10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarter ended September 30, 2017

OR

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from              to             

Commission file number 1-15477

MAXWELL TECHNOLOGIES, INC.

(Exact name of registrant as specified in its charter)

Delaware	95-2390133
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
3888 Calle Fortunada, San Diego, California	92123
(Address of principal executive offices)	(Zip Code)

(858) 503-3200

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    YES  x    NO  o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    YES  x    NO  o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “accelerated filer”, “large accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	o		Accelerated filer	x
Non-accelerated filer	o	(Do not check if a smaller reporting company)	Smaller reporting company	o
			Emerging growth company	o

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell Company (as defined in Rule 12b-2 of the Act).    YES  o

    NO  x

The number of shares of the registrant’s Common Stock outstanding as of November 2, 2017 is 37,075,764 shares.

TABLE OF CONTENTS

MAXWELL TECHNOLOGIES, INC.

INDEX TO QUARTERLY REPORT ON FORM 10-Q

For the quarter ended September 30, 2017

		Page
PART I – Financial Information		3
Item 1.	Financial Statements	3
	Condensed Consolidated Balance Sheets as of September 30, 2017 and December 31, 2016	4
	Condensed Consolidated Statements of Operations – Three and Nine Months Ended September 30, 2017 and 2016	5
	Condensed Consolidated Statements of Comprehensive Income (Loss) – Three and Nine Months Ended September 30, 2017 and 2016	6
	Condensed Consolidated Statements of Cash Flows – Nine Months Ended September 30, 2017 and 2016	7
	Notes to Condensed Consolidated Financial Statements	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	28
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	41
Item 4.	Controls and Procedures	42
PART II – Other Information		43
Item 1.	Legal Proceedings	43
Item 1A.	Risk Factors	43
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	45
Item 6.	Exhibits	46
Signatures		47

2

PART I – Financial Information

Item 1. Financial Statements

The following condensed consolidated balance sheet as of December 31, 2016, which has been derived from audited financial statements, and the unaudited interim condensed consolidated financial statements, consisting of the condensed consolidated balance sheet as of September 30, 2017, and the condensed consolidated statements of operations and statements of comprehensive income (loss) for the three and nine months endedSeptember 30, 2017 and 2016, and the condensed consolidated statements of cash flows for the nine months endedSeptember 30, 2017 and 2016, have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and disclosures normally included in annual financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to those rules and regulations, although the Company believes that the disclosures made are adequate to make the information not misleading.

The following condensed consolidated balance sheet as of December 31, 2016, which has been derived from audited financial statements, does not include all of the information and footnotes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016. It is suggested that these condensed financial statements be read in conjunction with the financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2016.

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reported period. Actual results could differ materially from those estimates.

In the opinion of management, these unaudited statements contain all adjustments (consisting of normal recurring adjustments, except as otherwise indicated) necessary for a fair statement for the periods presented as required by Regulation S-X, Rule 10-01.

In addition, operating results for the three and nine months endedSeptember 30, 2017 are not necessarily indicative of the results that may be expected for any subsequent period or for the year ending December 31, 2017.

3

MAXWELL TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except per share and share data)

(Unaudited)

	September 30, 2017			December 31, 2016
ASSETS
Current assets:
Cash and cash equivalents	$	52,852		$	25,359
Trade and other accounts receivable, net of allowance for doubtful accounts of $30 and $26 as of September 30, 2017 and December 31, 2016, respectively	27,142			20,441
Inventories, net	31,599			32,248
Prepaid expenses and other current assets	3,336			4,407
Total current assets	114,929			82,455
Property and equipment, net	26,069			26,120
Intangible assets, net	11,147			—
Goodwill	35,188			22,799
Pension asset	9,605			8,887
Other non-current assets	883			613
Total assets	$	197,821		$	140,874
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable and accrued liabilities	$	29,580		$	19,181
Accrued employee compensation	8,865			6,152
Deferred revenue and customer deposits	6,236			3,967
Short-term borrowings and current portion of long-term debt	33			40
Total current liabilities	44,714			29,340
Deferred tax liability, long-term	7,965			8,580
Long-term debt, excluding current portion	30,171			43
Defined benefit plan liability	3,462			—
Other long-term liabilities	3,004			2,089
Total liabilities	89,316			40,052
Commitments and contingencies (Note 12)
Stockholders’ equity:
Common stock, $0.10 par value per share, 80,000,000 shares authorized at September 30, 2017 and December 31, 2016; 37,075,764 and 32,135,029 shares issued and outstanding at September 30, 2017 and December 31, 2016, respectively	3,705			3,210
Additional paid-in capital	334,593			296,316
Accumulated deficit	(238,481		)	(204,104		)
Accumulated other comprehensive income	8,688			5,400
Total stockholders’ equity	108,505			100,822
Total liabilities and stockholders’ equity	$	197,821		$	140,874

See accompanying notes to condensed consolidated financial statements.

4

MAXWELL TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

(Unaudited)

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2017			2016			2017			2016
Revenue	$	35,816		$	25,506		$	99,605		$	94,844
Cost of revenue	28,420			17,878			78,191			67,582
Gross profit	7,396			7,628			21,414			27,262
Operating expenses:
Selling, general and administrative	14,514			8,374			36,124			26,695
Research and development	4,891			5,038			14,007			16,106
Restructuring and exit costs	1,251			—			2,248			297
Impairment of assets	—			155			—			155
Total operating expenses	20,656			13,567			52,379			43,253
Loss from operations	(13,260		)	(5,939		)	(30,965		)	(15,991		)
Gain on sale of product line	—			—			—			(6,657		)
Interest expense, net	152			48			312			179
Other income	(14		)	(5		)	(67		)	(136		)
Foreign currency exchange (gain) loss, net	(65		)	49			50			252
Loss before income taxes	(13,333		)	(6,031		)	(31,260		)	(9,629		)
Income tax provision	527			824			3,117			1,907
Net loss	$	(13,860	)	$	(6,855	)	$	(34,377	)	$	(11,536	)
Net loss per share
Basic and diluted	$	(0.37	)	$	(0.21	)	$	(0.98	)	$	(0.36	)
Weighted average common shares outstanding:
Basic and diluted	37,008			31,989			34,929			31,828

See accompanying notes to condensed consolidated financial statements.

5

MAXWELL TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(in thousands)

(Unaudited)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2017			2016			2017			2016
Net loss	$	(13,860	)	$	(6,855	)	$	(34,377	)	$	(11,536	)
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustment	(929		)	685			3,197			1,557
Defined benefit pension plan, net of tax:
Amortization of deferred loss, net of tax provision of $12 for the three months ended September 30, 2016; net of tax provision of $37 for the nine months ended September 30, 2016	—			49			—			146
Amortization of prior service cost, net of tax provision of $7 and $8 for the three months ended September 30, 2017 and 2016, respectively; net of tax provision of $22 and $23 for the nine months ended September 30, 2017 and 2016, respectively	31			30			91			90
Other comprehensive income (loss), net of tax	(898		)	764			3,288			1,793
Comprehensive loss	$	(14,758	)	$	(6,091	)	$	(31,089	)	$	(9,743	)

See accompanying notes to condensed consolidated financial statements.

6

MAXWELL TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(Unaudited)

	Nine Months Ended September 30,
	2017			2016
OPERATING ACTIVITIES:
Net loss	$	(34,377	)	$	(11,536	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation	6,638			7,416
Amortization of intangible assets	502			—
Non-cash interest expense	24			—
Loss on lease due to restructuring	179			87
Pension and defined benefit plan cost	520			479
Stock-based compensation expense	6,547			3,759
Gain on sale of property and equipment	(20		)	(131		)
Impairment of property and equipment	—			155
Gain on sale of product line	—			(6,657		)
Unrealized (gain) loss on foreign currency exchange rates	(8		)	45
Release of tax liability	—			(1,518		)
Provision for losses on accounts receivable	4			56
Provision for losses on inventory	1,669			226
Provision for warranties	605			444
Changes in operating assets and liabilities:
Trade and other accounts receivable	(3,654		)	20,151
Inventories	3,626			(7,209		)
Prepaid expenses and other assets	145			(1,288		)
Pension asset	(502		)	(441		)
Accounts payable and accrued liabilities	7,293			(16,704		)
Deferred revenue and customer deposits	1,817			11
Accrued employee compensation	1,190			(962		)
Deferred tax liability	(981		)	113
Other long-term liabilities	7			(479		)
Net cash used in operating activities	(8,776		)	(13,983		)
INVESTING ACTIVITIES:
Purchases of property and equipment	(3,315		)	(4,689		)
Proceeds from sale of property and equipment	20			133
Cash used in acquisition, net of cash acquired	(97		)	—
Proceeds from sale of product line	1,500			20,486
Net cash provided by (used in) investing activities	(1,892		)	15,930
FINANCING ACTIVITIES:
Principal payments on long-term debt and short-term borrowings	(24		)	(33		)
Proceeds from long-term debt and short-term borrowings, net of discount and issuance costs	37,333			—
Proceeds from issuance of common stock under equity compensation plans	193			618
Net cash provided by financing activities	37,502			585
Effect of exchange rate changes on cash, cash equivalents and restricted cash	659			588
Increase in cash, cash equivalents and restricted cash	27,493			3,120
Cash, cash equivalents and restricted cash, beginning of period	25,359			24,782
Cash, cash equivalents and restricted cash, end of period	$	52,852		$	27,902

See accompanying notes to condensed consolidated financial statements.

7

MAXWELL TECHNOLOGIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Unless the context otherwise requires, all references to “Maxwell,” the “Company,” “we,” “us,” and “our,” refer to Maxwell Technologies, Inc. and its subsidiaries; all references to “Maxwell SA” refer to the Company’s Swiss subsidiary, Maxwell Technologies, SA; all references to “Nesscap Korea” refer to the Company’s Korean subsidiary, Nesscap Co., Ltd.

Note 1 – Description of Business and Basis of Presentation

Description of Business

Maxwell Technologies, Inc. is a Delaware corporation originally incorporated in 1965 under the name Maxwell Laboratories, Inc. In 1983, the Company completed an initial public offering, and in 1996, changed its name to Maxwell Technologies, Inc. The Company is headquartered in San Diego, California, and has three manufacturing facilities located in Rossens, Switzerland; Yongin, South Korea and Peoria, Arizona. In addition, the Company has two contract manufacturers located in China. Maxwell operates as one operating segment, which is comprised of two product lines:

• Ultracapacitors: The Company’s primary focus, ultracapacitors, are energy storage devices that possess a unique combination of high power density, extremely long operational life and the ability to charge and discharge very rapidly. The Company’s ultracapacitor cells, multi-cell packs and modules provide highly reliable energy storage and power delivery solutions for applications in multiple industries, including automotive, bus, rail and truck in transportation and grid energy storage, and wind in renewable energy. The Company’s recently developed lithium-ion capacitors are energy storage devices with the power characteristics of an ultracapacitor combined with enhanced energy storage capacity approaching that of a battery. They are uniquely designed to address a variety of applications in the rail, grid, and industrial markets where energy density and weight are differentiating factors.

• High-Voltage Capacitors: The Company’s CONDIS^® high-voltage capacitors are designed and manufactured to perform reliably for decades in all climates. These products include grading and coupling capacitors and capacitive voltage dividers that are used to ensure the safety and reliability of electric utility infrastructure and other applications involving transport, distribution and measurement of high-voltage electrical energy.

In addition to its two existing product lines, the Company continues to develop its dry battery electrode technology, which it believes has the potential to be a revolutionary technology within the battery industry with a substantial market opportunity, particularly for use in electric vehicles. By applying our proprietary and fundamental dry electrode manufacturing technology and trade secrets to batteries of varying chemistries, the Company believes it can create significant performance and cost benefits when compared with today’s state of the art wet electrode technology.

In April 2017, the Company acquired substantially all of the assets and business of Nesscap Energy, Inc. (“Nesscap”), a developer and manufacturer of ultracapacitor products for use in transportation, renewable energy, industrial and consumer markets. The acquisition added complementary businesses to the Company’s operations and expanded the Company’s portfolio of ultracapacitor products.

In April 2016, the Company sold substantially all of the assets and liabilities of a third product line, radiation-hardened microelectronics. The Company’s radiation-hardened microelectronic products for satellites and spacecraft included single board computers and components, such as high-density memory and power modules.

The Company’s products are designed and manufactured to perform reliably for the life of the products and systems into which they are integrated. The Company achieves high reliability through the application of proprietary technologies and rigorously controlled design, development, manufacturing and test processes.

8

Basis of Presentation

The accompanying condensed consolidated financial statements include the accounts of Maxwell Technologies, Inc. and its subsidiaries and have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”). All intercompany transactions and account balances have been eliminated in consolidation. The Company has prepared the accompanying unaudited interim condensed consolidated financial statements in accordance with the instructions to Form 10-Q and the standards of accounting measurement set forth in the Interim Reporting Topic of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”). Consequently, the Company has not necessarily included in this Form 10-Q all information and footnotes required for audited financial statements. In the opinion of the Company’s management, the accompanying unaudited condensed consolidated financial statements in this Form 10-Q contain all adjustments (consisting only of normal recurring adjustments, except as otherwise indicated) necessary to for a fair statement of the financial position, results of operations, and cash flows of Maxwell Technologies, Inc. for all periods presented. The results reported in these condensed consolidated financial statements should not be regarded as necessarily indicative of results that may be expected for any subsequent period or for the entire year. These unaudited condensed consolidated financial statements and notes thereto should be read in conjunction with the Company’s audited financial statements and the notes thereto included in the Company’s latest Annual Report on Form 10-K. Certain information and footnote disclosures normally included in the annual financial statements prepared in accordance with U.S. GAAP have been condensed or omitted in the accompanying interim consolidated financial statements. The year-end condensed balance sheet data was derived from audited financial statements, but does not include all disclosures required by U.S. GAAP.

Reclassifications

Impairment of assets for the three and nine months ended September 30, 2016 has been reclassified from “selling, general and administrative” to “impairment of assets” in the condensed consolidated statements of operations, to conform to the current period presentation. This reclassification does not impact reported net loss and do not otherwise have a material impact on the presentation of the overall financial statements.

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect reported amounts and related disclosures. These estimates include, but are not limited to, assessing the collectability of accounts receivable, applied and unapplied production costs, production capacities, the usage and recoverability of inventories and long-lived assets, deferred income taxes, the incurrence of warranty obligations, the fair value of acquired tangible and intangible assets, impairment of goodwill and intangible assets, estimation of the cost to complete certain projects, estimation of pension assets and liabilities, estimation of employee severance benefit obligations, accruals for estimated losses for legal matters, and estimation of the value of stock-based compensation awards, including the probability that the performance criteria of restricted stock unit awards will be met.

Income Taxes

As of September 30, 2017, the Company has a cumulative valuation allowance recorded offsetting its worldwide net deferred tax assets of $91.0 million, of which the significant majority represents the valuation allowance on its U.S. net deferred tax asset. The Company has established a valuation allowance against its U.S. federal and state deferred tax assets due to the uncertainty surrounding the realization of such assets. Management periodically evaluates the recoverability of the deferred tax assets and at such time as it is determined that it is more likely than not that U.S. deferred tax assets are realizable, the valuation allowance will be reduced accordingly. Any such release would result in recording a tax benefit that would increase net income in the period the valuation is released.

The Company records taxes on the undistributed earnings of foreign subsidiaries unless the subsidiaries’ earnings are considered indefinitely reinvested outside of the U.S. As of September 30, 2017, the Company has recorded a $4.9 million deferred tax liability for Swiss withholding taxes associated with $97.6 million of undistributed earnings of its Swiss subsidiary that are no longer considered indefinitely reinvested. In the event that the Company repatriates these funds, these withholding taxes would become payable.

9

Goodwill

Goodwill, which represents the excess of the cost of an acquired business over the net fair value assigned to its assets and liabilities, is not amortized. Instead, goodwill is assessed annually at the reporting unit level for impairment under the Intangibles—Goodwill and Other Topic of the FASB ASC. The Company has established December 31 as the annual impairment test date. In addition, the Company assesses goodwill in between annual test dates if an event occurs or circumstances change that could more likely than not reduce the fair value of a reporting unit below its carrying value. The Company first makes a qualitative assessment as to whether goodwill is impaired. If it is more likely than not that goodwill is impaired, the Company performs a quantitative impairment analysis to determine if goodwill is impaired. The Company may also determine to skip the qualitative assessment in any year and move directly to the quantitative test. The quantitative goodwill impairment analysis compares the reporting unit’s carrying amount to its fair value. Goodwill impairment is recorded for any excess of a reporting unit's carrying amount over its fair value, not to exceed the total amount of goodwill allocated to the reporting unit.

During the year ended December 31, 2016, the Company performed a quantitative goodwill impairment analysis for one reporting unit, which required the Company to make significant assumptions and estimates about the extent and timing of future cash flows, discount rates and growth rates. The analysis indicated that the goodwill assigned to the reporting unit was not impaired.

Long-Lived Assets and Intangible Assets

The Company records intangible assets at their respective estimated fair values at the date of acquisition. Intangible assets are amortized based upon the pattern in which their economic benefit will be realized, or if this pattern cannot be reliably determined, using the straight-line method over their estimated useful lives of eight to fourteen years.

The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets, including intangible assets, may not be recoverable. When such events occur, the Company compares the carrying amounts of the assets to their undiscounted expected future cash flows. If the Company determines that the carrying value of the asset is not recoverable, a permanent impairment charge is recorded for the amount by which the carrying value of the long-lived asset exceeds its fair value.

Warranty Obligation

The Company provides warranties on all product sales for terms ranging from one to eight years. The Company accrues for the estimated warranty costs at the time of sale based on historical warranty experience plus any known or expected changes in warranty exposure. As of September 30, 2017 and December 31, 2016, the accrued warranty liability included in “accounts payable and accrued liabilities” in the condensed consolidated balance sheets was $2.3 million and $1.2 million, respectively.

Convertible Debt

Convertible notes are regarded as compound instruments, consisting of a liability component and an equity component. The component parts of compound instruments are classified separately as financial liabilities and equity in accordance with the substance of the contractual arrangement. At the date of issue, the fair value of the liability component is estimated using the prevailing market interest rate for a similar non-convertible instrument. This amount is recorded as a liability on an amortized cost basis until extinguished upon conversion or at the instrument’s maturity date. The equity component is determined by deducting the amount of the liability component from the proceeds of the compound instrument as a whole. This is recognized as additional paid-in capital and included in equity, net of income tax effects, and is not subsequently remeasured. After initial measurement, the convertible notes are carried at amortized cost using the effective interest method.

Revenue Recognition

Revenue is derived primarily from the sale of manufactured products directly to customers. Product revenue is recognized, according to the guidelines of the Securities and Exchange Commission (“SEC”) Staff Accounting Bulletin (“SAB”) Numbers 101, Revenue Recognition in Financial Statements, and 104, Revenue Recognition, when all of the following criteria are met: (1) persuasive evidence of an arrangement exists (upon contract signing or receipt of an authorized purchase order from a customer); (2) title passes to the customer at either shipment from the Company’s facilities or receipt at the customer facility, depending on shipping terms; (3) customer payment is deemed fixed or determinable and free of contingencies or significant uncertainties; and (4) collectability is reasonably assured. This policy has been consistently applied from period to period.

10

A portion of our revenue is derived from sales to distributors. Distributor revenue is recognized when all of the criteria for revenue recognition are met, which is generally the time of shipment to the distributor; all returns and credits are estimable and not significant. Certain distributor agreements of Nesscap Korea provide for significant rights of return and price adjustment; revenue related to these distributors is deferred until the period in which the distributor sells through the inventory to the end customer.

Revenue from production-type contracts, which represents less than five percent of total revenue, is recognized using the percentage of completion method. The degree of completion is determined based on costs incurred as a percentage of total costs anticipated, excluding costs that are not representative of progress to completion.

Total deferred revenue and customer deposits in the consolidated balance sheets as of September 30, 2017 and December 31, 2016 was $6.2 million and $4.0 million, respectively, and primarily relates to cash received under the localization agreement with CRRC-SRI which will be recognized over the ten-year term of the agreement, amounts received in advance from a customer in connection with a production-type contract for which revenue is recognized using the percentage of completion method, payments received under a joint development agreement, which are recognized as an offset to research and development expense as services are performed, deferred revenue for distributors on the sell-through method of recognition, and customer advances.

Liquidity

On September 25, 2017, the Company issued $40.0 million of 5.50% Convertible Senior Notes due 2022 (the “Notes”). The Company received net proceeds, after deducting the initial purchaser’s discount and offering expenses payable by the Company, of approximately $37.3 million. The Notes bear interest at a rate of 5.50% per year, payable semi-annually in arrears on March 15 and September 15 of each year, commencing on March 15, 2018. On October 11, 2017, under a 30-day option that was exercised, the Company issued an additional $6.0 million aggregate principal amount of convertible senior notes under the same terms and received $5.7 million of net proceeds.

As of September 30, 2017, the Company had approximately $52.9 million in cash and cash equivalents, and working capital of $70.2 million. In July 2015, the Company entered into a loan agreement with East West Bank (“EWB”), whereby EWB made available to the Company a secured credit facility in the form of a revolving line of credit which is available up to a maximum of the lesser of: (a) $25.0 million; or (b) a certain percentage of domestic and foreign trade receivables. As of September 30, 2017, no amounts have been borrowed under this revolving line of credit and the amount available was $12.0 million. Management believes the available cash balance, along with the available borrowings under the revolving line of credit, will be sufficient to fund operations, obligations as they become due, and capital investments for at least the next twelve months.

Net Income (Loss) per Share

In accordance with the Earnings Per Share Topic of the FASB ASC, basic net income or loss per share is calculated using the weighted average number of common shares outstanding during the period. Diluted net income per share includes the impact of additional common shares that would have been outstanding if potentially dilutive common shares were issued. Potentially dilutive securities are not considered in the calculation of diluted net loss per share, as their inclusion would be anti-dilutive. The following table sets forth the computation of basic and diluted net income (loss) per share (in thousands, except per share data):

	Three Months Ended September 30,						Nine Months Ended September 30,
	2017			2016			2017			2016
Numerator
Net loss	$	(13,860	)	$	(6,855	)	$	(34,377	)	$	(11,536	)
Denominator
Weighted-average common shares outstanding	37,008			31,989			34,929			31,828
Net loss per share
Basic and diluted	$	(0.37	)	$	(0.21	)	$	(0.98	)	$	(0.36	)

11

The following table summarizes instruments that may be convertible into common shares that are not included in the denominator used in the diluted net loss per share calculation because to do so would be anti-dilutive (in thousands):

	Three and Nine Months Ended September 30,
	2017	2016
Outstanding options to purchase common stock	364	465
Unvested restricted stock awards	29	96
Unvested restricted stock unit awards	2,760	1,686
Employee stock purchase plan awards	29	61
Bonus to be paid in stock awards	349	183
Convertible senior notes	6,300	—

Business Combinations

The Company accounts for businesses it acquires in accordance with ASC Topic 805, Business Combinations, which allocates the fair value of the purchase consideration to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values. The excess of the purchase consideration over the fair values of these identifiable assets and liabilities is recorded as goodwill. When determining the fair values of assets acquired and liabilities assumed, management makes significant estimates and assumptions. The Company may utilize third-party valuation specialists to assist the Company in the allocation. Initial purchase price allocations are subject to revision within the measurement period, not to exceed one year from the date of acquisition. Acquisition-related expenses and transaction costs associated with business combinations are expensed as incurred.

Restructuring and Exit Costs

Restructuring and exit costs involve employee-related termination costs, facility exit costs and other costs associated with restructuring activities. The Company accounts for charges resulting from operational restructuring actions in accordance with ASC Topic 420, Exit or Disposal Cost Obligations (“ASC 420”) and ASC Topic 712, Compensation-Nonretirement Postemployment Benefits (“ASC 712”).

The recognition of restructuring costs requires the Company to make certain assumptions related to the amounts of employee severance benefits, the time period over which leased facilities will remain vacant and expected sublease terms and discount rates. Estimates and assumptions are based on the best information available at the time the obligation arises. These estimates are reviewed and revised as facts and circumstances dictate; changes in these estimates could have a material effect on the amount accrued in the condensed consolidated balance sheet.

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Recent Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers. The standard provides companies with a single model for accounting for revenue arising from contracts with customers and supersedes current revenue recognition guidance, including industry-specific revenue guidance. The core principle of the model is to recognize revenue when control of the goods or services transfers to the customer, as opposed to recognizing revenue when the risks and rewards transfer to the customer under the existing revenue guidance. The guidance permits companies to either apply the requirements retrospectively to all prior periods presented, or apply the requirements in the year of adoption, through a cumulative adjustment. In August 2015, the FASB issued ASU 2015-14, Deferral of the Effective Date, which defers the required adoption date of ASU 2014-09 by one year. As a result of the deferred effective date, ASU 2014-09 will be effective for the Company in its first quarter of fiscal 2018. Early adoption is permitted but not before the original effective date of the new standard of the first quarter of fiscal 2017. The following ASUs were subsequently issued by the FASB to clarify the implementation guidance in some areas and add practical expedients: In March 2016, ASU 2016-08, Revenue from Contracts with Customers: Principal versus Agent Considerations; in April 2016, ASU 2016-10, Revenue from Contracts with Customers: Identifying Performance Obligations and Licensing; in May 2016, ASU 2016-12, Revenue from Contracts with Customers: Narrow Scope Improvements and Practical Expedients; and in December 2016, ASU 2016-20, Technical Corrections and Improvements to Revenue from Contracts with Customers. The Company is in the process of evaluating its standard product sales arrangements and has identified an adoption impact related to revenue from certain distributor agreements which is currently deferred until the period in which the distributor sells through the inventory to the end customer. In connection with the adoption of ASU 2014-09, the Company anticipates a change in the recognition of such distributor revenue whereby revenue is estimated and recognized in the period in which the Company sells the product to the distributor; the adoption impact is expected to be less than $1.0 million. Other than this impact, the Company has not yet identified any expected material impact on the timing and measurement of revenue for standard product sales arrangements from the adoption of the standard; however, the Company is still in the process of formalizing its final conclusions. The Company is still evaluating the impact of adoption on non-product sales arrangements, which represent less than five percent of revenue. The Company has also developed a comprehensive project plan to guide implementation of the new standard and expects to complete its assessment in December 2017. The Company intends to adopt the new standard using the modified retrospective transition method effective January 1, 2018.

In February 2016, the FASB issued ASU No. 2016-02, Leases. The standard requires that a lessee recognize the assets and liabilities that arise from operating leases. A lessee should recognize in its balance sheet a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term. For leases with a term of 12 months or less, a lessee is permitted to make an accounting policy election by class of underlying asset not to recognize lease assets and lease liabilities. In transition, lessees and lessors are required to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach. The guidance in ASU 2016-02 is effective for annual and interim reporting periods beginning after December 15, 2018. The Company’s initial evaluation of its current leases does not indicate that the adoption of this standard will have a material impact on its consolidated statements of operations. The Company expects that the adoption of the standard will have a material impact on its consolidated balance sheets for the recognition of certain operating leases as right-of-use assets and lease liabilities.

In March 2016, the FASB issued ASU No. 2016-09, Improvements to Employee Share-Based Payment Accounting, which changes the accounting for employee share-based payments, including the accounting for income taxes, forfeitures, and statutory tax withholding requirements, as well as classification in the statement of cash flows. Under the new guidance, excess tax benefits associated with share-based payment awards will be recognized in the income statement when the awards vest or settle, rather than in stockholders’ equity. In addition, it will increase the number of shares an employer can withhold to cover income taxes on share-based payment awards and still qualify for the exemption to liability classification. The guidance was effective for the Company in the first quarter of 2017. The adoption of this standard resulted in the recognition of approximately $10.0 million of deferred tax assets related to stock-based compensation and a corresponding increase in the Company’s valuation allowance, which will be disclosed in the Company’s notes to the consolidated financial statements in its Annual Report on Form 10-K.

In November 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows - Restricted Cash, which requires entities to show the changes in the total of cash, cash equivalents, restricted cash and restricted cash equivalents in the statement of cash flows. The guidance will be effective for the Company in its first quarter of fiscal 2018. Early adoption is permitted, including adoption in an interim period, but any adjustments must be reflected as of the beginning of the fiscal year that includes that interim period. The new standard must be adopted retrospectively. The Company early adopted this standard in the fourth quarter of 2016. In accordance with the Company’s early adoption of ASU No. 2016-18, for the nine months ended September 30, 2016, the retrospective restatement was limited to including restricted cash balances in the amount of $0.4 million in beginning and $0.1 million in ending cash, cash equivalents and restricted cash balances in the consolidated statements of cash flows. The retrospective adoption did not impact reported net loss and does not otherwise have a material impact on the presentation of the overall financial statements.

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In January 2017, the FASB issued ASU No. 2017-01, Business Combinations: Clarifying the Definition of a Business, which clarifies the definition of a business and adds further guidance in evaluating whether a transaction should be accounted for as an acquisition of an asset or a business. This standard will be effective for the first annual period beginning after December 15, 2017, including interim periods within those periods. Early adoption is permitted. The Company early adopted this standard on January 1, 2017 and the adoption did not have an effect on the Company’s consolidated financial statements.

In January 2017, the FASB issued ASU No. 2017-04, Intangibles - Goodwill and Other, which eliminates step two of the quantitative goodwill impairment test. Step two required determination of the implied fair value of a reporting unit, and then a comparison of this implied fair value with the carrying amount of goodwill for the reporting unit, in order to determine any goodwill impairment. Under the new guidance, an entity is only required to complete a one-step quantitative test, by comparing the fair value of a reporting unit with its carrying amount, and any goodwill impairment charge is determined by the amount by which the carrying amount exceeds the reporting unit’s fair value. However, the loss should not exceed the total amount of goodwill allocated to the reporting unit. The standard is effective for the Company in the first quarter of 2020, with early adoption permitted as of January 1, 2017, and is to be applied on a prospective basis. The adoption of the standard will not materially impact the Company's consolidated financial statements unless step one of the annual goodwill impairment test fails. The Company early adopted this standard on January 1, 2017 and the adoption did not have an effect on the Company’s consolidated financial statements.

In March 2017, the FASB issued ASU No. 2017-07, Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost, which changes how employers that sponsor defined benefit pension or other postretirement benefit plans present the net periodic benefit cost in the statement of operations. The new guidance requires entities to report the service cost component in the same line item or items as other compensation costs. The other components of net benefit cost are required to be presented in the statement of operations separately from the service cost component and outside the subtotal of loss from operations. ASU 2017-07 also provides that only the service cost component is eligible for capitalization. This standard will impact the Company’s loss from operations but will have no impact on our net loss or net loss per share. The standard is effective for the Company in the first quarter of 2018, with adoption to be applied on a retrospective basis.

In May 2017, the FASB issued ASU No. 2017-09, Compensation-Stock Compensation: Scope of Modification Accounting, which provides clarification on when modification accounting should be used for changes to the terms or conditions of a share-based payment award. This ASU does not change the accounting for modifications but clarifies that modification accounting guidance should only be applied if there is a change to the value, vesting conditions or award classification and would not be required if the changes are considered non-substantive. The amendments of this ASU are effective for the Company in the first quarter of 2018, with early adoption permitted. The adoption of ASU 2017-09 is not expected to have an impact on the Company’s consolidated financial statements.

In August 2017, the FASB issued ASU No. 2017-12, Derivatives and Hedging - Targeted Improvements to Accounting for Hedging Activities, which modifies the presentation and disclosure of hedging results. Further, it provides partial relief on the timing of certain aspects of hedge documentation and eliminates the requirement to recognize hedge ineffectiveness separately in income. The amendments in this ASU are effective for the Company in the first quarter of 2019. The Company does not expect this ASU to have a material impact on its consolidated financial statements.

There have been no other recent accounting standards, or changes in accounting standards, during the nine months ended September 30, 2017, as compared with the recent accounting standards described in our Annual Report on Form 10-K, that are of material significance, or have potential material significance, to the Company.

Note 2 – Balance Sheet Details (in thousands)

Inventories, net

	September 30, 2017			December 31, 2016
Raw materials and purchased parts	$	13,291		$	12,980
Work-in-process	3,037			858
Finished goods	17,463			19,492
Reserves	(2,192		)	(1,082		)
Total inventories, net	$	31,599		$	32,248

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Warranty

Activity in the warranty reserve, which is included in “accounts payable and accrued liabilities” in the condensed consolidated balance sheets, is as follows:

	Nine Months Ended September 30,
	2017			2016
Beginning balance	$	1,213		$	1,288
Acquired liability from Nesscap	773			—
Product warranties issued	352			298
Settlement of warranties	(300		)	(427		)
Changes related to preexisting warranties	253			146
Ending balance	$	2,291		$	1,305

Accumulated Other Comprehensive Income

	Foreign Currency Translation Adjustment		Defined Benefit Pension Plan			Accumulated Other Comprehensive Income		Affected Line Items in the Statement of Operations
Balance as of December 31, 2016	$	7,826	$	(2,426	)	$	5,400
Other comprehensive income before reclassification	3,197		—			3,197
Amounts reclassified from accumulated other comprehensive income	—		91			91		Cost of Sales, Selling, General and Administrative and Research and Development Expense
Net other comprehensive income for the nine months ended September 30, 2017	3,197		91			3,288
Balance as of September 30, 2017	$	11,023	$	(2,335	)	$	8,688

Note 3 – Business Combination

On April 28, 2017, the Company acquired substantially all of the assets and business of Nesscap Energy, Inc. (“Nesscap”), a developer and manufacturer of ultracapacitor products for use in transportation, renewable energy, industrial and consumer markets, in exchange for the issuance of approximately 4.1 million shares of Maxwell common stock (the “Share Consideration”) and the assumption of certain liabilities pursuant to the terms of the previously announced Arrangement Agreement dated as of February 28, 2017 between Maxwell and Nesscap (the “ Nesscap Acquisition”). The value of the Share Consideration was approximately $25.3 million based on the closing price of the Company’s common stock on April 28, 2017. Additionally, per the Arrangement Agreement, the Company paid approximately $1.0 million of transaction taxes on behalf of the seller. The Nesscap Acquisition was effected by means of a court-approved statutory plan of arrangement and was approved by the requisite vote cast by shareholders of Nesscap at a special meeting of Nesscap’s shareholders held on April 24, 2017.

