SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended April 30, 1996 Commission File Number 0-10964
MAXWELL LABORATORIES, INC.
Delaware IRS ID#95-2390133
8888 Balboa Avenue
San Diego, California 92123
Telephone (619) 279-5100
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 [ ]
As of May 31, 1996 Registrant had only one class of common stock of which there
were 2,739,001 shares outstanding.
<PAGE>
<TABLE>
PART I - FINANCIAL STATEMENTS
Maxwell Laboratories, Inc.
Consolidated Condensed Balance Sheet
(in thousands)
Assets
------
<CAPTION>
April 30, July 31,
1996 1995
--------- ---------
(Unaudited) (Note)
<S> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents $ 1,410 $ 4,053
Accounts receivable - net 15,545 16,030
Inventories:
Finished products 675 1,181
Work in process 2,678 2,292
Parts and raw materials 4,360 3,766
--------- ---------
7,713 7,239
Recoverable income taxes 895 861
Prepaid expenses 666 572
Deferred income taxes 145 2,090
--------- ---------
Total current assets 26,374 30,845
Property, plant and equipment - net 15,497 20,315
Deposits and other assets 668 1,210
--------- ---------
$ 42,539 $ 52,370
========= =========
</TABLE>
<TABLE>
<CAPTION>
Liabilities and Shareholders' Equity
------------------------------------
<S> <C> <C> <C> <C>
Current liabilities:
Bank checks outstanding $ 1,250 $ --
Accounts payable 12,861 9,400
Accrued employee compensation 2,817 2,681
Current portion of long-term debt
and short-term borrowings 3,009 909
--------- ---------
Total current liabilities 19,937 12,990
Long-term debt 1,247 1,928
Deferred income taxes -- 805
Minority interest 935 1,283
Shareholders' equity:
Common stock 274 269
Additional paid-in capital 19,269 18,889
Retained earnings 877 16,206
--------- ---------
20,420 35,364
--------- ---------
$ 42,539 $ 52,370
========= =========
<FN>
Note: The Balance Sheet at July 31, 1995 has been derived from the audited
financial statements at that date.
See notes to consolidated condensed financial statements.
</TABLE>
<PAGE>
<TABLE>
PART I - FINANCIAL STATEMENTS, continued
Maxwell Laboratories, Inc.
Consolidated Condensed Statement of Income - (Unaudited)
(in thousands except per share data)
<CAPTION>
Three Months
Ended April 30,
----------------------
1996 1995
--------- ---------
<S> <C> <C> <C> <C>
Sales $ 20,331 $ 17,468
Costs and expenses:
Cost of sales 16,114 13,683
Research and development expenses 1,223 1,375
Selling, administrative and general expenses 3,955 3,531
Restructure and asset impairment losses 3,817 --
Other - net (4) (324)
--------- ---------
25,105 18,265
--------- ---------
Loss before income taxes
and minority interest (4,774) (797)
Income taxes (credit) 37 (354)
--------- ---------
(4,811) (443)
Minority interest in net income of subsidiary 12 21
--------- ---------
Net loss $ (4,823) $ (464)
========= =========
Loss per share $ (1.76) $ (.17)
========= =========
Weighted average number of shares 2,737,000 2,675,000
========= =========
<FN>
Note: Loss per share is based upon weighted average number of shares of common
stock outstanding. Per share amounts are unchanged on a fully dilutive
basis.
See notes to consolidated condensed financial statements.
</TABLE>
<PAGE>
<TABLE>
PART I - FINANCIAL STATEMENTS, continued
Maxwell Laboratories, Inc.
