reasonably possible impairment may exist company selected december 31 annual testing date result company’s annual assessments december 31 2012 2011 2010 impairment indicated change carrying amount goodwill 2011 2012 follows thousands intangible assets reviewed impairment whenever events changes circumstances indicate carrying value assets may recoverable company determines carrying value asset recoverable permanent impairment charge recorded amount carrying value intangible asset exceeds fair value impairments intangible assets recorded years ended december 31 2012 2011 2010 composition intangible assets subject amortization december 31 2012 2011 follows thousands amortization expense intangible assets 441000 559000 535000 years ended december 31 2012 2011 2010 respectively estimated amortization next three years ending december 31 follows thousands actual amortization expense reported future periods could differ estimates result intangible asset acquisitions foreign currency translation adjustments impairments factors note 5convertible debentures december 20 2005 company issued 25 million aggregate principal amount senior subordinated convertible debentures “debentures” february 2011 holder debentures converted remaining 83 million principal balance 514086 shares company’s common stock conversion price 1621 per share conversion date common stock fair value 93 million based closing market price conversion resulted gain 10 million included “gain embedded derivatives warrants” consolidated statement operations long debentures outstanding company required maintain minimum cash balance 80 million amount classified restricted cash convertible debentures outstanding cash restriction released february 2011 outstanding principal amount convertible debentures converted shares companys common stock shares issued upon exercise warrants interest paid cash principal converted shares common stock follows thousands conversion remaining principal balance debentures february 2011 principal balance convertible holder time common shares addition eighteen months issue date company could required specified amount principal debentures converted certain conditions satisfied period 20 consecutive trading days determine fair value forced conversion reporting date company applied z factor theoretical measurement probability occurrence change fair value revaluation conversion rights warrant liabilities represents difference fair value end current period conversion date fair value beginning current period using value calculated blackscholes pricing model effect fair market value adjustment 78000 23 million gain years ended december 31 2011 2010 respectively recorded “gain embedded derivatives warrants” consolidated statements operations note 6fair value measurements company records certain financial instruments fair value accordance fair value measurements disclosures topic fasb asc december 31 2012 financial instruments topic applied financial instruments foreign currency forward contracts december 31 2012 fair value foreign currency forward contracts 329000 asset recorded “trade accounts receivable net” consolidated balance sheet fair value derivative instruments measured using models following quoted market prices active markets identical instruments level 2 input fair value hierarchy fair value measurements disclosures topic fasb asc forward contracts december 31 2012 onemonth original maturity term mature january 3 2013 carrying value shortterm longterm borrowings approximates fair value relative short maturity instruments interest rates company could currently obtain convertible debentures issued december 20 2005 evaluated determined conventional convertible debentures therefore certain terms provisions including liquidating damages associated registration rights agreement embedded conversion features bifurcated accounted derivative liability instruments settled february 2011 accounting guidance requires conversion features recorded fair value reporting period changes fair value recorded consolidated statement operations fair values embedded conversion options based blackscholes fair value calculations february 2011 remaining 83 million principal balance converted shares company’s common stock fair value measurements liability required made following table summarizes changes liability convertible debenture conversion features valued using significant level 3 inputs fair value measurement hierarchy fasb asc thousands refer note 5convertible debentures valuation model unobservable data used calculate fair value conversion features convertible debentures issued company note 7borrowings credit facility december 2011 company obtained secured credit facility form revolving line credit maximum 150 million “revolving line credit” equipment term loan “equipment term loan” together “credit facility” general amounts borrowed credit facility secured lien company’s assets intellectual property addition credit agreement company required pledge 65 equity interests swiss subsidiary company also agreed encumber intellectual property agreement contains certain restrictive covenants limit company’s ability amongst things incur additional indebtedness guarantees ii create liens encumbrances property iii enter merger similar transaction iv invest another entity v declare pay dividends vi invest fixed assets excess defined dollar amount repayment amounts owed pursuant credit facility may accelerated event company violation representations warranties covenants made credit agreement including certain financial covenants financial covenants company must meet term credit agreement include quarterly minimum liquidity ratios minimum quick ratios ebitda targets annual net income target borrowings credit facility bear interest payable monthly either banks prime rate ii libor plus 225 companys option subject certain limitations company incurs unused commitment fee payable quarterly equal 025 per annum average daily unused amount revolving line credit equipment term loan available finance 80 eligible equipment purchases made april 1 2011 april 30 2012 period company borrowed 50 million equipment term loan result restatement prior period financial statements reflected annual report form 10k financial information previously submitted bank since proven materially incorrect company default respect terms credit agreement beginning fourth quarter 2011 addition result restatement prior period financial statements company compliance financial covenant pertaining annual minimum net income target fiscal year ended december 31 2011 violations represent events default terms credit facility result noncompliance banks obligation extend credit ceased terminated june 2013 company entered forbearance agreement bank “the forbearance agreement” pursuant terms forbearance agreement bank agreed forbear exercise rights remedies credit agreement call companys outstanding debt obligation connection events default period terminating earlier september 30 2013 occurrence additional events default connection execution forbearance agreement june 2013 company posted cash deposit 18 million bank granted bank security interest therein remain restricted bank may determine waive existing events defaults discussed loan satisfied borrowings outstanding credit facility immediately callable bank quarterly annual periods since including fourth quarter 2011 borrowings outstanding credit facility classified current obligation accompanying consolidated balance sheets december 31 2012 39 million outstanding equipment term loan applicable interest rate libor plus 225 25 december 31 2012 bank exercise right accelerate repayment original terms credit facility principal interest equipment term loan payable 36 equal monthly installments equipment term loan fully repaid maturity date april 30 2015 may prepaid whole part time december 31 2012 amounts outstanding revolving line credit december 31 2012 company eligible borrow additional amounts credit facility result events default discussed shortterm borrowings maxwell’s swiss subsidiary maxwell sa 30 million swiss francdenominated approximately 33 million december 31 2012 shortterm loan agreement swiss bank renews semiannually bears interest 220 borrowings shortterm loan agreement unsecured december 31 2012 2011 full amount loan drawn maxwell sa 20 million swiss francdenominated approximately 22 million december 31 2012 credit agreement swiss bank renews annually bears interest 235 borrowings credit agreement unsecured december 31 2012 2011 full amount available credit line drawn maxwell sa also 10 million swiss francdenominated approximately 11 million december 31 2012 credit agreement another swiss bank available balance line withdrawn reduced bank time december 31 2012 2011 amounts drawn credit line interest rates applicable draws line determined time draw longterm borrowings maxwell sa various financing agreements vehicles agreements original threeyear repayment period interest rates ranging 39 51 december 31 2012 2011 159000 164000 respectively outstanding agreements following table summarizes debt outstanding thousands contractually scheduled payments due borrowings subsequent december 31 2012 follows thousands 1 contractually scheduled payments related equipment term loan 39 million callable bank note 8foreign currency derivative instruments maxwell uses forward contracts hedge certain monetary assets liabilities primarily receivables payables denominated foreign currency change fair value instruments represents natural hedge gains losses offset changes fair value underlying monetary assets liabilities due movements currency exchange rates contracts generally expire one month contracts considered economic hedges designated hedges derivatives hedging topic fasb asc therefore change fair value instruments recognized currently consolidated statement operations net gains losses foreign currency forward contracts included cost revenue selling general administrative expense consolidated statements operations follows thousands net gains losses foreign currency derivative contracts partially offset net gains losses underlying monetary assets liabilities foreign currency gains losses underlying monetary assets liabilities included cost revenue selling general administrative expense consolidated statements operations follows thousands december 31 2012 total notional amount foreign currency forward contracts designated hedges 321 million fair value derivatives 329000 asset december 31 2012 forward contracts outstanding december 31 2012 mature january 3 2013 additional information refer note 6 fair value measurements note 9stock plans equity incentive plans company two active sharebased compensation plans december 31 2012 2004 employee stock purchase plan “espp” 2005 omnibus equity incentive plan amended “incentive plan” incentive plan incentive stock options nonqualified stock options restricted stock restricted stock units granted employees nonemployee directors generally awards vest periods one four years addition equity awards issued senior management vesting award tied company performance conditions company’s policy issue new shares common stock upon exercise stock options granting stock awards employees company’s incentive plan currently provides equity incentive pool 2750000 shares reserved issuance replenished forfeited shares additionally equity awards forfeited company’s 1995 stock option plan added total shares available issuance incentive plan incentive plan provides accelerated vesting change control year ended december 31 2012 tax benefit associated stock option exercises restricted stock grants disqualifying dispositions incentive stock options stock issued company’s espp approximately 26 million tax benefit recognized 2012 2011 2010 excess tax benefits realized company stock options first quarter 2011 company ceased granting stock options employees part annual equity incentive award program began granting restricted stock awards employees last year company made stock option grants 2010 company may determine grant stock options future incentive plan fair value stock options estimated date grant using blackscholes valuation model following weightedaverage assumptions expected dividend yield zero company never paid cash dividends present intention pay cash dividends addition remaining term credit facility scheduled expire april 2015 company permitted declare pay dividends expected term based company’s historical experience previous stock option grants expected volatility based historical volatility company’s stock measured period commensurate expected option term company consider implied volatility due low volume publicly traded options companys stock riskfree interest rate derived zero coupon rate us treasury instruments term comparable option’s expected term following table summarizes total aggregate stock option activity period december 31 2011 december 31 2012 number shares exercisable december 31 2012 2011 2010 807146 884959 928380 respectively weighted average exercise prices 1153 1114 1044 respectively weightedaverage grant date fair value stock options granted year ended december 31 2010 927 stock options granted years ended december 31 2012 2011 total intrinsic value options exercised years ended december 31 2012 2011 2010 15 million 24 million 23 million respectively cash proceeds option exercises year ended december 31 2012 11 million december 31 2012 774000 551000 adjusted estimated forfeitures total unrecognized compensation cost related nonvested stock options cost expected recognized weighted average period 08 year restricted stock awards first quarter 2011 company began granting restricted stock awards employees part annual equity incentive award program replacement stock options historically broadly granted employees generally vesting restricted stock awards contingent upon period service typically four years addition company grants restricted stock awards executive management vesting contingent upon specified company performance conditions historically nonemployee directors company compensated restricted stock awards part annual retainer 2011 nonemployee directors began receiving restricted stock units instead see following table summarizes restricted stock award activity period december 31 2011 december 31 2012 thousands except per share amounts weighted average grant date fair value restricted stock awards granted years ended december 31 2012 2011 2010 2060 1590 1571 respectively year ended december 31 2012 total grant date fair value servicebased restricted stock awards granted 44 million total grant date fair value performancebased restricted stock awards granted 817000 share awards released years ended december 31 2012 2011 2010 77000 56000 170000 respectively servicebased share awards vested 2012 2011 2010 vest date fair value 11 million 10 million 434000 respectively performancebased share awards vested 2012 2011 performancebased share awards vested 2010 vest date fair value 22 million december 31 2012 69 million unrecognized compensation cost 37 million net estimated forfeitures related nonvested restricted stock awards cost expected recognized weighted average period 25 years restricted stock units 2011 company began granting nonemployee directors company restricted stock unit “rsu” awards partial consideration annual retainer compensation first quarter fiscal year nonemployee director company receives rsu award number shares determined dividing value delivered rsu award closing price company’s common stock date grant awards vest full one year date grant addition 2010 prior years nonemployee directors paid quarterly retainer rsu awards quarterly retainer replaced annual compensation plan 2011 total grant date fair value servicebased restricted stock unit awards granted year ended december 31 2012 420000 weighted average grant date fair value restricted stock unit awards granted years ended december 31 2012 2011 2010 2065 1906 1365 respectively december 31 2012 44760 unrecognized compensation cost related nonvested restricted stock unit awards company estimates none outstanding rsu awards forfeited cost expected recognized weighted average period 01 year employee stock purchase plan 2004 company established 2004 employee stock purchase plan “espp” pursuant espp aggregate number shares common stock may purchased shall exceed five hundred thousand 500000 shares common stock company december 31 2012 company issued total 403200 shares common stock current espp years ended december 31 2012 2011 company issued 108990 44542 shares respectively espp permits substantially employees purchase common stock payroll deductions 85 lower trading price stock beginning end sixmonth offering period commencing january 1 july 1 number shares purchased based participants’ contributions made offering period fair value “look back” option espp shares issued offering period estimated using blackscholes valuation model call put option share price used model 15 discount stock price first day offering period number shares purchased calculated based employee contributions using following weightedaverage assumptions intrinsic value shares company’s stock purchased pursuant espp offering periods within years ended december 31 2012 2011 2010 191000 109000 251000 respectively stockbased compensation expense compensation cost stock options restricted stock restricted stock units espp follows thousands stockbased compensation cost included cost revenue selling general administrative expense research development expense follows thousands share reservations following table summarizes reservation shares companys stockbased compensation plans december 31 2012 note 10stock offering april 2011 company filed shelf registration statement form s3 sec time sell aggregate 125 million common stock warrants debt securities quarter ended march 31 2012 company sold total 572510 shares common stock net proceeds 103 million pursuant atthemarket equity offering sales agreement “sales agreement” citadel securities llc “citadel” dated february 2012 shares sold subsequent quarter ended march 31 2012 result restatement previously issued financial statements contained within report company longer compliance ongoing eligibility requirements shelf registration statement form s3 shelf registration statement therefore longer effective note 11income taxes financial reporting purposes net income loss income taxes includes following components thousands provision benefit income taxes based income loss income taxes follows thousands provision income taxes accompanying consolidated statements operations differs amount calculated applying statutory income tax rate income loss continuing operations income taxes primary components difference follows thousands company established valuation allowance us federal state deferred tax assets due uncertainty surrounding realization assets evidenced cumulative losses operations december 31 2012 management periodically evaluates recoverability deferred tax assets time determined likely deferred assets realizable valuation allowance reduced accordingly recorded tax benefit exception 155 million impact additional paid capital discussed company recorded valuation allowance 597 million december 31 2012 reflect estimated amount deferred tax assets may realized company decreased valuation allowance 80 million year ended december 31 2012 december 31 2012 company federal state net operating loss carryforwards approximately 1571 million 820 million respectively federal tax loss carryforwards begin expire 2020 state tax loss carryforwards begin expire 2013 addition company research development tax credit carryforwards federal state income tax purposes december 31 2012 47 million 54 million respectively federal credits begin expire 2018 unless utilized state credits indefinite life pursuant internal revenue code sections 382 383 use company’s federal net operating loss credit carryforwards may limited due cumulative change ownership 50 within threeyear period excess tax benefits associated stock option exercises restricted stock grants disqualifying dispositions incentive stock options stock issued company’s employee stock purchase plan amount 35 million 33 million 2012 2011 respectively reduce current income taxes payable accordingly included deferred tax asset relating net operating loss carryforwards included federal state net operating loss carryforwards disclosed footnote tax benefits associated stock option deductions 1998 2005 amount 155 million recorded additional paidin capital realization likely occur consequently valuation allowance recorded entire benefit company granted tax holiday switzerland effective january 1 2012 10 years tax holiday conditional upon company meeting certain employment investment thresholds impact tax holiday decreased foreign taxes 634000 2012 benefit tax holiday net income per diluted share 002 2012 us foreign withholding taxes recognized excess amount financial reporting tax basis investments foreign subsidiaries essentially permanent duration amount becomes taxable upon repatriation assets subsidiary sale liquidation subsidiary amount unremitted earnings foreign subsidiaries totaled 50 million december 31 2012 withholding taxes approximately 20 million would payable upon remittance previously unremitted earnings december 31 2012 determination amount unrecognized deferred income tax liability excess financial reporting basis tax basis investments foreign subsidiaries practicable complexities hypothetical calculation items give rise significant portions deferred tax accounts follows thousands company adopted provisions section 74010 accounting uncertainty income taxes topic fasb asc january 1 2007 total unrecognized tax benefits december 31 2012 approximately 100 million recorded reduction deferred tax assets caused corresponding reduction company’s valuation allowance 100 million extent unrecognized tax benefits recognized time valuation allowance exist recognition tax benefit would reduce effective tax rate company anticipate amount unrecognized tax benefits december 31 2012 significantly increase decrease within 12 month period following december 31 2012 reconciliation beginning ending amount unrecognized tax benefits follows thousands company recognizes interest penalties component income tax expense interest penalties years ended december 31 2012 2011 2010 immaterial company’s us federal income tax returns tax years subsequent 2007 subject examination internal revenue service state income tax returns subsequent 2006 subject examination state tax authorities company’s foreign tax returns subsequent 2002 subject examination foreign tax authorities net operating losses years statute limitations expired 2007 prior federal 2006 prior state could adjusted event taxing jurisdictions challenge amounts net operating loss carryforwards years note 12leases rental expense amounted 37 million 31 million 25 million years ended december 31 2012 2011 2010 respectively incurred primarily facility leases future annual minimum rental commitments december 31 2012 follows thousands note 13pension postretirement benefit plans foreign plan compensationretirement benefits subtopic fasb asc requires balance sheet recognition total funded status pension postretirement benefit plans guidance actuarial gains losses prior service costs credits remaining transition assets obligations recognized previous accounting standards must recognized component accumulated comprehensive income within stockholders’ equity net tax effects amortized component net periodic benefit cost income company’s plan regulated swiss government funded employees company pension benefit based compensation length service credited investment earnings plan guarantees minimum rate return well minimum annuity purchase rates company’s funding policy respect pension plan contribute amount required swiss law using required percentage applied employee’s compensation addition participating employees required contribute pension plan company made pension contributions 732000 778000 635000 2012 2011 2010 respectively 45 total contributions plan year made employees plan measurement date december 31 company rights assets plan reported pension asset increased 64 million 69 million year ended december 31 2012 asset increase combination actuarial gain due participant experience employee funding received plan related transfer assets another employee benefit plan actuarial loss due assumption changes higher expected overall asset return rate resulted gain accumulated benefit obligation approximately 281 million 252 million december 31 2012 2011 respectively following table reflects changes pension benefit obligation plan assets years ended december 31 2012 2011 thousands amounts recognized consolidated balance sheets consist thousands components net periodic pension cost income amounts recognized comprehensive income loss taxes follows thousands assumptions used determine benefit obligation net periodic pension cost income follows pension plan’s overall strategy investment policy managed board plan overall longterm rate based target asset allocation 15 swiss bonds 13 nonswiss hedged bonds 10 swiss equities 15 global equities 36 real estate 6 emerging market equities 3 alternative investments 2 cash shortterm investments 2013 expected future longterm rate return estimated 425 based historical asset rates returns asset allocation classification 04 rate swiss bonds 10 hedged foreign bonds 48 real estate 56 swiss equities 65 unhedged global equities 74 unhedged emerging markets 280 alternative investments 14 cash 2012 expected longterm rate return 425 based historical asset rates return 18 swiss bonds 20 unhedged foreign bonds 15 hedged foreign bonds 43 real property 56 swiss equities 69 unhedged global equities 46 alternative investments 13 cash following benefit payments reflect expected future service appropriate expected paid thousands company expects contribute approximately 677000 pension plan 2013 investment objectives primary investment goal pension plan achieve total annualized return 425 longterm investments evaluated compared benchmarked plans similar investment strategies plan also attempts minimize risk single security class securities disproportionate impact plan guideline assets diversified asset classes equity fixed income real estate alternative investments fair values plans assets december 31 2012 asset category follows thousands fair value assets level 1 observable inputs quoted prices active markets identical assets level 2 inputs quoted prices observable asset liability either directly indirectly include quoted prices similar assets liabilities active markets quoted prices identical similar assets liabilities markets active level 3 unobservable inputs reflect reporting entity’s assumptions investments include real estate owned pension plan stated appraised value obtained independent source plan company real estate investment potential long term investment liquidation processes hedge funds might monthly quarterly annual restraints redemptions may require advance notice redemption financial instruments significant level 3 inputs following table summarizes activity year investment type 1 total unrealized gains reported component pension adjustment accumulated comprehensive income consolidated statement stockholders’ equity us plan company postretirement benefit plans covering employees united states substantially us employees eligible elect coverage contributory employee savings plan provides company matching contributions based onehalf employee contributions certain plan limits company’s matching contributions plan totaled 486000 415000 379000 years ended december 31 2012 2011 2010 respectively note 14legal proceedings although company incurs significant legal costs connection legal proceedings company unable estimate amount future legal costs therefore costs expensed period legal services performed fcpa matter result publicly traded company us subject us foreign corrupt practices act “fcpa” prohibits companies making improper payments foreign officials purpose obtaining retaining business beginning 2009 conducted internal review payments made former independent sales agent china respect sales high voltage capacitor products produced swiss subsidiary january 2011 reached settlements sec us department justice “doj” respect charges asserted sec doj relating antibribery books records internal controls disclosure provisions fcpa securities laws violations settled civil charges sec agreeing injunction violations fcpa terms settlement sec agreed pay total approximately 64 million profit disgorgement prejudgment interest two installments almost 32 million paid first quarters 2011 2012 terms settlement doj agreed pay total 80 million penalties three installments 35 million paid first quarter 2011 23 million paid first quarters 2012 2013 part settlement entered threeyear deferred prosecution agreement “dpa” doj remain compliance terms dpa conclusion term charges us asserted doj dismissed prejudice terms agreement periodically report sec doj internal compliance program concerning antibribery december 31 2012 23 million included “accounts payable accrued liabilities” accompanying consolidated balance sheet final payment paid full january 25 2013 customer bankruptcy matter january 2011 attended bankruptcy proceeding previous customer order bid certain intellectual property physical assets auctioned proceeding offer sale presented potential claims held previous customer us nature potential claims specified offer construed including potential claims related payments made us customer prior previous customer filing bankruptcy well potential intellectual property dispute us previous customer january 2011 bankruptcy proceeding bid 250000 purchase bankruptcy estate right claims us stemming rights held previous customer bankruptcy estate later declined offer interest expedient resolution recently increased settlement offer 750000 december 2012 parties reached final agreement total consideration 525000 due us bankruptcy estate full final release claims related potential preference payment claim settlement amount paid full february 2013 concerning potential intellectual property dispute believe claim meritless chance significant loss respect potential claim remote quarter ended september 30 2012 accrued liability 750000 anticipated settlement potential claims consideration settlement preference claim matter amount 525000 remaining balance accrual 225000 reversed credited statement operations fourth quarter 2012 securities matter early 2013 voluntarily provided information united states attorneys office southern district california us securities exchange commission related announcement intend file restated financial statements fiscal years 2011 2012 cooperating investigations preliminary stage cannot predict ultimate outcome action estimate range potential loss therefore accrued amount potential costs associated action adverse result could material adverse impact financial condition results operation securities class action matter march 13 2013 april 19 2013 four purported shareholder class actions filed united states district court southern district california us three current former officers actions entitled foster v maxwell technologies inc et al case 13cv0580 sd cal filed march 13 2013 weinstein v maxwell technologies inc et al 13cv0686 sd cal filed march 21 2013 abanades v maxwell technologies inc et al 13cv0867 sd cal filed april 11 2013 mebarak v maxwell technologies inc et al 13cv0942 sd cal filed april 19 2013 complaints allege defendants made false misleading statements regarding financial performance business prospects overstated reported revenue complaints purport assert claims violations section 10b 20a securities exchange act 1934 sec rule 10b5 behalf persons purchased common stock april 28 2011 march 7 2013 inclusive complaints seek unspecified monetary damages attorneys fees costs may 13 2013 four prospective lead plaintiffs filed motions consolidate four actions appointed lead plaintiff june 11 2013 court vacated hearing motions indicated would issue written order near future preliminary stage cannot determine whether reasonable possibility loss incurred estimate range potential loss accordingly accrued amount potential loss associated action adverse result could material adverse impact financial condition results operation state shareholder derivative matter april 11 2013 april 18 2013 two shareholder derivative actions filed california superior court county san diego entitled warsh v schramm et al case 37201300043884 san diego sup ct filed april 11 2013 neville v cortes et al case 37201300044911cubtctl san diego sup ct filed april 18 2013 complaints name defendants certain current former officers directors well former auditor mcgladrey llp named nominal defendant complaints allege individual defendants made caused us make false andor misleading statements regarding financial condition failed disclose material adverse facts business operations prospects complaints assert causes action breaches fiduciary duty disseminating false misleading information failing maintain internal controls failing properly oversee manage company well unjust enrichment abuse control gross mismanagement professional negligence accounting malpractice aiding abetting breaches fiduciary duty lawsuits seek unspecified damages order directing us take necessary actions reform improve corporate governance internal procedures restitution disgorgement profits benefits compensation attorneys experts fees costs expenses may 7 2013 court consolidated two actions filed motion stay consolidated action july 2 2013 action derivative nature seek monetary damages us however may required throughout term action advance legal fees costs incurred individual defendants incur financial obligations preliminary stage cannot predict ultimate outcome action estimate range potential loss therefore accrued amount potential costs associated action adverse result could material adverse impact financial condition results operation federal shareholder derivative matter april 23 2013 may 7 2013 two shareholder derivative actions filed united states district court southern district california entitled kienzle v schramm et al case 13cv0966 sd cal filed april 23 2013 agrawal v cortes et al case 13cv1084 sd cal filed may 7 2013 complaints name defendants certain current former officers directors name us nominal defendant complaints allege individual defendants caused allowed us issue false misleading statements financial condition operations management internal controls falsely represented maintained adequate controls complaints assert causes action breach fiduciary duty abuse control gross mismanagement waste corporate assets unjust enrichment lawsuits seek unspecified damages order directing us take necessary actions reform improve corporate governance internal procedures restitution disgorgement profits benefits compensation attorneys experts fees costs expenses june 10 2013 parties filed joint motion consolidate two actions court yet ruled motion action derivative nature seek monetary damages us however may required throughout term action advance legal fees costs incurred individual defendants incur financial obligations preliminary stage cannot predict ultimate outcome action estimate range potential loss therefore accrued amount potential costs associated action adverse result could material adverse impact financial condition results operation shareholder demand letter matter april 9 2013 stephen neville purported shareholder company sent demand letter us inspect books records pursuant california corporations code section 1601 demand sought inspection documents related march 7 2013 announcement would restating previouslyissued financial statements 2011 2012 board minutes committee materials documents related board management discussions regarding revenue recognition january 1 2011 present responded letter dated april 19 2013 explaining believed demand appear proper following receipt second letter mr neville dated april 23 2013 explained letter dated april 29 2013 continue believe inspection demand appears improper received response mr neville regarding inspection demand preliminary stage cannot predict ultimate outcome action estimate range potential loss therefore accrued amount potential costs associated action adverse result could material adverse impact financial condition results operation note 15unaudited quarterly financial information includes noncash expense stockbased compensation 13 million b includes noncash expense stockbased compensation 770000 c includes noncash expense stockbased compensation 505000 includes noncash expense stockbased compensation 527000 e includes gain embedded derivatives 11 million noncash expense stockbased compensation 917000 f includes noncash expense stockbased compensation 789000 26 million charge accrual anticipated settlement legal matter g includes noncash expense stockbased compensation 734000 h includes noncash expense stockbased compensation 142000 restated quarterly consolidated balance sheets end first three quarters fiscal year 2012 2011 respectively presented maxwell technologies inc consolidated balance sheet thousands except per share data maxwell technologies inc consolidated balance sheet thousands except per share data maxwell technologies inc consolidated balance sheet thousands except per share data maxwell technologies inc consolidated balance sheet thousands except per share data maxwell technologies inc consolidated balance sheet thousands except per share data maxwell technologies inc consolidated balance sheet thousands except per share data restated quarterly consolidated statements operations first three quarters fiscal year 2012 quarters fiscal year 2011 presented maxwell technologies inc consolidated statement operations thousands except per share data maxwell technologies inc consolidated statement operations thousands except per share data maxwell technologies inc consolidated statement operations thousands except per share data maxwell technologies inc consolidated statement operations thousands except per share data maxwell technologies inc consolidated statement operations thousands except per share data maxwell technologies inc consolidated statement operations thousands except per share data maxwell technologies inc consolidated statement operations thousands except per share data schedule ii valuation qualifying accounts thousands item 9item 8 financial statements supplementary data consolidated financial statements notes thereto appear pages 46 75 annual report form 10k maxwell technologies inc index consolidated financial statements report independent registered public accounting firm board directors stockholders maxwell technologies inc audited accompanying consolidated balance sheets maxwell technologies inc subsidiaries december 31 2013 2012 related consolidated statements operations comprehensive income loss stockholders’ equity cash flows three years period ended december 31 2013 connection audits financial statements also audited financial statement schedule maxwell technologies inc listed item 15a financial statements financial statement schedule responsibility company’s management responsibility express opinion financial statements schedule based audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion consolidated financial statements referred present fairly material respects financial position maxwell technologies inc subsidiaries december 31 2013 2012 results operations cash flows three years period ended december 31 2013 conformity us generally accepted accounting principles also opinion related financial statement schedule considered relation basic consolidated financial statements taken whole presents fairly material respects information set forth therein discussed maxwell technologies inc annual report form 10k year ended december 31 2012 2011 financial statements restated correct misstatements also audited accordance standards public company accounting oversight board united states maxwell technologies inc’s subsidiaries’ internal control financial reporting december 31 2013 based criteria established internal controlintegrated framework issued committee sponsoring organizations treadway commission report dated february 20 2014 expressed unqualified opinion thereon bdo usa llp san diego california february 20 2014 maxwell technologies inc consolidated balance sheets thousands except per share data accompanying notes integral part consolidated financial statements maxwell technologies inc consolidated statements operations thousands except per share data accompanying notes integral part consolidated financial statements maxwell technologies inc consolidated statements comprehensive income loss thousands accompanying notes integral part consolidated financial statements maxwell technologies inc consolidated statements stockholders’ equity thousands accompanying notes integral part consolidated financial statements maxwell technologies inc consolidated statements cash flows thousands accompanying notes integral part consolidated financial statements maxwell technologies inc notes consolidated financial statements unless context otherwise requires references “maxwell” “company” “we” “us” “our” refer maxwell technologies inc subsidiaries references “maxwell sa” refer swiss subsidiary maxwell technologies sa note 1description business summary significant accounting policies description business maxwell technologies inc delaware corporation originally incorporated 1965 name maxwell laboratories inc 1983 company completed initial public offering 1996 changed name maxwell technologies inc company headquartered san diego california three manufacturing facilities located san diego california rossens switzerland peoria arizona addition company two contract manufacturers located china maxwell operates one operating segment called high reliability comprised three product lines • ultracapacitors primary focus ultracapacitors energy storage devices possess unique combination high power density extremely long operational life ability charge discharge rapidly ultracapacitor cells multicell packs modules provide highly reliable energy storage power delivery solutions applications multiple industries including transportation automotive information technology renewable energy industrial electronics • highvoltage capacitors condis® highvoltage capacitors designed manufactured perform reliably decades climates products include grading coupling capacitors capacitive voltage dividers used ensure safety reliability electric utility infrastructure applications involving transport distribution measurement highvoltage electrical energy • radiationhardened microelectronic products radiationhardened microelectronic products satellites spacecraft include single board computers components highdensity memory power modules many products incorporate proprietary radpak® packaging shielding technology novel architectures enable withstand effects environmental radiation perform reliably space company’s products designed manufactured perform reliably life products systems integrated company achieves high reliability application proprietary technologies rigorously controlled design development manufacturing test processes financial statement presentation accompanying consolidated financial statements include accounts maxwell technologies inc subsidiaries prepared accordance accounting principles generally accepted united states “us gaap” intercompany transactions account balances eliminated consolidation liquidity december 31 2013 company approximately 306 million cash equivalents management believes available cash balance combined cash company expects generate operations sufficient fund operations obligations become due capital investments least next twelve months reclassifications certain prior period amounts consolidated statements operations reclassified conform current period presentation reclassifications impact reported net income loss otherwise material impact presentation overall financial statements use estimates preparation financial statements conformity accounting principles generally accepted united states america requires management make estimates assumptions affect reported amounts related disclosures estimates include limited assessing collectability accounts receivable applied unapplied production costs production capacities usage recoverability inventories longlived assets including deferred income taxes incurrence warranty obligations impairment goodwill intangible assets estimation cost complete certain projects accruals estimated losses legal matters estimation value stockbased compensation awards including probability performance criteria restricted stock awards met revenue recognition revenue derived primarily sale manufactured products directly customers product revenue recognized according guidelines securities exchange commission “sec” staff accounting bulletin “sab” numbers 101 revenue recognition financial statements 104 revenue recognition following criteria met 1 persuasive evidence arrangement exists upon contract signing receipt authorized purchase order customer 2 title passes customer either shipment company’s facilities receipt customer facility depending shipping terms 3 customer payment deemed fixed determinable free contingencies significant uncertainties 4 collectability reasonably assured policy consistently applied period beginning fourth quarter 2011 three distributors companys products company offered extended payment terms allowed distributors pay us received payment customer respect certain sales transactions also beginning fourth quarter 2011 one distributor companys products company offered return rights profit margin protection respect certain sales transactions therefore four distributors company determined revenue recognition criteria sab 101 104 met time shipment fixed determinable price collection reasonably assured least respect certain sales transactions result three distributors provided extended payment terms provide fixed determinable price company determined defer recognition revenue sales beginning fourth quarter 2011 period cash received one distributor provided return rights profit margin protection company could estimate exposure company determined defer recognition revenue sales beginning fourth quarter 2011 distributor confirmed company entitled returns credits third quarter 2013 distributor confirmed company entitled returns credits therefore previously deferred revenue related distributor recognized quarter ended september 30 2013 although company deferred revenue significant amount sales four distributors december 31 2011and 2012 amount deferred revenue related distributors december 31 2013 insignificant addition deferred revenue arrangements discussed preceding paragraph revenue recognized sales meet revenue recognition criteria time sale revenue recognized criteria revenue recognition determined met example company believe collection sales price reasonably assured time sale defers revenue recognition cash received december 31 2013 december 31 2012 cumulative sales totaling 45 million 158 million respectively yet recognized revenue company recorded cost basis inventory shipped customers prior achievement revenue recognition criteria approximately 25 million 92 million december 31 2013 2012 respectively inventory consolidated balance sheets company receives cash payment customer prior achievement revenue recognition criteria amount received customer recorded deferred revenue consolidated balance sheets total deferred revenue consolidated balance sheets december 31 2013 2012 10 million 64 million respectively relates cash received customers sales revenue recognition criteria achieved customer advances well less significant customer arrangements requiring deferral revenue cash equivalents company invests excess cash debt instruments us government agencies bank certificates deposit commercial paper highquality corporate issuers highly liquid instruments original maturity three months less purchase considered cash equivalents accounts receivable allowance doubtful accounts trade receivables stated gross invoiced amount less allowance uncollectible accounts allowance doubtful accounts reflects management’s best estimate probable losses inherent accounts receivable balance management determines allowance doubtful accounts based known troubled accounts historical experience currently available evidence inventories stated lower cost firstin firstout basis market finished goods workinprocess inventory values include cost raw materials labor manufacturing overhead consigned inventory includes finished goods delivered customers related sale met revenue recognition criteria revenue deferred inventory written market value establishes new cost basis value subsequently increased based upon changes underlying facts circumstances company makes adjustments reduce cost inventory net realizable value required estimated excess obsolete inventories factors influencing adjustments include inventories onhand compared historical estimated future sales existing new products assumptions likelihood obsolescence unabsorbed absorbed costs treated expense period incurred property equipment property equipment carried cost depreciated using straightline method depreciation provided estimated useful lives related assets three ten years leasehold improvements depreciated shorter estimated useful life term lease leasehold improvements funded landlords recorded property equipment depreciated shorter estimated useful life asset lease term deferred rent amortized lease term december 31 2013 2012 net book value leasehold improvements funded landlords 27 million 36 million respectively december 31 2013 2012 unamortized balance deferred rent related landlord funding leasehold improvements 27 million 27 million respectively included accounts payable accrued liabilities longterm liabilities consolidated balance sheets goodwill represents excess cost acquired business net fair value assigned assets liabilities amortized instead goodwill assessed impairment intangiblesgoodwill topic fasb asc company established december 31 annual impairment test date company first makes qualitative assessment whether goodwill impaired likely goodwill impaired company performs twostep quantitative impairment analysis determine goodwill impaired company may also determine skip qualitative assessment year move directly quantitative test impairments goodwill reported years ended december 31 2013 2012 2011 impairment longlived assets intangible assets property equipment intangible assets reviewed impairment whenever events changes circumstances indicate carrying value assets may recoverable company determines carrying value asset recoverable permanent impairment charge recorded amount carrying value longlived intangible asset exceeds fair value intangible assets finite lives amortized straightline basis useful lives ten thirteen years impairments property equipment intangible assets recorded years ended december 31 2013 2012 2011 warranty obligation company provides warranties product sales majority company’s warranties one three years normal course business company accrues estimated warranty costs time sale based historical warranty experience plus known expected changes warranty exposure income taxes deferred income taxes provided liability method accordance income taxes topic fasb asc whereby deferred tax assets recognized deductible temporary differences deferred tax liabilities recognized taxable temporary differences method deferred income taxes recorded reflect tax consequences future years temporary differences tax basis assets liabilities reported amounts period end likely portion deferred tax asset realized valuation allowance recognized guidance also provides criteria recognition measurement presentation disclosures uncertain tax positions tax benefit uncertain tax position may recognized “more likely not” position sustainable based solely technical merits concentration credit risk company maintains cash balances various financial institutions primarily california switzerland california cash balances commonly exceed 250000 federal deposit insurance corporation insurance limit switzerland banks company cash deposits either governmentowned case cash deposited nongovernment banks deposits insured 100000 swiss francs company experienced losses accounts management believes company exposed significant credit risk respect cash equivalents financial instruments subject company potential concentrations credit risk consist principally company’s accounts receivable company’s accounts receivable result product sales customers various industries various geographical areas domestic foreign company performs credit evaluations customers generally requires collateral one customer shenzhen xinlikang supply china management co ltd accounted 22 total revenue 2013 18 total revenue 2012 sales single customer amounting 10 total revenue year ended december 31 2011 two customers shenzhen xinlikang supply china management co ltd continental automotive hungary kft accounted 13 11 respectively total accounts receivable december 31 2013 addition three customers shenzhen xinlikang supply china management co ltd xiamen golden dragon bus co ltd abb accounted 26 15 11 respectively total accounts receivable december 31 2012 research development expense research development expenditures expensed period incurred thirdparty funding research development expense costsharing arrangements recorded offset research development expense period expenses incurred research development expense 225 million 217 million 224 million years ended december 31 2013 2012 2011 respectively advertising expense advertising costs expensed period incurred advertising expense 884000 12 million 287000 years ended december 31 2013 2012 2011 respectively shipping handling expense company recognizes shipping handling expenses component cost revenue total shipping handling expense included cost revenue 13 million 14 million 29 million years ended december 31 2013 2012 2011 respectively patent defense costs company capitalizes patent defense costs additional cost patents successful outcome patent defense case probable company ultimately unsuccessful costs would charged expense legal expenses associated previous patent infringement lawsuit capitalized intangible asset company settled lawsuit 2009 1 million consideration company received settlement netted capitalized patent defense costs net amount amortized remaining lives patents december 31 2013 unamortized patent defense costs 234000 classified intangible assets consolidated balance sheet foreign currencies company’s primary foreign currency exposure related subsidiary switzerland euro local currency swiss franc revenue operating expenses local currency loans changes currency exchange rates impact reported us dollar amount revenue expenses debt functional currency swiss subsidiary swiss franc assets liabilities swiss subsidiary translated monthend exchange rates revenues expenses gains losses translated rates exchange approximate rate effect time transaction translation adjustments resulting process presented separately component accumulated comprehensive income within stockholders’ equity consolidated balance sheets foreign currency transaction gains losses reported cost revenue selling general administrative expense consolidated statements operations foreign currency derivative instruments part risk management strategy company uses forward contracts hedge certain foreign currency exposures companys objective offset gains losses resulting exposures opposing gains losses forward contracts thereby reducing volatility earnings created foreign currency exposures accordance derivatives hedging topic fasb asc fair values forward contracts estimated period end based quoted market prices recorded “trade accounts receivable net” consolidated balance sheets gains losses recognized contracts recorded “cost revenue” “selling general administrative” expense consolidated statements operations net income loss per share accordance earnings per share topic fasb asc basic net income loss per share calculated using weighted average number common shares outstanding period diluted net income per share includes impact additional common shares would outstanding dilutive potential common shares issued potentially dilutive securities considered calculation diluted net loss per share inclusion would antidilutive following table sets forth computation basic diluted net income loss per share thousands except per share data following table summarizes instruments may convertible common shares included denominator used diluted net income loss per share calculation would antidilutive thousands stockbased compensation company issued stockbased compensation awards employees nonemployee directors including stock options restricted stock restricted stock units shares employee stock purchase plan company records compensation expense stockbased awards accordance criteria set forth stock compensation subtopic fasb asc although company granted stock options since 2010 company used blackscholes option pricing model estimate fair value historical stock option grants determination fair value stock options utilizing blackscholes model affected company’s stock price number assumptions including expected volatility expected life riskfree interest rate expected dividends fair value restricted stock restricted stock units based closing market price company’s common stock date grant compensation expense equal fair value restricted stock award recognized ratably requisite service period restricted stock awards vesting contingent company performance conditions company uses requisite service period likely occur requisite service period estimated based expected achievement date performance condition unlikely performance condition achieved compensation expense recognized unless later determined achievement performance condition likely requisite service period may adjusted changes expected outcomes related performance conditions impact changes recognized cumulative adjustment consolidated statement operations period expectation changes sharebased compensation expense recognized consolidated statement operations based equity awards ultimately expected vest fasb asc requires forfeitures estimated time grant revised necessary subsequent periods cumulative catch adjustment actual forfeitures differ estimates business enterprise information company operates one operating segment high reliability according disclosures segments enterprise related information topic fasb asc establishes standards way public business enterprises report information operating segments annual consolidated financial statements company’s chief operating decision maker regularly review discrete financial information consolidated level revenues product line geographic area presented thousands 1 revenue external customers located countries included “all countries” individually comprise 10 total revenues years presented longlived assets geographic location follows thousands note 2balance sheet details thousands note 3goodwill intangibles company reviews goodwill impairment annually according intangiblesgoodwill topic fasb asc company makes qualitative evaluation likelihood goodwill impairment concludes likely carrying amount single reporting unit greater fair value required perform first step twostep quantitative impairment test otherwise performing twostep impairment test unnecessary first step consists estimating fair value comparing estimated fair value carrying value reporting unit fair value less carrying value second step performed compute amount impairment determining implied fair value goodwill implied fair value goodwill residual fair value derived deducting fair value reporting unit’s assets liabilities estimated total fair value calculated step one impairment charge would represent excess carrying amount reporting unit’s goodwill implied fair value goodwill guidance requires goodwill reviewed annually time every year event occurs circumstances change reasonably possible impairment may exist company selected december 31 annual testing date result company’s annual assessments december 31 2013 2012 2011 impairment indicated change carrying amount goodwill 2012 2013 follows thousands intangible assets reviewed impairment whenever events changes circumstances indicate carrying value assets may recoverable company determines carrying value asset recoverable permanent impairment charge recorded amount carrying value intangible asset exceeds fair value impairments intangible assets recorded years ended december 31 2013 2012 2011 composition intangible assets subject amortization december 31 2013 2012 follows thousands amortization expense intangible assets 299000 441000 559000 years ended december 31 2013 2012 2011 respectively estimated amortization next two years ending december 31 follows thousands actual amortization expense reported future periods could differ estimates result intangible asset acquisitions foreign currency translation adjustments impairments factors note 4convertible debentures december 20 2005 company issued 25 million aggregate principal amount senior subordinated convertible debentures “debentures” february 2011 holder debentures converted remaining 83 million principal balance 514086 shares company’s common stock conversion price 1621 per share conversion date common stock fair value 93 million based closing market price conversion resulted gain 10 million included “gain embedded derivatives” consolidated statement operations long debentures outstanding company required maintain minimum cash balance 80 million amount classified restricted cash convertible debentures outstanding cash restriction released february 2011 outstanding principal amount convertible debentures converted shares companys common stock shares issued upon exercise warrants interest paid cash principal converted shares common stock follows thousands conversion remaining principal balance debentures february 2011 principal balance convertible holder time common shares addition eighteen months issue date company could required specified amount principal debentures converted certain conditions satisfied period 20 consecutive trading days determine fair value forced conversion reporting date company applied z factor theoretical measurement probability occurrence change fair value revaluation conversion rights warrant liabilities represents difference fair value end current period conversion date fair value beginning current period using value calculated blackscholes pricing model effect fair market value adjustment 78000 gain year ended december 31 2011 recorded “gain embedded derivatives” consolidated statements operations note 5fair value measurement company records certain financial instruments fair value accordance fair value measurements disclosures topic fasb asc december 31 2013 financial instruments topic applied financial instruments foreign currency forward contracts december 31 2013 fair value foreign currency forward contracts 382000 asset recorded “trade accounts receivable net” consolidated balance sheet fair value derivative instruments measured using models following quoted market prices active markets identical instruments level 2 input fair value hierarchy fair value measurements disclosures topic fasb asc forward contracts december 31 2013 onemonth original maturity term mature january 3 2014 february 4 2014 carrying value shortterm longterm borrowings approximates fair value relative short maturity instruments interest rates company could currently obtain convertible debentures issued december 20 2005 evaluated determined conventional convertible debentures therefore certain terms provisions including liquidating damages associated registration rights agreement embedded conversion features bifurcated accounted derivative liability instruments settled february 2011 accounting guidance requires conversion features recorded fair value reporting period changes fair value recorded consolidated statement operations fair values embedded conversion options based blackscholes fair value calculations february 2011 remaining 83 million principal balance converted shares company’s common stock fair value measurements liability required made following table summarizes changes liability convertible debenture conversion features valued using significant level 3 inputs fair value measurement hierarchy fasb asc thousands refer note 4convertible debentures valuation model unobservable data used calculate fair value conversion features convertible debentures issued company note 6borrowings credit facility december 2011 company obtained secured credit facility form revolving line credit maximum 150 million “revolving line credit” equipment term loan “equipment term loan” together “credit facility” availability revolving line credit expired february 5 2014 company borrowed amounts date revolving line credit general amounts borrowed credit facility secured lien company’s assets intellectual property addition credit agreement company required pledge 65 equity interests swiss subsidiary company also agreed encumber intellectual property agreement contains certain restrictive covenants limit company’s ability among things incur additional indebtedness guarantees ii create liens encumbrances property iii enter merger similar transaction iv invest another entity v declare pay dividends vi invest fixed assets excess defined dollar amount repayment amounts owed pursuant credit facility may accelerated event company violation representations warranties covenants made credit agreement including certain financial covenants financial covenants company must meet term credit agreement include quarterly minimum liquidity ratios minimum quick ratios ebitda targets annual net income target borrowings credit facility bear interest payable monthly either banks prime rate ii libor plus 225 companys option subject certain limitations company incurs unused commitment fee payable quarterly equal 025 per annum average daily unused amount revolving line credit equipment term loan available finance 80 eligible equipment purchases made april 1 2011 april 30 2012 period company borrowed 50 million equipment term loan december 31 2013 company compliance financial covenant pertaining quarterly ebitda target quarter ended december 31 2013 result noncompliance banks obligation extend credit ceased terminated outstanding debt balance immediately callable bank december 31 2012 company compliance credit agreement due restatement previously issued financial statements resulted violation various covenants result events noncompliance borrowings outstanding equipment term loan classified current obligation accompanying consolidated balance sheets december 31 2012 2013 december 31 2013 22 million outstanding equipment term loan applicable interest rate libor plus 225 25 december 31 2013 bank exercise right accelerate repayment original terms credit facility principal interest equipment term loan payable 36 equal monthly installments equipment term loan fully repaid maturity date april 30 2015 may prepaid whole part time shortterm borrowings maxwell’s swiss subsidiary maxwell sa 30 million swiss francdenominated approximately 34 million december 31 2013 shortterm loan agreement swiss bank renews semiannually bears interest 160 borrowings shortterm loan agreement unsecured december 31 2013 2012 full amount loan drawn addition maxwell sa 20 million swiss francdenominated approximately 22 million december 31 2013 credit agreement swiss bank renews annually bears interest 173 borrowings credit agreement unsecured december 31 2013 2012 full amount available credit line drawn maxwell sa also 10 million swiss francdenominated approximately 11 million december 31 2013 credit agreement another swiss bank available balance line withdrawn reduced bank time december 31 2013 2012 amounts drawn credit line interest rates applicable draws line determined time draw longterm borrowings maxwell sa various financing agreements vehicles agreements original threeyear repayment period interest rates ranging 19 51 december 31 2013 2012 179000 159000 respectively outstanding agreements following table summarizes debt outstanding thousands contractually scheduled payments due borrowings subsequent december 31 2013 follows thousands 1 contractually scheduled payments related equipment term loan 22 million callable bank note 7foreign currency derivative instruments maxwell uses forward contracts hedge certain monetary assets liabilities primarily receivables payables denominated foreign currency change fair value instruments represents natural hedge gains losses offset changes fair value underlying monetary assets liabilities due movements currency exchange rates contracts generally expire one month contracts considered economic hedges designated hedges derivatives hedging topic fasb asc therefore change fair value instruments recognized currently consolidated statement operations net gains losses foreign currency forward contracts included cost revenue selling general administrative expense consolidated statements operations follows thousands net gains losses foreign currency derivative contracts partially offset net gains losses underlying monetary assets liabilities foreign currency gains losses underlying monetary assets liabilities included cost revenue selling general administrative expense consolidated statements operations follows thousands december 31 2013 total notional amount foreign currency forward contracts designated hedges 344 million following table presents gross amounts offset net amounts presented consolidated balance sheets companys derivative instruments measured fair value thousands company legal right offset recognized assets liabilities upon settlement derivative instruments forward contracts outstanding december 31 2013 mature january 3 2014 additional information refer note 5 fair value measurements note 8stock plans equity incentive plans company two active sharebased compensation plans december 31 2013 2004 employee stock purchase plan amended restated “espp” 2013 omnibus equity incentive plan “incentive plan” approved stockholders incentive plan incentive stock options nonqualified stock options restricted stock restricted stock units granted employees nonemployee directors generally awards vest periods one four years addition equity awards issued senior management vesting award tied company performance conditions company’s policy issue new shares common stock upon exercise stock options granting stock awards employees company’s incentive plan currently provides equity incentive pool 3750000 shares reserved issuance replenished forfeited shares additionally equity awards forfeited company’s 2005 equity incentive plan 1995 stock option plan added total shares available issuance incentive plan incentive plan provides accelerated vesting change control year ended december 31 2013 tax benefit associated stock option exercises restricted stock grants disqualifying dispositions incentive stock options stock issued company’s espp approximately 10 million tax benefit recognized 2013 2012 2011 excess tax benefits realized company stock options first quarter 2011 company ceased granting stock options employees part annual equity incentive award program began granting restricted stock awards employees however 2013 company granted total 175000 stock options related retention new chief operating officer well certain onetime stock option awards various employees company may determine grant stock options future incentive plan fair value stock options estimated date grant using blackscholes valuation model following weightedaverage assumptions expected dividend yield zero company never paid cash dividends present intention pay cash dividends addition remaining term equipment term loan scheduled repaid april 2015 company permitted declare pay dividends expected term based company’s historical experience previous stock option grants expected volatility based historical volatility company’s stock measured period commensurate expected option term company consider implied volatility due low volume publicly traded options companys stock riskfree interest rate derived zero coupon rate us treasury instruments term comparable option’s expected term following table summarizes total aggregate stock option activity period december 31 2012 december 31 2013 number shares exercisable december 31 2013 2012 2011 759936 807146 884959 respectively weighted average exercise prices 1151 1153 1114 respectively weightedaverage grant date fair value stock options granted year ended december 31 2013 756 stock options granted years ended december 31 2012 2011 total intrinsic value options exercised years ended december 31 2013 2012 2011 18000 15 million 24 million respectively cash proceeds option exercises year ended december 31 2013 143000 december 31 2013 374000 291000 adjusted estimated forfeitures total unrecognized compensation cost related nonvested stock options cost expected recognized weighted average period 26 years restricted stock awards first quarter 2011 company began granting restricted stock awards employees part annual equity incentive award program replacement stock options historically broadly granted employees generally vesting restricted stock awards contingent upon period service typically four years addition company grants restricted stock awards executive management vesting contingent upon specified company performance conditions following table summarizes restricted stock award activity period december 31 2012 december 31 2013 thousands except per share dollar amounts weighted average grant date fair value restricted stock awards granted years ended december 31 2013 2012 2011 1020 2060 1590 respectively year ended december 31 2013 total grant date fair value servicebased restricted stock awards granted 31 million total grant date fair value performancebased restricted stock awards granted 914000 share awards released years ended december 31 2013 2012 2011 98000 77000 56000 respectively servicebased share awards vested 2013 2012 2011 vest date fair value 916000 11 million 10 million respectively performancebased share awards vested 2013 2012 2011 december 31 2013 58 million unrecognized compensation cost 46 million net estimated forfeitures related nonvested restricted stock awards cost expected recognized weighted average period 24 years restricted stock units 2011 company began granting nonemployee directors company restricted stock unit “rsu” awards partial consideration annual retainer compensation first quarter fiscal year nonemployee director company receives rsu award number shares determined dividing value delivered rsu award closing price company’s common stock date grant awards vest full one year date grant addition 2011 prior years nonemployee directors paid quarterly retainer rsu awards quarterly retainer replaced annual compensation plan 2012 total grant date fair value servicebased restricted stock unit awards granted year ended december 31 2013 714000 weighted average grant date fair value restricted stock unit awards granted years ended december 31 2013 2012 2011 1025 2065 1906 respectively december 31 2013 137000 unrecognized compensation cost related nonvested restricted stock unit awards company estimates none outstanding rsu awards forfeited cost expected recognized weighted average period 02 year employee stock purchase plan 2013 company amended restated 2004 employee stock purchase plan “espp” pursuant espp aggregate number shares common stock may purchased shall exceed one million 1000000 shares common stock company december 31 2013 company issued total 431664 shares common stock current espp years ended december 31 2013 2012 company issued 28464 108990 shares respectively espp permits substantially employees purchase common stock payroll deductions 85 lower trading price stock beginning end sixmonth offering period commencing january 1 july 1 number shares purchased based participants’ contributions made offering period fair value “look back” option espp shares issued offering period estimated using blackscholes valuation model call put option share price used model 15 discount stock price first day offering period number shares purchased calculated based employee contributions using following weightedaverage assumptions intrinsic value shares company’s stock purchased pursuant espp offering periods within years ended december 31 2013 2012 2011 33000 191000 109000 respectively stockbased compensation expense compensation cost stock options restricted stock restricted stock units espp follows thousands stockbased compensation cost included cost revenue selling general administrative expense research development expense follows thousands share reservations following table summarizes reservation shares companys stockbased compensation plans december 31 2013 note 9stock offering april 2011 company filed shelf registration statement form s3 sec time sell aggregate 125 million common stock warrants debt securities quarter ended march 31 2012 company sold total 572510 shares common stock net proceeds 103 million pursuant atthemarket equity offering sales agreement “sales agreement” citadel securities llc “citadel” dated february 2012 shares sold subsequent quarter ended march 31 2012 note 10income taxes financial reporting purposes net income taxes includes following components thousands provision income taxes based income taxes follows thousands provision income taxes accompanying consolidated statements operations differs amount calculated applying statutory income tax rate income loss continuing operations income taxes primary components difference follows thousands company established valuation allowance us federal state deferred tax assets due uncertainty surrounding realization assets evidenced cumulative losses operations december 31 2013 management periodically evaluates recoverability deferred tax assets time determined likely deferred assets realizable valuation allowance reduced accordingly recorded tax benefit exception 155 million impact additional paid capital discussed company recorded valuation allowance 595 million december 31 2013 reflect estimated amount deferred tax assets may realized company decreased valuation allowance 239000 year ended december 31 2013 december 31 2013 company federal state net operating loss carryforwards approximately 1566 million 798 million respectively federal tax loss carryforwards begin expire 2020 state tax loss carryforwards begin expire 2014 addition company research development tax credit carryforwards federal state income tax purposes december 31 2013 57 million 62 million respectively federal credits begin expire 2018 unless utilized state credits indefinite life pursuant internal revenue code sections 382 383 use company’s federal net operating loss credit carryforwards may limited due cumulative change ownership 50 within threeyear period excess tax benefits associated stock option exercises restricted stock grants disqualifying dispositions incentive stock options stock issued company’s employee stock purchase plan amount 34 million 35 million 2013 2012 respectively reduce current income taxes payable accordingly included deferred tax asset relating net operating loss carryforwards included federal state net operating loss carryforwards disclosed footnote tax benefits associated stock option deductions 1998 2005 amount 155 million recorded additional paidin capital realization likely occur consequently valuation allowance recorded entire benefit company granted tax holiday switzerland effective january 1 2012 10 years tax holiday conditional upon company meeting certain employment investment thresholds impact tax holiday decreased foreign taxes 733000 634000 2013 2012 respectively benefit tax holiday net income per diluted share 003 002 2013 2012 respectively us foreign withholding taxes recognized excess amount financial reporting tax basis investments foreign subsidiaries essentially permanent duration amount becomes taxable upon repatriation assets subsidiary sale liquidation subsidiary amount unremitted earnings foreign subsidiaries totaled 77 million december 31 2013 withholding taxes approximately 27 million would payable upon remittance previously unremitted earnings december 31 2013 determination amount unrecognized deferred income tax liability excess financial reporting basis tax basis investments foreign subsidiaries practicable complexities hypothetical calculation items give rise significant portions deferred tax accounts follows thousands company adopted provisions section 74010 accounting uncertainty income taxes topic fasb asc january 1 2007 total unrecognized tax benefits december 31 2013 approximately 119 million recorded reduction deferred tax assets caused corresponding reduction company’s valuation allowance 119 million extent unrecognized tax benefits recognized time valuation allowance exist recognition tax benefit would reduce effective tax rate company anticipates amount unrecognized tax benefits december 31 2013 decrease 164000 within 12 month period following december 31 2013 reconciliation beginning ending amount unrecognized tax benefits follows thousands company recognizes interest penalties component income tax expense interest penalties years ended december 31 2013 126000 years ended december 31 2012 2011 immaterial company’s us federal income tax returns tax years subsequent 2008 subject examination internal revenue service state income tax returns subsequent 2007 subject examination state tax authorities company’s foreign tax returns subsequent 2003 subject examination foreign tax authorities net operating losses years statute limitations expired 2007 prior federal 2006 prior state could adjusted event taxing jurisdictions challenge amounts net operating loss carryforwards years note 11leases rental expense amounted 51 million 37 million 31 million years ended december 31 2013 2012 2011 respectively incurred primarily facility leases future annual minimum rental commitments december 31 2013 follows thousands note 12pension postretirement benefit plans foreign plan compensationretirement benefits subtopic fasb asc requires balance sheet recognition total funded underfunded status pension postretirement benefit plans guidance actuarial gains losses prior service costs credits remaining transition assets obligations recognized previous accounting standards must recognized component accumulated comprehensive income within stockholders’ equity net tax effects amortized component net periodic benefit cost income company’s plan regulated swiss government funded employees company pension benefit based compensation length service credited investment earnings plan guarantees minimum rate return well minimum annuity purchase rates company’s funding policy respect pension plan contribute amount required swiss law using required percentage applied employee’s compensation addition participating employees required contribute pension plan company made pension contributions 722000 732000 778000 2013 2012 2011 respectively 45 total contributions plan year made employees plan measurement date december 31 company rights assets plan reported pension asset increased 69 million 106 million year ended december 31 2013 asset increase combination net actuarial loss resulting combination loss due demographic experience gain resulting assumption changes plan change providing early retirement benefit higher expected overall asset return rate resulted gain accumulated benefit obligation approximately 308 million 281 million december 31 2013 2012 respectively following table reflects changes pension benefit obligation plan assets years ended december 31 2013 2012 thousands amounts recognized consolidated balance sheets consist thousands components net periodic pension cost income amounts recognized comprehensive income loss taxes follows thousands assumptions used determine benefit obligation net periodic pension cost income follows pension plan’s overall strategy investment policy managed board plan overall longterm rate based target asset allocation 15 swiss bonds 13 nonswiss hedged bonds 10 swiss equities 15 global equities 36 real estate 6 emerging market equities 3 alternative investments 2 cash shortterm investments 2014 expected future longterm rate return estimated 425 based historical asset rates returns asset allocation classification 04 rate swiss bonds 10 hedged foreign bonds 48 real estate 56 swiss equities 65 unhedged global equities 74 unhedged emerging markets 280 alternative investments 14 cash 2013 expected longterm rate return 425 based historical asset rates return 04 swiss bonds 740 unhedged emerging markets 10 hedged foreign bonds 48 real property 56 swiss equities 65 unhedged global equities 28 alternative investments 14 cash following benefit payments reflect expected future service appropriate expected paid thousands company expects contribute approximately 704000 pension plan 2014 investment objectives primary investment goal pension plan achieve total annualized return 425 longterm investments evaluated compared benchmarked plans similar investment strategies plan also attempts minimize risk single security class securities disproportionate impact plan guideline assets diversified asset classes equity fixed income real estate alternative investments fair values plans assets december 31 2013 asset category follows thousands fair value assets level 1 observable inputs quoted prices active markets identical assets level 2 inputs quoted prices observable asset liability either directly indirectly include quoted prices similar assets liabilities active markets quoted prices identical similar assets liabilities markets active level 3 unobservable inputs reflect reporting entity’s assumptions investments include real estate owned pension plan stated fair market valuations provided third party independent plan company real estate investment potential long term investment liquidation processes hedge funds might monthly quarterly annual restraints redemptions may require advance notice redemption financial instruments significant level 3 inputs following table summarizes activity year investment type 1 total unrealized gains reported component pension adjustment accumulated comprehensive income consolidated statement stockholders’ equity us plan company postretirement benefit plans covering employees united states substantially us employees eligible elect coverage contributory employee savings plan provides company matching contributions based onehalf employee contributions certain plan limits company’s matching contributions plan totaled 506000 486000 415000 years ended december 31 2013 2012 2011 respectively note 13legal proceedings although company incurs significant legal costs connection legal proceedings company unable estimate amount future legal costs therefore costs expensed period legal services performed fcpa matter result publicly traded us company subject us foreign corrupt practices act “fcpa” prohibits companies making improper payments foreign officials purpose obtaining retaining business beginning 2009 company conducted internal review payments made former independent sales agent china respect sales high voltage capacitor products produced swiss subsidiary january 2011 company reached settlements sec us department justice “doj” respect charges asserted sec doj relating antibribery books records internal controls disclosure provisions fcpa securities laws violations company settled civil charges sec agreeing injunction violations fcpa terms settlement sec company agreed pay total approximately 64 million profit disgorgement prejudgment interest two installments almost 32 million paid first quarters 2011 2012 company settled civil criminal charges doj entering threeyear deferred prosecution agreement “dpa” agreeing pay total 80 million penalties three installments 35 million paid first quarter 2011 23 million paid first quarters 2012 2013 terms agreement company submitted periodic reports sec doj internal compliance program concerning antibribery january 25 2013 monetary penalties paid full settlement described early february 2014 dpa expired terms october 15 2013 company received informal notice doj indictment former