The Share Consideration represents approximately 11.3% of the outstanding shares of Maxwell, based on the number of shares of Maxwell common stock outstanding as of April 28, 2017.

The Nesscap Acquisition adds scale to the Company’s operations and expands the Company’s portfolio of ultracapacitor products.

The fair value of the purchase price consideration consisted of the following (in thousands):

Maxwell common stock	$	25,294
Settlement of seller’s transaction expenses	1,006
Total estimated purchase price	$	26,300

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The acquisition has been accounted for under the acquisition method of accounting in accordance with ASC 805, Business Combinations. Under this method of accounting, the Company recorded the acquisition based on the fair value of the consideration given and the cash consideration paid. The Company allocated the acquisition consideration paid to the identifiable assets acquired and liabilities assumed based on their respective preliminary fair values at the date of completion of the acquisition. Any excess of the value of consideration paid over the aggregate fair value of those net assets has been recorded as goodwill, which is attributable to expected synergies from combining operations, the acquired workforce, as well as intangible assets which do not qualify for separate recognition. The Company has not yet determined the allocation of goodwill to its reporting units. The goodwill associated with the acquisition is not deductible for income tax purposes.

The preliminary fair values of net tangible assets and intangible assets acquired were based upon preliminary valuations and the Company's estimates and assumptions are subject to change within the measurement period (up to one year from the acquisition date). The primary areas that remain preliminary relate to a license termination liability, income taxes and residual goodwill. The Company expects to continue to obtain information to assist in determining the fair values of the net assets acquired during the measurement period.

The following table summarizes the preliminary allocation of the assets acquired and liabilities assumed at the acquisition date (in thousands):

	Fair Value
Cash and cash equivalents	$	909
Accounts receivable	2,545
Inventories	4,397
Prepaid expenses and other assets	764
Property and equipment	3,314
Intangible assets	11,800
Accounts payable, accrued compensation and other liabilities	(5,713		)
Employee severance obligation	(3,340		)
Total identifiable net assets	14,676
Goodwill	11,624
Total purchase price	$	26,300

The fair value of inventories acquired included an acquisition accounting fair market value step-up of $0.7 million. In the three and nine months ended September 30, 2017, the Company recognized $0.3 million and $0.6 million, respectively, of the step-up as a component of cost of revenue for acquired inventory sold during the period. Included in inventory as of September 30, 2017, was $0.1 million relating to the remaining fair value step-up associated with the acquisition.

For the three and nine months ended September 30, 2017, acquisition-related costs of $46,000 and $1.8 million, respectively, were included in selling, general, and administrative expenses in the Company's condensed consolidated statements of operations.

The following table presents details of the preliminary identified intangible assets acquired through the Nesscap Acquisition (in thousands):

	Estimated Useful Life (in years)	Fair Value
Customer relationships - institutional	14	$	3,200
Customer relationships - non-institutional	10	4,400
Trademarks and trade names	10	1,500
Developed technology	8	2,700
Total intangible assets		$	11,800

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The fair value of the $11.8 million of identified intangible assets acquired in connection with the Nesscap Acquisition was estimated using an income approach. Under the income approach, an intangible asset's fair value is equal to the present value of future economic benefits to be derived from ownership of the asset. More specifically, the fair values of the customer relationship intangible assets were determined using the multi-period excess earnings method, which estimates an intangible asset’s value based on the present value of the incremental after-tax cash flows attributable only to the intangible asset. The fair values of the trademark and trade names and developed technology intangible assets were valued using the relief from royalty method, which is based on the principle that ownership of the intangible asset relieves the owner of the need to pay a royalty to another party in exchange for rights to use the asset.

The following unaudited pro forma financial information presents the combined results of operations for each of the periods presented, as if the Nesscap Acquisition had occurred at the beginning of fiscal year 2016 (in thousands, except per share amounts):

	Three Months Ended September 30,						Nine Months Ended September 30,
	2017			2016			2017			2016
Net revenues	$	35,816		$	31,177		$	104,771		$	109,817
Net loss	(13,573		)	(8,133		)	(35,165		)	(14,788		)
Net loss per share:
Basic and diluted	(0.37		)	(0.23		)	(0.96		)	(0.41		)
Weighted average common shares outstanding:
Basic and diluted	37,008			36,136			36,706			35,975

The unaudited pro forma information has been adjusted to reflect the following:

• Amortization expense for acquired intangibles and removal of Nesscap historical intangibles amortization

• Removal of historical Nesscap interest expenses, gains and losses related to debt not acquired

• Recognition of expense associated with the valuation of inventory acquired

The pro forma data is presented for illustrative purposes only and is not necessarily indicative of the consolidated results of operations of the combined business had the acquisition actually occurred at the beginning of fiscal year 2016 or of the results of future operations of the combined business. The unaudited pro forma financial information does not reflect any operating efficiencies and cost saving that may be realized from the integration of the acquisition. For the three and nine months ended September 30, 2017, $6.8 million and $11.0 million of revenue, respectively, included in the Company's condensed consolidated statements of operations, was the result of acquired Nesscap operations. For the three and nine months ended September 30, 2017, $0.3 million and $0.7 million of net loss, respectively, included in the Company's condensed consolidated statements of operations, was the result of acquired Nesscap operations.

Note 4 – Sale of Microelectronics Product Line

On April 27, 2016, the Company sold substantially all of the assets and liabilities comprising its microelectronics product line to Data Device Corporation, a privately-held Delaware corporation. The transaction purchase price was $21.0 million, subject to a working capital adjustment and a one year $1.5 million escrow holdback on the purchase price, which was received in May 2017.

The assets sold were primarily comprised of inventory, accounts receivable and property and equipment. The liabilities sold were comprised mainly of deferred revenue, accounts payable and other current liabilities. During the first quarter of 2016, the Company met the held for sale criteria in accordance with ASC Topic 380, Impairment or Disposal of Long Lived Assets, andthe Company ceased depreciation on the property and equipment and classified the assets to be sold as held for sale. During the second quarter of 2016, all assets and liabilities formerly classified as held for sale were disposed of pursuant to the sale. The sale of the microelectronics product line did not represent a strategic shift that had a major effect on the Company’s operations and financial results. As such, the Company did not account for the disposition as a discontinued operation. During the nine months ended September 30, 2016, the Company recorded a gain of $6.7 million related to the sale of the microelectronics product line.

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Note 5 – Goodwill and Intangible Assets

In April 2017, the Company acquired substantially all of the assets and business of Nesscap. As of September 30, 2017, the purchase price allocation for the Nesscap Acquisition remains preliminary.

The change in the carrying amount of goodwill from December 31, 2016 to September 30, 2017 was as follows (in thousands):

Balance as of December 31, 2016	$	22,799
Goodwill from Nesscap Acquisition	11,624
Foreign currency translation adjustments	765
Balance as of September 30, 2017	$	35,188

The composition of intangible assets subject to amortization was as follows (in thousands):

	As of September 30, 2017
	Useful Life (in years)	Gross Initial Carrying Value		Cumulative Foreign Currency Translation Adjustment			Accumulated Amortization			Net Carrying Value
Customer relationships - institutional	14	$	3,200	$	(44	)	$	(96	)	$	3,060
Customer relationships - non-institutional	10	4,400		(60		)	(187		)	4,153
Trademarks and trade names	10	1,500		(20		)	(64		)	1,416
Developed technology	8	2,700		(37		)	(145		)	2,518
Total intangible assets		$	11,800	$	(161	)	$	(492	)	$	11,147

The useful life of intangible assets reflects the period the assets are expected to contribute directly or indirectly to future cash flows. Intangible assets are amortized over the useful lives of the assets utilizing the straight-line method, which is materially consistent with the pattern in which the expected benefits will be consumed, calculated using undiscounted cash flows.

For the three months ended September 30, 2017, amortization expense of $88,000 was recorded to “cost of revenue” and $0.2 million was recorded to “selling, general and administrative.” For the nine months ended September 30, 2017, amortization expense of $148,000 was recorded to “cost of revenue” and $0.4 million was recorded to “selling, general and administrative.” Estimated amortization expense for the remainder of 2017 is $0.3 million. Estimated amortization expense for the years 2018 through 2021 is $1.2 million each year. The expected amortization expense is an estimate and actual amounts could differ due to additional intangible asset acquisitions, changes in foreign currency rates or impairment of intangible assets.

Note 6 – Restructuring and Exit Costs

2017 Restructuring Plans

In September 2017, the Company initiated a restructuring plan to optimize headcount in connection with the acquisition and integration of the assets and business of Nesscap, as well as to implement additional organizational efficiencies. Total charges for the September 2017 restructuring plan were approximately $1.2 million, all of which were incurred in the third quarter of 2017.

In February 2017, the Company implemented a comprehensive restructuring plan that included a wide range of organizational efficiency initiatives and other cost reduction opportunities. Total charges for the nine months ended September 30, 2017 for the February 2017 restructuring plan were approximately $0.9 million, which included a reversal of expense of $0.1 million in the three months ended September 30, 2017.

The charges related to both of the 2017 restructuring plans consist of employee severance costs and have been or will be paid in cash. The charges were recorded within “restructuring and exit costs” in the condensed consolidated statements of operations.

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The following table summarizes the changes in the liabilities for each of the 2017 restructuring plans, which are recorded in “accrued employee compensation” in the Company’s condensed consolidated balance sheet for the nine months ended September 30, 2017 (in thousands):

	February 2017 Plan			September 2017 Plan
	Employee Severance Costs
Restructuring liability as of December 31, 2016	$	—		$	—
Costs incurred	997			1,195
Amounts paid	(855		)	(58		)
Accruals released	(142		)	—
Restructuring liability as of September 30, 2017	$	—		$	1,137

2015 Restructuring Plan

In 2015, the Company initiated a restructuring plan to consolidate U.S. manufacturing operations and to reduce headcount and operating expenses in order to align the Company’s cost structure with the current business forecast and to improve operational efficiency. The plan also included the disposition of the Company’s microelectronics product line which was completed in April 2016. The restructuring plan was otherwise substantially completed in the first quarter of 2016. Total restructuring and exit costs were $2.8 million, which included $1.3 million in facilities costs related to the consolidation of manufacturing operations, $1.2 million in employee severance costs and $0.3 million in other exit costs. The Company also incurred $0.6 million in accelerated equipment depreciation expense related to the consolidation of manufacturing operations. Total cash expenditures related to restructuring activities were approximately $1.5 million.

As the 2015 restructuring plan was completed in 2016, there were no restructuring charges or cash payments related to this plan during the three and nine months ended September 30, 2017. For the nine months ended September 30, 2016, the Company recorded net charges related to the 2015 restructuring plan of $0.3 million, within “restructuring and exit costs” and $0.1 million of accelerated depreciation expense within “cost of revenue” in the condensed consolidated statements of operations. No restructuring charges related to this plan were recorded during the three months ended September 30, 2016. During the three and nine months ended September 30, 2016, cash payments in connection with the 2015 restructuring plan were $26,000 and $0.5 million, respectively, primarily related to employee severance and other exit costs.

Adjustment to Lease Liability

In connection with the 2015 restructuring plan, in June 2015, the Company ceased use of approximately 60,000 square feet of its Peoria, AZ manufacturing facility, and determined this leased space would have no future economic benefit to the Company based on the current business forecast. In the third quarter of 2017, we recognized additional facilities costs of $0.2 million as restructuring charges to record an adjustment to the sublease income assumption included in the estimated future rent obligation of this leased space.

The Company has recorded a liability for the future rent obligation associated with this space, net of estimated sublease income, in accordance with ASC Topic 420. As of September 30, 2017 and December 31, 2016, lease obligation liabilities related to this leased space of $0.7 million and $0.8 million, respectively, were included in “accounts payable and accrued liabilities” and “other long term liabilities” in the condensed consolidated balance sheets.

Note 7 – Debt and Credit Facilities

Convertible Senior Notes

On September 25, 2017, the Company issued $40.0 million of 5.50% Convertible Senior Notes due 2022 (the “Notes”). The Company received net proceeds, after deducting the initial purchaser’s discount and offering expenses payable by the Company, of approximately $37.3 million. The Notes bear interest at a rate of 5.50% per year, payable semi-annually in arrears on March 15 and September 15 of each year, with payments commencing on March 15, 2018. The Notes mature on September 15, 2022, unless earlier purchased by the Company, redeemed, or converted.

The Notes are unsecured obligations of Maxwell and rank senior in right of payment to any of Maxwell’s subordinated indebtedness; equal in right of payment to all of Maxwell’s unsecured indebtedness that is not subordinated; effectively subordinated in right of payment to any of Maxwell’s secured indebtedness to the extent of the value of the assets securing such indebtedness; and structurally subordinated to all indebtedness and other liabilities (including trade payables) of Maxwell’s subsidiaries.

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The Notes are convertible into cash, shares of the Company’s common stock, or a combination thereof, at the Company’s election, upon the satisfaction of specified conditions and during certain periods as described below. The initial conversion rate is157.5101 shares of the Company’s common stock per $1,000 principal amount of Notes, representing an initial effective conversion price of $6.35 per share of common stock and a 27% premium to the Company’s stock price at the date of issuance. The conversion rate may be subject to adjustment upon the occurrence of certain specified events as provided in the indenture governing the Notes, dated September 25, 2017 between the Company and Wilmington Trust, National Association, as trustee (the “Indenture”), but will not be adjusted for accrued but unpaid interest.

Prior to the close of business on the business day immediately preceding June 15, 2022, the Notes will be convertible at the option of holders only upon the satisfaction of specified conditions and during certain periods. Thereafter until the close of business on the business day immediately preceding maturity, the Notes will be convertible at the option of the holders at any time regardless of these conditions.

Upon the occurrence of certain fundamental changes involving the Company, holders of the Notes may require the Company to repurchase for cash all or part of their Notes at a repurchase price equal to 100% of the principal amount of the Notes to be repurchased, plus accrued and unpaid interest, if any, to, but excluding, the fundamental change repurchase date.

The Company may not redeem the Notes prior to September 20, 2020. The Company may redeem the Notes, at its option, in whole or in part on or after September 20, 2020 if the last reported sale price of the Company’s common stock has been at least 130% of the conversion price then in effect for at least 20 trading days

The Company considered the features embedded in the Notes, that is, the conversion feature, the Company's call feature, and the make-whole feature, and concluded that they are not required to be bifurcated and accounted for separately from the host debt instrument.

The Notes included an initial purchaser’s discount of $2.2 million, or 5.5%. This discount is recorded as an offset to the debt and is amortized over the expected life of the Notes using the effective interest method.

Upon conversion by the holders, the Company may elect to settle such conversion in shares of its common stock, cash, or a combination thereof. As a result of its cash conversion option, the Company segregated the liability component of the instrument from the equity component. The liability component was measured by estimating the fair value of a non-convertible debt instrument that is similar in its terms to the Notes. The calculation of the fair value of the debt component required the use of Level 3 inputs, including utilization of credit assumptions and high yield bond indices. Fair value was estimated using an income approach, through discounting future interest and principal payments due under the Notes at a discount rate of 12.0%, an interest rate equal to the estimated borrowing rate for similar non-convertible debt. The excess of the initial proceeds from the Notes over the estimated fair value of the liability component was $7.4 million and was recognized as a debt discount and recorded as an increase to additional paid-in capital, and will be amortized over the expected life of the Notes using the effective interest method. Amortization of the debt discount is recognized as non-cash interest expense.

The transaction costs of $0.5 million incurred in connection with the issuance of the Notes were allocated to the liability and equity components based on their relative values. Transaction costs allocated to the liability component are being amortized using the effective interest method and recognized as non-cash interest expense over the expected term of the Notes. Transaction costs allocated to the equity component of $0.1 million reduced the value of the equity component recognized in stockholders’ equity.

The initial purchaser debt discount, the equity component debt discount and the transaction costs allocated to the liability are being amortized over the contractual term to maturity of the Notes using an effective interest rate of 12.2%.

The carrying value of the Notes is as follows (in thousands):

	As of September 30, 2017
Principal amount	$	40,000
Unamortized debt discount - equity component	(7,350		)
Unamortized debt discount - initial purchaser	(2,195		)
Unamortized transaction costs	(375		)
Net carrying value	$	30,080

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Total interest expense related to the Notes is as follows (in thousands):

	Three and Nine Months Ended September 30, 2017
Cash interest expense
Coupon interest expense	$	37
Non-cash interest expense
Amortization of debt discount - equity component	18
Amortization of debt discount - initial purchaser	5
Amortization of transaction costs	1
Total interest expense	$	61

On October 11, 2017, the Company issued an additional $6.0 million aggregate principal amount of convertible senior notes under the same terms under a 30-day option that was exercised. The Company received net proceeds, after deducting the initial purchaser’s discount, of approximately $5.7 million.

Revolving Line of Credit

In July 2015, the Company entered into a Loan and Security Agreement (the “Loan Agreement”) with East West Bank (“EWB”), whereby EWB made available to the Company a secured credit facility in the form of a revolving line of credit (the “Revolving Line of Credit”). The Revolving Line of Credit is available up to a maximum of the lesser of: (a) $25.0 million; or (b) a certain percentage of domestic and foreign trade receivables. As of September 30, 2017 the amount available under the Revolving Line of Credit was $12.0 million. In general, amounts borrowed under the Revolving Line of Credit are secured by a lien on all of the Company’s assets, including its intellectual property, as well as a pledge of 100% of its equity interests in Maxwell SA. The obligations under the Loan Agreement are also guaranteed directly by Maxwell SA. The Revolving Line of Credit will mature on July 3, 2018. In the event that the Company is in violation of the representations, warranties and covenants made in the Loan Agreement, including certain financial covenants set forth therein, the Company may not be able to utilize the Revolving Line of Credit or repayment of amounts owed pursuant to the Loan Agreement could be accelerated. The Company is currently in compliance with the financial covenants that it is required to meet during the term of the credit agreement including the minimum four-quarter rolling EBITDA, quarterly minimum quick ratio and monthly minimum cash requirements. On February 28, 2017, the Company entered into an amendment to the Loan Agreement to approve the acquisition of substantially all of the assets and business of Nesscap Energy, Inc., and to modify certain financial covenants. On September, 2017, the Company entered into an amendment to the Loan Agreement providing for consent for the offering of the Notes and the inclusion of an additional covenant related to liquidity.

Amounts borrowed under the Revolving Line of Credit bear interest, payable monthly. Such interest shall accrue based upon, at the Company’s election, subject to certain limitations, either a Prime Rate plus a margin ranging from 0% to 0.50% or the LIBOR Rate plus a margin ranging from 2.75% to 3.25%, the specific rate for each as determined based upon the Company’s leverage ratio from time to time.

The Company is required to pay an annual commitment fee equal to $125,000, and an unused commitment fee of the average daily unused amount of the Revolving Line of Credit, payable monthly, equal to a per annum rate in a range of 0.30% to 0.50%, as determined by the Company’s leverage ratio on the last day of the previous fiscal quarter. No amounts have been borrowed under this Revolving Line of Credit as of September 30, 2017.

Other Long-term Borrowings

The Company has various financing agreements for vehicles. These agreements are for up to an original three year repayment period with interest rates ranging from 0.9% to 1.9%. At September 30, 2017 and December 31, 2016, $124,000 and $83,000, respectively, was outstanding under these financing agreements.

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Note 8 – Fair Value Measurements

The Company records certain financial instruments at fair value in accordance with the Fair Value Measurements and Disclosures Topic of the FASB ASC. Historically, the financial instruments to which this topic applied were foreign currency forward contracts and the fair value of these foreign currency forward contracts was recorded as a liability or asset in the consolidated balance sheets. During the second quarter of 2016, the Company ceased using foreign currency forward contracts to hedge foreign currency exposure as management determined its foreign currency exposure was no longer sufficiently significant to merit the use of hedging instruments. Therefore, no foreign currency forward contracts were outstanding as of September 30, 2017. The fair value of these derivative instruments was measured using models following quoted market prices in active markets for identical instruments, which is a Level 2 input under the fair value hierarchy of the Fair Value Measurements and Disclosures Topic of the FASB ASC.

Additionally, the Company records pension assets at fair value. As of the last fair value measurement date of December 31, 2016, the net pension asset included plan assets with a fair value of $39.0 million. The plan assets consisted of debt and equity securities, real estate investment funds and cash and cash equivalents. The fair values of debt and equity securities are determined based on quoted prices in active markets for identical assets, which are Level 1 inputs under the fair value hierarchy. The fair value measurement of the real estate investment funds is based on unobservable inputs and assumptions which are Level 3 inputs under the fair value hierarchy.

As of September 30, 2017, the fair value of the Company’s convertible senior notes issued in September 2017 is equivalent to the proceeds received of $37.8 million, due to the recent issuance of the Notes. The carrying value of short-term and other long-term borrowings approximates fair value because of the relative short maturity of these instruments and the interest rates the Company could currently obtain.

Note 9 – Foreign Currency Derivative Instruments

The Company has historically used forward contracts to hedge certain monetary assets and liabilities, primarily receivables, payables and cash balances, denominated in foreign currencies. During the second quarter of 2016, the Company ceased using foreign currency forward contracts to hedge foreign currency exposure as management determined its foreign currency exposure was no longer sufficiently significant to merit the use of hedging instruments. The change in fair value of these forward contracts represented a natural hedge as gains and losses on these instruments partially offset the changes in the fair value of the underlying monetary assets and liabilities due to movements in currency exchange rates. These forward contracts generally expired in one month. These contracts were considered economic hedges but were not designated as hedges under the Derivatives and Hedging Topic of the FASB ASC, therefore, the change in the fair value of the instrument was recognized each period in the consolidated statement of operations.

The net gains and losses on foreign currency forward contracts included in “foreign currency exchange (gain) loss, net” in the condensed consolidated statements of operations are as follows (in thousands):

	Three Months Ended September 30, 2016		Nine Months Ended September 30, 2016
Total gain (loss)	$	—	$	(88	)

The net gains and losses on foreign currency forward contracts were partially offset by net gains and losses on the underlying monetary assets and liabilities. Foreign currency gains and losses on those underlying monetary assets and liabilities included in “foreign currency exchange (gain) loss, net” in the condensed consolidated statements of operations are as follows (in thousands):

	Three Months Ended September 30, 2016		Nine Months Ended September 30, 2016
Total gain (loss)	$	—	$	(37	)

For additional information, refer to Note 8 – Fair Value Measurements.

Note 10 – Stock Plans

The Company has two active stock-based compensation plans as of September 30, 2017: the 2004 Employee Stock Purchase Plan and the 2013 Omnibus Equity Incentive Plan under which incentive stock options, non-qualified stock options, restricted stock awards and restricted stock units can be granted to employees and non-employee directors.

The Company generally issues the majority of employee stock compensation grants in the first quarter of the year; other grants issued during the year are typically for new employees or non-employee directors.

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Stock Options

Stock options are granted to certain employees from time to time on a discretionary basis. Beginning in 2017, non-employee directors receive annual stock option awards as part of their annual retainer compensation. During the three and nine months ended September 30, 2017, the Company granted 5,000 and 50,000 stock options, respectively, which had an average grant date fair value per share of $3.12 and $2.97, respectively. During the three and nine months ended September 30, 2016, no stock options were granted. Compensation expense recognized for stock options for the three months ended September 30, 2017 and 2016 was $62,000 and $49,000, respectively. Compensation expense recognized for stock options for the nine months ended September 30, 2017 and 2016 was $169,000 and $134,000, respectively. The fair value of the stock options granted during the three and nine months ended September 30, 2017 was estimated using the Black-Scholes valuation model with the following assumptions:

	Three Months Ended September 30, 2017		Nine Months Ended September 30, 2017
Expected dividend yield	—	%	—	%
Expected volatility	58	%	58% - 59%
Risk-free interest rate	1.96	%	1.87% - 1.96%
Expected term (in years)	5.5		5.5

Restricted Stock Awards

Beginning in 2014, the Company ceased granting restricted stock awards (“RSAs”) and began granting restricted stock units (“RSUs”) to employees as part of its annual equity incentive award program, therefore, no restricted stock awards were issued during the three and nine months endedSeptember 30, 2017 and 2016. During the three months ended September 30, 2017 and 2016, compensation expense recognized for RSAs was $0.1 million and $0.2 million, respectively. During the nine months ended September 30, 2017 and 2016, compensation expense recognized for RSAs was $0.3 million and $0.2 million, respectively. During the first quarter of 2016, there were significant reversals of previously recorded expense due to terminations under the Company’s 2015 restructuring plan as well as other employee terminations.

Restricted Stock Units

Non-employee directors receive annual RSU awards as part of their annual retainer compensation. These awards vest approximately one year from the date of grant provided the non-employee director provides continued service. Additionally, new directors normally receive RSUs upon their election to the board. The Company also grants RSUs to employees as part of its annual equity incentive award program, with vesting typically in equal annual installments over four years of continuous service. Additionally, the Company grants performance-based restricted stock units (“PSUs”) to executives with vesting contingent on continued service and achievement of specified performance objectives or stock price performance. Each restricted stock unit represents the right to receive one unrestricted share of the Company’s common stock upon vesting.

During the three months ended September 30, 2017, the Company granted 355,075 RSUs of which 320,963 were service-based RSUs with an average grant date fair value of $5.58 per share and 34,112 were PSUs with an average grant date fair value of $6.79 per share. During the nine months endedSeptember 30, 2017, the Company granted 1,768,492 RSUs of which 1,242,618 were service-based RSUs with an average grant date fair value of $5.54 per share and 525,874 were PSUs with an average grant date fair value of $6.77 per share.

During the three months ended September 30, 2016, the Company granted 49,116 service-based RSUs with an average grant date value of $5.09 per share. During the nine months ended September 30, 2016, the Company granted 1,236,747 RSUs of which 904,028 were service-based RSUs with an average grant date value of $5.56 per share and 332,719 were PSUs with an average grant date fair value of $7.50 per share.

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For the three months ended September 30, 2017 and 2016, PSUs granted included 34,112 market-condition restricted stock units. No market-condition restricted stock units were granted in the three months ended September 30, 2016. For the nine months endedSeptember 30, 2017 and 2016, PSUs granted included 367,874 and 286,495 market-condition restricted stock units, respectively. The market-condition PSUs will vest based on the level of the Company’s stock price performance against a determined market index over one, two and three year performance periods. The market-condition PSUs have the potential to vest between 0% and 200% depending on the Company’s stock price performance and the recipients must remain employed through the end of each performance period in order to vest. The fair value of the market-condition PSUs granted was calculated using a Monte Carlo valuation model with the following assumptions:

	Three and Nine Months Ended September 30,
	2017		2016
Expected dividend yield	—	%	—	%
Expected volatility	53	%	62	%
Risk-free interest rate	1.55	%	1.07	%
Expected term (in years)	2.8		3.0

The following table summarizes the amount of compensation expense recognized for RSUs for the three and nine months endedSeptember 30, 2017 and 2016 (in thousands):

	Three Months Ended September 30,				Nine Months Ended September 30,
RSU Type	2017		2016		2017		2016
Service-based	$	1,124	$	544	$	2,460	$	1,613
Performance objectives	219		30		389		71
Market-condition	432		250		1,027		621
	$	1,775	$	824	$	3,876	$	2,305

Employee Stock Purchase Plan

The 2004 Employee Stock Purchase Plan (“ESPP”) permits substantially all employees to purchase common stock through payroll deductions, at 85% of the lower of the trading price of the stock at the beginning or at the end of each six month offering period. The number of shares purchased is based on participants’ contributions made during the offering period.

Compensation expense recognized for the ESPP for the three months ended September 30, 2017 and 2016 was $28,000 and $53,000, respectively, and was $81,000 and $189,000, respectively, for the nine months ended September 30, 2017 and 2016. The fair value of the ESPP shares for the three and nine months ended September 30, 2017 and 2016 was estimated using the Black-Scholes valuation model for a call and a put option with the following weighted-average assumptions:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2017			2016			2017			2016
Expected dividend yield	—		%	—		%	—		%	—		%
Expected volatility	37		%	54		%	32		%	58		%
Risk-free interest rate	1.09		%	0.36		%	0.78		%	0.45		%
Expected term (in years)	0.38			0.50			0.46			0.50
Fair value per share	$	1.45		$	1.59		$	1.28		$	2.04

Bonuses Settled in Stock

On January 15, 2016, the Compensation Committee of the Board of Directors of the Company adopted the Maxwell Technologies, Inc. Incentive Bonus Plan to enable participants to earn annual incentive bonuses based upon achievement of specified financial and strategic performance objectives. The Company may settle bonuses earned under the plan in either cash or stock, and currently intends to settle the majority of bonuses earned under the plan in stock. During the first quarter of 2017, the Company settled $1.2 million of bonuses earned under the plan for the 2016 performance period with 142,582 shares of fully vested common stock and 89,730 fully vested restricted stock units, which were subsequently settled during the second quarter of 2017. An additional $0.3 million of bonuses earned for the 2016 performance period were settled with 42,662 shares of fully vested common stock in the third quarter of 2017.

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The Company recorded $0.7 million and $(31,000) of stock compensation expense related to the bonus plan during the three months ended September 30, 2017 and 2016, respectively. The Company recorded $1.9 million and $0.9 million of stock compensation expense related to the bonus plan during the nine months ended September 30, 2017 and 2016, respectively.

Director Fees Settled in Stock

In 2017, the Board approved a deferred compensation program under which non-employee directors may make irrevocable elections to receive all or a portion of their cash-based non-employee director fees (including, as applicable, any annual retainer fee, committee fee and any other compensation payable with respect to their service as a member of the Board) in stock and to elect to defer receipt of those shares. In the event that a director makes such an election, the Company will grant fully vested RSUs in lieu of cash, with an initial value equal to the cash fees, which will be settled either in the year granted or at a future date elected by the respective non-employee director through the issuance of Maxwell common stock. In addition, non-employee directors may elect to defer settlement of the initial and annual RSU awards granted to them in connection with their service as a non-employee director. During the three and nine months ended September 30, 2017, the Company settled $71,000 of director fees earned in the second quarter of 2017 with 12,904 fully vested RSUs. The Company recorded $92,000 and $164,000 of stock compensation expense related to director fees to be settled in stock during the three and nine months ended September 30, 2017, respectively.

Stock-Based Compensation Expense

Stock-based compensation cost included in cost of revenue; selling, general and administrative expense; and research and development expense is as follows (in thousands):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2017		2016		2017		2016
Cost of revenue	$	271	$	146	$	721	$	643
Selling, general and administrative	2,097		799		4,762		2,436
Research and development	387		152		1,064		680
Total stock-based compensation expense	$	2,755	$	1,097	$	6,547	$	3,759

Note 11 – Defined Benefit Plans

Maxwell SA Pension Plan

Maxwell SA has a retirement plan that is classified as a defined benefit pension plan. The employee pension benefit is based on compensation, length of service and credited investment earnings. The plan guarantees both a minimum rate of return as well as minimum annuity purchase rates. The Company’s funding policy with respect to the pension plan is to contribute the amount required by Swiss law, using the required percentage applied to the employee’s compensation. In addition, participating employees are required to contribute to the pension plan. This plan has a measurement date of December 31.

Components of net periodic pension cost are as follows (in thousands):

	Three Months Ended September 30,						Nine Months Ended September 30,
	2017			2016			2017			2016
Service cost	$	251		$	295		$	737		$	883
Interest cost	59			62			172			185
Expected return on plan assets	(258		)	(296		)	(757		)	(885		)
Prior service cost amortization	38			38			113			113
Deferred loss amortization	—			61			—			183
Net periodic pension cost	$	90		$	160		$	265		$	479

Employer contributions of $0.2 million and $0.1 million were paid during the three months ended September 30, 2017 and 2016, respectively. Employer contributions of $0.5 million were paid during each of the nine months ended September 30, 2017 and 2016. Additional employer contributions of approximately $0.1 million are expected to be paid during the remainder of fiscal 2017.

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Korea Defined Benefit Plan

In connection with the Nesscap Acquisition, the Company assumed the defined benefit plan liability related to Nesscap Korea’s employees. Pursuant to the Labor Standards Act of Korea, employees and most executive officers with one or more years of service are entitled to lump sum separation benefits upon the termination of their employment based on their length of service and rate of pay.

Components of net cost related to the Korea employee defined benefit plan are as follows (in thousands):

	Three Months Ended September 30, 2017		Nine Months Ended September 30, 2017
Service cost	$	134	$	221
Interest cost	20		34
Net cost	$	154	$	255

Employer contributions of $2,000 and $4,000 were paid during the three and nine months ended September 30, 2017, respectively. Additional employer contributions of approximately $2,000 are expected to be paid during the remainder of fiscal 2017.

Note 12 – Legal Proceedings

Although the Company expects to incur legal fees in connection with the below legal proceedings, the Company is unable to estimate the amount of such legal fees and therefore, such fees will be expensed in the period the legal services are performed.

FCPA Matter

In January 2011, the Company reached settlements with the U.S. Securities and Exchange Commission (“SEC”) and the U.S. Department of Justice (“DOJ”) with respect to charges asserted by the SEC and DOJ relating to the anti-bribery, books and records, internal controls, and disclosure provisions of the U.S. Foreign Corrupt Practices Act (“FCPA”) and other securities laws violations. The Company paid the monetary penalties under these settlements in installments such that all monetary penalties were paid in full by January 2013. With respect to the DOJ charges, a judgment of dismissal was issued in the U.S. District Court for the Southern District of California on March 28, 2014.

On October 15, 2013, the Company received an informal notice from the DOJ that an indictment against the former Senior Vice President and General Manager of its Swiss subsidiary had been filed in the United States District Court for the Southern District of California. The indictment is against the individual, a former officer, and not against the Company and the Company does not foresee that further penalties or fines could be assessed against it as a corporate entity for this matter. However, the Company may be required throughout the term of the action to advance the legal fees and costs incurred by the individual defendant and to incur other financial obligations. While the Company maintains directors’ and officers’ insurance policies which are intended to cover legal expenses related to its indemnification obligations in situations such as these, the Company cannot determine if and to what extent the insurance policy will cover the ongoing legal fees for this matter. Accordingly, the legal fees that may be incurred by the Company in defending this former officer could have a material impact on its financial condition and results of operation.