Consolidated Condensed Statement of Income - (Unaudited)
(in thousands except per share data)
<CAPTION>
Nine Months
Ended April 30,
----------------------
1996 1995
--------- ---------
<S> <C> <C> <C> <C>
Sales $ 58,843 $ 53,016
Costs and expenses:
Cost of sales 48,975 39,675
Research and development expenses 3,541 3,665
Selling, administrative and general expenses 11,657 10,091
Restructure and asset impairment losses 6,385 --
Other - net (223) (507)
--------- ---------
70,335 52,924
--------- ---------
Income (loss) before income taxes,
minority interest and cumulative
effect of change in accounting method (11,492) 92
Income taxes (credit) 1,237 (70)
--------- ---------
(12,729) 162
Minority interest in net income of subsidiary 31 66
--------- ---------
Income (loss) before cumulative
effect of change in accounting method (12,760) 96
Cumulative effect of change in accounting method (2,569) --
--------- ---------
Net income (loss) $ (15,329) $ 96
========= =========
Earnings (loss) per share before cumulative
effect of change in accounting method $ (4.70) $ .04
========= =========
Earnings (loss) per share $ (5.64) $ .04
========= =========
Weighted average number of shares 2,717,000 2,677,000
========= =========
<FN>
Note: Earnings (loss) per share is based upon weighted average number of shares
of common stock outstanding and all dilutive stock options. Per share
amounts are unchanged on a fully dilutive basis.
See notes to consolidated condensed financial statements.
</TABLE>
<PAGE>
<TABLE>
PART I - FINANCIAL STATEMENTS, continued
Maxwell Laboratories, Inc.
Consolidated Condensed Statement of Cash Flows - (Unaudited)
(in thousands)
<CAPTION>
Nine Months
Ended April 30,
-----------------------
1996 1995
--------- ---------
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $ (15,329) $ 96
Adjustments to reconcile net income (loss)
to net cash provided by (used in)
operating activities:
Depreciation and amortization 1,524 2,149
Restructure and asset impairment losses 6,642 --
Cumulative effect of change in accounting
method 2,569 --
Minority interest in net income of subsidiary 31 66
Changes in operating assets and
liabilities - net 1,595 (1,666)
--------- ---------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES (2,968) 645
--------- ---------
INVESTING ACTIVITIES
Purchases of property and equipment (1,479) (2,038)
--------- ---------
NET CASH USED IN
INVESTING ACTIVITIES (1,479) (2,038)
--------- ---------
FINANCING ACTIVITIES
Principal payments on long-term debt (681) (744)
Proceeds from short-term borrowings 2,100 --
Proceeds from issuance of Company stock 385 --
--------- ---------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES 1,804 (744)
--------- ---------
DECREASE IN CASH AND
CASH EQUIVALENTS (2,643) (2,137)
Cash and cash equivalents at beginning of period 4,053 4,579
--------- ---------
CASH AND CASH EQUIVALENTS
AT END OF PERIOD $ 1,410 $ 2,442
========= =========
<FN>
See notes to consolidated condensed financial statements.
</TABLE>
<PAGE>
PART I - continued
NOTES TO FINANCIAL STATEMENTS
The preceding interim consolidated condensed financial statements
contain all adjustments (consisting of normal recurring accruals) which are,
in the opinion of management, necessary for a fair and accurate presentation
of financial position at April 30, 1996 and the results of operations for the
three and nine month periods then ended. These interim financial statements
should be read in conjunction with the Company's July 31, 1995 audited
financial statements included in its Proxy Statement for the 1995 Annual
Meeting of Shareholders. Interim results are not necessarily indicative of
those to be expected for the full year.
The consolidated financial statements include the accounts of Maxwell
Laboratories, Inc., and its majority-owned subsidiary, PurePulse Technologies,
Inc. All significant intercompany transactions and account balances are
eliminated in consolidation.
In January 1996, the Company recorded one-time charges totaling
approximately $9.5 million. About $7 million of the charges were included in
second quarter results, and the remainder was recorded in restated first
quarter results as the cumulative effect of a change in accounting method due
to the Company's early adoption of Financial Accounting Standards Board (FASB)
Statement No. 121.