senior vice president general manager swiss subsidiary filed united states district court southern district california indictment individual former officer company foresee penalties fines could assessed corporate entity matter however company may required throughout term action advance legal fees costs incurred individual defendant incur financial obligations company maintains directors’ officers’ insurance policies intended cover legal expenses related indemnification obligations situations company cannot determine extent insurance policy cover legal fees matter accordingly legal fees may incurred company defending former officer could material impact financial condition results operation swiss bribery matter august 2013 companys swiss subsidiary served search warrant swiss federal prosecutor’s office end search swiss federal prosecutor presented company listing materials gathered representatives removed materials premises keeping prosecutor’s office reviewing items seized search warrant presented swiss prosecutor’s office company believes action related similar facts circumstances fcpa action previously settled sec doj initial discussions swiss prosecutor acknowledged existence companys dpa doj cooperation efforts thereunder positive impact discussions going forward additionally activities previously reviewed conjunction sec doj matters fcpa company reason believe additional facts circumstances review swiss authorities early stage investigation company currently unable determine extent subject fines accordance swiss bribery laws additional costs expenses needed order defend matter company cannot determine whether reasonable possibility loss incurred estimate range potential loss accordingly company accrued amount potential loss associated action adverse result could material adverse impact financial condition results operation securities matter early 2013 company voluntarily provided information united states attorneys office southern district california us securities exchange commission related announcement intended file restated financial statements fiscal years 2011 2012 company currently cooperating us authorities connection investigations preliminary stage company cannot predict ultimate outcome action estimate range potential loss therefore accrued amount potential loss associated action adverse result could material adverse impact financial condition results operation securities class action matter march 13 2013 april 19 2013 four purported shareholder class actions filed united states district court southern district california company certain current former officers actions entitled foster v maxwell technologies inc et al case 13cv0580 sd cal filed march 13 2013 weinstein v maxwell technologies inc et al 13cv0686 sd cal filed march 21 2013 abanades v maxwell technologies inc et al 13cv0867 sd cal filed april 11 2013 mebarak v maxwell technologies inc et al 13cv0942 sd cal filed april 19 2013 complaints alleged defendants made false misleading statements regarding financial performance business prospects overstated companys reported revenue complaints purport assert claims violations section 10b 20a securities exchange act 1934 sec rule 10b5 behalf persons purchased companys common stock april 28 2011 march 7 2013 inclusive complaints seek unspecified monetary damages attorneys fees costs may 13 2013 four prospective lead plaintiffs filed motions consolidate four actions appointed lead plaintiff october 24 2013 court issued written order consolidating case heading maxwell technologies inc securities litigation january 16 2014 lead plaintiff filed consolidated amended complaint slightly adjusted class period april 29 2011 march 19 2013 removed former officer defendant preliminary stage company cannot determine whether reasonable possibility loss incurred estimate range potential loss accordingly company accrued amount potential loss associated action adverse result could material adverse impact financial condition results operation federal shareholder derivative matter april 23 2013 may 7 2013 two shareholder derivative actions filed united states district court southern district california entitled kienzle v schramm et al case 13cv0966 sd cal filed april 23 2013 agrawal v cortes et al case 13cv1084 sd cal filed may 7 2013 complaints name defendants certain companys current former officers directors name us nominal defendant complaints allege individual defendants caused allowed us issue false misleading statements companys financial condition operations management internal controls falsely represented maintained adequate controls complaints assert causes action breach fiduciary duty abuse control gross mismanagement waste corporate assets unjust enrichment lawsuits seek unspecified damages order directing company take necessary actions reform improve corporate governance internal procedures restitution disgorgement profits benefits compensation attorneys experts fees costs expenses june 10 2013 parties filed joint motion consolidate two actions september 26 2013 plaintiffs filed motion stay case resolution similar derivative action pending california superior court county san diego company opposed motion stay october 30 2013 court issued two orders consolidating two cases heading maxwell technologies inc derivative litigation mutually agreed upon parties denying plaintiffs’ motion stay federal derivative case lead plaintiff filed consolidated amended complaint january 30 2014 action derivative nature seek monetary damages company however company may required throughout term action advance legal fees costs incurred individual defendants incur financial obligations preliminary stage company cannot predict ultimate outcome action estimate range potential loss therefore company accrued amount potential costs associated action adverse result could material adverse impact financial condition results operation state shareholder derivative matter april 11 2013 april 18 2013 two shareholder derivative actions filed california superior court county san diego entitled warsh v schramm et al case 37201300043884 san diego sup ct filed april 11 2013 neville v cortes et al case 37201300044911cubtctl san diego sup ct filed april 18 2013 complaints name defendants certain companys current former officers directors well former auditor mcgladrey llp company named nominal defendant complaints allege individual defendants made caused company make false andor misleading statements regarding financial condition failed disclose material adverse facts business operations prospects complaints assert causes action breaches fiduciary duty disseminating false misleading information failing maintain internal controls failing properly oversee manage company well unjust enrichment abuse control gross mismanagement professional negligence accounting malpractice aiding abetting breaches fiduciary duty lawsuits seek unspecified damages order directing company take necessary actions reform improve corporate governance internal procedures restitution disgorgement profits benefits compensation attorneys experts fees costs expenses may 7 2013 court consolidated two actions company filed motion stay consolidated action july 2 2013 september 27 2013 court heard oral arguments motion stay continued hearing motion resolution motion stay pending federal derivative action referenced given outcome detailed federal derivative lawsuit company informed state court federal court order denying federal plaintiffs’ motion stay consequently november 1 2013 state court stayed state derivative pending resolution federal derivative case action derivative nature seek monetary damages company however company may required throughout term action advance legal fees costs incurred individual defendants incur financial obligations preliminary stage company cannot predict ultimate outcome action estimate range potential loss therefore accrued amount potential costs associated action adverse result could material adverse impact financial condition results operation shareholder demand letter matter april 9 2013 stephen neville purported shareholder company sent demand letter company inspect books records pursuant california corporations code section 1601 demand sought inspection documents related companys march 7 2013 announcement would restating previouslyissued financial statements 2011 2012 board minutes committee materials documents related board management discussions regarding revenue recognition january 1 2011 present company responded letter dated april 19 2013 explaining believed demand appear proper following receipt second letter mr neville dated april 23 2013 company explained letter dated april 29 2013 continues believe inspection demand appears improper company received response mr neville regarding inspection demand conjunction state court derivative action referenced mr neville filed two motions compel production documents materials originally sought demand letter september 27 2013 court heard oral arguments motions compel line continuance motion stay likewise continued hearing motions compel pending resolution motions stay federal state derivative actions referenced november 15 2013 purported shareholder mr neville filed petition writ mandate requesting state court order company comply inspection demand company responded writ january 15 2014 claiming inspection demand improper numerous grounds simultaneously filing demurrer shareholder inspection demand action entirety plaintiff expected respond due course preliminary stage company cannot predict ultimate outcome action estimate range potential loss therefore accrued amount potential costs associated action adverse result could material adverse impact financial condition results operation note 14unaudited quarterly financial information includes noncash expense stockbased compensation 10 million b includes noncash expense stockbased compensation 946000 c includes noncash expense stockbased compensation 719000 includes noncash expense stockbased compensation 14 million e includes noncash expense stockbased compensation 13 million f includes noncash expense stockbased compensation 770000 g includes noncash expense stockbased compensation 505000 h includes noncash expense stockbased compensation 527000 schedule ii valuation qualifying accounts thousands item 9item 8 financial statements supplementary data consolidated financial statements notes thereto appear pages 49 80 annual report form 10k maxwell technologies inc index consolidated financial statements report independent registered public accounting firm board directors stockholders maxwell technologies inc san diego california audited accompanying consolidated balance sheets maxwell technologies inc december 31 2016 2015 related consolidated statements operations comprehensive loss stockholders’ equity cash flows three years period ended december 31 2016 connection audits financial statements also audited financial statement schedule listed accompanying index financial statements schedule responsibility company’s management responsibility express opinion financial statements schedule based audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements assessing accounting principles used significant estimates made management well evaluating overall presentation financial statements schedule believe audits provide reasonable basis opinion consolidated financial statements referred present fairly material respects financial position maxwell technologies inc december 31 2016 2015 results operations cash flows three years period ended december 31 2016 conformity accounting principles generally accepted united states america also opinion related financial statement schedule considered relation basic consolidated financial statements taken whole presents fairly material respects information set forth therein also audited accordance standards public company accounting oversight board united states maxwell technologies inc’s internal control financial reporting december 31 2016 based criteria established internal controlintegrated framework 2013 issued committee sponsoring organizations treadway commission coso report dated march 1 2017 expressed unqualified opinion thereon bdo usa llp san diego california march 1 2017 maxwell technologies inc consolidated balance sheets thousands except per share data accompanying notes integral part consolidated financial statements maxwell technologies inc consolidated statements operations thousands except per share data accompanying notes integral part consolidated financial statements maxwell technologies inc consolidated statements comprehensive loss thousands accompanying notes integral part consolidated financial statements maxwell technologies inc consolidated statements stockholders’ equity thousands accompanying notes integral part consolidated financial statements maxwell technologies inc consolidated statements cash flows thousands accompanying notes integral part consolidated financial statements maxwell technologies inc notes consolidated financial statements unless context otherwise requires references “maxwell” “company” “we” “us” “our” refer maxwell technologies inc subsidiaries references “maxwell sa” refer swiss subsidiary maxwell technologies sa note 1description business summary significant accounting policies description business maxwell technologies inc delaware corporation originally incorporated 1965 name maxwell laboratories inc 1983 company completed initial public offering 1996 changed name maxwell technologies inc company headquartered san diego california two manufacturing facilities located rossens switzerland peoria arizona april 2016 company exited manufacturing facility san diego california addition company two contract manufacturers located china maxwell operates one operating segment comprised two product lines • ultracapacitors energy storage devices possess unique combination high power density extremely long operational life ability charge discharge rapidly company’s ultracapacitor cells multicell packs modules provide highly reliable energy storage power delivery solutions applications multiple industries including automotive bus rail truck transportation grid energy storage wind renewable energy company focusing developing complementary lithiumion capacitors cost efficient energy storage devices power characteristics ultracapacitor combined enhanced energy storage capacity uniquely designed address variety applications rail grid industrial markets energy density weight differentiating factors • highvoltage capacitors company’s condis® highvoltage capacitors designed manufactured perform reliably decades climates products include grading coupling capacitors capacitive voltage dividers used ensure safety reliability electric utility infrastructure applications involving transport distribution measurement highvoltage electrical energy april 2016 company sold substantially assets liabilities third product line radiationhardened microelectronics company’s radiationhardened microelectronic products satellites spacecraft included single board computers components highdensity memory power modules company’s products designed manufactured perform reliably life products systems integrated company achieves high reliability application proprietary technologies rigorously controlled design development manufacturing test processes financial statement presentation accompanying consolidated financial statements include accounts maxwell technologies inc subsidiaries prepared accordance accounting principles generally accepted united states “us gaap” intercompany transactions account balances eliminated consolidation liquidity december 31 2016 company approximately 254 million cash equivalents working capital 531 million july 2015 company entered loan agreement east west bank “ewb” whereby ewb made available company secured credit facility form revolving line credit available maximum lesser 250 million b certain percentage domestic foreign trade receivables december 31 2016 amounts borrowed revolving line credit amount available 114 million management believes available cash balance along available borrowings revolving line credit sufficient fund operations obligations become due capital investments least next twelve months reclassifications “amortization prepaid debt costs” years ended december 31 2015 2014 reclassified “interest expense net” “changes operating assets liabilities” consolidated statements operations consolidated statements cash flows respectively conform current period presentation accordance company’s early adoption asu 201618 changes restricted cash years ended december 2016 2015 reclassified consolidated statements cash flows restricted cash balances included beginning ending cash equivalent balances consolidated statements cash flows reclassifications impact reported net loss otherwise material impact presentation overall financial statements use estimates preparation financial statements conformity us gaap requires management make estimates assumptions affect reported amounts related disclosures estimates include limited assessing collectability accounts receivable applied unapplied production costs production capacities usage recoverability inventories longlived assets deferred income taxes incurrence warranty obligations impairment goodwill estimation cost complete certain projects estimation pension assets liabilities accruals estimated losses legal matters estimation value stockbased compensation awards including probability performance criteria restricted stock units awards met revenue recognition revenue derived primarily sale manufactured products directly customers product revenue recognized according guidelines securities exchange commission “sec” staff accounting bulletin “sab” numbers 101 revenue recognition financial statements 104 revenue recognition following criteria met 1 persuasive evidence arrangement exists upon contract signing receipt authorized purchase order customer 2 title passes customer either shipment company’s facilities receipt customer facility depending shipping terms 3 customer payment deemed fixed determinable free contingencies significant uncertainties 4 collectability reasonably assured policy consistently applied period portion sales revenue derived sales distributors distributor revenue recognized criteria revenue recognition met generally time shipment distributor returns credits estimable significant revenue productiontype contracts represent less five percent total revenue recognized using percentage completion method degree completion determined based costs incurred percentage total costs anticipated excluding costs representative progress completion total deferred revenue customer deposits consolidated balance sheets december 31 2016 2015 40 million 31 million respectively primarily relates cash received customer connection productiontype contract revenue recognized using percentage completion method payments received joint development agreement recognized offset research development expense services performed cash equivalents cash equivalents consist primarily cash readily available checking accounts cash equivalents consist highly liquid investments readily convertible cash mature within three months less date purchase carrying amounts approximate fair value due short maturities instruments accounts receivable allowance doubtful accounts trade receivables stated gross invoiced amount less allowance uncollectible accounts allowance doubtful accounts reflects management’s best estimate probable losses inherent accounts receivable balance management determines allowance doubtful accounts based known troubled accounts historical experience currently available evidence inventories net inventories stated lower cost firstin firstout basis market finished goods workinprocess inventory values include cost raw materials labor manufacturing overhead inventory written market value establishes new cost basis value subsequently increased based upon changes underlying facts circumstances company also makes adjustments reduce carrying amount inventories estimated excess obsolete inventories factors influencing adjustments include inventories onhand compared historical estimated future sales existing new products assumptions likelihood obsolescence unabsorbed manufacturing costs treated expense period incurred property equipment property equipment carried cost depreciated using straightline method depreciation provided estimated useful lives related assets three ten years leasehold improvements depreciated shorter estimated useful life term lease leasehold improvements funded landlords recorded property equipment depreciated shorter estimated useful life asset lease term deferred rent amortized lease term december 31 2016 2015 net book value leasehold improvements funded landlords 17 million 22 million respectively december 31 2016 2015 unamortized balance deferred rent related landlord funding leasehold improvements 17 million 22 million respectively included “accounts payable accrued liabilities” “other longterm liabilities” consolidated balance sheets goodwill represents excess cost acquired business net fair value assigned assets liabilities amortized instead goodwill assessed annually reporting unit level impairment intangiblesgoodwill topic fasb asc company established december 31 annual impairment test date addition company assesses goodwill annual test dates event occurs circumstances change could likely reduce fair value reporting unit carrying value company first makes qualitative assessment whether goodwill impaired likely goodwill impaired company performs twostep quantitative impairment analysis determine goodwill impaired company may also determine skip qualitative assessment year move directly quantitative test year ended december 31 2016 company performed quantitative step one goodwill impairment analysis one reporting unit required company make significant assumptions estimates extent timing future cash flows discount rates growth rates step one analysis indicated goodwill assigned reporting unit impaired quantitative testing performed impairments goodwill reported years ended december 31 2016 2015 2014 also see note 3 goodwill discussion company’s goodwill impairment analysis impairment longlived assets property equipment reviewed impairment whenever events changes circumstances indicate carrying value assets may recoverable company determines carrying value asset recoverable permanent impairment charge recorded amount carrying value longlived asset exceeds fair value year ended december 31 2016 company recorded impairment charges 14 million related property equipment fourth quarter 2016 company recorded 12 million impairment charges related machinery longer forecasted utilized remaining useful life based current production forecast fair value approximated zero additionally third quarter 2016 02 million impairment charges recorded related cancellation project impairments property equipment recorded years ended december 31 2015 2014 warranty obligation company provides warranties product sales majority company’s warranties one eight years normal course business company accrues estimated warranty costs time sale based historical warranty experience plus known expected changes warranty exposure december 31 2016 2015 accrued warranty liability included “accounts payable accrued liabilities” consolidated balance sheets 12 million 13 million respectively income taxes deferred income taxes provided liability method accordance income taxes topic fasb asc whereby deferred tax assets recognized deductible temporary differences deferred tax liabilities recognized taxable temporary differences method deferred income taxes recorded reflect tax consequences future years temporary differences tax basis assets liabilities reported amounts period end likely portion deferred tax asset realized valuation allowance recognized guidance also provides criteria recognition measurement presentation disclosures uncertain tax positions tax benefit uncertain tax position may recognized “more likely not” position sustainable based solely technical merits concentration credit risk company maintains cash balances various financial institutions primarily california switzerland california cash balances commonly exceed 250000 federal deposit insurance corporation insurance limit switzerland banks company cash deposits either governmentowned case cash deposited nongovernment banks deposits insured 100000 swiss francs company experienced losses accounts management believes company exposed significant credit risk respect cash equivalents financial instruments subject company potential concentrations credit risk consist principally company’s accounts receivable company’s accounts receivable result product sales customers various industries various geographical areas domestic foreign company performs credit evaluations customers generally requires collateral customers accounted 10 total revenue year ended december 31 2016 10 total accounts receivable december 31 2016 one customer shenzhen xinlikang supply china management co ltd accounted 19 20 total revenue 2015 2014 respectively accounted 33 total accounts receivable december 31 2015 research development expense research development expenditures expensed period incurred thirdparty funding research development expense costsharing arrangements recorded offset research development expense period expenses incurred research development expense 209 million 247 million 263 million net thirdparty funding costsharing arrangements 12 million 13 million 10 million years ended december 31 2016 2015 2014 respectively 2016 company entered joint development agreement receive cash consideration 28 million fund shortterm costs developing technologies automotive market year ended december 31 2016 company received 20 million cash related joint development agreement recognized 06 million offset research development expense included total third party funding 12 million remaining 14 million recorded “deferred revenue customer deposits” company’s consolidated balance sheets expected recognized 2017 based performance agreement potential additional funding 08 million agreement contingent achievement milestone probability achievement uncertain december 31 2016 shipping handling expense company recognizes shipping handling expenses component cost revenue advertising expense advertising costs expensed period incurred advertising expense 07 million 11 million 14 million years ended december 31 2016 2015 2014 respectively foreign currencies company’s primary foreign currency exposure related subsidiary switzerland euro local currency swiss franc revenue operating expenses local currency loans changes currency exchange rates impact reported us dollar amount revenue expenses debt functional currency swiss subsidiary swiss franc assets liabilities swiss subsidiary translated monthend exchange rates revenue expenses gains losses translated rates exchange approximate rate effect time transaction translation adjustments resulting process presented separately component accumulated comprehensive income within stockholders’ equity consolidated balance sheets foreign currency transaction gains losses intercompany balances considered long term nature accounted translation adjustments within equity foreign currency transaction gains losses reported “foreign currency exchange loss net” consolidated statements operations foreign currency derivative instruments company historically used forward contracts hedge certain monetary assets liabilities primarily receivables payables cash balances denominated foreign currencies company’s objective partially offset gains losses resulting exposures opposing gains losses forward contracts thereby reducing volatility earnings created foreign currency exposures year ended december 31 2016 company ceased using foreign currency forward contracts hedge foreign currency transaction exposure management determined foreign currency transaction exposure longer significant accordance derivatives hedging topic fasb asc fair values forward contracts estimated period end based quoted market prices recorded net asset liability consolidated balance sheets contracts considered economic hedges designated hedges derivatives hedging topic fasb asc therefore change fair value instruments recognized consolidated statements operations recorded “foreign currency exchange loss net” consolidated statements operations net income loss per share accordance earnings per share topic fasb asc basic net income loss per share calculated using weighted average number common shares outstanding period diluted net income per share includes impact additional common shares would outstanding dilutive potential common shares issued potentially dilutive securities considered calculation diluted net loss per share inclusion would antidilutive following table sets forth computation basic diluted net income loss per share thousands except per share data following table summarizes instruments may convertible common shares included denominator used diluted net income loss per share calculation would antidilutive thousands stockbased compensation company issues stockbased compensation awards employees nonemployee directors including stock options restricted stock restricted stock units shares employee stock purchase plan company records compensation expense stockbased awards accordance criteria set forth stock compensation subtopic fasb asc company uses blackscholes option pricing model estimate fair value stock option grants determination fair value stock options utilizing blackscholes model affected company’s stock price number assumptions including expected volatility expected term riskfree interest rate expected dividends fair value restricted stock awards “rsas” restricted stock unit awards “rsus” servicebased performancebased vesting based closing market price company’s common stock date grant compensation expense equal fair value rsa rsu recognized ratably requisite service period rsus vesting contingent company performance conditions company uses requisite service period likely occur requisite service period estimated based performance period well timebased service requirements unlikely performance condition achieved compensation expense recognized unless later determined achievement performance condition likely expense may adjusted changes expected outcomes related performance conditions impact changes recognized cumulative adjustment consolidated statement operations period expectation changes 2014 2016 company issued marketcondition rsus certain members executive management since vesting marketcondition rsus dependent stock price performance fair values awards estimated using montecarlo valuation model determination fair value marketcondition rsus utilizing montecarlo valuation model affected company’s stock price number assumptions including expected volatility expected life riskfree interest rate expected dividends 2016 company adopted bonus plan enabled participants earn annual incentive bonuses based upon achievement specified financial strategic performance objectives terms plan company ability settle bonuses earned plan fully vested rsus fiscal year 2016 performance period company intends settle amounts earned bonus plan fully vested rsus first quarter 2017 stockbased compensation expense accrued bonus plan represents stocksettled debt per asc 718 asc 480 company recorded liability bonuses expected paid fully vested rsus “accrued employee compensation” company’s consolidated balance sheets stockbased compensation expense recognized consolidated statements operations based equity awards ultimately expected vest company estimates forfeitures time grant revises forfeitures necessary subsequent periods cumulative catch adjustment actual forfeitures differ estimates marketcondition awards effect marketcondition reflected adjustment awards’ fair value grant date subsequent forfeitures due company’s stock price performance result reversal expense recent accounting pronouncements may 2014 financial accounting standards board “fasb” issued accounting standards update “asu” 201409 revenue contracts customers standard provides companies single model accounting revenue arising contracts customers supersedes current revenue recognition guidance including industryspecific revenue guidance core principle model recognize revenue control goods services transfers customer opposed recognizing revenue risks rewards transfer customer existing revenue guidance permits companies either apply requirements retrospectively prior periods presented apply requirements year adoption cumulative adjustment august 2015 fasb issued asu 201514 deferral effective date defers required adoption date asu 201409 one year result deferred effective date asu 201409 effective company first quarter fiscal 2018 early adoption permitted original effective date new standard first quarter fiscal 2017 following asus subsequently issued fasb clarify implementation guidance areas add practical expedients march 2016 asu 201608 revenue contracts customers principal versus agent considerations april 2016 asu 201610 revenue contracts customers identifying performance obligations licensing may 2016 asu 201612 revenue contracts customers narrow scope improvements practical expedients december 2016 asu 201620 technical corrections improvements revenue contracts customers company’s begun process evaluating standard product sales arrangements yet identified expected material impact timing measurement revenue arrangements adoption standard however company yet formalized final conclusions review process company still evaluating impact adoption nonproduct sale arrangements represent less five percent revenue company also developed comprehensive project plan guide implementation new standard company yet determined method adoption new accounting standard february 2016 fasb issued asu 201602 leases standard requires lessee recognize assets liabilities arise operating leases lessee recognize balance sheet liability make lease payments lease liability rightofuse asset representing right use underlying asset lease term leases term 12 months less lessee permitted make accounting policy election class underlying asset recognize lease assets lease liabilities transition lessees lessors required recognize measure leases beginning earliest period presented using modified retrospective approach guidance asu 201602 effective annual interim reporting periods beginning december 15 2018 company’s initial evaluation current leases indicate adoption standard material impact consolidated statements operations company expects adoption standard material impact consolidated balance sheets recognition certain operating leases rightofuse assets lease liabilities march 2016 fasb issued asu 201609 improvements employee sharebased payment accounting changes accounting employee sharebased payments including accounting income taxes forfeitures statutory tax withholding requirements well classification statement cash flows new guidance excess tax benefits associated sharebased payment awards recognized income statement awards vest settle rather stockholders’ equity addition increase number shares employer withhold cover income taxes sharebased payment awards still qualify exemption liability classification guidance effective company first quarter fiscal 2017 company expects adoption standard result recognition approximately 100 million deferred tax assets related stockbased compensation corresponding increase company’s valuation allowance disclosed company’s notes consolidated financial statements company expect adoption standard material effect consolidated financial statements august 2016 fasb issued asu 201615 classification certain cash receipts cash payments provides guidance presentation classification statement cash flows eight specific cash flow issues guidance effective company first quarter fiscal 2018 early adoption permitted annual interim period company identified eight specific cash flow issues within consolidated financial statements therefore company expect adoption standard material effect consolidated statements cash flows november 2016 fasb issued asu 201618 statement cash flows restricted cash requires entities show changes total cash equivalents restricted cash restricted cash equivalents statement cash flows guidance effective company first quarter fiscal 2018 early adoption permitted including adoption interim period adjustments must reflected beginning fiscal year includes interim period new standard must adopted retrospectively company early adopted standard fourth quarter 2016 resulting reclassification restricted cash presentation consolidated statements cash flows january 2017 fasb issued asu 2017 201704 intangibles goodwill eliminates step two annual goodwill impairment test standard effective company first quarter 2020 early adoption permitted january 1 2017 applied prospective basis adoption standard materially impact companys consolidated financial statements unless step one annual goodwill impairment test fails company currently evaluating timing planned adoption standard business enterprise information company operates single operating segment according fasb asc topic disclosures segments enterprise related information operating segments defined components enterprise separate financial information evaluated regularly chief operating decision maker “codm” deciding allocate resources assessing performance company’s codm chief executive officer evaluates company’s financial information resources assesses performance consolidated basis revenue product line geographic area presented thousands 1 location determined shipment destination 2 revenue external customers located countries included “all countries” individually comprise 10 total revenue years presented longlived assets geographic location follows thousands note 2balance sheet details thousands inventories net warranty activity warranty reserve included “accounts payable accrued liabilities” consolidated balance sheets follows accumulated comprehensive income note 3goodwill company performs impairment test goodwill annually according intangiblesgoodwill topic fasb asc company first makes qualitative assessment likelihood goodwill impairment concludes likely carrying amount reporting unit greater fair value required perform first step twostep quantitative impairment test otherwise performing twostep impairment test required qualitative factors assessed reporting unit level include limited changes industry market structure competitive environments planned capacity new product launches cost factors raw material prices financial performance reporting unit company may also determine skip qualitative assessment year move directly quantitative test first step twostep quantitative impairment test consists estimating fair value comparing estimated fair value carrying value reporting unit fair value less carrying value second step performed compute amount impairment determining implied fair value goodwill implied fair value goodwill residual fair value derived deducting fair value reporting unit’s assets liabilities estimated total fair value calculated step one impairment charge would represent excess carrying amount reporting unit’s goodwill implied fair value goodwill guidance requires goodwill reviewed annually time every year event occurs circumstances change reasonably possible impairment may exist company selected december 31 annual testing date 2016 company assessed qualitative factors one two reporting units concluded likely fair value exceeded carrying value therefore perform quantitative testing reporting unit reporting unit company determined skip qualitative assessment moved directly first quantitative test company utilized discounted cash flow methodology calculate fair value reporting unit based fair value analysis management concluded fair value exceeded carrying value reporting unit additional quantitative testing required result company’s annual assessments impairment indicated december 31 2016 2015 2014 change carrying amount goodwill 2015 2016 follows thousands note 4 sale microelectronics product line april 27 2016 company sold substantially assets liabilities comprising microelectronics product line data device corporation privatelyheld delaware corporation transaction purchase price 210 million subject working capital adjustment one year 15 million escrow holdback purchase price assets sold primarily comprised inventory accounts receivable property equipment liabilities sold comprised mainly deferred revenue accounts payable current liabilities first quarter 2016 company met held sale criteria accordance asc topic 380 impairment disposal long lived assets company ceased depreciation property equipment classified assets sold held sale second quarter 2016 assets liabilities formerly classified held sale disposed pursuant sale microelectronics product line represent strategic shift major effect company’s operations financial results company account disposition discontinued operation year ended december 31 2016 company recorded gain 67 million related sale microelectronics product line connection sale microelectronics product line company guaranteed future operating lease commitment related facility formerly occupied microelectronics product line assumed buyer company obligated perform guarantee data device corporation defaults lease time remainder lease agreement lease remaining lease term fifteen months date sale expires july 31 2017 december 31 2016 undiscounted maximum amount potential future payments lease guarantee 06 million company assessed probability required make payments terms guarantee based upon actual expected loss experience consistent requirements fasb asc 460 guarantees company recorded liability consolidated balance sheet december 31 2016 loss considered probable note 5 restructuring exit costs 2015 company initiated restructuring plan consolidate us manufacturing operations reduce headcount operating expenses order align company’s cost structure current business forecast improve operational efficiency plan also included disposition company’s microelectronics product line completed april 2016 restructuring plan otherwise substantially completed first quarter 2016 total restructuring exit costs 28 million included 13 million facilities costs related consolidation manufacturing operations 12 million employee severance costs 03 million exit costs company also incurred 06 million accelerated equipment depreciation expense related consolidation manufacturing operations total cash expenditures related restructuring activities approximately 15 million company accounts charges resulting restructuring exit activities accordance asc topic 420 exit disposal cost obligations “asc 420” asc topic 712 compensationnonretirement postemployment benefits employee termination benefits paid accordance ongoing employee termination benefit arrangement june 2015 company ceased use approximately 60000 square feet peoria az manufacturing facility determined leased space would future economic benefit company based current business forecast result june 2015 company recorded liability future rent obligation associated space net estimated sublease income accordance asc topic 420 year ended december 31 2015 expense related exit leased space 12 million tax recorded component total restructuring exit costs year ended december 31 2016 company recorded additional restructuring exit costs 01 million related revisions sublease income assumption years ended december 31 2016 2015 company recorded total charges related restructuring plan 03 million 25 million respectively within “restructuring exit costs” consolidated statements operations additionally years ended december 31 2016 2015 company recorded 01 million 04 million respectively accelerated depreciation expense within “cost revenue” consolidated statements operations december 31 2016 company’s consolidated balance sheet includes restructuring liability associated lease obligation costs 03 million “accounts payable accrued liabilities” 05 million “other long term liabilities” following table summarizes restructuring exit costs years ended december 31 2016 2015 thousands note 6credit facilities revolving line credit july 2015 company entered loan security agreement “loan agreement” east west bank “ewb” whereby ewb made available company secured credit facility form revolving line credit “revolving line credit” revolving line credit available maximum lesser 250 million b certain percentage domestic foreign trade receivables december 31 2016 amount available revolving line credit 114 million general amounts borrowed revolving line credit secured lien company’s assets including intellectual property well pledge 100 equity interests maxwell sa obligations loan agreement also guaranteed directly maxwell sa revolving line credit mature july 3 2018 event company violation representations warranties covenants made loan agreement including certain financial covenants set forth therein company may able utilize revolving line credit repayment amounts owed pursuant loan agreement could accelerated company currently compliance financial covenants required meet term credit agreement including minimum fourquarter rolling ebitda quarterly minimum quick ratio monthly minimum cash requirements march 1 2017 company entered amendment loan agreement approve acquisition substantially assets business nesscap energy inc modify certain financial covenants amounts borrowed revolving line credit bear interest payable monthly interest shall accrue based upon company’s election subject certain limitations either prime rate plus margin ranging 0 050 libor rate plus margin ranging 275 325 specific rate determined based upon company’s leverage ratio time company required pay annual commitment fee 125000 unused commitment fee average daily unused amount revolving line credit payable monthly equal per annum rate range 030 050 determined company’s leverage ratio last day previous fiscal quarter amounts borrowed revolving line credit december 31 2016 former credit facility december 2011 company obtained secured credit facility form revolving line credit “former revolving line credit” equipment term loan “equipment term loan” together “former credit facility” borrowings former credit facility bore interest payable monthly either bank’s prime rate ii libor plus 225 company’s option subject certain limitations equipment term loan available finance 80 eligible equipment purchases made april 1 2011 april 30 2012 period company borrowed 50 million equipment term loan balance equipment term loan paid full maturity date april 30 2015 concurrently entering loan agreement described july 2015 company repaid outstanding loans former revolving line credit former credit facility terminated company incur early termination prepayment penalties former credit facility connection transactions longterm borrowings maxwell sa various financing agreements vehicles agreements original threeyear repayment period interest rates ranging 09 39 december 31 2016 2015 83000 91000 respectively outstanding agreements note 7fair value measurement company records certain financial instruments fair value accordance fair value measurements disclosures topic fasb asc historically financial instruments topic applied foreign currency forward contracts pension assets fair value foreign currency forward contracts recorded liability asset consolidated balance sheets second quarter 2016 company ceased using foreign currency forward contracts hedge foreign currency exposure management determined foreign currency exposure longer significant therefore foreign currency forward contracts outstanding december 31 2016 december 31 2015 fair value company’s foreign currency forward contracts asset 16000 recorded “trade accounts receivable” consolidated balance sheet fair value derivative instruments measured using models following quoted market prices active markets identical instruments level 2 input fair value hierarchy fair value measurements disclosures topic fasb asc also see note 8 foreign currency derivative instruments note 13 pension postretirement benefit plans annual report form 10k discussion fair value measurements carrying value shortterm longterm borrowings approximates fair value relative short maturity instruments interest rates company could currently obtain note 8foreign currency derivative instruments company historically used forward contracts hedge certain monetary assets liabilities primarily receivables payables cash balances denominated foreign currencies year ended december 31 2016 company ceased using foreign currency forward contracts hedge foreign currency exposure management determined foreign currency exposure longer significant change fair value forward contracts represented natural hedge gains losses instruments partially offset changes fair value underlying monetary assets liabilities due movements currency exchange rates forward contracts generally expired one month contracts considered economic hedges designated hedges derivatives hedging topic fasb asc therefore change fair value instruments recognized period consolidated statements operations net losses foreign currency forward contracts included “foreign currency exchange loss net” consolidated statements operations follows thousands net losses foreign currency derivative contracts partially offset net gains losses underlying monetary assets liabilities net foreign currency gains losses underlying monetary assets liabilities included “foreign currency exchange loss net” consolidated statements operations follows thousands following table presents gross amounts offset net amounts presented consolidated balance sheets company’s derivative instruments measured fair value thousands company legal right offset recognized assets liabilities upon settlement derivative instruments additional information refer note 7 fair value measurements note 9stock plans equity incentive plans company two active sharebased compensation plans december 31 2016 2004 employee stock purchase plan “espp” 2013 omnibus equity incentive plan “incentive plan” approved stockholders incentive plan incentive stock options nonqualified stock options restricted stock awards “rsas” restricted stock units “rsus” granted employees nonemployee directors generally awards vest periods one four years addition equity awards issued senior management vesting award tied company performance market conditions company’s policy issue new shares common stock upon exercise stock options vesting restricted stock units granting restricted stock awards espp purchases company’s incentive plan currently provides equity incentive pool 4900000 shares reserved issuance replenished forfeited shares incentive plan additionally equity awards forfeited company’s former 2005 equity incentive plan shares available predecessor plans included total shares available issuance incentive plan year ended december 31 2016 tax benefit associated stock option exercises restricted stock unit vesting restricted stock grants disqualifying dispositions incentive stock options stock issued company’s espp approximately 17 million tax benefits recognized years ended december 31 2016 2015 2014 excess tax benefits realized company stock options company grants stock options employees executive management discretionary basis following table summarizes total aggregate stock option activity year ended december 31 2016 thousands except per share data weightedaverage grant date fair value stock options granted year ended december 31 2015 334 stock options granted years ended december 31 2016 2014 total intrinsic value options exercised years ended december 31 2016 2015 2014 0 16000 06 million respectively option exercises year ended december 31 2016 fair value stock options granted years ended december 31 2015 estimated using blackscholes valuation model using following assumptions expected dividend yield zero company never paid cash dividends present intention pay cash dividends expected term based company’s historical experience previous stock option grants expected volatility based historical volatility company’s stock measured period commensurate expected option term company consider implied volatility due low volume publicly traded options company’s stock riskfree interest rate derived zero coupon rate us treasury instruments term comparable option’s expected term december 31 2016 04 million total unrecognized compensation cost related stock options cost expected recognized weighted average period 23 years restricted stock awards year ended december 31 2014 company ceased granting rsas began granting rsus employees executive management part annual equity incentive award program following table summarizes rsa activity year ended december 31 2016 thousands except per share data weighted average grant date fair value rsas granted year ended december 31 2014 1421 rsas granted years ended december 31 2016 2015 vest date fair value rsas vested 2016 2015 2014 06 million 12 million 09 million respectively december 31 2016 06 million unrecognized compensation cost related nonvested rsas expected recognized weighted average period 09 years restricted stock units nonemployee directors receive annual rsu awards normally february year partial consideration annual retainer compensation awards vest full one year date grant provided nonemployee director provides continued service additionally new directors normally receive rsus upon election board company also grants rsus employees part annual equity incentive award program vesting typically equal annual installments four years continuous service additionally company grants performancebased restricted stock units “psus” executives vesting contingent continued service achievement specified performance objectives stock price performance rsu represents right receive one unrestricted share company’s common stock upon vesting following table summarizes rsu activity year ended december 31 2016 thousands except per share data weighted average grant date fair value rsus granted years ended december 31 2016 2015 2014 600 702 1263 respectively release date fair value rsus years ended december 31 2016 2015 2014 13 million 05 million 06 million respectively december 31 2016 56 million unrecognized compensation cost related nonvested rsu awards cost expected recognized weighted average period 22 years rsu activity included 46224 214831 50000 psus granted years ended december 31 2016 2015 2014 weighted average grant date fair value 508 718 1085 per share respectively vesting contingent upon specified company performance conditions objectives additionally year ended december 31 2016 rsus granted included 313460 marketcondition psus weighted average grant date fair value 776 marketcondition psus earned based level company’s stock price performance determined market index one two threeyear performance periods marketcondition psus potential vest 0 200 depending company’s stock price performance recipients must remain employed end performance period order vest marketcondition psus granted year ended december 31 2015 year ended december 31 2014 rsus granted included 70000 marketcondition psus weighted average grant date fair value 771 per share psus potential vest upon achievement certain stock price thresholds completion three years continuous employment date grant fair value marketcondition psus granted calculated using monte carlo valuation model following assumptions following table summarizes amount compensation expense recognized rsus years ended december 31 2016 2015 2014 thousands employee stock purchase plan 2013 company amended restated 2004 employee stock purchase plan “espp” pursuant espp aggregate number shares common stock may purchased shall exceed 1000000 shares common stock company years ended december 31 2016 2015 111832 145733 shares respectively purchased espp permits substantially employees purchase common stock payroll deductions 85 lower trading price stock beginning end sixmonth offering period number shares purchased based participants’ contributions made offering period fair value “look back” option espp shares issued offering period estimated using blackscholes valuation model call put option share price used model 15 discount stock price last trading day offering period number shares purchased based employee contributions fair value espp awards calculated using following weightedaverage assumptions intrinsic value shares company’s stock purchased pursuant espp offering periods within years ended december 31 2016 2015 2014 01 million 02 million 04 million respectively bonuses settled stock january 15 2016 compensation committee board directors company adopted maxwell technologies inc incentive bonus plan enable participants earn annual incentive bonuses based upon achievement specified financial strategic performance objectives company intends settle bonuses earned plan fiscal year 2016 performance period fully vested common stock company first quarter 2017 company recorded 14 million stockbased compensation expense bonuses year ended december 31 2016 stockbased compensation expense compensation cost stock options rsas rsus espp bonus plan stock follows thousands stockbased compensation cost included cost revenue selling general administrative expense research development expense follows thousands share reservations following table summarizes reservation shares company’s stockbased compensation plans december 31 2016 note 10shelf registration statement june 3 2014 company filed shelf registration statement form s3 us securities exchange commission “sec” time sell aggregate 125 million combination common stock warrants debt securities units june 30 2014 registration statement declared effective sec april 23 2015 company entered atthemarket equity offering sales agreement “sales agreement” cowen company llc “cowen” pursuant could sell aggregate 100 million shares common stock cowen sales agent sales agreement company agreed pay cowen commission equal 30 gross proceeds sale shares common stock june 11 2015 company completed sale approximately 100 million common stock terminated offering approximately 183 million shares sold offering average share price 546 company received net proceeds 96 million commissions offering costs 04 million note 11income taxes financial reporting purposes loss income taxes includes following components thousands provision income taxes based loss income taxes follows thousands provision income taxes accompanying consolidated statements operations differs amount calculated applying statutory income tax rate loss income taxes primary components difference follows thousands company established valuation allowance us federal state deferred tax assets due uncertainty surrounding realization assets evidenced cumulative losses operations december 31 2016 management periodically evaluates recoverability deferred tax assets time determined likely deferred assets realizable valuation allowance reduced accordingly recorded tax benefit exception 155 million impact additional paid capital discussed company recorded valuation allowance 784 million december 31 2016 reflect estimated amount deferred tax assets may realized company increased valuation allowance 103 million year ended december 31 2016 december 31 2016 company federal state net operating loss carryforwards approximately 1868 million 484 million respectively federal tax loss carryforwards begin expire 2020 state tax loss carryforwards begin expire 2016 addition company research development tax credit carryforwards federal state income tax purposes december 31 2016 69 million 86 million respectively federal credits begin expire 2019 unless utilized state credits indefinite life pursuant internal revenue code sections 382 383 use company’s federal net operating loss credit carryforwards may limited upon cumulative change ownership 50 within threeyear period excess tax benefits associated stock option exercises restricted stock unit vesting restricted stock grants disqualifying dispositions incentive stock options stock issued company’s employee stock purchase plan amount 35 million 2016 2015 reduce current income taxes payable accordingly included deferred tax asset relating net operating loss carryforwards included federal state net operating loss carryforwards disclosed footnote tax benefits associated stock option deductions 1998 2005 amount 155 million recorded additional paidin capital realization likely occur consequently valuation allowance recorded entire benefit company granted tax holiday switzerland effective january 1 2012 10 years tax holiday conditioned upon company meeting certain employment investment thresholds january 1 2017 company longer eligible tax holiday due meeting employment threshold impact tax holiday decreased foreign taxes 06 million 07 million 2016 2015 respectively benefit tax holiday net loss per diluted share 002 2016 2015 company records us income taxes undistributed earnings foreign subsidiaries unless subsidiaries’ earnings considered indefinitely reinvested outside us december 31 2016 company recorded 49 million deferred tax liability swiss withholding taxes associated 976 million undistributed earnings swiss subsidiary longer considered indefinitely reinvested event company repatriates funds withholding tax would become payable swiss government years ended december 31 2016 2015 2014 income tax expense associated undistributed earnings swiss subsidiary longer considered indefinitely reinvested 12 million 21 million 16 million respectively december 31 2016 undistributed earnings considered indefinitely reinvested determination amount unrecognized deferred income tax liability excess financial reporting basis tax basis investments foreign subsidiaries practicable complexities hypothetical calculation items give rise significant portions deferred tax accounts follows thousands december 31 2016 2015 deferred tax assets 04 million 05 million respectively included noncurrent assets consolidated balance sheet company accounts uncertain tax benefits accordance provisions section 74010 accounting uncertainty income taxes topic fasb asc total unrecognized tax benefits december 31 2016 approximately 156 million recorded reduction deferred tax assets caused corresponding reduction company’s valuation allowance 156 million extent unrecognized tax benefits recognized time valuation allowance exist recognition 156 million tax benefit would reduce effective tax rate company anticipate amount unrecognized tax benefits december 31 2016 change materially within 12month period following december 31 2016 reconciliation beginning ending amount unrecognized tax benefits follows thousands company recognizes interest penalties component income tax expense interest penalties years ended december 31 2016 2015 2014 148000 119000 34000 respectively company’s us federal income tax returns tax years subsequent 2009 subject examination internal revenue service state income tax returns subsequent 2008 subject examination state tax authorities company’s foreign tax returns subsequent 2004 subject examination foreign tax authorities net operating losses years statute limitations expired 2009 prior federal 2008 prior state could adjusted event taxing jurisdictions challenge amounts net operating loss carryforwards years note 12leases rental expense amounted 41 million 50 million 56 million years ended december 31 2016 2015 2014 respectively incurred primarily facility leases future annual minimum rental commitments december 31 2016 follows thousands note 13pension postretirement benefit plans foreign plan compensationretirement benefits subtopic fasb asc requires balance sheet recognition total funded underfunded status pension postretirement benefit plans guidance actuarial gains losses prior service costs credits remaining transition assets obligations recognized previous accounting standards must recognized component accumulated comprehensive income loss within stockholders’ equity net tax effects amortized component net periodic benefit cost income company’s plan regulated swiss government funded employees company pension benefit based compensation length service credited investment earnings plan guarantees minimum rate return well minimum annuity purchase rates company’s funding policy respect pension plan contribute amount required swiss law using required percentage applied employee’s compensation addition participating employees required contribute pension plan company made pension contributions 06 million 06 million 07 million 2016 2015 2014 respectively approximately 45 total contributions plan year made employees plan measurement date december 31 company rights assets plan right offset liabilities plan net pension asset increased 58 million 89 million year ended december 31 2016 increase plan assets primarily due higher return plan assets expected demographic assumption changes made reflect current market conditions well higher expected withdrawal mortality experience year accumulated benefit obligation 294 million 313 million december 31 2016 2015 respectively decrease benefit obligation primarily due higher expected withdrawal mortality experience higher amount benefits paid year new obligations incurred plan fully funded continues surplus condition following table reflects changes pension benefit obligation plan assets years ended december 31 2016 2015 thousands amounts recognized consolidated balance sheets consist thousands components net periodic pension cost amounts recognized comprehensive income loss taxes follows thousands assumptions used determine benefit obligation net periodic pension cost follows pension plan’s overall strategy investment policy managed board plan overall longterm rate based target asset allocation 14 swiss bonds 10 nonswiss hedged bonds 10 swiss equities 15 global equities 5 emerging market equities 4 alternative investments 40 real estate 2 cash equivalents 2017 expected future longterm rate return estimated 250 based historical asset rates return asset allocation classification 111 swiss bonds 120 nonswiss hedged bonds 300 swiss equities 480 global equities 500 emerging market equities 180 alternative investments 210 real estate 020 cash equivalents 2016 expected longterm rate return 300 based historical asset rates return 021 swiss bonds 0 nonswiss hedged bonds 352 swiss equities 521 global equities 521 emerging market equities 123 alternative investments 254 real estate 023 cash equivalents following benefit payments reflect expected future service appropriate expected paid thousands company expects contribute approximately 05 million pension plan 2017 investment objectives primary investment goal pension plan achieve total annualized return 300 longterm investments evaluated compared benchmarked plans similar investment strategies plan also attempts minimize risk single security class securities disproportionate impact plan guideline assets diversified asset classes equity fixed incomebonds alternative investments fair values plans assets december 31 2016 2015 asset category follows thousands fair value assets level 1 observable inputs quoted prices active markets identical assets level 2 inputs quoted prices observable asset liability either directly indirectly include quoted prices similar assets liabilities active markets quoted prices identical similar assets liabilities markets active level 3 unobservable inputs reflect reporting entity’s assumptions financial instruments significant level 3 inputs following table summarizes activity year investment type 1 total unrealized gains reported component pension adjustment accumulated comprehensive income consolidated statement stockholders’ equity us plan company postretirement benefit plan covering employees united states substantially us employees eligible elect coverage contributory employee savings plan provides company matching contributions based onehalf employee contributions certain plan limits company’s matching contributions plan totaled 05 million 06 million 05 million years ended december 31 2016 2015 2014 respectively note 14legal proceedings although company expects incur legal fees connection legal proceedings company unable estimate amount legal fees therefore fees expensed period legal services performed fcpa matter january 2011 company reached settlements us securities exchange commission “sec” us department justice “doj” respect charges asserted sec doj relating antibribery books records internal controls disclosure provisions us foreign corrupt practices act “fcpa” securities laws violations company paid monetary penalties settlements installments monetary penalties paid full january 2013 respect doj charges judgment dismissal issued us district court southern district california march 28 2014 october 15 2013 company received informal notice doj indictment former senior vice president general manager swiss subsidiary filed united states district court southern district california indictment individual former officer company foresee penalties fines could assessed corporate entity matter however company may required throughout term action advance legal fees costs incurred individual defendant incur financial obligations company maintains directors’ officers’ insurance policies intended cover legal expenses related indemnification obligations situations company cannot determine extent insurance policy cover ongoing legal fees matter accordingly legal fees may incurred company defending former officer could material impact financial condition results operation swiss bribery matter august 2013 company’s swiss subsidiary served search warrant swiss federal prosecutor’s office end search swiss federal prosecutor presented company listing materials gathered representatives removed materials premises keeping prosecutor’s office based upon company’s exposure case company believes action related similar facts circumstances fcpa action previously settled sec doj initial discussions swiss prosecutor acknowledged existence company’s deferred prosecution agreement doj cooperation efforts thereunder positive impact discussions going forward additionally activities previously reviewed conjunction sec doj matters fcpa company reason believe additional facts circumstances review swiss authorities date swiss prosecutor issued formal decision whether charges brought individuals company whether proceeding abandoned stage investigation company currently unable determine extent subject fines accordance swiss bribery laws additional expenses incurred order defend matter company cannot determine whether reasonable possibility loss incurred estimate range potential loss accordingly company accrued amount potential loss associated action adverse result could material adverse impact financial condition results operation government investigations early 2013 company voluntarily provided information sec united states attorney’s office southern district california related announcement intended file restated financial statements fiscal years 2011 2012 june 11 2015 june 16 2016 company received subpoenas sec requesting certain documents related among things facts circumstances surrounding restated financial statements company provided documents information sec response subpoenas continues cooperate sec september 6 2016 company entered tolling agreement effective period beginning september 12 2016 running june 30 2017 sec related matters stage company cannot predict ultimate outcome investigation whether result loss accordingly company accrued amount potential loss associated action adverse result could material adverse impact financial condition results operation note 15unaudited quarterly financial information includes noncash expense stockbased compensation 12 million b includes gain sale product line 67 million release tax liability 15 million noncash expense stockbased compensation 15 million c includes noncash expense stockbased compensation 11 million includes impairment assets 12 million noncash deferred tax expense 12 million connection probable repatriation portion unremitted earnings foreign subsidiary noncash expense stockbased compensation 16 million e includes noncash expense stockbased compensation 08 million f includes restructuring exit costs 23 million noncash deferred tax expense 21 million connection probable repatriation portion unremitted earnings foreign subsidiary noncash expense stockbased compensation 10 million g includes noncash expense stockbased compensation 11 million h includes noncash expense stockbased compensation 10 million note 16subsequent events localization agreement january 25 2017 company entered localization agreement “agreement” crrc qingdao sifang rolling stock research institute co ltd “crrcsri” localize manufacturing ultracapacitorbased modules use china new energy bus market terms agreement localized production ultracapacitorbased modules expected begin china second half 2017 agreement provides company transfer certain assets grant exclusive license certain intellectual property knowhow subject appraisal transferred assets grant intellectual property rights subject certain regulatory approvals additionally agreement requires crrcsri pay upfront technology transfer fee 30 million two additional contingent payments 10 million payable certain revenue metrics achieved also agreement provides ongoing graduated royalties based upon net sales decrease time additionally agreement contemplates additional sales marketing services design engineering services performed company period two years exchange services based part upon achievement milestones identified parties agreement provides localization partner pay company certain milestone payments acquisition nesscap energy inc february 28 2017 company entered arrangement agreement “arrangement agreement” providing acquisition “acquisition” substantially assets business nesscap energy inc “nesscap” developer manufacturer ultracapacitor products use transportation renewable energy industrial consumer markets aggregate purchase price 232 million “purchase price” company pay purchase price full issuing 46 million shares common stock subject adjustment provided arrangement agreement “share consideration” arrangement agreement provides share consideration may subject adjustment upon closing acquisition based average closing price company’s common stock ten 10 prevailing trading days nasdaq stock market ending including two 2 days prior closing order account increase decrease per share price compared trading price used calculate share consideration signing provided however event increase reduction share consideration limited maximum adjustment ten percent 10 share consideration represents approximately 1428 company’s outstanding shares based number shares company’s outstanding common stock february 27 2017 assuming adjustments company expects acquisition completed second quarter 2017 consummation acquisition also requires approval certain magnitude nesscap’s shareholders approval canadian court subject various closing conditions including material adverse effect occurred company nesscap arrangement agreement provides nesscap subject nonsolicitation provisions provides nesscap board may certain circumstances terminate arrangement agreement favor unsolicited superior proposal subject payment termination fee usd 1 million company subject company’s right match superior proposal question 2017 restructuring plan february 28 2017 board directors company approved comprehensive restructuring plan company’s businesses includes wide range organizational efficiency initiatives cost reduction opportunities company estimates incur total aggregate charges approximately 08 million 10 million restructuring primarily based upon estimated severance related costs company expects charges cash expenditures expects recognize charges related restructuring first quarter fiscal 2017 schedule ii valuation qualifying accounts thousands item 9item 8 financial statements supplementary data consolidated financial statements notes thereto appear pages 58 96 annual report form 10k maxwell technologies inc index consolidated financial statements report independent registered public accounting firm shareholders board directors maxwell technologies inc san diego california opinion consolidated financial statements audited accompanying consolidated balance sheets maxwell technologies inc “company” december 31 2017 2016 related consolidated statements operations comprehensive loss stockholders’ equity cash flows three years period ended december 31 2017 related notes schedule iivaluation qualifying accounts listed accompanying index collectively referred “consolidated financial statements” opinion consolidated financial statements present fairly material respects financial position company december 31 2017 2016 results operations cash flows three years period ended december 31 2017 conformity accounting principles generally accepted united states america also audited accordance standards public company accounting oversight board united states “pcaob” companys internal control financial reporting december 31 2017 based criteria established internal control integrated framework 2013 issued committee sponsoring organizations treadway commission “coso” report dated february 16 2018 expressed unqualified opinion thereon basis opinion consolidated financial statements responsibility company’s management responsibility express opinion company’s consolidated financial statements based audits public accounting firm registered pcaob required independent respect company accordance us federal securities laws applicable rules regulations securities exchange commission pcaob conducted audits accordance standards pcaob standards require plan perform audit obtain reasonable assurance whether consolidated financial statements free material misstatement whether due error fraud audits included performing procedures assess risks material misstatement consolidated financial statements whether due error fraud performing procedures respond risks procedures included examining test basis evidence regarding amounts disclosures consolidated financial statements audits also included evaluating accounting principles used significant estimates made management well evaluating overall presentation consolidated financial statements believe audits provide reasonable basis opinion bdo usa llp served companys auditor since 2013 san diego california february 16 2018 maxwell technologies inc consolidated balance sheets thousands except shares per share data accompanying notes integral part consolidated financial statements maxwell technologies inc consolidated statements operations thousands except per share data accompanying notes integral part consolidated financial statements maxwell technologies inc consolidated statements comprehensive loss thousands accompanying notes integral part consolidated financial statements maxwell technologies inc consolidated statements stockholders’ equity thousands accompanying notes integral part consolidated financial statements maxwell technologies inc consolidated statements cash flows thousands accompanying notes integral part consolidated financial statements maxwell technologies inc notes consolidated financial statements unless context otherwise requires references “maxwell” “company” “we” “us” “our” refer maxwell technologies inc subsidiaries references “maxwell sa” refer swiss subsidiary maxwell technologies sa note 1description business summary significant accounting policies description business maxwell technologies inc delaware corporation originally incorporated name maxwell laboratories inc 1965 company made initial public offering common stock nasdaq stock market 1983 changed name maxwell technologies inc 1996 company headquartered san diego california three manufacturing facilities located rossens switzerland yongin south korea peoria arizona addition company two contract manufacturers located china maxwell offers following two product lines • energy storage company’s ultracapacitor products energy storage devices possess unique combination high power density extremely long operational life ability charge discharge rapidly company’s ultracapacitor cells multicell packs modules subsystems provide highly reliable energy storage power delivery solutions applications multiple industries including automotive grid energy storage wind bus industrial truck company’s lithiumion capacitors energy storage devices power characteristics ultracapacitor combined enhanced energy storage capacity approaching battery uniquely designed address variety applications rail grid industrial markets energy density weight differentiating factors • highvoltage capacitors company’s condis® highvoltage capacitors designed manufactured perform reliably decades climates products include grading coupling capacitors electric voltage transformers metering products used ensure safety reliability electric utility infrastructure applications involving transport distribution measurement highvoltage electrical energy addition two existing product lines company developed transformed patented proprietary fundamental dry electrode manufacturing technology historically used make ultracapacitors create new technology applied manufacturing batteries believe create significant performance cost benefits compared today’s state art lithiumion batteries april 2017 company acquired substantially assets business nesscap energy inc “nesscap” developer manufacturer ultracapacitor products use transportation renewable energy industrial consumer markets acquisition added complementary businesses company’s operations expanded company’s portfolio ultracapacitor products april 2016 company sold substantially assets liabilities third product line radiationhardened microelectronics company’s radiationhardened microelectronic products satellites spacecraft included single board computers components highdensity memory power modules company’s products designed manufactured perform reliably life products systems integrated company achieves high reliability application proprietary technologies rigorously controlled design development manufacturing test processes financial statement presentation accompanying consolidated financial statements include accounts maxwell technologies inc subsidiaries prepared accordance accounting principles generally accepted united states “us gaap” intercompany transactions account balances eliminated consolidation liquidity september 25 2017 company issued 400 million 550 convertible senior notes due 2022 “notes” company received net proceeds deducting initial purchaser’s discount offering expenses payable company approximately 373 million notes bear interest rate 550 per year payable semiannually arrears march 15 september 15 year commencing march 15 2018 october 11 2017 30day option exercised company issued additional 60 million aggregate principal amount convertible senior notes terms received 57 million net proceeds december 31 2017 company approximately 501 million cash equivalents working capital 684 million july 2015 company entered loan agreement east west bank “ewb” whereby ewb made available company secured credit facility form revolving line credit available maximum lesser 250 million b certain percentage domestic foreign trade receivables december 31 2017 amounts borrowed revolving line credit amount available 133 million facility scheduled expire july 2018 management believes available cash balance sufficient fund operations obligations become due capital investments least next twelve months use estimates preparation financial statements conformity us gaap requires management make estimates assumptions affect reported amounts related disclosures estimates include limited assessing collectability accounts receivable applied unapplied production costs production capacities usage recoverability inventories longlived assets deferred income taxes incurrence warranty obligations fair value acquired tangible intangible assets impairment goodwill intangible assets estimation cost complete certain projects estimation pension defined benefit plan assets liabilities accruals estimated losses legal matters estimation value stockbased compensation awards including probability performance criteria restricted stock unit awards met revenue recognition revenue derived primarily sale manufactured products directly customers product revenue recognized according guidelines securities exchange commission “sec” staff accounting bulletin “sab” numbers 101 revenue recognition financial statements 104 revenue recognition following criteria met 1 persuasive evidence arrangement exists upon contract signing receipt authorized purchase order customer 2 title passes customer either shipment company’s facilities receipt customer facility depending shipping terms 3 customer payment deemed fixed determinable free contingencies significant uncertainties 4 collectability reasonably assured policy consistently applied period portion sales revenue derived sales distributors distributor revenue recognized criteria revenue recognition met generally time shipment distributor returns credits typically estimable significant certain distributor agreements nesscap korea provide significant rights return price adjustment revenue related distributors deferred period distributor sells inventory end customer revenue productiontype contracts represents less five percent total revenue recognized using percentage completion method degree completion determined based costs incurred percentage total costs anticipated excluding costs representative progress completion total deferred revenue customer deposits consolidated balance sheets december 31 2017 2016 67 million 40 million respectively primarily relates cash received localization agreement crrcsri amounts received advance connection productiontype contract revenue recognized using percentage completion method deferred revenue distributors sellthrough method recognition customer advances cash equivalents cash equivalents consist primarily cash readily available checking money market accounts cash equivalents consist highly liquid investments readily convertible cash mature within three months less date purchase carrying amounts approximate fair value due short maturities instruments accounts receivable allowance doubtful accounts trade receivables stated gross invoiced amount less allowance uncollectible accounts allowance doubtful accounts reflects management’s best estimate probable losses inherent accounts receivable balance management determines allowance doubtful accounts based known troubled accounts historical experience currently available evidence inventories net inventories stated lower cost firstin firstout basis net realizable value finished goods workinprocess inventory values include cost raw materials labor manufacturing overhead inventory written net realizable value establishes new cost basis value subsequently increased based upon changes underlying facts circumstances company also makes adjustments reduce carrying amount inventories estimated excess obsolete inventories factors influencing adjustments include inventories onhand compared historical estimated future sales existing new products assumptions likelihood obsolescence unabsorbed manufacturing costs treated expense period incurred property equipment property equipment carried cost depreciated using straightline method depreciation provided estimated useful lives related assets three ten years leasehold improvements depreciated shorter estimated useful life term lease leasehold improvements funded landlords recorded property equipment depreciated shorter estimated useful life asset lease term deferred rent amortized lease term december 31 2017 2016 net book value leasehold improvements funded landlords 14 million 17 million respectively december 31 2017 2016 unamortized balance deferred rent related landlord funding leasehold improvements 14 million 17 million respectively included “accounts payable accrued liabilities” “other longterm liabilities” consolidated balance sheets goodwill represents excess cost acquired business net fair value assigned assets liabilities amortized instead goodwill assessed annually reporting unit level impairment intangiblesgoodwill topic fasb asc company established december 31 annual impairment test date addition company assesses goodwill annual test