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Swiss Bribery Matter

In August 2013, the Company’s Swiss subsidiary was served with a search warrant from the Swiss federal prosecutor’s office. At the end of the search, the Swiss federal prosecutor presented the Company with a listing of the materials gathered by the representatives and then removed the materials from its premises for keeping at the prosecutor’s office. Based upon the Company’s exposure to the case, the Company believes this action to be related to the same or similar facts and circumstances as the FCPA action previously settled with the SEC and the DOJ. During initial discussions, the Swiss prosecutor has acknowledged both the existence of the Company’s deferred prosecution agreement with the DOJ and its cooperation efforts thereunder, both of which should have a positive impact on discussions going forward. Additionally, other than the activities previously reviewed in conjunction with the SEC and DOJ matters under the FCPA, the Company has no reason to believe that additional facts or circumstances are under review by the Swiss authorities. To date, the Swiss prosecutor has not issued its formal decision as to whether the charges will be brought against individuals or the Company or whether the proceeding will be abandoned. At this stage in the investigation, the Company is currently unable to determine the extent to which it will be subject to fines in accordance with Swiss bribery laws and what additional expenses will be incurred in order to defend this matter. As such, the Company cannot determine whether there is a reasonable possibility that a loss will be incurred nor can it estimate the range of any such potential loss. Accordingly, the Company has not accrued an amount for any potential loss associated with this action, but an adverse result could have a material adverse impact on its financial condition and results of operation.

Government Investigations

In early 2013, the Company voluntarily provided information to the SEC and the United States Attorney’s Office for the Southern District of California related to its announcement that it intended to file restated financial statements for fiscal years 2011 and 2012. On June 11, 2015 and June 16, 2016, the Company received subpoenas from the SEC requesting certain documents related to, among other things, the facts and circumstances surrounding the restated financial statements. The Company has provided documents and information to the SEC in response to the subpoenas. In September 2016, the Company entered into a tolling agreement effective for the period beginning on September 12, 2016, and running through June 30, 2017, with the SEC related to these matters. In June 2017, the Company entered into an amended and restated version of this tolling agreement effective for the period beginning on September 12, 2016, and running through October 31, 2017. In November 2017, the Company entered into an amended and restated version of this tolling agreement effective for the period beginning on September 12, 2016, and running through December 22, 2017. The Company is cooperating with the investigation and recently made an offer of settlement to resolve the matter, which is subject to approval by the SEC Commissioners. The proposed settlement would be entered into by the Company without admitting or denying the SEC’s findings and would resolve alleged violations of certain anti-fraud and books and records provisions of the federal securities laws and related rules. Under the terms of the proposed settlement, the Company would pay $2.8 million in a civil penalty and agree not to commit or cause any violations of certain anti-fraud and books and records provisions of the federal securities laws and related rules. In the third quarter of 2017, the Company has made a corresponding accrual for the settlement amount as an operating expense in its financial statements.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Unless the context otherwise requires, all references to “Maxwell,” “the Company,” “we,” “us,” and “our” refer to Maxwell Technologies, Inc. and its subsidiaries. All references to “Maxwell SA” refer to our Swiss subsidiary, Maxwell Technologies, SA.

FORWARD-LOOKING STATEMENTS

Some of the statements contained in this document and incorporated herein by reference discuss our plans and strategies for our business or make other forward-looking statements, as this term is defined in the Private Securities Litigation Reform Act. The words “anticipates,” “believes,” “estimates,” “expects,” “plans,” “intends,” “may,” “could,” “will,” “continue,” “seek,” “should,” “would” and similar expressions are intended to identify these forward-looking statements, but are not the exclusive means of identifying them. These forward-looking statements reflect the current views and beliefs of our management; however, various risks, uncertainties and contingencies could cause our actual results, performance or achievements to differ materially from those expressed in, or implied by, our statements. Such risks, uncertainties and contingencies include, but are not limited to, the following:

• dependence upon the sale of products to a small number of vertical markets, some of which are dependent on government funding or government subsidies which may or may not continue in the future;

• uncertainties related to the global geopolitical landscape and the recent elections in the United States;

• risks related to acquisitions and potential for unsuccessful integration of acquired businesses;

• risk that our restructuring efforts may not be successful and that we may not be able to realize the anticipated cost savings and other benefits;

• our ability to obtain sufficient capital to meet our operating or other needs;

• our ability to manage our liabilities;

• our ability to service our debt;

• risks related to the triggering of the conditional conversion feature in our senior notes;

• downward pressures on product pricing from increased competition and potential shifts in sales mix with respect to low margin and high margin business;

• our ability to manage and minimize the impact of unfavorable legal proceedings;

• risk that activist stockholders attempt to effect changes to our Company which could adversely affect our corporate governance;

• risks related to our international operations including, but not limited to, our ability to adequately comply with the changing rules and regulations in countries where our business is conducted, our ability to oversee and control our foreign subsidiaries and their operations, our ability to effectively manage foreign currency exchange rate fluctuations arising from our international operations, and our ability to continue to comply with the U.S. Foreign Corrupt Practices Act as well as the anti-bribery laws of foreign jurisdictions;

• dependence upon the sale of products into Asia and Europe, where macroeconomic factors outside our control may adversely affect our sales;

• our ability to remain competitive and stimulate customer demand through successful introduction of new products, and to educate our prospective customers on the products we offer;

• successful acquisition, development and retention of key personnel;

• our ability to effectively manage our reliance upon certain suppliers of key component parts, specialty equipment and logistical services;

• our ability to manage product quality problems;

• our ability to protect our intellectual property rights and to defend claims against us;

• our ability to effectively identify, enter into, manage and benefit from strategic alliances;

• occurrence of a catastrophic event at any of our facilities;

• occurrence of a technology systems failure, network disruption, or breach in data security, and

• our ability to match production volume to actual customer demand.

Many of these factors are beyond our control. Additionally, there can be no assurance that we will not incur new or additional unforeseen costs in connection with the ongoing conduct of our business. Accordingly, any forward-looking statements included herein do not purport to be predictions of future events or circumstances and may not be realized.

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For a discussion of important risks associated with an investment in our securities, including factors that could cause actual results to differ materially from expectations referred to in the forward-looking statements, see Risk Factors in Part II, Item 1A, of this document and Part I, Item 1A, of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2016. We do not have any obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise.

Overview

Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is designed to provide a reader of our financial statements with a narrative from the perspective of our management on our financial condition, results of operations, liquidity and certain other factors that may affect our future results. Our MD&A is presented in the following sections:

• Executive Overview

• Current Year Highlights

• Results of Operations

• Liquidity and Capital Resources

• Critical Accounting Estimates

• Recent Accounting Pronouncements

• Off Balance Sheet Arrangements

Executive Overview

Maxwell is a global leader in developing, manufacturing and marketing energy storage and power delivery products for transportation, industrial, information technology and other applications. Our products are designed and manufactured to perform reliably with minimal maintenance for the life of the applications into which they are integrated. We believe that this “life-of-the-application” reliability gives our products a competitive advantage and enables them to command higher profit margins than commodity products. We have two product lines: ultracapacitors with applications in multiple industries, including transportation and renewable energy and high-voltage capacitors applied mainly in electrical utility infrastructure. In April 2016, we sold substantially all assets and liabilities of a third product line, radiation-hardened microelectronic products for space and satellite applications.

Our primary objective is to grow revenue and profit margins by creating and satisfying demand for ultracapacitor-based energy storage and power delivery solutions. We are focusing on establishing and expanding market opportunities for ultracapacitors and being the preferred supplier for ultracapacitor products worldwide. We believe that the transportation industry represents the largest market opportunity for ultracapacitors, primarily for applications related to electrical system augmentation, braking energy recuperation and hybrid electric drive systems for transit vehicles, as well as engine starting for trucks and electric rail vehicles. In addition, we see increasing demand for ultracapacitors for use in grid related applications such as backup power and power quality applications, including instantly available power for uninterruptible power supply systems, and stabilizing the output of renewable energy generation systems may also represent significant market opportunities.

In addition to expanding and growing our opportunities for ultracapacitor-based energy storage and power delivery solutions, we are also focused on demonstrating the ability of our core technology to satisfy the increasing performance demands for other energy storage products, such as lithium ion battery cells. We believe that our dry electrode technology has the potential to be a significant technology within the battery industry with substantial market opportunity, particularly for use in electric vehicles. By applying our proprietary and fundamental dry electrode manufacturing technology and trade secrets to batteries of varying chemistries, we believe we can create significant performance and cost benefits. To that end, in 2016, we entered into a “proof of concept” joint development agreement and are sharing the short-term costs of developing this technology with an automotive manufacturer and a tier 1 automotive supplier.

We also seek to expand market opportunities and revenue for our high-voltage capacitors. The market for high-voltage capacitors consists mainly of expansion, upgrading and maintenance of existing electrical utility infrastructure and new infrastructure installations in developing countries. Such installations are capital-intensive and frequently are subject to regulation, availability of government funding and general economic conditions. We are in the process of expanding capacity at our existing high-voltage capacitor production facility in Rossens, Switzerland in order to better meet demand and forecasted production volume.

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On September 25, 2017, we issued $40 million aggregate principal amount of 5.50% convertible senior notes due 2022 (the “Notes”). The sale of the Notes generated net proceeds of approximately $37.3 million after deducting the initial purchaser’s discount and the estimated offering expenses payable by us. We intend to use the net proceeds from the offering for general corporate purposes, which may include research and development expenses, capital expenditures, working capital and general and administrative expenses. A 30-day option to purchase up to an additional $6.0 million aggregate principal amount of the convertible senior notes under the same terms was also exercised in October 2017.

On April 28, 2017, we acquired substantially all of the assets and business of Nesscap Energy, Inc. (“Nesscap”), a developer and manufacturer of ultracapacitor products for use in transportation, renewable energy, industrial and consumer markets, in exchange for the issuance of approximately 4.1 million shares of Maxwell common stock (the “Share Consideration”) and the assumption of certain liabilities. The value of the Share Consideration was approximately $25.3 million based on the closing price of our common stock on April 28, 2017. The Nesscap Acquisition adds complementary businesses to our operations and expands our portfolio of products and we believe the acquisition adds value for our customers.

In September 2017, we initiated a restructuring plan to optimize headcount in connection with the acquisition and integration of the assets and business of Nesscap, as well as to implement additional organizational efficiencies. Total charges for the September 2017 restructuring plan were approximately $1.2 million, all of which were incurred in the third quarter of 2017. We anticipate annual cost savings between $0.7 million and $1.0 million as a result of this restructuring plan, including a benefit of $0.3 million to $0.4 million in fiscal 2017.

In February 2017, we announced a restructuring plan to implement a wide range of organizational efficiencies and cost reduction opportunities to better align our costs with near term revenue. In connection with the restructuring plan, we have incurred restructuring charges of approximately $0.9 million, primarily related to employee severance. The restructuring charges are cash expenditures and were substantially all recognized in the first quarter of fiscal 2017. We anticipate annual cost savings between $2.5 million and $3.0 million as a result of this restructuring plan, including a benefit of approximately $1.9 million in fiscal 2017.

In 2015 and 2016, we executed our 2015 restructuring plan, which consolidated U.S. manufacturing operations and reduced headcount and operating expenses in order to align our cost structure with the current business and improve operational efficiency. The plan also included the disposition of our microelectronics product line which was completed in April 2016. The cost savings resulting from the 2015 restructuring activities is approximately $5 million to $6 million per year.

In the third quarter of 2017, revenue was $35.8 million, representing an overall increase of 40% compared with $25.5 million in the same period one year ago. The increase is primarily attributable to higher revenue for our ultracapacitor products, for which revenue increased by 97% to $27.6 million in the third quarter of 2017 from $14.0 million in the third quarter of 2016. The increase in ultracapacitor product revenue was partially due to the Nesscap Acquisition which contributed $6.8 million of revenue in the third quarter of 2017. Additionally, wind energy sales increased as the grid capacity and infrastructure constraints in China during the third quarter of 2016 were not present in the third quarter of 2017.

Revenue for our high-voltage capacitor products was $8.3 million for the third quarter of 2017, representing a decrease of 28% compared with $11.5 million for the same period in the prior year. This decrease was due to the timing of certain high-voltage capacitor end user projects and associated revenue.

Overall gross margin during the quarter decreased to 21% compared with 30% in the third quarter of 2016, primarily associated with a change in product mix as the third quarter of 2017 included lower sales of higher margin high-voltage products, as well as recognition of the inventory step-up and the amortization of intangibles related to the Nesscap Acquisition. Operating expenses in the third quarter of 2017 increased to 58% of revenue, compared with 54% of revenue in the same period one year ago, primarily attributable to a proposed settlement with the SEC in the third quarter of 2017 related to our 2011 and 2012 restatement and the implementation of a restructuring plan in the third quarter of 2017, partially offset by lower operating expenses due to our restructuring activities and ongoing cost reduction efforts.

As of September 30, 2017, we had cash and cash equivalents of $52.9 million. Management believes that this available cash balance will be sufficient to fund our operations, obligations as they become due, and capital investments for at least the next twelve months. In addition, we have a revolving line of credit available up to a maximum of $25.0 million, subject to a borrowing base limitation, and we have not borrowed any amounts under this facility to date. In the future, we may decide to supplement existing cash and planned cash flow from operations by borrowing funds or by issuing additional debt or equity.

On April 10, 2017, we entered into a stock purchase agreement with SDIC Fund Management Co., Ltd. (“SDIC”), pursuant to which we agreed to issue and sell to SDIC 7.4 million shares of the Company’s common stock for $6.32 per share, for an aggregate purchase price of approximately $46.6 million. On September 20, 2017, in connection with the sale and issuance of the Notes described above, we terminated the Stock Purchase Agreement (the “SDIC Agreement”). As a result of the termination, we expensed $0.5 million of transaction costs in the third quarter of 2017 which were previously incurred in connection with the SDIC Agreement.

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Going forward, we intend to continue focusing on growing our business and strengthening our market leadership and brand recognition through further penetration of existing markets, entry into new markets and development of new products. Our primary focus is on growing our ultracapacitor business by increasing sales into primary applications, including transportation, renewable energy and backup power. In order to achieve our growth objectives, we will need to overcome risks and challenges facing our business.

A significant challenge we face is our ability to manage dependence on a small number of vertical markets, including some that are driven by government policies and subsidy programs. The markets may decline or experience slower rates of growth when there are changes or delays in government policies and subsidy programs. Specifically, the Chinese hybrid transit bus and wind energy markets into which we sell our ultracapacitor products are heavily dependent on government regulation and subsidy programs. Beginning in 2017, the Chinese government subsidies for hybrid transit buses require a manufacturer to be registered in order for its customers, who are ultimately manufacturing the buses, to qualify for the subsidy, and we cannot be certain whether our customers will qualify for the subsidy. We may continue to see variability in revenue as a result of uncertainty regarding how these changes and potential changes to the China government subsidy will impact our sales into the hybrid transit vehicle market. In January 2017, to enable our products to be fully localized in support of the recent China government requirements, we licensed our module designs targeting the China bus market to CRRC-SRI, who is obligated to exclusively use our 2.7-volt and 3-volt ultracapacitor cells in local production lines to manufacture the modules. In addition, we intend to continue to leverage our long-standing expertise in the China bus market to jointly design additional, next-generation products, which we expect CRRC-SRI to manufacture in the years to come.

We also experience pricing pressure for ultracapacitors in the Chinese hybrid transit vehicle and wind energy markets, which have historically represented a significant portion of our sales, as a result of other market factors in addition to the government subsidy programs referenced above. In order to remain competitive, we may be required to lower our prices, maintain a stronger local presence, or provide more favorable sales terms to our customers. We remain focused on reducing the cost of producing our ultracapacitors in order to offset in part the lower prices we are now offering in these markets. However, in the short-term, our cost reduction efforts are not expected to fully offset the impact of these lower prices.

Although we believe the long-term prospects for the automotive, wind and hybrid transit markets remain positive, we are pursuing growth opportunities for our products in other vertical markets, including applications for backup power, power quality, rail, grid and heavy vehicle engine starting in order to further diversify our market presence and augment our long-term growth prospects.

Other significant risks and challenges we face include the ability to achieve profitability; the ability to develop our management team, product development infrastructure and manufacturing capacity to facilitate growth; competing technologies that may capture market share and interfere with our planned growth; difficulties in executing our restructuring plan; and hiring, developing and retaining key personnel critical to the execution of our strategy. We are attentive to these risks and are focusing on developing new products and promoting the value proposition of our products versus competing technologies and growing our revenue and profit in the years to come.

Current Year Highlights

During the nine months ended September 30, 2017, we continued to focus on introducing new products, winning new customers, developing new product applications, adjusting production capacity, reducing costs to align with near-term revenue forecasts, and improving production and other operational processes. Some of these efforts are described below:

• In January 2017, we announced a definitive agreement with CRRC-SRI to localize manufacturing of our ultracapacitor-based modules for use in the China new energy bus market. Under the terms of the agreement, localized production of our ultracapacitor-based modules is expected to begin in China in the second half of 2017, coinciding with the peak buying season for China's new energy bus market. The production of bus modules extends our strategic partnership with CRRC-SRI and we believe will enable us to compete more effectively in the China bus market moving forward.

• In February 2017, we announced that we entered into an agreement to acquire substantially all of the assets and business of Nesscap Energy, Inc., a developer and manufacturer of ultracapacitor products for use in transportation, renewable energy, industrial and consumer markets. On April 28, 2017, we completed this acquisition through the issuance of approximately 4.1 million shares of Maxwell common stock and the assumption of certain liabilities. The acquisition adds complementary businesses to our operations and expands our portfolio of products and we believe the acquisition will add value for our customers.

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• In September 2017, we announced an offering of $40 million aggregate principal amount of 5.50% Convertible Senior Notes due 2022 (the "Notes") in a private placement to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended. We also granted to the initial purchaser of the notes a 30-day option to purchase up to an additional $6.0 million aggregate principal amount of the Notes. The sale of the Notes to the initial purchaser settled on September 25, 2017 and resulted in approximately $37.3 million in net proceeds after deducting fees and estimated offering expenses payable by us.

• In October 2017, we announced the sale of an additional $6.0 million in aggregate principal amount of our 5.50% convertible senior notes due 2022 (the "Additional Notes") in a private offering to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, pursuant to the initial purchaser's exercise of their option to purchase additional notes. The sale of the Additional Notes settled on October 11, 2017 and the Additional Notes were sold on the same terms in all respects as the 5.50% convertible senior notes due 2022 previously issued on September 25, 2017.

Results of Operations

Comparison of Three and Nine Months EndedSeptember 30, 2017 and 2016

The following table presents certain unaudited statement of operations data expressed as a percentage of revenue for the periods indicated:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2017		2016		2017		2016
Revenue	100	%	100	%	100	%	100	%
Cost of revenue	79	%	70	%	79	%	71	%
Gross profit	21	%	30	%	21	%	29	%
Operating expenses:
Selling, general and administrative	41	%	33	%	36	%	29	%
Research and development	14	%	20	%	14	%	17	%
Restructuring and exit costs	3	%	—	%	2	%	—	%
Impairment of assets	—	%	1	%	—	%	—	%
Total operating expenses	58	%	54	%	52	%	46	%
Loss from operations	(37	)%	(24	)%	(31	)%	(17	)%
Gain on sale of product line	—	%	—	%	—	%	(7	)%
Loss before income taxes	(37	)%	(24	)%	(31	)%	(10	)%
Income tax provision	2	%	3	%	3	%	2	%
Net loss	(39	)%	(27	)%	(34	)%	(12	)%

Net loss reported for the third quarter of 2017 was $13.9 million, or $0.37 per share, compared with net loss of $6.9 million, or $0.21 per share, in the same period one year ago. The $7.0 million change was primarily composed of the following:

• $2.8 million of expense recorded in the third quarter of 2017 for the proposed settlement with the SEC related to our 2011 and 2012 restatement;

• a $1.7 million increase in stock compensation expense due to a difference in expected performance under the 2017 bonus plan compared to the 2016 plan as well as a change in award mix to include market-condition RSUs which have a higher expense;

• $1.3 million of costs mainly related to our September 2017 restructuring plan to optimize headcount in connection with the acquisition and integration of Nesscap, as well as to implement additional organizational efficiencies;

• $0.6 million of expense recorded in the third quarter of 2017 for a settlement with a shareholder in connection with the issuance of the Notes;

• $0.5 million of expense related to the SDIC agreement which was terminated in the third quarter of 2017; and

• other expense increases as well as an offsetting effect from savings in operating expense associated with our restructuring and ongoing cost reduction efforts.

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Net loss reported for the nine months ended September 30, 2017 was $34.4 million, or $0.98 per share, compared with a net loss of $11.5 million, or $0.36 per share, in the same period one year ago. The $22.8 million change was primarily composed of the following:

• a $6.7 million gain in 2016 from the sale of our microelectronics product line;

• a $5.8 million decline in gross profit associated with an increase in product costs due to higher unabsorbed fixed costs related to lower production volume, a change in product mix which no longer includes sales of higher margin microelectronics products, recognition of the inventory step-up and the amortization of intangibles related to the Nesscap Acquisition, as well as a reduction in pricing for our ultracapacitor products;

• $2.8 million of expense recorded in 2017 for the proposed settlement with the SEC related to our 2011 and 2012 restatement;

• a $2.8 million increase in stock compensation expense due to a difference in expected performance under the 2017 bonus plan compared to the 2016 plan, unusually high forfeitures during the first quarter of 2016 related to our 2015 restructuring plan, as well as a change in award mix to include market-condition RSUs which have a higher expense;

• a $2.0 million increase in restructuring charges mainly related to our 2017 restructuring plans to implement a wide range of organizational efficiency and to optimize headcount in connection with the acquisition and integration of the assets and business of Nesscap;

• $1.8 million of transaction costs in 2017 related to the Nesscap Acquisition,

• a $1.5 million benefit in the second quarter of 2016 from the release of a foreign tax liability due to the lapse of a statute of limitation,

• $1.2 million of increased taxes due to a higher tax rate and higher income related to our Swiss subsidiary; and

• an offsetting effect from savings in operating expense associated with our restructuring and ongoing cost reduction efforts.

Revenue and Gross Profit

The following table presents a comparison of revenue, cost of revenue and gross profit for the nine months ended September 30, 2017 and 2016 (in thousands, except percentages):

	Three Months Ended September 30,											Nine Months Ended September 30,
	2017			2016			Increase (Decrease)			% Change		2017			2016			Increase (Decrease)			% Change
Revenue	$	35,816		$	25,506		$	10,310		40	%	$	99,605		$	94,844		$	4,761		5	%
Cost of revenue	28,420			17,878			10,542			59	%	78,191			67,582			10,609			16	%
% of Revenue	79		%	70		%						79		%	71		%
Gross profit	$	7,396		$	7,628		$	(232	)	(3	)%	$	21,414		$	27,262		$	(5,848	)	(21	)%
% of Revenue	21		%	30		%						21		%	29		%

Revenue. During the third quarter of 2017, revenue increased 40% to $35.8 million, compared with $25.5 million in the same period one year ago. This increase in revenue was primarily related to higher revenue for our ultracapacitor product line, which increased by $13.6 million, or 97%, to $27.6 million from $14.0 million. The increase in ultracapacitor product revenue was partially due to the Nesscap Acquisition which contributed $6.8 million of revenue in the third quarter of 2017. Additionally, wind energy sales increased in the third quarter of 2017 as the third quarter of 2016 experienced grid capacity and infrastructure constraints in China which were not present in the third quarter of 2017. The increase in ultracapacitor product revenue for the third quarter of 2017 was composed of higher volume of $14.0 million, partially offset by lower prices of $0.5 million.

Revenue for our high-voltage products decreased by $3.2 million, or 28%, to $8.3 million for the third quarter of 2017, compared with $11.5 million for the same period one year ago. This decrease was due to the timing of certain high-voltage capacitor end user projects and associated revenue.

During the nine months ended September 30, 2017, revenue increased 5% to $99.6 million, compared with $94.8 million in the same period one year ago. This increase in revenue was primarily related to higher revenue for our ultracapacitor product line which increased by $8.1 million, or 14%, to $66.9 million from $58.8 million. Ultracapacitor revenue for the nine months ended September 30, 2017 included $11.0 million in revenue from the operations of Nesscap that we acquired. The increase in ultracapacitor product revenue was composed of higher volume of $11.2 million offset by lower prices of $3.1 million. The increase in ultracapacitor product revenue was primarily due sales related to the Nesscap Acquisition.

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Revenue for our high-voltage products increased by $1.2 million, or 4%, to $32.7 million for the nine months ended September 30, 2017, compared with $31.5 million for the same period one year ago. This increase was primarily due to unusually low sales in the first quarter of 2016 associated with delays in Chinese customer orders while waiting for the release of China’s new 5-year plan, which was released at the end of the first quarter of 2016. The increase was partially offset by lower sales in the third quarter of 2017 related to the timing of certain high-voltage capacitor end user projects and associated revenue.

Due to the sale of the product line in April 2016, there was no microelectronics product revenue for the nine months ended September 30, 2017 compared with $4.6 million for the nine months ended September 30, 2016.

A substantial amount of our revenue is generated through our Swiss subsidiary, which has a functional currency of the Swiss Franc. As such, reported revenue can be materially impacted by changes in exchange rates between the Swiss Franc and the U.S. Dollar, our reporting currency. Due to the weakening of the U.S. Dollar against the Swiss Franc during the three ended September 30, 2017 compared with the same period one year ago, revenue was positively impacted by $0.1 million. Due to the strengthening of the U.S. Dollar against the Swiss Franc during the nine months ended September 30, 2017 compared with the same period one year ago, revenue was negatively impacted by $0.2 million.

Gross Profit and Gross Margin. During the third quarter of 2017, gross profit decreased $0.2 million, or 3%, to $7.4 million compared with $7.6 million in the same period one year ago. As a percentage of revenue, gross margin decreased to 21% in the third quarter of 2017 compared with 30% in the same period one year ago. The decreases in gross profit and gross margin were associated with a change in product mix as the third quarter of 2017 included lower sales of higher margin high-voltage products, as well as recognition of the inventory step-up and the amortization of intangibles related to the Nesscap Acquisition.

During the nine months ended September 30, 2017, gross profit decreased $5.8 million, or 21%, to $21.4 million compared with $27.3 million in the same period one year ago. As a percentage of revenue, gross margin decreased to 21% in the nine months ended September 30, 2017 compared with 29% in the same period one year ago. The decreases in gross profit and gross margin were associated with an increase in product costs due to higher unabsorbed fixed costs related to lower production volume, a change in product mix which no longer includes sales of higher margin microelectronics products, recognition of the inventory step-up and the amortization of intangibles related to the Nesscap Acquisition, as well as a reduction in pricing for our ultracapacitor products.

Selling, General and Administrative Expense

The following table presents selling, general and administrative expense for the three and nine months ended September 30, 2017 and 2016 (in thousands, except percentages):

	Three Months Ended September 30,										Nine Months Ended September 30,
	2017			2016			Increase		% Change		2017			2016			Increase		% Change
Selling, general and administrative	$	14,514		$	8,374		$	6,140	73	%	$	36,124		$	26,695		$	9,429	35	%
% of Revenue	41		%	33		%					36		%	29		%

Selling, general and administrative expenses for the third quarter of 2017 increased by $6.1 million, or 73%, from the same period in 2016. Selling, general and administrative expenses increased to 41% of revenue, up from 33% for the same period in 2016. This increase primarily related to $2.8 million of expense recorded in the third quarter of 2017 for the proposed settlement with the SEC related to our 2011 and 2012 restatement, a $1.3 million increase in stock compensation expense due to a difference in expected performance under our 2017 bonus plan compared with 2016 as well as a change in award mix to include market-condition RSUs which have a higher expense, a $0.7 million increase associated with the acquisition of the operations of Nesscap, $0.6 million in expense recorded in the third quarter of 2017 for a settlement with a shareholder in connection with the issuance of the Notes, and $0.5 million of transaction expenses recognized upon the termination of the SDIC agreement. These increases were partially offset by various decreases related to our restructuring and ongoing cost reduction efforts.

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Selling, general and administrative expenses for the nine months ended September 30, 2017 increased by $9.4 million, or 35%, from the same period in 2016. Selling, general and administrative expenses increased to 36% of revenue, up from 29% for the same period in 2016. This increase primarily related to $2.8 million of expense recorded in 2017 for the proposed settlement with the SEC related to our 2011 and 2012 restatement, a $2.3 million increase in stock compensation expense due to a difference in expected performance under our 2017 bonus plan compared with 2016, a change in award mix to include market-condition RSUs which have a higher expense, and unusually high forfeitures during the first quarter of 2016 related to our 2015 restructuring plan, $1.8 million of Nesscap Acquisition costs, a $1.3 million release of a foreign payroll tax liability in the second quarter of 2016, $1.3 million associated with the acquisition of the operations of Nesscap, $0.6 million in expense recorded in 2017 for a settlement with a shareholder in connection with the issuance of the Notes, and $0.5 million of transaction expenses recognized upon the termination of the SDIC agreement. These increases were partially offset by various decreases related to our restructuring and ongoing cost reduction efforts.

Research and Development Expense

The following table presents research and development expense for the three and nine months ended September 30, 2017 and 2016 (in thousands, except percentages):

	Three Months Ended September 30,										Nine Months Ended September 30,
	2017			2016		Decrease			% Change		2017			2016			Decrease			% Change
Research and development	$	4,891		5,038		$	(147	)	(3	)%	$	14,007		$	16,106		$	(2,099	)	(13	)%
% of Revenue	14		%	20	%						14		%	17		%

Research and development expenses for the third quarter of 2017 decreased by $0.1 million, or 3%, from the same period in 2016. Research and development expenses were 14% of revenue, down from 20% for the same period in 2016. The decrease was primarily associated with a decrease of $0.6 million in engineering development project costs mainly related to our restructuring and cost reduction efforts. This decrease was partially offset by a $0.3 million increase in stock compensation expense mostly due to a difference in expected performance under our 2017 bonus plan compared with 2016 and an increase of $0.2 million associated with the acquisition of the operations of Nesscap.

Research and development expenses for the nine months ended September 30, 2017 decreased by $2.1 million, or 13%, from the same period in 2016. Research and development expenses were 14% of revenue, down from 17% for the same period in 2016. The decrease was primarily associated with a decrease of $1.2 million in labor and headcount-related costs mainly related to our restructuring and cost reduction efforts, and an increase of $1.3 million in third-party funding under cost-sharing arrangements, partially offset by an increase of $0.5 million associated with the acquisition of the operations of Nesscap.

Restructuring and Exit Costs

In September 2017, we initiated a restructuring plan to optimize headcount in connection with the acquisition and integration of Nesscap, as well as to implement additional organizational efficiencies. Total charges for the September 2017 restructuring plan were approximately $1.2 million, all of which were recognized in the third quarter of 2017.

In February 2017, we implemented a comprehensive restructuring plan that included a wide range of organizational efficiency initiatives and other cost reduction opportunities. Total charges for the February 2017 restructuring plan were approximately $0.9 million, and were recognized primarily in the first quarter of 2017.

The charges related to the 2017 restructuring plans consist of employee severance costs and have been or will be paid in cash. The following table summarizes the changes in the liabilities for each of the 2017 restructuring plans for the nine months ended September 30, 2017 (in thousands):

	February 2017 Plan			September 2017 Plan
	Employee Severance Costs
Restructuring liability as of December 31, 2016	$	—		$	—
Costs incurred	997			1,195
Amounts paid	(855		)	(58		)
Accruals released	(142		)	—
Restructuring liability as of September 30, 2017	$	—		$	1,137

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In 2015, we initiated a restructuring plan to consolidate U.S. manufacturing operations and to reduce headcount and operating expenses in order to align our cost structure with the current business forecast and to improve operational efficiency. The plan also included the disposition of our microelectronics product line, which was completed in April 2016. The restructuring plan was otherwise substantially completed in the first quarter of 2016 and total restructuring charges were $2.8 million which included $1.3 million in facilities costs, $1.2 million in employee severance costs and $0.3 million for equipment relocation and inventory scrap as a direct result of the deconstruction of machinery. Total cash expenditures related to restructuring activities were approximately $1.5 million.

Also, in the third quarter of 2017, we recognized additional facilities costs of $0.2 million as a restructuring charge due to an adjustment to the sublease income assumption included in the estimated future rent obligation of the leased space deemed to have no future economic benefit to us in connection with our 2015 restructuring plan.

During the third quarter of 2017, $1.3 million of restructuring charges were recorded and $0.3 million of cash payments were made in connection with our restructuring plans. During the nine months ended September 30, 2017, we recorded restructuring charges of $2.2 million of which $0.9 million was paid during the nine months ended September 30, 2017.

Provision for Income Taxes

The effective tax rate differs from the statutory U.S. federal income tax rate of 34% primarily due to foreign income tax and the valuation allowance against our domestic deferred tax assets.

We recorded an income tax provision of $0.5 million and $3.1 million for the three and nine months ended September 30, 2017, respectively, compared with $0.8 million and $1.9 million for the three and nine months ended September 30, 2016, respectively. This provision is primarily related to taxes on income generated by our Swiss subsidiary, for which the tax rate increased in the first quarter of 2017 as we did not meet employment thresholds which were required to be met by December 31, 2017 in order to continue to be eligible for a tax holiday in Switzerland. We record taxes on the undistributed earnings of foreign subsidiaries unless the subsidiaries’ earnings are considered indefinitely reinvested outside of the U.S. As of September 30, 2017, we have recorded a $4.9 million deferred tax liability for Swiss withholding taxes associated with $97.6 million of undistributed earnings of our Swiss subsidiary that are no longer considered indefinitely reinvested. In the event that we repatriate these funds, this withholding tax would become payable to the Swiss government.

At September 30, 2017, we have a cumulative valuation allowance of $91.0 million offsetting our worldwide net deferred tax assets of which the significant majority represents the valuation allowance on our U.S. net deferred tax asset. We have established a valuation allowance against our U.S. federal and state deferred tax assets due to the uncertainty surrounding the realization of such assets. Management periodically evaluates the recoverability of the deferred tax assets and at such time as it is determined that it is more likely than not that U.S. deferred tax assets are realizable, the valuation allowance will be reduced accordingly.