The overall $9.5 million charge consisted of the following: $4.1
million for write-downs of existing property, plant and equipment due to the
implementation of Statement No. 121, which requires that the carrying amount
of certain long-lived assets be written down if an impairment in value is
determined to exist; the assets were evaluated on the basis of adequate
anticipated future cash flows, as defined by the FASB, and assessments of fair
market value were primarily based on estimated resale values; a $1.1 million
charge to fully reserve the net deferred income tax assets of Maxwell
(excluding its PurePulse Technologies subsidiary), as required under current
financial accounting rules for income taxes; $0.9 million associated with
surplus military and space-related inventory due to the restructuring of the
Sierra division; and $3.4 million of other asset write-downs and reserves
taken on the basis of information on risk areas for the Company including
contract reserves at the S-Cubed division, inventory reserves at the I-Bus
and Balboa divisions, write-down of Business Systems division software, and
certain charges at the Corporate level, including expenses related to the
search for a new Chief Executive Officer of the Company and environmental and
other reserves. Of these other write-downs and reserves, $1.2 million is
included in selling, administrative and general expenses and the remainder is
charged to cost of sales.
In April 1996, the Company recorded additional charges totaling $4.9
million, primarily for restructure-related activities. The restructure
provision amounts to $3.8 million and includes separation costs for prior
executive management and estimated costs for disposition of the Company's
chemical analytical services laboratory, facilities relocation and idle
capacity, and other costs of reorganizing the divisional structure of the
Company, primarily related to various aspects of the Defense business units.
The non-restructure portion of the overall charge is primarily for contract
and inventory-related matters.
<PAGE>
PART I - continued
In January 1991, the California Department of Toxic Substances Control,
or DTSC, notified the Company that it had been identified as one of a number
of "potentially responsible parties" with respect to alleged hazardous
substances released into the environment at a recycling facility in San Diego
County. Although the Company was not involved in the transport or disposal of
the substances, Maxwell remains a potentially responsible party under
California and Federal "Superfund" laws. In 1992, the Company and
approximately 40 other potentially responsible parties signed a consent order
which had been negotiated with the DTSC, agreeing to pay $4 million of the
$7.9 million response costs previously incurred by the State, and to pay for
certain future site investigations and interim response actions outlined in
the consent order. The currently estimated cost of such activities is $9.1
million, and the Company's share of the cost, as allocated by the parties to
the consent order, is currently estimated at approximately 7.0%. The eventual
cost of all removal and remediation activities, for which the Company and the
other potentially responsible parties will share in additional reimbursements
to the State, and including the $9.1 million referred to above, is currently
estimated to be in the range of $15 - $20 million. The Company has accrued
its share of such estimated costs; on the basis of amounts accrued by the
Company, it is management's opinion that any additional liability resulting
from this situation will not have a material effect on the Company's financial
statements. There have been no material developments on this matter since the
date of issuance of the Company's audited financial statements for the year
ended July 31, 1995.
Backlog of unfilled orders at April 30, 1996 was $80.0 million, of which
$44.8 million is fully funded.
<PAGE>
PART I - continued
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
POSITION
Restructure Reserves, Other Charges and Hiring of New Chief Executive Officer
- -----------------------------------------------------------------------------
During the third quarter the Company recorded charges totaling $4.9
million, primarily for restructure-related activities. These charges coincide
with a change in management at the Company, and reflect separation costs for
prior management and the reorganization plans of new management. The charges
for these reorganization plans include the estimated costs associated with
disposition of the Company's chemical analytical services laboratory,
facilities relocation and idle capacity, and other costs of reorganizing the
divisional structure of the Company, primarily related to various aspects of
the Defense business units. Non-restructure charges include reserves totaling
approximately $500,000 and $300,000, respectively, for contract and inventory-
related matters.