dates event occurs circumstances change could likely reduce fair value reporting unit carrying value company first makes qualitative assessment whether goodwill impaired likely goodwill impaired company performs quantitative impairment analysis determine goodwill impaired company may also determine skip qualitative assessment year move directly quantitative test quantitative goodwill impairment analysis compares reporting unit’s carrying amount fair value goodwill impairment recorded excess reporting units carrying amount fair value exceed total amount goodwill allocated reporting unit impairments goodwill reported years ended december 31 2017 2016 2015 also see note 5 goodwill intangible assets discussion company’s goodwill impairment analysis longlived assets intangible assets company records intangible assets respective estimated fair values date acquisition intangible assets amortized based upon pattern economic benefit realized pattern cannot reliably determined using straightline method estimated useful lives eight fourteen years company reviews longlived assets impairment whenever events changes circumstances indicate carrying amount assets including intangible assets may recoverable events occur company compares carrying amounts assets undiscounted expected future cash flows company determines carrying value asset recoverable permanent impairment charge recorded amount carrying value longlived asset exceeds fair value years ended december 31 2017 2016 company recorded impairment charges 02 million 14 million respectively impairment charges related property equipment longer forecasted utilized remaining useful lives fair values approximated zero impairments property equipment recorded year ended december 31 2015 warranty obligation company provides warranties product sales terms ranging one eight years company accrues estimated warranty costs time sale based historical warranty experience plus known expected changes warranty exposure december 31 2017 2016 accrued warranty liability included “accounts payable accrued liabilities” consolidated balance sheets 14 million 12 million respectively convertible debt convertible notes regarded compound instruments consisting liability component equity component parts compound instruments classified separately financial liabilities equity accordance substance contractual arrangement date issue fair value liability component estimated using prevailing market interest rate similar nonconvertible instrument amount recorded liability amortized cost basis extinguished upon conversion instrument’s maturity date equity component determined deducting amount liability component proceeds compound instrument whole recognized additional paidin capital included equity net income tax effects subsequently remeasured initial measurement convertible notes carried amortized cost using effective interest method income taxes deferred income taxes provided liability method accordance income taxes topic fasb asc whereby deferred tax assets recognized deductible temporary differences deferred tax liabilities recognized taxable temporary differences method deferred income taxes recorded reflect tax consequences future years temporary differences tax basis assets liabilities reported amounts period end likely portion deferred tax asset realized valuation allowance recognized guidance also provides criteria recognition measurement presentation disclosures uncertain tax positions tax benefit uncertain tax position may recognized “more likely not” position sustainable based solely technical merits concentration credit risk company maintains cash balances various financial institutions primarily california switzerland california cash balances commonly exceed 250000 federal deposit insurance corporation insurance limit switzerland banks company cash deposits either governmentowned case cash deposited nongovernment banks deposits insured 100000 swiss francs company experienced losses accounts management believes company exposed significant credit risk respect cash equivalents financial instruments subject company potential concentrations credit risk consist principally company’s accounts receivable company’s accounts receivable result product sales customers various industries various geographical areas domestic foreign company performs credit evaluations customers generally requires collateral one customer abb ltd accounted 12 total revenue 2017 two customers accounted 10 total accounts receivable december 31 2017 continental automotive abb ltd accounted 11 10 accounts receivable respectively customers accounted 10 total revenue year ended december 31 2016 10 total accounts receivable december 31 2016 one customer shenzhen xinlikang supply china management co ltd accounted 19 total revenue 2015 research development expense research development expenditures expensed period incurred thirdparty funding research development expense costsharing arrangements recorded offset research development expense period expenses incurred research development expense 184 million 209 million 247 million net thirdparty funding costsharing arrangements 28 million 12 million 13 million years ended december 31 2017 2016 2015 respectively years ended december 31 2017 2016 thirdparty funding costsharing arrangements included 22 million 06 million respectively related joint development agreement fund shortterm costs developing technologies automotive market shipping handling expense company recognizes shipping handling expenses component cost revenue advertising expense advertising costs expensed period incurred advertising expense 07 million 07 million 11 million years ended december 31 2017 2016 2015 respectively foreign currencies company’s primary foreign currency exposure related subsidiaries switzerland korea functional currency swiss korean subsidiaries swiss franc korean respectively company’s swiss subsidiary euro local currency swiss franc revenue operating expenses local currency loans company’s korean subsidiary us dollar euro local currency korean revenue operating expenses changes currency exchange rates impact reported us dollar amount revenue expenses debt assets liabilities swiss korean subsidiaries translated monthend exchange rates revenue expenses gains losses translated rates exchange approximate rate effect time transaction translation adjustments resulting process presented separately component accumulated comprehensive income within stockholders’ equity consolidated balance sheets foreign currency transaction gains losses intercompany balances considered long term nature accounted translation adjustments within equity foreign currency transaction gains losses reported “foreign currency exchange loss net” consolidated statements operations foreign currency derivative instruments company historically used forward contracts hedge certain monetary assets liabilities primarily receivables payables cash balances denominated foreign currencies company’s objective partially offset gains losses resulting exposures opposing gains losses forward contracts thereby reducing volatility earnings created foreign currency exposures year ended december 31 2016 company ceased using foreign currency forward contracts hedge foreign currency transaction exposure management determined foreign currency transaction exposure longer significant accordance derivatives hedging topic fasb asc fair values forward contracts estimated period end based quoted market prices recorded net asset liability consolidated balance sheets contracts considered economic hedges designated hedges derivatives hedging topic fasb asc therefore change fair value instruments recognized consolidated statements operations recorded “foreign currency exchange loss net” consolidated statements operations business combinations company accounts businesses acquires accordance asc topic 805 business combinations allocates fair value purchase consideration tangible intangible assets acquired liabilities assumed based estimated fair values excess purchase consideration fair values identifiable assets liabilities recorded goodwill determining fair values assets acquired liabilities assumed management makes significant estimates assumptions company may utilize thirdparty valuation specialists assist company allocation initial purchase price allocations subject revision within measurement period exceed one year date acquisition acquisitionrelated expenses transaction costs associated business combinations expensed incurred restructuring exit costs restructuring exit costs involve employeerelated termination costs facility exit costs associated restructuring activities company accounts charges resulting operational restructuring actions accordance asc topic 420 exit disposal cost obligations “asc 420” asc topic 712 compensationnonretirement postemployment benefits “asc 712” recognition restructuring costs requires company make certain assumptions related amounts employee severance benefits time period leased facilities remain vacant expected sublease terms discount rates estimates assumptions based best information available time obligation arises estimates reviewed revised facts circumstances dictate changes estimates could material effect amount accrued consolidated balance sheet net income loss per share accordance earnings per share topic fasb asc basic net income loss per share calculated using weighted average number common shares outstanding period diluted net income per share includes impact additional common shares would outstanding potentially dilutive common shares issued potentially dilutive securities considered calculation diluted net loss per share inclusion would antidilutive following table sets forth computation basic diluted net loss per share thousands except per share data following table summarizes instruments may convertible common shares included denominator used diluted net loss per share calculation would antidilutive thousands shares stockbased compensation company issues stockbased compensation awards employees nonemployee directors including stock options restricted stock restricted stock units shares employee stock purchase plan company records compensation expense stockbased awards accordance criteria set forth stock compensation subtopic fasb asc company uses blackscholes option pricing model estimate fair value stock option grants determination fair value stock options utilizing blackscholes model affected company’s stock price number assumptions including expected volatility expected term riskfree interest rate expected dividends fair value restricted stock awards “rsas” restricted stock unit awards “rsus” servicebased performancebased vesting based closing market price company’s common stock date grant compensation expense equal fair value rsa rsu recognized ratably requisite service period rsus vesting contingent company performance conditions company uses requisite service period likely occur requisite service period estimated based performance period well timebased service requirements unlikely performance condition achieved compensation expense recognized unless later determined achievement performance condition likely expense may adjusted changes expected outcomes related performance conditions impact changes recognized cumulative adjustment consolidated statement operations period expectation changes 2016 2017 company issued marketcondition rsus certain members executive management since vesting marketcondition rsus dependent stock price performance fair values awards estimated using montecarlo valuation model determination fair value marketcondition rsus utilizing montecarlo valuation model affected company’s stock price number assumptions including expected volatility expected life riskfree interest rate expected dividends 2016 company adopted bonus plan enabled participants earn annual incentive bonuses based upon achievement specified financial strategic performance objectives terms plan company ability settle bonuses earned plan common stock fully vested rsus company settled majority bonuses earned 2016 plan stock fully vested rsus 2017 fiscal year 2017 performance period company intends settle amounts earned bonus plan fully vested rsus first quarter 2018 stockbased compensation expense accrued bonus plan represents stocksettled debt per asc 718 asc 480 company recorded liability bonuses expected paid fully vested rsus “accrued employee compensation” company’s consolidated balance sheets stockbased compensation expense recognized consolidated statements operations based equity awards ultimately expected vest company estimates forfeitures time grant revises forfeitures necessary subsequent periods cumulative catch adjustment actual forfeitures differ estimates marketcondition awards effect marketcondition reflected adjustment awards’ fair value grant date subsequent forfeitures due company’s stock price performance result reversal expense recent accounting pronouncements may 2014 financial accounting standards board “fasb” issued accounting standards update “asu” 201409 revenue contracts customers standard provides companies single model accounting revenue arising contracts customers supersedes current revenue recognition guidance including industryspecific revenue guidance core principle model recognize revenue control goods services transfers customer opposed recognizing revenue risks rewards transfer customer existing revenue guidance permits companies either apply requirements retrospectively prior periods presented apply requirements year adoption cumulative adjustment august 2015 fasb issued asu 201514 deferral effective date defers required adoption date asu 201409 one year result deferred effective date asu 201409 effective company first quarter fiscal 2018 early adoption permitted original effective date new standard first quarter fiscal 2017 following asus subsequently issued fasb clarify implementation guidance areas add practical expedients march 2016 asu 201608 revenue contracts customers principal versus agent considerations april 2016 asu 201610 revenue contracts customers identifying performance obligations licensing may 2016 asu 201612 revenue contracts customers narrow scope improvements practical expedients december 2016 asu 201620 technical corrections improvements revenue contracts customers company’s currently finalizing evaluation standard product sales arrangements identified adoption impact related revenue certain distributor agreements deferred period distributor sells inventory end customer connection adoption asu 201409 company change recognition sales distributors whereby revenue estimated recognized period company transfers control product distributor adoption impact expected material impact company identified expected impact timing measurement revenue standard product sales arrangements adoption standard company currently formalizing final conclusions company also formalizing evaluation impact adoption nonproduct sales arrangements represent less five percent revenue company developed used comprehensive project plan guide implementation new standard currently completing assessment company adopt new accounting standard using modified retrospective transition method effective january 1 2018 february 2016 fasb issued asu 201602 leases standard requires lessee recognize assets liabilities arise operating leases lessee recognize balance sheet liability make lease payments lease liability rightofuse asset representing right use underlying asset lease term leases term 12 months less lessee permitted make accounting policy election class underlying asset recognize lease assets lease liabilities transition lessees lessors required recognize measure leases beginning earliest period presented using modified retrospective approach guidance asu 201602 effective annual interim reporting periods beginning december 15 2018 company’s initial evaluation current leases indicate adoption standard material impact consolidated statements operations company expects adoption standard material impact consolidated balance sheets recognition certain operating leases rightofuse assets lease liabilities march 2016 fasb issued asu 201609 improvements employee sharebased payment accounting changes accounting employee sharebased payments including accounting income taxes forfeitures statutory tax withholding requirements well classification statement cash flows new guidance excess tax benefits associated sharebased payment awards recognized income statement awards vest settle rather stockholders’ equity addition increase number shares employer withhold cover income taxes sharebased payment awards still qualify exemption liability classification guidance effective company first quarter 2017 adoption standard resulted recognition 100 million gross deferred tax assets related stockbased compensation corresponding increase company’s valuation allowance company elected account forfeitures sharebased payments estimating number awards expected forfeited time grant adjusting estimate reflect changes expected vesting shares november 2016 fasb issued asu 201618 statement cash flows restricted cash requires entities show changes total cash equivalents restricted cash restricted cash equivalents statement cash flows guidance effective company first quarter fiscal 2018 early adoption permitted including adoption interim period adjustments must reflected beginning fiscal year includes interim period new standard must adopted retrospectively company early adopted standard fourth quarter 2016 accordance company’s early adoption asu 201618 retrospective restatement limited including restricted cash balances amount 04 million beginning cash equivalents restricted cash balances year ended december 31 2016 consolidated statements cash flows retrospective adoption impact reported net loss otherwise material impact presentation overall financial statements january 2017 fasb issued asu 201704 intangibles goodwill eliminates step two quantitative goodwill impairment test step two required determination implied fair value reporting unit comparison implied fair value carrying amount goodwill reporting unit order determine goodwill impairment new guidance entity required complete onestep quantitative test comparing fair value reporting unit carrying amount goodwill impairment charge determined amount carrying amount exceeds reporting unit’s fair value however loss exceed total amount goodwill allocated reporting unit standard effective company first quarter 2020 early adoption permitted january 1 2017 applied prospective basis adoption standard materially impact companys consolidated financial statements unless step one annual goodwill impairment test fails company early adopted standard january 1 2017 adoption effect company’s consolidated financial statements march 2017 fasb issued asu 201707 improving presentation net periodic pension cost net periodic postretirement benefit cost changes employers sponsor defined benefit pension postretirement benefit plans present net periodic benefit cost statement operations new guidance requires entities report service cost component line item items compensation costs components net benefit cost required presented statement operations separately service cost component outside subtotal loss operations asu 201707 also provides service cost component eligible capitalization standard effective company first quarter 2018 adoption applied retrospective basis company’s 2017 2016 loss operations restated increase 07 million 05 million respectively due reclassification nonservice cost components net benefit cost moved line loss operations impact net loss net loss per share company’s consolidated statements operations company applied practical expedient estimation basis reclassification may 2017 fasb issued asu 201709 compensationstock compensation scope modification accounting provides clarification modification accounting used changes terms conditions sharebased payment award asu change accounting modifications clarifies modification accounting guidance applied change value vesting conditions award classification would required changes considered nonsubstantive amendments asu effective company first quarter 2018 early adoption permitted adoption asu 201709 expected impact company’s consolidated financial statements august 2017 fasb issued asu 201712 derivatives hedging targeted improvements accounting hedging activities modifies presentation disclosure hedging results provides partial relief timing certain aspects hedge documentation eliminates requirement recognize hedge ineffectiveness separately income amendments asu effective company first quarter 2019 company expect asu material impact consolidated financial statements business enterprise information company operates single operating segment according fasb asc topic disclosures segments enterprise related information operating segments defined components enterprise separate financial information evaluated regularly chief operating decision maker “codm” deciding allocate resources assessing performance company’s codm chief executive officer evaluates company’s financial information resources assesses performance consolidated basis revenue product line geographic area presented thousands 1 location determined shipment destination 2 revenue external customers located countries included “all countries” individually comprise 10 total revenue years presented longlived assets geographic location follows thousands note 2balance sheet details thousands inventories warranty activity warranty reserve included “accounts payable accrued liabilities” consolidated balance sheets follows property equipment net accounts payable accrued liabilities accumulated comprehensive income loss note 3 business combination april 28 2017 company acquired substantially assets business nesscap energy inc “nesscap” developer manufacturer ultracapacitor products use transportation renewable energy industrial consumer markets exchange issuance approximately 41 million shares maxwell common stock “share consideration” assumption certain liabilities pursuant terms previously announced arrangement agreement dated february 28 2017 maxwell nesscap “ nesscap acquisition” value share consideration approximately 253 million based closing price company’s common stock april 28 2017 additionally per arrangement agreement company paid approximately 10 million transaction taxes behalf seller nesscap acquisition effected means courtapproved statutory plan arrangement approved requisite vote cast shareholders nesscap special meeting nesscap’s shareholders held april 24 2017 share consideration represents approximately 113 outstanding shares maxwell based number shares maxwell common stock outstanding april 28 2017 nesscap acquisition adds scale company’s operations expands company’s portfolio ultracapacitor products fair value purchase price consideration consisted following thousands acquisition accounted acquisition method accounting accordance asc 805 business combinations method accounting company recorded acquisition based fair value consideration given cash consideration paid company allocated acquisition consideration paid identifiable assets acquired liabilities assumed based respective fair values date completion acquisition excess value consideration paid aggregate fair value net assets recorded goodwill attributable expected synergies combining operations acquired workforce well intangible assets qualify separate recognition company allocated goodwill new reporting unit goodwill associated acquisition deductible income tax purposes fair values net tangible assets intangible assets acquired based upon companys estimates assumptions acquisition date following table summarizes allocation assets acquired liabilities assumed acquisition date thousands fair value inventories acquired included acquisition accounting fair market value stepup 686000 year ended december 31 2017 company recognized 646000 stepup component cost revenue acquired inventory sold period included inventory december 31 2017 40000 related remaining fair value stepup associated acquisition year ended december 31 2017 acquisitionrelated costs 19 million included selling general administrative expenses companys consolidated statements operations following table presents details identified intangible assets acquired nesscap acquisition thousands fair value 118 million identified intangible assets acquired connection nesscap acquisition estimated using income approach income approach intangible assets fair value equal present value future economic benefits derived ownership asset specifically fair values customer relationship intangible assets determined using multiperiod excess earnings method estimates intangible asset’s value based present value incremental aftertax cash flows attributable intangible asset fair values trademark trade names developed technology intangible assets valued using relief royalty method based principle ownership intangible asset relieves owner need pay royalty another party exchange rights use asset following unaudited pro forma financial information presents combined results operations periods presented nesscap acquisition occurred beginning fiscal year 2016 thousands except per share amounts unaudited pro forma information adjusted reflect following • amortization expense acquired intangibles removal nesscap historical intangibles amortization • removal historical nesscap interest expenses gains losses related debt acquired • recognition expense associated valuation inventory acquired pro forma data presented illustrative purposes necessarily indicative consolidated results operations combined business acquisition actually occurred beginning fiscal year 2016 results future operations combined business unaudited pro forma financial information reflect operating efficiencies cost saving may realized integration acquisition year ended december 31 2017 173 million revenue 09 million net loss included companys consolidated statements operations related nesscap operations company consider 2017 revenue net loss related nesscap operations indicative results nesscap acquisition due integration activities since acquisition date also see note 5 goodwill intangible assets information goodwill intangible assets related nesscap acquisition note 4 sale microelectronics product line april 27 2016 company sold substantially assets liabilities comprising microelectronics product line data device corporation privatelyheld delaware corporation transaction purchase price 210 million subject working capital adjustment one year 15 million escrow holdback purchase price received may 2017 assets sold primarily comprised inventory accounts receivable property equipment liabilities sold comprised mainly deferred revenue accounts payable current liabilities first quarter 2016 company met held sale criteria accordance asc topic 380 impairment disposal long lived assets company ceased depreciation property equipment classified assets sold held sale second quarter 2016 assets liabilities formerly classified held sale disposed pursuant sale microelectronics product line represent strategic shift major effect company’s operations financial results company account disposition discontinued operation year ended december 31 2016 company recorded gain 67 million related sale microelectronics product line note 5goodwill intangible assets company performs impairment test goodwill annually according intangiblesgoodwill topic fasb asc january 1 2017 company also early adopted asu 2017 201704 intangibles goodwill eliminates step two quantitative goodwill impairment test company first makes qualitative assessment likelihood goodwill impairment concludes likely carrying amount reporting unit greater fair value required perform quantitative impairment test otherwise performing impairment test required qualitative factors assessed reporting unit level include limited changes industry market structure competitive environments planned capacity new product launches cost factors raw material prices financial performance reporting unit company may also determine skip qualitative assessment year move directly quantitative test quantitative impairment test consists estimating fair value comparing estimated fair value carrying value reporting unit goodwill impairment charge determined amount carrying amount exceeds reporting unit’s fair value however loss exceed total amount goodwill allocated reporting unit guidance requires goodwill reviewed annually time every year event occurs circumstances change reasonably possible impairment may exist company selected december 31 annual testing date 2017 company performed qualitative assessment reporting units included evaluation changes industry market macroeconomic conditions well consideration reporting unit’s financial performance significant trends company’s qualitative assessment indicated likely goodwill impaired company noted significant negative trends decreases longrange plan would indicate different result compared 2016 quantitative analysis ultracapacitor reporting unit 2016 company assessed qualitative factors one two reporting units concluded likely fair value exceeded carrying value therefore perform quantitative testing reporting unit reporting unit company determined skip qualitative assessment moved directly quantitative test company utilized discounted cash flow methodology calculate fair value reporting unit based fair value analysis management concluded fair value exceeded carrying value reporting unit additional quantitative testing required result company’s annual assessments impairments recorded years ended december 31 2017 2016 2015 change carrying amount goodwill 2016 2017 follows thousands composition intangible assets subject amortization follows thousands useful life intangible assets reflects period assets expected contribute directly indirectly future cash flows intangible assets amortized useful lives assets utilizing straightline method materially consistent pattern expected benefits consumed calculated using undiscounted cash flows year ended december 31 2017 amortization expense 02 million recorded “cost revenue” 06 million recorded “selling general administrative” estimated amortization expense years 2018 2021 12 million year expected amortization expense estimate actual amounts could differ due additional intangible asset acquisitions changes foreign currency rates impairment intangible assets note 6 restructuring exit costs 2017 restructuring plans september 2017 company initiated restructuring plan optimize headcount connection acquisition integration assets business nesscap well implement additional organizational efficiencies total charges september 2017 restructuring plan approximately 12 million incurred 2017 february 2017 company implemented comprehensive restructuring plan included wide range organizational efficiency initiatives cost reduction opportunities total charges year ended december 31 2017 february 2017 restructuring plan approximately 09 million company accounts charges resulting restructuring exit activities accordance asc topic 420 exit disposal cost obligations “asc 420” asc topic 712 compensationnonretirement postemployment benefits employee termination benefits paid accordance ongoing employee termination benefit arrangement charges related 2017 restructuring plans consist employee severance costs paid cash charges recorded within “restructuring exit costs” consolidated statements operations following table summarizes changes liabilities 2017 restructuring plans recorded “accrued employee compensation” company’s condensed consolidated balance sheet year ended december 31 2017 thousands 2015 restructuring plan 2015 company initiated restructuring plan consolidate us manufacturing operations reduce headcount operating expenses order align company’s cost structure current business forecast improve operational efficiency 2015 plan also included disposition company’s microelectronics product line completed april 2016 exception lease assumption revisions described plan completed 2016 total restructuring exit costs 2015 plan 30 million included 15 million facilities costs related consolidation manufacturing operations 12 million employee severance costs 03 million exit costs company also incurred 06 million accelerated equipment depreciation expense related consolidation manufacturing operations total cash expenditures excluding lease payments related 2015 restructuring plan activities approximately 15 million june 2015 company ceased use approximately 60000 square feet peoria az manufacturing facility determined leased space would future economic benefit company based current business forecast result june 2015 company recorded liability future rent obligation associated space net estimated sublease income accordance asc topic 420 year ended december 31 2015 expense related exit leased space 12 million tax recorded component total restructuring exit costs years ended december 31 2017 2016 company recorded additional restructuring exit costs 02 million 01 million respectively related revisions sublease income assumption years ended december 31 2017 2016 2015 company recorded total charges related 2015 restructuring plan 02 million 03 million 25 million respectively within “restructuring exit costs” consolidated statements operations additionally years ended december 31 2016 2015 company recorded 01 million 04 million respectively accelerated depreciation expense within “cost revenue” consolidated statements operations december 31 2017 company’s consolidated balance sheet includes restructuring liability associated lease obligation costs 03 million “accounts payable accrued liabilities” 04 million “other long term liabilities” following table summarizes restructuring exit costs related 2015 restructuring plan years ended december 31 2017 2016 2015 thousands note 7debt credit facilities convertible senior notes september 25 2017 october 11 2017 company issued 400 million 60 million respectively 550 convertible senior notes due 2022 “notes” company received net proceeds deducting initial purchaser’s discount offering expenses payable company approximately 430 million notes bear interest rate 550 per year payable semiannually arrears march 15 september 15 year payments commencing march 15 2018 notes mature september 15 2022 unless earlier purchased company redeemed converted notes unsecured obligations maxwell rank senior right payment maxwell’s subordinated indebtedness equal right payment maxwell’s unsecured indebtedness subordinated effectively subordinated right payment maxwell’s secured indebtedness extent value assets securing indebtedness structurally subordinated indebtedness liabilities including trade payables maxwell’s subsidiaries notes convertible cash shares company’s common stock combination thereof company’s election upon satisfaction specified conditions certain periods described initial conversion rate 1575101 shares company’s common stock per 1000 principal amount notes representing initial effective conversion price 635 per share common stock premiums 27 29 company’s 500 494 stock prices september 25 2017 october 11 2017 dates issuance respectively conversion rate may subject adjustment upon occurrence certain specified events provided indenture governing notes dated september 25 2017 company wilmington trust national association trustee “indenture” adjusted accrued unpaid interest december 31 2017 ifconverted value notes exceed principal value notes prior close business day immediately preceding june 15 2022 notes convertible option holders upon satisfaction specified conditions certain periods thereafter close business day immediately preceding maturity notes convertible option holders time regardless conditions upon occurrence certain fundamental changes involving company holders notes may require company repurchase cash part notes repurchase price equal 100 principal amount notes repurchased plus accrued unpaid interest excluding fundamental change repurchase date company may redeem notes prior september 20 2020 company may redeem notes option whole part september 20 2020 last reported sale price company’s common stock least 130 conversion price effect least 20 trading days company considered features embedded notes conversion feature companys call feature makewhole feature concluded required bifurcated accounted separately host debt instrument notes included initial purchaser’s discount 25 million 55 discount recorded offset debt amortized expected life notes using effective interest method upon conversion holders company may elect settle conversion shares common stock cash combination thereof result cash conversion option company segregated liability component instrument equity component liability component measured estimating fair value nonconvertible debt instrument similar terms notes calculation fair value debt component required use level 3 inputs including utilization credit assumptions high yield bond indices fair value estimated using income approach discounting future interest principal payments due notes discount rate 120 interest rate equal estimated borrowing rate similar nonconvertible debt excess initial proceeds notes estimated fair value liability component 85 million recognized debt discount recorded increase additional paidin capital amortized expected life notes using effective interest method amortization debt discount recognized noncash interest expense transaction costs 05 million incurred connection issuance notes allocated liability equity components based relative fair values transaction costs allocated liability component amortized using effective interest method recognized noncash interest expense expected term notes transaction costs allocated equity component 01 million reduced value equity component recognized stockholders’ equity initial purchaser debt discount equity component debt discount transaction costs allocated liability amortized contractual term maturity notes using effective interest rate 122 carrying value notes follows thousands total interest expense related notes follows thousands revolving line credit july 2015 company entered loan security agreement “loan agreement” east west bank “ewb” whereby ewb made available company secured credit facility form revolving line credit “revolving line credit” revolving line credit available maximum lesser 250 million b certain percentage domestic foreign trade receivables december 31 2017 amount available revolving line credit 133 million general amounts borrowed revolving line credit secured lien company’s assets including intellectual property well pledge 100 equity interests maxwell sa obligations loan agreement also guaranteed directly maxwell sa revolving line credit mature july 3 2018 event company violation representations warranties covenants made loan agreement including certain financial covenants set forth therein company may able utilize revolving line credit repayment amounts owed pursuant loan agreement could accelerated company currently compliance financial covenants required meet term credit agreement including minimum fourquarter rolling ebitda quarterly minimum quick ratio monthly minimum cash requirements march 1 2017 company entered amendment loan agreement approve acquisition substantially assets business nesscap energy inc modify certain financial covenants amounts borrowed revolving line credit bear interest payable monthly interest shall accrue based upon company’s election subject certain limitations either prime rate plus margin ranging 0 050 libor rate plus margin ranging 275 325 specific rate determined based upon company’s leverage ratio time company required pay annual commitment fee 125000 unused commitment fee average daily unused amount revolving line credit payable monthly equal per annum rate range 030 050 determined company’s leverage ratio last day previous fiscal quarter amounts borrowed revolving line credit december 31 2017 former credit facility december 2011 company obtained secured credit facility form revolving line credit “former revolving line credit” equipment term loan “equipment term loan” together “former credit facility” borrowings former credit facility bore interest payable monthly either bank’s prime rate ii libor plus 225 company’s option subject certain limitations equipment term loan available finance 80 eligible equipment purchases made april 1 2011 april 30 2012 period company borrowed 50 million equipment term loan balance equipment term loan paid full maturity date april 30 2015 concurrently entering loan agreement described july 2015 company repaid outstanding loans former revolving line credit former credit facility terminated company incur early termination prepayment penalties former credit facility connection transactions longterm borrowings maxwell sa various financing agreements vehicles agreements original threeyear repayment period interest rates ranging 09 19 december 31 2017 2016 115000 83000 respectively outstanding agreements note 8fair value measurement company records certain financial instruments fair value accordance fair value measurements disclosures topic fasb asc historically financial instruments topic applied foreign currency forward contracts pension assets fair value foreign currency forward contracts recorded liability asset consolidated balance sheets second quarter 2016 company ceased using foreign currency forward contracts hedge foreign currency exposure management determined foreign currency exposure longer significant therefore foreign currency forward contracts outstanding december 31 2017 2016 fair value derivative instruments measured using models following quoted market prices active markets identical instruments level 2 input fair value hierarchy fair value measurements disclosures topic fasb asc also see note 9 foreign currency derivative instruments note 14 pension postretirement benefit plans annual report form 10k discussion fair value measurements december 31 2017 fair value company’s convertible senior notes issued september october 2017 approximately 526 million measured using level 2 inputs carrying value shortterm longterm borrowings approximates fair value relative short maturity instruments interest rates company could currently obtain note 9foreign currency derivative instruments company historically used forward contracts hedge certain monetary assets liabilities primarily receivables payables cash balances denominated foreign currencies year ended december 31 2016 company ceased using foreign currency forward contracts hedge foreign currency exposure management determined foreign currency exposure longer significant change fair value forward contracts represented natural hedge gains losses instruments partially offset changes fair value underlying monetary assets liabilities due movements currency exchange rates forward contracts generally expired one month contracts considered economic hedges designated hedges derivatives hedging topic fasb asc therefore change fair value instruments recognized period consolidated statements operations net losses foreign currency forward contracts included “foreign currency exchange loss net” consolidated statements operations follows thousands net losses foreign currency derivative contracts partially offset net gains losses underlying monetary assets liabilities net foreign currency gains losses underlying monetary assets liabilities included “foreign currency exchange loss net” consolidated statements operations follows thousands note 10stock plans equity incentive plans company two active sharebased compensation plans december 31 2017 2004 employee stock purchase plan “espp” 2013 omnibus equity incentive plan “incentive plan” approved stockholders incentive plan incentive stock options nonqualified stock options restricted stock awards “rsas” restricted stock units “rsus” granted employees nonemployee directors generally awards vest periods one four years addition equity awards issued senior management vesting award tied company performance market conditions company’s policy issue new shares common stock upon exercise stock options vesting restricted stock units granting restricted stock awards espp purchases company’s incentive plan currently provides equity incentive pool 6400000 shares reserved issuance replenished forfeited shares incentive plan additionally equity awards forfeited company’s former 2005 equity incentive plan shares available predecessor plans included total shares available issuance incentive plan year ended december 31 2017 tax benefit associated stock option exercises restricted stock unit vesting restricted stock grants disqualifying dispositions incentive stock options stock issued company’s espp approximately 42 million stock options company grants stock options employees executive management directors discretionary basis following table summarizes total aggregate stock option activity year ended december 31 2017 thousands except per share data weightedaverage grant date fair value stock options granted years ended december 31 2017 2015 297 334 respectively stock options granted year ended december 31 2016 total intrinsic value options exercised year ended december 31 2015 16000 option exercises years ended december 31 2017 2016 fair value stock options granted years ended december 31 2017 2015 estimated using blackscholes valuation model using following assumptions expected dividend yield zero company never paid cash dividends present intention pay cash dividends expected term based company’s historical experience previous stock option grants expected volatility based historical volatility company’s stock measured period commensurate expected option term company consider implied volatility due low volume publicly traded options company’s stock riskfree interest rate derived zero coupon rate us treasury instruments term comparable option’s expected term december 31 2017 03 million total unrecognized compensation cost related stock options cost expected recognized weighted average period 11 years restricted stock awards year ended december 31 2014 company ceased granting rsas began granting rsus employees executive management part annual equity incentive award program following table summarizes rsa activity year ended december 31 2017 thousands except per share data rsas granted years ended december 31 2017 2016 2015 vest date fair value rsas vested 2017 2016 2015 03 million 06 million 12 million respectively december 31 2017 01 million unrecognized compensation cost related nonvested rsas expected recognized weighted average period 02 years restricted stock units nonemployee directors receive annual rsu awards normally february year partial consideration annual retainer compensation awards vest full one year date grant provided nonemployee director provides continued service additionally new directors normally receive rsus upon election board company also grants rsus employees part annual equity incentive award program vesting typically equal annual installments four years continuous service additionally company grants performancebased restricted stock units “psus” executives vesting contingent continued service achievement specified performance objectives stock price performance rsu represents right receive one unrestricted share company’s common stock upon vesting following table summarizes rsu activity servicebased awards performancebased awards year ended december 31 2017 thousands except per share data weighted average grant date fair value rsus granted including psus years ended december 31 2017 2016 2015 589 600 702 respectively release date fair value rsus years ended december 31 2017 2016 2015 29 million 13 million 05 million respectively december 31 2017 83 million unrecognized compensation cost related nonvested rsu awards cost expected recognized weighted average period 22 years rsu activity included 158000 46224 214831 psus granted years ended december 31 2017 2016 2015 weighted average grant date fair value 573 508 718 per share respectively vesting contingent upon specified company performance conditions objectives additionally year ended december 31 2017 rsus granted included 367874 marketcondition psus weighted average grant date fair value 722 year ended december 31 2016 rsus granted included 313460 marketcondition psus weighted average grant date fair value 776 marketcondition psus earned based level company’s stock price performance determined market index one two threeyear performance periods marketcondition psus potential vest 0 200 depending company’s stock price performance recipients must remain employed end performance period order vest marketcondition psus granted year ended december 31 2015 fair value marketcondition psus granted calculated using monte carlo valuation model following assumptions following table summarizes amount compensation expense recognized rsus years ended december 31 2017 2016 2015 thousands employee stock purchase plan 2013 company amended restated 2004 employee stock purchase plan “espp” pursuant espp aggregate number shares common stock may purchased shall exceed 1500000 shares common stock company years ended december 31 2017 2016 2015 77914 111832 145733 shares respectively purchased espp permits substantially employees purchase common stock payroll deductions 85 lower trading price stock beginning end sixmonth offering period number shares purchased based participants’ contributions made offering period fair value “look back” option espp shares issued offering period estimated using blackscholes valuation model call put option share price used model 15 discount stock price last trading day offering period number shares purchased based employee contributions fair value espp awards calculated using following weightedaverage assumptions intrinsic value shares company’s stock purchased pursuant espp offering periods within years ended december 31 2017 2016 2015 01 million 01 million 02 million respectively bonuses settled stock january 15 2016 compensation committee board directors company adopted maxwell technologies inc incentive bonus plan enable participants earn annual incentive bonuses based upon achievement specified financial strategic performance objectives company may settle bonuses earned plan either cash stock currently intends settle majority bonuses earned plan stock year ended december 31 2017 company settled bonuses earned plan 2016 performance period 302326 shares fully vested common stock company intends settle bonuses earned plan fiscal year 2017 performance period fully vested common stock company first quarter 2018 company recorded 28 million 14 million stock compensation expense related bonus plan years ended december 31 2017 2016 respectively director fees settled stock 2017 board approved deferred compensation program nonemployee directors may make irrevocable elections receive portion cashbased nonemployee director fees including applicable annual retainer fee committee fee compensation payable respect service member board stock elect defer receipt shares event director makes election company grant fully vested rsus lieu cash initial value equal cash fees settled either year granted future date elected respective nonemployee director issuance maxwell common stock addition nonemployee directors may elect defer settlement initial annual rsu awards granted connection service nonemployee director year ended december 31 2017 company settled 164000 director fees earned 2017 28732 fully vested rsus company recorded 258000 stock compensation expense related director fees settled stock year ended december 31 2017 stockbased compensation expense compensation cost stock options rsas rsus espp bonuses director fees follows thousands stockbased compensation cost included cost revenue selling general administrative expense research development expense follows thousands share reservations following table summarizes shares available grant company’s stockbased compensation plans december 31 2017 note 11shelf registration statements november 9 2017 company filed shelf registration statement form s3 sec time sell aggregate 125 million combination common stock warrants debt securities units november 16 2017 registration statement declared effective sec allow company access capital markets threeyear period following effective date december 31 2017 securities issued company’s shelf registration statement net proceeds terms pricing offering securities issued shelf registration statement determined time offerings april 23 2015 previous shelf registration statement effective june 30 2014 company entered atthemarket equity offering sales agreement “sales agreement” cowen company llc “cowen” pursuant could sell aggregate 100 million shares common stock cowen sales agent sales agreement company agreed pay cowen commission equal 30 gross proceeds sale shares common stock june 11 2015 company completed sale approximately 100 million common stock terminated offering approximately 183 million shares sold offering average share price 546 company received net proceeds 96 million commissions offering costs 04 million note 12income taxes december 22 2017 president united states signed law tax cuts jobs act legislation significantly changes us tax law among things reducing us federal corporate tax rate 35 21 implementing territorial tax system imposing repatriation tax deemed repatriated earnings foreign subsidiaries pursuant sec’s staff accounting bulletin 118 income tax accounting implications tax cuts jobs act “sab 118” given amount complexity changes tax law resulting tax legislation company finalized accounting income tax effects tax legislation includes provisional amounts recorded related transition tax remeasurement deferred taxes impact tax legislation may differ estimate oneyear measurement period due among things refinement company’s calculations changes interpretations assumptions company made guidance may issued actions company may take result tax legislation company remeasured us deferred tax assets liabilities based rates expected reverse future generally 21 company recorded provisional decrease related deferred tax assets liabilities 347 million corresponding adjustment valuation allowance year ended december 31 2017 however still analyzing certain aspects act refining calculations could potentially affect measurement balances potentially give rise new deferred tax amounts company’s deferred tax asset offset full valuation allowance change rates impact company’s financial position results operations onetime transition tax based company’s total post1986 earnings profits “ep” previously deferred us income taxes determine amount transition tax company must determine addition factors amount post1986 ep relevant subsidiaries company recorded provisional amount additional us taxable income 84 million result additional tax expense due net operating losses however company continuing gather additional information precisely compute amount transition tax company significant net operating losses change provisional amount would impact company’s financial position results operations financial reporting purposes loss income taxes includes following components thousands provision income taxes based loss income taxes follows thousands provision income taxes accompanying consolidated statements operations differs amount calculated applying statutory income tax rate loss income taxes primary components difference follows thousands company established valuation allowance us federal state deferred tax assets due uncertainty surrounding realization assets evidenced cumulative losses operations december 31 2017 management periodically evaluates recoverability deferred tax assets time determined likely deferred assets realizable valuation allowance reduced accordingly recorded tax benefit company recorded valuation allowance 614 million december 31 2017 reflect estimated amount deferred tax assets may realized company decreased valuation allowance 170 million year ended december 31 2017 december 31 2017 company federal state net operating loss carryforwards approximately 2190 million 377 million respectively federal tax loss carryforwards begin expire 2020 state tax loss carryforwards begin expire 2018 addition company research development tax credit carryforwards federal state income tax purposes december 31 2017 70 million 90 million respectively federal credits begin expire 2019 unless utilized state credits indefinite life pursuant internal revenue code sections 382 383 use company’s federal net operating loss credit carryforwards may limited upon cumulative change ownership 50 within threeyear period company granted tax holiday switzerland effective january 1 2012 10 years tax holiday conditioned upon company meeting certain employment investment thresholds january 1 2017 company longer eligible tax holiday due meeting employment threshold impact tax holiday decreased foreign taxes 06 million 07 million 2016 2015 respectively benefit tax holiday net loss per diluted share 002 2016 2015 january 16th 2018 company granted new tax holiday switzerland retroactively effective january 1 2017 term december 31 2021 new tax holiday conditioned upon company meeting certain investment thresholds retroactive effect tax holiday recorded first quarter 2018 accordance enacted date new tax holiday company records us income taxes undistributed earnings foreign subsidiaries unless subsidiaries’ earnings considered indefinitely reinvested outside us december 31 2017 company recorded 49 million deferred tax liability swiss withholding taxes associated 976 million undistributed earnings swiss subsidiary longer considered indefinitely reinvested event company repatriates funds withholding tax would become payable swiss government years ended december 31 2017 2016 2015 income tax expense associated undistributed earnings swiss subsidiary longer considered indefinitely reinvested 0 12 million 21 million respectively december 31 2017 118 million undistributed earnings considered indefinitely reinvested determination amount unrecognized deferred income tax liability excess financial reporting basis tax basis investments foreign subsidiaries practicable complexities hypothetical calculation items give rise significant portions deferred tax accounts follows thousands december 31 2017 2016 deferred tax assets 04 million included noncurrent assets consolidated balance sheets company accounts uncertain tax benefits accordance provisions section 74010 accounting uncertainty income taxes topic fasb asc total unrecognized tax benefits december 31 2017 approximately 160 million recorded reduction deferred tax assets caused corresponding reduction company’s valuation allowance 160 million extent unrecognized tax benefits recognized time valuation allowance exist recognition 160 million tax benefit would reduce effective tax rate company anticipate amount unrecognized tax benefits december 31 2017 change materially within 12month period following december 31 2017 reconciliation beginning ending amount unrecognized tax benefits follows thousands company recognizes interest penalties component income tax expense interest penalties years ended december 31 2017 2016 2015 29000 148000 119000 respectively company’s us federal income tax returns tax years subsequent 2014 subject examination internal revenue service state income tax returns subsequent 2013 subject examination state tax authorities company’s foreign tax returns subsequent 2012 subject examination foreign tax authorities net operating losses years statute limitations expired 2014 prior federal 2013 prior state could adjusted event taxing jurisdictions challenge amounts net operating loss carryforwards years note 13leases rental expense amounted 43 million 41 million 50 million years ended december 31 2017 2016 2015 respectively incurred primarily facility leases future annual minimum rental commitments december 31 2017 follows thousands note 14pension postretirement benefit plans maxwell sa pension plan compensationretirement benefits subtopic fasb asc requires balance sheet recognition total funded underfunded status pension postretirement benefit plans guidance actuarial gains losses prior service costs credits remaining transition assets obligations recognized previous accounting standards must recognized component accumulated comprehensive income loss within stockholders’ equity net tax effects amortized component net periodic benefit cost income company’s plan regulated swiss government funded employees company pension benefit based compensation length service credited investment earnings plan guarantees minimum rate return well minimum annuity purchase rates company’s funding policy respect pension plan contribute amount required swiss law using required percentage applied employee’s compensation addition participating employees required contribute pension plan company made pension contributions 06 million years ended december 31 2017 2016 2015 approximately 45 total contributions plan year made employees plan measurement date december 31 company rights assets plan right offset liabilities plan net pension asset increased 89 million 117 million year ended december 31 2017 increase plan assets primarily due higher return plan assets expected higher expected withdrawal mortality experience year accumulated benefit obligation 299 million 289 million december 31 2017 2016 respectively increase benefit obligation primarily due lower amount benefits paid year new obligations incurred plan fully funded continues surplus condition following table reflects changes pension benefit obligation plan assets years ended december 31 2017 2016 thousands amounts recognized consolidated balance sheets consist thousands components net periodic pension cost amounts recognized comprehensive income loss taxes follows thousands assumptions used determine benefit obligation net periodic pension cost follows pension plan’s overall strategy investment policy managed board plan overall longterm rate based target asset allocation 14 swiss bonds 10 nonswiss hedged bonds 10 swiss equities 15 global equities 5 emerging market equities 4 alternative investments 40 swiss real estate 2 cash equivalents 2018 expected future longterm rate return estimated 300 based historical asset rates return asset allocation classification 069 swiss bonds 043 nonswiss hedged bonds 350 swiss equities 538 global equities 579 emerging market equities 252 alternative investments 254 swiss real estate 027 cash equivalents 2017 expected longterm rate return 250 based historical asset rates return 111 swiss bonds 120 nonswiss hedged bonds 300 swiss equities 480 global equities 500 emerging market equities 180 alternative investments 210 real estate 020 cash equivalents following benefit payments reflect expected future service appropriate expected paid thousands company expects contribute approximately 06 million pension plan 2018 investment objectives primary investment goal pension plan achieve total annualized return sufficient fund obligations longterm investments evaluated compared benchmarked plans similar investment strategies plan also attempts minimize risk single security class securities disproportionate impact plan guideline assets diversified asset classes equity fixed incomebonds alternative investments fair values plans assets december 31 2017 2016 asset category follows thousands 1 investments measured net asset value represent real estate investment funds measured fair value using net asset value per share equivalent practical expedient therefore categorized fair value hierarchy fair value amounts presented tables intended permit reconciliation fair value hierarchy total plan assets disclosed fair value assets level 1 observable inputs quoted prices active markets identical assets level 2 inputs quoted prices observable asset liability either directly indirectly include quoted prices similar assets liabilities active markets quoted prices identical similar assets liabilities markets active level 3 unobservable inputs reflect reporting entity’s assumptions korea defined benefit plan connection nesscap acquisition april 28 2017 company assumed defined benefit plan liability related nesscap korea’s employees pursuant labor standards act korea employees executive officers one years service entitled lump sum separation benefits upon termination employment based length service rate pay following table reflects changes defined benefit plan obligation period acquisition december 31 2017 thousands amounts recognized consolidated balance sheets consist thousands components net periodic pension cost amounts recognized comprehensive income loss taxes follows thousands assumptions used determine benefit obligation net periodic defined benefit plan cost follows following benefit payments reflect expected future service appropriate expected paid thousands compliance local labor law company required make contributions foreign line workers employer contributions 6000 paid period acquisition december 31 2017 company expects make contributions approximately 8000 2018 us plan company postretirement benefit plan covering employees united states substantially us employees eligible elect coverage contributory employee savings plan provides company matching contributions based onehalf employee contributions certain plan limits company’s matching contributions plan totaled 05 million 05 million 06 million years ended december 31 2017 2016 2015 respectively note 15legal proceedings although company expects incur legal fees connection legal proceedings company unable estimate amount legal fees therefore fees expensed period legal services performed fcpa matter january 2011 company reached settlements us securities exchange commission “sec” us department justice “doj” respect charges asserted sec doj relating antibribery books records internal controls disclosure provisions us foreign corrupt practices act “fcpa” securities laws violations company paid monetary penalties settlements installments monetary penalties paid full january 2013 respect doj charges judgment dismissal issued us district court southern district california march 28 2014 october 15 2013 company received informal notice doj indictment former senior vice president general manager swiss subsidiary filed united states district court southern district california indictment individual former officer company foresee penalties fines could assessed corporate entity matter however company may required throughout term action advance legal fees costs incurred individual defendant incur financial obligations company maintains directors’ officers’ insurance policies intended cover legal expenses related indemnification obligations situations company cannot determine extent insurance policy cover ongoing legal fees matter accordingly legal fees may incurred company defending former officer could material impact financial condition results operation swiss bribery matter august 2013 company’s swiss subsidiary served search warrant swiss federal prosecutor’s office end search swiss federal prosecutor presented company listing materials gathered representatives removed materials premises keeping prosecutor’s office based upon company’s exposure case company believes action related similar facts circumstances fcpa action previously settled sec doj initial discussions swiss prosecutor acknowledged existence company’s deferred prosecution agreement doj cooperation efforts thereunder positive impact discussions going forward additionally activities previously reviewed conjunction sec doj matters fcpa company reason believe additional facts circumstances review swiss authorities date swiss prosecutor issued formal decision whether charges brought individuals company whether proceeding abandoned time company continues cooperate swiss prosecutor continues resolution matter company reassessed probable outcome matter accrued insignificant amount financial statements fourth quarter 2017 however adverse result incurrence excessive fines accordance swiss bribery laws could occur material adverse impact company’s financial condition results operation government investigations early 2013 company voluntarily provided information sec united states attorney’s office southern district california related announcement intended file restated financial statements fiscal years 2011 2012 june 11 2015 june 16 2016 company received subpoenas sec requesting certain documents related among things facts circumstances surrounding restated financial statements company provided documents information sec response subpoenas september 2016 company entered tolling agreement effective period beginning september 12 2016 running june 30 2017 sec related matters june 2017 company entered amended restated version tolling agreement effective period beginning september 12 2016 running october 31 2017 november 2017 company entered amended restated version tolling agreement effective period beginning september 12 2016 running december 22 2017 december 2017 company entered another amended restated version tolling agreement effective period beginning september 12 2016 running march 2 2018 company cooperating investigation recently made offer settlement resolve matter subject approval sec commissioners proposed settlement would entered company without admitting denying sec’s findings would resolve alleged violations certain antifraud books records provisions federal securities laws related rules terms proposed settlement company would pay 28 million civil penalty agree commit cause violations certain antifraud books records provisions federal securities laws related rules third quarter 2017 company made corresponding accrual settlement amount operating expense financial statements note 16unaudited quarterly financial information includes restructuring exit costs 10 million noncash expense stockbased compensation 15 million b includes acquisition related expense 18 million noncash expense stockbased compensation 23 million c includes restructuring exit costs 13 million sec fcpa legal settlement costs 30 million noncash expense stockbased compensation 28 million includes noncash expense stockbased compensation 25 million e includes noncash expense stockbased compensation 12 million f includes gain sale product line 67 million release tax liability 15 million noncash expense stockbased compensation 15 million g includes noncash expense stockbased compensation 11 million h includes impairment assets 12 million noncash deferred tax expense 12 million connection probable repatriation portion unremitted earnings foreign subsidiary noncash expense stockbased compensation 16 million schedule ii valuation qualifying accounts thousands item 9item 8 financial statements supplementary data consolidated financial statements notes thereto appear pages 55 92 annual report form 10k maxwell technologies inc index consolidated financial statements report independent registered public accounting firm shareholders board directors maxwell technologies inc san diego california opinion consolidated financial statements audited accompanying consolidated balance sheets maxwell technologies inc “company” december 31 2018 2017 related consolidated statements operations comprehensive loss stockholders’ equity cash flows two years period ended december 31 2018 related notes schedule iivaluation qualifying accounts listed accompanying index collectively referred “consolidated financial statements” opinion consolidated financial statements present fairly material respects financial position company december 31 2018 2017 results operations cash flows two years period ended december 31 2018 conformity accounting principles generally accepted united states america also audited accordance standards public company accounting oversight board united states “pcaob” companys internal control financial reporting december 31 2018 based criteria established internal control integrated framework 2013 issued committee sponsoring organizations treadway commission “coso” report dated february 14 2019 expressed unqualified opinion thereon basis opinion consolidated financial statements responsibility company’s management responsibility express opinion company’s consolidated financial statements based audits public accounting firm registered pcaob required independent respect company accordance us federal securities laws applicable rules regulations securities exchange commission pcaob conducted audits accordance standards pcaob standards require plan perform audit obtain reasonable assurance whether consolidated financial statements free material misstatement whether due error fraud audits included performing procedures assess risks material misstatement consolidated financial statements whether due error fraud performing procedures respond risks procedures included examining test basis evidence regarding amounts disclosures consolidated financial statements audits also included evaluating accounting principles used significant estimates made management well evaluating overall presentation consolidated financial statements believe audits provide reasonable basis opinion bdo usa llp served companys auditor since 2013 san diego california february 14 2019 maxwell technologies inc consolidated balance sheets thousands except shares per share data accompanying notes integral part consolidated financial statements maxwell technologies inc consolidated statements operations thousands except per share data accompanying notes integral part consolidated financial statements maxwell technologies inc consolidated statements comprehensive loss thousands accompanying notes integral part consolidated financial statements maxwell technologies inc consolidated statements stockholders’ equity thousands accompanying notes integral part consolidated financial statements maxwell technologies inc consolidated statements cash flows thousands accompanying notes integral part consolidated financial statements maxwell technologies inc consolidated statements cash flows thousands accompanying notes integral part consolidated financial statements maxwell technologies inc notes consolidated financial statements unless context otherwise requires references “maxwell” “company” “we” “us” “our” refer maxwell technologies inc subsidiaries references “maxwell sa” refer swiss subsidiary maxwell technologies sa note 1description business summary significant accounting policies description business maxwell technologies inc delaware corporation originally incorporated name maxwell laboratories inc 1965 company made initial public offering common stock nasdaq stock market 1983 changed name maxwell technologies inc 1996 company headquartered san diego california two manufacturing facilities located yongin south korea peoria arizona addition company uses two contract manufacturers located china company develops manufactures markets energy storage power delivery products transportation grid energy storage industrial applications company’s ultracapacitor products energy storage devices possess unique combination high power density extremely long operational life ability charge discharge rapidly company’s ultracapacitor cells multicell packs modules subsystems provide highly reliable energy storage power delivery solutions applications multiple industries including automotive grid energy storage wind bus industrial truck company’s lithiumion capacitors energy storage devices power characteristics ultracapacitor combined enhanced energy storage capacity approaching battery uniquely designed address variety applications rail grid industrial markets energy density weight differentiating factors addition energy storage product line company developed transformed patented proprietary fundamental dry electrode manufacturing technology historically used make ultracapacitors create new technology applied manufacturing batteries believe create significant performance cost benefits compared today’s state art lithiumion batteries december 2018 company sold high voltage capacitor product line high voltage’s condis® capacitor products included grading coupling capacitors electric voltage transformers metering products used ensure safety reliability electric utility infrastructure applications involving transport distribution measurement highvoltage electrical energy results high voltage product line included discontinued operations april 2017 company acquired substantially assets business nesscap energy inc “nesscap” developer manufacturer ultracapacitor products use transportation renewable energy industrial consumer markets acquisition added complementary businesses company’s operations expanded company’s portfolio ultracapacitor products company’s products designed manufactured perform reliably life products systems integrated company achieves high reliability application proprietary technologies rigorously controlled design development manufacturing test processes financial statement presentation accompanying consolidated financial statements include accounts maxwell technologies inc subsidiaries prepared accordance accounting principles generally accepted united states “us gaap” intercompany transactions account balances eliminated consolidation fourth quarter 2018 company sold high voltage capacitor product line divestiture high voltage product line met definition strategic shift significant effect company’s operations financial results therefore results operations high voltage product line presented discontinued operations accordance asc 20520 presentation financial statementsdiscontinued operations periods presented additionally high voltage’s assets liabilities december 31 2017 separately presented related discontinued operations consolidated balance sheet unless otherwise noted discussion within notes consolidated financial statements relates continuing operations refer note 9 additional information discontinued operations liquidity december 19 2018 company entered share purchase agreement rn c holding sa special purpose holding entity affiliate renaissance investment foundation “renaissance” providing sale 100 shares company’s swiss subsidiary maxwell technologies sa “maxwell sa” high voltage capacitor product line renaissance transaction simultaneously closed signing share purchase agreement december 19 2018 upfront purchase price approximately 551 million certain reductions transactionrelated expenses resulted net upfront cash proceeds approximately 478 million august 2018 company completed public offering 7590000 shares common stock public offering price 325 per share company received total net proceeds approximately 230 million offering deducting underwriting discounts commissions offering expenses december 31 2018 company approximately 580 million cash equivalents working capital 861 million addition company revolving line credit east west bank “revolving line credit” borrowings outstanding december 31 2018 december 31 2018 amount available revolving line credit 105 million facility scheduled expire may 2021 management believes available cash balance sufficient fund operations obligations become due capital investments least next twelve months reclassifications divestiture high voltage product line fourth quarter 2018 met definition strategic shift significant effect company’s operations financial results therefore results operations high voltage product line reclassified discontinued operations periods presented additionally high voltage’s assets liabilities december 31 2017 reclassified separately presented related discontinued operations consolidated balance sheet accordance company’s adoption asu 201707 nonservice cost expense income related defined benefit plans reclassified “other components defined benefit plans net” year ended december 31 2017 see information recent accounting pronouncements interest income 79000 year ended december 31 2017 previously included “interest expense net” reclassified “other income” consolidated statement operations conform current period presentation “unrealized loss foreign currency exchange rates” year ended december 31 2017 reclassified “trade accounts receivable” consolidated statements cash flows conform current period presentation use estimates preparation financial statements conformity us gaap requires management make estimates assumptions affect reported amounts related disclosures estimates include limited assessing collectability accounts receivable applied unapplied production costs production capacities usage recoverability inventories longlived assets deferred income taxes incurrence warranty obligations fair value acquired tangible intangible assets impairment goodwill intangible assets estimation cost complete certain projects estimation pension defined benefit plan assets liabilities accruals estimated losses legal matters estimation value stockbased compensation awards including probability performance criteria restricted stock unit awards met cash equivalents cash equivalents consist primarily cash readily available checking money market accounts cash equivalents consist highly liquid investments readily convertible cash mature within three months less date purchase carrying amounts approximate fair value due short maturities instruments accounts receivable allowance doubtful accounts trade receivables stated gross invoiced amount less allowance uncollectible accounts allowance doubtful accounts reflects management’s best estimate probable losses inherent accounts receivable balance management determines allowance doubtful accounts based known troubled accounts historical experience currently available evidence inventories stated lower cost firstin firstout basis net realizable value finished goods workinprocess inventory values include cost raw materials labor manufacturing overhead inventory written net realizable value establishes new cost basis value subsequently increased based upon changes underlying facts circumstances company also makes adjustments reduce carrying amount inventories estimated excess obsolete inventories factors influencing adjustments include inventories onhand compared historical estimated future sales existing new products assumptions likelihood obsolescence company utilizes contract manufacturers manufacturing assembly products 2018 company entered agreement new contract manufacturer asia terms agreement include storage company owned electrode materials contract manufacturer’s facility company records consigned inventory additionally contract manufacturer required procure stock raw materials sufficient meet maxwell’s forecasts processed company obligated repurchase finished goods therefore company also records materials consigned inventory consigned inventory liability agreement contract manufacturer also requires certain quarterly purchase commitment company indicates company meet quarterly purchase commitment adjustment price shall negotiated reduced purchase amount property equipment property equipment carried cost depreciated using straightline method depreciation provided estimated useful lives related assets three ten years leasehold improvements depreciated shorter estimated useful life term lease leasehold improvements funded landlords recorded property equipment depreciated shorter estimated useful life asset lease term deferred rent amortized lease term december 31 2018 2017 net book value leasehold improvements funded landlords 10 million 12 million respectively december 31 2018 2017 unamortized balance deferred rent related landlord funding leasehold improvements 10 million 12 million respectively included “accounts payable accrued liabilities” “other longterm liabilities” consolidated balance sheets 2018 connection transition new contract manufacturer company recorded leased equipment 19 million production line equipment located contract manufacturer’s facility met definition capital lease depreciated threeyear term agreement goodwill represents excess cost acquired business net fair value assigned assets liabilities amortized instead goodwill assessed annually reporting unit level impairment intangiblesgoodwill topic fasb asc company established december 31 annual impairment test date addition company assesses goodwill annual test dates event occurs circumstances change could likely reduce fair value reporting unit carrying value company first makes qualitative assessment whether goodwill impaired likely goodwill impaired company performs quantitative impairment analysis determine goodwill impaired company may also determine skip qualitative assessment year move directly quantitative test quantitative goodwill impairment analysis compares reporting unit’s carrying amount fair value goodwill impairment recorded excess reporting units carrying amount fair value exceed total amount goodwill allocated reporting unit impairments goodwill reported years ended december 31 2018 2017 also see note 5 goodwill intangible assets discussion company’s goodwill impairment analysis longlived assets intangible assets company records intangible assets respective estimated fair values date acquisition intangible assets amortized based upon pattern economic benefit realized pattern cannot reliably determined using straightline method estimated useful lives eight fourteen years company reviews longlived assets impairment whenever events changes circumstances indicate carrying amount assets including intangible assets may recoverable events occur company compares carrying amounts assets undiscounted expected future cash flows company determines carrying value asset recoverable permanent impairment charge recorded amount carrying value longlived asset exceeds fair value years ended december 31 2018 2017 company recorded impairment charges 02 million impairment charges related property equipment longer forecasted utilized remaining useful lives fair values approximated zero warranty obligation company provides warranties product sales terms ranging one eight years company accrues estimated warranty costs time sale based historical warranty experience plus known expected changes warranty exposure december 31 2018 2017 accrued warranty liability included “accounts payable accrued liabilities” consolidated balance sheets 09 million 13 million respectively convertible debt convertible notes regarded compound instruments consisting liability component equity component parts compound instruments classified separately financial liabilities equity accordance substance contractual arrangement date issue fair value liability component estimated using prevailing market interest rate similar nonconvertible instrument amount recorded liability amortized cost basis extinguished upon conversion instrument’s maturity date equity component determined deducting amount liability component proceeds compound instrument whole recognized additional paidin capital included equity net income tax effects subsequently remeasured initial measurement convertible notes carried amortized cost using effective interest method income taxes deferred income taxes provided liability method accordance income taxes topic fasb asc whereby deferred tax assets recognized deductible temporary differences deferred tax liabilities recognized taxable temporary differences method deferred income taxes recorded reflect tax consequences future years temporary differences tax basis assets liabilities reported amounts period end likely portion deferred tax asset realized valuation allowance recognized guidance also provides criteria recognition measurement presentation disclosures uncertain tax positions tax benefit uncertain tax position may recognized “more likely not” position sustainable based solely technical merits concentration credit risk company maintains cash balances various financial institutions primarily california cash balances commonly exceed 250000 federal deposit insurance corporation insurance limit company experienced losses accounts management believes company exposed significant credit risk respect cash equivalents financial instruments subject company potential concentrations credit risk consist principally company’s accounts receivable company’s accounts receivable result product sales customers various industries various geographical areas domestic foreign company performs credit evaluations customers generally requires collateral two customers beijing etechwin continental automotive accounted 12 11 total revenue 2018 respectively two customers accounted 10 total accounts receivable december 31 2018 crrcsri