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, 1998 Commission File Number 0-10964
MAXWELL TECHNOLOGIES, INC.
Delaware IRS ID #95-2390133
9275 Sky Park Court
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, 1998, Registrant had only one class of common stock of which
there were 8,461,804 shares outstanding.
<PAGE>
<TABLE>
PART I - FINANCIAL STATEMENTS
Maxwell Technologies, Inc.
Consolidated Condensed Balance Sheet
(in thousands)
<CAPTION>
Assets
------
April 30, July 31,
1998 1997
--------- ---------
(Unaudited) (Note)
<S> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents $ 29,645 $ 826
Accounts receivable - net 34,232 18,612
Inventories:
Finished products 1,352 1,793
Work in process 2,079 882
Parts and raw materials 10,517 6,047
--------- ---------
13,948 8,722
Prepaid expenses 2,200 1,203
Deferred income taxes 161 161
--------- ---------
Total current assets 80,186 29,524
Property, plant and equipment - net 22,332 16,929
Goodwill and other intangibles, and other assets 5,688 667
--------- ---------
$ 108,206 $ 47,120
========= =========
</TABLE>
<TABLE>
<CAPTION>
Liabilities and Stockholders' Equity
------------------------------------
<S> <C> <C> <C> <C>
Current liabilities:
Accounts payable $ 23,420 $ 13,640
Accrued employee compensation 6,621 4,465
Current portion of long-term debt 81 511
--------- ---------
Total current liabilities 30,122 18,616
Long-term debt 447 465
Minority interest 1,605 629
Stockholders' equity:
Common stock 843 614
Additional paid-in capital 73,662 22,364
Deferred compensation (466) (622)
Retained earnings 1,993 5,054
--------- ---------
76,032 27,410
--------- ---------
$ 108,206 $ 47,120
========= =========
Note: The Balance Sheet at July 31, 1997 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 Technologies, Inc.
Consolidated Condensed Statement of Operations - (Unaudited)
(in thousands except per share data)
<CAPTION>
Three Months
Ended April 30,
-----------------------
1998 1997
--------- ---------
<S> <C> <C> <C> <C>
Sales $ 31,680 $ 25,922
Cost of sales 21,457 17,599
--------- ---------
Gross profit 10,223 8,323
Operating expenses:
Selling, general and administrative expenses 6,037 5,875
Research and development expenses 2,392 1,407
Acquired in-process R&D and other
special charges 8,942 --
--------- ---------
Total operating expenses 17,371 7,282
Operating income (loss) (7,148) 1,041
Interest expense 22 35
Interest income and other--net (592) (25)
--------- ---------
Income (loss) before income taxes and
minority interest (6,578) 1,031
Income tax expense 74 --
Minority interest in net loss of subsidiaries (15) (28)
--------- ---------
Net income (loss) $ (6,637) $ 1,059
========= =========
Basic earnings (loss) per share $ (0.79) $ 0.18
========= =========
Diluted earnings (loss) per share $ (0.79) $ 0.16
========= =========
Weighted average number of shares used
to calculate:
Basic earnings (loss) per share 8,356 5,997
========= =========
Diluted earnings (loss) per share 8,356 6,714
========= =========
See notes to consolidated condensed financial statements.
</TABLE>
<PAGE>
<TABLE>
PART I - FINANCIAL STATEMENTS, continued
Maxwell Technologies, Inc.
Consolidated Condensed Statement of Operations - (Unaudited)
(in thousands except per share data)
<CAPTION>
Nine Months
Ended April 30,
-----------------------
1998 1997
--------- ---------
<S> <C> <C> <C> <C>
Sales $ 89,589 $ 74,516
Cost of sales 59,543 51,496
--------- ---------
Gross profit 30,046 23,020
Operating expenses:
Selling, general and administrative expenses 19,342 16,543
Research and development expenses 5,885 3,677
Acquired in-process R&D and other
special charges 8,942 --
--------- ---------
Total operating expenses 34,169 20,220
Operating income (loss) (4,123) 2,800
Interest expense 160 128
Interest income and other--net (1,070) (123)
--------- ---------
Income (loss) before income taxes and
minority interest (3,213) 2,795
Income tax expense 74 --
Minority interest in net loss of subsidiaries (24) 8
--------- ---------
Net income (loss) $ (3,263) $ 2,787
========= =========
Basic earnings (loss) per share $ (0.44) $ 0.47
========= =========
Diluted earnings (loss) per share $ (0.44) $ 0.42
========= =========
Weighted average number of shares used
to calculate:
Basic earnings (loss) per share 7,421 5,910
========= =========
Diluted earnings (loss) per share 7,421 6,640
========= =========
See notes to consolidated condensed financial statements.