Liquidity and Capital Resources

Changes in Cash Flow

The following table summarizes our cash flows from operating, investing and financing activities for the nine months ended September 30, 2017 and 2016 (in thousands):

	Nine Months Ended September 30,
	2017			2016
Total cash provided by (used in):
Operating activities	$	(8,776	)	$	(13,983	)
Investing activities	(1,892		)	15,930
Financing activities	37,502			585
Effect of exchange rate changes on cash and cash equivalents	659			588
Increase in cash and cash equivalents	$	27,493		$	3,120

Net cash used in operating activities was $8.8 million for the nine months ended September 30, 2017 and related primarily to our net loss of $34.4 million, which included non-cash charges of $16.7 million, and an increase in accounts receivable of $3.7 million primarily related to timing of receipts and higher sales in the third quarter of 2017 compared with the fourth quarter of 2016. These decreases in cash were partially offset by an increase in accounts payable and accrued liabilities of $7.3 million related to an accrual for the proposed settlement with the SEC related to our 2011 and 2012 restatement, the addition of the operations of Nesscap and the timing of payments, and a decrease in inventory of $3.6 million mainly related to our efforts to reduce inventory levels.

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Net cash used in operating activities was $14.0 million for the nine months ended September 30, 2016. Cash used in operations related primarily to the net loss of $11.5 million, which included non-cash charges of $4.4 million, a decrease in accounts payable and accrued liabilities of $16.7 million related to lower procurement activity in the nine months ended September 30, 2016, and an increase in inventory of $7.2 million related to timing differences in matching production to demand. These decreases in cash were partially offset by a decrease in accounts receivable of $20.2 million primarily related to the high volume of sales in the fourth quarter of 2015 which were then substantially collected in the first quarter of 2016.

Net cash used in operating activities decreased $5.2 million to $8.8 million for the nine months ended September 30, 2017 compared with $14.0 million for the nine months ended September 30, 2016. Cash flows from operating activities were impacted by working capital changes which had a positive effect on cash flow of $8.9 million for the nine months ended September 30, 2017, compared with a negative effect of $6.8 million in the nine months ended September 30, 2016. This positive effect of changes in working capital was partially offset by lower gross profit and higher operating expenses in 2017.

Net cash used in investing activities was $1.9 million for the nine months ended September 30, 2017 compared with cash provided by investing activities of $15.9 million for the nine months ended September 30, 2016. Cash used in investing activities during the nine months ended September 30, 2017 was associated with $3.3 million of capital expenditures primarily related to improvements in manufacturing processes and new product testing and production equipment. These capital expenditures were partially offset by $1.5 million of cash received in May 2017 related to the release of the escrow holdback in connection with the sale of our microelectronics product line. Net cash provided by investing activities for the nine months ended September 30, 2016 was $15.9 million and primarily related to proceeds of $20.5 million from the sale of our microelectronics product line, partially offset by capital expenditures of $4.7 million primarily for our corporate research and development facility in San Diego, California.

Net cash provided by financing activities was $37.5 million for the nine months ended September 30, 2017 compared with $0.6 million for the same period in 2016. During the nine months ended September 30, 2017, we received net proceeds of $37.3 million from the issuance of convertible senior notes. For the nine months ended September 30, 2016, cash provided by financing activities primarily related to proceeds from our employee stock purchase plan.

Liquidity

On September 25, 2017, we issued $40 million aggregate principal amount of 5.50% convertible senior notes due 2022 (the “Notes”). The sale of the Notes generated net proceeds of approximately $37.3 million after deducting the initial purchaser’s discount and the estimated offering expenses payable by us. The Notes bear interest at a rate of 5.50% per year, payable semi-annually in arrears on March 15 and September 15 of each year, commencing on March 15, 2018. In October 2017, we issued an additional $6.0 million of convertible senior notes under a 30-day option to purchase up to an additional $6.0 million aggregate principal amount of convertible senior notes under the same terms, which was exercised in October 2017. The sale of the additional convertible senior notes generated net proceeds of approximately $5.7 million after deducting the initial purchaser’s discount.

As of September 30, 2017, we had approximately $52.9 million in cash and cash equivalents, and working capital of $70.2 million. As discussed below, in July 2015, we entered into a Loan and Security Agreement (the “Loan Agreement”) with East West Bank (“EWB”), whereby EWB made available to us a secured credit facility in the form of a revolving line of credit (the “Revolving Line of Credit”). The Revolving Line of Credit is available up to a maximum of the lesser of: (a) $25.0 million; or (b) a certain percentage of domestic and foreign trade receivables. As of September 30, 2017, the amount available under the Revolving Line of Credit was $12.0 million. No amounts have been borrowed under this Revolving Line of Credit as of September 30, 2017.

As of September 30, 2017, the amount of cash and short-term investments held by foreign subsidiaries was $10.2 million. If these funds are needed for our operations in the U.S. in the future, we may be required to pay taxes to repatriate these funds at a rate of approximately 5%. We have accrued the tax expense associated with the potential future repatriation of these funds.

In September 2017, we initiated a restructuring plan to optimize headcount in connection with the acquisition and integration of the assets and business of Nesscap, as well as to implement additional organizational efficiencies. Total charges for the September 2017 restructuring plan were approximately $1.2 million, all of which were incurred in the third quarter of 2017. In February 2017, we implemented a restructuring plan that included a wide range of organizational efficiencies and cost reduction opportunities. In connection with the February 2017 restructuring plan, we have incurred net restructuring charges of approximately $0.9 million, which were substantially recognized in the first quarter of 2017. The September and February 2017 restructuring plan charges consist of employee severance costs which have been or will be paid in cash. In connection with these restructuring plans, we made cash payments of $0.9 million during the nine months ended September 30, 2017.

In connection with the Nesscap Acquisition, we expect to incur approximately $3.5 million in cash expenditures of which $3.4 million was paid during the nine months ended September 30, 2017; the remainder is expected to be paid by the end of 2017. The acquisition was completed in the second quarter of 2017.

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Debt and Credit Facilities

Convertible Senior Notes

On September, 2017, we issued $40.0 million of 5.50% convertible senior unsecured notes due 2022 (the “Notes”). We received net proceeds, after deducting underwriting discounts and fees and expenses payable by the Company, of approximately $37.3 million. The Convertible Senior Notes bear interest at a rate of 5.50% per year, payable semiannually in arrears on March 15 and September 15 of each year, commencing on March 15, 2018. The Convertible Senior Notes mature on September 25, 2022, unless earlier purchased by the Company, redeemed, or converted. We believe that we have sufficient capital resources and cash flows from operations to support scheduled interest payments on this debt.

Revolving Line of Credit

In July 2015, we entered into the Loan Agreement and related agreements with EWB, whereby EWB made available to us a secured credit facility in the form of the Revolving Line of Credit. The Revolving Line of Credit is available up to a maximum of the lesser of: (a) $25.0 million; or (b) a certain percentage of domestic and foreign trade receivables. As of September 30, 2017, the amount available under the Revolving Line of Credit was $12.0 million. In general, amounts borrowed under the Revolving Line of Credit are secured by a lien on all of our assets, including our intellectual property, as well as a pledge of 100% of our equity interests in the Company’s Swiss subsidiary. The obligations under the Loan Agreement are guaranteed by the Swiss Subsidiary. The Revolving Line of Credit will mature on July 3, 2018. In the event that we are in violation of the representations, warranties and covenants made in the Loan Agreement, including certain financial covenants set forth therein, we may not be able to utilize the Revolving Line of Credit or repayment of amounts owed pursuant to the Loan Agreement could be accelerated. We are currently in compliance with the financial covenants that we are required to meet during the term of the credit agreement including the minimum four-quarter rolling EBITDA, quarterly minimum quick ratio and minimum cash requirements. On February 28, 2017, we entered into an amendment to the Loan Agreement to approve the acquisition of substantially all of the assets and business of Nesscap Energy, Inc., and to modify certain financial covenants. On September, 2017, we entered into an amendment to the Loan Agreement providing for consent for the offering of the Notes and the inclusion of an additional covenant related to liquidity.

Amounts borrowed under the Revolving Line of Credit bear interest, payable monthly. Such interest shall accrue based upon, at our election, subject to certain limitations, either a Prime Rate plus a margin or the LIBOR Rate plus a margin, ranging from 0% to 0.50% or the LIBOR Rate plus a margin ranging from 2.75% to 3.25%, the specific rate for each as determined based upon our leverage ratio from time to time.

We are required to pay an annual commitment fee equal to $125,000, and an unused commitment fee of the average daily unused amount of the Revolving Line of Credit, payable monthly, equal to a per annum rate in a range of 0.30% to 0.50%, as determined by our leverage ratio on the last day of the previous fiscal quarter. No amounts have been borrowed under this Revolving Line of Credit as of September 30, 2017.

Other long-term borrowings

We have various financing agreements for vehicles. These agreements are for up to an original three year repayment period with interest rates ranging from 0.9% to 1.9%. At September 30, 2017 and December 31, 2016, $124,000 and $83,000 respectively, was outstanding under these financing agreements.

Critical Accounting Estimates

We describe our significant accounting policies in Note 1, Description of Business and Summary of Significant Accounting Policies, of the notes to consolidated financial statements included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2016. We discuss our critical accounting estimates in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, in our Annual Report on Form 10-K for the fiscal year ended December 31, 2016. There have been no significant changes in our significant accounting policies or critical accounting estimates since the end of fiscal 2016 other than the addition of Business Combinations and Convertible Debt, as follows:

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Business Combinations

We apply the provisions of ASC 805, Business Combinations, in accounting for acquisitions. It requires us to recognize separately from goodwill the assets acquired and the liabilities assumed at the acquisition date fair values. Goodwill as of the acquisition date is measured as the excess of consideration transferred over the net of the acquisition date fair values of the assets acquired and the liabilities assumed. While we use our best estimates and assumptions to accurately value assets acquired and liabilities assumed at the acquisition date as well as any contingent consideration, where applicable, our estimates are inherently uncertain and subject to refinement. As a result, during the measurement period, which may be up to one year from the acquisition date, we may record adjustments to the assets acquired and liabilities assumed with the corresponding offset to goodwill. Upon the conclusion of the measurement period or final determination of the values of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are required to be recorded to our consolidated statements of operations.

Accounting for business combinations requires management to make significant estimates and assumptions, especially at the acquisition date, including estimates for intangible assets, contractual obligations assumed, pre-acquisition contingencies and any contingent consideration, where applicable. Although we believe that the assumptions and estimates we have made in the past have been reasonable and appropriate, they are based in part on historical experience and information obtained from management of the acquired company and are inherently uncertain.

Examples of critical estimates in valuing certain of the intangible assets we have acquired include but are not limited to: future expected cash flows from assumed contracts for which our future expected cash flow estimates include estimated cash flow amounts and time periods over which such cash flows are expected to be received, estimated retention and renewal rates of existing customer contracts assumed as a part of the acquisition, and estimated costs to sell, market, deliver and support such assumed contracts, among other estimates; future expected cash flows from acquired developed technology including estimated amounts to be received for such developed technology and the time period over which such cash flows are expected to be received, among other estimates; and discount rates. Unanticipated events and circumstances may occur that may affect the accuracy or validity of such assumptions, estimates or actual results.

Convertible Debt

We account for convertible debt instruments that may be settled in cash upon conversion by separating the liability and equity components of the instruments in a manner that reflects our nonconvertible debt borrowing rate. In September 2017, we issued $40.0 million aggregate principal amount of 5.50% Convertible Senior Notes due 2022. Fair value of the liability component was estimated through discounting future interest and principal payments, an income approach, due under the Notes at a discount rate of 12.00%, an interest rate equal to the estimated borrowing rate for similar non-convertible debt. We determined our nonconvertible debt borrowing rate by using Level 3 inputs, including utilization of credit assumptions and high yield bond indices. Determining the fair value of the debt component requires the use of accounting estimates and assumptions. These estimates and assumptions are judgmental in nature and could have a significant impact on the determination of the debt component, and the associated non-cash interest expense.

The difference between the face value of the Notes and the fair value of the debt component results in us recording the debt at a discount. We are amortizing this debt discount over the life of the Notes as additional non-cash interest expense utilizing the effective interest method.

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Recent Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers. The standard provides companies with a single model for accounting for revenue arising from contracts with customers and supersedes current revenue recognition guidance, including industry-specific revenue guidance. The core principle of the model is to recognize revenue when control of the goods or services transfers to the customer, as opposed to recognizing revenue when the risks and rewards transfer to the customer under the existing revenue guidance. The guidance permits companies to either apply the requirements retrospectively to all prior periods presented, or apply the requirements in the year of adoption, through a cumulative adjustment. In August 2015, the FASB issued ASU 2015-14, Deferral of the Effective Date, which defers the required adoption date of ASU 2014-09 by one year. As a result of the deferred effective date, ASU 2014-09 will be effective for the Company in its first quarter of fiscal 2018. Early adoption is permitted but not before the original effective date of the new standard of the first quarter of fiscal 2017. The following ASUs were subsequently issued by the FASB to clarify the implementation guidance in some areas and add practical expedients: In March 2016, ASU 2016-08, Revenue from Contracts with Customers: Principal versus Agent Considerations; in April 2016, ASU 2016-10, Revenue from Contracts with Customers: Identifying Performance Obligations and Licensing; in May 2016, ASU 2016-12, Revenue from Contracts with Customers: Narrow Scope Improvements and Practical Expedients; and in December 2016, ASU 2016-20, Technical Corrections and Improvements to Revenue from Contracts with Customers. We are in the process of evaluating our standard product sales arrangements and we have identified an adoption impact related to revenue from certain distributor agreements which is currently deferred until the period in which the distributor sells through the inventory to the end customer. In connection with the adoption of ASU 2014-09, we anticipate a change in the recognition of such distributor revenue whereby revenue is estimated and recognized in the period in which we sell the product to the distributor; the adoption impact is expected to be less than $1.0 million. Other than this impact, we have not yet identified any expected material impact on the timing and measurement of revenue for standard product sale arrangements from the adoption of the standard; however, we are still in the process of formalizing our final conclusions. We are still evaluating the impact of adoption on non-product sale arrangements, which represent less than five percent of revenue. We have also developed a comprehensive project plan to guide implementation of the new standard and we expect to complete our assessment in December 2017. We intend to adopt the new standard using the modified retrospective transition method effective January 1, 2018.

In February 2016, the FASB issued ASU No. 2016-02, Leases. The standard requires that a lessee recognize the assets and liabilities that arise from operating leases. A lessee should recognize in its balance sheet a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term. For leases with a term of 12 months or less, a lessee is permitted to make an accounting policy election by class of underlying asset not to recognize lease assets and lease liabilities. In transition, lessees and lessors are required to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach. The guidance in ASU 2016-02 is effective for annual and interim reporting periods beginning after December 15, 2018. Our initial evaluation of our current leases does not indicate that the adoption of this standard will have a material impact on our consolidated statements of operations. We expect that the adoption of the standard will have a material impact on our consolidated balance sheets for the recognition of certain operating leases as right-of-use assets and lease liabilities.

In March 2016, the FASB issued ASU No. 2016-09, Improvements to Employee Share-Based Payment Accounting, which changes the accounting for employee share-based payments, including the accounting for income taxes, forfeitures, and statutory tax withholding requirements, as well as classification in the statement of cash flows. Under the new guidance, excess tax benefits associated with share-based payment awards will be recognized in the income statement when the awards vest or settle, rather than in stockholders’ equity. In addition, it will increase the number of shares an employer can withhold to cover income taxes on share-based payment awards and still qualify for the exemption to liability classification. The guidance was effective for us in the first quarter of 2017. The adoption of this standard resulted in the recognition of approximately $10.0 million of deferred tax assets related to stock-based compensation and a corresponding increase in our valuation allowance, which will be disclosed in the notes to our consolidated financial statements in our Annual Report on Form 10-K. The adoption of this standard does not have a material effect on our consolidated financial statements.

In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows - Restricted Cash, which requires entities to show the changes in the total of cash, cash equivalents, restricted cash and restricted cash equivalents in the statement of cash flow. The guidance will be effective for us in the first quarter of fiscal 2018. Early adoption is permitted, including adoption in an interim period, but any adjustments must be reflected as of the beginning of the fiscal year that includes that interim period. The new standard must be adopted retrospectively. We early adopted this standard in the fourth quarter of 2016 resulting in the reclassification of restricted cash in the presentation of our consolidated statements of cash flows. In accordance with our early adoption of ASU No. 2016-18, for the nine months ended September 30, 2016, the retrospective restatement was limited to including restricted cash balances in the amount of $0.4 million in beginning and $0.1 million in ending cash, cash equivalents and restricted cash balances in the consolidated statements of cash flows. The retrospective adoption did not impact reported net loss and does not otherwise have a material impact on the presentation of our overall financial statements.

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In January 2017, the FASB issued ASU No. 2017-01, Business Combinations: Clarifying the Definition of a Business, which clarifies the definition of a business and adds further guidance in evaluating whether a transaction should be accounted for as an acquisition of an asset or a business. This standard will be effective for us in the first annual period beginning after December 15, 2017, including interim periods within those periods. Early adoption is permitted. We early adopted this standard on January 1, 2017 and the adoption did not have an effect on our consolidated financial statements.

In January 2017, the FASB issued ASU No. 2017-04, Intangibles - Goodwill and Other, which eliminates step two of the quantitative goodwill impairment test. Step two required determination of the implied fair value of a reporting unit, and then a comparison of this implied fair value with the carrying amount of goodwill for the reporting unit, in order to determine any goodwill impairment. Under the new guidance, an entity is only required to complete a one-step quantitative test, by comparing the fair value of a reporting unit with its carrying amount, and any goodwill impairment charge is determined by the amount by which the carrying amount exceeds the reporting unit’s fair value. However, the loss should not exceed the total amount of goodwill allocated to the reporting unit. The standard is effective for us in the first quarter of 2020, with early adoption permitted as of January 1, 2017; adoption is to be applied on a prospective basis. The adoption of the standard will not materially impact our consolidated financial statements unless step one of the annual goodwill impairment test fails. We early adopted this standard on January 1, 2017 and the adoption did not have an effect on our consolidated financial statements.

In March 2017, the FASB issued ASU No. 2017-07, Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost, which changes how employers that sponsor defined benefit pension or other postretirement benefit plans present the net periodic benefit cost in the statement of operations. The new guidance requires entities to report the service cost component in the same line item or items as other compensation costs. The other components of net benefit cost are required to be presented in the statement of operations separately from the service cost component and outside the subtotal of loss from operations. ASU 2017-07 also provides that only the service cost component is eligible for capitalization. This standard will have an impact our loss from operations but will have no material impact on our net loss or net loss per share. The standard is effective for us in the first quarter of 2018, with adoption to be applied on a retrospective basis.

In May 2017, the FASB issued ASU No. 2017-09, Compensation-Stock Compensation: Scope of Modification Accounting, which provides clarification on when modification accounting should be used for changes to the terms or conditions of a share-based payment award. This ASU does not change the accounting for modifications but clarifies that modification accounting guidance should only be applied if there is a change to the value, vesting conditions or award classification and would not be required if the changes are considered non-substantive. The amendments of this ASU are effective for us in the first quarter of 2018, with early adoption permitted. The adoption of ASU 2017-09 is not expected to have an impact on our consolidated financial statements.

In August 2017, the FASB issued ASU No. 2017-12, Derivatives and Hedging - Targeted Improvements to Accounting for Hedging Activities, which modifies the presentation and disclosure of hedging results. Further, it provides partial relief on the timing of certain aspects of hedge documentation and eliminates the requirement to recognize hedge ineffectiveness separately in income. The amendments in this ASU are effective for us in the first quarter of 2019. We do not expect this ASU to have a material impact on our consolidated financial statements.

There have been no other recent accounting standards, or changes in accounting standards, during the nine months endedSeptember 30, 2017, as compared with the recent accounting standards described in our Annual Report on Form 10-K, that are of material significance, or have potential material significance, to us.

Off Balance Sheet Arrangements

None.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

We face exposure to financial market risks, including adverse movements in foreign currency exchange rates and changes in interest rates. These exposures may change over time and could have a material adverse impact on our financial results. We have not entered into or invested in any instruments that are subject to market risk, except as follows:

Foreign Currency Risk

Our foreign currency exposure is related to our subsidiaries in Switzerland and Korea. These subsidiaries have Euro, U.S. dollar and local currency revenue and operating expenses, as well as local currency loans. Changes in these currency exchange rates impact the reported amount (U.S. dollar) of revenue, expenses and debt.

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We have certain monetary assets and liabilities, primarily cash, receivables and payables, denominated in foreign currencies. The fair value of these assets and liabilities are affected by movements in currency exchange rates. As of September 30, 2017, the impact of a theoretical detrimental change in foreign currency exchange rates of 10% would result in a hypothetical loss of $0.4 million. As local currency debt carried by our Swiss subsidiary is minor, changes in foreign currency rates would not significantly impact our financial results.

Interest Rate Risk

At September 30, 2017, we had no outstanding balance under our Revolving Line of Credit. We have various financing agreements for vehicles. These agreements are for up to a five year repayment period with interest rates ranging from 0.9% to 1.9%. At September 30, 2017, $124,000 was outstanding under these financing agreements, $91,000 of which is classified as long-term debt. As these borrowings are minor, changes in interest rates would not significantly impact our financial results.

Fair Value Risk

We had a net pension asset of $9.6 million and $8.9 million as of September 30, 2017 and December 31, 2016, respectively. As of the last fair value measurement date of December 31, 2016, the net pension asset included plan assets with a fair value of $39.0 million. The plan assets consisted of 52% debt and equity securities, 43% real estate investment funds and 5% of cash and cash equivalents. The fair values of debt and equity securities are determined based on quoted prices in active markets for identical assets and are subject to interest rate risk. The fair value measurement of the real estate investment funds is subject to the real estate market forces in Switzerland. We manage our risk by having a diversified portfolio.

Item 4. Controls and Procedures

We are committed to maintaining disclosure controls and procedures designed to ensure that information required to be disclosed in our periodic reports filed under the Securities and Exchange Act of 1934 (the “Exchange Act”) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Principal Executive Officer and Principal Financial Officer, as appropriate, to allow for timely decisions regarding required disclosure.

Under the supervision and with the participation of our management, including our Principal Executive Officer and Principal Financial Officer, we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of September 30, 2017, as such term is defined under Rule 13a-15(e) promulgated under the Exchange Act. Based on this evaluation, our Principal Executive Officer and Principal Financial Officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this Quarterly Report on Form 10-Q.

Except as described below, there have been no change in our internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Rules 13a-15 or 15d-15 under the Securities Exchange Act of 1934 that occurred during our most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

• On April 28, 2017, we completed the acquisition of Nesscap Energy, Inc. We are in the process of evaluating the internal controls of the acquired business and integrating it into our overall system of internal control over financial reporting. We expect to be compliant with Rules 13a-15 or 15d-15 as of December 31, 2018.

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PART II – OTHER INFORMATION

Item 1. Legal Proceedings

The information set forth under Note 12 of Notes to Unaudited Condensed Consolidated Financial Statements, included in Part I, Item 1 of this report, is incorporated herein by reference.

Item 1A. Risk Factors

There have been no material changes from the risk factors disclosed in Part I, Item 1A, of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2016, which are incorporated herein by reference, except for the risk factors listed below.

The sale of our 5.50% Senior Convertible Notes due 2022 significantly increased our amount of long-term debt, and our financial condition and results of operations could be adversely affected if we do not efficiently manage our liabilities.

In September 2017, we issued $40.0 million aggregate principal amount of our 5.50% Senior Convertible Notes due in 2022 (the “2022 Notes”) and an additional $6.0 million of 2022 Notes upon exercise of the initial purchaser’s option in October 2017. As a result of the sale of the 2022 Notes, we have a substantial amount of long-term debt. Our maintenance of such debt could adversely affect our financial condition and results of operations.

In addition, there are a large number of shares of common stock reserved for issuance upon the potential conversion of our 2022 Notes and the issuance of these shares may depress the market price of our common stock.

Servicing our debt requires a significant amount of cash, and we may not have sufficient cash flow from our business to pay our substantial debt.

Our ability to make scheduled payments of the principal of, to pay interest on or to refinance our indebtedness, including the notes, depends on our future performance, which is subject to economic, financial, competitive and other factors beyond our control. Our business may not continue to generate cash flow from operations in the future sufficient to service our debt and make necessary capital expenditures. If we are unable to generate such cash flow, we may be required to adopt one or more alternatives, such as selling assets, restructuring debt or obtaining additional equity capital on terms that may be onerous or highly dilutive. Our ability to refinance our indebtedness will depend on the capital markets and our financial condition at such time. We may not be able to engage in any of these activities or engage in these activities on desirable terms, which could result in a default on our debt obligations.

The conditional conversion feature of the notes, if triggered, may adversely affect our financial condition and operating results.

In the event the conditional conversion feature of the notes is triggered, holders of notes will be entitled to convert the notes at any time during specified periods at their option. If one or more holders elect to convert their notes, unless we elect to satisfy our conversion obligation by delivering solely shares of our common stock (other than paying cash in lieu of delivering any fractional share), we would be required to settle a portion or all of our conversion obligation through the payment of cash, which could adversely affect our liquidity. In addition, even if holders do not elect to convert their notes, we could be required under applicable accounting rules to reclassify all or a portion of the outstanding principal of the notes as a current rather than long-term liability, which would result in a material reduction of our net working capital.

Unfavorable results of legal proceedings and regulatory investigations could materially adversely affect us.

We are subject to various legal proceedings and claims that have arisen out of the ordinary conduct of our business and are not yet resolved, and additional claims may arise in the future. Results of legal proceedings cannot be predicted with certainty. Regardless of merit, litigation may be both time-consuming and disruptive to our operations and could cause significant expense and diversion of management attention. From time to time, we are involved in major lawsuits concerning intellectual property, torts, contracts, shareholder litigation, administrative and regulatory proceedings and other matters, as well as governmental inquiries and investigations, the outcomes of which may be significant to our results of operations and may limit our ability to engage in our business activities. In recognition of these considerations, we may enter into material settlements to avoid ongoing costs and efforts in defending or pursuing a matter. Should we fail to prevail in certain matters, or should several of these matters be resolved against us in the same reporting period, we may be faced with significant monetary damages or injunctive relief against us that could adversely affect our business, financial condition and operating results. While we have insurance related to our business operations, it may not apply to or fully cover any liabilities we incur as a result of these lawsuits. We record reserves for potential liabilities where we believe the liability to be probable and reasonably estimable. However, our actual costs may be materially different from these estimates.

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For example, we have several pending legal matters in the form of both government and regulatory investigations. In early 2013, the Company voluntarily provided information to the Enforcement Division of the SEC related to its announcement that it intended to file restated financial statements for fiscal years 2011 and 2012. On June 11, 2015 and June 16, 2016, the Company received subpoenas from the SEC requesting certain documents related to, among other things, the facts and circumstances surrounding the restated financial statements. The Company has provided documents and information to the SEC in response to the subpoenas. In September 2016, the Company entered into a tolling agreement effective for the period beginning on September 12, 2016, and running through June 30, 2017, with the SEC related to these matters. In June 2017, the Company entered into an amended and restated version of this tolling agreement effective for the period beginning on September 12, 2016, and running through October 31, 2017. In November 2017, the Company entered into an amended and restated version of this tolling agreement effective for the period beginning on September 12, 2016, and running through December 22, 2017. The Company is cooperating with the investigation and recently made an offer of settlement to resolve the matter, which is subject to approval by the SEC Commissioners. The proposed settlement would be entered into by the Company without admitting or denying the SEC’s findings and would resolve alleged violations of certain anti-fraud and books and records provisions of the federal securities laws and related rules. Under the terms of the proposed settlement, the Company would pay $2.8 million in a civil penalty and agree not to commit or cause any violations of certain anti-fraud and books and records provisions of the federal securities laws and related rules. There is no assurance that the proposal will be approved by the SEC Commissioners.

Further, the Swiss federal prosecutor initiated an investigation into the Company in 2013 for actions which we believe are related to the U.S. Foreign Corrupt Practices Act (“FCPA”) investigation previously settled with the SEC and Department of Justice (“DOJ”) in 2011, and we are currently unable to determine the extent to which we may be subject to fines in accordance with Swiss bribery laws and what additional expenses will be incurred in order to defend this matter. We are unable at this time to estimate the amount of the possible loss or range of loss that we may incur as a result of these investigations.

Additionally, these legal matters could be both time-consuming and disruptive to our business and our reputation could be harmed as a result of the allegations asserted in public statements and court documents throughout the course of the action. Consequently, our financial condition or operating results could be materially adversely affected.

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Item 2.    Unregistered Sales of Equity Securities and Use of Proceeds

As previously disclosed on its Current Report on Form 8-K filed on September 26, 2017 with the Securities and Exchange Commission (“SEC”), on September 25, 2017, the Company completed the sale and issuance of $40 million aggregate principal amount of 5.50% Convertible Senior Notes due 2022 (the “Notes”). On October 12, 2017, the Company announced the sale of an additional $6.0 million in Notes. The Company issued the Notes to Barclays Capital, Inc. (the “initial purchaser) in a private placement in reliance on Section 4(a)(2) of the Securities Act of 1933, as amended (the “Securities Act”) and for initial resale by the initial purchaser to qualified institutional buyers pursuant to the exemption from registration provided by Rule 144A under the Securities Act. The Company relied on these exemptions from registration based in part on representations made by the initial purchaser. The Notes and the shares of the Company’s common stock issuable upon conversion of the Notes, if any, have not been registered under the Securities Act and may not be offered or sold in the United States absent registration or an applicable exemption from registration requirements.

The initial conversion rate is 157.5101 shares of common stock of the Company per $1,000 principal amount of Notes, which is equal to an initial conversion price of approximately $6.35 per share. The conversion rate will be subject to adjustment in some events but will not be adjusted for any accrued and unpaid interest. The Company will satisfy its conversion obligation in cash, shares of its common stock or a combination of cash and shares of its common stock, at its election. In addition, following certain corporate events that occur prior to the maturity date or if the Company delivers a notice of redemption, the Company will increase the conversion rate for a holder who elects to convert its Notes in connection with such a corporate event or such notice of redemption, as the case may be, in certain circumstances.

Items 3, 4 and 5 are not applicable and have been omitted.

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Item 6. Exhibits

Exhibit Index

Exhibit Number	Description of Document
3.1	Restated Certificate of Incorporation of Registrant. (incorporated herein by reference to the Registrant’s Annual Report on Form 10-K for the fiscal year ended July 31, 1987 (SEC file no. 001-10964)).
3.2	Certificate of Amendment of Restated Certificate of Incorporation of Registrant, dated November 22, 1996. (incorporated herein by reference to the Registrant’s Annual Report on Form 10-K for the fiscal year ended July 31, 1997 (SEC file no. 001-10964)).
3.3	Certificate of Amendment of Restated Certificate of Incorporation of Registrant, dated February 9, 1998. (incorporated herein by reference to the Registrant’s Annual Report on Form 10-K for the fiscal year ended July 31, 1999 (SEC file no. 001-10964)).
3.4	Certificate of Amendment of Restated Certificate of Incorporation of Registrant, dated June 15, 2016. (incorporated herein by reference to the Registrant’s Current Report on Form 8-K filed on June 20, 2016 (SEC file no. 001-15477)).
3.5	Amended and Restated Bylaws of Maxwell Technologies, Inc. (incorporated herein by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K filed with the SEC on February 27, 2017 (SEC file no. 001-15477)).
4.1	Indenture dated as of September 25, 2017 between Maxwell Technologies, Inc. and the Trustee (incorporated herein by reference to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K filed with the SEC on September 26, 2017 (SEC file no. 001-15477)).
4.2	Form of 5.50% Convertible Senior Note due 2022 (incorporated herein by reference to Exhibit 4.2 to the Registrant’s Current Report on Form 8-K filed with the SEC on September 26, 2017 (SEC file no. 001-15477))
10.1	Amended and Restated Agreement, dated September 18, 2017, by and among the Maxwell Technologies, Inc. and Viex Capital Advisors, LLC and certain of its affiliates named therein (incorporated herein by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed with the SEC on September 19, 2017 (SEC file no. 001-15477)).
10.2	Amendment No. 5 to Loan and Security Agreement, dated September 20, 2017, by and among Maxwell Technologies, Inc. and East West Bank (incorporated herein by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed with the SEC on September 21, 2017 (SEC file no. 001-15477)).
10.3	Purchase Agreement, dated September 20, 2017, by and between Maxwell Technologies, Inc. and Barclays Capital, Inc. (incorporated herein by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed with the SEC on September 26, 2017 (SEC file no. 001-15477)).
31.1	Certification of Principal Executive Officer pursuant to Rule 13a-14(a) (Section 302 Certification) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. *
31.2	Certification of Principal Financial Officer pursuant to Rule 13a-14(a) (Section 302 Certification) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. *
32	Certification of Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. Section 1350 (Section 906 Certification), as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. *
101	The following financial statements and footnotes from the Maxwell Technologies, Inc. Quarterly Report on Form 10-Q for the quarter ended September 30, 2017 formatted in Extensible Business Reporting Language (XBRL): (i) Condensed Consolidated Balance Sheets; (ii) Condensed Consolidated Statements of Operations; (iii) Condensed Consolidated Statements of Comprehensive Income (Loss) (iv) Condensed Consolidated Statements of Cash Flows; and (v) the Notes to Condensed Consolidated Financial Statements. *

______________ 

* Filed herewith.

+ Indicates management compensatory plan or arrangement.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

		MAXWELL TECHNOLOGIES, INC.
Date:	November 9, 2017	By:	/s/ Franz Fink
			Franz Fink
			President and Chief Executive Officer
Date:	November 9, 2017	By:	/s/ David Lyle
			David Lyle
			Senior Vice President, Chief Financial Officer, Treasurer and Secretary

47

EX-31.1

Exhibit 31.1

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER

I, Franz Fink, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Maxwell Technologies, Inc. for the quarter ended September 30, 2017.

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report.

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report.

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:	November 9, 2017	MAXWELL TECHNOLOGIES, INC.
		By:	/s/ Franz Fink
			Franz Fink
			President and Chief Executive Officer
			(Principal Executive Officer)

EX-31.2

Exhibit 31.2

CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER

I, David Lyle, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Maxwell Technologies, Inc. for the quarter ended September 30, 2017.