Under a management succession plan, Mr. Ken Potashner formally assumed
the duties of President, Chief Executive Officer, and Chief Operating Officer
of Maxwell on April 26, 1996. Mr. Potashner had previously served as General
Manager of Disk Drive Operations for Conner Peripherals in San Jose,
California. Mr. Potashner also consulted for the Company prior to his
employment, and the costs of restructuring and reorganizing were announced
concurrently with Mr. Potashner's hire date. The reorganization reflects his
intention to streamline operations, focus business units around synergistic
capabilities and markets, and position the Company to more rapidly achieve
product-to-market goals. Including approximately $9.5 million of charges taken
in the second quarter of this year, primarily for asset write-downs and the
Company's early adoption of FASB Statement No. 121, $14.4 million of charges
have been taken this fiscal year to create a leaner, more tightly focused
company. Even with these write-offs, the Company retains a strong balance
sheet, as discussed in the Liquidity section below. A discussion of sales and
operating results follows.
Results of Operations
- ---------------------
Sales for the quarter ended April 30, 1996 were $20,331,000, or a 16%
increase over the $17,468,000 for the same period one year ago. Nine-month
sales were $58,843,000, or an 11% increase over the $53,016,000 for last year's
first nine months. For the third quarter, the increase reflects higher sales
in both the commercial, industrial and scientific products (CIS) business
segment, and the primarily Defense-related technology programs and services
(TPS) business segment. For the year-to-date, increased CIS sales are more
than offsetting a 5% decline in TPS sales. These business segment sales are
further described in the paragraphs below.
CIS sales for the third quarter were $12,219,000, an increase of
approximately $1,850,000, or 18%, compared to last year's third quarter.
Nine-month CIS sales were $36,550,000, an increase of approximately $7,000,000,
or 24%, compared to the same period last year. Nearly all of the Company's
commercial business areas have both quarter-to-quarter and year-to-date sales
gains over the prior year. On a dollar basis, the primary increase for the
quarter was sales of PC-based controllers of the I-Bus division. I-Bus' sales
continue to grow as the division realizes its strategy of being a preferred
strategic partner for custom OEM applications. For the nine-month period, the
dollar increase in CIS sales is primarily attributable both to I-Bus and to
the S-Cubed division's integrated justice information software business.
Currently, this software business consists primarily of two long-term fixed
price contracts, both of which are scheduled for completion in calendar 1996.
While these are positive sales results for both the third quarter and the
nine months, it should be noted when making such revenue comparisons that
fluctuations upward or downward have occurred from time to time in several of
the Company's CIS groups.
<PAGE>
PART I - continued
TPS sales for the third quarter were $8,112,000, an increase of
approximately $1,000,000, or 14%, compared to the prior year. Nine-month TPS
sales were $22,293,000, a decrease of approximately $1,150,000, or 5%, compared
to last year's first nine months. Two major factors contributed to the
increase over the prior year for the quarter as contrasted with a decrease for
the comparable nine-month periods. One, a large multi-year Defense contract in
the S-Cubed division has been ramping-up during the current year. Last year,
the program had been transitioning from the original to a follow-on contract,
and was ramping-down. Two, the chemical analytical services business, while
still at a very low level of sample flow through the lab, had a similarly low
level in the third quarter of last year. In the first two quarters of 1996, a
low sample volume had compared to a more typical and much higher flow in 1995.
As a result, third quarter TPS sales are higher this year than in the third
quarter of 1995, but nine-month sales remain less than in the prior year.
The TPS segment comprises primarily the Company's Defense-related business and
the substantially Government-related work in the chemical analytical services
laboratory, and the effect of changes in federal spending on these programs,
and its impact on the Company, is not predictable. Therefore, previously
reported TPS sales are not necessarily indicative of those to be expected in
the future.
The Company has followed a dual strategy this year for the Chemistry
laboratory of added sales and marketing efforts, and exploring its possible
sale. Due to the non-core status of the laboratory and its current business,
in the third quarter management undertook a plan of disposition, and incurred
a charge for the estimated related costs, as previously described.
Cost of sales for the third quarter was $16,114,000, or 79.3% of sales,
and for the nine months $48,975,000, or 83.2% of sales. The year-to-date
amount is a substantial increase from the prior year as a percent of sales due
in large part to the second and third quarter charges previously described.