</TABLE>
<PAGE>
<TABLE>
PART I - FINANCIAL STATEMENTS, continued
Maxwell Technologies, Inc.
Consolidated Condensed Statement of Cash Flows - (Unaudited)
(in thousands)
<CAPTION>
Nine Months
Ended April 30,
-----------------------
1998 1997
--------- ---------
<S> <C> <C> <C> <C>
Operating Activities:
Net income (loss) $ (3,263) $ 2,787
Adjustments to reconcile net income
(loss) to net cash provided by
(used in) operating activities:
Depreciation and amortization 2,629 2,167
Acquired in-process R&D and other
restructure related charges 7,450 --
Deferred compensation 156 121
Minority interest in net income (loss)
of subsidiaries (24) 8
Changes in operating assets and
liabilities - net (8,952) (3,074)
--------- ---------
Net cash provided by (used in)
operating activities (2,004) 2,009
--------- ---------
Investing Activities:
Purchases of property and equipment (4,767) (3,126)
Business acquisitions under purchase
accounting, net of cash acquired (11,481) --
--------- ---------
Net cash used in
investing activities (16,248) (3,126)
--------- ---------
Financing Activities:
Principal payments on long-term debt
and short-term borrowings (4,390) (682)
Proceeds from short-term borrowings 2,100 --
Proceeds from issuance of Company and
subsidiary stock 49,768 1,769
Dividends paid to shareholders of
Subchapter S corporation prior to
acquisition (407) --
--------- ---------
Net cash provided by
financing activities 47,071 1,087
--------- ---------
Increase (decrease) in cash and
cash equivalents 28,819 (30)
Cash and cash equivalents at beginning
of period 826 1,465
--------- ---------
Cash and cash equivalents
at end of period $ 29,645 $ 1,435
========= =========
See notes to consolidated condensed financial statements.
</TABLE>
<PAGE>
PART I - continued
NOTES TO FINANCIAL STATEMENTS
1. General
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, 1998 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, 1997 audited
consolidated financial statements and notes thereto included in its Proxy
Statement for the 1997 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
Technologies, Inc., and its subsidiaries. All significant intercompany
transactions and account balances are eliminated in consolidation.
Backlog of unfilled orders at April 30, 1998 was $81.3 million, of which
$51.9 million is fully funded.
2. Issuance of Stock
In November 1997, the Company issued 1,500,000 shares of its common stock
in a follow-on public offering at $34.00 per share. Net proceeds to the
Company were approximately $47 million, and are intended for general corporate
purposes, including working capital and capital expenditures, as well as
possible future acquisitions.
3. Foreign Currency Translation
In March 1998, Maxwell acquired a U.K.-based subsidiary (see Note (5),
"Acquisitions," below). The assets and liabilities of this foreign subsidiary
are translated to U.S. dollars at quarter-end exchange rates, and revenues and
expenses are translated at average rates prevailing during the period. There
was no material affect of either foreign currency translation or transactions
during the quarter ended April 30, 1998.
4. Earnings per share
Effective November 1, 1997, the Company adopted Financial Accounting
Standards Board Statement No. 128, Earnings Per Share. Statement No.
128 replaced the previously reported primary and fully diluted earnings per
share with basic and diluted earnings per share. Unlike primary earnings per
share, basic earnings per share excludes any dilutive effects of options,
warrants, and convertible securities. Diluted earnings per share is very
similar to the previously reported fully diluted earnings per share. Earnings
per share amounts for all periods have been presented and, where necessary,
restated to conform to Statement No. 128 requirements.