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report.

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report.

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:	November 9, 2017	MAXWELL TECHNOLOGIES, INC.
		By:	/s/ David Lyle
			David Lyle
			Senior Vice President, Chief Financial Officer,
			Treasurer and Secretary
			(Principal Financial Officer)

EX-32

Exhibit 32

Certification of Periodic Financial Report by the Principal Executive Officer and

Principal Financial Officer

Solely for the purpose of complying with 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, we, the undersigned Chief Executive Officer and Chief Financial Officer of Maxwell Technologies, Inc. (the “Company”), hereby certify that, based on our knowledge, the Quarterly Report on Form 10-Q of the Company for the quarter ended September 30, 2017 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, and that the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date:	November 9, 2017	MAXWELL TECHNOLOGIES, INC.
		By:	/s/ Franz Fink
			Franz Fink
			President and Chief Executive Officer
			(Principal Executive Officer)
Date:	November 9, 2017	By:	/s/ David Lyle
			David Lyle
			Senior Vice President, Chief Financial Officer,
			Treasurer and Secretary
			(Principal Financial Officer)

These certifications are not deemed filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liability of that section, nor shall they be deemed incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, except to the extent that the Company specifically incorporates them by reference.

XML

Document and Entity Information - shares	9 Months Ended
	Sep. 30, 2017	Nov. 02, 2017
Document and Entity Information [Abstract]
Entity Registrant Name	MAXWELL TECHNOLOGIES INC
Entity Central Index Key	0000319815
Document Type	10-Q
Document Period End Date	Sep. 30, 2017
Amendment Flag	false
Document Fiscal Year Focus	2017
Document Fiscal Period Focus	Q3
Trading Symbol	mxwl
Current Fiscal Year End Date	--12-31
Entity Filer Category	Accelerated Filer
Entity Common Stock, Shares Outstanding		37,075,764

XML

Condensed Consolidated Balance Sheets (Unaudited) - USD ($) $ in Thousands	Sep. 30, 2017	Dec. 31, 2016
Current assets:
Cash and cash equivalents	$ 52,852	$ 25,359
Trade and other accounts receivable, net of allowance for doubtful accounts of $30 and $26 as of September 30, 2017 and December 31, 2016, respectively	27,142	20,441
Inventories, net	31,599	32,248
Prepaid expenses and other current assets	3,336	4,407
Total current assets	114,929	82,455
Property and equipment, net	26,069	26,120
Intangible assets, net	11,147	0
Goodwill	35,188	22,799
Pension asset	9,605	8,887
Other non-current assets	883	613
Total assets	197,821	140,874
Current liabilities:
Accounts payable and accrued liabilities	29,580	19,181
Accrued employee compensation	8,865	6,152
Deferred revenue and customer deposits	6,236	3,967
Short-term borrowings and current portion of long-term debt	33	40
Total current liabilities	44,714	29,340
Deferred tax liability, long-term	7,965	8,580
Long-term debt, excluding current portion	30,171	43
Defined benefit plan liability	3,462	0
Other long-term liabilities	3,004	2,089
Total liabilities	89,316	40,052
Commitments and contingencies (Note 12)
Stockholders’ equity:
Common stock, $0.10 par value per share, 80,000,000 shares authorized at September 30, 2017 and December 31, 2016; 37,075,764 and 32,135,029 shares issued and outstanding at September 30, 2017 and December 31, 2016, respectively	3,705	3,210
Additional paid-in capital	334,593	296,316
Accumulated deficit	(238,481)	(204,104)
Accumulated other comprehensive income	8,688	5,400
Total stockholders’ equity	108,505	100,822
Total liabilities and stockholders’ equity	$ 197,821	$ 140,874

XML

Condensed Consolidated Balance Sheets (Unaudited) (Parenthetical) - USD ($) $ in Thousands	Sep. 30, 2017	Dec. 31, 2016
Statement of Financial Position [Abstract]
Trade and other accounts receivable, allowance	$ 30	$ 26
Common stock, par value	$ 0.10	$ 0.10
Common stock, shares authorized	80,000,000	80,000,000
Common stock, shares issued	37,075,764	32,135,029
Common stock, shares outstanding	37,075,764	32,135,029

XML

Condensed Consolidated Statements of Operations (Unaudited) - USD ($) shares in Thousands, $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2017	Sep. 30, 2016	Sep. 30, 2017	Sep. 30, 2016
Income Statement [Abstract]
Revenue	$ 35,816	$ 25,506	$ 99,605	$ 94,844
Cost of revenue	28,420	17,878	78,191	67,582
Gross profit	7,396	7,628	21,414	27,262
Operating expenses:
Selling, general and administrative	14,514	8,374	36,124	26,695
Research and development	4,891	5,038	14,007	16,106
Restructuring and exit costs	1,251	0	2,248	297
Impairment of assets	0	155	0	155
Total operating expenses	20,656	13,567	52,379	43,253
Loss from operations	(13,260)	(5,939)	(30,965)	(15,991)
Gain on sale of product line	0	0	0	(6,657)
Interest expense, net	152	48	312	179
Other income	(14)	(5)	(67)	(136)
Foreign currency exchange (gain) loss, net	(65)	49	50	252
Loss before income taxes	(13,333)	(6,031)	(31,260)	(9,629)
Income tax provision	527	824	3,117	1,907
Net loss	$ (13,860)	$ (6,855)	$ (34,377)	$ (11,536)
Net loss per share
Basic and diluted (in dollars per share)	$ (0.37)	$ (0.21)	$ (0.98)	$ (0.36)
Weighted average common shares outstanding:
Weighted Average Number of Shares Outstanding, Basic and Diluted	37,008	31,989	34,929	31,828

XML

Condensed Consolidated Statements of Comprehensive Income (Loss) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2017	Sep. 30, 2016	Sep. 30, 2017	Sep. 30, 2016
Statement of Comprehensive Income [Abstract]
Net loss	$ (13,860)	$ (6,855)	$ (34,377)	$ (11,536)
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustment	(929)	685	3,197	1,557
Defined benefit pension plan, net of tax:
Amortization of deferred loss, net of tax provision of $12 for the three months ended September 30, 2016; net of tax provision of $37 for the nine months ended September 30, 2016	0	49	0	146
Amortization of prior service cost, net of tax provision of $7 and $8 for the three months ended September 30, 2017 and 2016, respectively; net of tax provision of $22 and $23 for the nine months ended September 30, 2017 and 2016, respectively	31	30	91	90
Other comprehensive income (loss), net of tax	(898)	764	3,288	1,793
Comprehensive loss	$ (14,758)	$ (6,091)	$ (31,089)	$ (9,743)

XML

Condensed Consolidated Statements of Comprehensive Income (Loss) (Parenthetical) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2017	Sep. 30, 2016	Sep. 30, 2017	Sep. 30, 2016
Statement of Comprehensive Income [Abstract]
Tax provision for amortization of deferred loss	$ 0	$ 12	$ 0	$ 37
Tax provision for amortization of prior service cost	$ 7	$ 8	$ 22	$ 23

XML

Condensed Consolidated Statements of Cash Flows (Unaudited) - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2017	Sep. 30, 2016
OPERATING ACTIVITIES:
Net loss	$ (34,377)	$ (11,536)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation	6,638	7,416
Amortization of intangible assets	502	0
Non-cash interest expense	24	0
Loss on lease due to restructuring	179	87
Pension and defined benefit plan cost	520	479
Stock-based compensation expense	6,547	3,759
Gain on sale of property and equipment	(20)	(131)
Impairment of property and equipment	0	155
Gain on sale of product line	0	(6,657)
Unrealized (gain) loss on foreign currency exchange rates	(8)	45
Release of tax liability	0	(1,518)
Provision for losses on accounts receivable	4	56
Provision for losses on inventory	1,669	226
Provision for warranties	605	444
Changes in operating assets and liabilities:
Trade and other accounts receivable	(3,654)	20,151
Inventories	3,626	(7,209)
Prepaid expenses and other assets	145	(1,288)
Pension asset	(502)	(441)
Accounts payable and accrued liabilities	7,293	(16,704)
Deferred revenue and customer deposits	1,817	11
Accrued employee compensation	1,190	(962)
Deferred tax liability	(981)	113
Other long-term liabilities	7	(479)
Net cash used in operating activities	(8,776)	(13,983)
INVESTING ACTIVITIES:
Purchases of property and equipment	(3,315)	(4,689)
Proceeds from sale of property and equipment	20	133
Cash used in acquisition, net of cash acquired	(97)	0
Proceeds from sale of product line	1,500	20,486
Net cash provided by (used in) investing activities	(1,892)	15,930
FINANCING ACTIVITIES:
Principal payments on long-term debt and short-term borrowings	(24)	(33)
Proceeds from long-term debt and short-term borrowings, net of discount and issuance costs	37,333	0
Proceeds from issuance of common stock under equity compensation plans	193	618
Net cash provided by financing activities	37,502	585
Effect of exchange rate changes on cash, cash equivalents and restricted cash	659	588
Increase in cash, cash equivalents and restricted cash	27,493	3,120
Cash, cash equivalents and restricted cash, beginning of period	25,359	24,782
Cash, cash equivalents and restricted cash, end of period	$ 52,852	$ 27,902

XML

Description of Business and Basis of Presentation

9 Months Ended

Sep. 30, 2017

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Description of Business and Basis of Presentation

Description of Business and Basis of Presentation

Description of Business

Maxwell Technologies, Inc. is a Delaware corporation originally incorporated in 1965 under the name Maxwell Laboratories, Inc. In 1983, the Company completed an initial public offering, and in 1996, changed its name to Maxwell Technologies, Inc. The Company is headquartered in San Diego, California, and has three manufacturing facilities located in Rossens, Switzerland; Yongin, South Korea and Peoria, Arizona. In addition, the Company has two contract manufacturers located in China. Maxwell operates as one operating segment, which is comprised of two product lines:

• Ultracapacitors: The Company’s primary focus, ultracapacitors, are energy storage devices that possess a unique combination of high power density, extremely long operational life and the ability to charge and discharge very rapidly. The Company’s ultracapacitor cells, multi-cell packs and modules provide highly reliable energy storage and power delivery solutions for applications in multiple industries, including automotive, bus, rail and truck in transportation and grid energy storage, and wind in renewable energy. The Company’s recently developed lithium-ion capacitors are energy storage devices with the power characteristics of an ultracapacitor combined with enhanced energy storage capacity approaching that of a battery. They are uniquely designed to address a variety of applications in the rail, grid, and industrial markets where energy density and weight are differentiating factors.

• High-Voltage Capacitors: The Company’s CONDIS^® high-voltage capacitors are designed and manufactured to perform reliably for decades in all climates. These products include grading and coupling capacitors and capacitive voltage dividers that are used to ensure the safety and reliability of electric utility infrastructure and other applications involving transport, distribution and measurement of high-voltage electrical energy.

In addition to its two existing product lines, the Company continues to develop its dry battery electrode technology, which it believes has the potential to be a revolutionary technology within the battery industry with a substantial market opportunity, particularly for use in electric vehicles. By applying our proprietary and fundamental dry electrode manufacturing technology and trade secrets to batteries of varying chemistries, the Company believes it can create significant performance and cost benefits when compared with today’s state of the art wet electrode technology.

In April 2017, the Company acquired substantially all of the assets and business of Nesscap Energy, Inc. (“Nesscap”), a developer and manufacturer of ultracapacitor products for use in transportation, renewable energy, industrial and consumer markets. The acquisition added complementary businesses to the Company’s operations and expanded the Company’s portfolio of ultracapacitor products.

In April 2016, the Company sold substantially all of the assets and liabilities of a third product line, radiation-hardened microelectronics. The Company’s radiation-hardened microelectronic products for satellites and spacecraft included single board computers and components, such as high-density memory and power modules.

The Company’s products are designed and manufactured to perform reliably for the life of the products and systems into which they are integrated. The Company achieves high reliability through the application of proprietary technologies and rigorously controlled design, development, manufacturing and test processes.

Basis of Presentation

The accompanying condensed consolidated financial statements include the accounts of Maxwell Technologies, Inc. and its subsidiaries and have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”). All intercompany transactions and account balances have been eliminated in consolidation. The Company has prepared the accompanying unaudited interim condensed consolidated financial statements in accordance with the instructions to Form 10-Q and the standards of accounting measurement set forth in the Interim Reporting Topic of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”). Consequently, the Company has not necessarily included in this Form 10-Q all information and footnotes required for audited financial statements. In the opinion of the Company’s management, the accompanying unaudited condensed consolidated financial statements in this Form 10-Q contain all adjustments (consisting only of normal recurring adjustments, except as otherwise indicated) necessary to for a fair statement of the financial position, results of operations, and cash flows of Maxwell Technologies, Inc. for all periods presented. The results reported in these condensed consolidated financial statements should not be regarded as necessarily indicative of results that may be expected for any subsequent period or for the entire year. These unaudited condensed consolidated financial statements and notes thereto should be read in conjunction with the Company’s audited financial statements and the notes thereto included in the Company’s latest Annual Report on Form 10-K. Certain information and footnote disclosures normally included in the annual financial statements prepared in accordance with U.S. GAAP have been condensed or omitted in the accompanying interim consolidated financial statements. The year-end condensed balance sheet data was derived from audited financial statements, but does not include all disclosures required by U.S. GAAP.

Reclassifications

Impairment of assets for the three and nine months ended September 30, 2016 has been reclassified from “selling, general and administrative” to “impairment of assets” in the condensed consolidated statements of operations, to conform to the current period presentation. This reclassification does not impact reported net loss and do not otherwise have a material impact on the presentation of the overall financial statements.

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect reported amounts and related disclosures. These estimates include, but are not limited to, assessing the collectability of accounts receivable, applied and unapplied production costs, production capacities, the usage and recoverability of inventories and long-lived assets, deferred income taxes, the incurrence of warranty obligations, the fair value of acquired tangible and intangible assets, impairment of goodwill and intangible assets, estimation of the cost to complete certain projects, estimation of pension assets and liabilities, estimation of employee severance benefit obligations, accruals for estimated losses for legal matters, and estimation of the value of stock-based compensation awards, including the probability that the performance criteria of restricted stock unit awards will be met.

Income Taxes

As of September 30, 2017, the Company has a cumulative valuation allowance recorded offsetting its worldwide net deferred tax assets of $91.0 million, of which the significant majority represents the valuation allowance on its U.S. net deferred tax asset. The Company has established a valuation allowance against its U.S. federal and state deferred tax assets due to the uncertainty surrounding the realization of such assets. Management periodically evaluates the recoverability of the deferred tax assets and at such time as it is determined that it is more likely than not that U.S. deferred tax assets are realizable, the valuation allowance will be reduced accordingly. Any such release would result in recording a tax benefit that would increase net income in the period the valuation is released.

The Company records taxes on the undistributed earnings of foreign subsidiaries unless the subsidiaries’ earnings are considered indefinitely reinvested outside of the U.S. As of September 30, 2017, the Company has recorded a $4.9 million deferred tax liability for Swiss withholding taxes associated with $97.6 million of undistributed earnings of its Swiss subsidiary that are no longer considered indefinitely reinvested. In the event that the Company repatriates these funds, these withholding taxes would become payable.

Goodwill

Goodwill, which represents the excess of the cost of an acquired business over the net fair value assigned to its assets and liabilities, is not amortized. Instead, goodwill is assessed annually at the reporting unit level for impairment under the Intangibles—Goodwill and Other Topic of the FASB ASC. The Company has established December 31 as the annual impairment test date. In addition, the Company assesses goodwill in between annual test dates if an event occurs or circumstances change that could more likely than not reduce the fair value of a reporting unit below its carrying value. The Company first makes a qualitative assessment as to whether goodwill is impaired. If it is more likely than not that goodwill is impaired, the Company performs a quantitative impairment analysis to determine if goodwill is impaired. The Company may also determine to skip the qualitative assessment in any year and move directly to the quantitative test. The quantitative goodwill impairment analysis compares the reporting unit’s carrying amount to its fair value. Goodwill impairment is recorded for any excess of a reporting unit's carrying amount over its fair value, not to exceed the total amount of goodwill allocated to the reporting unit.

During the year ended December 31, 2016, the Company performed a quantitative goodwill impairment analysis for one reporting unit, which required the Company to make significant assumptions and estimates about the extent and timing of future cash flows, discount rates and growth rates. The analysis indicated that the goodwill assigned to the reporting unit was not impaired.

Long-Lived Assets and Intangible Assets

The Company records intangible assets at their respective estimated fair values at the date of acquisition. Intangible assets are amortized based upon the pattern in which their economic benefit will be realized, or if this pattern cannot be reliably determined, using the straight-line method over their estimated useful lives of eight to fourteen years.

The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets, including intangible assets, may not be recoverable. When such events occur, the Company compares the carrying amounts of the assets to their undiscounted expected future cash flows. If the Company determines that the carrying value of the asset is not recoverable, a permanent impairment charge is recorded for the amount by which the carrying value of the long-lived asset exceeds its fair value.

Warranty Obligation

The Company provides warranties on all product sales for terms ranging from one to eight years. The Company accrues for the estimated warranty costs at the time of sale based on historical warranty experience plus any known or expected changes in warranty exposure. As of September 30, 2017 and December 31, 2016, the accrued warranty liability included in “accounts payable and accrued liabilities” in the condensed consolidated balance sheets was $2.3 million and $1.2 million, respectively.

Convertible Debt

Convertible notes are regarded as compound instruments, consisting of a liability component and an equity component. The component parts of compound instruments are classified separately as financial liabilities and equity in accordance with the substance of the contractual arrangement. At the date of issue, the fair value of the liability component is estimated using the prevailing market interest rate for a similar non-convertible instrument. This amount is recorded as a liability on an amortized cost basis until extinguished upon conversion or at the instrument’s maturity date. The equity component is determined by deducting the amount of the liability component from the proceeds of the compound instrument as a whole. This is recognized as additional paid-in capital and included in equity, net of income tax effects, and is not subsequently remeasured. After initial measurement, the convertible notes are carried at amortized cost using the effective interest method.

Revenue Recognition

Revenue is derived primarily from the sale of manufactured products directly to customers. Product revenue is recognized, according to the guidelines of the Securities and Exchange Commission (“SEC”) Staff Accounting Bulletin (“SAB”) Numbers 101, Revenue Recognition in Financial Statements, and 104, Revenue Recognition, when all of the following criteria are met: (1) persuasive evidence of an arrangement exists (upon contract signing or receipt of an authorized purchase order from a customer); (2) title passes to the customer at either shipment from the Company’s facilities or receipt at the customer facility, depending on shipping terms; (3) customer payment is deemed fixed or determinable and free of contingencies or significant uncertainties; and (4) collectability is reasonably assured. This policy has been consistently applied from period to period.

A portion of our revenue is derived from sales to distributors. Distributor revenue is recognized when all of the criteria for revenue recognition are met, which is generally the time of shipment to the distributor; all returns and credits are estimable and not significant. Certain distributor agreements of Nesscap Korea provide for significant rights of return and price adjustment; revenue related to these distributors is deferred until the period in which the distributor sells through the inventory to the end customer.

Revenue from production-type contracts, which represents less than five percent of total revenue, is recognized using the percentage of completion method. The degree of completion is determined based on costs incurred as a percentage of total costs anticipated, excluding costs that are not representative of progress to completion.

Total deferred revenue and customer deposits in the consolidated balance sheets as of September 30, 2017 and December 31, 2016 was $6.2 million and $4.0 million, respectively, and primarily relates to cash received under the localization agreement with CRRC-SRI which will be recognized over the ten-year term of the agreement, amounts received in advance from a customer in connection with a production-type contract for which revenue is recognized using the percentage of completion method, payments received under a joint development agreement, which are recognized as an offset to research and development expense as services are performed, deferred revenue for distributors on the sell-through method of recognition, and customer advances.

Liquidity

On September 25, 2017, the Company issued $40.0 million of 5.50% Convertible Senior Notes due 2022 (the “Notes”). The Company received net proceeds, after deducting the initial purchaser’s discount and offering expenses payable by the Company, of approximately $37.3 million. The Notes bear interest at a rate of 5.50% per year, payable semi-annually in arrears on March 15 and September 15 of each year, commencing on March 15, 2018. On October 11, 2017, under a 30-day option that was exercised, the Company issued an additional $6.0 million aggregate principal amount of convertible senior notes under the same terms and received $5.7 million of net proceeds.

As of September 30, 2017, the Company had approximately $52.9 million in cash and cash equivalents, and working capital of $70.2 million. In July 2015, the Company entered into a loan agreement with East West Bank (“EWB”), whereby EWB made available to the Company a secured credit facility in the form of a revolving line of credit which is available up to a maximum of the lesser of: (a) $25.0 million; or (b) a certain percentage of domestic and foreign trade receivables. As of September 30, 2017, no amounts have been borrowed under this revolving line of credit and the amount available was $12.0 million. Management believes the available cash balance, along with the available borrowings under the revolving line of credit, will be sufficient to fund operations, obligations as they become due, and capital investments for at least the next twelve months.

Net Income (Loss) per Share

In accordance with the Earnings Per Share Topic of the FASB ASC, basic net income or loss per share is calculated using the weighted average number of common shares outstanding during the period. Diluted net income per share includes the impact of additional common shares that would have been outstanding if potentially dilutive common shares were issued. Potentially dilutive securities are not considered in the calculation of diluted net loss per share, as their inclusion would be anti-dilutive. The following table sets forth the computation of basic and diluted net income (loss) per share (in thousands, except per share data):

	Three Months Ended September 30,						Nine Months Ended September 30,
	2017			2016			2017			2016
Numerator
Net loss	$	(13,860	)	$	(6,855	)	$	(34,377	)	$	(11,536	)
Denominator
Weighted-average common shares outstanding	37,008			31,989			34,929			31,828
Net loss per share
Basic and diluted	$	(0.37	)	$	(0.21	)	$	(0.98	)	$	(0.36	)

The following table summarizes instruments that may be convertible into common shares that are not included in the denominator used in the diluted net loss per share calculation because to do so would be anti-dilutive (in thousands):

	Three and Nine Months Ended September 30,
	2017	2016
Outstanding options to purchase common stock	364	465
Unvested restricted stock awards	29	96
Unvested restricted stock unit awards	2,760	1,686
Employee stock purchase plan awards	29	61
Bonus to be paid in stock awards	349	183
Convertible senior notes	6,300	—

Business Combinations

The Company accounts for businesses it acquires in accordance with ASC Topic 805, Business Combinations, which allocates the fair value of the purchase consideration to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values. The excess of the purchase consideration over the fair values of these identifiable assets and liabilities is recorded as goodwill. When determining the fair values of assets acquired and liabilities assumed, management makes significant estimates and assumptions. The Company may utilize third-party valuation specialists to assist the Company in the allocation. Initial purchase price allocations are subject to revision within the measurement period, not to exceed one year from the date of acquisition. Acquisition-related expenses and transaction costs associated with business combinations are expensed as incurred.

Restructuring and Exit Costs

Restructuring and exit costs involve employee-related termination costs, facility exit costs and other costs associated with restructuring activities. The Company accounts for charges resulting from operational restructuring actions in accordance with ASC Topic 420, Exit or Disposal Cost Obligations (“ASC 420”) and ASC Topic 712, Compensation-Nonretirement Postemployment Benefits (“ASC 712”).

The recognition of restructuring costs requires the Company to make certain assumptions related to the amounts of employee severance benefits, the time period over which leased facilities will remain vacant and expected sublease terms and discount rates. Estimates and assumptions are based on the best information available at the time the obligation arises. These estimates are reviewed and revised as facts and circumstances dictate; changes in these estimates could have a material effect on the amount accrued in the condensed consolidated balance sheet.

Recent Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers. The standard provides companies with a single model for accounting for revenue arising from contracts with customers and supersedes current revenue recognition guidance, including industry-specific revenue guidance. The core principle of the model is to recognize revenue when control of the goods or services transfers to the customer, as opposed to recognizing revenue when the risks and rewards transfer to the customer under the existing revenue guidance. The guidance permits companies to either apply the requirements retrospectively to all prior periods presented, or apply the requirements in the year of adoption, through a cumulative adjustment. In August 2015, the FASB issued ASU 2015-14, Deferral of the Effective Date, which defers the required adoption date of ASU 2014-09 by one year. As a result of the deferred effective date, ASU 2014-09 will be effective for the Company in its first quarter of fiscal 2018. Early adoption is permitted but not before the original effective date of the new standard of the first quarter of fiscal 2017. The following ASUs were subsequently issued by the FASB to clarify the implementation guidance in some areas and add practical expedients: In March 2016, ASU 2016-08, Revenue from Contracts with Customers: Principal versus Agent Considerations; in April 2016, ASU 2016-10, Revenue from Contracts with Customers: Identifying Performance Obligations and Licensing; in May 2016, ASU 2016-12, Revenue from Contracts with Customers: Narrow Scope Improvements and Practical Expedients; and in December 2016, ASU 2016-20, Technical Corrections and Improvements to Revenue from Contracts with Customers. The Company is in the process of evaluating its standard product sales arrangements and has identified an adoption impact related to revenue from certain distributor agreements which is currently deferred until the period in which the distributor sells through the inventory to the end customer. In connection with the adoption of ASU 2014-09, the Company anticipates a change in the recognition of such distributor revenue whereby revenue is estimated and recognized in the period in which the Company sells the product to the distributor; the adoption impact is expected to be less than $1.0 million. Other than this impact, the Company has not yet identified any expected material impact on the timing and measurement of revenue for standard product sales arrangements from the adoption of the standard; however, the Company is still in the process of formalizing its final conclusions. The Company is still evaluating the impact of adoption on non-product sales arrangements, which represent less than five percent of revenue. The Company has also developed a comprehensive project plan to guide implementation of the new standard and expects to complete its assessment in December 2017. The Company intends to adopt the new standard using the modified retrospective transition method effective January 1, 2018.

In February 2016, the FASB issued ASU No. 2016-02, Leases. The standard requires that a lessee recognize the assets and liabilities that arise from operating leases. A lessee should recognize in its balance sheet a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term. For leases with a term of 12 months or less, a lessee is permitted to make an accounting policy election by class of underlying asset not to recognize lease assets and lease liabilities. In transition, lessees and lessors are required to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach. The guidance in ASU 2016-02 is effective for annual and interim reporting periods beginning after December 15, 2018. The Company’s initial evaluation of its current leases does not indicate that the adoption of this standard will have a material impact on its consolidated statements of operations. The Company expects that the adoption of the standard will have a material impact on its consolidated balance sheets for the recognition of certain operating leases as right-of-use assets and lease liabilities.

In March 2016, the FASB issued ASU No. 2016-09, Improvements to Employee Share-Based Payment Accounting, which changes the accounting for employee share-based payments, including the accounting for income taxes, forfeitures, and statutory tax withholding requirements, as well as classification in the statement of cash flows. Under the new guidance, excess tax benefits associated with share-based payment awards will be recognized in the income statement when the awards vest or settle, rather than in stockholders’ equity. In addition, it will increase the number of shares an employer can withhold to cover income taxes on share-based payment awards and still qualify for the exemption to liability classification. The guidance was effective for the Company in the first quarter of 2017. The adoption of this standard resulted in the recognition of approximately $10.0 million of deferred tax assets related to stock-based compensation and a corresponding increase in the Company’s valuation allowance, which will be disclosed in the Company’s notes to the consolidated financial statements in its Annual Report on Form 10-K.

In November 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows - Restricted Cash, which requires entities to show the changes in the total of cash, cash equivalents, restricted cash and restricted cash equivalents in the statement of cash flows. The guidance will be effective for the Company in its first quarter of fiscal 2018. Early adoption is permitted, including adoption in an interim period, but any adjustments must be reflected as of the beginning of the fiscal year that includes that interim period. The new standard must be adopted retrospectively. The Company early adopted this standard in the fourth quarter of 2016. In accordance with the Company’s early adoption of ASU No. 2016-18, for the nine months ended September 30, 2016, the retrospective restatement was limited to including restricted cash balances in the amount of $0.4 million in beginning and $0.1 million in ending cash, cash equivalents and restricted cash balances in the consolidated statements of cash flows. The retrospective adoption did not impact reported net loss and does not otherwise have a material impact on the presentation of the overall financial statements.

In January 2017, the FASB issued ASU No. 2017-01, Business Combinations: Clarifying the Definition of a Business, which clarifies the definition of a business and adds further guidance in evaluating whether a transaction should be accounted for as an acquisition of an asset or a business. This standard will be effective for the first annual period beginning after December 15, 2017, including interim periods within those periods. Early adoption is permitted. The Company early adopted this standard on January 1, 2017 and the adoption did not have an effect on the Company’s consolidated financial statements.

In January 2017, the FASB issued ASU No. 2017-04, Intangibles - Goodwill and Other, which eliminates step two of the quantitative goodwill impairment test. Step two required determination of the implied fair value of a reporting unit, and then a comparison of this implied fair value with the carrying amount of goodwill for the reporting unit, in order to determine any goodwill impairment. Under the new guidance, an entity is only required to complete a one-step quantitative test, by comparing the fair value of a reporting unit with its carrying amount, and any goodwill impairment charge is determined by the amount by which the carrying amount exceeds the reporting unit’s fair value. However, the loss should not exceed the total amount of goodwill allocated to the reporting unit. The standard is effective for the Company in the first quarter of 2020, with early adoption permitted as of January 1, 2017, and is to be applied on a prospective basis. The adoption of the standard will not materially impact the Company's consolidated financial statements unless step one of the annual goodwill impairment test fails. The Company early adopted this standard on January 1, 2017 and the adoption did not have an effect on the Company’s consolidated financial statements.

In March 2017, the FASB issued ASU No. 2017-07, Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost, which changes how employers that sponsor defined benefit pension or other postretirement benefit plans present the net periodic benefit cost in the statement of operations. The new guidance requires entities to report the service cost component in the same line item or items as other compensation costs. The other components of net benefit cost are required to be presented in the statement of operations separately from the service cost component and outside the subtotal of loss from operations. ASU 2017-07 also provides that only the service cost component is eligible for capitalization. This standard will impact the Company’s loss from operations but will have no impact on our net loss or net loss per share. The standard is effective for the Company in the first quarter of 2018, with adoption to be applied on a retrospective basis.

In May 2017, the FASB issued ASU No. 2017-09, Compensation-Stock Compensation: Scope of Modification Accounting, which provides clarification on when modification accounting should be used for changes to the terms or conditions of a share-based payment award. This ASU does not change the accounting for modifications but clarifies that modification accounting guidance should only be applied if there is a change to the value, vesting conditions or award classification and would not be required if the changes are considered non-substantive. The amendments of this ASU are effective for the Company in the first quarter of 2018, with early adoption permitted. The adoption of ASU 2017-09 is not expected to have an impact on the Company’s consolidated financial statements.

In August 2017, the FASB issued ASU No. 2017-12, Derivatives and Hedging - Targeted Improvements to Accounting for Hedging Activities, which modifies the presentation and disclosure of hedging results. Further, it provides partial relief on the timing of certain aspects of hedge documentation and eliminates the requirement to recognize hedge ineffectiveness separately in income. The amendments in this ASU are effective for the Company in the first quarter of 2019. The Company does not expect this ASU to have a material impact on its consolidated financial statements.

There have been no other recent accounting standards, or changes in accounting standards, during the nine months ended September 30, 2017, as compared with the recent accounting standards described in our Annual Report on Form 10-K, that are of material significance, or have potential material significance, to the Company.

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Balance Sheet Details

9 Months Ended

Sep. 30, 2017

Balance Sheet Related Disclosures [Abstract]

Balance Sheet Details

Balance Sheet Details (in thousands)

Inventories, net

	September 30, 2017			December 31, 2016
Raw materials and purchased parts	$	13,291		$	12,980
Work-in-process	3,037			858
Finished goods	17,463			19,492
Reserves	(2,192		)	(1,082		)
Total inventories, net	$	31,599		$	32,248

Warranty

Activity in the warranty reserve, which is included in “accounts payable and accrued liabilities” in the condensed consolidated balance sheets, is as follows:

	Nine Months Ended September 30,
	2017			2016
Beginning balance	$	1,213		$	1,288
Acquired liability from Nesscap	773			—
Product warranties issued	352			298
Settlement of warranties	(300		)	(427		)
Changes related to preexisting warranties	253			146
Ending balance	$	2,291		$	1,305

Accumulated Other Comprehensive Income

	Foreign Currency Translation Adjustment		Defined Benefit Pension Plan			Accumulated Other Comprehensive Income		Affected Line Items in the Statement of Operations
Balance as of December 31, 2016	$	7,826	$	(2,426	)	$	5,400
Other comprehensive income before reclassification	3,197		—			3,197
Amounts reclassified from accumulated other comprehensive income	—		91			91		Cost of Sales, Selling, General and Administrative and Research and Development Expense
Net other comprehensive income for the nine months ended September 30, 2017	3,197		91			3,288
Balance as of September 30, 2017	$	11,023	$	(2,335	)	$	8,688

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Business Combination

9 Months Ended

Sep. 30, 2017

Business Combinations [Abstract]

Business Combination

Business Combination

On April 28, 2017, the Company acquired substantially all of the assets and business of Nesscap Energy, Inc. (“Nesscap”), a developer and manufacturer of ultracapacitor products for use in transportation, renewable energy, industrial and consumer markets, in exchange for the issuance of approximately 4.1 million shares of Maxwell common stock (the “Share Consideration”) and the assumption of certain liabilities pursuant to the terms of the previously announced Arrangement Agreement dated as of February 28, 2017 between Maxwell and Nesscap (the “ Nesscap Acquisition”). The value of the Share Consideration was approximately $25.3 million based on the closing price of the Company’s common stock on April 28, 2017. Additionally, per the Arrangement Agreement, the Company paid approximately $1.0 million of transaction taxes on behalf of the seller. The Nesscap Acquisition was effected by means of a court-approved statutory plan of arrangement and was approved by the requisite vote cast by shareholders of Nesscap at a special meeting of Nesscap’s shareholders held on April 24, 2017.

The Share Consideration represents approximately 11.3% of the outstanding shares of Maxwell, based on the number of shares of Maxwell common stock outstanding as of April 28, 2017.