wuxi chirun technology accounted 12 10 accounts receivable respectively three customers continental automotive beijing etechwin crrcsri accounted 15 11 10 total revenue 2017 respectively two customers accounted 10 total accounts receivable december 31 2017 continental automotive crrcsri accounted 15 11 accounts receivable respectively research development expense research development expenditures expensed period incurred thirdparty funding research development expense costsharing arrangements recorded offset research development expense period expenses incurred research development expense 200 million 163 million net thirdparty funding costsharing arrangements 02 million 25 million years ended december 31 2018 2017 respectively year ended december 31 2017 thirdparty funding costsharing arrangements included 22 million related joint development agreement fund shortterm costs developing technologies automotive market shipping handling expense company recognizes shipping handling expenses component cost revenue advertising expense advertising costs expensed period incurred advertising expense 03 million 04 million years ended december 31 2018 2017 respectively foreign currencies company’s primary foreign currency exposure related subsidiary korea functional currency korean subsidiary korean company’s korean subsidiary us dollar euro local currency korean revenue operating expenses changes currency exchange rates impact reported us dollar amount revenue expenses debt assets liabilities korean subsidiary translated monthend exchange rates revenue expenses gains losses translated rates exchange approximate rate effect time transaction translation adjustments resulting process presented separately component accumulated comprehensive income within stockholders’ equity consolidated balance sheets foreign currency transaction gains losses intercompany balances considered long term nature accounted translation adjustments within equity accumulated comprehensive income recognized statement operations related business divested foreign currency transaction gains losses reported “foreign currency exchange loss net” consolidated statements operations business combinations company accounts businesses acquires accordance asc topic 805 business combinations allocates fair value purchase consideration tangible intangible assets acquired liabilities assumed based estimated fair values excess purchase consideration fair values identifiable assets liabilities recorded goodwill determining fair values assets acquired liabilities assumed management makes significant estimates assumptions company may utilize thirdparty valuation specialists assist company allocation initial purchase price allocations subject revision within measurement period exceed one year date acquisition acquisitionrelated expenses transaction costs associated business combinations expensed incurred restructuring exit costs restructuring exit costs involve employeerelated termination costs facility exit costs associated restructuring activities company accounts charges resulting operational restructuring actions accordance asc topic 420 exit disposal cost obligations “asc 420” asc topic 712 compensationnonretirement postemployment benefits “asc 712” recognition restructuring costs requires company make certain assumptions related amounts employee severance benefits time period leased facilities remain vacant expected sublease terms discount rates estimates assumptions based best information available time obligation arises estimates reviewed revised facts circumstances dictate changes estimates could material effect amount accrued consolidated balance sheet related party transactions part nesscap acquisition titan power solution lls “titan” became customer company may 2018 i2bf global ventures “i2bf member board directors founding partner current director obtained controlling interest titan year ended december 31 2018 received payments approximately 397000 titan related purchase company’s products payments 282000 received us i2bf became controlling owner titan may 2018 net income loss per share accordance earnings per share topic fasb asc basic net income loss per share calculated using weighted average number common shares outstanding period diluted net income per share includes impact additional common shares would outstanding potentially dilutive common shares issued potentially dilutive securities considered calculation diluted net loss per share inclusion would antidilutive following table sets forth computation basic diluted net loss per share thousands except per share data following table summarizes instruments may convertible common shares included denominator used computation diluted earnings per share antidilutive continuing operations treatment discontinued operations also antidilutive thousands shares stockbased compensation company issues stockbased compensation awards employees nonemployee directors including stock options restricted stock restricted stock units shares employee stock purchase plan company records compensation expense stockbased awards accordance criteria set forth stock compensation subtopic fasb asc company uses blackscholes option pricing model estimate fair value stock option grants determination fair value stock options utilizing blackscholes model affected company’s stock price number assumptions including expected volatility expected term riskfree interest rate expected dividends fair value restricted stock awards “rsas” restricted stock unit awards “rsus” servicebased performancebased vesting based closing market price company’s common stock date grant compensation expense equal fair value rsa rsu recognized ratably requisite service period rsus vesting contingent company performance conditions company uses requisite service period likely occur requisite service period estimated based performance period well timebased service requirements unlikely performance condition achieved compensation expense recognized unless later determined achievement performance condition likely expense may adjusted changes expected outcomes related performance conditions impact changes recognized cumulative adjustment consolidated statement operations period expectation changes company issues marketcondition rsus certain members executive management since vesting marketcondition rsus dependent stock price performance fair values awards estimated using montecarlo valuation model determination fair value marketcondition rsus utilizing montecarlo valuation model affected company’s stock price number assumptions including expected volatility expected life riskfree interest rate expected dividends 2016 company adopted bonus plan enabled participants earn annual incentive bonuses based upon achievement specified financial strategic performance objectives terms plan company ability settle bonuses earned plan common stock fully vested rsus company settled majority bonuses earned 2017 stock 2018 fiscal year 2018 performance period company intends settle amounts earned bonus plan stock fully vested rsus first quarter 2019 stockbased compensation expense accrued bonus plan represents stocksettled debt per asc 718 asc 480 company recorded liability bonuses expected paid fully vested rsus “accrued employee compensation” company’s consolidated balance sheets stockbased compensation expense recognized consolidated statements operations based equity awards ultimately expected vest company estimates forfeitures time grant revises forfeitures necessary subsequent periods cumulative catch adjustment actual forfeitures differ estimates marketcondition awards effect marketcondition reflected adjustment awards’ fair value grant date subsequent forfeitures due company’s stock price performance result reversal expense recent accounting pronouncements may 2014 financial accounting standards board “fasb” issued accounting standards update “asu” 201409 revenue contracts customers asu 201409 related amendments provide companies single model accounting revenue arising contracts customers supersedes prior revenue recognition guidance including industryspecific revenue guidance core principle model recognize revenue control goods services transfers customer opposed recognizing revenue risks rewards transfer customer existing revenue guidance permits companies either apply requirements retrospectively prior periods presented apply requirements year adoption cumulative adjustment company adopted new accounting standard using modified retrospective transition method effective january 1 2018 recorded 03 million impact “accumulated deficit” company’s consolidated balance sheet see note 2 information february 2016 fasb issued asu 201602 leases standard requires lessee recognize assets liabilities arise operating leases lessee recognize balance sheet liability make lease payments lease liability rightofuse asset representing right use underlying asset lease term leases term 12 months less lessee permitted make accounting policy election class underlying asset recognize lease assets lease liabilities transition lessees lessors originally required recognize measure leases beginning earliest period presented using modified retrospective approach july 2018 fasb issued asu 201811 targeted improvements update still requires modified retrospective transition however adds option initially apply new standard adoption date recognize cumulativeeffect adjustment current period instead beginning earliest period presented guidance effective annual interim reporting periods beginning december 15 2018 company process finalizing evaluation current leases quantifying impact balance sheet company expects adoption standard material impact consolidated balance sheet recognition certain operating leases rightofuse assets lease liabilities company expect adoption standard material impact consolidated statements operations company adopt new accounting standard using modified retrospective transition option effective january 1 2019 march 2017 fasb issued asu 201707 improving presentation net periodic pension cost net periodic postretirement benefit cost changes employers sponsor defined benefit pension postretirement benefit plans present net periodic benefit cost statement operations new guidance requires entities report service cost component line item items compensation costs components net benefit cost required presented statement operations separately service cost component outside subtotal loss operations asu 201707 also provides service cost component eligible capitalization standard impacts company’s gross profit loss operations impact net loss net loss per share company adopted asu 201707 january 1 2018 adoption applied retrospective basis company used practical expedient permits use amounts previously disclosed defined benefit plans note prior comparative periods basis applying retrospective presentation requirements connection adoption year ended december 31 2017 company reclassified 39000 8000 excluding discontinued operations net nonservice costs income cost revenue selling general administrative expense research development expense respectively “other components defined benefit plans net” february 2018 fasb issued asu 201802 income statementreporting comprehensive income amends previous guidance allow certain tax effects “stranded” accumulated comprehensive income impacted tax cuts jobs act reclassified accumulated comprehensive income retained earnings amendment pertains items impacted new tax law apply future tax effects stranded accumulated comprehensive income standard effective company first quarter 2019 early adoption permitted company expect asu material impact consolidated financial statements march 2018 fasb issued asu 201805 income taxes amendments sec paragraphs pursuant sec staff accounting bulletin 118 amendments update add various sec paragraphs pursuant issuance sec staff accounting bulletin 118 income tax accounting implications tax cuts jobs act “sab 118” sab 118 directs taxpayers consider implications tax cuts jobs act provisional necessary information available prepared analyzed reasonable detail complete accounting change tax law company recognized provisional tax impacts tax cuts jobs act fourth quarter 2017 therefore company’s subsequent adoption asu 201805 first quarter 2018 impact accounting income taxes fourth quarter 2018 company’s accounting change tax law considered complete longer provisional june 2018 fasb issued asu 201807 improvements nonemployee sharebased payment accounting simplifies accounting nonemployee sharebased payments aligning accounting requirements employee sharebased compensation standard effective company first quarter 2019 early adoption permitted company expect asu material impact consolidated financial statements august 2018 fasb issued asu 201813 changes disclosure requirements fair value measurement asu eliminates adds modifies certain disclosure requirements fair value measurements part disclosure framework project standard effective entities financial statements issued fiscal years beginning december 15 2019 interim periods within fiscal years early adoption permitted adoption guidance expected material impact company’s financial statements august 2018 fasb issued asu 201814 compensation retirement benefits defined benefit plans general asu modifies disclosure requirements defined benefit postretirement plans asu eliminates certain disclosures associated accumulated comprehensive income plan assets related parties effects interest rate basis point changes assumed health care costs disclosures added address significant gains losses related changes benefit obligations asu also clarifies disclosure requirements projected benefit accumulated benefit obligations amendments asu effective fiscal years ending december 15 2020 interim periods therein early adoption permitted adoption retrospective basis periods presented required company currently evaluating impact adoption financial statement disclosures business enterprise information company operates single operating segment single product line according fasb asc topic disclosures segments enterprise related information operating segments defined components enterprise separate financial information evaluated regularly chief operating decision maker “codm” deciding allocate resources assessing performance company’s codm chief executive officer evaluates company’s financial information resources assesses performance consolidated basis revenue geographic area presented thousands 1 location determined shipment destination 2 revenue external customers located countries included “all countries” individually comprise 10 total revenue years presented longlived assets geographic location follows thousands note 2 revenue recognition january 1 2018 company adopted asc 606 revenue contracts customers related amendments applied contracts completed january 1 2018 using modified retrospective method company recognized cumulative effect initially applying new revenue standard adjustment opening balance accumulated deficit prior period amounts restated continue reported accounting standards effect periods company’s adoption impact related recognition certain previously deferred distributor revenue company expect material impact consolidated statements operations ongoing basis adoption new standard cumulative effect company’s consolidated january 1 2018 balance sheet adoption new revenue standard follows thousands impact adoption company’s consolidated balance sheet december 31 2018 consolidated statement operations year ended december 31 2018 material company’s revenues primarily result sale manufactured products reflect consideration company expects entitled company records revenue based fivestep model accordance asc 606 customer contracts company identifies performance obligations determines transaction price allocates contract transaction price performance obligations recognizes revenue control goods services transferred customer product sales purchase order along existing governing customer agreements applicable represents contract customer product sold customer typically represents distinct performance obligation contract’s transaction price allocated distinct performance obligation recognized revenue performance obligation satisfied majority company’s product sales subject exworks defined incoterms 2010 delivery terms revenue recorded point time products picked customers freight forwarder company determined point time control transfers customer certain customers shipping terms control transfer product delivered customer’s location transactions revenue recognized time product delivered customer’s location provisions customer volume discounts product returns rebates allowances variable consideration estimated recorded reduction revenue period related product revenue recorded provisions calculated using historical averages adjusted expected changes due current business conditions material company provides assurancetype warranties product sales terms ranging one eight years company accrues estimated warranty costs time sale based historical warranty experience plus known expected changes warranty exposure company records revenue net sales tax value added tax excise tax taxes collected behalf customers concurrent revenueproducing activities company elected recognize cost freight shipping control products sold passes customers revenue recognized company’s contracts customers typically include extended payment terms payment terms vary contract type customer generally range 30 90 days delivery portion company’s revenue derived sales distributors represented approximately 8 revenue year ended december 31 2018 approximately five percent total revenue derived nonproduct sales company’s contracts customers require specialized services deliverables separately identifiable promises contracts therefore distinct nondistinct obligations accounted single performance obligation performance obligations company satisfies time represented 5 revenue year ended december 31 2018 revenue recognized consistently applying method measuring progress toward complete satisfaction performance obligation company uses input method recognize revenue basis company’s efforts inputs satisfaction performance obligation relative total inputs expected satisfy performance obligation company uses actual costs incurred relative total estimated costs determine progress towards contract completion following tables disaggregate company’s revenue shipment destination company material contract assets since revenue recognized control goods transferred services performed december 31 2018 december 31 2017 company’s contract liabilities primarily relate cash received licensing services agreement amounts received advance customer connection specialized services contract revenue recognized time customer advances changes company’s contract liabilities included “deferred revenue current liabilities” company’s consolidated balance sheets follows company two uncompleted nonproduct sale contracts original durations greater one year transaction price allocated performance obligations unsatisfied december 31 2018 connection contracts 39 million amount 06 million relates specialized services contract recognized time expected completed within one year 33 million relates licensing services contract estimate transaction price allocated unsatisfied performance obligations adjusted third quarter 2018 adjustment material impact financial statements primarily pertained unsatisfied performance obligations revenue related licensing services contract expected recognized point time certain conditions met dependent customer therefore timing recognition cannot currently estimated licensing services arrangement also provides royalties product sales use licensed intellectual property recognized time related sales occur note 3balance sheet details thousands inventories warranty activity warranty reserve included “accounts payable accrued liabilities” consolidated balance sheets follows property equipment net accounts payable accrued liabilities accumulated comprehensive income loss note 4 business combination april 28 2017 company acquired substantially assets business nesscap energy inc “nesscap” developer manufacturer ultracapacitor products use transportation renewable energy industrial consumer markets exchange issuance approximately 41 million shares maxwell common stock “share consideration” assumption certain liabilities pursuant terms previously announced arrangement agreement dated february 28 2017 maxwell nesscap “ nesscap acquisition” value share consideration approximately 253 million based closing price company’s common stock april 28 2017 additionally per arrangement agreement company paid approximately 10 million transaction taxes behalf seller nesscap acquisition effected means courtapproved statutory plan arrangement approved requisite vote cast shareholders nesscap special meeting nesscap’s shareholders held april 24 2017 share consideration represented approximately 113 outstanding shares maxwell based number shares maxwell common stock outstanding april 28 2017 nesscap acquisition adds scale company’s operations expands company’s portfolio energy storage products fair value purchase price consideration consisted following thousands acquisition accounted acquisition method accounting accordance asc 805 business combinations method accounting company recorded acquisition based fair value consideration given cash consideration paid company allocated acquisition consideration paid identifiable assets acquired liabilities assumed based respective fair values date completion acquisition excess value consideration paid aggregate fair value net assets recorded goodwill attributable expected synergies combining operations acquired workforce well intangible assets qualify separate recognition goodwill associated acquisition deductible income tax purposes fair values net tangible assets intangible assets acquired based upon companys estimates assumptions acquisition date following table summarizes allocation assets acquired liabilities assumed acquisition date thousands fair value inventories acquired included acquisition accounting fair market value stepup 686000 year ended december 31 2017 company recognized 646000 stepup component cost revenue acquired inventory sold period remaining 40000 related fair value stepup associated acquisition recognized connection company’s adoption asc 606 year ended december 31 2017 acquisitionrelated costs 19 million included selling general administrative expenses companys consolidated statements operations following table presents details identified intangible assets acquired nesscap acquisition thousands fair value 118 million identified intangible assets acquired connection nesscap acquisition estimated using income approach income approach intangible assets fair value equal present value future economic benefits derived ownership asset specifically fair values customer relationship intangible assets determined using multiperiod excess earnings method estimates intangible asset’s value based present value incremental aftertax cash flows attributable intangible asset fair values trademark trade names developed technology intangible assets valued using relief royalty method based principle ownership intangible asset relieves owner need pay royalty another party exchange rights use asset following unaudited pro forma financial information presents combined results operations year ended december 31 2017 nesscap acquisition occurred beginning fiscal year 2016 thousands except per share amounts unaudited pro forma information adjusted reflect following • amortization expense acquired intangibles removal nesscap historical intangibles amortization • removal historical nesscap interest expenses gains losses related debt acquired • recognition expense associated valuation inventory acquired pro forma data presented illustrative purposes necessarily indicative consolidated results operations combined business acquisition actually occurred beginning fiscal year 2016 results future operations combined business unaudited pro forma financial information reflect operating efficiencies cost saving may realized integration acquisition year ended december 31 2017 173 million revenue 09 million net loss included companys consolidated statements operations related nesscap operations company consider 2017 revenue net loss related nesscap operations indicative results nesscap acquisition due integration activities since acquisition date also see note 5 goodwill intangible assets information goodwill intangible assets related nesscap acquisition note 5goodwill intangible assets company performs impairment test goodwill annually according intangiblesgoodwill topic fasb asc january 1 2017 company also early adopted asu 2017 201704 intangibles goodwill eliminates step two quantitative goodwill impairment test company first makes qualitative assessment likelihood goodwill impairment concludes likely carrying amount reporting unit greater fair value required perform quantitative impairment test otherwise performing impairment test required qualitative factors assessed reporting unit level include limited changes industry market structure competitive environments planned capacity new product launches cost factors raw material prices financial performance reporting unit company may also determine skip qualitative assessment year move directly quantitative test quantitative impairment test consists estimating fair value comparing estimated fair value carrying value reporting unit goodwill impairment charge determined amount carrying amount exceeds reporting unit’s fair value however loss exceed total amount goodwill allocated reporting unit guidance requires goodwill reviewed annually time every year event occurs circumstances change reasonably possible impairment may exist company selected december 31 annual testing date 2018 company performed qualitative assessment reporting units included evaluation changes industry market macroeconomic conditions well consideration reporting unit’s financial performance significant trends 2018 company substantially integrated operations related nesscap acquisition 2017 included changes company’s reporting structure related acquired operations therefore company determined one reporting unit represented combination two reporting units prior year assessment company first assessed former reporting separately combined single reporting unit company’s qualitative assessments indicated likely goodwill impaired change carrying amount goodwill 2017 2018 follows thousands goodwill approximately 214 million related discontinued operations derecognized year ended december 31 2018 connection sale company’s high voltage product line excluded table composition intangible assets subject amortization follows thousands useful life intangible assets reflects period assets expected contribute directly indirectly future cash flows intangible assets amortized useful lives assets utilizing straightline method materially consistent pattern expected benefits consumed calculated using undiscounted cash flows year ended december 31 2018 amortization expense 04 million recorded “cost revenue” 09 million recorded “selling general administrative” year ended december 31 2017 amortization expense 02 million recorded “cost revenue” 06 million recorded “selling general administrative” estimated amortization expense years 2019 2023 12 million year expected amortization expense estimate actual amounts could differ due additional intangible asset acquisitions changes foreign currency rates impairment intangible assets note 6 restructuring exit costs 2017 restructuring plans september 2017 company initiated restructuring plan optimize headcount connection acquisition integration assets business nesscap well implement additional organizational efficiencies total charges september 2017 restructuring plan 11 million primarily incurred third quarter 2017 total net charges year ended december 31 2018 september 2017 restructuring plan 112000 represented restructuring charges 45000 adjusted reversals expense 157000 plan completed third quarter 2018 february 2017 company implemented comprehensive restructuring plan included wide range organizational efficiency initiatives cost reduction opportunities total charges year ended december 31 2017 february 2017 restructuring plan 09 million plan completed third quarter 2017 charges related 2017 restructuring plans consist employee severance costs paid cash charges recorded within “restructuring exit costs” consolidated statements operations following table summarizes changes liabilities 2017 restructuring plans recorded “accrued employee compensation” company’s condensed consolidated balance sheet year ended december 31 2018 thousands adjustment lease liability 2015 2016 company completed restructuring plan consolidated us manufacturing operations disposed company’s microelectronics product line connection plan june 2015 company ceased use approximately 60000 square feet peoria az manufacturing facility determined leased space would future economic benefit company based business forecast years ended december 31 2018 2017 company recognized additional facilities costs 01 million 02 million respectively restructuring charges record adjustments sublease income assumptions included estimated future rent obligation leased space company recorded liability future rent obligation associated space net estimated sublease income accordance asc topic 420 december 31 2018 december 31 2017 lease obligation liabilities related leased space 05 million 07 million respectively included “accounts payable accrued liabilities” “other long term liabilities” condensed consolidated balance sheets note 7debt credit facilities convertible senior notes september 25 2017 october 11 2017 company issued 400 million 60 million respectively 550 convertible senior notes due 2022 “notes” company received net proceeds deducting initial purchaser’s discount offering expenses payable company approximately 430 million notes bear interest rate 550 per year payable semiannually arrears march 15 september 15 year payments commencing march 15 2018 notes mature september 15 2022 unless earlier purchased company redeemed converted notes unsecured obligations maxwell rank senior right payment maxwell’s subordinated indebtedness equal right payment maxwell’s unsecured indebtedness subordinated effectively subordinated right payment maxwell’s secured indebtedness extent value assets securing indebtedness structurally subordinated indebtedness liabilities including trade payables maxwell’s subsidiaries notes convertible cash shares company’s common stock combination thereof company’s election upon satisfaction specified conditions certain periods described initial conversion rate 1575101 shares company’s common stock per 1000 principal amount notes representing initial effective conversion price 635 per share common stock premiums 27 29 company’s 500 494 stock prices september 25 2017 october 11 2017 dates issuance respectively conversion rate may subject adjustment upon occurrence certain specified events provided indenture governing notes dated september 25 2017 company wilmington trust national association trustee “indenture” adjusted accrued unpaid interest december 31 2018 ifconverted value notes exceed principal value notes prior close business day immediately preceding june 15 2022 notes convertible option holders upon satisfaction specified conditions certain periods thereafter close business day immediately preceding maturity notes convertible option holders time regardless conditions upon occurrence certain fundamental changes involving company holders notes may require company repurchase cash part notes repurchase price equal 100 principal amount notes repurchased plus accrued unpaid interest excluding fundamental change repurchase date company may redeem notes prior september 20 2020 company may redeem notes option whole part september 20 2020 last reported sale price company’s common stock least 130 conversion price effect least 20 trading days company considered features embedded notes conversion feature companys call feature makewhole feature concluded required bifurcated accounted separately host debt instrument notes included initial purchaser’s discount 25 million 55 discount recorded offset debt amortized expected life notes using effective interest method upon conversion holders company may elect settle conversion shares common stock cash combination thereof result cash conversion option company segregated liability component instrument equity component liability component measured estimating fair value nonconvertible debt instrument similar terms notes calculation fair value debt component required use level 3 inputs including utilization credit assumptions high yield bond indices fair value estimated using income approach discounting future interest principal payments due notes discount rate 120 interest rate equal estimated borrowing rate similar nonconvertible debt excess initial proceeds notes estimated fair value liability component 85 million recognized debt discount recorded increase additional paidin capital amortized expected life notes using effective interest method amortization debt discount recognized noncash interest expense transaction costs 05 million incurred connection issuance notes allocated liability equity components based relative values transaction costs allocated liability component amortized using effective interest method recognized noncash interest expense expected term notes transaction costs allocated equity component 01 million reduced value equity component recognized stockholders’ equity initial purchaser debt discount equity component debt discount transaction costs allocated liability amortized contractual term maturity notes using effective interest rate 122 carrying value notes follows thousands total interest expense related notes follows thousands revolving line credit company loan security agreement “loan agreement” east west bank “ewb” whereby ewb made available company secured credit facility form revolving line credit february 14 2019 company entered amendment loan agreement amend restate revolving line credit “revolving line credit” revolving line credit matures may 8 2021 available maximum lesser 150 million b certain percentage domestic foreign trade receivables december 31 2018 prior february 2019 amendment revolving line credit available maximum lesser 250 million b certain percentage domestic foreign trade receivables plus twelve months ending may 8 2019 lesser 50 million b certain portion company’s cash equivalents december 31 2018 amount available revolving line credit 105 million general amounts borrowed revolving line credit secured lien company’s assets including intellectual property well pledge 65 equity interests company’s korean subsidiary obligations loan agreement also guaranteed directly company’s korean subsidiary event company violation representations warranties covenants made loan agreement including certain financial covenants set forth therein company may able utilize revolving line credit repayment amounts owed pursuant loan agreement could accelerated december 31 2018 company compliance financial covenants required meet term credit agreement including minimum twoquarter rolling ebitda minimum liquidity requirements amounts borrowed revolving line credit bear interest payable monthly interest shall accrue based upon company’s election subject certain limitations either prime rate plus margin ranging 0 050 libor rate plus margin ranging 275 325 specific rate determined based upon company’s leverage ratio time company required pay annual commitment fee 125000 unused commitment fee average daily unused amount revolving line credit payable monthly equal per annum rate range 030 050 determined company’s leverage ratio last day previous fiscal quarter borrowings outstanding revolving line credit december 31 2018 2017 longterm borrowings 2018 connection contract manufacturer transition company’s agreement contract manufacturer included provision met lease definition criteria reference approximately 19 million manufacturing equipment located contract manufacturer’s facility terms equipment agreement yet finalized however company anticipates make even quarterly payments 3 years time title equipment transfer maxwell december 31 2018 arrangement recorded capital lease company utilized discount rate 50 calculate effective interest borrowing december 31 2018 company 15 million capital lease liability outstanding arrangement december 31 2018 company’s lease payment commitments arrangement 05 million 07 million 04 million years ended december 31 2019 2020 2021 respectively note 8fair value measurement company records certain financial instruments fair value accordance hierarchy fair value measurements disclosures topic fasb asc follows fair value assets level 1 observable inputs quoted prices active markets identical assets level 2 inputs quoted prices observable asset liability either directly indirectly include quoted prices similar assets liabilities active markets quoted prices identical similar assets liabilities markets active level 3 unobservable inputs reflect reporting entity’s assumptions december 31 2018 2017 fair value company’s convertible senior notes issued september october 2017 approximately 360 million 526 million respectively measured using level 2 inputs carrying value shortterm longterm borrowings approximates fair value relative short maturity instruments interest rates company could currently obtain note 9discontinued operations december 19 2018 company entered share purchase agreement rn c holding sa special purpose holding entity affiliate renaissance investment foundation “renaissance” providing sale 100 shares company’s swiss subsidiary maxwell technologies sa “maxwell sa” high voltage capacitor product line renaissance transaction simultaneously closed signing share purchase agreement december 19 2018 upfront purchase price approximately 551 million certain reductions transactionrelated expenses resulted net upfront cash proceeds approximately 478 million reductions transaction related expenses included 09 million holdback placed third party escrow account satisfy potential withholding tax obligations transaction expenses 21 million additional adjustments agreed upon net working capital amounts financial related adjustments agreed upon set forth share purchase agreement addition upfront purchase price per terms agreement renaissance make milestone payments 75 million per year based achievement specific revenue targets related high voltage capacitor product line fiscal years 2019 2020 resulting potential aggregate milestone payments approximately 15 million renaissance may set damages incurred indemnification matters covered share purchase agreement future milestone payments additionally 50 million may withheld potential milestone payments funded separate escrow account satisfy certain indemnity obligations set forth share purchase agreement company account potential milestone payments received gain contingencies accordance provisions asc 450 contingencies therefore company record gain recognize income related potential milestone payments period realized following reconciliation purchase price net proceeds received gain recognized income discontinued operations thousands years ended december 31 2018 2017 company recognized 79 million 107 million respectively income net income taxes discontinued operations high voltage product line major line items constituting income high voltage product line reflected consolidated statements operations discontinued operations follows thousands assets liabilities high voltage product line classified discontinued operations consolidated balance sheet december 31 2017 follows thousands note 10stock plans company’s disclosures provided note include continuing operations discontinued operations equity incentive plans company two active sharebased compensation plans december 31 2018 2004 employee stock purchase plan “espp” 2013 omnibus equity incentive plan “incentive plan” approved stockholders incentive plan incentive stock options nonqualified stock options restricted stock awards “rsas” restricted stock units “rsus” granted employees nonemployee directors generally awards vest periods one four years addition equity awards issued senior management vesting award tied company performance market conditions company’s policy issue new shares common stock upon exercise stock options vesting restricted stock units granting restricted stock awards espp purchases company’s incentive plan currently provides equity incentive pool 7900000 shares reserved issuance replenished forfeited shares incentive plan additionally equity awards forfeited company’s former 2005 equity incentive plan shares available predecessor plans included total shares available issuance incentive plan year ended december 31 2018 tax benefit associated stock option exercises restricted stock unit vesting restricted stock grants disqualifying dispositions incentive stock options stock issued company’s espp approximately 48 million stock options company grants stock options employees executive management directors discretionary basis following table summarizes total aggregate stock option activity year ended december 31 2018 thousands except per share data weightedaverage grant date fair value stock options granted years ended december 31 2018 2017 275 297 respectively option exercises years ended december 31 2018 2017 fair value stock options granted years ended december 31 2018 2017 estimated using blackscholes valuation model using following assumptions expected dividend yield zero company never paid cash dividends present intention pay cash dividends expected term based company’s historical experience previous stock option grants expected volatility based historical volatility company’s stock measured period commensurate expected option term company consider implied volatility due low volume publicly traded options company’s stock riskfree interest rate derived zero coupon rate us treasury instruments term comparable option’s expected term december 31 2018 01 million total unrecognized compensation cost related stock options cost expected recognized weighted average period 04 years restricted stock awards rsas granted years ended december 31 2018 2017 following table summarizes rsa activity year ended december 31 2018 thousands except per share data vest date fair value rsas vested 2018 2017 01 million 03 million respectively restricted stock units nonemployee directors receive annual rsu awards partial consideration annual retainer compensation awards vest full one year date grant provided nonemployee director provides continued service additionally new directors normally receive rsus upon election board company also grants rsus employees part annual equity incentive award program vesting typically equal annual installments four years continuous service additionally company grants performancebased restricted stock units executives vesting contingent continued service achievement specified performance objectives stock price performance rsu represents right receive one unrestricted share company’s common stock upon vesting following table summarizes rsu activity servicebased awards performancebased awards year ended december 31 2018 thousands except per share data weighted average grant date fair value rsus granted years ended december 31 2018 2017 612 589 respectively vest date fair value rsus released years ended december 31 2018 2017 30 million 29 million respectively december 31 2018 83 million unrecognized compensation cost related nonvested rsu awards cost expected recognized weighted average period 20 years ended december 31 2018 2017 rsu grants composed following year ended december 31 2018 2017 rsus granted included marketcondition rsus marketcondition rsus vest based level company’s stock price performance determined market index one two threeyear performance periods marketcondition rsus potential vest 0 200 depending company’s stock price performance recipients must remain employed end performance period order vest fair value marketcondition rsus granted calculated using monte carlo valuation model following assumptions following table summarizes amount compensation expense recognized rsus years ended december 31 2018 2017 thousands employee stock purchase plan pursuant company’s amended restated 2004 employee stock purchase plan “espp” aggregate number shares common stock may purchased shall exceed 1500000 shares common stock company years ended december 31 2018 2017 159544 77914 shares respectively purchased espp permits substantially employees purchase common stock payroll deductions 85 lower trading price stock beginning end sixmonth offering period number shares purchased based participants’ contributions made offering period fair value “look back” option espp shares issued offering period estimated using blackscholes valuation model call put option share price used model 15 discount stock price last trading day offering period number shares purchased based employee contributions fair value espp awards calculated using following weightedaverage assumptions intrinsic value shares company’s stock purchased pursuant espp years ended december 31 2018 2017 01 million bonuses settled stock 2016 compensation committee board directors company adopted maxwell technologies inc incentive bonus plan enable participants earn annual incentive bonuses based upon achievement specified financial strategic performance objectives company may settle bonuses earned plan either cash stock currently intends settle majority bonuses earned plan stock year ended december 31 2018 company settled 30 million bonuses earned plan 2017 performance period 506017 shares fully vested common stock year ended december 31 2017 company settled 16 million bonuses earned plan 2016 performance period 302326 shares fully vested common stock company intends settle bonuses earned plan fiscal year 2018 performance period fully vested common stock company first quarter 2019 company recorded 20 million 28 million stock compensation expense related bonuses years ended december 31 2018 2017 respectively director fees settled stock early 2017 board approved nonemployee director deferred compensation program pursuant participating nonemployee directors may make irrevocable elections annual basis take fully vested restricted stock units lieu cashbased nonemployee director fees including applicable annual retainer fee committee fee compensation payable respect service member board defer settlement upon vesting portion equity awards granted applicable calendar year event director makes election company grant fully vested restricted stock units lieu cash initial value equal cash fees settled immediately grant future date elected respective nonemployee director issuance maxwell common stock year ended december 31 2018 company settled 399000 director fees 97138 fully vested rsus year ended december 31 2017 company settled 164000 director fees 28732 fully vested rsus stockbased compensation expense compensation cost stock options rsas rsus espp bonuses director fees years ended december 31 2018 2017 respectively follows thousands stockbased compensation cost included cost revenue selling general administrative expense research development expense years ended december 31 2018 2017 respectively follows thousands share reservations following table summarizes shares available grant company’s stockbased compensation plans december 31 2018 note 11shelf registration statements november 9 2017 company filed shelf registration statement form s3 sec time sell aggregate 125 million combination common stock warrants debt securities units november 16 2017 registration statement declared effective sec allow company access capital markets threeyear period following effective date net proceeds terms pricing offering securities issued shelf registration statement determined time offerings august 2018 shelf registration statement company completed public offering 7590000 shares common stock public offering price 325 per share company received total net proceeds approximately 230 million offering deducting underwriting discounts commissions offering expenses offering net proceeds used general corporate purposes including research development expenses capital expenditures working capital repayment debt general administrative expenses december 31 2018 247 million securities issued shelf registration statement balance 1003 million remains available future issuance note 12income taxes december 22 2017 president united states signed law tax cuts jobs act legislation significantly changes us tax law among things reducing us federal corporate tax rate 35 21 implementing territorial tax system imposing repatriation tax deemed repatriated earnings foreign subsidiaries december 2017 sec staff issued staff accounting bulletin 118 income tax accounting implications tax cuts jobs act sab 118 allowed company record provisional amounts measurement period extend beyond one year enactment date result company previously recorded provisional estimate effect tax act financial statements fourth quarter 2018 company completed analysis determine effect tax act recorded immaterial adjustments december 22 2018 tax act provides modified territorial tax system beginning 2018 gilti provisions applied providing incremental tax low taxed foreign income gilti provisions require company include us income tax return foreign subsidiary earnings excess allowable return foreign subsidiary’s tangible assets 2018 company made accounting policy election treat taxes related gilti current period expense incurred year ended december 31 2017 company remeasured us deferred tax assets liabilities based rates expected reverse future generally 21 company recorded decrease related deferred tax assets liabilities 347 million corresponding adjustment valuation allowance year ended december 31 2017 company’s deferred tax asset offset full valuation allowance change rates impact company’s financial position results operations onetime transition tax based company’s total post1986 earnings profits “ep” previously deferred us income taxes company recorded additional us taxable income 84 million result additional tax expense due net operating losses financial reporting purposes loss continuing operations income taxes includes following components thousands provision income taxes based loss continuing operations income taxes follows thousands provision income taxes accompanying consolidated statements operations differs amount calculated applying statutory income tax rate loss income taxes primary components difference follows thousands company established valuation allowance us federal state deferred tax assets due uncertainty surrounding realization assets evidenced cumulative losses operations december 31 2018 management periodically evaluates recoverability deferred tax assets time determined likely deferred assets realizable valuation allowance reduced accordingly recorded tax benefit company recorded valuation allowance 670 million december 31 2018 reflect estimated amount deferred tax assets may realized company increased valuation allowance 56 million year ended december 31 2018 december 31 2018 company federal state net operating loss carryforwards approximately 2352 million 436 million respectively federal tax loss carryforwards begin expire 2020 state tax loss carryforwards begin expire 2023 addition company research development tax credit carryforwards federal state income tax purposes december 31 2018 77 million 98 million respectively federal credits begin expire 2019 unless utilized state credits indefinite life pursuant internal revenue code sections 382 383 use company’s federal net operating loss credit carryforwards may limited upon cumulative change ownership 50 within threeyear period items give rise significant portions deferred tax accounts follows thousands december 31 2018 2017 deferred tax assets 03 million 04 million respectively included noncurrent assets consolidated balance sheets company accounts uncertain tax benefits accordance provisions section 74010 accounting uncertainty income taxes topic fasb asc total unrecognized tax benefits december 31 2018 approximately 175 million recorded reduction deferred tax assets caused corresponding reduction company’s valuation allowance 175 million extent unrecognized tax benefits recognized time valuation allowance exist recognition 175 million tax benefit would reduce effective tax rate company anticipate amount unrecognized tax benefits december 31 2018 change materially within 12month period following december 31 2018 reconciliation beginning ending amount unrecognized tax benefits follows thousands company recognizes interest penalties component income tax expense interest penalties years ended december 31 2018 2017 27000 29000 respectively company’s us federal income tax returns tax years subsequent 2014 subject examination internal revenue service state income tax returns subsequent 2013 subject examination state tax authorities company’s foreign tax returns subsequent 2012 subject examination foreign tax authorities net operating losses years statute limitations expired 2014 prior federal 2013 prior state could adjusted event taxing jurisdictions challenge amounts net operating loss carryforwards years note 13leases rental expense amounted 38 million 34 million years ended december 31 2018 2017 respectively incurred primarily facility leases future annual minimum rental commitments december 31 2018 follows thousands note 14postretirement benefit plans korea defined benefit plan connection nesscap acquisition april 28 2017 company assumed defined benefit plan liability related nesscap korea’s employees pursuant labor standards act korea employees executive officers one years service entitled lump sum separation benefits upon termination employment based length service rate pay following table reflects changes defined benefit plan obligation period acquisition december 31 2018 thousands amounts recognized consolidated balance sheets consist thousands components net periodic pension cost amounts recognized comprehensive income loss taxes follows thousands assumptions used determine benefit obligation net periodic defined benefit plan cost follows following benefit payments reflect expected future service appropriate expected paid thousands compliance local labor law company required make contributions foreign line workers employer contributions 7000 paid year ended december 31 2018 6000 paid period acquisition december 31 2017 company expects make contributions approximately 7000 2019 us plan company postretirement benefit plan covering employees united states substantially us employees eligible elect coverage contributory employee savings plan provides company matching contributions based onehalf employee contributions certain plan limits company’s matching contributions plan totaled 04 million 05 million years ended december 31 2018 2017 respectively note 15legal proceedings although company expects incur legal fees connection legal proceedings company unable estimate amount legal fees therefore fees expensed period legal services performed fcpa matter january 2011 company reached settlements sec us department justice “doj” respect charges asserted sec doj relating antibribery books records internal controls disclosure provisions us foreign corrupt practices act “fcpa” securities laws violations company paid monetary penalties settlements installments monetary penalties paid full january 2013 respect doj charges judgment dismissal issued us district court southern district california march 28 2014 october 15 2013 company received informal notice doj indictment former senior vice president general manager swiss subsidiary filed united states district court southern district california indictment individual former officer company foresee penalties fines could assessed corporate entity matter however company may required throughout term action advance legal fees costs incurred individual defendant incur financial obligations company maintains directors’ officers’ insurance policies intended cover legal expenses related indemnification obligations situations company cannot determine extent insurance policy cover ongoing legal fees matter accordingly legal fees may incurred company defending former officer could material impact financial condition results operation swiss bribery matter august 2013 company’s former swiss subsidiary served search warrant swiss federal prosecutor’s office end search swiss federal prosecutor presented company listing materials gathered representatives removed materials premises keeping prosecutor’s office based upon company’s exposure case company believes action related similar facts circumstances fcpa action previously settled sec doj initial discussions swiss prosecutor acknowledged existence company’s deferred prosecution agreement doj cooperation efforts thereunder positive impact discussions going forward additionally activities previously reviewed conjunction sec doj matters fcpa company reason believe additional facts circumstances review swiss authorities december 2018 company sold swiss subsidiary part sale high voltage product line agreed indemnify within certain parameters purchaser damages may arise matter date swiss prosecutor issued formal decision whether charges brought individuals company whether proceeding abandoned stage investigation company currently unable determine extent subject fines accordance swiss bribery laws additional expenses incurred order defend matter company cannot determine whether reasonable possibility loss incurred estimate range potential loss accordingly company accrued amount potential loss associated action adverse result could material adverse impact financial condition results operation government investigations early 2013 company voluntarily provided information sec united states attorney’s office southern district california related announcement intended file restated financial statements fiscal years 2011 2012 june 11 2015 june 16 2016 company received subpoenas sec requesting certain documents related among things facts circumstances surrounding restated financial statements company provided documents information sec response subpoenas march 2018 company consented order filed sec without admitting denying sec’s findings thereby resolving alleged violations certain antifraud books records provisions federal securities laws related rules terms order company required pay 28 million civil penalty agreed commit cause violations certain antifraud books records provisions federal securities laws related rules company previously accrued amount owed operating expense financial statements third quarter 2017 paid amount full april 2018 note 16subsequent events february 3 2019 company entered agreement plan merger “merger agreement” tesla inc delaware corporation “tesla” cambria acquisition corp delaware corporation wholly owned subsidiary tesla “merger sub” contemplates acquisition company tesla merger sub merger agreement contemplates tesla would commence stock exchange offer issued outstanding shares company “offer” followed merger sub company pursuant company survive whollyowned subsidiary tesla “merger” offer company stockholder elects participate offer receive fractional share common stock tesla “tesla common stock” share company common stock “company common stock” exchanged offer pursuant terms subject conditions merger agreement promptly practicable event later four 4 business days following date tesla files annual report form 10k fiscal year ending december 31 2018 tesla commence offer purchase issued outstanding share company common stock fraction share tesla common stock equal quotient obtained dividing 475 volume weighted average closing sale price one 1 share tesla common stock reported nasdaq global select market “nasdaq” five 5 consecutive trading days ending including second trading day immediately preceding expiration offer “tesla trading price” however event tesla trading price equal less 24590 share company common stock shall exchanged 00193 share tesla common stock shares tesla common stock plus cash paid lieu fractional shares tesla common stock referred “offer consideration” effective time merger outstanding option purchase company common stock outstanding unexercised unexpired immediately prior effective time shall automatically assumed tesla converted become option acquire tesla common stock described merger agreement similarly company restricted share unit outstanding immediately prior effective time shall assumed tesla converted automatically become restricted stock unit covering shares tesla common stock merger agreement consummation transactions contemplated thereby unanimously approved board directors company “board” board resolved recommend stockholders company accept offer tender shares company common stock merger sub pursuant offer terms merger agreement prior expiration offer subject customary limitations conditions company may terminate merger agreement accept “superior proposal” tesla chooses match proposal provided company pays tesla termination fee 8295 million cash parties may also terminate merger agreement closing offer occurred within five 5 months signing merger agreement schedule ii valuation qualifying accounts thousands item 9item 8 financial statements supplementary data see index included item 14 exhibits financial statement schedules reports form 8k item 9item 8 financial statements supplementary data consolidated financial statements notes thereto appear pages 54 92 annual report form 10k maxwell technologies inc subsidiaries index consolidated financial statements report independent registered public accounting firm board directors stockholders maxwell technologies inc audited accompanying consolidated balance sheets maxwell technologies inc subsidiaries december 31 2009 2008 related consolidated statements operations stockholders’ equity comprehensive loss cash flows three years period ended december 31 2009 audits also included financial statement schedule maxwell technologies inc listed item 15a financial statements financial statement schedule responsibility company’s management responsibility express opinion financial statements schedule based audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion consolidated financial statements referred present fairly material respects financial position maxwell technologies inc subsidiaries december 31 2009 2008 results operations cash flows three years period ended december 31 2009 conformity us generally accepted accounting principles also opinion related financial statement schedule considered relation basic consolidated financial statements taken whole presents fairly material respects information set forth therein also audited accordance standards public company accounting oversight board united states maxwell technologies inc’s subsidiaries’ internal control financial reporting december 31 2009 based criteria established internal controlintegrated framework issued committee sponsoring organizations treadway commission report dated march 5 2010 expressed unqualified opinion effectiveness maxwell technologies inc’s internal control financial reporting mcgladrey pullen llp san diego california march 5 2010 maxwell technologies inc subsidiaries consolidated balance sheets thousands except per share data accompanying notes integral part consolidated financial statements maxwell technologies inc subsidiaries consolidated statements operations thousands except per share data accompanying notes integral part consolidated financial statements maxwell technologies inc subsidiaries consolidated statements stockholders’ equity comprehensive loss thousands accompanying notes integral part consolidated financial statements maxwell technologies inc subsidiaries consolidated statements cash flows thousands accompanying notes integral part consolidated financial statements maxwell technologies inc subsidiaries notes consolidated financial statements unless context otherwise requires references “maxwell” “company” “we” “us” “our” refer maxwell technologies inc subsidiaries references “maxwell sa” refer european subsidiary maxwell technologies sa references “ibusphoenix” refer subsidiary ibusphoenix inc subsidiaries references “purepulse” refer nonoperating subsidiary purepulse technologies inc note 1description business summary significant accounting policies description business maxwell technologies inc delaware corporation originally incorporated 1965 name maxwell laboratories inc 1996 company changed name maxwell technologies inc headquartered san diego california maxwell operates single operating segment high reliability comprised two manufacturing locations san diego california rossens switzerland addition company contract manufacturer longgang district shenzhen china maxwell operates one operating segment called high reliability comprised three product lines • ultracapacitors primary focus ultracapacitors energy storage devices possess unique combination high power density extremely long operational life ability charge discharge rapidly boostcap® ultracapacitor cells multicell packs modules provide highly reliable energy storage power delivery solutions applications multiple industries including transportation energy consumer industrial electronics telecommunications • highvoltage capacitors condis® highvoltage capacitors extremely robust devices designed manufactured perform reliably decades climates products include grading coupling capacitors capacitive voltage dividers used ensure safety reliability electric utility infrastructure applications involving transport distribution measurement highvoltage electrical energy • radiationmitigated microelectronic products radiationmitigated microelectronic products include highperformance highdensity power modules memory modules single board computers incorporate proprietary radpak® packaging shielding technology novel architectures enable withstand environmental radiation effects perform reliably space company’s products designed manufactured perform reliably life products systems integrated company achieves high reliability application proprietary technologies rigorously controlled design development manufacturing test processes financial statement presentation accompanying consolidated financial statements include accounts maxwell technologies inc subsidiaries prepared accordance accounting principles generally accepted united states “us gaap” intercompany transactions account balances eliminated consolidation liquidity december 31 2009 company approximately 296 million cash equivalents additional 80 million restricted cash total 376 million cash restriction released convertible debenture repaid converted company conducting inquiry nature certain payments made former independent sales agent china associated sales high voltage capacitor products produced maxwell’s swiss subsidiary company voluntarily sharing information securities exchange commission department justice discussions authorities ongoing accounting purposes based company’s estimate potential settlement range 93 million 200 million company recorded accrual 93 million fourth quarter 2009 additional information refer note 10commitments contingencies based company’s assessment current longterm obligations management believes adequate resources fund working capital requirements obligations become due capital equipment additions product development expenditures next several years reclassifications certain prior period amounts consolidated statement operations reclassified conform current period presentation reclassifications impact reported net loss material impact presentation overall financial statements use estimates preparation financial statements conformity accounting principles generally accepted united states america requires management make estimates assumptions affect reported amounts related disclosures estimates include limited assessing collectability accounts receivable applied unapplied production costs production capacities usage recoverability inventories longlived assets including deferred income taxes incurrence losses warranty costs stock compensation expense impairment goodwill intangible assets estimations cost complete certain projects research development projects estimation probability performance criteria restricted stock awards met fair value warrants embedded conversion options related convertible debentures markets company’s products extremely competitive characterized rapid technological change new product development product obsolescence evolving industry standards addition price competition intense significant price erosion generally occurs life product result factors actual results could differ estimates used management revenue recognition sales revenue derived sale manufactured products directly customers certain longterm contracts revenue recognized time costs incurred license fees service revenue recognized performance requirements met product revenue recognized according guidelines securities exchange commission “sec” staff accounting bulletin “sab” numbers 101 revenue recognition financial statements 104 revenue recognition following criteria met 1 persuasive evidence arrangement exists upon contract signing receipt authorized purchase order customer 2 title passes customer either shipment facilities receipt customer facility depending shipping terms 3 price deemed fixed determinable free contingencies significant uncertainties 4 collectability reasonably assured volume discount offered revenue recognized lowest price customer method consistently applied period right return revenue generated fixed price contracts recognized time costs incurred calculated percentage completion basis measured percentage cost incurred date estimated costs contract required constructiontype productiontype contracts subtopic financial accounting standards board “fasb” accounting standards codification “asc” limited funding prime contractor provisions estimated losses incomplete contracts made period losses determined time company entered multipleelement contractual arrangements elements software essential functionality delivered elements additionally company contracts elements agreement need delivered accepted customer prior revenue recognized agreement company recognizes revenue delivered elements vendorspecific objective evidence “vsoe” fair value undelivered elements exists accordance software revenue recognition subtopic fasb asc company entered one contract whereby company delivered certain elements vsoe fair value undelivered elements exist december 31 2009 company recorded approximately 21 million deferred revenue related contracts contract research development arrangements contain upfront milestonebased payments company recognizes revenue using proportional performance method based percentage costs incurred relative total costs estimated incurred complete contract revenue recognition computed methodology compared amount nonrefundable cash payments received contractually receivable reporting date lesser two amounts recognized revenue reporting date proportional performance methodology applied company utilizes input based measure specifically costs incurred date determine proportional performance company believes use input measure reasonable surrogate proportional performance compared output based measure milestones amounts billed advance recorded deferred revenue balance sheet since payments received generally nonrefundable termination contract customer prior completion could result immediate recognition deferred revenue relating payments already received previously recognized revenue cash equivalents company invests excess cash debt instruments us government agencies bank certificates deposit commercial paper highquality corporate issuers highly liquid instruments original maturity three months less purchase considered cash equivalents original maturities greater three months date purchase considered investments marketable securities company’s investments marketable securities classified availableforsale reported fair value unrealized gains losses included stockholders’ equity separate component accumulated comprehensive income realized gains losses otherthantemporary declines value availableforsale securities reported income expense incurred company recognized net realized gains years ended december 31 2009 2008 company uses specific identification method sales investments restricted cash company’s convertible debentures agreement requires company maintain minimum cash balances least 80 million amount classified restricted cash december 31 2009 2008 december 31 2008 restricted cash classified current asset however since holder convertible debentures elected delay payments due june september december 2009 june september december 2011 respectively restricted cash classified noncurrent asset december 31 2009 accounts receivable trade receivables stated gross invoiced amount less discounts allowances allowance uncollectible accounts allowance doubtful accounts allowance doubtful accounts reflects management’s best estimate probable losses inherent accounts receivable balance management determines allowance doubtful accounts based known troubled accounts historical experience currently available evidence inventories stated lower cost firstin firstout basis market finished goods workinprocess inventory values include cost raw materials labor manufacturing overhead inventory written market value establishes new cost basis value subsequently increased based upon changes underlying facts circumstances company makes adjustments reduce cost inventory net realizable value required estimated excess obsolete inventories factors influencing adjustments include inventories onhand compared historical estimated future usage sales existing new products assumptions likelihood obsolescence unabsorbed underabsorbed costs treated expense period incurred property equipment property equipment carried cost depreciated using straightline method depreciation amortization provided estimated useful lives related assets three ten years leasehold improvements amortized shorter estimated useful lives terms lease leasehold improvements funded landlord recorded assets deferred liabilities amortized lease term goodwill represents excess cost acquired business net fair value assigned assets acquired liabilities assumed amortized instead goodwill assessed impairment intangiblesgoodwill topic fasb asc company tests goodwill established december 31 annual impairment test date using fair value approach longlived assets intangible assets property equipment intangible assets reviewed impairment whenever events changes business circumstances indicate carrying value assets may recoverable company determines carrying value asset recoverable permanent impairment charge recorded amount carrying value longlived asset exceeds fair value intangible assets finite lives continue amortized straightline basis useful lives 10 12 years evaluated impairment whenever events changes circumstances indicate carrying value may recoverable guidance warranty obligation company provides product warranties conjunction certain product sales majority company’s warranties one two years normal course business company accrues estimated warranty time sale based historical warranty expenses estimated warranty liability calculated based historical warranty expenses plus known expected change warranty exposure income taxes company accounts income taxes accordance income taxes topic fasb asc requires use liability method accounting deferred income taxes method deferred income taxes recorded reflect tax consequences future years temporary differences tax basis assets liabilities financial reporting amounts period end likely portion deferred tax asset realized valuation allowance recognized guidance also provides criteria recognition measurement presentation disclosures uncertain tax positions tax benefit uncertain tax position may recognized “more likely not” position sustainable based solely technical merits concentration credit risk company maintains cash balances various financial institutions primarily california balances commonly exceed 250000 federal deposit insurance corporation insurance limit company experienced losses accounts management believes company exposed significant credit risk respect cash equivalents financial instruments subject company potential concentrations credit risk consist principally company’s accounts receivable company’s accounts receivable result product sales customers various industries various geographical areas domestic foreign company performs credit evaluations customers generally requires collateral one customer abb ltd provided 10 15 18 revenue 2009 2008 2007 respectively comprised 8 15 accounts receivable balances december 31 2009 2008 respectively research development expense research development expenditures expensed period incurred advertising expense advertising costs expensed period incurred advertising expense 52000 70000 206000 fiscal 2009 2008 2007 respectively shipping handling company recognizes shipping handling costs component cost sales total shipping handling expense included cost sales 878000 13 million 857000 years ended 2009 2008 2007 respectively patent defense costs company capitalizes patent legal defense costs additional cost patents successful outcome patent defense case probable company ultimately unsuccessful costs would charged expense legal expenses associated patent infringement lawsuit nesscap co ltd nesscap inc “nesscap” united states district court southern district california capitalized february 2009 company entered settlement agreement nesscap settlement agreement maxwell nesscap agreed drop pending claims agreed ten year worldwide cross license company’s patents mutual covenant sue patents either party right assert part settlement agreement nesscap must pay 1 million maxwell annual installments 200000 2013 case company capitalized patent legal defense costs additional costs patents amortizing capitalized costs remaining lives patents payments received nesscap settlement continue netted capitalized patent legal defense costs upon receipt additionally maxwell believes value intellectual property involved lawsuit greater capitalized costs december 31 2009 unamortized capitalized legal costs total 16 million classified intangible assets consolidated balance sheet recovery costs upon successful outcome reduce asset carrying value foreign currencies company’s primary foreign currency exposure related subsidiary switzerland maxwell sa euro local currency swiss franc revenue operating expenses changes currency exchange rates impact us dollar amount revenue expenses well loans swiss francs functional currency swiss subsidiary swiss franc assets liabilities maxwell sa translated monthend exchange rates revenues expenses gains losses translated rates exchange approximate rate effect time transaction translation adjustments resulting process shown separately component accumulated comprehensive income loss within stockholders’ equity consolidated balance sheets foreign currency transaction gains losses reported cost sales selling general administrative expenses consolidated statements operations foreign currency derivative instruments part risk management strategy maxwell uses forward contracts hedge certain foreign currency exposures maxwell’s objective offset gains losses resulting exposures opposing gains losses forward contracts thereby reducing volatility earnings created foreign currency exposures accordance derivatives hedging topic fasb asc fair values forward contracts estimated based quoted market prices forward contracts recorded “prepaid expenses current assets” “accounts payable accrued liabilities” consolidated balance sheet fair value gains losses recognized contracts recorded “cost sales” “selling general administrative” expense consolidated statements operations comprehensive income comprehensive income defined includes changes equity period nonowner sources net loss comprehensive loss including foreign currency translation adjustments pension accounting unrealized gains losses investments marketable securities reported net related tax effect arrive comprehensive loss accumulated comprehensive income consisted following thousands loss per share basic loss per share calculated using weighted average number common shares outstanding diluted loss per share calculated basis weighted average number common shares outstanding plus dilutive effect outstanding stock options restricted stock awards restricted stock unit awards company assuming exercise using “treasury stock” method following table sets forth computation basic diluted loss per share thousands except per share data following table summarizes instruments may convertible common shares included denominator used diluted net loss per share calculation would antidilutive thousands stockbased compensation company’s primary types sharebased compensation consist stock options restricted stock restricted stock units employee stock purchase plan accounted accordance compensationstock compensation subtopic fasb asc pending accounting pronouncements january 2010 fasb issued asu 201006 fair value measurements disclosures improve disclosures fair value measurements update requires company disclose separately amounts significant transfers level 1 level 2 fair value measurements describe reasons transfers reconciliation fair value measurements using significant unobservable inputs level 3 company required present separately information purchases sales issuances settlements gross basis rather one net number update provides clarification level disaggregation determining appropriate classes assets liabilities update clarifies disclosures inputs valuation techniques level 2 level 3 fair value measurements new disclosures clarifications existing disclosures effective interim reporting periods beginning december 15 2009 except disclosures purchases sales issuances settlements roll forward activity level 3 fair value measurements disclosures effective fiscal years beginning december 15 2010 interim periods within fiscal year update disclosurerelated impact financial position results operations september 2009 fasb reached consensus asu 200913 multipledeliverable revenue arrangements asu 200914 certain revenue arrangements include software elements asu 200913 modifies requirements must met entity recognize revenue sale delivered item part multipleelement arrangement items yet delivered asu 200913 eliminates requirement undelivered elements must either vsoe ii thirdparty evidence “tpe” entity recognize portion overall arrangement consideration attributable items already delivered absence vsoe tpe standalone selling price one delivered undelivered elements multipleelement arrangement entities required estimate selling prices elements overall arrangement consideration allocated element delivered undelivered items based relative selling prices regardless whether selling prices evidenced vsoe tpe based entity’s estimated selling price residual method allocating arrangement consideration eliminated asu 200914 modifies software revenue recognition guidance exclude scope tangible products contain software nonsoftware components function together deliver product’s essential functionality new updates effective revenue arrangements entered materially modified fiscal years beginning june 15 2010 early adoption permitted new pronouncement would allow company recognize revenue multipledeliverable arrangements earlier previous years although company unable estimate amounts future amount recognized multipledeliverable revenue arrangements approximately 0 896000 11 million years ended december 31 2009 2008 2007 respectively december 31 2009 2008 approximately 21 million 19 million respectively deferred revenue related multipledeliverable revenue arrangements business enterprise information company operates one reportable operating segment high reliability according disclosures segments enterprise related information topic fasb asc establishes standards way public business enterprises report information operating segments annual consolidated financial statements chief operating decision maker regularly review discrete financial information consolidated level revenue product line provided thousands note 2balance sheet details thousands warranty reserve analysis leasehold improvements certain leasehold improvements funded landlord recorded assets deferred liabilities amortized shorter estimated useful life lease term december 31 2009 2008 company 461000 628000 respectively unamortized leasehold improvements funded landlord company related amount deferred rent 388000 included longterm liabilities december 31 2009 note 3goodwill intangibles company annually reviews impairment goodwill intangiblesgoodwill topic fasb asc goodwill impairment test twostep process first step consists estimating fair value reporting unit comparing estimated fair value carrying value includes goodwill fair value less carrying value second step performed compute amount impairment determining implied fair value goodwill implied fair value goodwill residual fair value derived deducting fair value reporting unit’s assets liabilities estimated total fair value calculated step one impairment charge would represent excess carrying amount reporting unit’s goodwill implied fair value goodwill guidance requires goodwill tested annually time every year event occurs circumstances change reasonably possible impairment may exist company selected december 31 annual testing date result company’s annual assessment december 31 2009 2008 impairment indicated intangible assets reviewed impairment whenever events changes business circumstances indicate carrying value assets may recoverable company determines carrying value asset recoverable permanent impairment charge recorded amount carrying value asset exceeds fair value change carrying amount goodwill january 1 2008 december 31 2009 follows thousands acquired intangible assets subject amortization december 31 2009 2008 follows thousands amortization expense intangible assets 643000 571000 360000 years ended december 31 2009 2008 2007 respectively estimated amortization next five years ended december 31 follows thousands actual amortization expense reported future periods could differ estimates result foreign currency translation adjustments impairments factors note 4fair value measurement convertible debentures issued december 20 2005 evaluated determined conventional convertible debentures therefore certain terms provisions including liquidating damages associated registration rights agreement embedded conversion option bifurcated accounted derivative liability instrument stock warrants issued december 20 2005 conjunction convertible debt also evaluated determined derivative instrument therefore classified liability balance sheet accounting guidance also requires conversion feature warrants recorded fair value reporting period changes fair value recorded statement operations discount value determined issue date december 20 2005 amortized term debt fair value embedded conversion options stock warrants based blackscholes fair value calculation carrying value fair value convertible debentures approximately 82 million 77 million respectively december 31 2009 fair value convertible debentures based discounted cash flows principal interest payments using interest rate 588 carrying value restricted cash shortterm borrowings approximates fair value short maturity instruments company records certain liabilities fair value accordance fair value measurements disclosures topic fasb asc december 31 2009 financial instruments topic applied financial liabilities conversion feature convertible debenture warrants foreign currency forward contracts foreign currency derivative instruments valued using quoted market prices december 31 2009 fair value foreign currency derivative instruments nominal liabilities held company measured fair value recurring basis summarized follows thousands financial instruments significant level 3 inputs following table summarizes activity period investment type refer note 5convertible debenture