Basic earnings per share is calculated using the weighted average number
of common shares outstanding. Diluted earnings per share is calculated on
the basis of the weighted average number of common shares outstanding plus the
dilutive effect of outstanding stock options assuming their exercise using the
"treasury stock" method and preferred shares in a subsidiary assuming their
conversion. For the three and nine-months ended April 30, 1998, all
potentially dilutive common shares have been excluded from the calculation of
diluted earnings per share as their inclusion would have been anti-dilutive.
<PAGE>
PART I - continued
The following table sets forth the computation of basic and diluted
earnings per share:
<TABLE>
Three Months Ended Nine Months Ended
April 30, April 30,
------------------- -------------------
1998 1997 1998 1997
--------- -------- --------- --------
<S> <C><C> <C><C> <C><C> <C><C>
Basic:
Net income (loss) $ (6,637) $ 1,059 $ (3,263) $ 2,787
--------- -------- -------- --------
Weighted average shares 8,356 5,997 7,421 5,910
-------- -------- -------- --------
Basic earnings (loss)
per share $ (0.79) $ 0.18 $ (0.44) $ 0.47
======== ======== ======== ========
Diluted:
Weighted average shares 8,356 5,997 7,421 5,910
Effect of dilutive securities:
Stock options -- 717 -- 730
-------- -------- -------- --------
Dilutive potential common
shares -- 717 -- 730
-------- -------- -------- --------
Weighted average shares, as
adjusted 8,356 6,714 7,421 6,640
-------- -------- -------- --------
Diluted earnings (loss) per
share $ (0.79) $ 0.16 $ (0.44) $ 0.42
======== ======== ======== ========
</TABLE>
5. Acquisitions
The Company completed the acquisition of three businesses during the
quarter ended April 30, 1998: Phoenix Power Systems, Inc. ("Phoenix Power");
the Electromagnetic Systems group of Primex Physics International Company
("Physics International"); and Tri-MAP International, Ltd. ("Tri-MAP").
Phoenix Power and Tri-MAP were privately held, while Physics International
was part of a subsidiary of a public company. Additional information on each
of these acquisitions is presented below.
Phoenix Power designs and manufactures leading products for power
electronics and power conditioning applications in the telecommunications,
broadcasting, semiconductor manufacturing, medical, and biotechnology markets.
Under the terms of the agreement, Maxwell purchased all of the outstanding
stock of Phoenix Power for approximately $4 million, comprised of 75% Maxwell
common stock and 25% cash. Direct acquisition costs were approximately
$95,000. The purchase price was allocated to the estimated fair values of
the net assets acquired, including intangible assets. The appraised amount
allocated to in-process research and development meeting specified criteria
was charged to expense in the three months ended April 30, 1998. The excess
of purchase price over net assets acquired is being amortized on a straight-
line basis over the estimated useful life. The aggregate purchase price of
Phoenix Power could increase by up to $9 million over the next two years;
any such increase is contingent on the financial performance of Phoenix Power
during the two-year period.
Physics International specializes in high-energy pulsed power technology,
primarily performing research and development for the U.S. Government. Under
the terms of the agreement, for a cash purchase price of $10 million, Maxwell
acquired certain assets (consisting primarily of fixed assets, intellectual
property, existing customer contracts and accounts receivable) and assumed
certain liabilities (consisting primarily of accounts payable, accrued
compensation and future performance under contracts acquired) of the
Electromagnetic Systems business unit. Additional direct acquisition costs
amounted to approximately $175,000. The purchase price was allocated to the
estimated fair values of the net assets acquired, including intangible assets,
and the appraised amount allocated to in-process research and development
meeting specified criteria was expensed during the current quarter. The
excess of purchase price over net assets acquired is being amortized on a
straight-line basis over the estimated useful life.
Tri-MAP is a UK-based manufacturer of industrial-grade PC-compatible
computer systems. Tri-MAP was acquired in a stock-for-stock exchange
accounted for as pooling-of-interests for an aggregate of 290,000 shares of
Maxwell common stock. The Company incurred direct transaction costs of
approximately $610,000 which were charged to operating results during the
quarter ended April 30, 1998. The historical results of operations for Tri-MAP
are not material in relation to those of Maxwell and financial information for
prior periods has not been restated to reflect the merger. Tri-MAP operating
results from February 1, 1998 have been included in the operating results of
the Company. In addition, retained earnings as of February 1, 1998 has been
restated to reflect Tri-MAP's accumulated deficit of approximately $660,000 as
of such date.