The Nesscap Acquisition adds scale to the Company’s operations and expands the Company’s portfolio of ultracapacitor products.

The fair value of the purchase price consideration consisted of the following (in thousands):

Maxwell common stock	$	25,294
Settlement of seller’s transaction expenses	1,006
Total estimated purchase price	$	26,300

The acquisition has been accounted for under the acquisition method of accounting in accordance with ASC 805, Business Combinations. Under this method of accounting, the Company recorded the acquisition based on the fair value of the consideration given and the cash consideration paid. The Company allocated the acquisition consideration paid to the identifiable assets acquired and liabilities assumed based on their respective preliminary fair values at the date of completion of the acquisition. Any excess of the value of consideration paid over the aggregate fair value of those net assets has been recorded as goodwill, which is attributable to expected synergies from combining operations, the acquired workforce, as well as intangible assets which do not qualify for separate recognition. The Company has not yet determined the allocation of goodwill to its reporting units. The goodwill associated with the acquisition is not deductible for income tax purposes.

The preliminary fair values of net tangible assets and intangible assets acquired were based upon preliminary valuations and the Company's estimates and assumptions are subject to change within the measurement period (up to one year from the acquisition date). The primary areas that remain preliminary relate to a license termination liability, income taxes and residual goodwill. The Company expects to continue to obtain information to assist in determining the fair values of the net assets acquired during the measurement period.

The following table summarizes the preliminary allocation of the assets acquired and liabilities assumed at the acquisition date (in thousands):

	Fair Value
Cash and cash equivalents	$	909
Accounts receivable	2,545
Inventories	4,397
Prepaid expenses and other assets	764
Property and equipment	3,314
Intangible assets	11,800
Accounts payable, accrued compensation and other liabilities	(5,713		)
Employee severance obligation	(3,340		)
Total identifiable net assets	14,676
Goodwill	11,624
Total purchase price	$	26,300

The fair value of inventories acquired included an acquisition accounting fair market value step-up of $0.7 million. In the three and nine months ended September 30, 2017, the Company recognized $0.3 million and $0.6 million, respectively, of the step-up as a component of cost of revenue for acquired inventory sold during the period. Included in inventory as of September 30, 2017, was $0.1 million relating to the remaining fair value step-up associated with the acquisition.

For the three and nine months ended September 30, 2017, acquisition-related costs of $46,000 and $1.8 million, respectively, were included in selling, general, and administrative expenses in the Company's condensed consolidated statements of operations.

The following table presents details of the preliminary identified intangible assets acquired through the Nesscap Acquisition (in thousands):

	Estimated Useful Life (in years)	Fair Value
Customer relationships - institutional	14	$	3,200
Customer relationships - non-institutional	10	4,400
Trademarks and trade names	10	1,500
Developed technology	8	2,700
Total intangible assets		$	11,800

The fair value of the $11.8 million of identified intangible assets acquired in connection with the Nesscap Acquisition was estimated using an income approach. Under the income approach, an intangible asset's fair value is equal to the present value of future economic benefits to be derived from ownership of the asset. More specifically, the fair values of the customer relationship intangible assets were determined using the multi-period excess earnings method, which estimates an intangible asset’s value based on the present value of the incremental after-tax cash flows attributable only to the intangible asset. The fair values of the trademark and trade names and developed technology intangible assets were valued using the relief from royalty method, which is based on the principle that ownership of the intangible asset relieves the owner of the need to pay a royalty to another party in exchange for rights to use the asset.

The following unaudited pro forma financial information presents the combined results of operations for each of the periods presented, as if the Nesscap Acquisition had occurred at the beginning of fiscal year 2016 (in thousands, except per share amounts):

	Three Months Ended September 30,						Nine Months Ended September 30,
	2017			2016			2017			2016
Net revenues	$	35,816		$	31,177		$	104,771		$	109,817
Net loss	(13,573		)	(8,133		)	(35,165		)	(14,788		)
Net loss per share:
Basic and diluted	(0.37		)	(0.23		)	(0.96		)	(0.41		)
Weighted average common shares outstanding:
Basic and diluted	37,008			36,136			36,706			35,975

The unaudited pro forma information has been adjusted to reflect the following:

• Amortization expense for acquired intangibles and removal of Nesscap historical intangibles amortization

• Removal of historical Nesscap interest expenses, gains and losses related to debt not acquired

• Recognition of expense associated with the valuation of inventory acquired

The pro forma data is presented for illustrative purposes only and is not necessarily indicative of the consolidated results of operations of the combined business had the acquisition actually occurred at the beginning of fiscal year 2016 or of the results of future operations of the combined business. The unaudited pro forma financial information does not reflect any operating efficiencies and cost saving that may be realized from the integration of the acquisition. For the three and nine months ended September 30, 2017, $6.8 million and $11.0 million of revenue, respectively, included in the Company's condensed consolidated statements of operations, was the result of acquired Nesscap operations. For the three and nine months ended September 30, 2017, $0.3 million and $0.7 million of net loss, respectively, included in the Company's condensed consolidated statements of operations, was the result of acquired Nesscap operations.

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Sale of Microelectronics Product Line

9 Months Ended

Sep. 30, 2017

Discontinued Operations and Disposal Groups [Abstract]

Sale of Microelectronics Product Line

Sale of Microelectronics Product Line

On April 27, 2016, the Company sold substantially all of the assets and liabilities comprising its microelectronics product line to Data Device Corporation, a privately-held Delaware corporation. The transaction purchase price was $21.0 million, subject to a working capital adjustment and a one year $1.5 million escrow holdback on the purchase price, which was received in May 2017.

The assets sold were primarily comprised of inventory, accounts receivable and property and equipment. The liabilities sold were comprised mainly of deferred revenue, accounts payable and other current liabilities. During the first quarter of 2016, the Company met the held for sale criteria in accordance with ASC Topic 380, Impairment or Disposal of Long Lived Assets, andthe Company ceased depreciation on the property and equipment and classified the assets to be sold as held for sale. During the second quarter of 2016, all assets and liabilities formerly classified as held for sale were disposed of pursuant to the sale. The sale of the microelectronics product line did not represent a strategic shift that had a major effect on the Company’s operations and financial results. As such, the Company did not account for the disposition as a discontinued operation. During the nine months ended September 30, 2016, the Company recorded a gain of $6.7 million related to the sale of the microelectronics product line.

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Goodwill and Intangible Assets

9 Months Ended

Sep. 30, 2017

Goodwill and Intangible Assets Disclosure [Abstract]

Goodwill and Intangible Assets

Goodwill and Intangible Assets

In April 2017, the Company acquired substantially all of the assets and business of Nesscap. As of September 30, 2017, the purchase price allocation for the Nesscap Acquisition remains preliminary.

The change in the carrying amount of goodwill from December 31, 2016 to September 30, 2017 was as follows (in thousands):

Balance as of December 31, 2016	$	22,799
Goodwill from Nesscap Acquisition	11,624
Foreign currency translation adjustments	765
Balance as of September 30, 2017	$	35,188

The composition of intangible assets subject to amortization was as follows (in thousands):

	As of September 30, 2017
	Useful Life (in years)	Gross Initial Carrying Value		Cumulative Foreign Currency Translation Adjustment			Accumulated Amortization			Net Carrying Value
Customer relationships - institutional	14	$	3,200	$	(44	)	$	(96	)	$	3,060
Customer relationships - non-institutional	10	4,400		(60		)	(187		)	4,153
Trademarks and trade names	10	1,500		(20		)	(64		)	1,416
Developed technology	8	2,700		(37		)	(145		)	2,518
Total intangible assets		$	11,800	$	(161	)	$	(492	)	$	11,147

The useful life of intangible assets reflects the period the assets are expected to contribute directly or indirectly to future cash flows. Intangible assets are amortized over the useful lives of the assets utilizing the straight-line method, which is materially consistent with the pattern in which the expected benefits will be consumed, calculated using undiscounted cash flows.

For the three months ended September 30, 2017, amortization expense of $88,000 was recorded to “cost of revenue” and $0.2 million was recorded to “selling, general and administrative.” For the nine months ended September 30, 2017, amortization expense of $148,000 was recorded to “cost of revenue” and $0.4 million was recorded to “selling, general and administrative.” Estimated amortization expense for the remainder of 2017 is $0.3 million. Estimated amortization expense for the years 2018 through 2021 is $1.2 million each year. The expected amortization expense is an estimate and actual amounts could differ due to additional intangible asset acquisitions, changes in foreign currency rates or impairment of intangible assets.

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Restructuring and Exit Costs

9 Months Ended

Sep. 30, 2017

Restructuring and Related Activities [Abstract]

Restructuring and Exit Costs

Restructuring and Exit Costs

2017 Restructuring Plans

In September 2017, the Company initiated a restructuring plan to optimize headcount in connection with the acquisition and integration of the assets and business of Nesscap, as well as to implement additional organizational efficiencies. Total charges for the September 2017 restructuring plan were approximately $1.2 million, all of which were incurred in the third quarter of 2017.

In February 2017, the Company implemented a comprehensive restructuring plan that included a wide range of organizational efficiency initiatives and other cost reduction opportunities. Total charges for the nine months ended September 30, 2017 for the February 2017 restructuring plan were approximately $0.9 million, which included a reversal of expense of $0.1 million in the three months ended September 30, 2017.

The charges related to both of the 2017 restructuring plans consist of employee severance costs and have been or will be paid in cash. The charges were recorded within “restructuring and exit costs” in the condensed consolidated statements of operations.

The following table summarizes the changes in the liabilities for each of the 2017 restructuring plans, which are recorded in “accrued employee compensation” in the Company’s condensed consolidated balance sheet for the nine months ended September 30, 2017 (in thousands):

	February 2017 Plan			September 2017 Plan
	Employee Severance Costs
Restructuring liability as of December 31, 2016	$	—		$	—
Costs incurred	997			1,195
Amounts paid	(855		)	(58		)
Accruals released	(142		)	—
Restructuring liability as of September 30, 2017	$	—		$	1,137

2015 Restructuring Plan

In 2015, the Company initiated a restructuring plan to consolidate U.S. manufacturing operations and to reduce headcount and operating expenses in order to align the Company’s cost structure with the current business forecast and to improve operational efficiency. The plan also included the disposition of the Company’s microelectronics product line which was completed in April 2016. The restructuring plan was otherwise substantially completed in the first quarter of 2016. Total restructuring and exit costs were $2.8 million, which included $1.3 million in facilities costs related to the consolidation of manufacturing operations, $1.2 million in employee severance costs and $0.3 million in other exit costs. The Company also incurred $0.6 million in accelerated equipment depreciation expense related to the consolidation of manufacturing operations. Total cash expenditures related to restructuring activities were approximately $1.5 million.

As the 2015 restructuring plan was completed in 2016, there were no restructuring charges or cash payments related to this plan during the three and nine months ended September 30, 2017. For the nine months ended September 30, 2016, the Company recorded net charges related to the 2015 restructuring plan of $0.3 million, within “restructuring and exit costs” and $0.1 million of accelerated depreciation expense within “cost of revenue” in the condensed consolidated statements of operations. No restructuring charges related to this plan were recorded during the three months ended September 30, 2016. During the three and nine months ended September 30, 2016, cash payments in connection with the 2015 restructuring plan were $26,000 and $0.5 million, respectively, primarily related to employee severance and other exit costs.

Adjustment to Lease Liability

In connection with the 2015 restructuring plan, in June 2015, the Company ceased use of approximately 60,000 square feet of its Peoria, AZ manufacturing facility, and determined this leased space would have no future economic benefit to the Company based on the current business forecast. In the third quarter of 2017, we recognized additional facilities costs of $0.2 million as restructuring charges to record an adjustment to the sublease income assumption included in the estimated future rent obligation of this leased space.

The Company has recorded a liability for the future rent obligation associated with this space, net of estimated sublease income, in accordance with ASC Topic 420. As of September 30, 2017 and December 31, 2016, lease obligation liabilities related to this leased space of $0.7 million and $0.8 million, respectively, were included in “accounts payable and accrued liabilities” and “other long term liabilities” in the condensed consolidated balance sheets.

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Debt and Credit Facilities

9 Months Ended

Sep. 30, 2017

Debt Disclosure [Abstract]

Debt and Credit Facilities

Debt and Credit Facilities

Convertible Senior Notes

On September 25, 2017, the Company issued $40.0 million of 5.50% Convertible Senior Notes due 2022 (the “Notes”). The Company received net proceeds, after deducting the initial purchaser’s discount and offering expenses payable by the Company, of approximately $37.3 million. The Notes bear interest at a rate of 5.50% per year, payable semi-annually in arrears on March 15 and September 15 of each year, with payments commencing on March 15, 2018. The Notes mature on September 15, 2022, unless earlier purchased by the Company, redeemed, or converted.

The Notes are unsecured obligations of Maxwell and rank senior in right of payment to any of Maxwell’s subordinated indebtedness; equal in right of payment to all of Maxwell’s unsecured indebtedness that is not subordinated; effectively subordinated in right of payment to any of Maxwell’s secured indebtedness to the extent of the value of the assets securing such indebtedness; and structurally subordinated to all indebtedness and other liabilities (including trade payables) of Maxwell’s subsidiaries.

The Notes are convertible into cash, shares of the Company’s common stock, or a combination thereof, at the Company’s election, upon the satisfaction of specified conditions and during certain periods as described below. The initial conversion rate is157.5101 shares of the Company’s common stock per $1,000 principal amount of Notes, representing an initial effective conversion price of $6.35 per share of common stock and a 27% premium to the Company’s stock price at the date of issuance. The conversion rate may be subject to adjustment upon the occurrence of certain specified events as provided in the indenture governing the Notes, dated September 25, 2017 between the Company and Wilmington Trust, National Association, as trustee (the “Indenture”), but will not be adjusted for accrued but unpaid interest.

Prior to the close of business on the business day immediately preceding June 15, 2022, the Notes will be convertible at the option of holders only upon the satisfaction of specified conditions and during certain periods. Thereafter until the close of business on the business day immediately preceding maturity, the Notes will be convertible at the option of the holders at any time regardless of these conditions.

Upon the occurrence of certain fundamental changes involving the Company, holders of the Notes may require the Company to repurchase for cash all or part of their Notes at a repurchase price equal to 100% of the principal amount of the Notes to be repurchased, plus accrued and unpaid interest, if any, to, but excluding, the fundamental change repurchase date.

The Company may not redeem the Notes prior to September 20, 2020. The Company may redeem the Notes, at its option, in whole or in part on or after September 20, 2020 if the last reported sale price of the Company’s common stock has been at least 130% of the conversion price then in effect for at least 20 trading days

The Company considered the features embedded in the Notes, that is, the conversion feature, the Company's call feature, and the make-whole feature, and concluded that they are not required to be bifurcated and accounted for separately from the host debt instrument.

The Notes included an initial purchaser’s discount of $2.2 million, or 5.5%. This discount is recorded as an offset to the debt and is amortized over the expected life of the Notes using the effective interest method.

Upon conversion by the holders, the Company may elect to settle such conversion in shares of its common stock, cash, or a combination thereof. As a result of its cash conversion option, the Company segregated the liability component of the instrument from the equity component. The liability component was measured by estimating the fair value of a non-convertible debt instrument that is similar in its terms to the Notes. The calculation of the fair value of the debt component required the use of Level 3 inputs, including utilization of credit assumptions and high yield bond indices. Fair value was estimated using an income approach, through discounting future interest and principal payments due under the Notes at a discount rate of 12.0%, an interest rate equal to the estimated borrowing rate for similar non-convertible debt. The excess of the initial proceeds from the Notes over the estimated fair value of the liability component was $7.4 million and was recognized as a debt discount and recorded as an increase to additional paid-in capital, and will be amortized over the expected life of the Notes using the effective interest method. Amortization of the debt discount is recognized as non-cash interest expense.

The transaction costs of $0.5 million incurred in connection with the issuance of the Notes were allocated to the liability and equity components based on their relative values. Transaction costs allocated to the liability component are being amortized using the effective interest method and recognized as non-cash interest expense over the expected term of the Notes. Transaction costs allocated to the equity component of $0.1 million reduced the value of the equity component recognized in stockholders’ equity.

The initial purchaser debt discount, the equity component debt discount and the transaction costs allocated to the liability are being amortized over the contractual term to maturity of the Notes using an effective interest rate of 12.2%.

The carrying value of the Notes is as follows (in thousands):

	As of September 30, 2017
Principal amount	$	40,000
Unamortized debt discount - equity component	(7,350		)
Unamortized debt discount - initial purchaser	(2,195		)
Unamortized transaction costs	(375		)
Net carrying value	$	30,080

Total interest expense related to the Notes is as follows (in thousands):

	Three and Nine Months Ended September 30, 2017
Cash interest expense
Coupon interest expense	$	37
Non-cash interest expense
Amortization of debt discount - equity component	18
Amortization of debt discount - initial purchaser	5
Amortization of transaction costs	1
Total interest expense	$	61

On October 11, 2017, the Company issued an additional $6.0 million aggregate principal amount of convertible senior notes under the same terms under a 30-day option that was exercised. The Company received net proceeds, after deducting the initial purchaser’s discount, of approximately $5.7 million.

Revolving Line of Credit

In July 2015, the Company entered into a Loan and Security Agreement (the “Loan Agreement”) with East West Bank (“EWB”), whereby EWB made available to the Company a secured credit facility in the form of a revolving line of credit (the “Revolving Line of Credit”). The Revolving Line of Credit is available up to a maximum of the lesser of: (a) $25.0 million; or (b) a certain percentage of domestic and foreign trade receivables. As of September 30, 2017 the amount available under the Revolving Line of Credit was $12.0 million. In general, amounts borrowed under the Revolving Line of Credit are secured by a lien on all of the Company’s assets, including its intellectual property, as well as a pledge of 100% of its equity interests in Maxwell SA. The obligations under the Loan Agreement are also guaranteed directly by Maxwell SA. The Revolving Line of Credit will mature on July 3, 2018. In the event that the Company is in violation of the representations, warranties and covenants made in the Loan Agreement, including certain financial covenants set forth therein, the Company may not be able to utilize the Revolving Line of Credit or repayment of amounts owed pursuant to the Loan Agreement could be accelerated. The Company is currently in compliance with the financial covenants that it is required to meet during the term of the credit agreement including the minimum four-quarter rolling EBITDA, quarterly minimum quick ratio and monthly minimum cash requirements. On February 28, 2017, the Company entered into an amendment to the Loan Agreement to approve the acquisition of substantially all of the assets and business of Nesscap Energy, Inc., and to modify certain financial covenants. On September, 2017, the Company entered into an amendment to the Loan Agreement providing for consent for the offering of the Notes and the inclusion of an additional covenant related to liquidity.

Amounts borrowed under the Revolving Line of Credit bear interest, payable monthly. Such interest shall accrue based upon, at the Company’s election, subject to certain limitations, either a Prime Rate plus a margin ranging from 0% to 0.50% or the LIBOR Rate plus a margin ranging from 2.75% to 3.25%, the specific rate for each as determined based upon the Company’s leverage ratio from time to time.

The Company is required to pay an annual commitment fee equal to $125,000, and an unused commitment fee of the average daily unused amount of the Revolving Line of Credit, payable monthly, equal to a per annum rate in a range of 0.30% to 0.50%, as determined by the Company’s leverage ratio on the last day of the previous fiscal quarter. No amounts have been borrowed under this Revolving Line of Credit as of September 30, 2017.

Other Long-term Borrowings

The Company has various financing agreements for vehicles. These agreements are for up to an original three year repayment period with interest rates ranging from 0.9% to 1.9%. At September 30, 2017 and December 31, 2016, $124,000 and $83,000, respectively, was outstanding under these financing agreements.

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Fair Value Measurements

9 Months Ended

Sep. 30, 2017

Fair Value Disclosures [Abstract]

Fair Value Measurements

Fair Value Measurements

The Company records certain financial instruments at fair value in accordance with the Fair Value Measurements and Disclosures Topic of the FASB ASC. Historically, the financial instruments to which this topic applied were foreign currency forward contracts and the fair value of these foreign currency forward contracts was recorded as a liability or asset in the consolidated balance sheets. During the second quarter of 2016, the Company ceased using foreign currency forward contracts to hedge foreign currency exposure as management determined its foreign currency exposure was no longer sufficiently significant to merit the use of hedging instruments. Therefore, no foreign currency forward contracts were outstanding as of September 30, 2017. The fair value of these derivative instruments was measured using models following quoted market prices in active markets for identical instruments, which is a Level 2 input under the fair value hierarchy of the Fair Value Measurements and Disclosures Topic of the FASB ASC.

Additionally, the Company records pension assets at fair value. As of the last fair value measurement date of December 31, 2016, the net pension asset included plan assets with a fair value of $39.0 million. The plan assets consisted of debt and equity securities, real estate investment funds and cash and cash equivalents. The fair values of debt and equity securities are determined based on quoted prices in active markets for identical assets, which are Level 1 inputs under the fair value hierarchy. The fair value measurement of the real estate investment funds is based on unobservable inputs and assumptions which are Level 3 inputs under the fair value hierarchy.

As of September 30, 2017, the fair value of the Company’s convertible senior notes issued in September 2017 is equivalent to the proceeds received of $37.8 million, due to the recent issuance of the Notes. The carrying value of short-term and other long-term borrowings approximates fair value because of the relative short maturity of these instruments and the interest rates the Company could currently obtain.

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Foreign Currency Derivative Instruments

9 Months Ended

Sep. 30, 2017

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Foreign Currency Derivative Instruments

Foreign Currency Derivative Instruments

The Company has historically used forward contracts to hedge certain monetary assets and liabilities, primarily receivables, payables and cash balances, denominated in foreign currencies. During the second quarter of 2016, the Company ceased using foreign currency forward contracts to hedge foreign currency exposure as management determined its foreign currency exposure was no longer sufficiently significant to merit the use of hedging instruments. The change in fair value of these forward contracts represented a natural hedge as gains and losses on these instruments partially offset the changes in the fair value of the underlying monetary assets and liabilities due to movements in currency exchange rates. These forward contracts generally expired in one month. These contracts were considered economic hedges but were not designated as hedges under the Derivatives and Hedging Topic of the FASB ASC, therefore, the change in the fair value of the instrument was recognized each period in the consolidated statement of operations.

The net gains and losses on foreign currency forward contracts included in “foreign currency exchange (gain) loss, net” in the condensed consolidated statements of operations are as follows (in thousands):

	Three Months Ended September 30, 2016		Nine Months Ended September 30, 2016
Total gain (loss)	$	—	$	(88	)

The net gains and losses on foreign currency forward contracts were partially offset by net gains and losses on the underlying monetary assets and liabilities. Foreign currency gains and losses on those underlying monetary assets and liabilities included in “foreign currency exchange (gain) loss, net” in the condensed consolidated statements of operations are as follows (in thousands):

	Three Months Ended September 30, 2016		Nine Months Ended September 30, 2016
Total gain (loss)	$	—	$	(37	)

For additional information, refer to Note 8 – Fair Value Measurements.

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Stock Plans

9 Months Ended

Sep. 30, 2017

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Stock Plans

Stock Plans

The Company has two active stock-based compensation plans as of September 30, 2017: the 2004 Employee Stock Purchase Plan and the 2013 Omnibus Equity Incentive Plan under which incentive stock options, non-qualified stock options, restricted stock awards and restricted stock units can be granted to employees and non-employee directors.

The Company generally issues the majority of employee stock compensation grants in the first quarter of the year; other grants issued during the year are typically for new employees or non-employee directors.

Stock Options

Stock options are granted to certain employees from time to time on a discretionary basis. Beginning in 2017, non-employee directors receive annual stock option awards as part of their annual retainer compensation. During the three and nine months ended September 30, 2017, the Company granted 5,000 and 50,000 stock options, respectively, which had an average grant date fair value per share of $3.12 and $2.97, respectively. During the three and nine months ended September 30, 2016, no stock options were granted. Compensation expense recognized for stock options for the three months ended September 30, 2017 and 2016 was $62,000 and $49,000, respectively. Compensation expense recognized for stock options for the nine months ended September 30, 2017 and 2016 was $169,000 and $134,000, respectively. The fair value of the stock options granted during the three and nine months ended September 30, 2017 was estimated using the Black-Scholes valuation model with the following assumptions:

	Three Months Ended September 30, 2017		Nine Months Ended September 30, 2017
Expected dividend yield	—	%	—	%
Expected volatility	58	%	58% - 59%
Risk-free interest rate	1.96	%	1.87% - 1.96%
Expected term (in years)	5.5		5.5

Restricted Stock Awards

Beginning in 2014, the Company ceased granting restricted stock awards (“RSAs”) and began granting restricted stock units (“RSUs”) to employees as part of its annual equity incentive award program, therefore, no restricted stock awards were issued during the three and nine months endedSeptember 30, 2017 and 2016. During the three months ended September 30, 2017 and 2016, compensation expense recognized for RSAs was $0.1 million and $0.2 million, respectively. During the nine months ended September 30, 2017 and 2016, compensation expense recognized for RSAs was $0.3 million and $0.2 million, respectively. During the first quarter of 2016, there were significant reversals of previously recorded expense due to terminations under the Company’s 2015 restructuring plan as well as other employee terminations.

Restricted Stock Units

Non-employee directors receive annual RSU awards as part of their annual retainer compensation. These awards vest approximately one year from the date of grant provided the non-employee director provides continued service. Additionally, new directors normally receive RSUs upon their election to the board. The Company also grants RSUs to employees as part of its annual equity incentive award program, with vesting typically in equal annual installments over four years of continuous service. Additionally, the Company grants performance-based restricted stock units (“PSUs”) to executives with vesting contingent on continued service and achievement of specified performance objectives or stock price performance. Each restricted stock unit represents the right to receive one unrestricted share of the Company’s common stock upon vesting.

During the three months ended September 30, 2017, the Company granted 355,075 RSUs of which 320,963 were service-based RSUs with an average grant date fair value of $5.58 per share and 34,112 were PSUs with an average grant date fair value of $6.79 per share. During the nine months endedSeptember 30, 2017, the Company granted 1,768,492 RSUs of which 1,242,618 were service-based RSUs with an average grant date fair value of $5.54 per share and 525,874 were PSUs with an average grant date fair value of $6.77 per share.

During the three months ended September 30, 2016, the Company granted 49,116 service-based RSUs with an average grant date value of $5.09 per share. During the nine months ended September 30, 2016, the Company granted 1,236,747 RSUs of which 904,028 were service-based RSUs with an average grant date value of $5.56 per share and 332,719 were PSUs with an average grant date fair value of $7.50 per share.

For the three months ended September 30, 2017 and 2016, PSUs granted included 34,112 market-condition restricted stock units. No market-condition restricted stock units were granted in the three months ended September 30, 2016. For the nine months endedSeptember 30, 2017 and 2016, PSUs granted included 367,874 and 286,495 market-condition restricted stock units, respectively. The market-condition PSUs will vest based on the level of the Company’s stock price performance against a determined market index over one, two and three year performance periods. The market-condition PSUs have the potential to vest between 0% and 200% depending on the Company’s stock price performance and the recipients must remain employed through the end of each performance period in order to vest. The fair value of the market-condition PSUs granted was calculated using a Monte Carlo valuation model with the following assumptions:

	Three and Nine Months Ended September 30,
	2017		2016
Expected dividend yield	—	%	—	%
Expected volatility	53	%	62	%
Risk-free interest rate	1.55	%	1.07	%
Expected term (in years)	2.8		3.0

The following table summarizes the amount of compensation expense recognized for RSUs for the three and nine months endedSeptember 30, 2017 and 2016 (in thousands):

	Three Months Ended September 30,				Nine Months Ended September 30,
RSU Type	2017		2016		2017		2016
Service-based	$	1,124	$	544	$	2,460	$	1,613
Performance objectives	219		30		389		71
Market-condition	432		250		1,027		621
	$	1,775	$	824	$	3,876	$	2,305

Employee Stock Purchase Plan

The 2004 Employee Stock Purchase Plan (“ESPP”) permits substantially all employees to purchase common stock through payroll deductions, at 85% of the lower of the trading price of the stock at the beginning or at the end of each six month offering period. The number of shares purchased is based on participants’ contributions made during the offering period.

Compensation expense recognized for the ESPP for the three months ended September 30, 2017 and 2016 was $28,000 and $53,000, respectively, and was $81,000 and $189,000, respectively, for the nine months ended September 30, 2017 and 2016. The fair value of the ESPP shares for the three and nine months ended September 30, 2017 and 2016 was estimated using the Black-Scholes valuation model for a call and a put option with the following weighted-average assumptions:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2017			2016			2017			2016
Expected dividend yield	—		%	—		%	—		%	—		%
Expected volatility	37		%	54		%	32		%	58		%
Risk-free interest rate	1.09		%	0.36		%	0.78		%	0.45		%
Expected term (in years)	0.38			0.50			0.46			0.50
Fair value per share	$	1.45		$	1.59		$	1.28		$	2.04

Bonuses Settled in Stock

On January 15, 2016, the Compensation Committee of the Board of Directors of the Company adopted the Maxwell Technologies, Inc. Incentive Bonus Plan to enable participants to earn annual incentive bonuses based upon achievement of specified financial and strategic performance objectives. The Company may settle bonuses earned under the plan in either cash or stock, and currently intends to settle the majority of bonuses earned under the plan in stock. During the first quarter of 2017, the Company settled $1.2 million of bonuses earned under the plan for the 2016 performance period with 142,582 shares of fully vested common stock and 89,730 fully vested restricted stock units, which were subsequently settled during the second quarter of 2017. An additional $0.3 million of bonuses earned for the 2016 performance period were settled with 42,662 shares of fully vested common stock in the third quarter of 2017.

The Company recorded $0.7 million and $(31,000) of stock compensation expense related to the bonus plan during the three months ended September 30, 2017 and 2016, respectively. The Company recorded $1.9 million and $0.9 million of stock compensation expense related to the bonus plan during the nine months ended September 30, 2017 and 2016, respectively.

Director Fees Settled in Stock

In 2017, the Board approved a deferred compensation program under which non-employee directors may make irrevocable elections to receive all or a portion of their cash-based non-employee director fees (including, as applicable, any annual retainer fee, committee fee and any other compensation payable with respect to their service as a member of the Board) in stock and to elect to defer receipt of those shares. In the event that a director makes such an election, the Company will grant fully vested RSUs in lieu of cash, with an initial value equal to the cash fees, which will be settled either in the year granted or at a future date elected by the respective non-employee director through the issuance of Maxwell common stock. In addition, non-employee directors may elect to defer settlement of the initial and annual RSU awards granted to them in connection with their service as a non-employee director. During the three and nine months ended September 30, 2017, the Company settled $71,000 of director fees earned in the second quarter of 2017 with 12,904 fully vested RSUs. The Company recorded $92,000 and $164,000 of stock compensation expense related to director fees to be settled in stock during the three and nine months ended September 30, 2017, respectively.

Stock-Based Compensation Expense

Stock-based compensation cost included in cost of revenue; selling, general and administrative expense; and research and development expense is as follows (in thousands):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2017		2016		2017		2016
Cost of revenue	$	271	$	146	$	721	$	643
Selling, general and administrative	2,097		799		4,762		2,436
Research and development	387		152		1,064		680
Total stock-based compensation expense	$	2,755	$	1,097	$	6,547	$	3,759

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Defined Benefit Plans

9 Months Ended

Sep. 30, 2017

Defined Benefit Plan [Abstract]

Defined Benefit Plans

Defined Benefit Plans

Maxwell SA Pension Plan

Maxwell SA has a retirement plan that is classified as a defined benefit pension plan. The employee pension benefit is based on compensation, length of service and credited investment earnings. The plan guarantees both a minimum rate of return as well as minimum annuity purchase rates. The Company’s funding policy with respect to the pension plan is to contribute the amount required by Swiss law, using the required percentage applied to the employee’s compensation. In addition, participating employees are required to contribute to the pension plan. This plan has a measurement date of December 31.

Components of net periodic pension cost are as follows (in thousands):

	Three Months Ended September 30,						Nine Months Ended September 30,
	2017			2016			2017			2016
Service cost	$	251		$	295		$	737		$	883
Interest cost	59			62			172			185
Expected return on plan assets	(258		)	(296		)	(757		)	(885		)
Prior service cost amortization	38			38			113			113
Deferred loss amortization	—			61			—			183
Net periodic pension cost	$	90		$	160		$	265		$	479

Employer contributions of $0.2 million and $0.1 million were paid during the three months ended September 30, 2017 and 2016, respectively. Employer contributions of $0.5 million were paid during each of the nine months ended September 30, 2017 and 2016. Additional employer contributions of approximately $0.1 million are expected to be paid during the remainder of fiscal 2017.

Korea Defined Benefit Plan

In connection with the Nesscap Acquisition, the Company assumed the defined benefit plan liability related to Nesscap Korea’s employees. Pursuant to the Labor Standards Act of Korea, employees and most executive officers with one or more years of service are entitled to lump sum separation benefits upon the termination of their employment based on their length of service and rate of pay.

Components of net cost related to the Korea employee defined benefit plan are as follows (in thousands):

	Three Months Ended September 30, 2017		Nine Months Ended September 30, 2017
Service cost	$	134	$	221
Interest cost	20		34
Net cost	$	154	$	255

Employer contributions of $2,000 and $4,000 were paid during the three and nine months ended September 30, 2017, respectively. Additional employer contributions of approximately $2,000 are expected to be paid during the remainder of fiscal 2017.

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Legal Proceedings

9 Months Ended

Sep. 30, 2017

Commitments and Contingencies Disclosure [Abstract]

Legal Proceedings

Legal Proceedings

Although the Company expects to incur legal fees in connection with the below legal proceedings, the Company is unable to estimate the amount of such legal fees and therefore, such fees will be expensed in the period the legal services are performed.

FCPA Matter

In January 2011, the Company reached settlements with the U.S. Securities and Exchange Commission (“SEC”) and the U.S. Department of Justice (“DOJ”) with respect to charges asserted by the SEC and DOJ relating to the anti-bribery, books and records, internal controls, and disclosure provisions of the U.S. Foreign Corrupt Practices Act (“FCPA”) and other securities laws violations. The Company paid the monetary penalties under these settlements in installments such that all monetary penalties were paid in full by January 2013. With respect to the DOJ charges, a judgment of dismissal was issued in the U.S. District Court for the Southern District of California on March 28, 2014.