Approximately $2.8 million of the combined second and third quarter charges
impacted cost of sales, of which $2 million occurred in January.
Prior to the $2.8 million of charges, cost of sales as a percent of
sales for the three and nine-month periods is 75.3% and 78.4%, respectively,
compared to 78.3% and 74.8% for the same periods last year. On a percentage
basis, the changes are nearly evenly distributed between the Company's two
business segments for both the third quarter and the nine-month period. For
the quarter, the improvement is primarily attributable to an increased
recovery of overhead costs in the Balboa division. For the nine months, the
increase in cost of sales as a percent of sales in the CIS segment is primarily
associated with the low gross profit margins on the S-Cubed division's entry
into new commercial software markets, and the re-working of products and
processes at the Sierra division prior to the de-emphasis and restructuring of
its military and space-related business. In the TPS business segment for the
nine months, the increase in the cost of sales percentage is due primarily to
the impact of the large decrease in chemical analytical services laboratory
revenues.
Selling, administrative and general expenses include $1.5 million of the
reserves and write-offs described previously. Excluding those special charges,
selling, administrative and general expenses are nearly unchanged from the
prior year for both the third quarter and year-to-date.
<PAGE>
PART I - continued
Other-net for the three and nine months ended April 30, 1996 was income
of $4,000 and $223,000, respectively, compared to $324,000 and $507,000 for the
comparable periods last year. The decrease in other-net occurred in the
current quarter, and is primarily attributable to lower interest income due to
a reduction in funds available for investment, and the receipt last year of
interest earned on various tax recoveries.
The Company is incurring a loss in the current year, and cannot carry
that loss back to recover taxes paid in prior years. Therefore, no income tax
benefit is provided on the current year loss. In the prior year, carrybacks
were available and, accordingly, an income tax benefit was provided on losses
in the prior year.
As a result of the above factors, the net loss for the three months
ended April 30, 1996 was $4,823,000 compared to a loss of $464,000 for the
same period one year ago. For the nine months, the current year loss of
$15,329,000 compares to net income of $96,000 in the prior year.
Liquidity and Capital Resources
- -------------------------------
Primarily as a result of the second and third quarter charges, current
liabilities have increased to $19.9 million. The balance sheet remains strong,
however, with very little long-term debt, working capital of $6.4 million, and
a current ratio of 1.3 to 1 at April 30, 1996. The Company recently
renegotiated its bank line of credit, and cash requirements for the foreseeable
future are expected to be met with cash from operations and the bank line of
credit of $5 million.
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
No exhibits are included with the Form 10-Q for the period
ended April 30, 1996.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended
April 30, 1996.
SIGNATURE
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 LABORATORIES, INC.
June 14, 1996 /s/ Gary Davidson
- ---------------------------------------- -----------------------------
Date Gary Davidson, Chief Financial
Officer and Authorized Officer
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUL-31-1996
<PERIOD-END> APR-30-1996
<CASH> 1,410
<SECURITIES> 0
<RECEIVABLES> 15,545
<ALLOWANCES> 0
<INVENTORY> 7,713
<CURRENT-ASSETS> 26,374
<PP&E> 46,452
<DEPRECIATION> 30,955
<TOTAL-ASSETS> 42,539
<CURRENT-LIABILITIES> 19,937
<BONDS> 1,247
<COMMON> 274
0
0
<OTHER-SE> 20,146
<TOTAL-LIABILITY-AND-EQUITY> 42,539
<SALES> 58,843
<TOTAL-REVENUES> 58,843
<CGS> 48,975
<TOTAL-COSTS> 48,975
<OTHER-EXPENSES> 3,541
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (11,492)
<INCOME-TAX> 1,237
<INCOME-CONTINUING> (12,760)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> (2,569)
<NET-INCOME> (15,329)
<EPS-PRIMARY> (5.64)
<EPS-DILUTED> (5.64)
</TABLE>