In the second quarter ended January 31, 1998, the Company completed an
acquisition of Tekna Seal, Inc., a privately-held manufacturer of industrial
glass-to-metal seals. The stock-for-stock exchange was accounted for as a
pooling of interests, and involved the issuance in the second quarter of
154,000 shares of Maxwell common stock.
6. New Accounting Standards
In June 1997, the Financial Accounting Standards Board issued Statement
No. 130, "Reporting Comprehensive Income," and Statement No. 131, "Disclosures
About Segments of an Enterprise and Related Information," both of which are
effective for fiscal periods beginning after December 15, 1997. The Company
anticipates that adopting Statements No. 130 and 131 will not have a material
effect on its financial statements.
<PAGE>
PART I - continued
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
POSITION
Business Segments
The Company has been operating in four business segments, as follows:
* Power Conversion Products: Includes design, development and manufacture
of electrical components and subsystems, including products that
capitalize on pulsed power such as ultracapacitors, microbial
purification systems, high voltage capacitors and other electrical
components and EMI filter capacitors.
* Industrial Computers and Subsystems: Includes design and manufacture
of standard, custom and semi-custom industrial computer modules,
platforms and fully integrated systems primarily for OEMs.
* Technology Programs and Systems: Includes research and development
programs in pulsed power, pulsed power systems design and construction,
weapons effects simulation and computer-based analytic services,
primarily for the Department of Defense (DOD).
* Information Products and Services: Includes design, development and
integration of software products and services including job cost
accounting and management information systems and other software
products including applications for the Internet, as well as wide-area
and local-area network and software integration services.
During the third quarter, the Company reorganized the operations within
the Information Products and Services business segment, including a refocusing
of certain operations along the lines of other of the Company's existing
business segments and the discontinuation of certain businesses. As a result,
the Company is now organized in three business segments, and is reporting its
results accordingly.
Results of Operations
Acquisitions and Special Charges
During the third quarter of this fiscal year, the Company completed the
acquisition of three businesses, as follows: Tri-MAP Ltd., a U.K. designer
and manufacturer of industrial PC-compatible computers; the ElectroMagnetic
Systems group of Primex Physics International Company ("Physics
International"), a leading firm in pulsed power research and development and
historically, a primary competitor of the Company in this field; and Phoenix
Power Systems, a designer and manufacturer of power conditioning and conversion
equipment. While none of these businesses is material compared to Maxwell,
each fulfills strategic objectives for the Company. Tri-MAP adds a lower
cost, standard product line to the leading edge, OEM-oriented offerings of the
Company's I-Bus operation. In addition, Tri-MAP's U.K. location provides a
European presence for Maxwell and will assist the Company in expanding its
operations and sales efforts overseas. Physics International solidifies
Maxwell's position as the leading provider of pulsed power research and
development services and large pulsed power systems for US Government
Department of Defense and other government and commercial customers. Phoenix
Power establishes a systems manufacturing capability for Maxwell, and both a
complementary and vertical integration path for clean power systems using the
Company's ultracapacitors.
<PAGE>
PART I - continued
In acquiring these businesses, the Company acquired certain intangible
assets. Some of these intangible assets have been capitalized and will be
amortized over time; the acquired in-process research and development meeting
certain criteria, however, has been expensed during the quarter as the
technology has no alternative future uses and the ultimate recovery of the
acquired value is not assured. In addition, certain costs of acquisitions, as
well as certain charges related to the discontinued business segment, have also
been charged to operations. The total amount of all such current charges is
$8.9 million, and has been classified as "Acquired in-process research and
development and other special charges" in the consolidated condensed statement
of income.