On October 15, 2013, the Company received an informal notice from the DOJ that an indictment against the former Senior Vice President and General Manager of its Swiss subsidiary had been filed in the United States District Court for the Southern District of California. The indictment is against the individual, a former officer, and not against the Company and the Company does not foresee that further penalties or fines could be assessed against it as a corporate entity for this matter. However, the Company may be required throughout the term of the action to advance the legal fees and costs incurred by the individual defendant and to incur other financial obligations. While the Company maintains directors’ and officers’ insurance policies which are intended to cover legal expenses related to its indemnification obligations in situations such as these, the Company cannot determine if and to what extent the insurance policy will cover the ongoing legal fees for this matter. Accordingly, the legal fees that may be incurred by the Company in defending this former officer could have a material impact on its financial condition and results of operation.

Swiss Bribery Matter

In August 2013, the Company’s Swiss subsidiary was served with a search warrant from the Swiss federal prosecutor’s office. At the end of the search, the Swiss federal prosecutor presented the Company with a listing of the materials gathered by the representatives and then removed the materials from its premises for keeping at the prosecutor’s office. Based upon the Company’s exposure to the case, the Company believes this action to be related to the same or similar facts and circumstances as the FCPA action previously settled with the SEC and the DOJ. During initial discussions, the Swiss prosecutor has acknowledged both the existence of the Company’s deferred prosecution agreement with the DOJ and its cooperation efforts thereunder, both of which should have a positive impact on discussions going forward. Additionally, other than the activities previously reviewed in conjunction with the SEC and DOJ matters under the FCPA, the Company has no reason to believe that additional facts or circumstances are under review by the Swiss authorities. To date, the Swiss prosecutor has not issued its formal decision as to whether the charges will be brought against individuals or the Company or whether the proceeding will be abandoned. At this stage in the investigation, the Company is currently unable to determine the extent to which it will be subject to fines in accordance with Swiss bribery laws and what additional expenses will be incurred in order to defend this matter. As such, the Company cannot determine whether there is a reasonable possibility that a loss will be incurred nor can it estimate the range of any such potential loss. Accordingly, the Company has not accrued an amount for any potential loss associated with this action, but an adverse result could have a material adverse impact on its financial condition and results of operation.

Government Investigations

In early 2013, the Company voluntarily provided information to the SEC and the United States Attorney’s Office for the Southern District of California related to its announcement that it intended to file restated financial statements for fiscal years 2011 and 2012. On June 11, 2015 and June 16, 2016, the Company received subpoenas from the SEC requesting certain documents related to, among other things, the facts and circumstances surrounding the restated financial statements. The Company has provided documents and information to the SEC in response to the subpoenas. In September 2016, the Company entered into a tolling agreement effective for the period beginning on September 12, 2016, and running through June 30, 2017, with the SEC related to these matters. In June 2017, the Company entered into an amended and restated version of this tolling agreement effective for the period beginning on September 12, 2016, and running through October 31, 2017. In November 2017, the Company entered into an amended and restated version of this tolling agreement effective for the period beginning on September 12, 2016, and running through December 22, 2017. The Company is cooperating with the investigation and recently made an offer of settlement to resolve the matter, which is subject to approval by the SEC Commissioners. The proposed settlement would be entered into by the Company without admitting or denying the SEC’s findings and would resolve alleged violations of certain anti-fraud and books and records provisions of the federal securities laws and related rules. Under the terms of the proposed settlement, the Company would pay $2.8 million in a civil penalty and agree not to commit or cause any violations of certain anti-fraud and books and records provisions of the federal securities laws and related rules. In the third quarter of 2017, the Company has made a corresponding accrual for the settlement amount as an operating expense in its financial statements.

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Description of Business and Basis of Presentation (Policies)

9 Months Ended

Sep. 30, 2017

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Basis of Presentation

Basis of Presentation

The accompanying condensed consolidated financial statements include the accounts of Maxwell Technologies, Inc. and its subsidiaries and have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”). All intercompany transactions and account balances have been eliminated in consolidation. The Company has prepared the accompanying unaudited interim condensed consolidated financial statements in accordance with the instructions to Form 10-Q and the standards of accounting measurement set forth in the Interim Reporting Topic of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”). Consequently, the Company has not necessarily included in this Form 10-Q all information and footnotes required for audited financial statements. In the opinion of the Company’s management, the accompanying unaudited condensed consolidated financial statements in this Form 10-Q contain all adjustments (consisting only of normal recurring adjustments, except as otherwise indicated) necessary to for a fair statement of the financial position, results of operations, and cash flows of Maxwell Technologies, Inc. for all periods presented. The results reported in these condensed consolidated financial statements should not be regarded as necessarily indicative of results that may be expected for any subsequent period or for the entire year. These unaudited condensed consolidated financial statements and notes thereto should be read in conjunction with the Company’s audited financial statements and the notes thereto included in the Company’s latest Annual Report on Form 10-K. Certain information and footnote disclosures normally included in the annual financial statements prepared in accordance with U.S. GAAP have been condensed or omitted in the accompanying interim consolidated financial statements. The year-end condensed balance sheet data was derived from audited financial statements, but does not include all disclosures required by U.S. GAAP.

Use of Estimates

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect reported amounts and related disclosures. These estimates include, but are not limited to, assessing the collectability of accounts receivable, applied and unapplied production costs, production capacities, the usage and recoverability of inventories and long-lived assets, deferred income taxes, the incurrence of warranty obligations, the fair value of acquired tangible and intangible assets, impairment of goodwill and intangible assets, estimation of the cost to complete certain projects, estimation of pension assets and liabilities, estimation of employee severance benefit obligations, accruals for estimated losses for legal matters, and estimation of the value of stock-based compensation awards, including the probability that the performance criteria of restricted stock unit awards will be met.

Income Taxes

Income Taxes

As of September 30, 2017, the Company has a cumulative valuation allowance recorded offsetting its worldwide net deferred tax assets of $91.0 million, of which the significant majority represents the valuation allowance on its U.S. net deferred tax asset. The Company has established a valuation allowance against its U.S. federal and state deferred tax assets due to the uncertainty surrounding the realization of such assets. Management periodically evaluates the recoverability of the deferred tax assets and at such time as it is determined that it is more likely than not that U.S. deferred tax assets are realizable, the valuation allowance will be reduced accordingly. Any such release would result in recording a tax benefit that would increase net income in the period the valuation is released.

The Company records taxes on the undistributed earnings of foreign subsidiaries unless the subsidiaries’ earnings are considered indefinitely reinvested outside of the U.S. As of September 30, 2017, the Company has recorded a $4.9 million deferred tax liability for Swiss withholding taxes associated with $97.6 million of undistributed earnings of its Swiss subsidiary that are no longer considered indefinitely reinvested. In the event that the Company repatriates these funds, these withholding taxes would become payable.

Goodwill

Goodwill

Goodwill, which represents the excess of the cost of an acquired business over the net fair value assigned to its assets and liabilities, is not amortized. Instead, goodwill is assessed annually at the reporting unit level for impairment under the Intangibles—Goodwill and Other Topic of the FASB ASC. The Company has established December 31 as the annual impairment test date. In addition, the Company assesses goodwill in between annual test dates if an event occurs or circumstances change that could more likely than not reduce the fair value of a reporting unit below its carrying value. The Company first makes a qualitative assessment as to whether goodwill is impaired. If it is more likely than not that goodwill is impaired, the Company performs a quantitative impairment analysis to determine if goodwill is impaired. The Company may also determine to skip the qualitative assessment in any year and move directly to the quantitative test. The quantitative goodwill impairment analysis compares the reporting unit’s carrying amount to its fair value. Goodwill impairment is recorded for any excess of a reporting unit's carrying amount over its fair value, not to exceed the total amount of goodwill allocated to the reporting unit.

During the year ended December 31, 2016, the Company performed a quantitative goodwill impairment analysis for one reporting unit, which required the Company to make significant assumptions and estimates about the extent and timing of future cash flows, discount rates and growth rates. The analysis indicated that the goodwill assigned to the reporting unit was not impaired.

Long-Lived Assets and Intangible Assets

Long-Lived Assets and Intangible Assets

The Company records intangible assets at their respective estimated fair values at the date of acquisition. Intangible assets are amortized based upon the pattern in which their economic benefit will be realized, or if this pattern cannot be reliably determined, using the straight-line method over their estimated useful lives of eight to fourteen years.

The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets, including intangible assets, may not be recoverable. When such events occur, the Company compares the carrying amounts of the assets to their undiscounted expected future cash flows. If the Company determines that the carrying value of the asset is not recoverable, a permanent impairment charge is recorded for the amount by which the carrying value of the long-lived asset exceeds its fair value.

Warranty Obligation

Warranty Obligation

The Company provides warranties on all product sales for terms ranging from one to eight years. The Company accrues for the estimated warranty costs at the time of sale based on historical warranty experience plus any known or expected changes in warranty exposure.

Convertible Debt

Convertible Debt

Convertible notes are regarded as compound instruments, consisting of a liability component and an equity component. The component parts of compound instruments are classified separately as financial liabilities and equity in accordance with the substance of the contractual arrangement. At the date of issue, the fair value of the liability component is estimated using the prevailing market interest rate for a similar non-convertible instrument. This amount is recorded as a liability on an amortized cost basis until extinguished upon conversion or at the instrument’s maturity date. The equity component is determined by deducting the amount of the liability component from the proceeds of the compound instrument as a whole. This is recognized as additional paid-in capital and included in equity, net of income tax effects, and is not subsequently remeasured. After initial measurement, the convertible notes are carried at amortized cost using the effective interest method.

Revenue Recognition

Revenue Recognition

Revenue is derived primarily from the sale of manufactured products directly to customers. Product revenue is recognized, according to the guidelines of the Securities and Exchange Commission (“SEC”) Staff Accounting Bulletin (“SAB”) Numbers 101, Revenue Recognition in Financial Statements, and 104, Revenue Recognition, when all of the following criteria are met: (1) persuasive evidence of an arrangement exists (upon contract signing or receipt of an authorized purchase order from a customer); (2) title passes to the customer at either shipment from the Company’s facilities or receipt at the customer facility, depending on shipping terms; (3) customer payment is deemed fixed or determinable and free of contingencies or significant uncertainties; and (4) collectability is reasonably assured. This policy has been consistently applied from period to period.

A portion of our revenue is derived from sales to distributors. Distributor revenue is recognized when all of the criteria for revenue recognition are met, which is generally the time of shipment to the distributor; all returns and credits are estimable and not significant. Certain distributor agreements of Nesscap Korea provide for significant rights of return and price adjustment; revenue related to these distributors is deferred until the period in which the distributor sells through the inventory to the end customer.

Revenue from production-type contracts, which represents less than five percent of total revenue, is recognized using the percentage of completion method. The degree of completion is determined based on costs incurred as a percentage of total costs anticipated, excluding costs that are not representative of progress to completion.

Total deferred revenue and customer deposits in the consolidated balance sheets as of September 30, 2017 and December 31, 2016 was $6.2 million and $4.0 million, respectively, and primarily relates to cash received under the localization agreement with CRRC-SRI which will be recognized over the ten-year term of the agreement, amounts received in advance from a customer in connection with a production-type contract for which revenue is recognized using the percentage of completion method, payments received under a joint development agreement, which are recognized as an offset to research and development expense as services are performed, deferred revenue for distributors on the sell-through method of recognition, and customer advances.

Net Income (Loss) per Share

Net Income (Loss) per Share

In accordance with the Earnings Per Share Topic of the FASB ASC, basic net income or loss per share is calculated using the weighted average number of common shares outstanding during the period. Diluted net income per share includes the impact of additional common shares that would have been outstanding if potentially dilutive common shares were issued. Potentially dilutive securities are not considered in the calculation of diluted net loss per share, as their inclusion would be anti-dilutive.

Business Combinations

Business Combinations

The Company accounts for businesses it acquires in accordance with ASC Topic 805, Business Combinations, which allocates the fair value of the purchase consideration to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values. The excess of the purchase consideration over the fair values of these identifiable assets and liabilities is recorded as goodwill. When determining the fair values of assets acquired and liabilities assumed, management makes significant estimates and assumptions. The Company may utilize third-party valuation specialists to assist the Company in the allocation. Initial purchase price allocations are subject to revision within the measurement period, not to exceed one year from the date of acquisition. Acquisition-related expenses and transaction costs associated with business combinations are expensed as incurred.

Restructuring and Exit Costs

Restructuring and Exit Costs

Restructuring and exit costs involve employee-related termination costs, facility exit costs and other costs associated with restructuring activities. The Company accounts for charges resulting from operational restructuring actions in accordance with ASC Topic 420, Exit or Disposal Cost Obligations (“ASC 420”) and ASC Topic 712, Compensation-Nonretirement Postemployment Benefits (“ASC 712”).

The recognition of restructuring costs requires the Company to make certain assumptions related to the amounts of employee severance benefits, the time period over which leased facilities will remain vacant and expected sublease terms and discount rates. Estimates and assumptions are based on the best information available at the time the obligation arises. These estimates are reviewed and revised as facts and circumstances dictate; changes in these estimates could have a material effect on the amount accrued in the condensed consolidated balance sheet.

Recent Accounting Pronouncements

Recent Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers. The standard provides companies with a single model for accounting for revenue arising from contracts with customers and supersedes current revenue recognition guidance, including industry-specific revenue guidance. The core principle of the model is to recognize revenue when control of the goods or services transfers to the customer, as opposed to recognizing revenue when the risks and rewards transfer to the customer under the existing revenue guidance. The guidance permits companies to either apply the requirements retrospectively to all prior periods presented, or apply the requirements in the year of adoption, through a cumulative adjustment. In August 2015, the FASB issued ASU 2015-14, Deferral of the Effective Date, which defers the required adoption date of ASU 2014-09 by one year. As a result of the deferred effective date, ASU 2014-09 will be effective for the Company in its first quarter of fiscal 2018. Early adoption is permitted but not before the original effective date of the new standard of the first quarter of fiscal 2017. The following ASUs were subsequently issued by the FASB to clarify the implementation guidance in some areas and add practical expedients: In March 2016, ASU 2016-08, Revenue from Contracts with Customers: Principal versus Agent Considerations; in April 2016, ASU 2016-10, Revenue from Contracts with Customers: Identifying Performance Obligations and Licensing; in May 2016, ASU 2016-12, Revenue from Contracts with Customers: Narrow Scope Improvements and Practical Expedients; and in December 2016, ASU 2016-20, Technical Corrections and Improvements to Revenue from Contracts with Customers. The Company is in the process of evaluating its standard product sales arrangements and has identified an adoption impact related to revenue from certain distributor agreements which is currently deferred until the period in which the distributor sells through the inventory to the end customer. In connection with the adoption of ASU 2014-09, the Company anticipates a change in the recognition of such distributor revenue whereby revenue is estimated and recognized in the period in which the Company sells the product to the distributor; the adoption impact is expected to be less than $1.0 million. Other than this impact, the Company has not yet identified any expected material impact on the timing and measurement of revenue for standard product sales arrangements from the adoption of the standard; however, the Company is still in the process of formalizing its final conclusions. The Company is still evaluating the impact of adoption on non-product sales arrangements, which represent less than five percent of revenue. The Company has also developed a comprehensive project plan to guide implementation of the new standard and expects to complete its assessment in December 2017. The Company intends to adopt the new standard using the modified retrospective transition method effective January 1, 2018.

In February 2016, the FASB issued ASU No. 2016-02, Leases. The standard requires that a lessee recognize the assets and liabilities that arise from operating leases. A lessee should recognize in its balance sheet a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term. For leases with a term of 12 months or less, a lessee is permitted to make an accounting policy election by class of underlying asset not to recognize lease assets and lease liabilities. In transition, lessees and lessors are required to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach. The guidance in ASU 2016-02 is effective for annual and interim reporting periods beginning after December 15, 2018. The Company’s initial evaluation of its current leases does not indicate that the adoption of this standard will have a material impact on its consolidated statements of operations. The Company expects that the adoption of the standard will have a material impact on its consolidated balance sheets for the recognition of certain operating leases as right-of-use assets and lease liabilities.

In March 2016, the FASB issued ASU No. 2016-09, Improvements to Employee Share-Based Payment Accounting, which changes the accounting for employee share-based payments, including the accounting for income taxes, forfeitures, and statutory tax withholding requirements, as well as classification in the statement of cash flows. Under the new guidance, excess tax benefits associated with share-based payment awards will be recognized in the income statement when the awards vest or settle, rather than in stockholders’ equity. In addition, it will increase the number of shares an employer can withhold to cover income taxes on share-based payment awards and still qualify for the exemption to liability classification. The guidance was effective for the Company in the first quarter of 2017. The adoption of this standard resulted in the recognition of approximately $10.0 million of deferred tax assets related to stock-based compensation and a corresponding increase in the Company’s valuation allowance, which will be disclosed in the Company’s notes to the consolidated financial statements in its Annual Report on Form 10-K.

In November 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows - Restricted Cash, which requires entities to show the changes in the total of cash, cash equivalents, restricted cash and restricted cash equivalents in the statement of cash flows. The guidance will be effective for the Company in its first quarter of fiscal 2018. Early adoption is permitted, including adoption in an interim period, but any adjustments must be reflected as of the beginning of the fiscal year that includes that interim period. The new standard must be adopted retrospectively. The Company early adopted this standard in the fourth quarter of 2016. In accordance with the Company’s early adoption of ASU No. 2016-18, for the nine months ended September 30, 2016, the retrospective restatement was limited to including restricted cash balances in the amount of $0.4 million in beginning and $0.1 million in ending cash, cash equivalents and restricted cash balances in the consolidated statements of cash flows. The retrospective adoption did not impact reported net loss and does not otherwise have a material impact on the presentation of the overall financial statements.

In January 2017, the FASB issued ASU No. 2017-01, Business Combinations: Clarifying the Definition of a Business, which clarifies the definition of a business and adds further guidance in evaluating whether a transaction should be accounted for as an acquisition of an asset or a business. This standard will be effective for the first annual period beginning after December 15, 2017, including interim periods within those periods. Early adoption is permitted. The Company early adopted this standard on January 1, 2017 and the adoption did not have an effect on the Company’s consolidated financial statements.

In January 2017, the FASB issued ASU No. 2017-04, Intangibles - Goodwill and Other, which eliminates step two of the quantitative goodwill impairment test. Step two required determination of the implied fair value of a reporting unit, and then a comparison of this implied fair value with the carrying amount of goodwill for the reporting unit, in order to determine any goodwill impairment. Under the new guidance, an entity is only required to complete a one-step quantitative test, by comparing the fair value of a reporting unit with its carrying amount, and any goodwill impairment charge is determined by the amount by which the carrying amount exceeds the reporting unit’s fair value. However, the loss should not exceed the total amount of goodwill allocated to the reporting unit. The standard is effective for the Company in the first quarter of 2020, with early adoption permitted as of January 1, 2017, and is to be applied on a prospective basis. The adoption of the standard will not materially impact the Company's consolidated financial statements unless step one of the annual goodwill impairment test fails. The Company early adopted this standard on January 1, 2017 and the adoption did not have an effect on the Company’s consolidated financial statements.

In March 2017, the FASB issued ASU No. 2017-07, Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost, which changes how employers that sponsor defined benefit pension or other postretirement benefit plans present the net periodic benefit cost in the statement of operations. The new guidance requires entities to report the service cost component in the same line item or items as other compensation costs. The other components of net benefit cost are required to be presented in the statement of operations separately from the service cost component and outside the subtotal of loss from operations. ASU 2017-07 also provides that only the service cost component is eligible for capitalization. This standard will impact the Company’s loss from operations but will have no impact on our net loss or net loss per share. The standard is effective for the Company in the first quarter of 2018, with adoption to be applied on a retrospective basis.

In May 2017, the FASB issued ASU No. 2017-09, Compensation-Stock Compensation: Scope of Modification Accounting, which provides clarification on when modification accounting should be used for changes to the terms or conditions of a share-based payment award. This ASU does not change the accounting for modifications but clarifies that modification accounting guidance should only be applied if there is a change to the value, vesting conditions or award classification and would not be required if the changes are considered non-substantive. The amendments of this ASU are effective for the Company in the first quarter of 2018, with early adoption permitted. The adoption of ASU 2017-09 is not expected to have an impact on the Company’s consolidated financial statements.

In August 2017, the FASB issued ASU No. 2017-12, Derivatives and Hedging - Targeted Improvements to Accounting for Hedging Activities, which modifies the presentation and disclosure of hedging results. Further, it provides partial relief on the timing of certain aspects of hedge documentation and eliminates the requirement to recognize hedge ineffectiveness separately in income. The amendments in this ASU are effective for the Company in the first quarter of 2019. The Company does not expect this ASU to have a material impact on its consolidated financial statements.

There have been no other recent accounting standards, or changes in accounting standards, during the nine months ended September 30, 2017, as compared with the recent accounting standards described in our Annual Report on Form 10-K, that are of material significance, or have potential material significance, to the Company.

Fair Value Measurements

The Company records certain financial instruments at fair value in accordance with the Fair Value Measurements and Disclosures Topic of the FASB ASC. Historically, the financial instruments to which this topic applied were foreign currency forward contracts and the fair value of these foreign currency forward contracts was recorded as a liability or asset in the consolidated balance sheets. During the second quarter of 2016, the Company ceased using foreign currency forward contracts to hedge foreign currency exposure as management determined its foreign currency exposure was no longer sufficiently significant to merit the use of hedging instruments. Therefore, no foreign currency forward contracts were outstanding as of September 30, 2017. The fair value of these derivative instruments was measured using models following quoted market prices in active markets for identical instruments, which is a Level 2 input under the fair value hierarchy of the Fair Value Measurements and Disclosures Topic of the FASB ASC.

Foreign Currency Derivative Instruments

The Company has historically used forward contracts to hedge certain monetary assets and liabilities, primarily receivables, payables and cash balances, denominated in foreign currencies. During the second quarter of 2016, the Company ceased using foreign currency forward contracts to hedge foreign currency exposure as management determined its foreign currency exposure was no longer sufficiently significant to merit the use of hedging instruments. The change in fair value of these forward contracts represented a natural hedge as gains and losses on these instruments partially offset the changes in the fair value of the underlying monetary assets and liabilities due to movements in currency exchange rates. These forward contracts generally expired in one month. These contracts were considered economic hedges but were not designated as hedges under the Derivatives and Hedging Topic of the FASB ASC, therefore, the change in the fair value of the instrument was recognized each period in the consolidated statement of operations.

Maxwell SA Pension Plan

Maxwell SA has a retirement plan that is classified as a defined benefit pension plan. The employee pension benefit is based on compensation, length of service and credited investment earnings. The plan guarantees both a minimum rate of return as well as minimum annuity purchase rates. The Company’s funding policy with respect to the pension plan is to contribute the amount required by Swiss law, using the required percentage applied to the employee’s compensation. In addition, participating employees are required to contribute to the pension plan. This plan has a measurement date of December 31.

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Description of Business and Basis of Presentation (Tables)

9 Months Ended

Sep. 30, 2017

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Schedule of computation of basic and diluted net income (loss) per share

The following table sets forth the computation of basic and diluted net income (loss) per share (in thousands, except per share data):

	Three Months Ended September 30,						Nine Months Ended September 30,
	2017			2016			2017			2016
Numerator
Net loss	$	(13,860	)	$	(6,855	)	$	(34,377	)	$	(11,536	)
Denominator
Weighted-average common shares outstanding	37,008			31,989			34,929			31,828
Net loss per share
Basic and diluted	$	(0.37	)	$	(0.21	)	$	(0.98	)	$	(0.36	)

Schedule of anti-dilutive shares excluded from computation of net income (loss) per share

The following table summarizes instruments that may be convertible into common shares that are not included in the denominator used in the diluted net loss per share calculation because to do so would be anti-dilutive (in thousands):

	Three and Nine Months Ended September 30,
	2017	2016
Outstanding options to purchase common stock	364	465
Unvested restricted stock awards	29	96
Unvested restricted stock unit awards	2,760	1,686
Employee stock purchase plan awards	29	61
Bonus to be paid in stock awards	349	183
Convertible senior notes	6,300	—

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Balance Sheet Details (Tables)

9 Months Ended

Sep. 30, 2017

Balance Sheet Related Disclosures [Abstract]

Schedule of inventories

	September 30, 2017			December 31, 2016
Raw materials and purchased parts	$	13,291		$	12,980
Work-in-process	3,037			858
Finished goods	17,463			19,492
Reserves	(2,192		)	(1,082		)
Total inventories, net	$	31,599		$	32,248

Schedule of activity in the warranty reserve

Activity in the warranty reserve, which is included in “accounts payable and accrued liabilities” in the condensed consolidated balance sheets, is as follows:

	Nine Months Ended September 30,
	2017			2016
Beginning balance	$	1,213		$	1,288
Acquired liability from Nesscap	773			—
Product warranties issued	352			298
Settlement of warranties	(300		)	(427		)
Changes related to preexisting warranties	253			146
Ending balance	$	2,291		$	1,305

Schedule of accumulated other comprehensive income

	Foreign Currency Translation Adjustment		Defined Benefit Pension Plan			Accumulated Other Comprehensive Income		Affected Line Items in the Statement of Operations
Balance as of December 31, 2016	$	7,826	$	(2,426	)	$	5,400
Other comprehensive income before reclassification	3,197		—			3,197
Amounts reclassified from accumulated other comprehensive income	—		91			91		Cost of Sales, Selling, General and Administrative and Research and Development Expense
Net other comprehensive income for the nine months ended September 30, 2017	3,197		91			3,288
Balance as of September 30, 2017	$	11,023	$	(2,335	)	$	8,688

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Business Combination (Tables)

9 Months Ended

Sep. 30, 2017

Business Combinations [Abstract]

Schedule of fair value of purchase price consideration

The fair value of the purchase price consideration consisted of the following (in thousands):

Maxwell common stock	$	25,294
Settlement of seller’s transaction expenses	1,006
Total estimated purchase price	$	26,300

Schedule of purchase price allocation

The following table summarizes the preliminary allocation of the assets acquired and liabilities assumed at the acquisition date (in thousands):

	Fair Value
Cash and cash equivalents	$	909
Accounts receivable	2,545
Inventories	4,397
Prepaid expenses and other assets	764
Property and equipment	3,314
Intangible assets	11,800
Accounts payable, accrued compensation and other liabilities	(5,713		)
Employee severance obligation	(3,340		)
Total identifiable net assets	14,676
Goodwill	11,624
Total purchase price	$	26,300

Schedule of intangible assets acquired

The following table presents details of the preliminary identified intangible assets acquired through the Nesscap Acquisition (in thousands):

	Estimated Useful Life (in years)	Fair Value
Customer relationships - institutional	14	$	3,200
Customer relationships - non-institutional	10	4,400
Trademarks and trade names	10	1,500
Developed technology	8	2,700
Total intangible assets		$	11,800

Schedule of pro forma financial information

The following unaudited pro forma financial information presents the combined results of operations for each of the periods presented, as if the Nesscap Acquisition had occurred at the beginning of fiscal year 2016 (in thousands, except per share amounts):

	Three Months Ended September 30,						Nine Months Ended September 30,
	2017			2016			2017			2016
Net revenues	$	35,816		$	31,177		$	104,771		$	109,817
Net loss	(13,573		)	(8,133		)	(35,165		)	(14,788		)
Net loss per share:
Basic and diluted	(0.37		)	(0.23		)	(0.96		)	(0.41		)
Weighted average common shares outstanding:
Basic and diluted	37,008			36,136			36,706			35,975

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Goodwill and Intangible Assets (Tables)

9 Months Ended

Sep. 30, 2017

Goodwill and Intangible Assets Disclosure [Abstract]

Schedule of goodwill

The change in the carrying amount of goodwill from December 31, 2016 to September 30, 2017 was as follows (in thousands):

Balance as of December 31, 2016	$	22,799
Goodwill from Nesscap Acquisition	11,624
Foreign currency translation adjustments	765
Balance as of September 30, 2017	$	35,188

Schedule of intangible assets

The composition of intangible assets subject to amortization was as follows (in thousands):

	As of September 30, 2017
	Useful Life (in years)	Gross Initial Carrying Value		Cumulative Foreign Currency Translation Adjustment			Accumulated Amortization			Net Carrying Value
Customer relationships - institutional	14	$	3,200	$	(44	)	$	(96	)	$	3,060
Customer relationships - non-institutional	10	4,400		(60		)	(187		)	4,153
Trademarks and trade names	10	1,500		(20		)	(64		)	1,416
Developed technology	8	2,700		(37		)	(145		)	2,518
Total intangible assets		$	11,800	$	(161	)	$	(492	)	$	11,147

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Restructuring and Exit Costs (Tables)

9 Months Ended

Sep. 30, 2017

Restructuring and Related Activities [Abstract]

Schedule of restructuring and exit costs

The following table summarizes the changes in the liabilities for each of the 2017 restructuring plans, which are recorded in “accrued employee compensation” in the Company’s condensed consolidated balance sheet for the nine months ended September 30, 2017 (in thousands):

	February 2017 Plan			September 2017 Plan
	Employee Severance Costs
Restructuring liability as of December 31, 2016	$	—		$	—
Costs incurred	997			1,195
Amounts paid	(855		)	(58		)
Accruals released	(142		)	—
Restructuring liability as of September 30, 2017	$	—		$	1,137

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Debt and Credit Facilities Debt and Credit Facilities (Tables)

9 Months Ended

Sep. 30, 2017

Debt Instrument [Line Items]

Schedule of carrying value of the Notes

The carrying value of the Notes is as follows (in thousands):

	As of September 30, 2017
Principal amount	$	40,000
Unamortized debt discount - equity component	(7,350		)
Unamortized debt discount - initial purchaser	(2,195		)
Unamortized transaction costs	(375		)
Net carrying value	$	30,080

Schedule of convertible debt interest expense

Total interest expense related to the Notes is as follows (in thousands):

	Three and Nine Months Ended September 30, 2017
Cash interest expense
Coupon interest expense	$	37
Non-cash interest expense
Amortization of debt discount - equity component	18
Amortization of debt discount - initial purchaser	5
Amortization of transaction costs	1
Total interest expense	$	61

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Foreign Currency Derivative Instruments (Tables)

9 Months Ended

Sep. 30, 2017

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Schedule of gains (losses) on foreign currency forward contracts

The net gains and losses on foreign currency forward contracts included in “foreign currency exchange (gain) loss, net” in the condensed consolidated statements of operations are as follows (in thousands):

	Three Months Ended September 30, 2016		Nine Months Ended September 30, 2016
Total gain (loss)	$	—	$	(88	)

Schedule of foreign currency gains and losses on underlying assets and liabilities

Foreign currency gains and losses on those underlying monetary assets and liabilities included in “foreign currency exchange (gain) loss, net” in the condensed consolidated statements of operations are as follows (in thousands):

	Three Months Ended September 30, 2016		Nine Months Ended September 30, 2016
Total gain (loss)	$	—	$	(37	)

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Stock Plans (Tables)

9 Months Ended

Sep. 30, 2017

Share-based Compensation Arrangement by Share-based Payment Award [Line Items]

Schedule of stock options fair value assumptions

The fair value of the stock options granted during the three and nine months ended September 30, 2017 was estimated using the Black-Scholes valuation model with the following assumptions:

	Three Months Ended September 30, 2017		Nine Months Ended September 30, 2017
Expected dividend yield	—	%	—	%
Expected volatility	58	%	58% - 59%
Risk-free interest rate	1.96	%	1.87% - 1.96%
Expected term (in years)	5.5		5.5

Schedule of allocation of stock-based compensation expense

Stock-based compensation cost included in cost of revenue; selling, general and administrative expense; and research and development expense is as follows (in thousands):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2017		2016		2017		2016
Cost of revenue	$	271	$	146	$	721	$	643
Selling, general and administrative	2,097		799		4,762		2,436
Research and development	387		152		1,064		680
Total stock-based compensation expense	$	2,755	$	1,097	$	6,547	$	3,759

Market condition restricted stock units

Share-based Compensation Arrangement by Share-based Payment Award [Line Items]

Schedule of market-condition awards fair value assumptions

The fair value of the market-condition PSUs granted was calculated using a Monte Carlo valuation model with the following assumptions:

	Three and Nine Months Ended September 30,
	2017		2016
Expected dividend yield	—	%	—	%
Expected volatility	53	%	62	%
Risk-free interest rate	1.55	%	1.07	%
Expected term (in years)	2.8		3.0

Restricted stock unit awards

Share-based Compensation Arrangement by Share-based Payment Award [Line Items]

Schedule of RSU expense by vesting type

The following table summarizes the amount of compensation expense recognized for RSUs for the three and nine months endedSeptember 30, 2017 and 2016 (in thousands):

	Three Months Ended September 30,				Nine Months Ended September 30,
RSU Type	2017		2016		2017		2016
Service-based	$	1,124	$	544	$	2,460	$	1,613
Performance objectives	219		30		389		71
Market-condition	432		250		1,027		621
	$	1,775	$	824	$	3,876	$	2,305

Employee stock purchase plan

Share-based Compensation Arrangement by Share-based Payment Award [Line Items]

Schedule of employee stock purchase plan fair value assumptions

The fair value of the ESPP shares for the three and nine months ended September 30, 2017 and 2016 was estimated using the Black-Scholes valuation model for a call and a put option with the following weighted-average assumptions:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2017			2016			2017			2016
Expected dividend yield	—		%	—		%	—		%	—		%
Expected volatility	37		%	54		%	32		%	58		%
Risk-free interest rate	1.09		%	0.36		%	0.78		%	0.45		%
Expected term (in years)	0.38			0.50			0.46			0.50
Fair value per share	$	1.45		$	1.59		$	1.28		$	2.04

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Defined Benefit Plans (Tables)

9 Months Ended

Sep. 30, 2017

Defined Benefit Plan [Abstract]

Schedule of components of net periodic pension cost

Components of net periodic pension cost are as follows (in thousands):

	Three Months Ended September 30,						Nine Months Ended September 30,
	2017			2016			2017			2016
Service cost	$	251		$	295		$	737		$	883
Interest cost	59			62			172			185
Expected return on plan assets	(258		)	(296		)	(757		)	(885		)
Prior service cost amortization	38			38			113			113
Deferred loss amortization	—			61			—			183
Net periodic pension cost	$	90		$	160		$	265		$	479