valuation model unobservable data used calculate fair value conversion features convertible debenture warrants issued company note 5convertible debentures december 20 2005 company issued 25 million aggregate principal amount senior subordinated convertible debentures “debentures” due payable quarterly installments 28 million commenced december 2008 december 2009 however holder election could defer quarterly payment one time 24 month period holder elected defer quarterly installments outstanding principal debenture december 31 2009 83 million amount payable june september december 2011 interest due quarterly interest rate tied federal funds rate plus 1125 per annum subject certain limitations debenture portion accrued unpaid interest may paid shares maxwell’s common stock company’s option december 31 2009 2008 interest rate debentures 1375 accrued interest december 31 2009 2008 33800 91600 respectively issuance date debentures convertible holder time 1315789 common shares also issued 394737 warrants connection issuance debentures exercise price 1900 issuance date exercise price number convertible shares warrants subject adjustment upon certain events sale equity securities maxwell price current exercise price 1622 per share since issuance date maxwell sold 61 million shares various offerings price 1900 adjusted conversion warrant price 1622 number warrants increased 462461 warrants number shares related outstanding balance convertible debenture adjusted 513845 shares december 31 2009 fourth quarter 2009 holder converted 28 million principal 171000 shares common stock conversion dates common stock fair value 32 million based quoted market price close trading days conversion resulted loss 436000 recorded “gain loss embedded derivative warrants” statement operations principal interest paid converted shares common stock paid cash follows thousands debentures convertible holder time common shares however eighteen months issue date maxwell may require specified amount principal debentures converted certain conditions satisfied period 20 consecutive trading days determine fair value forced conversion company applies z factor theoretical measurement probability occurrence z factor used december 31 2009 2008 352 00 respectively forced conversion 50 conversion option 135 exercise price 224 00 respectively forced conversion remaining conversion option 175 exercise price warrants issued connection issuance debentures exercisable time december 20 2010 warrants exercised december 31 2009 maxwell accounting conversion option debentures associated warrants derivative liabilities accordance derivatives hedging topic fasb asc unamortized discount attributable issuance date aggregate fair value conversion options warrants 118000 757000 december 31 2009 2008 respectively amortized using effective interest method term debentures change fair value revaluation debenture conversion rights warrant liabilities represents difference fair value end year fair value beginning year using value calculated blackscholes pricing model fair value warrants december 31 2009 2008 25 million 318000 respectively included “stock warrants” balance sheet net fair value liability holders maxwell’s conversion rights december 31 2009 2008 liabilities 30 million 357000 respectively included “convertible debenture longterm debt” balance sheet effect fair market value adjustment 48 million loss 12 million gain fiscal year ended december 31 2009 2008 respectively recorded “gain loss embedded derivative warrants” fair value warrants embedded conversion option estimated balance sheet date using blackscholes valuation model following assumptions event default fundamental change defined debentures holder entitled require maxwell redeem debentures portion thereof price equal greater applicable redemption premium ranging 103115 ii product x number shares debenture convertible using 1622 per share conversion price closing price maxwell’s common stock day preceding default fundamental change company shall pay holder registrable securities related embedded conversion feature warrants liquidated damages 15 aggregate purchase price every 30th day maintenance failure registration securities damages continue 30 days pro rated registration failure cured december 31 2009 company compliance would incur damages 125000 every 30 days cured maintenance failure addition damages paid 30 days due company would incur interest 10 per month outstanding damages long debentures outstanding company required maintain cash balance excess 80 million amount classified restricted cash december 31 2009 2008 note 6shortterm longterm borrowings shortterm borrowings maxwell’s european subsidiary maxwell sa 20 million swiss francs approximately 19 million december 31 2009 bank credit agreement swiss bank renews annually borrowings credit agreement bear interest 39 repayment terms extending beyond one month date funding borrowings credit agreement unsecured december 31 2009 2008 full amount available credit line drawn maxwell sa 10 million swiss francs approximately 966000 december 31 2009 overdraft credit agreement swiss bank renews quarterly borrowings credit agreement bear interest 205 borrowings credit agreement unsecured december 31 2009 full amount overdraft credit line drawn maxwell sa 20 million swiss francs approximately 19 million december 31 2009 shortterm loan swiss bank renews quarterly borrowings shortterm loan agreement bear interest 205 borrowings shortterm loan agreement unsecured december 31 2009 2008 full amount loan drawn longterm borrowings maxwell sa lending agreement acquisition manufacturing equipment 15 million swiss francs acquisition equipment completed agreement converted 48 monthly payments 34302 swiss francs interest rate 222 december 31 2009 2008 balance obligation 543000 863000 respectively final payment due 2011 company various financing agreements vehicles agreements five year repayment period interest rates 49 70 december 31 2009 2008 84000 112000 respectively outstanding following table summarizes convertible debentures debt thousands payments due borrowings five years subsequent december 31 2009 follows thousands note 7foreign currency derivative instruments maxwell uses forward contracts hedge certain monetary assets liabilities primarily receivables payables denominated foreign currency change fair value instruments represents natural hedge gains losses offset changes underlying fair value monetary assets liabilities due movements currency exchange rates contracts generally expire one month contracts considered economic hedges designated hedges derivatives hedging topic fasb asc therefore change instrument’s fair value recognized currently earnings net losses foreign currency forward contracts included cost sales selling general administrative thousands december 31 2009 total notional amount foreign currency forward contracts designated hedges 24 million fair value derivatives designated hedging instruments nominal december 31 2009 additional information refer note 4fair value measurements net losses partially offset net gains monetary assets liabilities noted foreign currency transactions gains monetary assets liabilities included cost sales selling general administrative thousands note 8stock activity stock plans stock sale equity distribution agreement november 2006 company filed registration statement form s3 securities exchange commission time sell aggregate 125 million company’s common stock warrants debt securities august 8 2008 company entered equity distribution agreement “eda” ubs securities llc “ubs” eda provides may offer sell shares common stock par value 010 per share aggregate offering price 15 million “shares” time ubs sales agent exchange services sales agent company paid ubs commission equal 35 gross sales price shares sold april 2009 company suspended eda program may 2009 company issued shares common stock par value 010 per share public offering underwritten roth capital partners “roth” 2 million shares overallotment option purchase additional 300000 shares exchange services underwriter company paid roth commission 7 gross sales price shares sold year ended december 31 2009 company raised 266 million s3 employee stock purchase plan exercise stock options omnibus equity incentive plan 266 million consists 186 million cash sale 23 million shares net offering costs 24 million sale 473000 shares eda net offering costs 49 million exercise stock options 671000 employee stock purchase plan stock option plans company two active sharebased compensation plans december 31 2009 2004 espp 2005 omnibus equity incentive plan incentive stock options nonqualified stock options employee stock purchase plan espp restricted stock awards restricted stock units granted employees generally stock options restricted stock awards vest periods one four years maximum contractual period ten years option share award plans provide accelerated vesting change control stock options granted price equal market price company stock date grant company also granted equity incentive 1999 director stock option plan 75000 shares reserved future grant adopted 1999 approved company’s shareholders january 2000 expense stock based compensation charged income years ended december 31 2009 2008 2007 27 million 27 million 29 million respectively year ended december 31 2009 tax benefits associated exercise nonqualified stock options restricted stock grants disqualifying dispositions incentive stock options stock acquired company’s employee stock purchase plan approximately 68 million tax benefit recognized 2009 2008 2007 employee stock option plan company’s 2005 omnibus equity incentive plan “incentive plan” approved shareholders amended 2007 annual meeting stockholders may 3 2007 meeting replenish equity incentive pool increasing number shares common stock reserved issuance incentive plan 750000 shares 1750000 shares incentive plan provides grant stock based awards including incentive stock options nonqualified stock options stock appreciation rights performance awards restricted stock restricted stock unit awards incentive plan shares reserved issuance replenished forfeited shares additionally 152000 shares cancelled expired 1995 stock option plan 1000 shares 1999 directors’ plan added total available issuance fair value option award granted estimated date grant using blackscholes valuation model following assumptions dividend yield zero company never paid cash dividends present intention pay cash dividends expected volatility based historical company stock prices using mathematical formula measure standard deviation change natural logarithm underlying stock price expected period time commensurate option life expressed annual percentage rate required optionpricing model company consider implied volatility due low volume publicly traded stock options riskfree interest rate derived zero coupon rate us treasury instruments option expected life expected life calculation based company’s history exercised options previous equitybased share option grants sharebased compensation expense recognized consolidated statement operations based awards ultimately expected vest guidance requires forfeitures estimated time grant revised necessary subsequent periods actual forfeitures differ estimates cumulative catch adjustment following table summarizes total aggregate stock option activity period december 31 2008 december 31 2009 number shares exercisable december 31 2009 2008 2007 998097 1639300 1573704 respectively weighted average exercise prices 987 920 872 respectively company’s policy issue new shares options exercised weightedaverage grant date fair value employee options granted years ended december 31 2009 2008 2007 517 388 613 per share respectively total intrinsic value options exercised fiscal years ending december 31 2009 2008 2007 26 million 279000 13 million respectively december 31 2009 27 million 19 million adjusted estimated forfeitures total unrecognized compensation cost related nonvested sharebased compensation arrangements granted employee stock option plan cost expected recognized weighted average period 258 years cash received options exercised sharebased payment arrangements year ended december 31 2009 56 million restricted stock awards beginning 2005 company awarded directors selected senior management restricted stock awards incentive plan vesting restricted stock awards contingent upon period service meeting various departmental company performance market conditions requires one year service period restricted stock awards contractual life ten years fair value restricted stock award calculated date grant using stock price date grant performance conditions estimated achievement dates compensation expense recognized requisite service period greater estimated achievement date minimum 12month vesting period requisite service period determined based analysis terms conditions grant company uses requisite service period likely occur including likelihood restricted stock award earned initial requisite service period may adjusted changes expected outcomes related service performance conditions changes recognized cumulative catchup adjustment based company’s historical experience prevesting award cancellations management assumed zero forfeitures restricted stock awards management would change assumption trueup provisions guidance actual forfeiture rate higher estimated recovery prior expense recorded actual forfeiture rate lower estimated additional expense recorded following table summarizes activity restricted stock plan thousands except per share amounts total grant date fair value restricted stock awards granted year ended december 31 2009 service performance based awards 378000 14 million respectively 2009 company issued released 85039 shares restricted stock performance based awards 12 million amount accrued year ended december 31 2008 disclosure purposes shares appear 2009 issue release related expense incurred 2008 year ended december 31 2008 service performance based awards 280000 16 million respectively weighted average grant date fair value shares granted years ended december 31 2009 2008 2007 1091 1051 1245 respectively fair value nonvested shares determined based closing trading price company shares grant date awards released year ended december 31 2009 2008 202000 79000 respectively awards vesting 2009 2008 vest date fair value service based awards 502000 768000 performance based awards 20 million 295000 respectively december 31 2009 816000 total unrecognized compensation cost related nonvested restricted stock awards granted plan likely vest cost expected recognized weighted average period 10 year employee stock purchase plan espp 2004 company established 2004 espp aggregate number shares common stock may purchased plan shall exceed five hundred thousand 500000 shares common stock company december 31 2009 company issued total 205004 shares common stock current espp year ended december 31 2009 2008 company issued 100535 54663 shares stock espp purchases respectively plan permits substantially employees purchase common stock payroll deductions 85 lower trading price stock beginning end sixmonth offering period commencing january 1 july 1 number shares purchased based participants’ contributions made offering period fair value “look back” option espp estimated based fair value espp shares granted offering period using blackscholes valuation model call put option share price used model 15 discount stock price first day offering period number shares purchased calculated based employee contributions using following assumptions restricted stock units january 1 2009 nonemployee directors company longer paid quarterly retainer cash instead company granted nondiscretionary restricted stock unit “rsu” awards 2005 omnibus equity incentive plan last trading day calendar quarter nonemployee director full quarter automatically received rsu award covering number shares common stock determined dividing 6250 closing selling price company’s common stock last trading day calendar quarter quarterly rsu awards fully vested date automatic grant rsu award granted pursuant retainer program settled shares issued thereunder earliest occur february 15 calendar year following calendar year granted ii 60 days director’s service terminates iii occurrence change control company determines fair value grant date expenses amount requisite service period following table summarizes amount compensation expense recognized fiscal year ended december 31 2009 2008 thousands except share data stock based compensation expense compensation cost restricted stock awards units employee stock options espp stock compensation included cost sales selling general administrative research development thousands share reservations following table summarizes reservation authorized unissued shares issuance upon exercise conversion outstanding instruments december 31 2009 note 9income taxes provision benefit income taxes based loss continuing operations follows thousands provision benefit income taxes accompanying consolidated statements operations differs amount calculated applying statutory income tax rate loss continuing operations income taxes primary components difference follows thousands company established valuation allowance us federal state deferred tax assets due uncertainty surrounding realization assets evidenced cumulative losses operations december 31 2009 management periodically evaluates recoverability deferred tax assets time determined likely deferred assets realizable valuation allowance reduced accordingly recorded tax benefit exception 155 million result additional paid capital discussed company recorded valuation allowance 615 million december 31 2009 reflect estimated amount deferred tax assets may realized company increased valuation allowance 104 million year ended december 31 2009 pursuant internal revenue code sections 382 383 use company’s federal net operating loss credit carryforwards may limited due cumulative change ownership 50 within threeyear period december 31 2009 company federal state net operating loss carryforwards approximately 1414 million 958 million respectively federal tax loss begin expire 2020 state tax loss carryforwards begin expire 2012 excess tax benefits associated exercise nonqualified stock options restricted stock grants disqualifying dispositions incentive stock option stock acquired company’s employee stock purchase plan 2009 2008 approximate amount 27 19 million respectively reduce current income taxes payable accordingly included deferred tax asset relating net operating loss nol carryforwards included federal state nol carryforwards disclosed footnote tax benefits associated stock option deductions 1998 2005 approximate amount 155 million recorded additional paidin capital realization likely occur consequently valuation allowance recorded entire benefit addition company research development tax credit carryforwards federal state income tax purposes december 31 2009 41 million 35 million respectively federal credits begin expire 2010 state credits indefinite life unremitted earnings foreign subsidiaries included consolidated financial statements without giving effect united states taxes may payable distribution united states anticipated earnings remitted united states remitted additional united states taxes paid would material items give rise significant portions deferred tax accounts follows thousands company adopted provisions accounting uncertainty income taxes topic fasb asc january 1 2007 date adoption company 317 million unrecognized tax benefits total unrecognized benefits december 31 2009 approximately 75 million recorded reduction deferred tax assets caused corresponding reduction company’s valuation allowance 75 million extent portion unrecognized tax benefit recognized time valuation allowance longer exists recognition entire 75 million would reduce effective tax rate company anticipate amount unrecognized tax benefits december 31 2009 significantly increase decrease within 12 months company recognizes interest penalties component income tax expense interest penalties december 31 2009 years ended december 31 2009 2008 2007 zero company’s united states federal income tax returns tax years since 2006 subject examination internal revenue service state income tax returns since 2005 subject examination state tax authorities company’s foreign tax returns since 2000 subject examination foreign tax authorities reconciliation beginning ending amount unrecognized tax benefits follows thousands net operating losses years statute limitations expired 2005 prior federal 2004 prior state could adjusted event taxing jurisdictions challenge amounts net operating loss carryforwards years note 10commitments contingencies company enters indemnification agreements ordinary course business indemnified party held harmless reimbursed losses incurred claims third parties connection divestitures certain assets businesses company often provides indemnities buyer respect certain matters including example environmental liabilities unidentified liabilities related periods prior disposition due uncertain nature indemnities maximum liability cannot quantified liabilities obligations recorded appropriate probable reasonably estimated historically company made significant payments obligations result maxwell’s international operations company subject us foreign corrupt practices act “fcpa” prohibits companies making improper payments foreign officials purpose obtaining keeping business result internal review company currently conducting inquiry nature certain payments made former independent sales agent china respect sales high voltage capacitor products produced swiss subsidiary payments equaled difference maxwell’s quoted price certain products amount independent sales agent able sell products certain customers china payments previously recorded commissions however portion payments may actually rebated directly indirectly customers maxwell recorded commissions agent 585000 18 million 653000 years ended december 31 2009 2008 2007 respectively commissions based sales 31 million 82 million 34 million years ended december 31 2009 2008 2007 respectively amounts recorded reduction revenue periods presented 2008 amounts recorded commission expense included selling general administrative expense condensed consolidated statement operations independent sales agent also worked independent sales agent metar see note 13 company terminated relationship independent sales agent may 20 2009 maxwell process evaluating payments treated fcpa purposes could harm company’s business company’s internal review focused thorough examination international operations business practices well review compliance programs company taken certain remedial actions including terminating relationship independent sales agent china well terminating relationship metar could harm business maxwell yet completed internal review company progresses management voluntarily sharing information related internal review securities exchange commission “sec” department justice “doj” provided certain documents requested sec connection review matter event company’s internal review governmental investigation identifies violations law doj sec governmental authorities could seek civil andor criminal sanctions including monetary fines penalties company andor employees well additional changes business practices compliance programs could material adverse effect company’s business results operations financial condition fourth quarter 2009 connection internal review matters described company recorded accrual 93 million potential settlement sec doj amount recorded based company’s estimation loss required gaap discussions government agencies discussions resulted estimate potential settlement range 93 million 200 million top end range 200 million represents combined first offer settlement recently put forth relevant governmental agencies discussions sec doj ongoing effort resolve matters whether agreement reached terms uncertain amount disgorgements penalties andor fines company could face depends number eventual factors currently known yet resolved relevant government authorities including findings relevant authorities regarding amount nature scope improper payments amount pecuniary gain involved ability pay level cooperation provided government authorities investigations assurance settlement reached final settlement amount less accrual 93 million actual payments government agencies connection settlement could material adverse effect company’s business results operations financial condition note 11leases rental expense amounted 21 million 20 million 19 million years ended december 31 2009 2008 2007 respectively incurred primarily facility rental san diego headquarters principal research manufacturing marketing facility occupies approximately 45000 square feet renewable lease expires july 2015 company also occupies 16500squarefoot production annex san diego renewable lease expires november 2010 addition company leases research manufacturing marketing facilities occupying 68620 square feet rossens switzerland renewable lease expires december 2014 future annual minimum rental commitments december 31 2009 follows thousands note 12pension postretirement benefit plans foreign plan compensationretirement benefits subtopic fasb asc requires balance sheet recognition total funded status pension postretirement benefit plans guidance actuarial gains losses prior service costs credits remaining transition assets obligations recognized previous accounting standards must recognized component accumulated comprehensive income loss within stockholders’ equity net tax effects amortized component net periodic benefit cost plan regulated swiss government funded employees company pension benefit based compensation length service credited investment earnings plan guarantees minimum rate return well minimum annuity purchase rates company’s funding policy respect pension plan contribute amount required swiss law using required percentage applied employee’s compensation addition participating employees required contribute pension plan company made pension contributions 589000 577000 498000 2009 2008 2007 respectively 45 contributions plan made employees plan measurement date december 31 company rights asset reported prepaid pension asset increased 26 million 77 million year ended december 31 2009 asset increase combination actuarial gain due participant experience gain due changes certain demographic economic assumptions offset actuarial loss due actual investment return less expected 2009 year ended december 31 2009 total lump sum benefits paid plan greater employer service costs plus interest cost settlement recognition required related restructuring program additionally plan population actually increased year related curtailment following table reflects changes pension benefits years ended december 31 2009 2008 components net periodic benefit cost company plan follows plan assets held december 31 2009 2008 included large portion cash shortterm investments recent sales certain real estate property reinvested december 31 2008 increase percentage invested equity debt securities 2009 occurred investment year end cash position held 2008 pension plan’s overall strategy investment policy managed board plan overall longterm rate based target asset allocation 10 swiss bonds 15 nonswiss bonds 10 unhedged 5 hedged 8 swiss equities 14 global equities 45 real estate 3 alternative investments 5 cash shortterm investments 2010 expected future longterm rate return estimated 55 based historical asset rate returns asset allocation classification 27 rate swiss bonds 37 unhedged foreign bonds 29 hedged foreign bonds 57 real property 81 swiss equities 91 global equities 21 cash 2009 expected longterm rate return 50 based asset rates return 33 swiss bonds 51 unhedged foreign bonds 41 hedged foreign bonds 50 real property 68 swiss equities 72 global equities 21 cash following benefit payments reflect expected future service appropriate expected paid thousands noted pension benefits table projected benefit obligation 195 million 241 million december 31 2009 2008 respectively company expects contribute approximately 635000 foreign pension plan fiscal 2010 investment objectives primary investment goal pension plan achieve total annualized return 55 longterm investments evaluated compared benchmarked plans similar investment strategy plan also attempts minimize risk single security class securities disproportionate impact plan guideline assets diversified asset classes equity fixed income real estate alternative investments fair value assets level 1 observable inputs quoted prices active markets identical assets level 2 inputs quoted prices observable asset liability either directly indirectly include quoted prices similar assets liabilities active markets quoted prices identical similar assets liabilities markets active level 3 unobservable inputs reflect reporting entity’s assumptions investments include real estate owned pension plan stated appraised value obtained independent source plan company real estate investment potential long term investment liquidation processes hedge funds might monthly quarterly annual restraints redemptions may require advance notice redemption fair value plans assets december 31 2009 asset category follows financial instruments significant level 3 inputs following table summarizes activity period investment type total unrealized losses reported component accumulated comprehensive income consolidated statement stockholders’ equity us plan company post retirement benefit plans covering employees united states substantially us employees eligible elect coverage contributory employee savings plan provide company matching contributions based onehalf employee contributions certain plan limits company’s matching contributions plan totaled 384000 236000 197000 years ended december 31 2009 2008 2007 respectively note 13related party transactions maxwell sa made payments metar machines metar commissions sales high voltage products metar established business relationships asia provide additional sales opportunity high voltage products montena sa “montena” majority shareholder metar machines march 22 2009 member maxwell technologies inc board directors josé cortes also director montena mr cortes also minority shareholder genturica ltd genturica ltd majority shareholder montena march 22 2009 montena sold interest metar company terminated agreement metar may 14 2009 metar longer related party total expense nonexclusive sales commission recognized years ended december 31 2009 2008 2007 128000 260000 119000 respectively expense included accounts payable 0 39000 27000 december 31 2009 2008 2007 respectively expenses classified selling general administrative expense statement operations metar maxwell used independent sales agent china see note 10 information maxwell sa pension plan provided long term loan 700000 swiss francs approximately 676000 december 31 2009 montena properties sa montena properties sa 100 owned montena sa loan negotiated completely repaid december 12 2010 bears interest rate 425 stated earlier member maxwell technologies inc’s board directors josé cortes also director indirect minority stockholder montena sa loan provided montena properties sa prior mr cortes becoming director maxwell montena note 14legal proceedings nesscappatent infringement october 2006 maxwell filed patent infringement lawsuit nesscap united states district court southern district california seeking monetary damages injunction stop nesscap’s sales infringing products based four maxwell’s patents december 2006 nesscap filed lawsuit maxwell united states district court district delaware claiming maxwell products infringe nesscap’s patented intellectual property maxwell moved alternate forum lawsuit transferred district court san diego maxwell’s patent claims nesscap pending maxwell subsequently filed motion summary judgment asserting noninfringement nesscap’s patents hearing held november 2007 december 2007 court denied maxwell’s motion summary judgment deciding instead wait court considers additional briefs issue patent claim interpretation court held claim construction hearing subsequently issued ruling april 2008 february 2009 company entered definitive settlement agreement nesscap co ltd nesscap inc “nesscap” settlement agreement maxwell nesscap agreed release claims issues related lawsuit agreed ten year worldwide cross license certain patent rights company following execution definitive settlement agreement matters formally concluded dismissing pending matters district court united states court appeals part settlement agreement nesscap must pay 1 million maxwell annual installments 200000 2013 case company capitalized patent legal defense costs additional costs patents amortizing capitalized costs remaining lives patents payments received nesscap settlement continue netted capitalized patent legal defense costs upon receipt december 31 2009 200000 received nesscap settlement product defect matter 2005 customer brought attention possible defect product produced maxwell contract another manufacturer resold customer effort resolve matter maxwell’s subsidiary maxwell sa initiated legal proceeding germany late 2007 product manufacturer suit currently discovery phase time allegedly defective product analyzed expert tasked determining defect b defect one stemming manufacturing operating conditions since inception proceedings parties met expert one occasion meetings expert issue report findings recently court granted request parties allow expert consider allegedly defective products known proceedings initiated also products alleged defects proceedings began event determination made defect exists potential liability would depend upon nature defect actual amount damages would determined subsequent legal proceeding since matter still preliminary stages yet able determine warranty exposure maxwell may therefore recorded warranty reserve provision maxwell however carry insurance may cover portion warranty liability might ultimately arise matter angeles chemical december 2007 maxwell along 150 defendants named environmental suit angeles chemical company inc et al v omega chemical prp group llc et al filed plaintiffs united states district court central district california alleging damages related hazardous waste contamination plaintiffs’ land “angeles site” plaintiff alleges prior service provider maxwell improperly disposed hazardous material property upstream plaintiffs’ land “omega site” march 2008 maxwell joined adopted motion dismiss filed defendants omega chemical prp group llc omega chemical prp group motion denied however court elected grant motion stay proceedings meantime maxwell’s outside counsel conferring codefendants’ counsel finalize joint defense agreement whereby related defendants share information effort reduce cost defending suit april 2009 maxwell attended internal technical committee meeting regarding angeles site purpose meeting review epa’s remedial investigation report analysis contamination occurring near omega site epa spent last several months collecting data running model analysis report epa concluded omega site cause 8 mile contamination plume conclusion defendants deny epa’s conclusions assumptions challenged technical experts de maximis cdm experts believe epa made simplified assumptions attain results supported conclusion designed epa defendants including maxwell predicted cost epa’s 8 mile plume would approximately 100150 million perhaps double would cost omega site blame 24 miles plume consensus defendants would challenge epa’s model perhaps collecting additional data points epa ignored hopes saving potentially millions dollars overall cleanup maxwell included suit result earlier suit settled 1999 suit maxwell potentially responsible party prp site short distance current site suit settled maxwell paying approximately 37000 omega chemical august 2009 unrelated angeles chemical matter yet pertaining original omega chemical matter omega prp organized group opog submitted good faith offer letter parties settled portion omega matter 100 respective liabilities original omega chemical clean efforts within offer letter opog solicited additional funding additional clean efforts claims necessary remediate omega chemical site maxwell joined several parties receiving good faith offer letter opog review assess validity opog’s claim clean funding recently collaborating parties hired outside consultant review state omega chemical site assist determining validity claims including cost estimates made opog scheduled meeting opog discuss findings date plaintiff completed draft feasibility study note 15subsequent events accordance subsequent events topic fasb asc company evaluated subsequent events march 5 2010 date issuance consolidated financial statements period company material recognizable subsequent events note 16unaudited quarterly results operations includes loss embedded derivatives 607000 noncash expense stock options 738000 amortization debt discount 379000 b includes loss embedded derivatives 38 million noncash expense stock options 841000 amortization debt discount 243000 c includes loss embedded derivatives 28 million noncash expense stock options 899000 amortization debt discount 73000 includes accrual potential settlement fcpa violations 93 million gain embedded derivatives 19 million noncash expense stock options 222000 amortization debt discount 42000 e includes loss embedded derivatives 993000 noncash expense stock options 569000 amortization debt discount 728000 f includes gain embedded derivatives 33000 noncash expense stock options 576000 amortization debt discount 641000 g includes loss embedded derivatives 10 million noncash expense stock options 911000 amortization debt discount 553000 h includes gain embedded derivatives 32 million noncash expense stock options 661000 amortization debt discount 466000 schedule ii valuation qualifying accounts thousands item 9item 8 financial statements supplementary data consolidated financial statements notes thereto appear pages 48 78 annual report form 10k maxwell technologies inc index consolidated financial statements report independent registered public accounting firm board directors stockholders maxwell technologies inc san diego california audited accompanying consolidated balance sheets maxwell technologies inc december 31 2015 2014 related consolidated statements operations comprehensive income loss stockholders’ equity cash flows three years period ended december 31 2015 connection audits financial statements also audited financial statement schedule listed accompanying index financial statements schedule responsibility company’s management responsibility express opinion financial statements schedule based audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements assessing accounting principles used significant estimates made management well evaluating overall presentation financial statements schedule believe audits provide reasonable basis opinion consolidated financial statements referred present fairly material respects financial position maxwell technologies inc december 31 2015 2014 results operations cash flows three years period ended december 31 2015 conformity accounting principles generally accepted united states america also opinion related financial statement schedule considered relation basic consolidated financial statements taken whole presents fairly material respects information set forth therein also audited accordance standards public company accounting oversight board united states maxwell technologies inc’s internal control financial reporting december 31 2015 based criteria established internal controlintegrated framework 2013 issued committee sponsoring organizations treadway commission coso report dated february 17 2016 expressed unqualified opinion thereon bdo usa llp san diego california february 17 2016 maxwell technologies inc consolidated balance sheets thousands except per share data accompanying notes integral part consolidated financial statements maxwell technologies inc consolidated statements operations thousands except per share data accompanying notes integral part consolidated financial statements maxwell technologies inc consolidated statements comprehensive income loss thousands accompanying notes integral part consolidated financial statements maxwell technologies inc consolidated statements stockholders’ equity thousands accompanying notes integral part consolidated financial statements maxwell technologies inc consolidated statements cash flows thousands accompanying notes integral part consolidated financial statements maxwell technologies inc notes consolidated financial statements unless context otherwise requires references “maxwell” “company” “we” “us” “our” refer maxwell technologies inc subsidiaries references “maxwell sa” refer swiss subsidiary maxwell technologies sa note 1description business summary significant accounting policies description business maxwell technologies inc delaware corporation originally incorporated 1965 name maxwell laboratories inc 1983 company completed initial public offering 1996 changed name maxwell technologies inc company headquartered san diego california three manufacturing facilities located san diego california rossens switzerland peoria arizona addition company two contract manufacturers located china maxwell operates single operating segment comprised three product lines • ultracapacitors maxwells primary focus ultracapacitors energy storage devices possess unique combination high power density extremely long operational life ability charge discharge rapidly maxwells ultracapacitor cells multicell packs modules provide highly reliable energy storage power delivery solutions applications multiple industries including transportation automotive information technology renewable energy industrial electronics • highvoltage capacitors maxwells condis® highvoltage capacitors designed manufactured perform reliably decades climates products include grading coupling capacitors electronic voltage transformers used ensure safety reliability electric utility infrastructure applications involving transport distribution measurement highvoltage electrical energy • radiationhardened microelectronic products maxwells radiationhardened microelectronic products satellites spacecraft include single board computers components highdensity memory data conversion modules many products incorporate maxwells proprietary radpak® packaging shielding technology novel architectures enable withstand effects environmental radiation perform reliably space company’s products designed manufactured perform reliably life products systems integrated company achieves high reliability application proprietary technologies rigorously controlled design development manufacturing test processes financial statement presentation accompanying consolidated financial statements include accounts maxwell technologies inc subsidiaries prepared accordance accounting principles generally accepted united states “us gaap” intercompany transactions account balances eliminated consolidation liquidity december 31 2015 company approximately 244 million cash equivalents working capital 658 million july 2015 company entered loan agreement east west bank “ewb” whereby ewb made available company secured credit facility form revolving line credit available maximum lesser 250 million b certain percentage domestic foreign trade receivables december 31 2015 drawings revolving line credit amount available 227 million management believes available cash balance along available borrowings revolving line credit sufficient fund operations obligations become due capital investments least next twelve months reclassifications foreign currency exchange gains losses reclassified cost revenue selling general administrative expenses foreign currency exchange gains losses net consolidated statement operations years ended december 31 2014 2013 conform current period presentation reclassifications impact reported net income loss otherwise material impact presentation overall financial statements use estimates preparation financial statements conformity accounting principles generally accepted united states requires management make estimates assumptions affect reported amounts related disclosures estimates include limited assessing collectability accounts receivable applied unapplied production costs production capacities usage recoverability inventories longlived assets deferred income taxes incurrence warranty obligations impairment goodwill estimation cost complete certain projects estimation pension assets liabilities accruals estimated losses legal matters estimation value stockbased compensation awards including probability performance criteria restricted stock awards restricted stock units awards met revenue recognition revenue derived primarily sale manufactured products directly customers product revenue recognized according guidelines securities exchange commission “sec” staff accounting bulletin “sab” numbers 101 revenue recognition financial statements 104 revenue recognition following criteria met 1 persuasive evidence arrangement exists upon contract signing receipt authorized purchase order customer 2 title passes customer either shipment company’s facilities receipt customer facility depending shipping terms 3 customer payment deemed fixed determinable free contingencies significant uncertainties 4 collectability reasonably assured policy consistently applied period portion sales revenue derived sales distributors distributor revenue recognized criteria revenue recognition met generally time shipment distributor returns credits estimable significant revenue productiontype contracts represent less five percent total revenue recognized using percentage completion method degree completion determined based costs incurred percentage total costs anticipated excluding costs representative progress completion total deferred revenue customer deposits consolidated balance sheets december 31 2015 2014 31 million 703000 respectively relates cash received customers sales revenue recognition criteria achieved customer advances well less significant customer arrangements requiring deferral revenue cash equivalents cash equivalents consist primarily cash readily available checking accounts cash equivalents consist highly liquid investments readily convertible cash mature within three months less date purchase carrying amounts approximate fair value due short maturities instruments restricted cash restricted cash december 31 2015 consists 400000 cash balance deposit secure certain ongoing banking transactions accounts receivable allowance doubtful accounts trade receivables stated gross invoiced amount less allowance uncollectible accounts allowance doubtful accounts reflects management’s best estimate probable losses inherent accounts receivable balance management determines allowance doubtful accounts based known troubled accounts historical experience currently available evidence inventories net inventories stated lower cost firstin firstout basis market finished goods workinprocess inventory values include cost raw materials labor manufacturing overhead consigned inventory includes finished goods delivered customers related sale met revenue recognition criteria revenue recognized inventory written market value establishes new cost basis value subsequently increased based upon changes underlying facts circumstances company makes adjustments reduce cost inventory net realizable value required estimated excess obsolete inventories factors influencing adjustments include inventories onhand compared historical estimated future sales existing new products assumptions likelihood obsolescence unabsorbed costs treated expense period incurred property equipment property equipment carried cost depreciated using straightline method depreciation provided estimated useful lives related assets three ten years leasehold improvements depreciated shorter estimated useful life term lease leasehold improvements funded landlords recorded property equipment depreciated shorter estimated useful life asset lease term deferred rent amortized lease term december 31 2015 2014 net book value leasehold improvements funded landlords 22 million 25 million respectively december 31 2015 2014 unamortized balance deferred rent related landlord funding leasehold improvements 22 million 27 million respectively included accounts payable accrued liabilities longterm liabilities consolidated balance sheets goodwill represents excess cost acquired business net fair value assigned assets liabilities amortized instead goodwill assessed impairment intangiblesgoodwill topic fasb asc company established december 31 annual impairment test date company first makes qualitative assessment whether goodwill impaired likely goodwill impaired company performs twostep quantitative impairment analysis determine goodwill impaired company may also determine skip qualitative assessment year move directly quantitative test impairments goodwill reported years ended december 31 2015 2014 2013 impairment longlived assets property equipment reviewed impairment whenever events changes circumstances indicate carrying value assets may recoverable company determines carrying value asset recoverable permanent impairment charge recorded amount carrying value longlived asset exceeds fair value impairments property equipment recorded years ended december 31 2015 2014 2013 warranty obligation company provides warranties product sales majority company’s warranties one eight years normal course business company accrues estimated warranty costs time sale based historical warranty experience plus known expected changes warranty exposure december 31 2015 2014 accrued warranty liability included accounts payable accrued liabilities consolidated balance sheets 13 million 716000 respectively income taxes deferred income taxes provided liability method accordance income taxes topic fasb asc whereby deferred tax assets recognized deductible temporary differences deferred tax liabilities recognized taxable temporary differences method deferred income taxes recorded reflect tax consequences future years temporary differences tax basis assets liabilities reported amounts period end likely portion deferred tax asset realized valuation allowance recognized guidance also provides criteria recognition measurement presentation disclosures uncertain tax positions tax benefit uncertain tax position may recognized “more likely not” position sustainable based solely technical merits concentration credit risk company maintains cash balances various financial institutions primarily california switzerland california cash balances commonly exceed 250000 federal deposit insurance corporation insurance limit switzerland banks company cash deposits either governmentowned case cash deposited nongovernment banks deposits insured 100000 swiss francs company experienced losses accounts management believes company exposed significant credit risk respect cash equivalents financial instruments subject company potential concentrations credit risk consist principally company’s accounts receivable company’s accounts receivable result product sales customers various industries various geographical areas domestic foreign company performs credit evaluations customers generally requires collateral one customer shenzhen xinlikang supply china management co ltd accounted 19 total revenues 2015 20 total revenues 2014 22 total revenues 2013 accounted 33 total accounts receivable december 31 2015 customers accounted 10 accounts receivable december 31 2014 research development expense research development expenditures expensed period incurred thirdparty funding research development expense costsharing arrangements recorded offset research development expense period expenses incurred research development expense 247 million 263 million 225 million net thirdparty funding costsharing arrangements 13 million 10 million 13 million years ended december 31 2015 2014 2013 respectively advertising expense advertising costs expensed period incurred advertising expense 11 million 14 million 884000 years ended december 31 2015 2014 2013 respectively shipping handling expense company recognizes shipping handling expenses component cost revenue total shipping handling expense included cost revenue 10 million 15 million 13 million years ended december 31 2015 2014 2013 respectively foreign currencies company’s primary foreign currency exposure related subsidiary switzerland euro local currency swiss franc revenue operating expenses local currency loans changes currency exchange rates impact reported us dollar amount revenue expenses debt functional currency swiss subsidiary swiss franc assets liabilities swiss subsidiary translated monthend exchange rates revenues expenses gains losses translated rates exchange approximate rate effect time transaction translation adjustments resulting process presented separately component accumulated comprehensive income within stockholders’ equity consolidated balance sheets foreign currency transaction gains losses intercompany balances considered long term nature accounted translation adjustments within equity foreign currency transaction gains losses reported foreign currency exchange loss net consolidated statements operations foreign currency derivative instruments part risk management strategy company uses forward contracts hedge certain foreign currency exposures companys objective partially offset gains losses resulting exposures opposing gains losses forward contracts thereby reducing volatility earnings created foreign currency exposures accordance derivatives hedging topic fasb asc fair values forward contracts estimated period end based quoted market prices recorded net asset liability consolidated balance sheets contracts considered economic hedges designated hedges derivatives hedging topic fasb asc therefore change fair value instruments recognized currently consolidated statements operations recorded foreign currency exchange loss net consolidated statements operations net income loss per share accordance earnings per share topic fasb asc basic net income loss per share calculated using weighted average number common shares outstanding period diluted net income per share includes impact additional common shares would outstanding dilutive potential common shares issued potentially dilutive securities considered calculation diluted net loss per share inclusion would antidilutive following table sets forth computation basic diluted net income loss per share thousands except per share data following table summarizes instruments may convertible common shares included denominator used diluted net income loss per share calculation would antidilutive thousands stockbased compensation company issues stockbased compensation awards employees nonemployee directors including stock options restricted stock restricted stock units shares employee stock purchase plan company records compensation expense stockbased awards accordance criteria set forth stock compensation subtopic fasb asc company uses blackscholes option pricing model estimate fair value stock option grants determination fair value stock options utilizing blackscholes model affected company’s stock price number assumptions including expected volatility expected term riskfree interest rate expected dividends fair value restricted stock awards rsas restricted stock unit awards rsus servicebased performancebased vesting based closing market price company’s common stock date grant compensation expense equal fair value rsa rsu recognized ratably requisite service period rsas rsus vesting contingent company performance conditions company uses requisite service period likely occur requisite service period estimated based performance period well timebased service requirements unlikely performance condition achieved compensation expense recognized unless later determined achievement performance condition likely expense may adjusted changes expected outcomes related performance conditions impact changes recognized cumulative adjustment consolidated statement operations period expectation changes 2014 company issued marketcondition rsus certain members executive management since vesting marketcondition rsus dependent stock price performance fair values awards estimated using montecarlo valuation model determination fair value marketcondition rsus utilizing montecarlo valuation model affected company’s stock price number assumptions including expected volatility expected life riskfree interest rate expected dividends sharebased compensation expense recognized consolidated statements operations based equity awards ultimately expected vest fasb asc requires forfeitures estimated time grant revised necessary subsequent periods cumulative catch adjustment actual forfeitures differ estimates marketcondition awards effect marketcondition reflected discount awards fair value grant date subsequent forfeitures due companys stock price performance result reversal expense recent accounting pronouncements may 2014 financial accounting standards board “fasb” issued accounting standards update asu 201409 revenue contracts customers standard provides companies single model accounting revenue arising contracts customers supersedes current revenue recognition guidance including industryspecific revenue guidance core principle model recognize revenue control goods services transfers customer opposed recognizing revenue risks rewards transfer customer existing revenue guidance permits companies either apply requirements retrospectively prior periods presented apply requirements year adoption cumulative adjustment august 2015 fasb issued asu 201514 deferral effective date defers required adoption date asu 201409 one year result deferred effective date asu 201409 effective company first quarter fiscal 2018 early adoption permitted original effective date new standard first quarter fiscal 2017 company process evaluating transition method elected impact adoption consolidated financial statements august 2014 fasb issued asu 201415 disclosure uncertainties entity’s ability continue going concern standard requires management perform interim annual assessments entity’s ability continue going concern within one year date financial statements issued provides guidance determining disclose going concern uncertainties financial statements certain disclosures required conditions give rise substantial doubt entity’s ability continue going concern asu 201415 applies entities effective annual interim reporting periods ending december 15 2016 early adoption permitted company expect adoption standard material effect financial statements april 2015 fasb issued asu 201503 simplifying presentation debt issuance costs update changes presentation debt issuance costs direct deduction related debt liability rather asset amortization costs continue reported interest expense asu 201503 effective annual interim reporting periods ending december 15 2015 early adoption permitted new guidance applied retrospective basis prior periods company expect adoption standard material effect financial statements november 2015 fasb issued asu 201517 balance sheet classification deferred taxes simplify presentation deferred taxes amendment requires deferred tax assets liabilities along related valuation allowances classified noncurrent balance sheet asu 201517 effective annual interim reporting periods ending december 15 2017 early adoption permitted new guidance may applied either prospectively retrospectively company adopted guidance prospectively december 31 2015 therefore prior periods adjusted reflect adoption july 2015 fasb issued asu 201511 simplifying measurement inventory new guidance issued closely align measurement inventory us gaap measurement inventory international financial reporting standards core principle updated guidance entity measure inventory lower cost net realizable value net realizable value estimated selling price ordinary course business less reasonably predictable costs completion disposal transportation amendments asu 201511 apply inventory measured using firstin firstout average cost methods asu 201511 effective annual interim reporting periods ending december 15 2016 including interim periods within fiscal years applied prospectively early adoption permitted beginning interim annual reporting period company expect adoption standard material effect financial statements january 2016 fasb issued asu 201601 financial instrumentsoverall subtopic 82510 standard makes several modifications subtopic 82510 including elimination availableforsale classification equity investments requires equity investments readily determinable fair values measured fair value changes fair value recognized net income effective interim annual periods beginning december 15 2017 company expect adoption standard material effect financial statements business enterprise information company operates single operating segment according fasb asc topic disclosures segments enterprise related information operating segments defined components enterprise separate financial information evaluated regularly chief operating decision maker codm deciding allocate resources assessing performance company’s codm chief executive officer evaluates company’s financial information resources assesses performance consolidated basis revenues product line geographic area presented thousands 1 revenue external customers located countries included “all countries” individually comprise 10 total revenues years presented longlived assets geographic location follows thousands note 2balance sheet details thousands note 3goodwill company reviews goodwill impairment annually according intangiblesgoodwill topic fasb asc company makes qualitative evaluation likelihood goodwill impairment concludes likely carrying amount reporting unit greater fair value required perform first step twostep quantitative impairment test otherwise performing twostep impairment test unnecessary first step consists estimating fair value comparing estimated fair value carrying value reporting unit fair value less carrying value second step performed compute amount impairment determining implied fair value goodwill implied fair value goodwill residual fair value derived deducting fair value reporting unit’s assets liabilities estimated total fair value calculated step one impairment charge would represent excess carrying amount reporting unit’s goodwill implied fair value goodwill guidance requires goodwill reviewed annually time every year event occurs circumstances change reasonably possible impairment may exist company selected december 31 annual testing date result company’s annual assessments december 31 2015 2014 2013 impairment indicated change carrying amount goodwill 2014 2015 follows thousands note 4fair value measurement company records certain financial instruments fair value accordance fair value measurements disclosures topic fasb asc december 31 2015 financial instruments topic applied financial instruments foreign currency forward contracts pension assets december 31 2015 fair value foreign currency forward contracts asset 16000 recorded “trade accounts receivable” consolidated balance sheet fair value derivative instruments measured using models following quoted market prices active markets identical instruments level 2 input fair value hierarchy fair value measurements disclosures topic fasb asc forward contracts december 31 2015 approximately onemonth original maturity term matured january 5 2016 february 2 2016 also see note 6 foreign currency derivative instruments note 11 pension postretirement benefit plans annual report form 10k discussion fair value measurements carrying value shortterm longterm borrowings approximates fair value relative short maturity instruments interest rates company could currently obtain note 5credit facilities revolving line credit july 2015 company entered loan security agreement “loan agreement” east west bank “ewb” whereby ewb made available company secured credit facility form revolving line credit “revolving line credit” revolving line credit available maximum lesser 250 million b certain percentage domestic foreign trade receivables december 31 2015 amount available revolving line credit 227 million general amounts borrowed revolving line credit secured lien company’s assets including intellectual property well pledge 100 equity interests company’s swiss subsidiary obligations loan agreement guaranteed swiss subsidiary revolving line credit mature july 3 2018 however repayment amounts owed pursuant loan agreement may accelerated event company violation representations warranties covenants made loan agreement including certain financial covenants set forth therein financial covenants company required meet term credit agreement include minimum fourquarter rolling ebitda quarterly minimum quick ratio monthly minimum cash requirement amounts borrowed revolving line credit bear interest payable monthly interest shall accrue based upon company’s election subject certain limitations either prime rate plus margin ranging 0 050 libor rate plus margin ranging 275 325 specific rate determined based upon company’s leverage ratio time company required pay annual commitment fee 125000 unused commitment fee average daily unused amount revolving line credit payable monthly equal per annum rate range 030 050 determined company’s leverage ratio last day previous fiscal quarter amounts borrowed revolving line credit december 31 2015 former credit facility december 2011 company obtained secured credit facility form revolving line credit “former revolving line credit” equipment term loan “equipment term loan” together “former credit facility” borrowings former credit facility bore interest payable monthly either banks prime rate ii libor plus 225 companys option subject certain limitations equipment term loan available finance 80 eligible equipment purchases made april 1 2011 april 30 2012 period company borrowed 50 million equipment term loan balance equipment term loan paid full maturity date april 30 2015 concurrently entering loan agreement described july 2015 company repaid outstanding loans former revolving line credit former credit facility terminated company incur early termination prepayment penalties former credit facility connection transactions longterm borrowings maxwell sa various financing agreements vehicles agreements original threeyear repayment period interest rates ranging 19 51 december 31 2015 2014 91000 82000 respectively outstanding agreements note 6foreign currency derivative instruments maxwell uses forward contracts hedge certain monetary assets liabilities primarily receivables payables cash balances denominated foreign currencies change fair value forward contracts represents natural hedge gains losses instruments partially offset changes fair value underlying monetary assets liabilities due movements currency exchange rates forward contracts generally expire one month contracts considered economic hedges designated hedges derivatives hedging topic fasb asc therefore change fair value instruments recognized currently consolidated statements operations net gains losses foreign currency forward contracts included foreign currency exchange loss net consolidated statements operations follows thousands net gains losses foreign currency derivative contracts partially offset net gains losses underlying monetary assets liabilities foreign currency gains losses underlying monetary assets liabilities included foreign currency exchange loss net consolidated statements operations follows thousands december 31 2015 total notional amount foreign currency forward contracts designated hedges 13 million following table presents gross amounts offset net amounts presented consolidated balance sheets companys derivative instruments measured fair value thousands company legal right offset recognized assets liabilities upon settlement derivative instruments forward contracts outstanding december 31 2015 matured january 5 2016 february 2 2016 additional information refer note 4 fair value measurements note 7stock plans equity incentive plans company two active sharebased compensation plans december 31 2015 2004 employee stock purchase plan “espp” 2013 omnibus equity incentive plan “incentive plan” approved stockholders incentive plan incentive stock options nonqualified stock options restricted stock awards restricted stock units granted employees nonemployee directors generally awards vest periods one four years addition equity awards issued senior management vesting award tied company performance market conditions company’s policy issue new shares common stock upon exercise stock options vesting restricted stock units granting restricted stock awards espp purchases company’s incentive plan currently provides equity incentive pool 3750000 shares reserved issuance replenished forfeited shares additionally equity awards forfeited company’s 2005 equity incentive plan added total shares available issuance incentive plan year ended december 31 2015 tax benefit associated stock option exercises restricted stock unit vesting restricted stock grants disqualifying dispositions incentive stock options stock issued company’s espp approximately 14 million tax benefits recognized years ended december 31 2015 2014 2013 excess tax benefits realized company stock options company grants stock options employees executive management discretionary basis following table summarizes total aggregate stock option activity year ended december 31 2015 thousands except per share data weightedaverage grant date fair value stock options granted years ended december 31 2015 2013 334 289 respectively stock options granted year ended december 31 2014 total intrinsic value options exercised years ended december 31 2015 2014 2013 16000 638000 18000 respectively cash proceeds option exercises year ended december 31 2015 128000 fair value stock options granted years ended december 31 2015 2013 estimated using blackscholes valuation model using following assumptions expected dividend yield zero company never paid cash dividends present intention pay cash dividends expected term based company’s historical experience previous stock option grants expected volatility based historical volatility company’s stock measured period commensurate expected option term company consider implied volatility due low volume publicly traded options companys stock riskfree interest rate derived zero coupon rate us treasury instruments term comparable option’s expected term december 31 2015 741000 total unrecognized compensation cost related stock options cost expected recognized weighted average period 33 years restricted stock awards 2011 company began granting restricted stock awards rsas employees part annual equity incentive award programs generally vesting rsas contingent upon period service typically four years addition company granted performance rsas executive management vesting contingent upon specified company performance conditions however performance rsas vested expected vest year ended december 31 2014 company ceased granting rsas began granting restricted stock unit awards rsus employees executive management part annual equity incentive award program following table summarizes rsa activity year ended december 31 2015 thousands except per share data weighted average grant date fair value rsas granted years ended december 31 2014 2013 1421 1020 respectively rsas granted year ended december 31 2015 vest date fair value rsas vested 2015 2014 2013 12 million 12 million 916000 respectively december 31 2015 24 million unrecognized compensation cost related nonvested rsas expected recognized weighted average period 17 years restricted stock units nonemployee directors receive annual rsu awards normally february year partial consideration annual retainer compensation awards vest full one year date grant provided nonemployee director provides continued service beginning 2014 company began granting rsus employees executive management part annual equity incentive award program majority rsu awards servicebased vest equal installments four years continuous service rsu represents right receive one unrestricted share company’s common stock upon vesting following table summarizes rsu activity year ended december 31 2015 thousands except per share data weighted average grant date fair value rsus granted years ended december 31 2015 2014 2013 702 1263 1025 respectively vest date fair value rsus vested 2015 2014 2013 498000 631000 275000 respectively december 31 2015 29 million unrecognized compensation cost related nonvested rsu awards cost expected recognized weighted average period 25 years included rsu activity 215000 50000 performancersus granted years ended december 31 2015 2014 average grant date fair value 718 1085 per share respectively vesting contingent upon specified company performance conditions also included rsus 70000 marketcondition rsus granted 2014 vest upon achievement certain stock price thresholds completion three years continuous employment date grant average grant date fair value 771 per share since vesting marketcondition rsus dependent stock price performance fair values awards estimated using montecarlo valuation model following weightedaverage assumptions following table summarizes amount compensation expense recognized rsus years ended december 31 2015 2014 2013 thousands employee stock purchase plan 2013 company amended restated 2004 employee stock purchase plan “espp” pursuant espp aggregate number shares common stock may purchased shall exceed 1000000 shares common stock company years ended december 31 2015 2014 145733 93588 shares respectively purchased espp permits substantially employees purchase common stock payroll deductions 85 lower trading price stock beginning end sixmonth offering period number shares purchased based participants’ contributions made offering period fair value “look back” option espp shares issued offering period estimated using blackscholes valuation model call put option share price used model 15 discount stock price last trading day offering period number shares purchased based employee contributions fair value espp awards calculated using following weightedaverage assumptions intrinsic value shares company’s stock purchased pursuant espp offering periods within years ended december 31 2015 2014 2013 210000 449000 33000 respectively stockbased compensation expense compensation cost stock options restricted stock restricted stock units espp follows thousands stockbased compensation cost included cost revenue selling general administrative expense research development expense follows thousands share reservations following table summarizes reservation shares companys stockbased compensation plans december 31 2015 note 8shelf registration statement june 3 2014 company filed shelf registration statement form s3 us securities exchange commission sec time sell aggregate 125 million combination common stock warrants debt securities units june 30 2014 registration statement declared effective sec april 23 2015 company entered atthemarket equity offering sales agreement “sales agreement” cowen company llc “cowen” pursuant could sell aggregate 100 million shares common stock cowen sales agent sales agreement company agreed pay cowen commission equal 30 gross proceeds sale shares common stock june 11 2015 company completed sale approximately 100 million common stock terminated offering approximately 183 million shares sold offering average share price 546 company received net proceeds 96 million commissions offering costs 406000 due late form 8k filing company june 1 2015 due may 29 2015 company currently ineligible use shelf registration statement beginning filing date annual report form 10k company expects eligible june 1 2016 note 9income taxes financial reporting purposes income loss income taxes includes following components thousands provision income taxes based income loss income taxes follows thousands provision income taxes accompanying consolidated statements operations differs amount calculated applying statutory income tax rate income loss continuing operations income taxes primary components difference follows thousands company established valuation allowance us federal state deferred tax assets due uncertainty surrounding realization assets evidenced cumulative losses operations december 31 2015 management periodically evaluates recoverability deferred tax assets time determined likely deferred assets realizable valuation allowance reduced accordingly recorded tax benefit exception 155 million impact additional paid capital discussed company recorded valuation allowance 681 million december 31 2015 reflect estimated amount deferred tax assets may realized company released valuation allowance related germany subsidiary 316000 company believes likely deferred tax assets realized company increased valuation allowance 39 million year ended december 31 2015 december 31 2015 company federal state net operating loss carryforwards approximately 1529 million 612 million respectively federal tax loss carryforwards begin expire 2020 state tax loss carryforwards begin expire 2016 addition company research development tax credit carryforwards federal state income tax purposes december 31 2015 61 million 77 million respectively federal credits begin expire 2019 unless utilized state credits indefinite life pursuant internal revenue code sections 382 383 use company’s federal net operating loss credit carryforwards may limited due cumulative change ownership 50 within threeyear period excess tax benefits associated stock option exercises restricted stock grants disqualifying dispositions incentive stock options stock issued company’s employee stock purchase plan amount 35 million 36 million 2015 2014 respectively reduce current income taxes payable accordingly included deferred tax asset relating net operating loss carryforwards included federal state net operating loss carryforwards disclosed footnote tax benefits associated stock option deductions 1998 2005 amount 155 million recorded additional paidin capital realization likely occur consequently valuation allowance recorded entire benefit company granted tax holiday switzerland effective january 1 2012 10 years tax holiday conditional upon company meeting certain employment investment thresholds impact tax holiday decreased foreign taxes 672000 665000 2015 2014 respectively benefit tax holiday net loss per diluted share 002 2015 2014 respectively company records us income taxes undistributed earnings foreign subsidiaries unless subsidiaries’ earnings considered indefinitely reinvested outside us result changes companys financial projections company changed estimate amounts considered permanently reinvested therefore years ended december 31 2015 2014 company recorded deferred tax liability 21 million 16 million respectively associated 417 million 318 million respectively unremitted earnings foreign subsidiary longer considered indefinitely reinvested event company repatriates funds withholding tax would become payable swiss government december 31 2015 cumulative amount undistributed earnings considered indefinitely reinvested 102 million determination amount unrecognized deferred income tax liability excess financial reporting basis tax basis investments foreign subsidiaries practicable complexities hypothetical calculation items give rise significant portions deferred tax accounts follows thousands december 31 2015 2014 deferred tax assets 491000 460000 respectively included noncurrent assets consolidated balance sheet company accounts uncertain tax benefits accordance provisions section 74010 accounting uncertainty income taxes topic fasb asc total unrecognized tax benefits december 31 2015 approximately 138 million recorded reduction deferred tax assets caused corresponding reduction company’s valuation allowance 138 million extent unrecognized tax benefits recognized time valuation allowance exist recognition 138 million tax benefit would reduce effective tax rate company anticipate amount unrecognized tax benefits december 31 2015 change materially within 12 month period following december 31 2015 reconciliation beginning ending amount unrecognized tax benefits follows thousands company recognizes interest penalties component income tax expense interest penalties years ended december 31 2015 2014 2013 119000 34000 126000 respectively company’s us federal income tax returns tax years subsequent 2009 subject examination internal revenue service state income tax returns subsequent 2008 subject examination state tax authorities company’s foreign tax returns subsequent 2004 subject examination foreign tax authorities net operating losses years statute limitations expired 2008 prior federal 2007 prior state could adjusted event taxing jurisdictions challenge amounts net operating loss carryforwards years note 10leases rental expense amounted 50 million 56 million 51 million years ended december 31 2015 2014 2013 respectively incurred primarily facility leases future annual minimum rental commitments december 31 2015 follows thousands note 11pension postretirement benefit plans foreign plan compensationretirement benefits subtopic fasb asc requires balance sheet recognition total funded underfunded status pension postretirement benefit plans guidance actuarial gains losses prior service costs credits remaining transition assets obligations recognized previous accounting standards must recognized component accumulated comprehensive income within stockholders’ equity net tax effects amortized component net periodic benefit cost income company’s plan regulated swiss government funded employees company pension benefit based compensation length service credited investment earnings plan guarantees minimum rate return well minimum annuity purchase rates company’s funding policy respect pension plan contribute amount required swiss law using required percentage applied employee’s compensation addition participating employees required contribute pension plan company made pension contributions 640000 720000 722000 2015 2014 2013 respectively 45 total contributions plan year made employees plan measurement date december 31 company rights assets plan right offset liabilities plan net pension asset decreased 74 million 58 million year ended december 31 2015 decrease plan assets primarily due significant number employee departures corresponding benefits paid account balances combined decreased return plan assets increase benefit obligation affected actuarial loss resulting assumption changes made reflect current market conditions well plan costs increase partially offset amount benefits paid accumulated benefit obligation approximately 313 million december 31 2015 2014 plan fully funded continues surplus condition following table reflects changes pension benefit obligation plan assets years ended december 31 2015 2014 thousands amounts recognized consolidated balance sheets consist thousands components net periodic pension cost amounts recognized comprehensive income loss taxes follows thousands assumptions used determine benefit obligation net periodic pension cost follows pension plan’s overall strategy investment policy managed board plan overall longterm rate based target asset allocation 14 swiss bonds 10 nonswiss hedged bonds 10 swiss equities 15 global equities 40 real estate 5 emerging market equities 4 alternative investments 2 cash shortterm investments 2016 expected future longterm rate return estimated 300 based historical asset rates returns asset allocation classification 021 rate swiss bonds 0 hedged foreign bonds 254 real estate 352 swiss equities 521 unhedged global equities 521 unhedged emerging markets 123 alternative investments 023 cash 2015 expected longterm rate return 375 based historical asset rates return 076 swiss bonds 531 unhedged emerging markets 104 hedged foreign bonds 369 real property 410 swiss equities 545 unhedged global equities 233 alternative investments 132 cash following benefit payments reflect expected future service appropriate expected paid thousands company expects contribute approximately 550000 pension plan 2016 investment objectives primary investment goal pension plan achieve total annualized return 300 longterm investments evaluated compared benchmarked plans similar investment strategies plan also attempts minimize risk single security class securities disproportionate impact plan guideline assets diversified asset classes equity fixed incomebonds alternative investments fair values plans assets december 31 2015 2014 asset category follows thousands fair value assets level 1 observable inputs quoted prices active markets identical assets level 2 inputs quoted prices observable asset liability either directly indirectly include quoted prices similar assets liabilities active markets quoted prices identical similar assets liabilities markets active level 3 unobservable inputs reflect reporting entity’s assumptions financial instruments significant level 3 inputs following table summarizes activity year investment type 1 total unrealized gains reported component pension adjustment accumulated comprehensive income consolidated statement stockholders’ equity us plan company postretirement benefit plan covering employees united states substantially us employees eligible elect coverage contributory employee savings plan provides company matching contributions based onehalf employee contributions certain plan limits company’s matching contributions plan totaled 637000 547000 506000 years ended december 31 2015 2014 2013 respectively note 12legal proceedings although company expects incur significant legal fees connection legal proceedings company unable estimate amount legal fees therefore fees expensed period legal services performed fcpa matter january 2011 company reached settlements us securities exchange commission sec us department justice “doj” respect charges asserted sec doj relating antibribery books records internal controls disclosure provisions us foreign corrupt practices act “fcpa” securities laws violations company paid monetary penalties settlements installments monetary penalties paid full january 2013 respect doj charges judgment dismissal issued us district court southern district california march 28 2014 october 15 2013 company received informal notice doj indictment former senior vice president general manager swiss subsidiary filed united states district court southern district california indictment individual former officer company foresee penalties fines could assessed corporate entity matter however company may required throughout term action advance legal fees costs incurred individual defendant incur financial obligations company maintains directors’ officers’ insurance policies intended cover legal expenses related indemnification obligations situations company cannot determine extent insurance policy cover legal fees matter accordingly legal fees may incurred company defending former officer could material impact financial condition results operation swiss bribery matter august 2013 companys swiss subsidiary served search warrant swiss federal prosecutor’s office end search swiss federal prosecutor presented company listing materials gathered representatives removed materials premises keeping prosecutor’s office based upon company’s exposure case company believes action related similar facts circumstances fcpa action previously settled sec doj initial discussions swiss prosecutor acknowledged existence companys deferred prosecution agreement doj cooperation efforts thereunder positive impact discussions going forward additionally activities previously reviewed conjunction sec doj matters fcpa company reason believe additional facts circumstances review swiss authorities late march 2015 company informed swiss prosecutor intended inform parties april 2015 whether prosecutor’s office bring charges abandon proceedings however date swiss prosecutor issued formal decision stage investigation company currently unable determine extent subject fines accordance swiss bribery laws additional expenses incurred order defend matter company cannot determine whether reasonable possibility loss incurred estimate range potential loss accordingly company