The following table sets forth selected operating data for the Company,
expressed as a percentage of sales, for the three and nine month periods
ended April 30, 1998 and 1997.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
April 30, April 30,
-------------------- --------------------
1998 1997 1998 1997
--------- --------- --------- ---------
<S> <C><C> <C><C> <C><C> <C><C>
Sales 100.0 % 100.0 % 100.0 % 100.0 %
Cost of sales 67.7 67.7 66.5 69.1
------- ------- ------- -------
Gross profit 32.3 32.1 33.5 30.9
Operating expenses:
Selling, general and
administrative expenses 19.1 22.7 21.6 22.2
Research and development
expenses 7.5 5.4 6.5 4.9
Acquired in-process R&D
and other special charges 28.2 -- 10.0 --
------- ------- ------- -------
Total operating expenses 54.8 28.1 38.1 27.1
------- ------- ------- -------
Operating income (loss) (22.5) 4.0 (4.6) 3.8
Interest expense 0.1 0.1 0.2 0.2
Interest income and other--net (1.8) (0.1) (1.2) (0.2)
------- ------- ------- -------
Income (loss) before income
taxes and minority interest (20.8) 4.0 (3.6) 3.8
Income tax expense 0.2 -- 0.1 --
Minority interest in net
income (loss) of subsidiaries -- (0.1) 0.1 (0.1)
------- ------- ------- -------
Net income (loss) (21.0)% 4.1 % (3.6)% 3.7 %
======= ======= ======== =======
</TABLE>
<PAGE>
PART I - continued
The following table sets forth the Company's business segment sales,
gross profit and gross profit as a percentage of business segment sales for
the three and nine month periods ended April 30, 1998 and 1997. As mentioned
above, the Company no longer maintains an Information Products and Services
business segment. Therefore, reporting for such segment is for prior periods
only.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
April 30, April 30,
-------------------- --------------------
1998 1997 1998 1997
--------- --------- --------- ---------
<S> <C><C> <C><C> <C><C> <C><C>
Power Conversion Products
Sales $ 9,201 $ 6,587 $ 26,549 $ 19,177
Gross profit 3,572 2,364 10,894 6,888
Gross profit as a percentage
of sales 38.8% 35.9% 41.0% 35.9%
Industrial Computers and
Subsystems
Sales $ 11,342 $ 8,583 $ 30,751 $ 25,670
Gross profit 3,783 2,989 11,032 8,661
Gross profit as a percentage
of sales 33.4% 34.8% 35.9% 33.7%
Technology Programs and Systems
Sales $ 11,137 $ 8,198 $ 27,623 $ 22,392
Gross profit 2,868 1,829 5,814 4,457
Gross profit as a percentage
of sales 25.8% 22.3% 21.0% 19.9%
Information Products and Services
Sales -- $ 2,554 $ 4,666 $ 7,277
Gross profit -- 1,141 2,306 3,014
Gross profit as a percentage
of sales -- 44.7% 49.4% 41.4%
Consolidated
Sales $ 31,680 $ 25,922 $ 89,589 $ 74,516
Gross profit 10,223 8,323 30,046 23,020
Gross profit as a percentage
of sales 32.3% 32.1% 33.5% 30.9%
</TABLE>
Sales
Sales for the three months ended April 30, 1998 were $31,680,000, a record
quarterly high for the Company and a 22.2% increase over the $25,922,000 for
the same period last year. Sales for the nine months ended April 30, 1998
were $89,589,000, a 20.2% increase over the $74,516,000 in last year's first
three quarters. For both the three and nine month periods the increase in
sales over the prior year is distributed among each of the three on-going
business segments of the Company. For the nine months, the revenue increase
is somewhat greater in the Power Conversion Products segment than in the other
two segments, and these results are more fully described in the discussion
below.
Power Conversion Products. In the quarter ended April 30, 1998, Power C
onversion Products sales increased $2.6 million, or 39.7%, to $9.2 million
from $6.6 million in the third quarter of last fiscal year. The increase
includes higher sales of pulsed power components, primarily switches under an
18-month, $3.6 million contract received in April of 1997 for a National
Laboratory system, increased sales of electromagnetic interference (EMI)
filters for implantable heart defibrillators and pacemakers, sales of glass-
to-metal seals used in a variety of industrial applications, and revenues
from Phoenix Power Systems, a small manufacturer of power conditioning
equipment acquired during the quarter, as described above.