Net cost related to employee severance

Components of net cost related to the Korea employee defined benefit plan are as follows (in thousands):

	Three Months Ended September 30, 2017		Nine Months Ended September 30, 2017
Service cost	$	134	$	221
Interest cost	20		34
Net cost	$	154	$	255

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Description of Business and Basis of Presentation (Details Textual)	3 Months Ended				9 Months Ended		12 Months Ended
	Mar. 31, 2018 USD ($)	Dec. 31, 2017 USD ($)	Sep. 30, 2017 USD ($)	Sep. 30, 2016 USD ($)	Sep. 30, 2017 USD ($) manufacturing_location contract_manufacturer segment product_line	Sep. 30, 2016 USD ($)	Dec. 31, 2016 USD ($) reporting_unit	Oct. 11, 2017 USD ($)	Sep. 25, 2017 USD ($)	Jun. 30, 2016 USD ($)	Dec. 31, 2015 USD ($)
Description of Business and Basis of Presentation (Textual) [Abstract]
Manufacturing locations | manufacturing_location					3
Operating segments | segment					1
Number of product lines | product_line					2
Cumulative valuation allowance			$ 91,000,000		$ 91,000,000
Deferred tax liability recorded associated with unremitted earnings of foreign subsidiary no longer considered indefinitely reinvested			4,900,000		4,900,000
Undistributed earnings of Swiss subsidiary			97,600,000		$ 97,600,000
Number of reporting units | reporting_unit							1
Warranty period, minimum, in years					1 year
Warranty period, maximum, in years					8 years
Accrued warranty liability			2,291,000	$ 1,305,000	$ 2,291,000	$ 1,305,000	$ 1,213,000				$ 1,288,000
Deferred revenue and customer deposits			6,236,000		$ 6,236,000		3,967,000
Term of agreement					10 years
Cash and cash equivalents			52,852,000		$ 52,852,000		$ 25,359,000
Working capital amount			70,200,000		70,200,000
Change in recognition of distributor revenue (less than $1.0 million)			35,816,000	$ 25,506,000	99,605,000	$ 94,844,000
Accounting Standards Update 2016-09, Excess Tax Benefit Component
Description of Business and Basis of Presentation (Textual) [Abstract]
Cumulative valuation allowance			10,000,000		10,000,000
Deferred tax assets related to stock-based compensation			10,000,000		10,000,000
Accounting Standards Update 2016-18
Description of Business and Basis of Presentation (Textual) [Abstract]
Restricted cash balance										$ 100,000	$ 400,000
Revolving Credit Facility | East West Bank
Description of Business and Basis of Presentation (Textual) [Abstract]
Revolving line of credit			25,000,000		25,000,000
Drawings under revolving line of credit			0		0
Amount available under revolving line of credit			12,000,000		$ 12,000,000
Minimum
Description of Business and Basis of Presentation (Textual) [Abstract]
Estimated Useful Life (in years)					8 years
Maximum
Description of Business and Basis of Presentation (Textual) [Abstract]
Estimated Useful Life (in years)					14 years
Revenue from Production Type Contracts | Maximum
Description of Business and Basis of Presentation (Textual) [Abstract]
Percentage of revenue (less than five percent)					5.00%
Revenue | Maximum | Non-product Sale Arrangements
Description of Business and Basis of Presentation (Textual) [Abstract]
Percentage of revenue (less than five percent)					5.00%
China
Description of Business and Basis of Presentation (Textual) [Abstract]
Number of contract manufacturers | contract_manufacturer					2
Convertible Senior Notes due 2022
Description of Business and Basis of Presentation (Textual) [Abstract]
Proceeds received			37,300,000
Principal amount			$ 40,000,000		$ 40,000,000				$ 40,000,000
Interest rate			5.50%		5.50%				5.50%
Convertible Senior Notes due 2022 | Subsequent Event
Description of Business and Basis of Presentation (Textual) [Abstract]
Proceeds received		$ 5,700,000
Principal amount								$ 6,000,000
Scenario, Forecast | Maximum | Accounting Standards Update 2014-09
Description of Business and Basis of Presentation (Textual) [Abstract]
Change in recognition of distributor revenue (less than $1.0 million)	$ 1,000,000

XML

Description of Business and Basis of Presentation (Net Income (Loss) per Share) (Details) - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2017	Sep. 30, 2016	Sep. 30, 2017	Sep. 30, 2016
Numerator
Net loss	$ (13,860)	$ (6,855)	$ (34,377)	$ (11,536)
Denominator
Basic and diluted (in shares)	37,008	31,989	34,929	31,828
Net loss per share
Basic and diluted (in dollars per share)	$ (0.37)	$ (0.21)	$ (0.98)	$ (0.36)

XML

Description of Business and Basis of Presentation (Anti-dilutive Shares) (Details) - shares shares in Thousands	9 Months Ended
	Sep. 30, 2017	Sep. 30, 2016
Outstanding options to purchase common stock
Schedule of anti-dilutive shares excluded from computation of net loss per share
Anti-dilutive, shares	364	465
Unvested restricted stock awards
Schedule of anti-dilutive shares excluded from computation of net loss per share
Anti-dilutive, shares	29	96
Unvested restricted stock unit awards
Schedule of anti-dilutive shares excluded from computation of net loss per share
Anti-dilutive, shares	2,760	1,686
Employee stock purchase plan awards
Schedule of anti-dilutive shares excluded from computation of net loss per share
Anti-dilutive, shares	29	61
Bonus to be paid in stock awards
Schedule of anti-dilutive shares excluded from computation of net loss per share
Anti-dilutive, shares	349	183
Convertible senior notes
Schedule of anti-dilutive shares excluded from computation of net loss per share
Anti-dilutive, shares	6,300	0

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Balance Sheet Details (Schedule of Inventories, Net) (Details) - USD ($) $ in Thousands	Sep. 30, 2017	Dec. 31, 2016
Schedule of inventories
Raw materials and purchased parts	$ 13,291	$ 12,980
Work-in-process	3,037	858
Finished goods	17,463	19,492
Reserves	(2,192)	(1,082)
Total inventories, net	$ 31,599	$ 32,248

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Balance Sheet Details (Schedule of Activity in the Warranty Reserve) (Details) - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2017	Sep. 30, 2016
Movement in Warranty Reserve [Roll Forward]
Beginning balance	$ 1,213	$ 1,288
Acquired liability from Nesscap	773	0
Product warranties issued	352	298
Settlement of warranties	(300)	(427)
Changes related to preexisting warranties	253	146
Ending balance	$ 2,291	$ 1,305

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Balance Sheet Details (Schedule of Accumulated Other Comprehensive Income) (Details) $ in Thousands	9 Months Ended
	Sep. 30, 2017 USD ($)
Accumulated Other Comprehensive Income [Roll Forward]
Balance as of December 31, 2016	$ 100,822
Balance as of September 30, 2017	108,505
Accumulated Other Comprehensive Income
Accumulated Other Comprehensive Income [Roll Forward]
Balance as of December 31, 2016	5,400
Other comprehensive income before reclassification	3,197
Amounts reclassified from accumulated other comprehensive income	91
Net other comprehensive income for the nine months ended September 30, 2017	3,288
Balance as of September 30, 2017	8,688
Foreign Currency Translation Adjustment
Accumulated Other Comprehensive Income [Roll Forward]
Balance as of December 31, 2016	7,826
Other comprehensive income before reclassification	3,197
Amounts reclassified from accumulated other comprehensive income	0
Net other comprehensive income for the nine months ended September 30, 2017	3,197
Balance as of September 30, 2017	11,023
Defined Benefit Pension Plan
Accumulated Other Comprehensive Income [Roll Forward]
Balance as of December 31, 2016	(2,426)
Other comprehensive income before reclassification	0
Amounts reclassified from accumulated other comprehensive income	91
Net other comprehensive income for the nine months ended September 30, 2017	91
Balance as of September 30, 2017	$ (2,335)

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Business Combination (Details Textual) - USD ($) $ in Thousands, shares in Millions		3 Months Ended	9 Months Ended
	Apr. 28, 2017	Sep. 30, 2017	Sep. 30, 2017
Business Acquisition [Line Items]
Amount of payment	$ 1,000
Nesscap
Business Acquisition [Line Items]
Value of share consideration	25,294
Amount of payment	1,006
Acquisition related costs		$ 0	$ (1,800)
Fair value of intangible assets acquired	11,800
Amount of revenue		6,800	11,000
Amount of net loss		(300)	(700)
Nesscap | Fair Value Adjustment to Inventory
Business Acquisition [Line Items]
Fair market value step-up	$ 700	100	100
Component of cost of revenue		$ 300	$ 600
Common Stock | Nesscap
Business Acquisition [Line Items]
Number of shares issued	25.3
Value of share consideration	$ 4,100
Percentage of outstanding shares	11.30%

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Business Combination (Schedule of Fair Value of Purchase Price Consideration) (Details) $ in Thousands	Apr. 28, 2017 USD ($)
Business Acquisition [Line Items]
Settlement of seller’s transaction expenses	$ 1,000
Nesscap
Business Acquisition [Line Items]
Maxwell common stock	25,294
Settlement of seller’s transaction expenses	1,006
Total estimated purchase price	$ 26,300

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Business Combination (Schedule of Purchase Price Allocation) (Details) - USD ($) $ in Thousands	Sep. 30, 2017	Apr. 28, 2017	Dec. 31, 2016
Business Acquisition [Line Items]
Goodwill	$ 35,188		$ 22,799
Nesscap
Business Acquisition [Line Items]
Cash and cash equivalents		$ 909
Accounts receivable		2,545
Inventories		4,397
Prepaid expenses and other assets		764
Property and equipment		3,314
Intangible assets		11,800
Accounts payable, accrued compensation and other liabilities		(5,713)
Employee severance obligation		(3,340)
Total identifiable net assets		14,676
Goodwill		11,624
Total purchase price		$ 26,300

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Business Combination (Schedule of Intangible Assets Acquired) (Details) - USD ($) $ in Thousands		9 Months Ended
	Apr. 28, 2017	Sep. 30, 2017
Acquired Finite-Lived Intangible Assets [Line Items]
Fair Value		$ 11,800
Customer relationships - institutional
Acquired Finite-Lived Intangible Assets [Line Items]
Estimated Useful Life (in years)		14 years
Fair Value		$ 3,200
Customer relationships - non-institutional
Acquired Finite-Lived Intangible Assets [Line Items]
Estimated Useful Life (in years)		10 years
Fair Value		$ 4,400
Trademarks and trade names
Acquired Finite-Lived Intangible Assets [Line Items]
Estimated Useful Life (in years)		10 years
Fair Value		$ 1,500
Developed technology
Acquired Finite-Lived Intangible Assets [Line Items]
Estimated Useful Life (in years)		8 years
Fair Value		$ 2,700
Nesscap
Acquired Finite-Lived Intangible Assets [Line Items]
Fair Value	$ 11,800
Nesscap | Customer relationships - institutional
Acquired Finite-Lived Intangible Assets [Line Items]
Estimated Useful Life (in years)	14 years
Fair Value	$ 3,200
Nesscap | Customer relationships - non-institutional
Acquired Finite-Lived Intangible Assets [Line Items]
Estimated Useful Life (in years)	10 years
Fair Value	$ 4,400
Nesscap | Trademarks and trade names
Acquired Finite-Lived Intangible Assets [Line Items]
Estimated Useful Life (in years)	10 years
Fair Value	$ 1,500
Nesscap | Developed technology
Acquired Finite-Lived Intangible Assets [Line Items]
Estimated Useful Life (in years)	8 years
Fair Value	$ 2,700

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Business Combination (Schedule of Pro Forma Information) (Details) - Nesscap - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2017	Sep. 30, 2016	Sep. 30, 2017	Sep. 30, 2016
Business Acquisition [Line Items]
Net revenues	$ 35,816	$ 31,177	$ 104,771	$ 109,817
Net loss	$ (13,573)	$ (8,133)	$ (35,165)	$ (14,788)
Business Acquisition, Pro Forma Information [Abstract]
Basic (in dollars per share)	$ (0.37)	$ (0.23)	$ (0.96)	$ (0.41)
Business Acquisition, Pro Forma Information, Weighted Average Common Shares Outstanding [Abstract]
Basic and diluted (in shares)	37,008	36,136	36,706	35,975

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Sale of Microelectronics Product Line (Details Textual) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2017	Sep. 30, 2016	Sep. 30, 2017	Sep. 30, 2016	Apr. 27, 2016
Income Statement, Balance Sheet and Additional Disclosures by Disposal Groups [Line Items]
Gain on sale of product line	$ 0	$ 0	$ 0	$ 6,657
Microelectronics Product Line | Disposal Group, Disposed of by Sale, Not Discontinued Operations
Income Statement, Balance Sheet and Additional Disclosures by Disposal Groups [Line Items]
Sale of microelectronics product line, transaction purchase price					$ 21,000
Sale of microelectronics product line, escrow holdback					$ 1,500
Gain on sale of product line				$ 6,700

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Goodwill and Intangible Assets (Schedule of Goodwill) (Details) $ in Thousands	9 Months Ended
	Sep. 30, 2017 USD ($)
Schedule of Goodwill [Roll Forward]
Balance as of December 31, 2016	$ 22,799
Goodwill from Nesscap Acquisition	11,624
Foreign currency translation adjustments	765
Balance as of September 30, 2017	$ 35,188

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Goodwill and Intangible Assets (Schedule of Intangible Assets) (Details) $ in Thousands	9 Months Ended
	Sep. 30, 2017 USD ($)
Finite-Lived Intangible Assets [Line Items]
Gross Initial Carrying Value	$ 11,800
Cumulative Foreign Currency Translation Adjustment	(161)
Accumulated Amortization	(492)
Net Carrying Value	$ 11,147
Customer relationships - institutional
Finite-Lived Intangible Assets [Line Items]
Useful Life (in years)	14 years
Gross Initial Carrying Value	$ 3,200
Cumulative Foreign Currency Translation Adjustment	(44)
Accumulated Amortization	(96)
Net Carrying Value	$ 3,060
Customer relationships - non-institutional
Finite-Lived Intangible Assets [Line Items]
Useful Life (in years)	10 years
Gross Initial Carrying Value	$ 4,400
Cumulative Foreign Currency Translation Adjustment	(60)
Accumulated Amortization	(187)
Net Carrying Value	$ 4,153
Trademarks and trade names
Finite-Lived Intangible Assets [Line Items]
Useful Life (in years)	10 years
Gross Initial Carrying Value	$ 1,500
Cumulative Foreign Currency Translation Adjustment	(20)
Accumulated Amortization	(64)
Net Carrying Value	$ 1,416
Developed technology
Finite-Lived Intangible Assets [Line Items]
Useful Life (in years)	8 years
Gross Initial Carrying Value	$ 2,700
Cumulative Foreign Currency Translation Adjustment	(37)
Accumulated Amortization	(145)
Net Carrying Value	$ 2,518

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Goodwill and Intangible Assets (Details Textual) - USD ($) $ in Thousands	3 Months Ended	9 Months Ended
	Sep. 30, 2017	Sep. 30, 2017	Sep. 30, 2016
Finite-Lived Intangible Assets [Line Items]
Amortization of intangible assets		$ 502	$ 0
Estimated amortization expense for the remainder of 2017	$ 300	300
Estimated amortization expense for 2018	1,200	1,200
Estimated amortization expense for 2019	1,200	1,200
Estimated amortization expense for 2020	1,200	1,200
Estimated amortization expense for 2021	1,200	1,200
Cost of revenue
Finite-Lived Intangible Assets [Line Items]
Amortization of intangible assets	88	148
Selling, general and administrative
Finite-Lived Intangible Assets [Line Items]
Amortization of intangible assets	$ 200	$ 400

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Restructuring and Exit Costs (Details Textual) ft² in Thousands	3 Months Ended		9 Months Ended		15 Months Ended	18 Months Ended
	Sep. 30, 2017 USD ($)	Sep. 30, 2016 USD ($)	Sep. 30, 2017 USD ($)	Sep. 30, 2016 USD ($)	Jun. 30, 2016 USD ($)	Sep. 30, 2016 USD ($)	Dec. 31, 2016 USD ($)	Jun. 30, 2015 ft²
Restructuring Cost and Reserve [Line Items]
Restructuring and exit costs	$ 1,251,000	$ 0	$ 2,248,000	$ 297,000
Lease Obligation Costs
Restructuring Cost and Reserve [Line Items]
Restructuring and exit costs	200,000
Amount of liability	700,000		700,000				$ 800,000
September 2017 Restructuring Plan
Restructuring Cost and Reserve [Line Items]
Restructuring and exit costs			1,200,000
September 2017 Restructuring Plan | Employee Severance Costs
Restructuring Cost and Reserve [Line Items]
Restructuring and exit costs			1,195,000
Cash payments with restructuring plan			58,000
Amount of liability	1,137,000		1,137,000				0
February 2017 Restructuring Plan
Restructuring Cost and Reserve [Line Items]
Restructuring and exit costs	100,000		900,000
February 2017 Restructuring Plan | Employee Severance Costs
Restructuring Cost and Reserve [Line Items]
Restructuring and exit costs			997,000
Cash payments with restructuring plan			855,000
Amount of liability	$ 0		$ 0				$ 0
2015 Consolidation of US Manufacturing Operations
Restructuring Cost and Reserve [Line Items]
Restructuring and exit costs					$ 2,800,000
Accelerated equipment depreciation expense					600,000
Cash payments with restructuring plan						$ 1,500,000
2015 Consolidation of US Manufacturing Operations | Restructuring and exit costs
Restructuring Cost and Reserve [Line Items]
Restructuring and exit costs		0		300,000
2015 Consolidation of US Manufacturing Operations | Cost of revenue
Restructuring Cost and Reserve [Line Items]
Accelerated equipment depreciation expense				100,000
2015 Consolidation of US Manufacturing Operations | Lease Obligation Costs
Restructuring Cost and Reserve [Line Items]
Restructuring and exit costs					1,300,000
Square feet of manufacturing facility | ft²								60
2015 Consolidation of US Manufacturing Operations | Employee Severance Costs
Restructuring Cost and Reserve [Line Items]
Restructuring and exit costs					1,200,000
Cash payments with restructuring plan		$ 0		$ 500,000
2015 Consolidation of US Manufacturing Operations | Other Exit Costs
Restructuring Cost and Reserve [Line Items]
Restructuring and exit costs					$ 300,000

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Restructuring and Exit Costs (Schedule of Restructuring and Exit Costs) (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2017	Sep. 30, 2016	Sep. 30, 2017	Sep. 30, 2016
Restructuring Reserve [Roll Forward]
Costs incurred	$ 1,251	$ 0	$ 2,248	$ 297
February 2017 Restructuring Plan
Restructuring Reserve [Roll Forward]
Costs incurred	100		900
February 2017 Restructuring Plan | Employee Severance Costs
Restructuring Reserve [Roll Forward]
Restructuring liability as of December 31, 2016			0
Costs incurred			997
Amounts paid			(855)
Accruals released			(142)
Restructuring liability as of September 30, 2017	0		0
September 2017 Restructuring Plan
Restructuring Reserve [Roll Forward]
Costs incurred			1,200
September 2017 Restructuring Plan | Employee Severance Costs
Restructuring Reserve [Roll Forward]
Restructuring liability as of December 31, 2016			0
Costs incurred			1,195
Amounts paid			(58)
Accruals released			0
Restructuring liability as of September 30, 2017	$ 1,137		$ 1,137

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Debt and Credit Facilities (Details Textual)	3 Months Ended		9 Months Ended	24 Months Ended
	Dec. 31, 2017 USD ($)	Sep. 30, 2017 USD ($)	Sep. 30, 2017 USD ($)	Sep. 15, 2022 D	Oct. 11, 2017 USD ($)	Sep. 25, 2017 USD ($) $ / shares	Dec. 31, 2016 USD ($)
Convertible Senior Notes due 2022
Debt Instrument [Line Items]
Convertible Senior Notes due 2022, aggregate pricncipal		$ 40,000,000	$ 40,000,000			$ 40,000,000
Interest rate		5.50%	5.50%			5.50%
Proceeds received		$ 37,300,000
Conversion rate		157.5101
Conversion price | $ / shares						$ 6.35
Conversion premium, percent						27.00%
Initial purchaser's discount		$ 2,200,000	$ 2,200,000
Initial purchaser's discount, percent		5.50%	5.50%
Discount rate		12.00%
Amount over estimated fair value of the liability component		$ 7,400,000
Transaction costs		500,000	$ 500,000
Transaction costs allocated to equity		$ 100,000
Effective interest rate		12.20%	12.20%
Vehicle Financing Agreement
Debt Instrument [Line Items]
Borrowings outstanding under vehicle financing agreements		$ 124,000	$ 124,000				$ 83,000
Vehicle Financing Agreement | Minimum
Debt Instrument [Line Items]
Interest rate		0.90%	0.90%
Vehicle Financing Agreement | Maximum
Debt Instrument [Line Items]
Interest rate		1.90%	1.90%
Repayment period			3 years
Revolving Credit Facility | East West Bank
Debt Instrument [Line Items]
Revolving line of credit		$ 25,000,000	$ 25,000,000
Amount available under revolving line of credit		$ 12,000,000	$ 12,000,000
Percentage of equity interests pledged		100.00%	100.00%
Annual commitment fee amount			$ 125,000
Revolving Credit Facility | East West Bank | Minimum
Debt Instrument [Line Items]
Unused commitment fee percentage			0.30%
Revolving Credit Facility | East West Bank | Maximum
Debt Instrument [Line Items]
Unused commitment fee percentage			0.50%
Revolving Credit Facility | East West Bank | Prime Rate | Minimum
Debt Instrument [Line Items]
Credit facility interest on borrowings, percentage added to rate			0.00%
Revolving Credit Facility | East West Bank | Prime Rate | Maximum
Debt Instrument [Line Items]
Credit facility interest on borrowings, percentage added to rate			0.50%
Revolving Credit Facility | East West Bank | LIBOR | Minimum
Debt Instrument [Line Items]
Credit facility interest on borrowings, percentage added to rate			2.75%
Revolving Credit Facility | East West Bank | LIBOR | Maximum
Debt Instrument [Line Items]
Credit facility interest on borrowings, percentage added to rate			3.25%
Subsequent Event | Convertible Senior Notes due 2022
Debt Instrument [Line Items]
Convertible Senior Notes due 2022, aggregate pricncipal					$ 6,000,000
Proceeds received	$ 5,700,000
Scenario, Forecast | Convertible Senior Notes due 2022
Debt Instrument [Line Items]
Convertible price threshold percentage				130.00%
Convertible threshold trading days | D				20

XML

Debt and Credit Facilities Debt and Credit Facilities (Schedule of Carrying Value of the Notes) (Details) - Convertible Senior Notes due 2022 - USD ($) $ in Thousands	Sep. 30, 2017	Sep. 25, 2017
Debt Instrument [Line Items]
Principal amount	$ 40,000	$ 40,000
Unamortized debt discount - equity component	(7,350)
Unamortized debt discount - initial purchaser	(2,195)
Unamortized transaction costs	(375)
Unamortized transaction costs	$ 30,080

XML

Debt and Credit Facilities Debt and Credit Facilities (Schedule of Convertible Debt Interest Expense) (Details) - Convertible Senior Notes due 2022 - USD ($) $ in Thousands	3 Months Ended	9 Months Ended
	Sep. 30, 2017	Sep. 30, 2017
Debt Instrument [Line Items]
Coupon interest expense	$ 37	$ 37
Amortization of debt discount - equity component	18	18
Amortization of debt discount - initial purchaser	5	5
Amortization of transaction costs	1	1
Total interest expense	$ 61	$ 61

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Fair Value Measurements Fair Value Measurements (Details) - USD ($) $ in Millions	Sep. 30, 2017	Dec. 31, 2016
Fair Value Disclosures [Abstract]
Plan assets fair value		$ 39.0
Fair value of convertible senior notes issued	$ 37.8

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Foreign Currency Derivative Instruments (Schedule of Gains and Losses on Foreign Currency Forward Contracts) (Details) - USD ($) $ in Thousands	3 Months Ended	9 Months Ended
	Sep. 30, 2016	Sep. 30, 2016
Schedule of gains (losses) on foreign currency forward contracts
Net gains (loss) on foreign currency forward contracts	$ 0	$ (88)

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Foreign Currency Derivative Instruments (Schedule of Gain and Losses on Underlying Assets and Liabilities) (Details) - USD ($) $ in Thousands	3 Months Ended	9 Months Ended
	Sep. 30, 2016	Sep. 30, 2016
Schedule of foreign currency gains and losses on underlying assets and liabilities
Net gains (loss) on foreign currency forward contracts were partially offset on assets and liabilities	$ 0	$ (37)

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Stock Plans (Details Textual) $ / shares in Units, $ in Thousands	3 Months Ended			9 Months Ended
	Sep. 30, 2017 USD ($) share_based_compensation_plan $ / shares shares	Mar. 31, 2017 USD ($) shares	Sep. 30, 2016 USD ($) $ / shares shares	Sep. 30, 2017 USD ($) share_based_compensation_plan shares $ / shares	Sep. 30, 2016 USD ($) $ / shares shares
Stock Plans (Textual) [Abstract]
Stock-based compensation plans (in shares) | share_based_compensation_plan	2			2
Stock options granted during the period (in shares) | shares	5,000		0	50,000	0
Average grant date fair value (in dollars per share) | $ / shares	$ 3.12			$ 2.97
Stock-based compensation expense	$ 2,755		$ 1,097	$ 6,547	$ 3,759
Bonuses settled in stock
Stock Plans (Textual) [Abstract]
Stock compensation expense	700		0	1,900	900
Bonuses settled in stock | Director
Stock Plans (Textual) [Abstract]
Settled bonuses, previously earned under plan	$ 71
Number shares of fully vested common stock and restricted stock units | shares	12,904
Stock compensation expense	$ 92			164
Bonuses settled in stock | Annual Incentive Bonuses, 2016 Performance Period
Stock Plans (Textual) [Abstract]
Settled bonuses, previously earned under plan	300	$ 1,200
Stock options
Stock Plans (Textual) [Abstract]
Stock-based compensation expense	62		49	169	134
Restricted stock awards
Stock Plans (Textual) [Abstract]
Stock-based compensation expense	100		200	$ 300	200
Director restricted stock unit awards
Stock Plans (Textual) [Abstract]
Restricted stock unit vesting period (in years)				1 year
Restricted stock unit awards
Stock Plans (Textual) [Abstract]
Stock-based compensation expense	$ 1,775		$ 824	$ 3,876	$ 2,305
Restricted stock unit vesting period (in years)				4 years
Number of unrestricted shares of common stock to be received upon vesting | shares				1
Restricted stock units, granted (in shares) | shares	355,075		49,116	1,768,492	1,236,747
Restricted stock unit awards | Bonuses settled in stock | Annual Incentive Bonuses, 2016 Performance Period
Stock Plans (Textual) [Abstract]
Number shares of fully vested common stock and restricted stock units | shares	42,662	89,730
Restricted stock unit awards | Service-based
Stock Plans (Textual) [Abstract]
Stock-based compensation expense	$ 1,124		$ 544	$ 2,460	$ 1,613
Restricted stock units, granted (in shares) | shares	320,963			1,242,618	904,028
Weighted average grant date fair value (in dollars per share) | $ / shares	$ 5.58		$ 5.09	$ 5.54	$ 5.56
Performance restricted stock unit awards
Stock Plans (Textual) [Abstract]
Restricted stock units, granted (in shares) | shares	34,112			525,874	332,719
Weighted average grant date fair value (in dollars per share) | $ / shares	$ 6.79			$ 6.77	$ 7.50
Market condition restricted stock units
Stock Plans (Textual) [Abstract]
Restricted stock units, granted (in shares) | shares	34,112			367,874	286,495
Market condition restricted stock units | Minimum
Stock Plans (Textual) [Abstract]
Potential vesting percentages				0.00%
Market condition restricted stock units | Maximum
Stock Plans (Textual) [Abstract]
Potential vesting percentages				200.00%
Market condition restricted stock units | Performance period one
Stock Plans (Textual) [Abstract]
Restricted stock unit vesting period (in years)				1 year
Market condition restricted stock units | Performance period two
Stock Plans (Textual) [Abstract]
Restricted stock unit vesting period (in years)				2 years
Market condition restricted stock units | Performance period three
Stock Plans (Textual) [Abstract]
Restricted stock unit vesting period (in years)				3 years
Employee stock purchase plan
Stock Plans (Textual) [Abstract]
Stock-based compensation expense	$ 28		$ 53	$ 81	$ 189
Weighted average grant date fair value (in dollars per share) | $ / shares	$ 1.45		$ 1.59	$ 1.28	$ 2.04
Discount rate from market value on offering date				85.00%
Offering period				6 months
Fully vested common stock | Bonuses settled in stock | Annual Incentive Bonuses, 2016 Performance Period
Stock Plans (Textual) [Abstract]
Number shares of fully vested common stock and restricted stock units | shares		142,582

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Stock Plans Stock Plans (Schedule of Stock Options Fair Value Assumptions) (Details) - Outstanding options to purchase common stock	3 Months Ended	9 Months Ended
	Sep. 30, 2017	Sep. 30, 2017
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Expected dividend yield	0.00%	0.00%
Expected volatility	58.00%
Risk-free interest rate	1.96%
Expected term (in years)	5 years 6 months	5 years 6 months
Minimum
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Expected volatility		58.00%
Risk-free interest rate		1.87%
Maximum
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Expected volatility		59.00%
Risk-free interest rate		1.96%

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Stock Plans (Market-condition Awards Fair Value Assumptions) (Details) - Market condition restricted stock units	3 Months Ended		9 Months Ended
	Sep. 30, 2017	Sep. 30, 2016	Sep. 30, 2017	Sep. 30, 2016
Schedule of fair value assumptions
Expected dividend yield	0.00%	0.00%	0.00%	0.00%
Expected volatility	53.00%	62.00%	53.00%	62.00%
Risk-free interest rate	1.55%	1.07%	1.55%	1.07%
Expected term (in years)	2 years 10 months	3 years	2 years 10 months	3 years

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Stock Plans Stock Plans (Schedule of RSU Expense by Vesting Type) (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2017	Sep. 30, 2016	Sep. 30, 2017	Sep. 30, 2016
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Stock-based compensation expense	$ 2,755	$ 1,097	$ 6,547	$ 3,759
Restricted stock unit awards
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Stock-based compensation expense	1,775	824	3,876	2,305
Restricted stock unit awards | Service-based
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Stock-based compensation expense	1,124	544	2,460	1,613
Restricted stock unit awards | Performance objectives
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Stock-based compensation expense	219	30	389	71
Restricted stock unit awards | Market-condition
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Stock-based compensation expense	$ 432	$ 250	$ 1,027	$ 621

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Stock Plans (Employee Stock Purchase Plan Fair Value Assumptions) (Details) - $ / shares	3 Months Ended		9 Months Ended
	Sep. 30, 2017	Sep. 30, 2016	Sep. 30, 2017	Sep. 30, 2016
Employee stock purchase plan
Schedule of fair value assumptions
Expected dividend yield	0.00%	0.00%	0.00%	0.00%
Expected volatility	37.00%	54.00%	32.00%	58.00%
Risk-free interest rate	1.09%	0.36%	0.78%	0.45%
Expected term (in years)	4 months 16 days	6 months	5 months 17 days	6 months
Fair value per share	$ 1.45	$ 1.59	$ 1.28	$ 2.04
Outstanding options to purchase common stock
Schedule of fair value assumptions
Expected dividend yield	0.00%		0.00%
Expected volatility	58.00%
Risk-free interest rate	1.96%
Expected term (in years)	5 years 6 months		5 years 6 months
Minimum | Outstanding options to purchase common stock
Schedule of fair value assumptions
Expected volatility			58.00%
Risk-free interest rate			1.87%
Maximum | Outstanding options to purchase common stock
Schedule of fair value assumptions
Expected volatility			59.00%
Risk-free interest rate			1.96%

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Stock Plans (Allocation of Stock-Based Compensation Expense) (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2017	Sep. 30, 2016	Sep. 30, 2017	Sep. 30, 2016
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Stock-based compensation expense	$ 2,755	$ 1,097	$ 6,547	$ 3,759
Cost of revenue
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Stock-based compensation expense	271	146	721	643
Selling, general and administrative
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Stock-based compensation expense	2,097	799	4,762	2,436
Research and development
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Stock-based compensation expense	$ 387	$ 152	$ 1,064	$ 680

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Defined Benefit Plans (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2017	Sep. 30, 2016	Sep. 30, 2017	Sep. 30, 2016
Defined Benefit Plan [Abstract]
Employer contributions, Maxwell SA Pension Plan	$ 200	$ 100	$ 500	$ 500
Additional employer contributions, expected to be paid during the remainder of fiscal year, Maxwell SA Pension Plan	100		$ 100
Minimum years of service, Korea Plan			1 year
Korea plan employer contributions	2		$ 4
Additional employer contributions expected to be paid during the remainder of fiscal year, Korea plan	$ 2		$ 2

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Defined Benefit Plans (Schedule of Net Periodic Pension Cost )(Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2017	Sep. 30, 2016	Sep. 30, 2017	Sep. 30, 2016
Schedule of net periodic pension cost
Service cost	$ 251	$ 295	$ 737	$ 883
Interest cost	59	62	172	185
Expected return on plan assets	(258)	(296)	(757)	(885)
Prior service cost amortization	38	38	113	113
Deferred loss amortization	0	61	0	183
Net periodic pension cost	$ 90	$ 160	$ 265	$ 479

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Defined Benefit Plans (Korea Defined Benefit Plan) (Details) - USD ($) $ in Thousands	3 Months Ended	9 Months Ended
	Sep. 30, 2017	Sep. 30, 2017
Defined Benefit Plan [Abstract]
Service cost	$ 134	$ 221
Interest cost	20	34
Net cost	$ 154	$ 255

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Legal Proceedings (Details) $ in Millions	3 Months Ended
	Sep. 30, 2017 USD ($)
SEC Penalties Settlement [Member]
Loss Contingencies [Line Items]
Settlement amount	$ 2.8