accrued amount potential loss associated action adverse result could material adverse impact financial condition results operation government investigations early 2013 company voluntarily provided information united states attorneys office southern district california sec related announcement intended file restated financial statements fiscal years 2011 2012 june 11 2015 company received subpoena sec requesting certain documents related among things facts circumstances surrounding restated financial statements company providing information sec response subpoena continues cooperate sec stage company cannot predict ultimate outcome investigation whether result loss accordingly company accrued amount potential loss associated action adverse result could material adverse impact financial condition results operation federal shareholder derivative matter april 23 2013 may 7 2013 two shareholder derivative actions filed united states district court southern district california entitled kienzle v schramm et al case 13cv0966 sd cal filed april 23 2013 agrawal v cortes et al case 13cv1084 sd cal filed may 7 2013 complaints named defendants certain companys current former officers directors named company nominal defendant complaints alleged individual defendants caused allowed company issue false misleading statements financial condition operations management internal controls falsely represented maintained adequate controls complaints asserted causes action breach fiduciary duty abuse control gross mismanagement waste corporate assets unjust enrichment lawsuits sought unspecified damages order directing company take necessary actions reform improve corporate governance internal procedures restitution disgorgement profits benefits compensation attorneys experts fees costs expenses court issued order consolidating two actions october 30 2013 heading maxwell technologies inc derivative litigation september 19 2014 parties entered memorandum understanding concerning settlement matter related certain corporate governance reforms implemented andor maintained company december 10 2014 parties signed stipulation settlement march 16 2015 court granted final approval settlement dismissed action july 13 2015 court issued order establishing fee award 11 million paid plaintiffs exchange benefit bestowed upon company due corporate governance reforms august 10 2015 company’s insurance carrier paid amount full state shareholder derivative matter april 11 2013 april 18 2013 two shareholder derivative actions filed california superior court county san diego entitled warsh v schramm et al case 37201300043884 san diego sup ct filed april 11 2013 neville v cortes et al case 37201300044911cubtctl san diego sup ct filed april 18 2013 complaints named defendants certain companys current former officers directors well former auditor mcgladrey llp company named nominal defendant complaints alleged individual defendants made caused company make false andor misleading statements regarding financial condition failed disclose material adverse facts business operations prospects complaints asserted causes action breaches fiduciary duty disseminating false misleading information failing maintain internal controls failing properly oversee manage company well unjust enrichment abuse control gross mismanagement professional negligence accounting malpractice aiding abetting breaches fiduciary duty lawsuits sought unspecified damages order directing company take necessary actions reform improve corporate governance internal procedures restitution disgorgement profits benefits compensation attorneys experts fees costs expenses may 7 2013 court consolidated two actions july 2 2013 company filed motion stay actions pending resolution federal derivative actions state court granted november 1 2013 result settlement federal derivative action parties filed joint stipulation dismiss matter may 13 2015 court signed order dismissing matter prejudice deadline appeal order lapsed august 24 2015 shareholder inspection letter april 9 2013 stephen neville purported shareholder company sent letter company seeking inspect books records pursuant california corporations code section 1601 demand sought inspection documents related companys march 7 2013 announcement would restating previouslyissued financial statements 2011 2012 board minutes committee materials documents related board management discussions regarding revenue recognition january 1 2011 present pursuant stipulation settlement federal shareholder derivative matter following settlement federal derivative action parties filed joint stipulation dismiss matter may 12 2015 court signed order dismissing matter prejudice deadline appeal order lapsed august 24 2015 note 13 restructuring exit costs year ended december 31 2015 company initiated restructuring plan consolidate us manufacturing operations reduce headcount operating expenses order align company’s cost structure current business forecast improve operational efficiency plan also includes potential divestiture product line connection restructuring plan company expects incur total restructuring charges 26 million 33 million anticipated charges include approximately 12 million 19 million facilities costs related consolidation manufacturing operations 13 million employee severance costs 125000 relocation costs company also expects incur 560000 accelerated equipment depreciation expense 16 million capital expenditures related restructuring upon completion plan anticipated substantially completed end first quarter 2016 total cash expenditures related restructuring activities expected approximately 14 million year ended december 31 2015 company paid 10 million restructuring expenses company accounts charges resulting restructuring exit activities accordance asc topic 420 exit disposal cost obligations “asc 420” asc topic 712 compensationnonretirement postemployment benefits employee termination benefits paid accordance ongoing employee termination benefit arrangement june 2015 company ceased use approximately 60000 square feet peoria az manufacturing facility determined leased space would future economic benefit company based current business forecast result june 2015 company recorded liability future rent obligation associated space net estimated sublease income accordance asc topic 420 liability recorded related exit leased space 12 million tax component total expected restructuring charge restructuring charges year ended december 31 2015 include 13 million employee severance costs work force reductions amount includes planned severance payments paid consideration past employee services company’s ongoing employee termination benefit arrangement probable incurrence estimable december 31 2015 year ended december 31 2015 company recorded total charges related restructuring plan 25 million within restructuring exit costs recorded 434000 accelerated depreciation expense within “cost revenue” consolidated statements operations december 31 2015 company 294000 liability associated employee severance recorded “accrued employee compensation” 231000 lease obligation costs recorded within “other current liabilities” 812000 lease obligation costs recorded within long term liabilities” consolidated balance sheet following table summarizes restructuring exit costs year ended december 31 2015 thousands note 14unaudited quarterly financial information includes noncash expense stockbased compensation 839000 b includes restructuring costs 23 million noncash deferred tax expense 21 million connection probable repatriation portion unremitted earnings foreign subsidiary noncash expense stockbased compensation 10 million c includes noncash expense stockbased compensation 11 million includes noncash expense stockbased compensation 10 million e includes noncash expense stockbased compensation 755000 f includes noncash expense stockbased compensation 12 million g includes noncash expense stockbased compensation 10 million h includes noncash deferred tax expense 16 million connection probable repatriation portion unremitted earnings foreign subsidiary noncash expense stockbased compensation 10 million schedule ii valuation qualifying accounts thousands item 9item 8 financial statements supplementary data consolidated financial statements notes thereto appear pages 51 85 annual report form 10k maxwell technologies inc subsidiaries index consolidated financial statements report independent registered public accounting firm board directors stockholders maxwell technologies inc audited accompanying consolidated balance sheets maxwell technologies inc subsidiaries december 31 2011 2010 related consolidated statements operations stockholders’ equity comprehensive income loss cash flows three years period ended december 31 2011 audits also included financial statement schedule maxwell technologies inc listed item 15a financial statements financial statement schedule responsibility company’s management responsibility express opinion financial statements schedule based audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion consolidated financial statements referred present fairly material respects financial position maxwell technologies inc subsidiaries december 31 2011 2010 results operations cash flows three years period ended december 31 2011 conformity us generally accepted accounting principles also opinion related financial statement schedule considered relation basic consolidated financial statements taken whole presents fairly material respects information set forth therein also audited accordance standards public company accounting oversight board united states maxwell technologies inc’s subsidiaries’ internal control financial reporting december 31 2011 based criteria established internal controlintegrated framework issued committee sponsoring organizations treadway commission report dated february 16 2012 expressed unqualified opinion effectiveness maxwell technologies inc’s internal control financial reporting mcgladrey pullen llp san diego california february 16 2012 maxwell technologies inc subsidiaries consolidated balance sheets thousands except per share data accompanying notes integral part consolidated financial statements maxwell technologies inc subsidiaries consolidated statements operations thousands except per share data accompanying notes integral part consolidated financial statements maxwell technologies inc subsidiaries consolidated statements stockholders’ equity comprehensive income loss thousands accompanying notes integral part consolidated financial statements maxwell technologies inc subsidiaries consolidated statements cash flows thousands accompanying notes integral part consolidated financial statements maxwell technologies inc subsidiaries notes consolidated financial statements unless context otherwise requires references “maxwell” “company” “we” “us” “our” refer maxwell technologies inc subsidiaries references “maxwell sa” refer swiss subsidiary maxwell technologies sa references “purepulse” refer nonoperating subsidiary purepulse technologies inc note 1description business summary significant accounting policies description business maxwell technologies inc delaware corporation originally incorporated 1965 name maxwell laboratories inc 1983 company completed initial public offering 1996 changed name maxwell technologies inc company headquartered san diego california two manufacturing locations san diego california rossens switzerland process opening manufacturing facility peoria arizona addition company two contract manufacturers located china maxwell operates one operating segment called high reliability comprised three product lines • ultracapacitors primary focus ultracapacitors energy storage devices possess unique combination high power density extremely long operational life ability charge discharge rapidly ultracapacitor cells multicell packs modules provide highly reliable energy storage power delivery solutions applications multiple industries including transportation automotive information technology renewable energy industrial electronics • highvoltage capacitors condis® highvoltage capacitors extremely robust devices designed manufactured perform reliably decades climates products include grading coupling capacitors capacitive voltage dividers used ensure safety reliability electric utility infrastructure applications involving transport distribution measurement highvoltage electrical energy • radiationhardened microelectronic products radiationhardened microelectronic products include highperformance highdensity power modules memory modules single board computers incorporate proprietary radpak® packaging shielding technology novel architectures enable withstand environmental radiation effects perform reliably space company’s products designed manufactured perform reliably life products systems integrated company achieves high reliability application proprietary technologies rigorously controlled design development manufacturing test processes financial statement presentation accompanying consolidated financial statements include accounts maxwell technologies inc subsidiaries prepared accordance accounting principles generally accepted united states “us gaap” intercompany transactions account balances eliminated consolidation liquidity december 31 2011 company approximately 293 million cash equivalents addition december 2011 obtained line credit borrow 275 million 15 million line credit available support increases working capital 125 million available provide long term financing capital expenditures future may supplement sources cash issuing debt equity april 2011 filed shelf registration statement form s3 sec time sell aggregate 125 million common stock warrants debt securities january 2011 company reached settlements sec us department justice “doj” respect charges asserted sec doj relating antibribery books records internal controls disclosure provisions us foreign corrupt practices act “fcpa” securities law violations terms settlement sec company pay total 64 million profit disgorgement prejudgment interest two installments 32 million paid first quarters 2011 2012 terms settlement doj company pay total 80 million penalties three installments 35 million paid first quarter 2011 23 million paid first quarter 2012 23 million payable first quarter 2013 based company’s assessment current longterm obligations management believes adequate resources fund operations obligations become due capital equipment expenditures least next twelve months reclassifications certain prior period amounts consolidated statements operations reclassified conform current period presentation reclassifications impact reported net loss material impact presentation overall financial statements use estimates preparation financial statements conformity accounting principles generally accepted united states america requires management make estimates assumptions affect reported amounts related disclosures estimates include limited assessing collectability accounts receivable applied unapplied production costs production capacities usage recoverability inventories longlived assets deferred income taxes incurrence warranty obligations stockbased compensation expense impairment goodwill intangible assets estimation cost complete certain projects probability performance criteria restricted stock awards met fair value warrants accruals estimated losses legal matters revenue recognition revenue derived primarily sale manufactured products directly customers product revenue recognized according guidelines securities exchange commission “sec” staff accounting bulletin “sab” numbers 101 revenue recognition financial statements 104 revenue recognition following criteria met 1 persuasive evidence arrangement exists upon contract signing receipt authorized purchase order customer 2 title passes customer either shipment company’s facilities receipt customer facility depending shipping terms 3 customer payment deemed fixed determinable free contingencies significant uncertainties 4 collectability reasonably assured volume discount offered revenue recognized lowest price customer method consistently applied period right return revenue generated certain longterm fixed price contracts recognized either percentage completion basis milestone basis depending method management determines best reflects progress performance contract milestone method revenue recognized contractual consideration contingent upon achievement milestone entirety revenue period milestone achieved milestone determined substantive percentage completion basis revenue measured percentage cost incurred date estimated costs contract required constructiontype productiontype contracts subtopic financial accounting standards board accounting standards codification “fasb asc” limited funding prime contractor provisions estimated losses incomplete contracts made period losses determined cash equivalents company invests excess cash debt instruments us government agencies bank certificates deposit commercial paper highquality corporate issuers highly liquid instruments original maturity three months less purchase considered cash equivalents restricted cash december 31 2010 company’s convertible debenture agreement required company maintain minimum cash balance least 80 million amount classified restricted cash december 31 2010 february 2011 holder company’s convertible debentures elected convert remaining principal balance convertible debentures shares company’s common stock result conversion restricted cash balance 80 million released accounts receivable allowance doubtful accounts trade receivables stated gross invoiced amount less allowance uncollectible accounts allowance doubtful accounts reflects management’s best estimate probable losses inherent accounts receivable balance management determines allowance doubtful accounts based known troubled accounts historical experience currently available evidence inventories stated lower cost firstin firstout basis market finished goods workinprocess inventory values include cost raw materials labor manufacturing overhead inventory written market value establishes new cost basis value subsequently increased based upon changes underlying facts circumstances company makes adjustments reduce cost inventory net realizable value required estimated excess obsolete inventories factors influencing adjustments include inventories onhand compared historical estimated future sales existing new products assumptions likelihood obsolescence unabsorbed underabsorbed costs treated expense period incurred property equipment property equipment carried cost depreciated using straightline method depreciation provided estimated useful lives related assets three ten years leasehold improvements amortized shorter estimated useful lives terms lease leasehold improvements funded landlord recorded assets deferred liabilities amortized lease term december 31 2011 2010 company 37 million 745000 respectively unamortized leasehold improvements funded landlords company related amount deferred rent 21 million 871000 respectively included accrued liabilities longterm liabilities december 31 2011 2010 goodwill represents excess cost acquired business net fair value assigned assets liabilities amortized instead goodwill assessed impairment intangibles goodwill topic fasb asc company established december 31 annual impairment test date company first makes qualitative assessment whether goodwill impaired likely goodwill impaired company performs twostep quantitative impairment analysis determine goodwill impaired company may also determine skip qualitative assessment year move directly quantitative test impairments goodwill reported years ended december 31 2011 2010 2009 longlived assets intangible assets property equipment intangible assets reviewed impairment whenever events changes circumstances indicate carrying value assets may recoverable company determines carrying value asset recoverable permanent impairment charge recorded amount carrying value longlived intangible asset exceeds fair value intangible assets finite lives amortized straightline basis useful lives ten thirteen years 2010 company recorded impairment property equipment 880000 reduce carrying value equipment estimated fair value impairment charge related reclassification assets previously classified heldforsale heldandused fourth quarter 2010 impairments property equipment intangible assets recorded years ended december 31 2011 2009 warranty obligation company provides product warranties conjunction certain product sales majority company’s warranties one two years normal course business company accrues estimated warranty time sale based historical warranty experience plus known expected changes warranty exposure income taxes deferred income taxes provided liability method accordance income taxes topic fasb asc whereby deferred tax assets recognized deductible temporary differences deferred tax liabilities recognized taxable temporary differences method deferred income taxes recorded reflect tax consequences future years temporary differences tax basis assets liabilities reported amounts period end likely portion deferred tax asset realized valuation allowance recognized guidance also provides criteria recognition measurement presentation disclosures uncertain tax positions tax benefit uncertain tax position may recognized “more likely not” position sustainable based solely technical merits concentration credit risk company maintains cash balances various financial institutions primarily california switzerland california cash balances commonly exceed 250000 federal deposit insurance corporation insurance limit switzerland banks company cash deposits either governmentowned case cash deposited nongovernment banks deposits insured 100000 swiss francs company experienced losses accounts management believes company exposed significant credit risk respect cash equivalents financial instruments subject company potential concentrations credit risk consist principally company’s accounts receivable company’s accounts receivable result product sales customers various industries various geographical areas domestic foreign company performs credit evaluations customers generally requires collateral sales single customer amounting 10 total revenue years ended december 31 2011 2010 one customer accounted 10 total revenue 2009 addition one customer accounted 12 total accounts receivable december 31 2011 research development expense research development expenditures expensed period incurred thirdparty funding research development expense costsharing arrangements recorded offset research development expense period expenses incurred advertising expense advertising costs expensed period incurred advertising expense 287000 256000 52000 years ended december 31 2011 2010 2009 respectively shipping handling expense company recognizes shipping handling costs component cost revenue total shipping handling expense included cost revenue 29 million 13 million 878000 years ended december 31 2011 2010 2009 respectively patent defense costs company capitalizes patent defense costs additional cost patents successful outcome patent defense case probable company ultimately unsuccessful costs would charged expense legal expenses associated previous patent infringement lawsuit nesscap capitalized amortized remaining life patents february 2009 company entered settlement agreement nesscap whereby maxwell nesscap agreed drop pending claims entered ten year worldwide cross license company’s patents part settlement agreement nesscap must pay 1 million maxwell annual installments 200000 2013 2010 nesscap posted letter credit remaining settlement payments owed company accordance terms settlement case company capitalized patent defense costs additional cost patents full settlement amount 1 million netted capitalized patent defense costs net amount amortized remaining lives patents december 31 2011 unamortized patent defense costs 681000 classified intangible assets consolidated balance sheet foreign currencies company’s primary foreign currency exposure related subsidiary switzerland euro local currency swiss franc revenue operating expenses local currency loans changes currency exchange rates impact reported us dollar amount revenue expenses debt functional currency swiss subsidiary swiss franc assets liabilities swiss subsidiary translated monthend exchange rates revenues expenses gains losses translated rates exchange approximate rate effect time transaction translation adjustments resulting process presented separately component accumulated comprehensive income loss within stockholders’ equity consolidated balance sheets foreign currency transaction gains losses reported cost revenue selling general administrative expenses consolidated statements operations foreign currency derivative instruments part risk management strategy company uses forward contracts hedge certain foreign currency exposures maxwell’s objective offset gains losses resulting exposures opposing gains losses forward contracts thereby reducing volatility earnings created foreign currency exposures accordance derivatives hedging topic fasb asc fair values forward contracts estimated based quoted market prices forward contracts recorded “prepaid expenses current assets” “accounts payable accrued liabilities” consolidated balance sheets fair value gains losses recognized contracts recorded “cost revenue” “selling general administrative” expense consolidated statements operations accumulated comprehensive income loss comprehensive income loss represents changes equity period nonowner sources includes net loss foreign currency translation adjustments pension adjustments unrealized gains losses investments marketable securities net related tax effect accumulated comprehensive income consists following thousands net income loss per share accordance earnings per share topic fasb asc basic net income loss per share calculated using weighted average number common shares outstanding period diluted net income per share includes impact additional common shares would outstanding dilutive potential common shares issued potentially dilutive securities considered calculation diluted net loss per share inclusion would antidilutive following table sets forth computation basic diluted net income loss per share thousands except per share data following table summarizes instruments may convertible common shares included denominator used diluted net loss per share calculation would antidilutive thousands stockbased compensation company’s primary types stockbased compensation awards include stock options restricted stock awards restricted stock units employee stock purchase plan company records compensation expense stockbased awards accordance criteria set forth stock compensation subtopic fasb asc guidance fair value stock option estimated date grant using option pricing model meets certain requirements company uses blackscholes option pricing model estimate fair value stock options determination fair value stock options utilizing blackscholes model affected company’s stock price number assumptions including expected volatility expected life riskfree interest rate expected dividends fair value restricted stock restricted stock units based closing market price company’s common stock date grant addition restricted stock awards performancebased vesting criteria company estimates probability achievement performance criteria recognize compensation expense related awards expected vest sharebased compensation expense recognized consolidated statement operations based stock options restricted stock ultimately expected vest guidance requires forfeitures estimated time grant revised necessary subsequent periods cumulative catch adjustment actual forfeitures differ estimates pending accounting pronouncements june 2011 financial accounting standards board “fasb” issued accounting standards update 201105 comprehensive income topic 220 presentation comprehensive income amends current comprehensive income guidance accounting update eliminates option present components comprehensive income loss part statement shareholders’ equity instead company must report comprehensive income loss either single continuous statement comprehensive income loss contains two sections net income loss comprehensive income loss two separate consecutive statements december 2011 fasb indefinitely deferred specific requirement present items reclassified accumulated comprehensive income net income separately respective components net income comprehensive income new guidance deferral effective fiscal years interim periods beginning december 15 2011 company expect adoption standard update impact financial position results operations requires change format presentation may 2011 fasb issued accounting standards update 201104 fair value measurement topic 820 amendments achieve common fair value measurement disclosure requirements us gaap ifrss new guidance results consistent definition fair value common requirements measurement disclosure fair value us gaap international financial reporting standards many amendments us gaap expected significant effect practice new guidance changes fair value measurement principles disclosure requirements new guidance effective fiscal years interim periods beginning december 15 2011 company expect adoption standard update significant impact financial position results operations december 2011 fasb issued accounting standards update 201111 balance sheet topic 210 disclosures offsetting assets liabilities requires companies disclose information financial instruments offset related arrangements enable users financial statements understand effect arrangements financial position companies required provide net offset amounts gross information notes financial statements relevant assets liabilities offset standard effective fiscal years interim periods within years beginning january 1 2013 company expect adoption standard update impact financial position results operations requires additional disclosure company’s financial statements business enterprise information company operates one operating segment high reliability according disclosures segments enterprise related information topic fasb asc establishes standards way public business enterprises report information operating segments annual consolidated financial statements company’s chief operating decision maker regularly review discrete financial information consolidated level revenues product line geographic area presented thousands 1 revenue external customers located countries included “all countries” individually compromise 10 total revenues years presented longlived assets geographic location follows thousands note 2balance sheet details thousands note 3goodwill intangibles company reviews goodwill impairment annually according intangiblesgoodwill topic fasb asc company makes qualitative evaluation likelihood goodwill impairment concludes likely carrying amount reporting unit greater fair value required perform first step twostep quantitative impairment test otherwise performing twostep impairment test unnecessary first step consists estimating fair value comparing estimated fair value carrying value reporting unit fair value less carrying value second step performed compute amount impairment determining implied fair value goodwill implied fair value goodwill residual fair value derived deducting fair value reporting unit’s assets liabilities estimated total fair value calculated step one impairment charge would represent excess carrying amount reporting unit’s goodwill implied fair value goodwill guidance requires goodwill tested annually time every year event occurs circumstances change reasonably possible impairment may exist company selected december 31 annual testing date result company’s annual assessments december 31 2011 2010 2009 impairment indicated change carrying amount goodwill 2010 2011 follows thousands intangible assets reviewed impairment whenever events changes circumstances indicate carrying value assets may recoverable company determines carrying value asset recoverable permanent impairment charge recorded amount carrying value intangible asset exceeds fair value composition intangible assets subject amortization december 31 2011 2010 follows thousands amortization expense intangible assets 559000 535000 643000 years ended december 31 2011 2010 2009 respectively estimated amortization next five years ended december 31 follows thousands actual amortization expense reported future periods could differ estimates result intangible asset acquisitions foreign currency translation adjustments impairments factors note 4convertible debentures december 20 2005 company issued 25 million aggregate principal amount senior subordinated convertible debentures “debentures” due payable quarterly installments 28 million commenced december 2008 however holder election could defer quarterly payment one time 24 month period holder elected defer quarterly installments outstanding principal debentures december 31 2010 83 million december 31 2010 interest rate debentures 1375 accrued interest 29000 issuance date debentures convertible holder time 1315789 common shares company also issued 394737 warrants connection issuance debentures warrants expiration date december 20 2010 exercise price 1900 issuance date exercise price number convertible shares warrants subject adjustment upon certain events sale equity securities company issuance date company sold 61 million shares various offerings price 1900 adjusted conversion warrant price 1622 change warrant price increased number warrants 462461 december 2010 holders warrants exercised right purchase 462461 shares common stock resulted settlement stock warrants liability december 31 2010 debentures convertible 513845 shares february 2011 holder debentures converted remaining 83 million principal balance 514086 shares company’s common stock conversion price 1621 per share conversion date common stock fair value 93 million based closing market price conversion resulted gain 10 million included “gain loss embedded derivatives warrants” consolidated statement operations interest paid cash principal converted shares common stock follows thousands conversion remaining principal balance debentures february 2011 principal balance convertible holder time common shares addition eighteen months issue date company could required specified amount principal debentures converted certain conditions satisfied period 20 consecutive trading days determine fair value forced conversion company applied z factor theoretical measurement probability occurrence probability used december 31 2010 215 forced conversion 50 conversion option 135 original exercise price 47 forced conversion remaining conversion option 175 original exercise price company accounted conversion options debentures associated warrants derivative liabilities accordance derivatives hedging topic fasb asc discount issuance date attributable aggregate fair value conversion options warrants issuance costs totaling 92 million amortized using effective interest method term debentures remaining unamortized discount 47000 december 31 2010 year ended december 31 2011 6000 discount prepaid fees amortized upon conversion remaining principal balance debentures shares company’s common stock february 2011 remaining unamortized discount written included “amortization debt discount prepaid debt costs” consolidated statement operations change fair value revaluation conversion rights warrant liabilities represents difference fair value end current period conversion date fair value beginning current period using value calculated blackscholes pricing model net fair value liability holder’s maxwell’s conversion rights december 31 2010 2009 liability 21 million 30 million respectively included “longterm debt excluding current portion” consolidated balance sheet effect fair market value adjustment 78000 23 million gain years ended december 31 2011 2010 respectively 48 million loss year ended december 31 2009 recorded “gain loss embedded derivatives warrants” consolidated statements operations fair value embedded conversion options estimated december 31 2010 using blackscholes valuation model following assumptions long debentures outstanding company required maintain minimum cash balance 80 million amount classified restricted cash december 31 2010 cash restriction released february 2011 outstanding principal amount convertible debentures converted shares company’s common stock note 5fair value measurement company records certain financial instruments fair value accordance fair value measurements disclosures topic fasb asc december 31 2011 financial instruments topic applied financial instruments foreign currency forward contracts valued using quoted market prices december 31 2011 fair value foreign currency forward contracts 704000 liability recorded “accounts payable accrued liabilities” consolidated balance sheet fair value derivative instruments measured using quoted market prices active markets identical instruments level 1 input fair value hierarchy fair value measurements disclosures topic fasb asc carrying value shortterm longterm borrowings approximates fair value relative short maturity instruments interest rates company could currently obtain convertible debentures issued december 20 2005 evaluated determined conventional convertible debentures therefore certain terms provisions including liquidating damages associated registration rights agreement embedded conversion features bifurcated accounted derivative liability instruments settled february 2011 stock warrants issued december 20 2005 conjunction convertible debentures also evaluated determined derivative instrument therefore classified liability balance sheet exercised december 2010 accounting guidance requires conversion features warrants recorded fair value reporting period changes fair value recorded consolidated statement operations fair values embedded conversion options stock warrants based blackscholes fair value calculations december 2010 stock warrants exercised february 2011 remaining 83 million principal balance converted shares company’s common stock therefore fair value measurement made december 31 2011 financial instruments significant level 3 inputs following table summarizes activity period investment type thousands refer note 4convertible debentures valuation model unobservable data used calculate fair value conversion features convertible debentures warrants issued company note 6credit facility december 2011 company entered credit agreement whereby company obtained secured credit facility form revolving line credit maximum 150 million “revolving line credit” equipment term loan maximum 125 million “equipment term loan” together “credit facility” general amounts borrowed credit facility secured lien company’s assets intellectual property addition credit agreement company required pledge 65 equity interests swiss subsidiary company also agreed encumber intellectual property agreement also contains certain restrictive covenants limit company’s ability amongst things incur additional indebtedness guarantees ii create liens encumbrances property iii enter merger similar transaction iiii invest another entity iv declare pay dividends v invest fixed assets excess defined dollar amount repayment amounts owed pursuant credit facility may accelerated event company violation representations warranties covenants made credit agreement including certain financial covenants financial covenants company must meet quarterly basis term credit agreement include minimum liquidity ratio minimum quick ratio quarterly ebitda net income targets uncertain whether company able meet financial covenants term credit agreement company fails comply terms conditions credit agreement credit facility may withdrawn bank could require immediate repayment outstanding obligation revolving line credit company may use borrowings revolving line credit general working capital corporate purposes amounts borrowed revolving line credit bear interest payable monthly either bank’s prime rate ii libor plus 225 company’s option subject certain limitations company must also pay unused commitment fee payable quarterly equal 025 per annum average daily unused amount revolving line credit revolving line credit matures december 5 2013 may prepaid whole part time equipment term loan company may use borrowings equipment term loan finance 80 eligible equipment purchases made april 1 2011 april 30 2012 amounts borrowed equipment term loan bear interest either bank’s prime rate ii libor plus 225 company’s option subject certain limitations interest equipment term loan payable monthly april 30 2012 time principal interest owned shall repaid 36 equal monthly installments equipment term loan fully repaid maturity date april 30 2015 may prepaid whole part time december 31 2011 amounts outstanding either revolving line credit equipment term loan december 31 2011 company compliance terms credit agreement therefore full amount credit facility available note 7shortterm longterm borrowings shortterm borrowings maxwell’s swiss subsidiary maxwell sa 30 million swiss francdenominated approximately 32 million december 31 2011 shortterm loan agreement swiss bank renews semiannually bears interest 225 borrowings shortterm loan agreement unsecured december 31 2011 2010 full amount loan drawn maxwell sa 20 million swiss francdenominated approximately 21 million december 31 2011 credit agreement swiss bank renews annually bears interest 25 borrowings credit agreement unsecured december 31 2011 2010 full amount available credit line drawn maxwell sa also 10 million swiss francdenominated approximately 11 million december 31 2011 credit agreement another swiss bank available balance line withdrawn reduced bank time december 31 2011 2010 amounts drawn credit line interest rates applicable draws line determined time draw maxwell sa entered lending agreement acquisition manufacturing equipment amount 15 million swiss francs acquisition equipment completed agreement converted 48 monthly payments 34302 swiss francs interest rate 222 december 31 2011 2010 balance obligation 0 210000 respectively final payment made second quarter 2011 longterm borrowings company various financing agreements vehicles agreements five year repayment period interest rates ranging 49 70 december 31 2011 2010 164000 177000 respectively outstanding agreements following table summarizes debt outstanding thousands contractually scheduled payments due borrowings subsequent december 31 2011 follows thousands february 2011 remaining principal balance convertible debentures 83 million converted shares company’s common stock accordingly balance classified longterm december 31 2010 note 8foreign currency derivative instruments maxwell uses forward contracts hedge certain monetary assets liabilities primarily receivables payables denominated foreign currency change fair value instruments represents natural hedge gains losses offset changes underlying fair value monetary assets liabilities due movements currency exchange rates contracts generally expire one month contracts considered economic hedges designated hedges derivatives hedging topic fasb asc therefore change fair value instruments recognized currently consolidated statement operations net gains losses foreign currency forward contracts included cost revenue selling general administrative expense follows thousands december 31 2011 total notional amount foreign currency forward contracts designated hedges 285 million fair value derivatives 704000 liability december 31 2011 contracts entered close proximity year end spot rates approximating year end exchange rates forward contracts outstanding december 31 2011 mature february 2 2012 additional information refer note 5fair value measurement net gains losses foreign currency derivative contracts partially offset net gains losses underlying monetary assets liabilities foreign currency gains losses underlying monetary assets liabilities included cost revenue selling general administrative expense thousands note 9stock activity stock plans 2011 shelf registration statement april 2011 company filed shelf registration statement form s3 securities exchange commission time sell aggregate 125 million common stock warrants debt securities august 19 2011 registration statement declared effective sec allow company access capital markets three year period following effective date december 31 2011 instruments issued registration statement stock sale equity distribution agreement november 2006 company filed shelf registration statement form s3 securities exchange commission time sell aggregate 125 million company’s common stock warrants debt securities august 8 2008 company entered equity distribution agreement “eda” ubs securities llc “ubs” eda provided company could sell aggregate 15 million company’s common stock time ubs exchange services sales agent company paid ubs commission equal 35 gross sales price shares sold april 2009 company suspended eda program january 2010 shelf registration statement longer effective may 2009 company issued two million shares common stock par value 010 per share public offering underwritten roth capital partners “roth” overallotment option purchase additional 300000 shares exchange services underwriter company paid roth commission 7 gross sales price shares sold year ended december 31 2009 company raised 210 million shelf registration statement eda 210 million consists 186 million cash sale 23 million shares net offering costs 24 million sale 473000 shares eda net offering costs equity incentive plans company two active sharebased compensation plans december 31 2011 2004 employee stock purchase plan “espp” 2005 omnibus equity incentive plan amended “incentive plan” incentive plan incentive stock options nonqualified stock options restricted stock awards restricted stock units granted employees nonemployee directors generally awards vest periods one four years addition equity awards issued senior management vesting award tied company performance conditions company’s policy issue new shares common stock upon exercise stock options granting stock awards employees company’s incentive plan provides equity incentive pool 2750000 shares reserved issuance replenished forfeited shares additionally equity awards forfeited company’s 1995 stock option plan added total shares available issuance incentive plan incentive plan provides accelerated vesting change control stockbased compensation expense recorded consolidated statement operations years ended december 31 2011 2010 2009 22 million 26 million 27 million respectively year ended december 31 2011 tax benefit associated exercise nonqualified stock options restricted stock grants disqualifying dispositions incentive stock options stock issued company’s espp approximately 23 million tax benefit recognized 2011 2010 2009 excess tax benefits realized company stockbased compensation expense recognized consolidated statement operations based awards ultimately expected vest forfeitures estimated time grant revised necessary subsequent periods cumulative catch adjustment actual forfeitures differ estimates stock options first quarter 2011 company ceased granting stock options employees part annual equity incentive award program began granting restricted stock awards employees company may grant stock options future incentive plan fair value stock options estimated date grant using blackscholes valuation model following weightedaverage assumptions dividend yield zero company never paid cash dividends present intention pay cash dividends addition remaining term credit facility scheduled expire april 2015 company permitted declare pay dividends expected term based company’s historical experience previous stock option grants expected volatility based historical volatility company’s stock measured period commensurate expected option term company consider implied volatility due low volume publicly traded stock options riskfree interest rate derived zero coupon rate us treasury instruments terms comparable option’s expected term following table summarizes total aggregate stock option activity period december 31 2010 december 31 2011 number shares exercisable december 31 2011 2010 2009 884959 928380 998097 respectively weighted average exercise prices 1114 1044 987 respectively weightedaverage grant date fair value stock options granted years ended december 31 2010 2009 927 517 per share respectively stock options granted year ended december 31 2011 total intrinsic value options exercised years ended december 31 2011 2010 2009 24 million 23 million 26 million respectively cash proceeds option exercises year ended december 31 2011 23 million december 31 2011 18 million 11 million adjusted estimated forfeitures total unrecognized compensation cost related nonvested stock options cost expected recognized weighted average period 16 years restricted stock awards first quarter 2011 company began granting restricted stock awards employees part annual equity incentive award program replacement stock options historically broadly granted employees generally vesting restricted stock awards contingent upon period service typically four years addition company grants restricted stock awards senior management vesting contingent upon specified company performance conditions historically nonemployee directors company compensated restricted stock awards part annual retainer 2011 nonemployee directors received restricted stock units instead see fair value restricted stock award determined date grant based closing stock price restricted stock awards vesting contingent company performance conditions compensation expense recognized ratably estimate requisite service period based estimated achievement date performance condition less minimum 12month vesting period requisite service period determined based analysis terms conditions grant company uses requisite service period likely occur including likelihood restricted stock award earned initial requisite service period may adjusted changes expected outcomes related performance conditions changes recognized trueup adjustment consolidated statement operations actual forfeitures differ estimate trueup adjustment recorded reflect expense awards ultimately vest following table summarizes restricted stock award activity period december 31 2010 december 31 2011 thousands except per share amounts weighted average grant date fair value restricted stock awards granted years ended december 31 2011 2010 2009 1590 1571 1091 respectively year ended december 31 2011 total grant date fair value servicebased restricted stock awards granted 37 million total grant date fair value performancebased restricted stock awards granted 695000 share awards released years ended december 31 2011 2010 56000 170000 respectively servicebased share awards vested 2011 2010 2009 vest date fair value 10 million 434000 502000 respectively performancebased share awards vested 2011 performancebased share awards vested 2010 2009 vest date fair value 22 million 20 million respectively december 31 2011 34 million unrecognized compensation cost 20 million net estimated forfeitures related nonvested restricted stock awards cost expected recognized weighted average period 26 years restricted stock units 2011 company granted nonemployee directors company restricted stock unit “rsu” awards partial consideration annual retainer compensation addition historically nonemployee directors paid quarterly retainer rsu awards quarterly retainer replaced annual compensation plan first quarter fiscal year nonemployee director company receives rsu award number shares determined dividing 60000 closing price company’s common stock date grant awards vest full one year date grant rsu award granted pursuant retainer program settled shares issued thereunder earliest occur one year anniversary date grant ii 60 days director’s service terminates iii occurrence change control company determines fair value grant date expenses amount requisite service period fair value based closing market price company’s stock date grant total grant date fair value servicebased restricted stock unit awards granted year ended december 31 2011 420000 weighted average grant date fair value restricted stock unit awards granted years ended december 31 2011 2010 2009 1906 1365 1225 respectively december 31 2011 46000 unrecognized compensation cost 38000 net estimated forfeitures related nonvested restricted stock unit awards cost expected recognized weighted average period 01 year employee stock purchase plan 2004 company established 2004 employee stock purchase plan “espp” pursuant espp aggregate number shares common stock may purchased shall exceed five hundred thousand 500000 shares common stock company december 31 2011 company issued total 294210 shares common stock current espp years ended december 31 2011 2010 company issued 44542 44664 shares respectively espp permits substantially employees purchase common stock payroll deductions 85 lower trading price stock beginning end sixmonth offering period commencing january 1 july 1 number shares purchased based participants’ contributions made offering period fair value “look back” option espp shares issued offering period estimated using blackscholes valuation model call put option share price used model 15 discount stock price first day offering period number shares purchased calculated based employee contributions using following weightedaverage assumptions intrinsic value shares company’s stock purchased pursuant espp offering periods within years ended december 31 2011 2010 2009 109000 251000 681000 respectively stockbased compensation expense compensation cost stock options restricted stock restricted stock units espp follows thousands stockbased compensation cost included cost revenue selling general administrative expense research development expense follows thousands share reservations following table summarizes reservation shares issuance upon exercise vesting release sharebased compensation awards december 31 2011 note 10income taxes financial reporting purposes net income loss income taxes includes following components thousands provision benefit income taxes based income loss income taxes follows thousands provision income taxes accompanying consolidated statements operations differs amount calculated applying statutory income tax rate income loss continuing operations income taxes primary components difference follows thousands company established valuation allowance us federal state deferred tax assets due uncertainty surrounding realization assets evidenced cumulative losses operations december 31 2011 management periodically evaluates recoverability deferred tax assets time determined likely deferred assets realizable valuation allowance reduced accordingly recorded tax benefit exception 155 million result additional paid capital discussed company recorded valuation allowance 673 million december 31 2011 reflect estimated amount deferred tax assets may realized company increased valuation allowance 17 million year ended december 31 2011 pursuant internal revenue code sections 382 383 use company’s federal net operating loss credit carryforwards may limited due cumulative change ownership 50 within threeyear period december 31 2011 company federal state net operating loss carryforwards approximately 1646 million 1029 million respectively federal tax loss carryforwards begin expire 2020 state tax loss carryforwards begin expire 2012 excess tax benefits associated exercise nonqualified stock options restricted stock grants disqualifying dispositions incentive stock option stock acquired company’s employee stock purchase plan 2011 2010 amount 33 million 28 million respectively reduce current income taxes payable accordingly included deferred tax asset relating net operating loss “nol” carryforwards included federal state nol carryforwards disclosed footnote tax benefits associated stock option deductions 1998 2005 amount 155 million recorded additional paidin capital realization likely occur consequently valuation allowance recorded entire benefit addition company research development tax credit carryforwards federal state income tax purposes december 31 2011 54 million 49 million respectively federal credits begin expire 2012 unless utilized state credits indefinite life company granted tax holiday switzerland effective january 1 2012 10 years tax holiday conditional upon meeting certain employment investment thresholds impact tax holiday decreased deferred foreign taxes 997000 2011 benefit tax holiday net income per share diluted 04 2011 us foreign withholding taxes recognized excess amount financial reporting tax basis investments foreign subsidiaries essentially permanent duration amount becomes taxable upon repatriation assets subsidiary sale liquidation subsidiary amount unremitted earnings foreign subsidiaries totaled 126 million december 31 2011 determination amount unrecognized deferred income tax liability excess financial reporting basis tax basis investments foreign subsidiaries practicable complexities hypothetical calculation items give rise significant portions deferred tax accounts follows thousands company adopted provisions section 74010 accounting uncertainty income taxes topic fasb asc january 1 2007 total unrecognized benefits december 31 2011 approximately 100 million recorded reduction deferred tax assets caused corresponding reduction company’s valuation allowance 100 million extent unrecognized tax benefits recognized time valuation allowance exist recognition tax benefit would reduce effective tax rate company anticipate amount unrecognized tax benefits december 31 2011 significantly increase decrease within 12 months reconciliation beginning ending amount unrecognized tax benefits follows thousands company recognizes interest penalties component income tax expense interest penalties years ended december 31 2011 2010 37000 14000 respectively year ended december 31 2009 zero company’s us federal income tax returns tax years subsequent 2007 subject examination internal revenue service state income tax returns subsequent 2006 subject examination state tax authorities company’s foreign tax returns subsequent 2001 subject examination foreign tax authorities net operating losses years statute limitations expired 2006 prior federal 2005 prior state could adjusted event taxing jurisdictions challenge amounts net operating loss carryforwards years note 11leases rental expense amounted 31 million 25 million 21 million years ended december 31 2011 2010 2009 respectively incurred primarily facility leases future annual minimum rental commitments december 31 2011 follows thousands note 12pension postretirement benefit plans foreign plan compensationretirement benefits subtopic fasb asc requires balance sheet recognition total funded status pension postretirement benefit plans guidance actuarial gains losses prior service costs credits remaining transition assets obligations recognized previous accounting standards must recognized component accumulated comprehensive income loss within stockholders’ equity net tax effects amortized component net periodic benefit cost company’s plan regulated swiss government funded employees company pension benefit based compensation length service credited investment earnings plan guarantees minimum rate return well minimum annuity purchase rates company’s funding policy respect pension plan contribute amount required swiss law using required percentage applied employee’s compensation addition participating employees required contribute pension plan company made pension contributions 778000 635000 589000 2011 2010 2009 respectively 45 contributions plan made employees plan measurement date december 31 company rights assets plan reported pension asset increased 53 million 64 million year ended december 31 2011 asset increase combination actuarial gain due participant experience actuarial loss due assumption changes higher expected overall asset return rate resulted gain accumulated benefit obligation approximately 252 million 240 million december 31 2011 2010 respectively following table reflects changes pension benefit obligation plan assets amounts recognized consolidated balance sheets years ended december 31 2011 2010 thousands amounts recognized consolidated balance sheets consist components benefit cost income amounts recognized comprehensive income loss income taxes follows thousands assumptions used determine benefit obligation net periodic benefit cost follows pension plan’s overall strategy investment policy managed board plan overall longterm rate based target asset allocation 10 swiss bonds 15 nonswiss bonds 10 unhedged 5 hedged 8 swiss equities 14 global equities 45 real estate 3 alternative investments 5 cash shortterm investments 2012 expected future longterm rate return estimated 425 based historical asset rate returns asset allocation classification 18 rate swiss bonds 20 unhedged foreign bonds 15 hedged foreign bonds 43 real property 56 swiss equities 69 unhedged global equities 46 hedge funds 13 cash 2011 expected longterm rate return 50 based historical asset rates return 19 swiss bonds 29 unhedged foreign bonds 13 hedged foreign bonds 56 real property 76 swiss equities 84 global equities 56 alternative investments 19 cash following benefit payments reflect expected future service appropriate expected paid thousands company expects contribute approximately 669000 pension plan 2012 investment objectives primary investment goal pension plan achieve total annualized return 425 longterm investments evaluated compared benchmarked plans similar investment strategies plan also attempts minimize risk single security class securities disproportionate impact plan guideline assets diversified asset classes equity fixed income real estate alternative investments fair value plans assets december 31 2011 asset category follows fair value assets level 1 observable inputs quoted prices active markets identical assets level 2 inputs quoted prices observable asset liability either directly indirectly include quoted prices similar assets liabilities active markets quoted prices identical similar assets liabilities markets active level 3 unobservable inputs reflect reporting entity’s assumptions investments include real estate owned pension plan stated appraised value obtained independent source plan company real estate investment potential long term investment liquidation processes hedge funds might monthly quarterly annual restraints redemptions may require advance notice redemption financial instruments significant level 3 inputs following table summarizes activity prior year period investment type total unrealized gains reported component pension adjustment accumulated comprehensive income consolidated statement stockholders’ equity us plan company postretirement benefit plans covering employees united states substantially us employees eligible elect coverage contributory employee savings plan provides company matching contributions based onehalf employee contributions certain plan limits company’s matching contributions plan totaled 415000 379000 384000 years ended december 31 2011 2010 2009 respectively note 13related party transactions year ended december 31 2009 company’s swiss subsidiary maxwell sa made payments related party metar machines “metar” commissions certain product sales march 22 2009 montena sa “montena” majority shareholder metar member company’s board directors josé cortes also director montena mr cortes also minority shareholder genturica ltd majority shareholder montena march 22 2009 montena sold interest metar may 14 2009 company terminated agreement metar therefore metar longer related party total expense recognized sales commission year ended december 31 2009 128000 classified selling general administrative expense accompanying consolidated statements operations maxwell sa’s pension plan provided long term loan 700000 swiss francs montena properties sa 100 owned montena stated earlier member company’s board directors josé cortes also director indirect minority stockholder montena loan provided montena properties sa prior mr cortes becoming director maxwell montena loan repaid full march 2011 note 14legal proceedings although company expects incur significant legal costs connection legal proceedings company unable estimate amount legal costs therefore costs expensed period legal services performed customer claim 2005 customer claimed possible defect product produced company’s swiss subsidiary maxwell sa contract third party manufacturer epcos ag resold customer july 2011 company reached agreement principal customer settle claims consideration 18 million euro approximately 23 million december 31 2011 500000 euro approximately 648000 december 31 2011 payable customer front remaining amount 13 million euro approximately 17 million december 31 2011 available customer specified discount future purchases company’s products balance remaining 13 million euro used product discount december 31 2014 payable cash time agreement yet final therefore subject change written agreement parties executed company continuing pursue recovery damages manufacturer defective product time unable ascertain amount recovery anticipated settlement amount 18 million euro approximately 23 million december 31 2011 due company customer fully accrued “accounts payable accrued liabilities” consolidated balance sheet december 31 2011 fcpa matter result publicly traded company us company subject us foreign corrupt practices act “fcpa” prohibits companies making improper payments foreign officials purpose obtaining keeping business beginning 2009 company conducted internal review payments made former independent sales agent china respect sales company’s high voltage capacitor products produced company’s swiss subsidiary january 2011 company reached settlements sec us department justice “doj” respect charges asserted sec doj relating antibribery books records internal controls disclosure provisions fcpa securities law violations company settled civil charges sec agreeing injunction violations fcpa terms settlement sec company agreed pay total 64 million profit disgorgement prejudgment interest two installments 32 million paid first quarters 2011 2012 terms settlement doj company agreed pay total 80 million penalties three installments 35 million paid first quarter 2011 23 million paid first quarter 2012 23 million payable first quarter 2013 part settlement company entered threeyear deferred prosecution agreement “dpa” doj company remains compliance terms dpa conclusion term charges company asserted doj dismissed prejudice terms agreements company periodically report sec doj company’s internal compliance program concerning antibribery december 31 2011 54 million included “accounts payable accrued liabilities” 23 million included “other longterm liabilities” accompanying consolidated balance sheet shareholder derivative suit august 2010 september 2010 two separate shareholder derivative actions filed superior court san diego county california behalf benefit company certain company’s current former officers directors alleging among claims breach fiduciary duty waste corporate assets unjust enrichment october 2010 two actions consolidated march 2011 consolidated amended shareholder derivative complaint filed bringing similar claims previous complaints consolidated amended complaint titled loizides v schramm et al alleged individual defendants failed prevent company violating us foreign corrupt practices act “fcpa” failed maintain internal controls accounting systems compliance fcpa december 15 2011 parties attended mediation wherein conclusion hearing mediator proposed settlement amount 30 million paid plaintiffs’ counsels 27 million paid company’s insurance carrier 290000 paid company addition monetary amount part proposed settlement company would required ensure certain corporate governance measures place enforced february 8 2012 board directors company approved settlement terms agreement subject among things court approval notice shareholders february 9 2012 parties executed stipulation settlement plaintiffs filed motion court approval settlement february 14 2012 court entered order preliminarily approved proposed settlement subject consideration settlement hearing scheduled april 12 2012 likely result dismissal consolidated derivative action prejudice december 31 2011 company accrued liability 30 million based anticipated settlement amount included “accounts payable accrued liabilities” receivable 27 million included “trade accounts receivable” amount payable insurance carrier customer bankruptcy matter january 2011 company attended bankruptcy proceeding previous customer order bid certain intellectual property physical assets auctioned proceeding offer sale presented potential claims held previous customer company potential claims related primarily payments made company prior previous customer filing bankruptcy well potential intellectual property dispute company previous customer january 2011 bankruptcy proceeding company bid 250000 purchase right future claims company stemming rights held previous customer however following auction previous customer essentially declined previous offer settlement company since time interest expedient resolution matter company increased settlement offer 500000 recently parties unable progress settlement discussions matters previous customer’s estate resolved third parties company believes strong legal defenses potential claims related matter believe settlement amount excess 500000 likely company’s current estimate range loss matter 500000 1000000 low end range based company’s outstanding settlement offer high end range based opposing party’s counter offer 871000 represented preference payment claim plus amount intellectual property dispute proposed settlement amount 500000 fully accrued “accounts payable accrued liabilities” consolidated balance sheet december 31 2011 dcis matter 2007 company delivered products two separate customers incorporating company’s products larger systems use agencies us government 2008 one customers reported intermittent failures products delivered company replacement units provided customer march 2010 company contacted agent defense criminal investigative services “dcis” requesting meeting discuss failures occurred company’s products delivered specific customer april 2011 dcis agent contacted company request follow meeting ask additional questions essentially company believes dcis agent considering appropriateness company’s actions regarding discovered product failures whether failure reported particular customer would applicable another customer products delivered june 2011 dcis served subpoena company requesting company produce certain documents december 2011 company completed production documents requested subpoena date formal actions taken dcis respect documents provided company identified documents facts appear indicate wrongdoing including potentially violation laws regulations time company believes remote incur penalties fines monetary settlements result matter accrued amount associated matter however given passage time matter indeterminate amount time matter could remain open company determined reasonable possibility matter could material impact financial condition however based stage matter company unable estimate range loss note 15unaudited quarterly results operations includes gain embedded derivatives 11 million noncash expense stockbased compensation 917000 amortization debt discount 55000 b includes noncash expense stockbased compensation 789000 26 million charge accrual anticipated settlement legal matter c includes noncash expense stockbased compensation 734000 includes noncash expense stockbased compensation 142000 e includes gain embedded derivatives 32 million noncash expense stockbased compensation 623000 amortization debt discount 21000 f includes additional accrual potential settlement fcpa violations 34 million gain embedded derivatives 12 million noncash expense stockbased compensation 743000 amortization debt discount 20000 g includes additional accrual potential settlement fcpa violations 17 million loss embedded derivatives 814000 noncash expense stockbased compensation 677000 amortization debt discount 21000 h includes asset impairment related depreciation charge totaling 14 million loss embedded derivatives 13 million noncash expense stockbased compensation 584000 amortization debt discount 21000 schedule ii valuation qualifying accounts thousands item 9item 8 financial statements supplementary data consolidated financial statements notes thereto appear pages 47 77 annual report form 10k maxwell technologies inc index consolidated financial statements report independent registered public accounting firm board directors stockholders maxwell technologies inc san diego california audited accompanying consolidated balance sheets maxwell technologies inc december 31 2014 2013 related consolidated statements operations comprehensive income loss stockholders’ equity cash flows three years period ended december 31 2014 connection audits financial statements also audited financial statement schedule listed accompanying index financial statements schedule responsibility company’s management responsibility express opinion financial statements schedule based audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements assessing accounting principles used significant estimates made management well evaluating overall presentation financial statements schedule believe audits provide reasonable basis opinion consolidated financial statements referred present fairly material respects financial position maxwell technologies inc december 31 2014 2013 results operations cash flows three years period ended december 31 2014 conformity accounting principles generally accepted united states america also opinion related financial statement schedule considered relation basic consolidated financial statements taken whole presents fairly material respects information set forth therein also audited accordance standards public company accounting oversight board united states maxwell technologies inc’s internal control financial reporting december 31 2014 based criteria established internal controlintegrated framework 2013 issued committee sponsoring organizations treadway commission coso report dated february 12 2015 expressed unqualified opinion thereon bdo usa llp san diego california february 12 2015 maxwell technologies inc consolidated balance sheets thousands except per share data accompanying notes integral part consolidated financial statements maxwell technologies inc consolidated statements operations thousands except per share data accompanying notes integral part consolidated financial statements maxwell technologies inc consolidated statements comprehensive income loss thousands accompanying notes integral part consolidated financial statements maxwell technologies inc consolidated statements stockholders’ equity thousands accompanying notes integral part consolidated financial statements maxwell technologies inc consolidated statements cash flows thousands accompanying notes integral part consolidated financial statements maxwell technologies inc notes consolidated financial statements unless context otherwise requires references “maxwell” “company” “we” “us” “our” refer maxwell technologies inc subsidiaries references “maxwell sa” refer swiss subsidiary maxwell technologies sa note 1description business summary significant accounting policies description business maxwell technologies inc delaware corporation originally incorporated 1965 name maxwell laboratories inc 1983 company completed initial public offering 1996 changed name maxwell technologies inc company headquartered san diego california three manufacturing facilities located san diego california rossens switzerland peoria arizona addition company two contract manufacturers located china maxwell operates single operating segment comprised three product lines • ultracapacitors primary focus ultracapacitors energy storage devices possess unique combination high power density extremely long operational life ability charge discharge rapidly ultracapacitor cells multicell packs modules provide highly reliable energy storage power delivery solutions applications multiple industries including transportation automotive information technology renewable energy industrial electronics • highvoltage capacitors condis® highvoltage capacitors designed manufactured perform reliably decades climates products include grading coupling capacitors electronic voltage transformers used ensure safety reliability electric utility infrastructure applications involving transport distribution measurement highvoltage electrical energy • radiationhardened microelectronic products radiationhardened microelectronic products satellites spacecraft include single board computers components highdensity memory data conversion modules many products incorporate proprietary radpak® packaging shielding technology novel architectures enable withstand effects environmental radiation perform reliably space company’s products designed manufactured perform reliably life products systems integrated company achieves high reliability application proprietary technologies rigorously controlled design development manufacturing test processes financial statement presentation accompanying consolidated financial statements include accounts maxwell technologies inc subsidiaries prepared accordance accounting principles generally accepted united states “us gaap” intercompany transactions account balances eliminated consolidation liquidity december 31 2014 company approximately 247 million cash equivalents management believes available cash balance sufficient fund operations obligations become due capital investments least next twelve months reclassifications certain prior period amounts consolidated balance sheets reclassified conform current period presentation reclassifications include combining amounts previously separately disclosed intangible assets net noncurrent assets amounts separately disclosed accrued warranty accounts payable accrued liabilities reclassifications impact reported net income loss otherwise material impact presentation overall financial statements use estimates preparation financial statements conformity accounting principles generally accepted united states america requires management make estimates assumptions affect reported amounts related disclosures estimates include limited assessing collectability accounts receivable applied unapplied production costs production capacities usage recoverability inventories longlived assets including deferred income taxes incurrence warranty obligations impairment goodwill intangible assets estimation cost complete certain projects accruals estimated losses legal matters estimation value stockbased compensation awards including probability performance criteria restricted stock awards met revenue recognition revenue derived primarily sale manufactured products directly customers product revenue recognized according guidelines securities exchange commission “sec” staff accounting bulletin “sab” numbers 101 revenue recognition financial statements 104 revenue recognition following criteria met 1 persuasive evidence arrangement exists upon contract signing receipt authorized purchase order customer 2 title passes customer either shipment company’s facilities receipt customer facility depending shipping terms 3 customer payment deemed fixed determinable free contingencies significant uncertainties 4 collectability reasonably assured policy consistently applied period beginning fourth quarter 2011 three distributors companys products company offered extended payment terms allowed distributors pay company received payment customer respect certain sales transactions also beginning fourth quarter 2011 one distributor companys products company offered return rights profit margin protection respect certain sales transactions therefore four distributors company determined revenue recognition criteria sab 101 104 met time shipment fixed determinable price collection reasonably assured least respect certain sales transactions result three distributors provided extended payment terms provide fixed determinable price company deferred recognition revenue sales beginning fourth quarter 2011 period cash received one distributor provided return rights profit margin protection company could estimate exposure company deferred recognition revenue sales beginning fourth quarter 2011 distributor confirmed company entitled returns credits third quarter 2013 distributor confirmed company entitled returns credits therefore previously unrecognized revenue related distributor recognized quarter ended september 30 2013 although company deferred revenue recognition significant amount sales four distributors quarter ended september 30 2013 subsequent date amount deferred revenue related distributors insignificant addition deferred revenue arrangements discussed preceding paragraph revenue recognized sales meet revenue recognition criteria time sale revenue recognized criteria revenue recognition determined met example company believe collection sales price reasonably assured time sale defers revenue recognition cash received december 31 2014 december 31 2013 cumulative sales totaling 445000 45 million respectively yet recognized revenue company recorded cost basis inventory shipped customers prior achievement revenue recognition criteria approximately 184000 25 million december 31 2014 2013 respectively inventory consolidated balance sheets company receives cash payment customer prior achievement revenue recognition criteria amount received customer recorded deferred revenue consolidated balance sheets total deferred revenue customer deposits consolidated balance sheets december 31 2014 2013 703000 10 million respectively relates cash received customers sales revenue recognition criteria achieved customer advances well less significant customer arrangements requiring deferral revenue cash equivalents company invests excess cash debt instruments us government agencies bank certificates deposit commercial paper highquality corporate issuers highly liquid instruments original maturity three months less purchase considered cash equivalents accounts receivable allowance doubtful accounts trade receivables stated gross invoiced amount less allowance uncollectible accounts allowance doubtful accounts reflects management’s best estimate probable losses inherent accounts receivable balance management determines allowance doubtful accounts based known troubled accounts historical experience currently available evidence inventories net inventories stated lower cost firstin firstout basis market finished goods workinprocess inventory values include cost raw materials labor manufacturing overhead consigned inventory includes finished goods delivered customers related sale met revenue recognition criteria revenue recognized inventory written market value establishes new cost basis value subsequently increased based upon changes underlying facts circumstances company makes adjustments reduce cost inventory net realizable value required estimated excess obsolete inventories factors influencing adjustments include inventories onhand compared historical estimated future sales existing new products assumptions likelihood obsolescence unabsorbed costs treated expense period incurred property equipment property equipment carried cost depreciated using straightline method depreciation provided estimated useful lives related assets three ten years leasehold improvements depreciated shorter estimated useful life term lease leasehold improvements funded landlords recorded property equipment depreciated shorter estimated useful life asset lease term deferred rent amortized lease term december 31 2014 2013 net book value leasehold improvements funded landlords 25 million 27 million respectively december 31 2014 2013 unamortized balance deferred rent related landlord funding leasehold improvements 27 million included accounts payable accrued liabilities longterm liabilities consolidated balance sheets goodwill represents excess cost acquired business net fair value assigned assets liabilities amortized instead goodwill assessed impairment intangiblesgoodwill topic fasb asc company established december 31 annual impairment test date company first makes qualitative assessment whether goodwill impaired likely goodwill impaired company performs twostep quantitative impairment analysis determine goodwill impaired company may also determine skip qualitative assessment year move directly quantitative test impairments goodwill reported years ended december 31 2014 2013 2012 impairment longlived assets property equipment reviewed impairment whenever events changes circumstances indicate carrying value assets may recoverable company determines carrying value asset recoverable permanent impairment charge recorded amount carrying value longlived asset exceeds fair value impairments property equipment recorded years ended december 31 2014 2013 2012 warranty obligation company provides warranties product sales majority company’s warranties one four years normal course business company accrues estimated warranty costs time sale based historical warranty experience plus known expected changes warranty exposure december 31 2014 2013 accrued warranty liability included accounts payable accrued liabilities consolidated balance sheets 716000 180000 respectively income taxes deferred income taxes provided liability method accordance income taxes topic fasb asc whereby deferred tax assets recognized deductible temporary differences deferred tax liabilities recognized taxable temporary differences method deferred income taxes recorded reflect tax consequences future years temporary differences tax basis assets liabilities reported amounts period end likely portion deferred tax asset realized valuation allowance recognized guidance also provides criteria recognition measurement presentation disclosures uncertain tax positions tax benefit uncertain tax position may recognized “more likely not” position sustainable based solely technical merits concentration credit risk company maintains cash balances various financial institutions primarily california switzerland california cash balances commonly exceed 250000 federal deposit insurance corporation insurance limit switzerland banks company cash deposits either governmentowned case cash deposited nongovernment banks deposits insured 100000 swiss francs company experienced losses accounts management believes company exposed significant credit risk respect cash equivalents financial instruments subject company potential concentrations credit risk consist principally company’s accounts receivable company’s accounts receivable result product sales customers various industries various geographical areas domestic foreign company performs credit evaluations customers generally requires collateral one customer shenzhen xinlikang supply china management co ltd accounted 20 total revenues 2014 22 total revenues 2013 18 total revenues 2012 customers accounted 10 accounts receivable december 31 2014 two customers shenzhen xinlikang supply china management co ltd continental automotive hungary kft accounted 13 11 respectively total accounts receivable december 31 2013 research development expense research development expenditures expensed period incurred thirdparty funding research development expense costsharing arrangements recorded offset research development expense period expenses incurred research development expense 263 million 225 million 217 million net thirdparty funding costsharing arrangements 10 million 13 million 19 million years ended december 31 2014 2013 2012 respectively advertising expense advertising costs expensed period incurred advertising expense 14 million 884000 12 million years ended december 31 2014 2013 2012 respectively shipping handling expense company recognizes shipping handling expenses component cost revenue total shipping handling expense included cost revenue 15 million 13 million 14 million years ended december 31 2014 2013 2012 respectively foreign currencies company’s primary foreign currency exposure related subsidiary switzerland euro local currency swiss