<PAGE>
PART I - continued
For the nine months ended April 30, 1998, Power Conversion Products sales
increased $7.3 million, or 38.4%, to $26.5 million from $19.2 million for the
same period last year. The business areas that comprised the majority of the
third quarter sales gains - pulsed power switches for a National Laboratory
system, EMI filters, and industrial seals - as well as sales in the Company's
PowerCache/TM/ ultracapacitor business area, are primarily responsible for the
increase in the year-to-date revenues.
Industrial Computers and Subsystems. In the quarter ended April 30, 1998,
Industrial Computers and Subsystems sales increased $2.7 million, or 32.1%, to
$11.3 million from $8.6 million in the third quarter of last fiscal year.
Historically, sales in this business segment have been made principally to
OEM customers and are primarily derived from the shipment of computers and
subsystems that are "designed-in" to the OEM's products. With the acquisition
of Tri-MAP, as previously described, the Company will, in addition to its
customized products for OEMs, also begin focusing on standard product sales
with an emphasis on marketing through catalogs both in the US and in Europe.
For the third quarter, the sales increase is primarily attributable to products
shipped to a large OEM customer of customized products, as well as to sales
under the new standard product lines. Sales to the large OEM customer are
not expected to be significant going forward due to a pending acquisition of
that company. However, the Company's products have been integrated into the
products of several other OEM customers, and the Company expects to increase
its standard product and catalog sales. The Company believes that such orders
for industrial computers and subsystems should offset the loss of sales
described above when full ramp-up of these new products is achieved.
Sales for the nine months ended April 30, 1998 increased $5.1 million,
or 19.8%, to $30.8 million from $25.7 million for the prior year's first nine
months. For the nine-month period, the sales increase is primarily
attributable to two large OEM programs which are now largely concluded, and
to the new standard product sales.
Technology Programs and Systems. In the quarter ended April 30, 1998,
sales in the Technology Programs and Systems segment increased $2.9 million,
or 35.9%, to $11.1 million from $8.2 million in the third quarter of last
fiscal year. The increase in revenue in the three month period is attributable
to increased funded Defense research and development and systems work in the
Company's core pulsed power area of expertise, including certain Physics
International contracts, and to the shift of the Company's job cost accounting
software business to this segment.
Sales for the nine months ended April 30, 1998 increased $5.2 million, or
23.4%, to $27.6 million from $22.4 million in the prior year. For the nine
months, the increase was also primarily attributable to higher revenue from
funded pulsed power research and development and systems work and increased
sales from two large multi-year DOD contracts based in the Company's
Albuquerque, N.M. location.
The programs referenced above and other contracts with the DOD could
maintain revenue levels in this business segment; however, these programs are
subject to periodic Government funding provisions. The level of future DOD
expenditures in the Company's research and development area and the related
impact on funding for the Company's contracts are not predictable and,
therefore, previously reported results are not necessarily indicative of those
to be expected in the future.
Gross Profit
In the quarter ended April 30, 1998, the Company's gross profit was $10.2
million, or 32.3% of sales, compared to $8.3 million, or 32.1% of sales, in the
third quarter of last fiscal year.
<PAGE>
PART I - continued
Power Conversion Products. In the quarter ended April 30, 1998, Power
Conversion Products gross profit increased $1.2 million, or 51.1%, to $3.6
million from $2.4 million in the third quarter of last fiscal year. In the
nine months ended April 30, 1998, Power Conversion Products gross profit
increased $4.0 million, or 58.2%, to $10.9 million from $6.9 million for the
same period last year. As a percentage of sales, gross profit increased to
38.8% in this year's third quarter from 35.9% in the third quarter of the
prior year. Gross profit as a percentage of sales for the nine-month period
increased to 41.0% from 35.9% in the prior year. This increase in gross
profit as a percentage of sales for both the three and nine month periods
reflects improved overhead absorption and a higher margin mix of products and
services, including, for the nine months, increased funded ultracapacitor
development and related marketing and technology access rights, and,
particularly in the current quarter, switch components for a National
Laboratory pulsed power system.
As the Company introduces ultracapacitor or other new products it may
offer aggressive pricing to gain market penetration. This could have an
adverse impact on increasing gross profit margins until the Company reaches
full production volumes.
Industrial Computers and Subsystems. In the quarter ended April 30, 1998,
Industrial Computers and Subsystems gross profit increased $0.8 million, or
26.6%, to $3.8 million from $3.0 million in the third quarter of last fiscal
year. For the year-to-date, gross profit increased $2.3 million, or 27.4%,
to $11.0 million from $8.7 million one year ago. As a percentage of sales,
gross profit decreased to 33.4% in this year's third quarter from 34.8% in
the third quarter of the prior year. For the nine months ended April 30,
1998, gross profit as a percentage of sales increased to 35.9% from 33.7% for
the same period last year. For the three-month period, the decrease in gross
profit as a percentage of sales as compared to last year's third quarter is
primarily due to a sales mix which did not include high margin shipments to a
long-standing OEM customer whose multi-year program was concluded in the
second quarter of this fiscal year. Such high-margin sales to this OEM did
occur in last year's third quarter as certain product shipments began to ramp-
up. The increase in gross profit as a percentage of sales for this year's
first nine months compared to the same period last year is attributable to this
ramp-up of sales to the OEM customer, resulting in greater year-to-date
shipments this year than last year.
Technology Programs and Systems. Technology Programs and Systems gross
profit was $2.9 million and $1.8 million for the quarters ended April 30,
1998 and 1997, respectively. Year-to-date gross profit increased to $5.8
million from $4.5 million in the prior year. As a percentage of sales, gross
profit increased to 25.8% in this year's third quarter from 22.3% in the
third quarter of the prior year. For the year-to-date, gross profit as a
percentage of sales was 21.0% compared to 19.9% in the prior year. For the
three months ended April 30, the increase in gross profit as a percentage of
sales in 1998 compared to 1997 is primarily due to work on two commercial
pulsed power system contracts won this year, with the prior year including a
larger Government program with substantially smaller gross margins. For the
nine-month periods of both the current and prior years, gross profit as a
percentage of sales is comparable, and in line with the Company's expectations
for this Government-focused business area.
Special Charges
As discussed above, as a result of the acquisition of new businesses and
the reorganization of the Information Products and Services business segment,
the Company recorded charges totaling $8.9 million during the third quarter.
Approximately $6.3 million of the charge is acquisition related, and
approximately $2.6 million relates to the Information Products and Services
business segment.
<PAGE>
PART I - continued
Selling, General and Administrative Expenses
In the quarter ended April 30, 1998, the Company's selling, general and
administrative expenses increased $0.1 million, or 2.8%, to $6.0 million from
$5.9 million in the third quarter of last fiscal year. For the nine months
ended April 30, 1998, selling, general and administrative expenses increased
$2.8 million, or 16.9%, to $19.3 million from $16.5 million in the prior year.
As a percentage of total sales, selling, general and administrative expenses
decreased to 19.1% in this year's third quarter from 22.7% in the third quarter
of the prior year. For the nine-month period, selling, general and
administrative expenses as a percentage of sales decreased to 21.6% from
22.2% in the prior year. In the third quarter, increases in selling, general
and administrative expenses related to the Company's expanded sales and
marketing efforts and for the acquired businesses were nearly offset by
reduced costs from the reorganization of the Information Products and
Services business segment and lower incentive accruals due to the overall
loss after special charges in this year's three-month period. The year-to-
date increase in these costs is primarily attributable to sales and marketing
enhancements focused in the Power Conversion Products and Industrial
Computers and Subsystems business areas, and general and administrative
expenses, including Power Conversion Products infrastructure and an increase
in the bad debt reserve for certain European sales.
Research and Development Expenses
The Company's research and development expenses reflect only internally
funded research and development programs. Costs associated with United States
government and other customer funded research and development contracts are
included in cost of sales. The level of internally funded research and
development expenses reflects the Company's ability to obtain customer funding
to support a significant portion of its research and product development
activities. Internally funded research and development expenses were $2.4
million and $1.4 million for the three months ended April 30, 1998 and 1997,
respectively. For the nine months, research and development expenses were
$5.9 million and $3.7 million in 1998 and 1997, respectively. As a percentage
of sales, these expenses increased to 7.5% in this year's third quarter from
5.4% for the same period last year. For the nine months ended April 30,
research and development expenses as a percentage of sales were 6.5% and 4.9%
in 1998 and 1997, respectively. For both the three and nine month periods,
the increase in internally funded research and development expense reflects
the Company's focus on new commercial product areas, and is primarily due to
ultracapacitor and other power conversion products and power electronics
systems development, and CompactPCI and continued product development for
major new programs in the Industrial Computers and Subsystems business
segment.