franc revenue operating expenses local currency loans changes currency exchange rates impact reported us dollar amount revenue expenses debt functional currency swiss subsidiary swiss franc assets liabilities swiss subsidiary translated monthend exchange rates revenues expenses gains losses translated rates exchange approximate rate effect time transaction translation adjustments resulting process presented separately component accumulated comprehensive income within stockholders’ equity consolidated balance sheets foreign currency transaction gains losses reported cost revenue selling general administrative expense consolidated statements operations foreign currency derivative instruments part risk management strategy company uses forward contracts hedge certain foreign currency exposures companys objective partially offset gains losses resulting exposures opposing gains losses forward contracts thereby reducing volatility earnings created foreign currency exposures accordance derivatives hedging topic fasb asc fair values forward contracts estimated period end based quoted market prices recorded net asset liability consolidated balance sheets gains losses recognized contracts recorded “cost revenue” “selling general administrative” expense consolidated statements operations net income loss per share accordance earnings per share topic fasb asc basic net income loss per share calculated using weighted average number common shares outstanding period diluted net income per share includes impact additional common shares would outstanding dilutive potential common shares issued potentially dilutive securities considered calculation diluted net loss per share inclusion would antidilutive following table sets forth computation basic diluted net income loss per share thousands except per share data following table summarizes instruments may convertible common shares included denominator used diluted net income loss per share calculation would antidilutive thousands stockbased compensation company issued stockbased compensation awards employees nonemployee directors including stock options restricted stock restricted stock units shares employee stock purchase plan company records compensation expense stockbased awards accordance criteria set forth stock compensation subtopic fasb asc although company granted stock options since 2013 company used blackscholes option pricing model estimate fair value historical stock option grants determination fair value stock options utilizing blackscholes model affected company’s stock price number assumptions including expected volatility expected term riskfree interest rate expected dividends fair value restricted stock restricted stock units servicebased performancebased vesting based closing market price company’s common stock date grant compensation expense equal fair value restricted stock award recognized ratably requisite service period restricted stock restricted stock unit awards vesting contingent company performance conditions company uses requisite service period likely occur requisite service period estimated based expected achievement date performance condition unlikely performance condition achieved compensation expense recognized unless later determined achievement performance condition likely requisite service period may adjusted changes expected outcomes related performance conditions impact changes recognized cumulative adjustment consolidated statement operations period expectation changes 2014 company issued marketcondition restricted stock units certain members executive management since vesting marketcondition restricted stock units dependent stock price performance fair values awards estimated using montecarlo valuation model determination fair value marketcondition restricted stock units utilizing montecarlo valuation model affected company’s stock price number assumptions including expected volatility expected life riskfree interest rate expected dividends sharebased compensation expense recognized consolidated statement operations based equity awards ultimately expected vest fasb asc requires forfeitures estimated time grant revised necessary subsequent periods cumulative catch adjustment actual forfeitures differ estimates marketcondition awards effect marketcondition reflected discount awards fair value grant date subsequent forfeitures result reversal expense recent accounting pronouncements may 2014 financial accounting standards board “fasb” issued accounting standards update asu 201409 revenue contracts customers “asu 201409” standard provides companies single model accounting revenue arising contracts customers supersedes current revenue recognition guidance including industryspecific revenue guidance core principle model recognize revenue control goods services transfers customer opposed recognizing revenue risks rewards transfer customer existing revenue guidance asu 201409 effective annual reporting periods beginning december 15 2016 early adoption permitted guidance permits companies either apply requirements retrospectively prior periods presented apply requirements year adoption cumulative adjustment company process evaluating impact adoption consolidated financial statements august 2014 fasb issued asu 201415 disclosure uncertainties entity’s ability continue going concern standard requires management perform interim annual assessments entity’s ability continue going concern within one year date financial statements issued provides guidance determining disclose going concern uncertainties financial statements certain disclosures required conditions give rise substantial doubt entity’s ability continue going concern asu 201415 applies entities effective annual interim reporting periods ending december 15 2016 early adoption permitted company expect adoption standard material effect financial statements business enterprise information company operates single operating segment according fasb asc topic disclosures segments enterprise related information operating segments defined components enterprise separate financial information evaluated regularly chief operating decision maker codm deciding allocate resources assessing performance company’s codm chief executive officer evaluates company’s financial information resources assesses performance consolidated basis revenues product line geographic area presented thousands 1 revenue external customers located countries included “all countries” individually comprise 10 total revenues years presented longlived assets geographic location follows thousands note 2balance sheet details thousands note 3goodwill company reviews goodwill impairment annually according intangiblesgoodwill topic fasb asc company makes qualitative evaluation likelihood goodwill impairment concludes likely carrying amount reporting unit greater fair value required perform first step twostep quantitative impairment test otherwise performing twostep impairment test unnecessary first step consists estimating fair value comparing estimated fair value carrying value reporting unit fair value less carrying value second step performed compute amount impairment determining implied fair value goodwill implied fair value goodwill residual fair value derived deducting fair value reporting unit’s assets liabilities estimated total fair value calculated step one impairment charge would represent excess carrying amount reporting unit’s goodwill implied fair value goodwill guidance requires goodwill reviewed annually time every year event occurs circumstances change reasonably possible impairment may exist company selected december 31 annual testing date result company’s annual assessments december 31 2014 2013 2012 impairment indicated change carrying amount goodwill 2013 2014 follows thousands note 4fair value measurement company records certain financial instruments fair value accordance fair value measurements disclosures topic fasb asc december 31 2014 financial instruments topic applied financial instruments foreign currency forward contracts december 31 2014 fair value foreign currency forward contracts liability 16 million recorded “accounts payable accrued liabilities” consolidated balance sheet fair value derivative instruments measured using models following quoted market prices active markets identical instruments level 2 input fair value hierarchy fair value measurements disclosures topic fasb asc forward contracts december 31 2014 matured january 5 2015 february 3 2015 also see note 6 foreign currency derivative instruments note 11 pension postretirement benefit plans annual report form 10k discussion fair value measurements carrying value shortterm longterm borrowings approximates fair value relative short maturity instruments interest rates company could currently obtain note 5borrowings credit facility december 2011 company obtained secured credit facility form revolving line credit “revolving line credit” equipment term loan “equipment term loan” together “credit facility” amended revolving line credit available maximum 100 million general amounts borrowed credit facility secured lien company’s assets intellectual property addition credit agreement amended company pledged 100 equity interests swiss subsidiary company also agreed encumber intellectual property agreement contains certain restrictive covenants limit company’s ability amongst things incur additional indebtedness guarantees ii create liens encumbrances property iii enter merger similar transaction iv invest another entity v declare pay dividends vi invest fixed assets excess defined dollar amount repayment amounts owed pursuant credit facility may accelerated event company violation representations warranties covenants made credit agreement including certain financial covenants financial covenants company must meet term credit agreement amended include quarterly minimum liquidity ratios quarterly cash requirements quarterly net loss targets borrowings credit facility bear interest payable monthly either banks prime rate ii libor plus 225 companys option subject certain limitations company incurs unused commitment fee payable quarterly equal 025 per annum average daily unused amount revolving line credit equipment term loan available finance 80 eligible equipment purchases made april 1 2011 april 30 2012 period company borrowed 50 million equipment term loan 2014 company borrowed 99 million revolving line credit december 31 2013 company compliance financial covenant pertaining quarterly ebitda target quarter ended december 31 2013 result noncompliance borrowings outstanding credit facility classified current obligation consolidated balance sheet december 31 2013 december 31 2014 compliance financial covenant pertaining quarterly net loss target 10 million quarter ended december 31 2014 result noncompliance borrowings outstanding credit facility immediately callable bank revolving line credit otherwise scheduled expire february 28 2015 equipment term loan scheduled mature april 30 2015 december 31 2014 99 million outstanding revolving line credit applicable interest rate libor plus 300 325 december 31 2014 amount outstanding revolving line credit scheduled repaid february 28 2015 december 31 2014 559000 outstanding equipment term loan applicable interest rate libor plus 225 25 december 31 2014 principal interest equipment term loan payable 36 equal monthly installments equipment term loan fully repaid maturity date april 30 2015 may prepaid whole part time shortterm borrowings maxwell’s swiss subsidiary maxwell sa 30 million swiss francdenominated approximately 30 million december 31 2014 shortterm loan agreement swiss bank renews semiannually bears interest 14 borrowings shortterm loan agreement unsecured december 31 2014 2013 full amount loan drawn addition maxwell sa 20 million swiss francdenominated approximately 20 million december 31 2014 credit agreement swiss bank renews annually bears interest 17 borrowings credit agreement unsecured december 31 2014 2013 full amount available credit line drawn maxwell sa also 10 million swiss francdenominated approximately 10 million december 31 2014 credit agreement another swiss bank available balance line withdrawn reduced bank time december 31 2014 2013 amounts drawn credit line interest rates applicable draws line determined time draw longterm borrowings maxwell sa various financing agreements vehicles agreements original threeyear repayment period interest rates ranging 19 51 december 31 2014 2013 82000 179000 respectively outstanding agreements following table summarizes debt outstanding thousands contractually scheduled payments due borrowings subsequent december 31 2014 follows thousands note 6foreign currency derivative instruments maxwell uses forward contracts hedge certain monetary assets liabilities primarily receivables payables denominated foreign currency change fair value instruments represents natural hedge gains losses offset changes fair value underlying monetary assets liabilities due movements currency exchange rates contracts generally expire one month contracts considered economic hedges designated hedges derivatives hedging topic fasb asc therefore change fair value instruments recognized currently consolidated statement operations net gains losses foreign currency forward contracts included cost revenue selling general administrative expense consolidated statements operations follows thousands net gains losses foreign currency derivative contracts partially offset net gains losses underlying monetary assets liabilities foreign currency gains losses underlying monetary assets liabilities included cost revenue selling general administrative expense consolidated statements operations follows thousands december 31 2014 total notional amount foreign currency forward contracts designated hedges 542 million following table presents gross amounts offset net amounts presented consolidated balance sheets companys derivative instruments measured fair value thousands company legal right offset recognized assets liabilities upon settlement derivative instruments forward contracts outstanding december 31 2014 matured january 5 2015 february 3 2015 additional information refer note 4 fair value measurements note 7stock plans equity incentive plans company two active sharebased compensation plans december 31 2014 2004 employee stock purchase plan “espp” 2013 omnibus equity incentive plan “incentive plan” approved stockholders incentive plan incentive stock options nonqualified stock options restricted stock awards restricted stock units granted employees nonemployee directors generally awards vest periods one four years addition equity awards issued senior management vesting award tied company performance market conditions company’s policy issue new shares common stock upon exercise stock options vesting restricted stock units granting restricted stock awards employees company’s incentive plan currently provides equity incentive pool 3750000 shares reserved issuance replenished forfeited shares additionally equity awards forfeited company’s 2005 equity incentive plan 1995 stock option plan added total shares available issuance incentive plan year ended december 31 2014 tax benefit associated stock option exercises restricted stock unit vesting restricted stock grants disqualifying dispositions incentive stock options stock issued company’s espp approximately 22 million tax benefit recognized 2014 2013 2012 excess tax benefits realized company stock options beginning 2011 company ceased granting stock options employees part annual equity incentive award program however 2013 company granted total 175306 stock options 100306 onetime stock option awards various employees remaining 75000 stock options issued 2013 related retention chief operating officer 56250 unvested options cancelled upon resignation third quarter 2014 stock options granted 2014 company may determine grant stock options future incentive plan following table summarizes total aggregate stock option activity period december 31 2013 december 31 2014 number shares exercisable december 31 2014 2013 2012 672011 759936 807146 respectively weighted average exercise prices 1200 1151 1153 respectively weightedaverage grant date fair value stock options granted year ended december 31 2013 756 stock options granted years ended december 31 2014 2012 total intrinsic value options exercised years ended december 31 2014 2013 2012 638000 18000 15 million respectively cash proceeds option exercises year ended december 31 2014 970000 december 31 2014 172000 133000 adjusted estimated forfeitures total unrecognized compensation cost related stock options cost expected recognized weighted average period less one year restricted stock awards first quarter 2011 company began granting restricted stock awards employees part annual equity incentive award program replacement stock options historically broadly granted employees generally vesting restricted stock awards contingent upon period service typically four years addition company granted restricted stock awards executive management vesting contingent upon specified company performance conditions beginning second quarter 2014 company ceased granting restricted stock awards began granting restricted stock unit awards employees executive management part annual equity incentive award program following table summarizes restricted stock award activity period december 31 2013 december 31 2014 thousands except per share dollar amounts weighted average grant date fair value restricted stock awards granted years ended december 31 2014 2013 2012 1421 1020 2060 respectively year ended december 31 2014 total grant date fair value servicebased restricted stock awards granted 36 million performancebased restricted stock awards granted 2014 share awards released years ended december 31 2014 2013 2012 136000 98000 77000 respectively servicebased share awards vested 2014 2013 2012 vest date fair value 12 million 916000 11 million respectively performancebased share awards vested 2014 2013 2012 december 31 2014 821000 unrecognized compensation cost 643000 net estimated forfeitures related nonvested restricted stock awards cost expected recognized weighted average period 22 years restricted stock units nonemployee director restricted stock units nonemployee directors receive annual restricted stock unit award “rsu” normally february year partial consideration annual retainer compensation awards vest full one year date grant provided nonemployee director provides continued service total grant date fair value servicebased restricted stock unit awards granted year ended december 31 2014 nonemployee directors 595000 weighted average grant date fair value restricted stock unit awards granted years ended december 31 2014 2013 2012 903 1025 2065 respectively december 31 2014 86000 unrecognized compensation cost related nonvested restricted stock unit awards granted nonemployee directors company estimates none outstanding rsu awards forfeited cost expected recognized weighted average period 02 year employee restricted stock units beginning second quarter 2014 company ceased granting restricted stock awards began granting restricted stock units employees part annual equity incentive award program restricted stock unit represents right receive one unrestricted share company’s common stock upon vesting year ended december 31 2014 company granted 193000 restricted stock unit awards employees 73000 servicebased restricted stock units vesting equal installments four years continuous service average grant date value 1481 per share 70000 marketcondition restricted stock units vesting upon achievement certain stock price thresholds completion three years continuous employment date grant average grant date fair value 1503 per share 50000 performancebased restricted stock units vesting contingent upon specified company performance conditions average grant date fair value 1085 per share since vesting marketcondition restricted stock units dependent stock price performance fair values awards estimated using montecarlo valuation model following weightedaverage assumptions following table summarizes amount compensation expense recognized employee restricted stock unit awards years ended december 31 2014 restricted stock unit awards granted employees 2013 2012 thousands employee stock purchase plan 2013 company amended restated 2004 employee stock purchase plan “espp” pursuant espp aggregate number shares common stock may purchased shall exceed 1000000 shares common stock company december 31 2014 company issued total 525252 shares common stock current espp years ended december 31 2014 2013 company issued 93588 28464 shares respectively espp permits substantially employees purchase common stock payroll deductions 85 lower trading price stock beginning end sixmonth offering period commencing january 1 july 1 number shares purchased based participants’ contributions made offering period fair value “look back” option espp shares issued offering period estimated using blackscholes valuation model call put option share price used model 15 discount stock price first day offering period number shares purchased calculated based employee contributions using following weightedaverage assumptions intrinsic value shares company’s stock purchased pursuant espp offering periods within years ended december 31 2014 2013 2012 449000 33000 191000 respectively stockbased compensation expense compensation cost stock options restricted stock restricted stock units espp follows thousands stockbased compensation cost included cost revenue selling general administrative expense research development expense follows thousands share reservations following table summarizes reservation shares companys stockbased compensation plans december 31 2014 note 8shelf registration statement june 3 2014 company filed shelf registration statement form s3 us securities exchange commission sec time sell aggregate 125 million combination common stock warrants debt securities units june 30 2014 registration statement declared effective sec allow company access capital markets three year period following effective date december 31 2014 securities issued companys shelf registration statement net proceeds terms pricing offering securities issued shelf registration statement determined time offerings note 9income taxes financial reporting purposes net income taxes includes following components thousands provision income taxes based income taxes follows thousands provision income taxes accompanying consolidated statements operations differs amount calculated applying statutory income tax rate income loss continuing operations income taxes primary components difference follows thousands company established valuation allowance us federal state deferred tax assets due uncertainty surrounding realization assets evidenced cumulative losses operations december 31 2014 management periodically evaluates recoverability deferred tax assets time determined likely deferred assets realizable valuation allowance reduced accordingly recorded tax benefit exception 155 million impact additional paid capital discussed company recorded valuation allowance 642 million december 31 2014 reflect estimated amount deferred tax assets may realized company increased valuation allowance 47 million year ended december 31 2014 december 31 2014 company federal state net operating loss carryforwards approximately 1577 million 646 million respectively federal tax loss carryforwards begin expire 2020 state tax loss carryforwards begin expire 2015 addition company research development tax credit carryforwards federal state income tax purposes december 31 2014 51 million 66 million respectively federal credits begin expire 2019 unless utilized state credits indefinite life pursuant internal revenue code sections 382 383 use company’s federal net operating loss credit carryforwards may limited due cumulative change ownership 50 within threeyear period excess tax benefits associated stock option exercises restricted stock grants disqualifying dispositions incentive stock options stock issued company’s employee stock purchase plan amount 41 million 34 million 2014 2013 respectively reduce current income taxes payable accordingly included deferred tax asset relating net operating loss carryforwards included federal state net operating loss carryforwards disclosed footnote tax benefits associated stock option deductions 1998 2005 amount 155 million recorded additional paidin capital realization likely occur consequently valuation allowance recorded entire benefit company granted tax holiday switzerland effective january 1 2012 10 years tax holiday conditional upon company meeting certain employment investment thresholds impact tax holiday decreased foreign taxes 665000 733000 2014 2013 respectively benefit tax holiday net income per diluted share 002 003 2014 2013 respectively company records us income taxes undistributed earnings foreign subsidiaries unless subsidiaries’ earnings considered indefinitely reinvested outside us result changes business circumstances company changed estimate amounts considered permanently reinvested result 2014 company recorded deferred tax liability 16 million associated 318 million unremitted earnings foreign subsidiary longer considered indefinitely reinvested event company repatriates funds withholding tax would become payable december 31 2014 cumulative amount undistributed earnings considered indefinitely reinvested 392 million determination amount unrecognized deferred income tax liability excess financial reporting basis tax basis investments foreign subsidiaries practicable complexities hypothetical calculation items give rise significant portions deferred tax accounts follows thousands december 31 2014 2013 deferred tax assets 460000 124000 respectively included noncurrent assets consolidated balance sheet company adopted provisions section 74010 accounting uncertainty income taxes topic fasb asc january 1 2007 total unrecognized tax benefits december 31 2014 approximately 117 million recorded reduction deferred tax assets caused corresponding reduction company’s valuation allowance 117 million extent unrecognized tax benefits recognized time valuation allowance exist recognition tax benefit would reduce effective tax rate company anticipate amount unrecognized tax benefits december 31 2014 change materially within 12 month period following december 31 2014 reconciliation beginning ending amount unrecognized tax benefits follows thousands company recognizes interest penalties component income tax expense interest penalties years ended december 31 2014 2013 34000 126000 respectively year ended december 31 2012 interest penalties insignificant company’s us federal income tax returns tax years subsequent 2009 subject examination internal revenue service state income tax returns subsequent 2008 subject examination state tax authorities company’s foreign tax returns subsequent 2004 subject examination foreign tax authorities net operating losses years statute limitations expired 2008 prior federal 2007 prior state could adjusted event taxing jurisdictions challenge amounts net operating loss carryforwards years note 10leases rental expense amounted 56 million 51 million 37 million years ended december 31 2014 2013 2012 respectively incurred primarily facility leases future annual minimum rental commitments december 31 2014 follows thousands note 11pension postretirement benefit plans foreign plan compensationretirement benefits subtopic fasb asc requires balance sheet recognition total funded underfunded status pension postretirement benefit plans guidance actuarial gains losses prior service costs credits remaining transition assets obligations recognized previous accounting standards must recognized component accumulated comprehensive income within stockholders’ equity net tax effects amortized component net periodic benefit cost income company’s plan regulated swiss government funded employees company pension benefit based compensation length service credited investment earnings plan guarantees minimum rate return well minimum annuity purchase rates company’s funding policy respect pension plan contribute amount required swiss law using required percentage applied employee’s compensation addition participating employees required contribute pension plan company made pension contributions 720000 722000 732000 2014 2013 2012 respectively 45 total contributions plan year made employees plan measurement date december 31 company rights assets plan net pension asset decreased 106 million 74 million year ended december 31 2014 decrease plan assets result significant number employee departures corresponding benefits paid account balances effect foreign currency translation fair value plan year end increase benefit obligation affected substantial actuarial loss resulting assumption changes made reflect current market conditions loss offset large amount benefits paid effect foreign currency translation projected benefit obligation year end accumulated benefit obligation approximately 313 million 308 million december 31 2014 2013 respectively plan fully funded continues surplus condition following table reflects changes pension benefit obligation plan assets years ended december 31 2014 2013 thousands amounts recognized consolidated balance sheets consist thousands components net periodic pension cost income amounts recognized comprehensive income loss taxes follows thousands assumptions used determine benefit obligation net periodic pension cost follows pension plan’s overall strategy investment policy managed board plan overall longterm rate based target asset allocation 15 swiss bonds 10 nonswiss hedged bonds 10 swiss equities 15 global equities 40 real estate 5 emerging market equities 4 alternative investments 1 cash shortterm investments 2015 expected future longterm rate return estimated 375 based historical asset rates returns asset allocation classification 08 rate swiss bonds 10 hedged foreign bonds 37 real estate 41 swiss equities 55 unhedged global equities 53 unhedged emerging markets 233 alternative investments 13 cash 2014 expected longterm rate return 425 based historical asset rates return 04 swiss bonds 740 unhedged emerging markets 10 hedged foreign bonds 48 real property 56 swiss equities 65 unhedged global equities 28 alternative investments 14 cash following benefit payments reflect expected future service appropriate expected paid thousands company expects contribute approximately 555000 pension plan 2015 investment objectives primary investment goal pension plan achieve total annualized return 375 longterm investments evaluated compared benchmarked plans similar investment strategies plan also attempts minimize risk single security class securities disproportionate impact plan guideline assets diversified asset classes equity fixed income real estate alternative investments fair values plans assets december 31 2014 asset category follows thousands fair value assets level 1 observable inputs quoted prices active markets identical assets level 2 inputs quoted prices observable asset liability either directly indirectly include quoted prices similar assets liabilities active markets quoted prices identical similar assets liabilities markets active level 3 unobservable inputs reflect reporting entity’s assumptions investments include real estate owned pension plan stated fair market valuations provided thirdparty independent plan company real estate investment potential long term investment liquidation processes hedge funds might monthly quarterly annual restraints redemptions may require advance notice redemption financial instruments significant level 3 inputs following table summarizes activity year investment type 1 total unrealized gains reported component pension adjustment accumulated comprehensive income consolidated statement stockholders’ equity us plan company postretirement benefit plan covering employees united states substantially us employees eligible elect coverage contributory employee savings plan provides company matching contributions based onehalf employee contributions certain plan limits company’s matching contributions plan totaled 547000 506000 486000 years ended december 31 2014 2013 2012 respectively note 12legal proceedings although company expects incur significant legal fees connection legal proceedings company unable estimate amount legal fees therefore fees expensed period legal services performed fcpa matter result publicly traded us company subject us foreign corrupt practices act “fcpa” prohibits companies making improper payments foreign officials purpose obtaining retaining business beginning 2009 company conducted internal review payments made former independent sales agent china respect sales highvoltage capacitor products produced swiss subsidiary january 2011 company reached settlements sec us department justice “doj” respect charges asserted sec doj relating antibribery books records internal controls disclosure provisions fcpa securities laws violations company settled civil charges sec agreeing injunction violations fcpa terms settlement sec company agreed pay total approximately 64 million profit disgorgement prejudgment interest company settled civil criminal charges doj entering threeyear deferred prosecution agreement “dpa” agreeing pay total 80 million penalties terms agreement company submitted periodic reports sec doj internal compliance program concerning antibribery january 25 2013 monetary penalties paid full settlement described early february 2014 dpa expired terms judgment dismissal issued district judge matter us district court southern district california march 28 2014 october 15 2013 company received informal notice doj indictment former senior vice president general manager swiss subsidiary filed united states district court southern district california indictment individual former officer company foresee penalties fines could assessed corporate entity matter however company may required throughout term action advance legal fees costs incurred individual defendant incur financial obligations company maintains directors’ officers’ insurance policies intended cover legal expenses related indemnification obligations situations company cannot determine extent insurance policy cover legal fees matter accordingly legal fees may incurred company defending former officer could material impact financial condition results operation swiss bribery matter august 2013 companys swiss subsidiary served search warrant swiss federal prosecutor’s office end search swiss federal prosecutor presented company listing materials gathered representatives removed materials premises keeping prosecutor’s office reviewing items seized search warrant presented swiss prosecutor’s office company believes action related similar facts circumstances fcpa action previously settled sec doj initial discussions swiss prosecutor acknowledged existence companys dpa doj cooperation efforts thereunder positive impact discussions going forward additionally activities previously reviewed conjunction sec doj matters fcpa company reason believe additional facts circumstances review swiss authorities early stage investigation company currently unable determine extent subject fines accordance swiss bribery laws additional expenses incurred order defend matter company cannot determine whether reasonable possibility loss incurred estimate range potential loss accordingly company accrued amount potential loss associated action adverse result could material adverse impact financial condition results operation securities matter early 2013 company voluntarily provided information united states attorneys office southern district california us securities exchange commission related announcement intended file restated financial statements fiscal years 2011 2012 company currently cooperating us authorities connection investigations preliminary stage company cannot predict ultimate outcome action estimate range potential loss accordingly company accrued amount potential loss associated action adverse result could material adverse impact financial condition results operation securities class action matter march 13 2013 april 19 2013 four purported shareholder class actions filed united states district court southern district california company certain current former officers actions entitled foster v maxwell technologies inc et al case 13cv0580 sd cal filed march 13 2013 weinstein v maxwell technologies inc et al 13cv0686 sd cal filed march 21 2013 abanades v maxwell technologies inc et al 13cv0867 sd cal filed april 11 2013 mebarak v maxwell technologies inc et al 13cv0942 sd cal filed april 19 2013 complaints alleged defendants made false misleading statements regarding financial performance business prospects overstated companys reported revenue complaints purported assert claims violations section 10b 20a securities exchange act 1934 sec rule 10b5 behalf persons purchased companys common stock april 28 2011 march 7 2013 inclusive complaints sought unspecified monetary damages attorneys fees costs may 13 2013 four prospective lead plaintiffs filed motions consolidate four actions appointed lead plaintiff october 24 2013 court issued written order consolidating case heading maxwell technologies inc securities litigation january 16 2014 lead plaintiff filed consolidated amended complaint slightly adjusted class period april 29 2011 march 19 2013 response company individual defendants filed motion dismiss complaint lead plaintiff opposed may 5 2014 court granted company’s motion dismiss granted lead plaintiff leave amend complaint lead plaintiff filed amended complaint june 4 2014 adding additional claim section 10b alleging defendants involved scheme violate federal securities laws company individual defendants filed motions dismiss july 10 2014 october 6 2014 parties executed stipulation settlement included allin settlement value 33 million november 3 2014 court granted preliminary approval settlement hearing february 5 2015 court granted final approval settlement based settlement company accrued liability recorded 33 million included “accounts payable accrued liabilities” december 31 2014 company’s insurance carrier would cover potential settlement company corresponding receivable insurance carrier recorded amount 33 million included “trade accounts receivable” december 31 2014 federal shareholder derivative matter april 23 2013 may 7 2013 two shareholder derivative actions filed united states district court southern district california entitled kienzle v schramm et al case 13cv0966 sd cal filed april 23 2013 agrawal v cortes et al case 13cv1084 sd cal filed may 7 2013 complaints name defendants certain companys current former officers directors names company nominal defendant complaints allege individual defendants caused allowed company issue false misleading statements financial condition operations management internal controls falsely represented maintained adequate controls complaints assert causes action breach fiduciary duty abuse control gross mismanagement waste corporate assets unjust enrichment lawsuits seek unspecified damages order directing company take necessary actions reform improve corporate governance internal procedures restitution disgorgement profits benefits compensation attorneys experts fees costs expenses june 10 2013 parties filed joint motion consolidate two actions september 26 2013 plaintiffs filed motion stay case resolution similar derivative action pending california superior court county san diego company individual defendants opposed motion stay october 30 2013 court issued two orders consolidating two cases heading maxwell technologies inc derivative litigation mutually agreed upon parties denying plaintiffs’ motion stay federal derivative case lead plaintiffs filed consolidated amended complaint january 30 2014 response company individual defendants filed motions dismiss complaint lead plaintiffs opposed may 28 2014 court granted company’s motion dismiss granted lead plaintiffs leave amend complaint lead plaintiffs filed amended complaint july 11 2014 company individual defendants filed motions dismiss august 18 2014 september 19 2014 parties entered memorandum understanding concerning settlement matter related certain corporate governance reforms implemented andor maintained company memorandum understanding address monetary amounts paid lead plaintiffs exchange benefit conferred company result corporate governance reforms negotiations initiated respect monetary amounts paid lead plaintiffs preliminary amounts range 650000 15 million however negotiations regarding monetary amounts paid lead plaintiffs reached impasse lead plaintiffs elected proceed submitting court determination applicable fee paid december 10 2014 parties signed stipulation settlement include monetary amounts paid lead plaintiffs january 6 2015 court granted preliminary approval settlement preliminary approval triggered requirements company issue certain notices completed hearing scheduled march 16 2015 court determine final approval settlement granted company believes settlement within range probable believe specific amount within range represents better estimate company accrued liability recorded low end range amount 650000 included “accounts payable accrued liabilities” december 31 2014 company’s insurance carrier would cover potential settlement company corresponding receivable insurance carrier recorded amount 650000 included “trade accounts receivable” december 31 3014 state shareholder derivative matter april 11 2013 april 18 2013 two shareholder derivative actions filed california superior court county san diego entitled warsh v schramm et al case 37201300043884 san diego sup ct filed april 11 2013 neville v cortes et al case 37201300044911cubtctl san diego sup ct filed april 18 2013 complaints name defendants certain companys current former officers directors well former auditor mcgladrey llp company named nominal defendant complaints allege individual defendants made caused company make false andor misleading statements regarding financial condition failed disclose material adverse facts business operations prospects complaints assert causes action breaches fiduciary duty disseminating false misleading information failing maintain internal controls failing properly oversee manage company well unjust enrichment abuse control gross mismanagement professional negligence accounting malpractice aiding abetting breaches fiduciary duty lawsuits seek unspecified damages order directing company take necessary actions reform improve corporate governance internal procedures restitution disgorgement profits benefits compensation attorneys experts fees costs expenses may 7 2013 court consolidated two actions company filed motion stay consolidated action july 2 2013 september 27 2013 court heard oral arguments motion stay continued hearing motion resolution motion stay pending federal derivative action referenced given outcome abovedetailed federal derivative lawsuit company informed state court federal court order denying federal plaintiffs’ motion stay consequently november 1 2013 state court stayed state derivative action pending resolution federal derivative case stipulation settlement federal shareholder derivative matter contemplates action dismissed prejudice event settlement receives final approval federal court shareholder demand letter matter april 9 2013 stephen neville purported shareholder company sent demand letter company inspect books records pursuant california corporations code section 1601 demand sought inspection documents related companys march 7 2013 announcement would restating previouslyissued financial statements 2011 2012 board minutes committee materials documents related board management discussions regarding revenue recognition january 1 2011 present company responded letter dated april 19 2013 explaining believed demand appear proper following receipt second letter mr neville dated april 23 2013 company explained letter dated april 29 2013 continues believe inspection demand appears improper company received response mr neville regarding inspection demand conjunction state court derivative action referenced mr neville filed two motions compel production documents materials originally sought demand letter september 27 2013 court heard oral arguments motions compel line continuance motion stay state shareholder derivative matter referenced likewise continued hearing motions compel pending resolution motions stay federal state derivative actions referenced november 15 2013 purported shareholder mr neville filed petition writ mandate requesting state court order company comply inspection demand company responded writ january 15 2014 claiming inspection demand improper numerous grounds simultaneously filing demurrer shareholder inspection demand action entirety july 18 2014 court ruled company’s demurrer left open issues pertaining documents provided purported shareholder inspection demand court set hearing matter april 10 2015 stipulation settlement federal shareholder derivative matter contemplates action dismissed prejudice event settlement receives final approval federal court note 13unaudited quarterly financial information includes noncash expense stockbased compensation 755000 b includes noncash expense stockbased compensation 12 million c includes noncash expense stockbased compensation 10 million includes noncash deferred tax expense 16 million connection probable repatriation portion unremitted earnings foreign subsidiary noncash expense stockbased compensation 10 million e includes noncash expense stockbased compensation 10 million f includes noncash expense stockbased compensation 946000 g includes noncash expense stockbased compensation 719000 h includes noncash expense stockbased compensation 14 million schedule ii valuation qualifying accounts thousands item 9 nannannannannannanitem 15 exhibits financial statement schedules reports form 8k a1 financial statements see item 6 item 7 item 8 a2 financial statement schedules schedule ii valuation qualifying accounts thousands accounts schedules provisions made applicable accounting regulation securities exchange commission required related instructions inapplicable therefore omitted a3 list exhibits 31 restated certificate incorporation registrant exhibit 31 registrant’s form 10k annual report year ended july 31 1987 “1987 form 10k” incorporated reference 32 certificate amendment restated certificate incorporation registrant increasing number authorized shares 20 million dated november 22 1996 exhibit 32 registrant’s form 10k annual report year ended july 31 1997 “1997 form 10k” incorporated reference 33 certificate amendment restated certificate incorporation registrant increasing number authorized shares 40 million dated february 9 1998 exhibit 33 registrant’s form 10k annual report year ended july 31 1999 “1999 form 10k” incorporated reference 34 bylaws registrant amended date exhibit 32 1987 form 10k incorporated reference 35 revised article iv bylaws registrant exhibit 34 1997 form 10k incorporated reference 41 rights agreement dated november 5 1999 registrant chase mellon shareholders services llc rights agent exhibit 1 registrant’s form 8a filed november 18 1999 hereby incorporated reference 101 maxwell laboratories inc 1995 stock option plan exhibit 103 registrant’s form 10k annual report year ended july 31 1995 “1995 form 10k” incorporated reference 102 amendment number one maxwell laboratories inc 1995 stock option plan dated march 19 1997 exhibit 106 1997 form 10k incorporated reference 103 amendment number two maxwell technologies inc 1995 stock option plan dated january 28 1998 exhibit 106 1998 form 10k incorporated reference 104 amendment number three maxwell technologies inc 1995 stock option plan dated january 28 1999 exhibit 108 1999 form 10k incorporated reference 105 amendment number four maxwell technologies inc 1995 stock option plan dated january 28 2000 exhibit 109 registrant’s december 31 1999 form 10k incorporated reference 106 amendment number five maxwell technologies inc 1995 stock option plan dated august 14 2000 exhibit 106 registrant’s annual report form 10k year ended december 31 2000 “2000 form 10k” incorporated reference 107 maxwell laboratories inc director stock option plan exhibit 1023 registrant’s form 10k annual report year ended july 31 1989 “1989 form 10k” incorporated reference 108 amendment number one maxwell laboratories inc director stock option plan dated february 7 1997 exhibit 102 1997 form 10k incorporated reference 109 amendment number two maxwell laboratories inc director stock option plan dated january 28 1999 exhibit 103 1999 form 10k incorporated reference 1010 maxwell technologies inc 1999 director stock option plan dated january 28 2000 exhibit 1012 registrant’s december 31 1999 form 10k incorporated reference 1011 maxwell laboratories inc 1994 employee stock purchase plan exhibit 104 1995 form 10k incorporated reference 1012 amendment number one maxwell laboratories inc 1994 employee stock purchase plan effective april 30 1997 exhibit 1038 1997 form 10k incorporated reference 1013 maxwell technologies inc 1999 management equity ownership program dated january 28 2000 exhibit 1045 registrant’s december 31 1999 form 10k incorporated reference 1014 maxwell laboratories inc 1994 director stock purchase plan exhibit 105 1995 form 10k incorporated reference 1015 maxwell energy products inc 1996 stock option plan exhibit 1035 1997 form 10k incorporated reference 1016 maxwell electronic components group inc 2000 stock option plan exhibit 1016 2000 form 10k incorporated reference 1017 ibus inc 1996 stock option plan exhibit 1036 1997 form 10k incorporated reference 1018 ibusphoenix inc 2000 stock option plan exhibit 103 registrant’s september 30 2000 form 10q incorporated reference 1019 purepulse technologies inc 1994 stock option plan exhibit 1026 1996 form 10k incorporated reference 1020 purepulse technologies inc 2000 stock option plan exhibit 102 september 30 2000 form 10q incorporated reference 1022 maxwell technologies inc employment agreement dated november 9 1999 registrant carlton j eibl exhibit 1019 registrant’s december 31 1999 form 10k incorporated reference 1024 restricted stock agreement dated july 25 1996 registrant kenneth f potashner exhibit 1017 registrant’s form 10k annual report year ended july 31 1996 incorporated reference 1025 amendment number one restricted stock agreement dated june 24 1997 registrant kenneth f potashner exhibit 1023 1997 form 10k incorporated reference 1026 secured promissory note dated february 2 1999 stock pledge agreement dated february 2 1999 registrant kenneth f potashner exhibit 1024 1999 form 10k incorporated reference 1027 stock pledge agreement dated february 2 1999 registrant kenneth f potashner exhibit 1025 1999 form 10k incorporated reference 1028 subordinated promissory note dated january 17 2001 maxwell technologies inc carl eibl exhibit 1028 2000 form 10k incorporated reference 1030 stock purchase agreement among maxwell technologies inc maxwell energy products inc pacificorp energy ventures inc dated october 30 1997 exhibit 10 registrant’s october 31 1997 form 10q incorporated reference 1031 shareholder agreement among maxwell technologies inc purepulse technologies inc sanyo ee corporation three oceans inc dated january 28 1999 exhibit 1044 1999 form 10k incorporated reference 1032 agreement plan reorganization among gateworks corporation shareholders gateworks corporation ibusphoenix inc maxwell technologies inc september 13 2000 exhibit 101 registrant’s september 30 2000 form 10q incorporated reference 1033 loan security agreement dated february 26 2001 maxwell technologies inc maxwell electronic components group inc ibusphoenix inc purepulse technologies inc maxwell technologies systems division inc mml acquisition corporation comerica bank california exhibit 1033 2000 form 10k incorporated reference 1034 third amendment loan security agreement dated december 21 2001 among maxwell technologies inc maxwell electronic components group inc ibusphoenix inc purepulse technologies inc mml acquisition corp comerica bankcalifornia 1035 term loan agreement dated december 21 2001 maxwell technologies inc comerica bankcalifornia 1036 lease dated march 28 2000 balboa boulevard building gp lessor registrant lessee exhibit 1034 2000 form 10k incorporated reference 1037 lease dated november 1 1996 ponderosa pines partnership lessor purepulse technologies inc lessee exhibit 1025 1997 form 10k incorporated reference 1038 stock purchase barter agreement maxwell technologies montena sa dated may 30 2002 amendment number one dated june 28 2002 exhibit 21 form 8k filed july 19 2002 incorporated reference 1039 amendment number two stock purchase barter agreement maxwell technologies inc montena sa exhibit 21 form 8k filed september 18 2002 incorporated reference 1040 asset purchase agreement dated september 30 2002 maxwell electronic components group inc teknaseal llc exhibit 991 form 8k filed october 14 2002 incorporated reference 1041 purchase sale agreement dated september 29 2002 ibusphoenix inc ibus corporation exhibit 992 form 8k filed october 14 2002 incorporated reference 1042 8 senior subordinated promissory note dated september 29 2002 principal amount 7000000 exhibit 993 form 8k filed october 14 2002 incorporated reference 1043 warrant common stock ibus corporation dated september 29 2002 issued ibusphoenix inc exhibit 994 form 8k filed october 14 2002 incorporated reference 1044 term loan agreement amendments dated august 13 2002 october 31 2002 maxwell technologies inc comerica bank california 211 list subsidiaries registrant 231 consent ernst young llp independent auditors 991 certification chief executive officer 992 certification chief financial officer b reports form 8k • form 8k filed july 19 2002 reporting acquisition montena components ltd restructuring ibusphoenix inc • amended form 8k filed september 18 2002 financial statements pro forma financial information relating acquisition montena components ltd • form 8k filed october 14 2002 reporting sale teknaseal maxwell components group inc sale ibus computing systems ibusphoenix inc filed herewith signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized 20th day march 2003 pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities dates indicated signature title date carlton j eibl chief executive officer march 20 carlton j eibl director kenneth f potashner chairman board director march 20 kenneth f potashner james baumker vice president finance march 20 2003 james baumker treasurer chief financial officer principal financial accounting officer mark rossi director march 20 mark rossi jean lavigne director march 20 jean lavigne robert guyett director march 20 robert guyett josé cortes director march 20 josé cortes certifications carlton j eibl certify 1 reviewed annual report form 10k maxwell technologies inc 2 based knowledge annual report contain untrue statement material fact omit state material fact necessary make statements made light circumstances statements made misleading respect period covered annual report 3 based knowledge financial statements financial information included annual report fairly present material respects financial condition results operations cash flows registrant periods presented annual report 4 registrant’s certifying officer responsible establishing maintaining disclosure controls procedures defined exchange act rules 13a14 15d14 registrant designed disclosure controls procedures ensure material information relating registrant including consolidated subsidiaries made known us others within entities particularly period annual report prepared b evaluated effectiveness registrant’s disclosure controls procedures date within 90 days prior filing date annual report “evaluation date” c presented annual report conclusions effectiveness disclosure controls procedures based evaluation date 5 registrant’s certifying officer disclosed based recent evaluation registrant’s auditors audit committee registrant’s board directors persons performing equivalent function significant deficiencies design operation internal controls could adversely affect registrant’s ability record process summarize report financial data identified registrant’s auditors material weaknesses internal controls b fraud whether material involves management employees significant role registrant’s internal controls 6 registrant’s certifying officer indicated annual report whether significant changes internal controls factors could significantly affect internal controls subsequent date recent evaluation including corrective actions regard significant deficiencies material weaknesses date march 20 2003 carlton j eibl carlton j eibl chief executive officer certifications james baumker certify 1 reviewed annual report form 10k maxwell technologies inc 2 based knowledge annual report contain untrue statement material fact omit state material fact necessary make statements made light circumstances statements made misleading respect period covered annual report 3 based knowledge financial statements financial information included annual report fairly present material respects financial condition results operations cash flows registrant periods presented annual report 4 registrant’s certifying officer responsible establishing maintaining disclosure controls procedures defined exchange act rules 13a14 15d14 registrant designed disclosure controls procedures ensure material information relating registrant including consolidated subsidiaries made known us others within entities particularly period annual report prepared b evaluated effectiveness registrant’s disclosure controls procedures date within 90 days prior filing date annual report “evaluation date” c presented annual report conclusions effectiveness disclosure controls procedures based evaluation date 5 registrant’s certifying officer disclosed based recent evaluation registrant’s auditors audit committee registrant’s board directors persons performing equivalent function significant deficiencies design operation internal controls could adversely affect registrant’s ability record process summarize report financial data identified registrant’s auditors material weaknesses internal controls b fraud whether material involves management employees significant role registrant’s internal controls 6 registrant’s certifying officer indicated annual report whether significant changes internal controls factors could significantly affect internal controls subsequent date recent evaluation including corrective actions regard significant deficiencies material weaknesses date march 20 2003 james baumker james baumker chief financial officeritem 15 exhibits financial statement schedules reports form 8k documents filed part report 1 financial statements consolidated financial statements required item submitted separate section beginning page annual report form 10k 2 financial statement schedules financial statement schedule entitled “valuation qualifying accounts” required item submitted separate section beginning page annual report form 10k schedules omitted applicable 3 exhibits exhibit number description document 21 asset purchase agreement dated december 10 2003 registrant metar sa en constitution 1 22 purchase sale agreement joint escrow instructions dated august 15 2003 registrant horizon christian fellowship 1 23 first amendment purchase sale agreement joint escrow instructions registrant horizon christian fellowship dated september 26 2003 1 24 second amendment purchase sale agreement joint escrow instructions registrant horizon christian fellowship dated october 13 2003 1 25 third amendment purchase sale agreement joint escrow instructions registrant horizon christian fellowship dated december 23 2003 1 31 restated certificate incorporation registrant 19 32 certificate amendment restated certificate incorporation registrant dated november 22 1996 13 33 certificate amendment restated certificate incorporation registrant dated february 9 1998 2 34 amended restated bylaws registrant 3 41 rights agreement dated november 5 1999 registrant chase mellon shareholders services llc rights agent 18 42 amendment rights agreement dated july 5 2002 101 amended restated 1995 stock option plan registrant 3 102 stock option agreement 1995 stock option plan registrant kenneth potashner dated may 19 2003 103 maxwell laboratories inc 1989 director stock option plan 20 104 amendment number one maxwell laboratories inc director stock option plan dated february 7 1997 13 105 amendment number two maxwell laboratories inc director stock option plan dated january 28 1999 2 106 director stock option plan registrant 5 107 maxwell laboratories inc 1994 employee stock purchase plan 14 108 amendment number one maxwell laboratories inc 1994 employee stock purchase plan effective april 30 1997 13 109 maxwell laboratories inc 1994 director stock purchase plan 14 1010 purepulse technologies inc 1994 stock option plan 15 1011 employment agreement dated november 9 1999 registrant carlton j eibl 5 1012 restricted stock agreement dated july 25 1996 registrant kenneth f potashner 15 1013 amendment number one restricted stock agreement dated june 24 1997 registrant kenneth f potashner 13 1014 secured promissory note dated february 2 1999 stock pledge agreement dated february 2 1999 registrant kenneth f potashner 2 1015 stock pledge agreement dated february 2 1999 registrant kenneth f potashner 2 1016 shareholder agreement among registrant purepulse technologies inc sanyo ee corporation three oceans inc dated january 28 1999 2 1017 loan security agreement dated february 26 2001 registrant maxwell electronic components group inc ibusphoenix inc purepulse technologies inc maxwell technologies systems division inc mml acquisition corporation comerica bank california 6 1018 third amendment loan security agreement dated december 21 2001 among registrant maxwell electronic components group inc ibusphoenix inc purepulse technologies inc mml acquisition corp comerica bank california 12 1019 fourth amendment loan security agreement dated july 2 2002 among registrant maxwell electronic components group inc ibusphoenix inc purepulse technologies inc mml acquisition corp comerica bankcalifornia 1020 fifth amendment loan security agreement dated august 13 2002 among registrant maxwell electronic components group inc ibusphoenix inc purepulse technologies inc mml acquisition corp comerica bankcalifornia 1021 sixth amendment loan security agreement dated october 31 2002 among registrant maxwell electronic components group inc ibusphoenix inc purepulse technologies inc mml acquisition corp comerica bankcalifornia 1022 seventh amendment loan security agreement dated june 30 2003 among registrant maxwell electronic components group inc ibusphoenix inc purepulse technologies inc mml acquisition corp comerica bankcalifornia 1023 term loan agreement dated december 21 2001 registrant comerica bankcalifornia 12 1024 lease dated march 28 2000 balboa boulevard building gp lessor registrant lessee 6 1025 lease dated november 1 1996 ponderosa pines partnership lessor purepulse technologies inc lessee 13 1026 stock purchase barter agreement registrant montena sa dated may 30 2002 8 1027 amendment number one stock purchase barter agreement registrant montena sa dated june 28 2002 8 1028 amendment number two stock purchase barter agreement registrant montena sa dated august 12 2002 9 1029 asset purchase agreement dated september 30 2002 maxwell electronic components group inc teknaseal llc 10 1030 purchase sale agreement dated september 29 2002 ibusphoenix inc ibus corporation 10 1031 8 senior subordinated promissory note dated september 29 2002 principal amount 7000000 10 1032 warrant common stock ibus corporation dated september 29 2002 issued ibusphoenix inc 10 1033 term loan agreement amendments dated august 13 2002 october 31 2002 registrant comerica bank california 11 1034 services agreement dated april 4 2003 registrant carlton eibl 16 1035 separation agreement general release claims effective may 8 2003 registrant kenneth potashner 17 1036 employment agreement dated august 1 2003 registrant richard balanson 17 1037 employment agreement dated december 22 2003 registrant tesfaye hailemichael 1038 employment agreement dated december 22 2003 registrant richard smith 1039 separation agreement general release claims effective october 31 2003 registrant james baumker 1040 indemnity agreement directors registrant 1041 loan security agreement dated february 4 2004 registrant silicon valley bank 1042 schedule loan security agreement dated february 4 2004 registrant silicon valley bank 1043 loan security agreement exim program dated february 4 2004 registrant silicon valley bank 1044 schedule loan security agreement exim program dated february 4 2004 registrant silicon valley bank 1045 exportimport bank united states agreement executed borrower dated february 4 2004 registrant exportimport bank united states silicon valley bank 1046 intellectual property security agreement dated february 4 2004 registrant silicon valley bank 1047 securities account control agreement dated february 4 2004 registrant silicon valley bank 211 list subsidiaries registrant 231 consent deloitte touche llp independent auditors 232 consent ernst young llp independent auditors 311 certification chief executive officer pursuant rule 13a14a section 302 certification adopted pursuant section 302 sarbanesoxley act 2002 312 certification chief financial officer pursuant rule 13a14a section 302 certification adopted pursuant section 302 sarbanesoxley act 2002 certification chief executive officer chief financial officer pursuant 18 usc section 1350 adopted pursuant section 906 sarbanesoxley act 2002 filed herewith 1 incorporated herein reference registrant’s current report form 8k filed sec january 15 2004 2 incorporated herein reference registrant’s annual report form 10k fiscal year ended july 31 1999 3 incorporated herein reference registrant’s quarterly report form 10q quarter ended june 30 2003 4 incorporated herein reference registrant’s current report form 8k filed sec november 18 1999 5 incorporated herein reference registrant’s transition report form 10k transition period august 1 1999 december 31 1999 6 incorporated herein reference registrant’s annual report form 10k fiscal year ended december 31 2000 7 incorporated herein reference registrant’s quarterly report form 10q quarter ended september 30 2000 8 incorporated herein reference registrant’s current report form 8k filed sec july 19 2002 9 incorporated herein reference registrant’s current report form 8k filed sec september 18 2002 10 incorporated herein reference registrant’s current report form 8k filed sec october 15 2002 11 incorporated herein reference registrant’s annual report form 10k fiscal year ended december 31 2002 12 incorporated herein reference registrant’s annual report form 10k fiscal year ended december 31 2001 signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized 30th day march 2004 pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities dates indicated signature title date richard balanson president chief executive officer march 30 director richard balanson tesfaye hailemichael vice president finance march 30 treasurer chief financial officer tesfaye hailemichael principal financial accounting officer carlton j eibl director march 30 carlton j eibl mark rossi director march 30 mark rossi jean lavigne director march 30 jean lavigne robert guyett director march 30 robert guyett josé cortes director march 30 josé cortes item 8 financial statements supplementary data consolidated financial statements notes thereto appear pages annual report form 10k maxwell technologies inc subsidiaries index consolidated financial statements independent auditors’ report board directors stockholders maxwell technologies inc audited accompanying consolidated balance sheet maxwell technologies inc subsidiaries “company” december 31 2003 related consolidated statements operations shareholders’ equity comprehensive loss cash flows year ended audit also included 2003 financial statement schedule listed item 15 financial statements financial statement schedule responsibility company’s management responsibility express opinion financial statements financial statement schedule based audit conducted audit accordance auditing standards generally accepted united states america standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audit provides reasonable basis opinion consolidated financial statements present fairly material respects financial position maxwell technologies inc subsidiaries december 31 2003 results operations cash flows year ended conformity accounting principles generally accepted united states america also opinion financial statement schedule considered relation basic consolidated financial statements taken whole presents fairly material respects information set forth therein discussed note 1 consolidated financial statements effective january 1 2003 company changed method accounting swiss pension plan conform statement financial accounting standards 87 amended deloitte touche llp san diego california march 29 2004 report ernst young llp independent auditors board directors stockholders maxwell technologies inc audited accompanying consolidated balance sheet maxwell technologies inc subsidiaries december 31 2002 related consolidated statements operations stockholders’ equity cash flows two years period ended december 31 2002 audits also included financial statement schedule ii valuation qualifying accounts consolidated financial statements schedule responsibility company’s management responsibility express opinion financial statements schedule based audits conducted audits accordance auditing standards generally accepted united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion financial statements referred present fairly material respects consolidated financial position maxwell technologies inc subsidiaries december 31 2002 consolidated results operations cash flows two years period ended december 31 2002 conformity accounting principles generally accepted united states also opinion related financial statement schedule considered relation basic financial statements taken whole presents fairly material respects information set forth therein discussed note 8 consolidated financial statements effective january 1 2002 company adopted financial accounting standards board statement 142 “goodwill intangible assets” san diego california february 7 2003 maxwell technologies inc subsidiaries consolidated balance sheets thousands except per share data see accompanying notes consolidated financial statements maxwell technologies inc consolidated statements operations thousands except per share data see accompanying notes consolidated financial statements maxwell technologies inc subsidiaries consolidated statements stockholders’ equity comprehensive loss thousands see accompanying notes consolidated financial statements maxwell technologies inc subsidiaries consolidated statements cash flows thousands see accompanying notes consolidated financial statements maxwell technologies inc notes consolidated financial statements note 1 description business summary significant accounting policies description business maxwell technologies inc “company” “maxwell” delaware corporation originally incorporated 1965 name “maxwell laboratories inc” 1996 company changed name maxwell technologies inc presently headquartered san diego california maxwell developer manufacturer innovative costeffective energy storage power delivery solutions maxwell’s high reliability business segment comprised three product lines • ultracapacitors maxwell’s primary product ultracapacitors includes boostcap® ultracapacitor cells multicell modules powercache® backup power systems provide highly reliable power solutions applications consumer industrial electronics transportation telecommunications • highvoltage capacitors maxwell’s condis® highvoltage grading coupling capacitors used electric utility infrastructure applications involving transport distribution measurement highvoltage electrical energy • radiationmitigated microelectronic products maxwell’s radiationmitigated microelectronic products include power modules memory modules singleboard computers applications space satellite industries company’s products designed manufactured perform reliably life products systems integrated company achieves high reliability application proprietary technologies rigorously controlled design development manufacturing test processes high reliability strategy emphasizes development marketing products enables maxwell achieve higher profit margins commodity electronic components systems financial statement presentation consolidated financial statements include accounts maxwell technologies inc subsidiaries significant intercompany transactions account balances eliminated consolidation company’s government systems business sold march 2001 purepulse business discontinued september 2002 previously reported separate segment classified discontinued operations accompanying consolidated financial statements note 14 results operations businesses meet criteria classified component entity sold otherwise disposed included continuing operations date sale preparation financial statements conformity accounting principles generally accepted united states america requires management make estimates assumptions affect reported amounts related disclosures estimates include assessing collectability accounts receivable usage recoverability inventories longlived assets incurrence losses warranty costs vacant leased facilities offered sale markets company’s products extremely competitive characterized rapid technological change new product development product obsolescence evolving industry standards addition price competition intense significant price erosion generally occurs life product respect vacant leased facilities commercial real estate markets depressed due continued poor economic conditions spending reductions businesses government agencies result factors actual results could differ estimates used management certain prior year amounts reclassified conform current year presentation company’s fiscal quarters end last day calendar month march 31 june 30 september 30 december 31 cash equivalents shortterm investments company invests excess cash debt instruments us government agencies highquality corporate issuers highly liquid instruments original maturity three months less purchase considered cash equivalents original maturities greater three months date purchase considered shortterm investments company’s shortterm investments marketable securities classified availableforsale reported fair value unrealized gains losses included stockholders’ equity maxwell technologies inc notes consolidated financial statements continued separate component comprehensive income realized gains losses otherthantemporary declines value availableforsale securities reported income expense incurred company recognized 49000 22000 82000 net realized gains years ended december 31 2003 2002 2001 respectively company uses specific identification method sales investments maturities gross unrealized gains losses shortterm investments december 31 2003 follows thousands allowance doubtful accounts allowance doubtful accounts reflects management’s best estimate probable losses inherent accounts receivable balance management determines allowance based known troubled accounts historical experience currently available evidence inventories stated lower cost market inventory values based standard costs approximate average costs firstin firstout method property plant equipment property plant equipment carried cost depreciated using straightline method depreciation amortization provided estimated useful lives related assets three ten years maxwell technologies inc notes consolidated financial statements continued longlived assets longlived assets property plant equipment reviewed impairment whenever events changes business circumstances indicate carrying value longlived asset may recoverable company determines carrying value longlived asset may recoverable permanent impairment charge recorded amount carrying value longlived asset exceeds fair value goodwill intangible assets goodwill represents excess cost acquired business net fair value assigned assets acquired liabilities assumed amortized instead goodwill assessed impairment sfas 142 “goodwill intangible assets” note 8 intangible assets finite lives continue amortized straightline basis useful lives 10 12 years evaluated impairment whenever events changes circumstances indicate carrying value may recoverable sfas 144 “accounting impairment disposal longlived assets” warranty obligation company provides warranty customers one year normal course business company accrues estimated warranty time sale based historical warranty expenses estimated warranty liability calculated based historical warranty expenses plus known warranty exposure income taxes company accounts income taxes accordance statement financial accounting standards sfas 109 “accounting income taxes” requires use liability method accounting deferred income taxes method deferred income taxes recorded reflect tax consequences future years temporary differences tax bases assets liabilities financial reporting amounts period end likely portion deferred tax asset realized valuation allowance recognized concentration credit risk financial instruments subject company potential concentrations credit risk consist principally company’s accounts receivable company’s accounts receivable result product sales customers various industries various geographical areas domestic foreign company performs ongoing credit evaluations customers generally requires collateral one customer abb ltd provided 13 revenue 2003 comprised 17 accounts receivable balances december 31 2003 revenue recognition company derives substantially revenue sale manufactured products product revenue recognized products shipped title passes customer revenues licensing arrangements became significant 2003 result company’s strategic alliance yec paid right manufacture proprietary boostcap® ultracapacitors license fee revenue recognized performance requirements met fee fixed determinable collection fees probable general company offer discounts right return company provide installation services incur post sale obligations product warranty accrued time sale prior years certain continuing discontinued segments recorded revenue longterm shortterm fixed price contracts cost plus contracts us government directly prime contractor revenues including estimated profits recognized costs incurred included provisions anticipated losses maxwell technologies inc notes consolidated financial statements continued foreign currencies company’s primary foreign currency exposure related subsidiary switzerland maxwell technologies sa euro local currency swiss franc revenue operating expenses changes currency exchange rates impact us dollar amount revenue expenses assets liabilities maxwell’s swiss subsidiary translated yearend exchange rates revenues expenses gains losses translated rates exchange approximate rate effect time transaction company hedge currency exposures comprehensive income loss comprehensive income loss defined includes changes equity period nonowner sources net loss comprehensive loss including foreign currency translation adjustments unrealized gains losses shortterm investments reported net related tax effect arrive comprehensive loss december 31 2003 accumulated comprehensive income consisted 33 million unrealized gain foreign currency translation 6000 unrealized gain shortterm investments income loss per share income loss per share calculated using weighted average number common shares outstanding diluted income loss per share calculated basis weighted average number common shares outstanding plus dilutive effect outstanding stock options company certain subsidiaries assuming exercise using “treasury stock” method following table sets forth computation basic diluted income loss per share thousands except per share data fiscal years 2003 2002 2001 common stock options 143560 87955 410514 respectively included computation diluted earnings per share impact would antidilutive maxwell technologies inc notes consolidated financial statements continued stock compensation company adopted disclosure provisions fasb statement 123 accounting stockbased compensation “statement 123” amended sfas 148 accounting stock based compensation transitions disclosure accordance provisions statement 123 company applies accounting principles board opinion 25 related interpretations accounting stock option plans accordingly compensation expense recognized stock options granted employees years ended december 31 2003 2002 2001 stock options granted employees exercise prices equal fair value underlying common stock time grant company elected recognize compensation cost based fair value method prescribed statement 123 company’s net loss per share would adjusted pro forma amounts indicated thousands except per share amounts pro forma adjustments shown indicative future period pro forma adjustments calculation reflect applicable stock options fair value company options date grant estimated using blackscholes optionpricing model assumptions follows maxwell technologies inc notes consolidated financial statements continued recent accounting pronouncements january 2003 financial accounting standards board “fasb” issued fasb interpretation 46 “consolidation variable interest entities” fin 46 interpretation accounting research bulletin 51 “consolidated financial statements” addresses consolidation business enterprises variable interest entities vies either 1 sufficient equity investment risk permit entity finance activities without additional subordinated financial support 2 equity investors lack essential characteristic controlling financial interest interpretation applies immediately vies created january 31 2003 applies first fiscal year interim period beginning june 15 2003 vies enterprise holds variable interest acquired february 1 2003 application interpretation expected material effect consolidated financial statements december 2002 fasb issued sfas 148 “accounting stockbased compensation transition disclosure amendment fasb statement 123” sfas 148 statement amends sfas 123 “accounting stock based compensation” sfas 123 provide alternative methods voluntarily transitioning fair value based method accounting stockbased employee compensation sfas 148 also amends disclosure requirements sfas 123 require disclosure method used account stockbased employee compensation effects method reported results annual interim financial statements disclosure provisions effective company’s year ended december 31 2002 application interpretation material effect company’s consolidated financial statements november 2002 fasb issued fasb interpretation 45 “guarantor’s accounting disclosure requirements guarantees including indirect guarantees indebtedness others” fin 45 fin 45 requires liability recorded fair value obligation guarantor’s balance sheet upon issuance guarantee addition fin 45 requires certain disclosures entity’s guarantees company’s adoption fin 45 material impact operations june 2002 fasb issued sfas 146 “accounting costs associated exit disposal activities” sfas 146 statement supercedes emerging issues task force eitf issue 943 “liabilities recognition certain employee termination benefits costs exit activity including certain costs incurred restructuring” sfas 146 requires liability cost associated exit disposal activity recognized date entity commits exit plan sfas 146 also establishes liability initially measured recorded fair value provisions sfas 146 effective exit disposal activities initiated december 31 2002 adoption sfas 146 january 1 2003 material impact company’s financial position results operations august 2001 financial accounting standards board fasb issued sfas 144 “accounting impairment disposal longlived assets” sfas 144 addresses financial accounting reporting impairment disposal longlived assets sfas 144 supersedes sfas 121 retains sfas 121’s fundamental provisions recognition measurement impairment longlived assets held used measurement longlived assets disposed sale sfas 144 also supersedes accounting reporting provisions accounting principles board “apb” opinion 30 segments business disposed retains apb opinion 30’s requirement report discontinued operations separately continuing operations extends reporting component entity either disposed classified held sale sfas 144 became effective company beginning january 1 2002 adoption sfas 144 january 1 2002 material impact company’s financial position results operations maxwell technologies inc notes consolidated financial statements continued accounting change effective january 1 2003 company adopted sfas 87 “employers’ accounting pensions” amended accordance emerging issues task force 034 “determining classification benefit attribution method “cash balance” pension plan” related swiss pension plan statement required standardization method measuring net periodic pension cost recognizing compensation cost employee’s pension employee’s approximate service period relating cost directly terms plan statement requires immediate recognition liability minimum liability accumulated benefit obligation exceeds fair value plan assets statement also requires expanded disclosures pension plan assets obligations benefits payments contributions net benefit cost adoption sfas 87 january 1 2003 resulted cumulative effect accounting change net tax 878000 note 11 note 2 business combinations july 5 2002 company acquired montena components ltd montena swiss corporation principal facility rossens switzerland transaction company acquired outstanding shares capital stock montena parent company montena sa swiss corporation exchange 2250000 shares maxwell common stock issued directly montena sa ii additional 300000 shares maxwell common stock originally held company collateral 3 million loan montena sa iii additional 464927 shares maxwell common stock issued based montena achieving revenues least 20 million four quarters ended june 30 2003 calculation third final common stock issuance montena sa calculated using following formula extent share maxwell stock issued part purchase price held montena sa september 1 2003 market value based average 30day trading closing price ending september 1 2003 “30 day measurement price” less 9 per share company provide montena sa additional consideration equal total value difference 9 30day measurement price multiplied ii number shares held montena sa september 1 2003 provided however additional consideration event greater 500000 shares maxwell common stock based 30day measurement price cash equal value 500000 shares maxwell common stock valued 30day measurement price according formula september 2003 464927 shares common stock issued montena sa result purchase transaction montena sa held approximately 18 maxwell common stock december 31 2003 results operations montena included consolidated statement operations july 5 2002 date acquisition purchase price allocated follows thousands maxwell technologies inc notes consolidated financial statements continued pro forma results following unaudited pro forma information assumes acquisition montena occurred january 1 2001 unaudited pro forma results prepared comparative purposes purport indicative results operations would actually resulted combination effect january 1 2001 future results operations unaudited pro forma results years ended december 31 2002 2001 follows thousands except per share amounts september 2000 company’s subsidiary ibusphoenix inc acquired gateworks corporation “gateworks” designs supplies embedded computer boards transaction accounted purchase closing date ibusphoenix inc paid 500000 cash issued 855153 new shares ibusphoenix inc common stock selling shareholders gateworks exchange outstanding shares gateworks total number ibusphoenix inc shares issued selling gateworks shareholders adjusted additional 342450 newly issued shares ibusphoenix inc first quarter 2002 reflect final purchase price based upon actual gateworks ibusphoenix inc 2001 revenues value additional shares accrued december 2001 connection acquisition ibusphoenix inc granted certain rights selling gateworks shareholders permitted shareholders january 2002 require ibusphoenix inc repurchase 193624 ibusphoenix inc shares issued shareholders closing date 12 million purchase accounting purposes closing date payment valued approximately 44 million final payment valued 14 million 01 million allocated net liabilities acquired 59 million allocated goodwill amortized period five years prior adoption sfas 141 remaining 05 million related acquired technologies achieved technological commercial feasibility closing date charged operations closing date pro forma results operations company gateworks assuming gateworks acquired january 1 2000 would materially different reported results note 3 divestitures assets heldforsale june 2003 company decided discontinue marketing supporting product line electronic components testers recorded charges cost sales 444000 primarily related excess inventory equipment 393000 primarily related warranty buyouts 259000 related expected future warranty returns quarters ended june 30 2003 september 30 2003 december 31 2003 respectively sales accelerated life testers product line immaterial periods presented december 2003 company’s maxwell technologies sa subsidiary sold fixed assets substantially inventory except work process inventory warranty employee agreement obligations metar winding equipment business segment located matran switzerland metar sa new company whose principal shareholder former ceo montena sa company received 324000 cash recognized loss sale 538000 reflected gain loss sale businesses new metar company complete certain work progress related customer orders received maxwell technologies sa date sale metar sa complete machines work progress deliver according delivery schedule january june 2004 metar sa paid services based agreed payment schedule company reported results operations winding equipment business segment continuing operations continued involvement therewith december 2003 company sold manufacturing administrative facility san diego contained ibusphoenix operations facility previously classified assets heldforsale net book value 74 million proceeds sale facility 90 million closing expenses 387000 resulting net gain sale facility 12 million net cash proceeds sale facility 59 million payment closing expenses repayment 27 million term loan secured deed trust facility maxwell technologies inc notes consolidated financial statements continued september 29 2002 company’s ibusphoenix subsidiary sold substantially assets liabilities business operations applied computing business located principally san diego california tangmere united kingdom ibus corporation new company whose principal shareholders former ibusphoenix senior managers applied computing business designs manufactures sells applied computing systems mainly original equipment manufacturers serving telecommunications broadcasting industrial automation markets business sold 8 senior subordinated note aggregate principal amount 70 million terms 10 million payable plus 50 accrued interest march 30 2004 3 million payable plus 100 accrued interest march 30 2005 march 30 2006 ii warrant purchase 199 common stock new ibus corporation exercisable time june 30 2004 fair market value per share time exercise iii additional contingent purchase price payment 10 million new ibus corporation sells computing business prior full payment 8 senior subordinated note referred ibusphoenix also agreed reimburse ibus corporation certain shutdown restructuring costs provide back working capital credit facility amount 300000 september 2003 company assigned value subordinated debt collectability uncertain record collections note gain date collection table details loss recognized company related sale addition company incurred related restructuring charges discussed note 12 impairment charges discussed note 13 2003 company received payments 475000 new ibus corporation partial recovery 70 million subordinated note fully reserved 2002 recovery reflected gain loss sale business september 30 2002 company sold substantially assets liabilities business operations teknaseal glasstometal seals division minneapolis minnesota group private investors teknaseal designs manufactures sells hermetic glasstometal seals vacuum components battery headers implantable medical devices specialty applications aggregate selling price 55 million cash 10 million held escrow account december 31 2002 company’s involvement teknaseal ended year ended december 31 2003 company recognized gain 695000 included gain loss sale businesses accompanying consolidated statement operations upon receipt funds released escrow amounts held escrow released company december 31 2003 june 18 2001 “closing date” company’s former majorityowned subsidiary maxwell electronic components group inc “ecg” sold substantially assets except accounts receivable liabilities business operations sierra kd components division carson city nevada “sierra” gb acquisition co inc whollyowned subsidiary wilson greatbatch technologies inc “wgt” sierra manufactured commercialized ceramic filter capacitors wire feedthroughs implantable medical devices ceramic capacitors aerospace commercial applications aggregate purchase price 469 million received cash closing egc retained accounts receivable sierra closing date amounted 25 million net assets sold net book value 64 million closing date company recorded pretax gain sale assets 391 million maxwell technologies inc notes consolidated financial statements continued net accrued transaction costs 14 million including certain sale bonuses amounts paid cancel certain ecg employee stock options held employees transferring wgt company used 157 million aggregate proceeds repay amounts outstanding closing date credit facility comerica bank note 4 balance sheet details thousands warranty reserve analysis maxwell technologies inc notes consolidated financial statements continued note 5 shortterm longterm borrowings shortterm borrowings maxwell technologies sa 16 million bank credit agreement swiss bank borrowings credit agreement bear interest 55 plus 25 every quarter borrowings outstanding credit agreement maxwell technologies sa eligible borrow fixed term loans libor plus 175 repayment terms extending beyond one month date funding borrowings credit agreement secured assets maxwell technologies sa december 31 2003 full amount credit agreement drawn addition 400000 letters guarantee related customer deposits outstanding december 31 2003 company entered new us loan security agreement february 2004 provides overall credit limit 30 million subject oneyear repayment period borrowings secured eligible accounts receivable balances calculated reported monthly basis borrowings credit agreement bear interest prime rate plus 175 provided rate less 575 agreement requires company maintain minimum tangible net worth 15 million plus 50 consideration future equity debt transactions plus 50 net income fiscal quarter date agreement longterm borrowings january 2004 maxwell sa obtained 925000 term loan financing specific capital equipment expenditures borrowings term loan secured equipment purchased credit agreement bears interest swiss interbank borrowing rate plus 20 term loan borrowed quarterly advances 925000 limit repaid 1 5 year time frames maxwell sa loan montena sa pension plan 300000 swiss francs 250000 december 31 2003 december 31 2002 loan pension plan bears interest variable mortgage rate banque cantonale de fribourg plus 1 resulted 5 interest rate 2003 february 2001 company entered loan security agreement comerica bankcalifornia loan security agreement amended consisted 50 million credit line secured deed ibusphoenix facility san diego well certain collateral term loan bore interest company’s option bank’s reference rate plus 5 cost funds plus 225 interest rate 475 december 31 2002 principal amortized monthly 20 years balance due december 31 2004 amount loan paid full december 2003 portion proceeds sale ibusphoenix facility note 6 stock activity stock plans stock option plans december 1995 company adopted 1995 stock option plan amended 3340000 shares common stock reserved future grant company’s 1999 director stock option plan 75000 shares reserved future grant adopted 1999 approved company’s shareholders january 2000 plans provide granting either incentive stock options nonqualified stock options employees nonemployee members company’s board directors respectively december 1999 company granted 294030 nonqualified options company’s new president chief executive officer mr eibl outside company’s option plans april 2002 conjunction purchase shares ibusphoenix electronic components group subsidiaries already owned see note 7 company issued approximately 520000 options purchase maxwell common stock exchange options purchase subsidiary common stock issuance stock options outside company’s option plans options also outstanding expired stock option plans superceded current plans options granted stock option plans purchase common stock company less stock’s fair market value date grant employee options generally exercisable cumulative annual installments 20 30 percent options 1999 director stock option plan fully exercisable one year date grant options terms five ten years december 31 2003 company 582633 shares available future grant stock option plans maxwell technologies inc notes consolidated financial statements continued november 2002 board directors approved company established program restore equity incentives key employees outside directors november 2002 853461 options strike prices 10 held senior management outside directors voluntarily cancelled option holders exchange future issuance late may 2003 substitute stock options strike price equal thenprevailing market price common stock following table summarizes total aggregate stock option activity period january 1 2001 december 31 2003 maxwell technologies inc notes consolidated financial statements continued following table summarizes information concerning outstanding exercisable company common stock options december 31 2003 estimated weighted average fair value grant date company options granted years ended december 31 2003 2002 2001 831 623 859 per option respectively stock purchase plans december 1994 company established 1994 employee stock purchase plan director stock purchase plan employee plan permits substantially employees purchase common stock payroll deductions 85 lower trading price stock beginning end sixmonth offering period director plan permits nonemployee directors purchase common stock 100 trading price stock date request purchase received years ended december 31 2003 2002 2001 aggregate shares 23404 44660 56975 respectively issued two plans aggregate proceeds company 117000 353000 997000 respectively december 31 2003 256476 shares reserved future issuance plans june 2002 part completing consolidation ownership company ibusphoenix four employees one consultant ibusphoenix granted 19500 shares company’s common stock subject certain restrictions shares granted vest next two years fair market value 182000 date grant result divestiture applied computing business operations completed 2002 third fiscal quarter vesting accelerated balance deferred compensation fully amortized january 2000 board adopted company’s stockholders subsequently approved company’s management equity ownership program “program” program executive officers company members senior management selected committee offered fullrecourse loans company used purchase stock company loans bear interest must repaid annual installments principal interest fouryear period repayment loans secured shares purchased loan proceeds february 1 2000 loans aggregate amount 900000 bearing interest 656 made connection aggregate purchase 74995 newly issued shares company’s common stock 1200 per share closing market price date purchase january 29 2002 loans aggregate amount 75000 bearing interest 485 made connection aggregate purchase 9258 newly issued shares company’s common stock 810 per maxwell technologies inc notes consolidated financial statements continued share closing market price date purchase june 3 2002 company determined extinguish program cancelled 74000 shares 970000 loan balance outstanding plan company recorded expense 116000 related cancellation notes deferred compensation 1996 1997 chairman company granted shares company’s common stock subject certain restrictions shares granted vest ratably fouryear period grant dates shares fair value approximately 645000 190000 respectively values net accumulated amortization shown deferred compensation accompanying consolidated statements stockholders’ equity deferred compensation fully recognized december 31 2001 amortized expense fouryear vesting periods 2003 company former chairman board entered services agreement whereby former chairman received option acquire 94251 shares fair market value date grant options fully vested fixed life four years accordingly company recorded compensation expense 313000 representing fair value options pursuant blackscholes valuation model stockholder rights plan november 1999 company adopted stockholder rights plan successor previous plan expired june 1999 accordance plan company distributed one nonvoting common stock purchase right “right” outstanding share common stock rights exercisable trade separately common stock unless person group acquires makes tender offer 20 company’s common stock initially right entitles registered holder purchase one share company common stock price 75 per share subject certain antidilution adjustments rights become exercisable certain conditions met right owned acquiring person group entitle holder receive upon exercise company common stock market value twice exercise price right addition company may redeem rights price 001 per right subject certain restrictions stockholder rights plan expires october 21 2009 note 7 consolidation subsidiary ownership february 2002 pacificorp energy ventures inc largest minority shareholder electronic components group exchanged preferred shares electronic components group 518000 common shares maxwell pursuant right original investment agreement april 15 2002 company completed merger transactions electronic components group subsidiary ibusphoenix subsidiary whereby remaining minority shareholdings options subsidiaries converted shares options maxwell conversion ratio established company’s analysis fair market value subsidiaries average trading price maxwell’s stock time analysis company issued 86000 shares electronic components group minority shareholders exchange ownership value stock issuance determined 795000 based closing price maxwell shares day merger result transactions relating ecg group company recorded 38 million excess purchase price based value maxwell common shares minority interest balance sheet 28 million allocated goodwill related teknaseal division sold september 2002 987000 allocated ultracapacitor intellectual property addition company issued 479000 shares ibusphoenix minority shareholders exchange ownership value stock issuance determined 44 million based closing price maxwell shares day merger company recorded 11 million excess purchase price based value maxwell’s common shares minority interest balance sheet 422000 allocated goodwill associated ibus computing systems business considered impaired written conjunction sale september 2002 balance allocated goodwill related power systems business note 8 goodwill intangibles company implemented sfas 142 began applying rules accounting goodwill intangible assets effective january 1 2002 sfas 142 goodwill impairment test twostep process first step consists estimating fair value reporting unit based discounted cash flow model using revenue profit forecasts comparing estimated fair values carrying values includes allocated goodwill maxwell technologies inc notes consolidated financial statements continued fair value less carrying value second step performed compute amount impairment determining implied fair value goodwill implied fair value goodwill residual fair value derived deducting fair value reporting unit’s assets liabilities estimated fair value calculated step one impairment charge represents excess carrying amount reporting unit’s goodwill implied fair value goodwill sfas 142 requires goodwill tested annually time every year event occurs circumstances change reasonably possible impairment may exist company selected december 31 annual testing date result company’s annual assessment december 31 2003 impairment indicated assessing recoverability goodwill 2002 company made assumptions regarding future cash flows factors determine fair value goodwill associated ibus computing systems business written conjunction disposition business remaining goodwill mainly attributable acquisition montena completed july 2002 company’s analysis completed early fourth quarter 2002 based determination circumstances since recently completed acquisition montena materially changed company’s fair market value date significantly excess carrying value assets including goodwill change carrying amount goodwill december 31 2003 follows thousands following table presents reconciliation net loss per share data would reported new rules effect year ended december 31 2001in thousands maxwell technologies inc notes consolidated financial statements continued acquired intangible assets subject amortization december 31 2003 2002 follows thousands amortization expense intangible assets 197000 543000 years ended december 31 2003 2002 respectively estimated amortization next five years ended december 31 follows actual amortization expense reported future periods could differ estimates result impairments factors maxwell technologies inc notes consolidated financial statements continued note 9 income taxes provision benefit income taxes based income loss continuing operations follows thousands provision benefit income taxes accompanying consolidated statements operations differs amount calculated applying statutory income tax rate income loss continuing operations income taxes primary components difference follows thousands cumulative losses operations december 31 2003 company established valuation allowance 32 million valuation allowance established realizability deferred tax assets longer assessed likely company continued record valuation allowances deferred tax assets generated 2003 pursuant internal revenue code sections 382 383 use company’s federal net operating loss credit carryforwards may limited due cumulative change ownership 50 within threeyear period december 31 2003 company net operating loss carryforwards federal state income tax approximately 740 million 288 million respectively federal loss carryforward begins expire calendar year 2011 state loss carryforwards continue expire 2004 2011 addition company research development tax credit carryforwards federal state income tax purposes december 31 2003 33 million 23 million respectively begin expire 2004 maxwell technologies inc notes consolidated financial statements continued deferred income taxes reflect net tax effects temporary differences carrying amounts assets liabilities financial reporting purposes amounts used income tax purposes primary components company’s deferred tax assets liabilities within continuing operations follows thousands note 10 leases rental expense amounted 15 million 26 million 19 million years ended december 31 2003 2002 2001 respectively incurred primarily facility rental future annual minimum rental commitments automobile leases december 31 2003 follows thousands maxwell technologies inc notes consolidated financial statements continued note 11 pension postretirement benefit plans foreign plans july 2002 company acquired montena including pension plan covering swiss employees note 2 plan provides pension benefits employees terms plan required swiss law regulations plan characteristics defined benefit defined contribution cash balance plans year ended december 31 2002 plan treated defined contribution plan however year ended december 31 2003 accordance emerging issues task force eitf 034 “determining classification benefit attribution method “cash balance” pension plan” plan classified defined benefit pension plan adoption eitf 034 accounted effect adopting new accounting principle beginning year january 1 2003 resulted cumulative effect accounting change net tax 878000 pension benefit based compensation length service credited investment earnings plan guarantees minimum rate return well minimum annuity purchase rates company’s funding policy respect pension plan contribute amount required swiss law using required percentage applied employee’s compensation addition employee required contribute identical amount pension plan company made pension contributions 302000 2003 plan measurement date december 31 2003 approximately 46 former employees montena left plan paid participant balances accordance terms plan resulted settlement gain 154000 2003 amount shown development change benefit obligation december 2003 company sold winding equipment business segment result approximately 50 employees left company resulted curtailment gain 20 million company obligated fiscal 2004 pay obligation employees based upon participant balances date termination plus amounts may allocable result plan operating results prior settlement amount shown development change benefit obligation maxwell technologies inc notes consolidated financial statements continued us plans company post retirement benefit plans covering substantially employees united states substantially us employees eligible elect coverage contributory employee savings plans provide company matching contributions based onehalf employee contributions certain plan limits company’s matching contributions plans totaled 190000 283000 275000 years ended december 31 2003 2002 2001 respectively accumulated benefit obligation 143 million december 31 2003 maxwell technologies inc notes consolidated financial statements continued accumulated benefit obligation 143 million december 31 2003 note 12 restructuring charges 2003 restructuring reserves fully utilized company paid 216000 severance 42000 taxes remaining restructuring liability outstanding december 31 2003 first half 2002 ibusphoenix introduced new applied computing products developed 2001 however market applied computing products particularly telecommunications deteriorated throughout 2002 company responded poor market conditions computing systems capital goods restructuring ibusphoenix june 2002 company began implementing restructuring plan recorded restructuring charges 707000 quarter ended june 30 2002 comprised severance payments employee related expenses 269000 ii impairment assets longer used facility lease terminations closure cost related certain facilities europe totaling 438000 addition company also determined certain components inventory adversely impacted accordingly company recorded inventory charge 30 million certain excess obsolete raw material components finished goods charge classified “cost sales” accompanying consolidated statements operations third fiscal quarter 2002 company decided sell applied computing business ibusphoenix new company organized former ibusphoenix senior managers preparation sale configure ibusphoenix computing business selfsupporting ibusphoenix consolidated production applied computing products facility tangmere united kingdom reduced worldwide personnel result plan company recorded restructuring charges 922000 quarter ended september 2002 date sale 245000 restructuring reserves disposed part sale 1999 2000 company undertaken various actions consolidate facilities reduce cost structure result company recorded restructuring related charges five months ended december 31 1999 year ended december 31 2000 33 million included termination approximately 75 employees cutbacks impacted segments classes employees maxwell technologies inc notes consolidated financial statements continued following table summarizes restructuring charges recorded activity related charges years ended december 31 2001 2002 2003 thousands note 13 impairment charges 2002 connection sale ibus computing systems business note 3 company recorded 76 million impairment charges related long livedassets write impaired assets consisted 53 million goodwill associated computing systems business company conducted extensive review fixed assets supporting multiple businesses including computing systems business part reviews company determined carrying values related longlived assets excess fair market value result asset impairment charge 23 million recorded investment impairment 500000 recorded 2001 relating maxwell’s ownership approximately 1 privately held company involved support services areas information technology system software integration engineering technical services contract various government agencies late 2003 maxwell sold stock company gain 184000 note 14 discontinued operations march 2001 company sold assets defense contracting business separate transactions two buyers aggregate purchase price approximately 207 million proceeds recorded 2001 buyers assumed certain liabilities ongoing contractual obligations business hired employees business company retained certain leases lease obligations expiring 2006 certain assets liabilities business including estimated amounts provided closing expenses transaction net costs winding remaining activities business company recorded gain net tax approximately 39 million first quarter 2001 representing net gain disposition assets net income operations discontinued business based current projected vacancies leased facilities company revised previously estimated costs written related leasehold improvements charges totaled 28 million maxwell technologies inc notes consolidated financial statements continued recorded september 2001 included loss discontinued operations december 31 2003 net lease obligations 11 million run 2006 600000 reserved company increased reserves net lease obligations 720000 first quarter 2003 covers lease payments first quarter 2005 owner vacant facility actively marketing property sale lease additional reserves may required marketing activities result sale lease end 2004 september 2002 company decided suspend operations purepulse designing developing systems generate extremely intense broadspectrum pulsed light purify water inactivate viruses pathogens contaminate vaccines products sourced human animal tissues plasma derivatives transfusion blood components biopharmaceuticals company plans preserve intellectual property certain technology assets possible future sale assets operating results discontinued operations shown separately net tax accompanying consolidated statements operations provision income taxes provided discontinued operations years ended december 31 2003 2002 fiscal year ended december 31 2001 provision income taxes related discontinued operations 46 million businesses included discontinued operations sales aggregating 351000 758000 117 million years ended december 31 2003 2002 2001 respectively amounts included net sales accompanying consolidated statements operations net liabilities discontinued operations separately classified accompanying consolidated balance sheets december 31 2003 2002 amounts 15 million 23 million respectively net liability balances discontinued operations comprised 600000 lease obligations 894000 minority interest december 31 2003 december 31 2002 net liability balances comprised 11 million accrued liabilities lease obligations suppliers 13 million minority interest results discontinued operations segment consisted following thousands maxwell technologies inc notes consolidated financial statements continued note 15 business segments based maxwell’s strategy developing manufacturing marketing high reliability power microelectronic products original equipment manufacturers oems multiple industries company reorganized two reportable segments accordance requirements guidelines statement financial accounting standards 131 “disclosure segments enterprise related information” restated segment results reflect following new reporting segments acquisition montena dispositions ibus computing systems business teknaseal glasstometal seals business completed third fourth quarters 2002 respectively company’s businesses organized two segments high reliability business segment winding equipment business segment high reliability business segment consists • ultracapacitors electrical energy storage delivery peak power variety applications • highvoltage grading coupling capacitors used electric utility infrastructure highvoltage laboratories applications involving transport distribution measurement highvoltage electrical energy • radiationshielded microelectronics including integrated circuits power modules memory modules single board computers aerospace military applications winding equipment business segment makes winding machines automated assembly lines used manufacture metalized film capacitors lithium batteries segment sold december 2003 note 3 nonetheless company reported results operations winding equipment business segment continuing operations continuing involvement therewith prior sale computing systems business end third quarter 2002 company’s ibusphoenix power computing systems segment designed manufactured marketed applied computing systems power distribution power conditioning systems mainly oems serving telecommunications industrial automation broadcasting medical imaging markets power distribution conditioning systems part high reliability business segment restated ibus computing systems segment consists solely computing business sold september 2002 june 2001 company sold substantially assets except accounts receivable liabilities business operations sierra manufactured commercialized ceramic filter capacitors wire feedthroughs implantable medical devices ceramic capacitors aerospace commercial applications september 30 2002 company sold noncore teknaseal glasstometal seals business minneapolis minnesota businesses previously reported former electronic components segment combined segment reporting purposes called sierra teknaseal segment maxwell’s management evaluates performance allocates resources based measure segment profit loss excluding interest taxes restructuring acquisition charges accounting policies reportable segments described summary significant accounting policies maxwell technologies inc notes consolidated financial statements continued business segment financial data follows thousands maxwell technologies inc notes consolidated financial statements continued intersegment sales insignificant identifiable assets segment include assets directly identified segments corporate assets consist primarily cash equivalents shortterm investments deferred tax assets liabilities centralized telecommunications networking information technology equipment company international sales amounted 260 million 251 million 218 million years ended december 31 2003 2002 2001 respectively made principally customers pacific rim europe company assets located outside united states totaled approximately 339 million 298 million december 31 2003 2002 respectively company made sales one major customer high reliability business segment aggregated 13 20 24 total company sales years ended december 31 2003 2002 2001 respectively note 16 related party transactions january 2001 company borrowed 15 million chief executive officer unsecured promissory note bearing interest 110 note accrued interest fully repaid march 2001 montena sa former parent company montena significant shareholder maxwell technologies inc lessor company’s headquarters rossens switzerland years ended december 31 2003 2002 company paid 809000 346000 respectively rental fees montena sa future rental commitments december 31 2003 43 million maxwell technologies inc notes consolidated financial statements continued note 17 unaudited quarterly results operations thousands except per share amounts 1 includes charge 720000 lease obligations related vacant facilities discontinued operations 2 includes charge 444000 write inventory equipment second quarter charge 393000 third quarter warranty buyouts relate discontinuation accelerated life testers product line 3 includes charge 327000 severance payable chief executive officer first quarter charge 313000 compensation expense related options provided former chairman board second quarter 4 includes license fees 4 million 5 includes gain sale property 12 million loss sale business 538000 winding equipment business gain sale business 475000 recovery ibus note receivable gain sale business 695000 payments received sale teknaseal pension curtailment settlement gain 22 million maxwell technologies inc notes consolidated financial statements continued 6 includes charges 3 million excess obsolete inventory 812000 restructuring charges related ibusphoenix restructuring 7 includes charge 76 million impairment assets related sale ibusphoenix charge 17 million related suspension purepulse operations charge 922000 related restructuring ibusphoenix 8 includes gain sale business 236000 sale teknaseal maxwell technologies inc notes consolidated financial statements continued schedule ii valuation qualifying accounts thousandsitem 15 exhibits financial statement schedules documents filed part report 1 financial statements consolidated financial statements required item submitted separate section beginning page 45 annual report form 10k 2 financial statement schedules financial statement schedule entitled “valuation qualifying accounts” required item submitted separate section beginning page 79 annual report form 10k 3 exhibits filed herewith 1 incorporated herein reference registrant’s current report form 8k filed sec january 15 2004 2 incorporated herein reference registrant’s annual report form 10k fiscal year ended july 31 1999 sec file 00010964 3 incorporated herein reference registrant’s quarterly report form 10q quarter ended june 30 2003 sec file 00115477 4 incorporated herein reference registrant’s transition report form 10k transition period august 1 1999 december 31 1999 sec file 00115477 5 incorporated herein reference registrant’s current report form 8k filed sec july 19 2002 6 incorporated herein reference registrant’s current report form 8k filed sec september 18 2002 7 incorporated herein reference registrant’s current report form 8k filed sec october 15 2002 8 incorporated herein reference registrant’s annual report form 10k fiscal year ended july 31 1997 sec file 00010964 9 incorporated herein reference registrant’s annual report form 10k fiscal year ended july 31 1995 sec file 00010964 10 incorporated herein reference registrant’s annual report form 10k fiscal year ended july 31 1996 sec file 00010964 11 incorporated herein reference registrant’s quarterly report form 10q quarter ended march 31 2003 12 incorporated herein reference registrant’s quarterly report form 10q quarter ended june 30 2003 13 incorporated herein reference registrant’s form 8a filed november 18 1999 sec file 00115477 14 incorporated herein reference registrant’s annual report form 10k fiscal year ended july 31 1987 sec file 00010964 15 incorporated herein reference registrant’s annual report form 10k fiscal year ended december 31 2003 16 incorporated herein reference registrant’s annual report form 10k fiscal year ended december 31 2000 17 incorporated herein reference registrant’s annual report form 10k fiscal year ended july 31 1998 sec file 00010964 b see exhibits required item 15a3 c see financial statement schedule required item 15a2 signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized 22nd day march 2005 maxwell technologies inc richard balanson richard balanson president chief executive officer pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities dates indicateditem 15 exhibits financial statement schedules documents filed part report 1 financial statements consolidated financial statements required item submitted separate section beginning page 44 annual report form 10k 2 financial statement schedules financial statement schedule entitled “valuation qualifying accounts” required item submitted separate section beginning page 74 annual report form 10k 3 exhibits filed herewith 1 incorporated herein reference registrant’s current report form 8k filed sec january 15 2004 2 incorporated herein reference registrant’s annual report form 10k fiscal year ended july 31 1999 sec file 00010964 3 incorporated herein reference registrant’s quarterly report form 10q quarter ended june 30 2003 sec file 00115477 4 incorporated herein reference registrant’s transition report form 10k transition period august 1 1999 december 31 1999 sec file 00115477 5 incorporated herein reference registrant’s current report form 8k filed sec july 19 2002 6 incorporated herein reference registrant’s current report form 8k filed sec september 18 2002 7 incorporated herein reference registrant’s current report form 8k filed sec october 15 2002 8 incorporated herein reference registrant’s annual report form 10k fiscal year ended july 31 1997 sec file 00010964 9 incorporated herein reference registrant’s annual report form 10k fiscal year ended july 31 1995 sec file 00010964 10 incorporated herein reference registrant’s annual report form 10k fiscal year ended july 31 1996 sec file 00010964 11 incorporated herein reference registrant’s quarterly report form 10q quarter ended march 31 2003 12 incorporated herein reference registrant’s quarterly report form 10q quarter ended june 30 2003 13 incorporated herein reference registrant’s form 8a filed november 18 1999 sec file 00115477 14 incorporated herein reference registrant’s annual report form 10k fiscal year ended july 31 1987 sec file 00010964 15 incorporated herein reference registrant’s annual report form 10k fiscal year ended december 31 2003 16 incorporated herein reference registrant’s annual report form 10k fiscal year ended december 31 2000 17 incorporated herein reference registrant’s annual report form 10k fiscal year ended july 31 1998 sec file 00010964 18 incorporated herein reference registrant’s annual reports form 10k fiscal year ended december 31 2004 19 incorporated herein reference registrant’s current report form 8k filed sec july 18 2005 20 incorporated herein reference registrant’s current report form 8k filed sec august 19 2005 21 incorporated herein reference registrant’s current report form 8k filed sec december 21 2005 b see exhibits required item 15a3 c see financial statement schedule required item 15a2 signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized 15th day march 2006 maxwell technologies inc richard balanson richard balanson president chief executive officer pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities dates indicated part iv item 15 exhibits financial statement schedules documents filed part report 1 financial statements consolidated financial statements required item submitted separate section beginning page 45 annual report form 10k 2 financial statement schedules financial statement schedule entitled “valuation qualifying accounts” required item submitted separate section beginning page 74 annual report form 10k 3 exhibits filed herewith 1 incorporated herein reference registrant’s current report form 8k filed sec january 15 2004 2 incorporated herein reference registrant’s annual report form 10k fiscal year ended july 31 1999 sec file 00010964 3 incorporated herein reference registrant’s quarterly report form 10q quarter ended june 30 2003 sec file 00115477 4 incorporated herein reference registrant’s transition report form 10k transition period august 1 1999 december 31 1999 sec file 00115477 5 incorporated herein reference registrant’s current report form 8k filed sec july 19 2002 6 incorporated herein reference registrant’s current report form 8k filed sec september 18 2002 7 incorporated herein reference registrant’s current report form 8k filed sec october 15 2002 8 incorporated herein reference registrant’s annual report form 10k fiscal year ended july 31 1997 sec file 00010964 9 incorporated herein reference registrant’s annual report form 10k fiscal year ended july 31 1995 sec file 00010964 10 incorporated herein reference registrant’s annual report form 10k fiscal year ended july 31 1996 sec file 00010964 11 incorporated herein reference registrant’s quarterly report form 10q quarter ended march 31 2003 12 incorporated herein reference registrant’s quarterly report form 10q quarter ended june 30 2003 13 incorporated herein reference registrant’s form 8a filed november 18 1999 sec file 00115477 14 incorporated herein reference registrant’s annual report form 10k fiscal year ended july 31 1987 sec file 00010964 15 incorporated herein reference registrant’s annual report form 10k fiscal year ended december 31 2003 16 incorporated herein reference registrant’s annual report form 10k fiscal year ended december 31 2000 17 incorporated herein reference registrant’s annual report form 10k fiscal year ended july 31 1998 sec file 00010964 18 incorporated herein reference registrant’s annual reports form 10k fiscal year ended december 31 2004 19 incorporated herein reference registrant’s current report form 8k filed sec july 18 2005 20 incorporated herein reference registrant’s current report form 8k filed sec august 19 2005 21 incorporated herein reference registrant’s current report form 8k filed sec december 21 2005 b see exhibits required item 15a3 c see financial statement schedule required item 15a2 aboveitem 15 exhibits financial statement schedules documents filed part report 1 financial statements consolidated financial statements required item submitted separate section beginning page annual report form 10k 2 financial statement schedules financial statement schedule entitled “valuation qualifying accounts” required item submitted separate section beginning page annual report form 10k 3 exhibits filed herewith 1 incorporated herein reference registrant’s current report form 8k filed sec january 15 2004 2 incorporated herein reference registrant’s annual report form 10k fiscal year ended july 31 1999 sec file 00010964 3 incorporated herein reference registrant’s quarterly report form 10q quarter ended june 30 2003 sec file 00115477 4 incorporated herein reference registrant’s transition report form 10k transition period august 1 1999 december 31 1999 sec file 00115477 5 incorporated herein reference registrant’s current report form 8k filed sec july 19 2002 6 incorporated herein reference registrant’s current report form 8k filed sec september 18 2002 7 incorporated herein reference registrant’s current report form 8k filed sec october 15 2002 8 incorporated herein reference registrant’s annual report form 10k fiscal year ended july 31 1997 sec file 00010964 9 incorporated herein reference registrant’s annual report form 10k fiscal year ended july 31 1995 sec file 00010964 10 incorporated herein reference registrant’s annual report form 10k fiscal year ended july 31 1996 sec file 00010964 11 incorporated herein reference registrant’s quarterly report form 10q quarter ended march 31 2003 12 incorporated herein reference registrant’s quarterly report form 10q quarter ended june 30 2003 13 incorporated herein reference registrant’s form 8a filed november 18 1999 sec file 00115477 14 incorporated herein reference registrant’s annual report form 10k fiscal year ended july 31 1987 sec file 00010964 15 incorporated herein reference registrant’s annual report form 10k fiscal year ended december 31 2003 16 incorporated herein reference registrant’s annual report form 10k fiscal year ended december 31 2000 17 incorporated herein reference registrant’s annual report form 10k fiscal year ended july 31 1998 sec file 00010964 18 incorporated herein reference registrant’s annual reports form 10k fiscal year ended december 31 2004 19 incorporated herein reference registrant’s current report form 8k filed sec july 18 2005 20 incorporated herein reference registrant’s current report form 8k filed sec august 19 2005 21 incorporated herein reference registrant’s current report form 8k filed sec december 21 2005 22 incorporated herein reference registrant’s annual report form 10k fiscal year ended december 31 2005 23 incorporated herein reference registrant’s current report form 8k filed sec may 9 2006 b see exhibits required item 15a3 c see financial statement schedule required item 15a2 signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized 16th day march 2007 maxwell technologies inc richard balanson richard balanson president chief executive officer pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities dates indicateditem 15 exhibits financial statement schedules documents filed part report 1 financial statements consolidated financial statements required item submitted separate section beginning page 49 annual report form 10k 2 financial statement schedules financial statement schedule entitled “valuation qualifying accounts” required item submitted separate section beginning page 81 annual report form 10k 3 exhibits filed herewith 1 incorporated herein reference registrant’s current report form 8k filed sec january 15 2004 2 incorporated herein reference registrant’s annual report form 10k fiscal year ended july 31 1999 sec file 00010964 3 incorporated herein reference registrant’s quarterly report form 10q quarter ended june 30 2003 sec file 00115477 4 incorporated herein reference registrant’s transition report form 10k transition period august 1 1999 december 31 1999 sec file 00115477 5 incorporated herein reference registrant’s current report form 8k filed sec july 19 2002 6 incorporated herein reference registrant’s current report form 8k filed sec september 18 2002 7 incorporated herein reference registrant’s annual report form 10k fiscal year ended july 31 1997 sec file 00010964 8 incorporated herein reference registrant’s annual report form 10k fiscal year ended july 31 1995 sec file 00010964 9 incorporated herein reference registrant’s annual report form 10k fiscal year ended july 31 1996 sec file 00010964 10 incorporated herein reference registrant’s form 8a filed november 18 1999 sec file 00115477 11 incorporated herein reference registrant’s annual report form 10k fiscal year ended july 31 1987 sec file 00010964 12 incorporated herein reference registrant’s annual report form 10k fiscal year ended december 31 2003 13 incorporated herein reference registrant’s annual report form 10k fiscal year ended december 31 2000 14 incorporated herein reference registrant’s annual report form 10k fiscal year ended july 31 1998 sec file 00010964 15 incorporated herein reference registrant’s annual reports form 10k fiscal year ended december 31 2004 16 incorporated herein reference registrant’s current report form 8k filed sec august 19 2005 17 incorporated herein reference registrant’s current report form 8k filed sec december 21 2005 18 incorporated herein reference registrant’s current report form 8k filed sec may 9 2006 19 incorporated herein reference registrant’s current report form 8k filed sec april 4 2007 20 incorporated herein reference registrant’s current report form 8k filed sec may 8 2007 21 incorporated herein reference registrant’s current report form 8k filed sec may 10 2007 22 incorporated herein reference registrant’s current report form 10q filed sec august 9 2007 23 incorporated herein reference registrant’s current report form 8k filed sec october 10 2007 b see exhibits required item 15a3 c see financial statement schedule required item 15a2 signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized 29th day february 2008 maxwell technologies inc david schramm david schramm president chief executive officer pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities dates indicateditem 15 exhibits financial statement schedules documents filed part report 1 financial statements consolidated financial statements required item submitted separate section beginning page 49 annual report form 10k 2 financial statement schedules financial statement schedule entitled “valuation qualifying accounts” required item submitted separate section beginning page 81 annual report form 10k 3 exhibits filed herewith 1 incorporated herein reference registrant’s current report form 8k filed sec january 15 2004 2 incorporated herein reference registrant’s annual report form 10k fiscal year ended july 31 1999 sec file 00010964 3 incorporated herein reference registrant’s quarterly report form 10q quarter ended june 30 2003 sec file 00115477 4 incorporated herein reference registrant’s transition report form 10k transition period august 1 1999 december 31 1999 sec file 00115477 5 incorporated herein reference registrant’s current report form 8k filed sec july 19 2002 6 incorporated herein reference registrant’s current report form 8k filed sec september 18 2002 7 incorporated herein reference registrant’s annual report form 10k fiscal year ended july 31 1997 sec file 00010964 8 incorporated herein reference registrant’s annual report form 10k fiscal year ended july 31 1995 sec file 00010964 9 incorporated herein reference registrant’s annual report form 10k fiscal year ended july 31 1996 sec file 00010964 10 incorporated herein reference registrant’s form 8a filed november 18 1999 sec file 00115477 11 incorporated herein reference registrant’s annual report form 10k fiscal year ended july 31 1987 sec file 00010964 12 incorporated herein reference registrant’s annual report form 10k fiscal year ended december 31 2003 13 incorporated herein reference registrant’s annual report form 10k fiscal year ended december 31 2000 14 incorporated herein reference registrant’s annual report form 10k fiscal year ended july 31 1998 sec file 00010964 15 incorporated herein reference registrant’s annual reports form 10k fiscal year ended december 31 2004 16 incorporated herein reference registrant’s current report form 8k filed sec august 19 2005 17 incorporated herein reference registrant’s current report form 8k filed sec december 21 2005 18 incorporated herein reference registrant’s current report form 8k filed sec may 9 2006 19 incorporated herein reference registrant’s current report form 8k filed sec april 4 2008 20 incorporated herein reference registrant’s current report form 8k filed sec may 8 2007 21 incorporated herein reference registrant’s current report form 8k filed sec may 10 2007 22 incorporated herein reference registrant’s current report form 10q filed sec august 9 2007 23 incorporated herein reference registrant’s current report form 8k filed sec october 10 2007 24 incorporated herein reference registrant’s current report form 8k filed sec august 11 2008 b see exhibits required item 15a3 c see financial statement schedule required item 15a2 signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized 20th day february 2009 maxwell technologies inc david j schramm david j schramm president chief executive officer pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities dates indicateditem 15 exhibits financial statement schedules documents filed part report 1 financial statements consolidated financial statements required item submitted separate section beginning page 48 annual report form 10k 2 financial statement schedules financial statement schedule entitled “valuation qualifying accounts” required item submitted separate section beginning page 85 annual report form 10k 3 exhibits filed herewith 1 incorporated herein reference registrant’s current report form 8k filed sec january 15 2004 sec file 00115477 2 incorporated herein reference registrant’s annual report form 10k fiscal year ended july 31 1999 sec file 00010964 3 incorporated herein reference registrant’s quarterly report form 10q quarter ended june 30 2003 sec file 00115477 4 incorporated herein reference registrant’s transition report form 10k transition period august 1 1999 december 31 1999 sec file 00115477 5 incorporated herein reference registrant’s current report form 8k filed sec july 19 2002 sec file 00115477 6 incorporated herein reference registrant’s current report form 8k filed sec september 18 2002 sec file 00115477 7 incorporated herein reference registrant’s annual report form 10k fiscal year ended july 31 1997 sec file 00010964 8 incorporated herein reference registrant’s annual report form 10k fiscal year ended july 31 1995 sec file 00010964 9 incorporated herein reference registrant’s annual report form 10k fiscal year ended july 31 1996 sec file 00010964 10 incorporated herein reference registrant’s form 8a filed november 18 1999 sec file 00115477 11 incorporated herein reference registrant’s annual report form 10k fiscal year ended july 31 1987 sec file 00010964 12 incorporated herein reference registrant’s annual report form 10k fiscal year ended december 31 2003 sec file 00115477 13 incorporated herein reference registrant’s annual report form 10k fiscal year ended december 31 2000 sec file 00115477 14 incorporated herein reference registrant’s annual report form 10k fiscal year ended july 31 1998 sec file 00010964 15 incorporated herein reference registrant’s annual reports form 10k fiscal year ended december 31 2004 sec file 00115477 16 incorporated herein reference registrant’s current report form 8k filed sec december 21 2005 sec file 00115477 17 incorporated herein reference registrant’s current report form 8k filed sec may 6 2010 sec file 00115477 18 incorporated herein reference registrant’s current report form 8k filed sec may 10 2007 sec file 00115477 19 incorporated herein reference registrant’s current report form 10q filed sec august 9 2007 sec file 00115477 20 incorporated herein reference registrant’s current report form 8k filed sec october 10 2007 sec file 00115477 21 incorporated herein reference registrant’s current report form 8k filed sec august 11 2008 sec file 00115477 22 incorporated herein reference registrant’s annual reports form 10k fiscal year ended december 31 2008 23 incorporated herein reference registrant’s current report form 10q filed sec may 5 2009 sec file 00115477 24 incorporated herein reference registrant’s current report form 8k filed sec may 19 2009 sec file 00115477 25 incorporated herein reference registrant’s current report form 10q filed sec august 10 2009 sec file 00115477 26 incorporated herein reference registrant’s current report form 10q filed sec november 5 2009 sec file 00115477 b see exhibits required item 15a3 c see financial statement schedule required item 15a2 signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized 10th day march 2011 maxwell technologies inc david j schramm david j schramm president chief executive officer pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities dates indicateditem 15 exhibits financial statement schedules documents filed part report 1 financial statements consolidated financial statements required item submitted separate section beginning page 51 annual report form 10k 2 financial statement schedules financial statement schedule entitled “valuation qualifying accounts” required item submitted separate section beginning page 86 annual report form 10k 3 exhibits † maxwell technologies inc requested confidential treatment certain information contained exhibit information filed separately securities exchange commission pursuant application confidential treatment 17 cfr §§ 20080b4 24024b2 filed herewith furnished herewith 1 incorporated herein reference registrant’s current report form 8k filed sec january 15 2004 sec file 00115477 2 incorporated herein reference registrant’s annual report form 10k fiscal year ended july 31 1999 sec file 00010964 3 incorporated herein reference registrant’s quarterly report form 10q quarter ended june 30 2003 sec file 00115477 4 incorporated herein reference registrant’s transition report form 10k transition period august 1 1999 december 31 1999 sec file 00115477 5 incorporated herein reference registrant’s current report form 8k filed sec july 19 2002 sec file 00115477 6 incorporated herein reference registrant’s current report form 8k filed sec september 18 2002 sec file 00115477 7 incorporated herein reference registrant’s annual report form 10k fiscal year ended july 31 1997 sec file 00010964 8 incorporated herein reference registrant’s schedule 14a 2005 annual meeting stockholders sec file 00115477 9 incorporated herein reference registrant’s annual report form 10k fiscal year ended july 31 1996 sec file 00010964 10 incorporated herein reference registrant’s form 8a filed november 18 1999 sec file 00115477 11 incorporated herein reference registrant’s annual report form 10k fiscal year ended july 31 1987 sec file 00010964 12 incorporated herein reference registrant’s annual report form 10k fiscal year ended december 31 2003 sec file 00115477 13 incorporated herein reference registrant’s annual report form 10k fiscal year ended december 31 2000 sec file 00115477 14 incorporated herein reference registrant’s annual report form 10k fiscal year ended july 31 1998 sec file 00010964 15 incorporated herein reference registrant’s annual reports form 10k fiscal year ended december 31 2004 sec file 00115477 16 incorporated herein reference registrant’s current report form 8k filed sec december 21 2005 sec file 00115477 17 incorporated herein reference registrant’s current report form 8k filed sec may 10 2010 sec file 00115477 18 incorporated herein reference registrant’s current report form 8k filed sec may 10 2007 sec file 00115477 19 incorporated herein reference registrant’s current report form 10q filed sec august 9 2007 sec file 00115477 20 incorporated herein reference registrant’s current report form 8k filed sec october 10 2007 sec file 00115477 21 incorporated herein reference registrant’s current report form 8k filed sec august 11 2008 sec file 00115477 22 incorporated herein reference registrant’s annual reports form 10k fiscal year ended december 31 2008 23 incorporated herein reference registrant’s current report form 10q filed sec may 5 2009 sec file 00115477 24 incorporated herein reference registrant’s current report form 8k filed sec may 19 2009 sec file 00115477 25 incorporated herein reference registrant’s current report form 10q filed sec august 10 2009 sec file 00115477 26 incorporated herein reference registrant’s current report form 10q filed sec november 5 2009 sec file 00115477 27 incorporated herein reference registrant’s annual reports form 10k fiscal year ended december 31 2010 28 incorporated herein reference registrant’s current report form 8k filed sec july 13 2012 sec file 00115477 b see exhibits required item 15a3 c see financial statement schedule required item 15a2 signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized 1st day august 2013 maxwell technologies inc david j schramm david j schramm president chief executive officer power attorney know persons presents undersigned hereby constitutes appoints david j schramm kevin royal jointly severally true lawful attorneysinfact agents full power substitution resubstitution behalf sign execute file registration statement amendments including without limitation posteffective amendments registration statement file exhibits thereto documents required filed respect therewith securities exchange commission regulatory authority granting unto attorneysinfact agents full power authority perform every act thing requisite necessary done connection therewith premises order effectuate fully intents purposes might could personally present hereby ratifying confirming attorneysinfact agents substitute substitutes may lawfully cause doneitem 15 exhibits financial statement schedules documents filed part report 1 financial statements consolidated financial statements required item submitted separate section beginning page 46 annual report form 10k 2 financial statement schedules financial statement schedule entitled “valuation qualifying accounts” required item submitted separate section beginning page 76 annual report form 10k 3 exhibits † maxwell technologies inc requested confidential treatment certain information contained exhibit information filed separately securities exchange commission pursuant application confidential treatment 17 cfr §§ 20080b4 24024b2 filed herewith furnished herewith 1 incorporated herein reference registrant’s current report form 8k filed sec january 15 2004 sec file 00115477 2 incorporated herein reference registrant’s annual report form 10k fiscal year ended july 31 1999 sec file 00010964 3 incorporated herein reference registrant’s current report form 8k filed sec december 16 2013 4 incorporated herein reference registrant’s transition report form 10k transition period august 1 1999 december 31 1999 sec file 00115477 5 incorporated herein reference registrant’s current report form 8k filed sec july 19 2002 sec file 00115477 6 incorporated herein reference registrant’s current report form 8k filed sec september 18 2002 sec file 00115477 7 incorporated herein reference registrant’s annual report form 10k fiscal year ended july 31 1997 sec file 00010964 8 incorporated herein reference registrant’s schedule 14a 2005 annual meeting stockholders sec file 00115477 9 incorporated herein reference registrant’s annual report form 10k fiscal year ended july 31 1996 sec file 00010964 10 incorporated herein reference registrant’s form 8a filed november 18 1999 sec file 00115477 11 incorporated herein reference registrant’s annual report form 10k fiscal year ended july 31 1987 sec file 00010964 12 incorporated herein reference registrant’s annual report form 10k fiscal year ended december 31 2003 sec file 00115477 13 incorporated herein reference registrant’s annual report form 10k fiscal year ended december 31 2000 sec file 00115477 14 incorporated herein reference registrant’s annual report form 10k fiscal year ended july 31 1998 sec file 00010964 15 incorporated herein reference registrant’s annual reports form 10k fiscal year ended december 31 2004 sec file 00115477 16 incorporated herein reference registrant’s current report form 8k filed sec december 21 2005 sec file 00115477 17 incorporated herein reference registrant’s current report form 8k filed sec may 10 2010 sec file 00115477 18 incorporated herein reference registrant’s current report form 8k filed sec may 10 2007 sec file 00115477 19 incorporated herein reference registrant’s current report form 10q filed sec august 9 2007 sec file 00115477 20 incorporated herein reference registrant’s current report form 8k filed sec october 10 2007 sec file 00115477 21 incorporated herein reference registrant’s current report form 8k filed sec august 11 2008 sec file 00115477 22 incorporated herein reference registrant’s annual reports form 10k fiscal year ended december 31 2008 23 incorporated herein reference registrant’s current report form 10q filed sec may 5 2009 sec file 00115477 24 incorporated herein reference registrant’s current report form 8k filed sec may 19 2009 sec file 00115477 25 incorporated herein reference registrant’s current report form 10q filed sec august 10 2009 sec file 00115477 26 incorporated herein reference registrant’s current report form 10q filed sec november 5 2009 sec file 00115477 27 incorporated herein reference registrant’s annual reports form 10k fiscal year ended december 31 2010 28 incorporated herein reference registrant’s annual reports form 10k fiscal year ended december 31 2011 29 incorporated herein reference registrant’s annual reports form 10k fiscal year ended december 31 2011 30 incorporated herein reference registrant’s annual reports form 10k fiscal year ended december 31 2011 31 incorporated herein reference registrant’s annual reports form 10k fiscal year ended december 31 2011 32 incorporated herein reference registrant’s current report form 8k filed sec july 13 2012 sec file 00115477 b see exhibits required item 15a3 c see financial statement schedule required item 15a2 signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized 20th day february 2014 maxwell technologies inc john warwick john warwick interim president chief executive officer power attorney know persons presents undersigned hereby constitutes appoints john warwick kevin royal jointly severally true lawful attorneysinfact agents full power substitution resubstitution behalf sign execute file annual report form 10k amendments annual report form 10k file exhibits thereto documents required filed respect therewith securities exchange commission regulatory authority granting unto attorneysinfact agents full power authority perform every act thing requisite necessary done connection therewith premises order effectuate fully intents purposes might could personally present hereby ratifying confirming attorneysinfact agents substitute substitutes may lawfully cause done pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities dates indicateditem 15 exhibits financial statement schedules documents filed part report 1 financial statements consolidated financial statements required item submitted separate section beginning page 48 annual report form 10k 2 financial statement schedules financial statement schedule entitled “valuation qualifying accounts” required item submitted separate section beginning page 81 annual report form 10k 3 exhibits filed herewith management contract compensatory plan arrangement company required filed exhibit † exhibit filed separately secretary securities exchange commission without redaction pursuant confidential treatment request rule 24b2 securities exchange act 1934 amended 1 incorporated herein reference registrant’s annual report form 10k fiscal year ended july 31 1999 sec file 00010964 2 incorporated herein reference registrant’s current report form 8k filed sec january 5 2016sec file 00115477 3 incorporated herein reference registrant’s annual report form 10k fiscal year ended july 31 1997 sec file 00010964 4 incorporated herein reference registrant’s schedule 14a 2013 annual meeting stockholders filed sec october 30 2013 sec file 00115477 5 incorporated herein reference registrant’s annual report form 10k fiscal year ended july 31 1987 sec file 00010964 6 incorporated herein reference registrant’s annual report form 10k fiscal year ended december 31 2003 sec file 00115477 7 incorporated herein reference registrant’s current report form 8k filed sec may 10 2010 sec file 00115477 8 incorporated herein reference registrant’s quarterly report form 10q filed sec august 10 2009 sec file 00115477 9 incorporated herein reference registrant’s annual reports form 10k fiscal year ended december 31 2010 sec file 00115477 10 incorporated herein reference registrant’s current report form 8k filed sec march 17 2015 sec file 00115477 11 incorporated herein reference registrant’s current report form 8ka filed sec march 23 2015 sec file 00115477 12 incorporated herein reference registrant’s current report form 8k filed sec may 11 2015 sec file 00115477 13 incorporated herein reference registrant’s current report form 8k filed sec july 7 2015 sec file 00115477 14 incorporated reference registrant’s current report form 8k filed sec january 19 2016 sec file 00115477 15 incorporated reference registrant’s current report form 8k filed sec may 1 2014 sec file 00115477 16 incorporated reference registrant’s current report form 8k filed sec june 15 2016 sec file 00115477 17 incorporated reference registrant’s current report form 8k filed sec march 14 2016 sec file 00115477 18 incorporated reference registrant’s current report form 8k filed sec april 12 2016 sec file 00115477 19 incorporated herein reference registrant’s current report form 8k filed sec august 3 2016 sec file 00115477 20 incorporated herein reference registrant’s current report form 8k filed sec november 2 2016 sec file 00115477 b see exhibits required item 15a3 c see financial statement schedule required item 15a2 item 16 form 10k summary none signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized 1st day march 2017 maxwell technologies inc franz fink franz fink president chief executive officer power attorney know persons presents undersigned hereby constitutes appoints franz fink david lyle jointly severally true lawful attorneysinfact agents full power substitution resubstitution behalf sign execute file annual report form 10k amendments annual report form 10k file exhibits thereto documents required filed respect therewith securities exchange commission regulatory authority granting unto attorneysinfact agents full power authority perform every act thing requisite necessary done connection therewith premises order effectuate fully intents purposes might could personally present hereby ratifying confirming attorneysinfact agents substitute substitutes may lawfully cause done pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities dates indicateditem 15 exhibits financial statement schedules documents filed part report 1 financial statements consolidated financial statements required item submitted separate section beginning page 58 annual report form 10k 2 financial statement schedules financial statement schedule entitled “valuation qualifying accounts” required item submitted separate section beginning page 97 annual report form 10k 3 exhibits exhibit number exhibit title filed herewith form file date filed 101def xbrl taxonomy extension definition linkbase x 101lab xbrl taxonomy extension label linkbase x 101pre xbrl taxonomy presentation linkbase x management contract compensatory plan arrangement company required filed exhibit † exhibit filed separately secretary securities exchange commission without redaction pursuant confidential treatment request rule 24b2 securities exchange act 1934 amended b see exhibits required item 15a3 c see financial statement schedule required item 15a2 item 16 form 10k summary none signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized 16st day february 2018 maxwell technologies inc franz fink franz fink president chief executive officer power attorney know persons presents undersigned hereby constitutes appoints franz fink david lyle jointly severally true lawful attorneysinfact agents full power substitution resubstitution behalf sign execute file annual report form 10k amendments annual report form 10k file exhibits thereto documents required filed respect therewith securities exchange commission regulatory authority granting unto attorneysinfact agents full power authority perform every act thing requisite necessary done connection therewith premises order effectuate fully intents purposes might could personally present hereby ratifying confirming attorneysinfact agents substitute substitutes may lawfully cause done pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities dates indicateditem 15 exhibits financial statement schedules documents filed part report 1 financial statements consolidated financial statements required item submitted separate section beginning page 55 annual report form 10k 2 financial statement schedules financial statement schedule entitled “valuation qualifying accounts” required item submitted separate section beginning page 93 annual report form 10k 3 exhibits management contract compensatory plan arrangement company required filed exhibit certain schedules exhibits omitted pursuant item 601b2 regulation sk promulgated sec maxwell agrees furnish supplementally copy omitted schedule exhibit sec upon request † exhibit filed separately secretary securities exchange commission without redaction pursuant confidential treatment request rule 24b2 securities exchange act 1934 amended b see exhibits required item 15a3 c see financial statement schedule required item 15a2 item 16 form 10k summary none signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized 14th day february 2019 maxwell technologies inc franz fink franz fink president chief executive officer power attorney know persons presents undersigned hereby constitutes appoints franz fink david lyle jointly severally true lawful attorneysinfact agents full power substitution resubstitution behalf sign execute file annual report form 10k amendments annual report form 10k file exhibits thereto documents required filed respect therewith securities exchange commission regulatory authority granting unto attorneysinfact agents full power authority perform every act thing requisite necessary done connection therewith premises order effectuate fully intents purposes might could personally present hereby ratifying confirming attorneysinfact agents substitute substitutes may lawfully cause done pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities dates indicatednanitem 15 exhibits financial statement schedules documents filed part report 1 financial statements consolidated financial statements required item submitted separate section beginning page 54 annual report form 10k 2 financial statement schedules financial statement schedule entitled “valuation qualifying accounts” required item submitted separate section beginning page 93 annual report form 10k 3 exhibits filed herewith 1 incorporated herein reference registrant’s current report form 8k filed sec january 15 2004 sec file 00115477 2 incorporated herein reference registrant’s annual report form 10k fiscal year ended july 31 1999 sec file 00010964 3 incorporated herein reference registrant’s quarterly report form 10q quarter ended june 30 2003 sec file 00115477 4 incorporated herein reference registrant’s transition report form 10k transition period august 1 1999 december 31 1999 sec file 00115477 5 incorporated herein reference registrant’s current report form 8k filed sec july 19 2002 sec file 00115477 6 incorporated herein reference registrant’s current report form 8k filed sec september 18 2002 sec file 00115477 7 incorporated herein reference registrant’s annual report form 10k fiscal year ended july 31 1997 sec file 00010964 8 incorporated herein reference registrant’s annual report form 10k fiscal year ended july 31 1995 sec file 00010964 9 incorporated herein reference registrant’s annual report form 10k fiscal year ended july 31 1996 sec file 00010964 10 incorporated herein reference registrant’s form 8a filed november 18 1999 sec file 00115477 11 incorporated herein reference registrant’s annual report form 10k fiscal year ended july 31 1987 sec file 00010964 12 incorporated herein reference registrant’s annual report form 10k fiscal year ended december 31 2003 sec file 00115477 13 incorporated herein reference registrant’s annual report form 10k fiscal year ended december 31 2000 sec file 00115477 14 incorporated herein reference registrant’s annual report form 10k fiscal year ended july 31 1998 sec file 00010964 15 incorporated herein reference registrant’s annual reports form 10k fiscal year ended december 31 2004 sec file 00115477 16 incorporated herein reference registrant’s current report form 8k filed sec december 21 2005 sec file 00115477 17 incorporated herein reference registrant’s current report form 8k filed sec may 8 2007 sec file 00115477 18 incorporated herein reference registrant’s current report form 8k filed sec may 10 2007 sec file 00115477 19 incorporated herein reference registrant’s current report form 10q filed sec august 9 2007 sec file 00115477 20 incorporated herein reference registrant’s current report form 8k filed sec october 10 2007 sec file 00115477 21 incorporated herein reference registrant’s current report form 8k filed sec august 11 2008 sec file 00115477 22 incorporated herein reference registrant’s annual reports form 10k fiscal year ended december 31 2008 23 incorporated herein reference registrant’s current report form 10q filed sec may 5 2009 sec file 00115477 24 incorporated herein reference registrant’s current report form 8k filed sec may 19 2009 sec file 00115477 25 incorporated herein reference registrant’s current report form 10q filed sec august 10 2009 sec file 00115477 26 incorporated herein reference registrant’s current report form 10q filed sec november 5 2009 sec file 00115477 b see exhibits required item 15a3 c see financial statement schedule required item 15a2 signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized 5th day march 2010 maxwell technologies inc david j schramm david j schramm president chief executive officer pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities dates indicateditem 15 exhibits financial statement schedules documents filed part report 1 financial statements consolidated financial statements required item submitted separate section beginning page 48 annual report form 10k 2 financial statement schedules financial statement schedule entitled “valuation qualifying accounts” required item submitted separate section beginning page 79 annual report form 10k 3 exhibits filed herewith management contract compensatory plan arrangement company required filed exhibit 1 incorporated herein reference registrant’s annual report form 10k fiscal year ended july 31 1999 sec file 00010964 2 incorporated herein reference registrant’s current report form 8k filed sec january 5 2016sec file 00115477 3 incorporated herein reference registrant’s annual report form 10k fiscal year ended july 31 1997 sec file 00010964 4 incorporated herein reference registrant’s schedule 14a 2013 annual meeting stockholders filed sec october 30 2013 sec file 00115477 5 incorporated herein reference registrant’s annual report form 10k fiscal year ended july 31 1987 sec file 00010964 6 incorporated herein reference registrant’s annual report form 10k fiscal year ended december 31 2003 sec file 00115477 7 incorporated herein reference registrant’s current report form 8k filed sec may 10 2010 sec file 00115477 8 incorporated herein reference registrant’s quarterly report form 10q filed sec august 10 2009 sec file 00115477 9 incorporated herein reference registrant’s annual reports form 10k fiscal year ended december 31 2010 sec file 00115477 10 incorporated herein reference registrant’s current report form 8k filed sec march 17 2015 sec file 00115477 11 incorporated herein reference registrant’s current report form 8ka filed sec march 23 2015 sec file 00115477 12 incorporated herein reference registrant’s current report form 8k filed sec may 11 2015 sec file 00115477 13 incorporated herein reference registrant’s current report form 8k filed sec july 7 2015 sec file 00115477 14 incorporated reference registrant’s current report form 8k filed sec january 19 2016 sec file 00115477 15 incorporated reference registrant’s current report form 8k filed sec may 1 2014 sec file 00115477 b see exhibits required item 15a3 c see financial statement schedule required item 15a2 signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized 17th day february 2016 maxwell technologies inc franz fink franz fink president chief executive officer power attorney know persons presents undersigned hereby constitutes appoints franz fink david lyle jointly severally true lawful attorneysinfact agents full power substitution resubstitution behalf sign execute file annual report form 10k amendments annual report form 10k file exhibits thereto documents required filed respect therewith securities exchange commission regulatory authority granting unto attorneysinfact agents full power authority perform every act thing requisite necessary done connection therewith premises order effectuate fully intents purposes might could personally present hereby ratifying confirming attorneysinfact agents substitute substitutes may lawfully cause done pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities dates indicateditem 15 exhibits financial statement schedules documents filed part report 1 financial statements consolidated financial statements required item submitted separate section beginning page 51 annual report form 10k 2 financial statement schedules financial statement schedule entitled “valuation qualifying accounts” required item submitted separate section beginning page 86 annual report form 10k 3 exhibits  maxwell technologies inc requested confidential treatment certain information contained exhibit information filed separately securities exchange commission pursuant application confidential treatment 17 cfr §§ 20080b4 24024b2 filed herewith furnished herewith 1 incorporated herein reference registrant’s current report form 8k filed sec january 15 2004 sec file 00115477 2 incorporated herein reference registrant’s annual report form 10k fiscal year ended july 31 1999 sec file 00010964 3 incorporated herein reference registrant’s quarterly report form 10q quarter ended june 30 2003 sec file 00115477 4 incorporated herein reference registrant’s transition report form 10k transition period august 1 1999 december 31 1999 sec file 00115477 5 incorporated herein reference registrant’s current report form 8k filed sec july 19 2002 sec file 00115477 6 incorporated herein reference registrant’s current report form 8k filed sec september 18 2002 sec file 00115477 7 incorporated herein reference registrant’s annual report form 10k fiscal year ended july 31 1997 sec file 00010964 8 incorporated herein reference registrant’s schedule 14a 2005 annual meeting stockholders sec file 00115477 9 incorporated herein reference registrant’s annual report form 10k fiscal year ended july 31 1996 sec file 00010964 10 incorporated herein reference registrant’s form 8a filed november 18 1999 sec file 00115477 11 incorporated herein reference registrant’s annual report form 10k fiscal year ended july 31 1987 sec file 00010964 12 incorporated herein reference registrant’s annual report form 10k fiscal year ended december 31 2003 sec file 00115477 13 incorporated herein reference registrant’s annual report form 10k fiscal year ended december 31 2000 sec file 00115477 14 incorporated herein reference registrant’s annual report form 10k fiscal year ended july 31 1998 sec file 00010964 15 incorporated herein reference registrant’s annual reports form 10k fiscal year ended december 31 2004 sec file 00115477 16 incorporated herein reference registrant’s current report form 8k filed sec december 21 2005 sec file 00115477 17 incorporated herein reference registrant’s current report form 8k filed sec may 6 2010 sec file 00115477 18 incorporated herein reference registrant’s current report form 8k filed sec may 10 2007 sec file 00115477 19 incorporated herein reference registrant’s current report form 10q filed sec august 9 2007 sec file 00115477 20 incorporated herein reference registrant’s current report form 8k filed sec october 10 2007 sec file 00115477 21 incorporated herein reference registrant’s current report form 8k filed sec august 11 2008 sec file 00115477 22 incorporated herein reference registrant’s annual reports form 10k fiscal year ended december 31 2008 23 incorporated herein reference registrant’s current report form 10q filed sec may 5 2009 sec file 00115477 24 incorporated herein reference registrant’s current report form 8k filed sec may 19 2009 sec file 00115477 25 incorporated herein reference registrant’s current report form 10q filed sec august 10 2009 sec file 00115477 26 incorporated herein reference registrant’s current report form 10q filed sec november 5 2009 sec file 00115477 27 incorporated herein reference registrant’s annual reports form 10k fiscal year ended december 31 2010 b see exhibits required item 15a3 c see financial statement schedule required item 15a2 signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized 16th day february 2012 maxwell technologies inc david j schramm david j schramm president chief executive officer pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities dates indicateditem 15 exhibits financial statement schedules documents filed part report 1 financial statements consolidated financial statements required item submitted separate section beginning page 47 annual report form 10k 2 financial statement schedules financial statement schedule entitled “valuation qualifying accounts” required item submitted separate section beginning page 78 annual report form 10k 3 exhibits exhibit number description document following financial statements footnotes maxwell technologies inc annual report form 10k year ended december 31 2014 formatted extensible business reporting language xbrl consolidated balance sheets ii consolidated statements operations iii consolidated statements comprehensive income loss iv consolidated statements stockholders’ equity v consolidated statements cash flows vi notes consolidated financial statements † maxwell technologies inc requested confidential treatment certain information contained exhibit information filed separately securities exchange commission pursuant application confidential treatment 17 cfr §§ 20080b4 24024b2 filed herewith management contract compensatory plan arrangement company required filed exhibit 1 incorporated herein reference registrant’s annual report form 10k fiscal year ended july 31 1999 sec file 00010964 2 incorporated herein reference registrant’s current report form 8k filed sec december 16 2013 3 incorporated herein reference registrant’s transition report form 10k transition period august 1 1999 december 31 1999 sec file 00115477 4 incorporated herein reference registrant’s current report form 8k filed sec july 19 2002 sec file 00115477 5 incorporated herein reference registrant’s current report form 8k filed sec september 18 2002 sec file 00115477 6 incorporated herein reference registrant’s annual report form 10k fiscal year ended july 31 1997 sec file 00010964 7 incorporated herein reference registrant’s schedule 14a 2013 annual meeting stockholders sec file 00115477 8 incorporated herein reference registrant’s annual report form 10k fiscal year ended july 31 1987 sec file 00010964 9 incorporated herein reference registrant’s annual report form 10k fiscal year ended december 31 2003 sec file 00115477 10 incorporated herein reference registrant’s annual report form 10k fiscal year ended december 31 2000 sec file 00115477 11 incorporated herein reference registrant’s annual report form 10k fiscal year ended july 31 1998 sec file 00010964 12 incorporated herein reference registrant’s current report form 8k filed sec may 10 2010 sec file 00115477 13 incorporated herein reference registrant’s current report form 10q filed sec may 5 2009 sec file 00115477 14 incorporated herein reference registrant’s current report form 10q filed sec august 10 2009 sec file 00115477 15 incorporated herein reference registrant’s current report form 10q filed sec november 5 2009 sec file 00115477 16 incorporated herein reference registrant’s annual reports form 10k fiscal year ended december 31 2010 sec file 00115477 17 incorporated herein reference registrant’s annual reports form 10k fiscal year ended december 31 2011 sec file 00115477 18 incorporated herein reference registrant’s current report form 8k filed sec june 4 2013 sec file 00115477 19 incorporated herein reference registrant’s current report form 10q filed sec august 1 2013 sec file 00115477 20 incorporated herein reference registrant’s annual reports form 10k fiscal year ended december 31 2013 sec file 00115477 21 incorporated herein reference registrant’s current report form 10q filed sec may 1 2014 sec file 00115477 22 incorporated herein reference registrant’s current report form 10q filed sec july 31 2014 sec file 00115477 23 incorporated herein reference registrant’s current report form 10q filed sec october 23 2014 sec file 00115477 b see exhibits required item 15a3 c see financial statement schedule required item 15a2 signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized 12th day february 2015 maxwell technologies inc franz fink franz fink president chief executive officer power attorney know persons presents undersigned hereby constitutes appoints franz fink kevin royal jointly severally true lawful attorneysinfact agents full power substitution resubstitution behalf sign execute file annual report form 10k amendments annual report form 10k file exhibits thereto documents required filed respect therewith securities exchange commission regulatory authority granting unto attorneysinfact agents full power authority perform every act thing requisite necessary done connection therewith premises order effectuate fully intents purposes might could personally present hereby ratifying confirming attorneysinfact agents substitute substitutes may lawfully cause done pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities dates indicated