Interest Income and Other - net, and Income Tax Expense
Interest income and other - net increased to $592,000 for the three months
ended April 30, 1998 from $25,000 in the third quarter of the prior year. For
the nine months ended April 30, 1998, interest income and other - net increased
to $1.1 million from $123,000 in the prior year. These increases are
attributable to interest income from the investment of the net cash proceeds
of the Company's follow-on offering which was completed in November 1997. The
Company incurred income tax expense of $74,000 due to profitable operations in
the U.K. which are subject to tax in that country. The Company has a current
year loss domestically, and net operating loss carryforwards offset the
Company's provision for US income taxes in the prior year.
<PAGE>
PART I - continued
Liquidity and Capital Resources
Net cash used in operations in the current year's first nine months was
$2.0 million. This is primarily attributable to an increase in accounts
receivable due to the higher sales volume, receivables obtained in the
acquisitions completed during the third quarter, and certain issues relating
to the US Government billing and collection cycle, which the Company believes
have now been resolved. During the third quarter, the Company's unsecured
bank line of credit was increased to $20.0 million from its previous level of
$10.0 million. Interest on the credit line is tied to LIBOR or the bank's
prime rate; as of April 30, 1998, no amounts were outstanding under the line
of credit. In November 1997, the Company completed a follow-on public
offering of 1.5 million shares of its Common Stock, and received net proceeds
of approximately $47 million. A portion of the proceeds was used to repay
an outstanding balance on the bank line of credit, and during the third
quarter, approximately $12 million of cash was used in completing the three
acquisitions discussed in the Results of Operations section above. The
remainder of the proceeds are intended for general corporate purposes,
including working capital and the current forecast of capital expenditures
for facilities and equipment, including manufacturing requirements for EMI
filters and ultracapacitors, projects for which are currently underway.
The Company believes that the net proceeds from the follow-on offering,
together with cash generated from operations and funds available under its
bank line of credit, will be sufficient to finance its operations and capital
expenditures for the foreseeable future. During this period, the Company will
be addressing the need for high-volume manufacturing of ultracapacitors, and
may make commitments to acquire facilities and manufacturing equipment for
such purposes. Alternatively, the Company may consider leasing such facilities
or may satisfy volume manufacturing requirements through outsourcing or under
licensing arrangements with third parties. If the Company decides to
internally finance construction of facilities, a significant amount of capital
would be required. In addition to addressing the need for high volume
manufacturing, the Company may continue from time to time consider acquisitions
of complementary businesses, products or technologies, which may require
additional funding. Sources of additional funding for these purposes could
include one or more of the following: cash flow from operations; investments
by strategic partners; and additional debt or equity financing. There can be
no assurance that the Company will be able to obtain additional sources of
financing on favorable terms, if at all, at such time or times as the Company
may require such capital.
Note on Forward-Looking Information
To the extent that the above discussion goes beyond historical information
and indicates results or developments which the Company plans or expects to
achieve, these forward-looking statements are identified by the use of terms
such as "expected," "anticipates," "believes," "plans" and the like. Readers
are cautioned that such future results are uncertain and could be affected by
a variety of factors that could cause actual results to differ from those
expected. The Company acquired three businesses during the third quarter just
ended, and the factors that could affect future results include the successful
integration of these newly acquired operations and their growth and
profitability. Readers are referred to item 1 of the Company's Annual Report
on Form 10-K for fiscal 1997 for a discussion of certain of those factors.
<PAGE>
PART II - OTHER INFORMATION
Item 2. Changes in Securities
---------------------
(c) On March 6, 1998, the Company acquired all of the outstanding
capital stock of a privately-held company in exchange for
100,679 shares of Company common stock and cash of approximately
$1.3 million. No underwriters were used and the recipients of
the Company's common stock were the principal shareholders of
the acquired company. The shares issued were not registered
under the Securities Act of 1933, as amended, pursuant to the
exemption contained in Rule 505 of Regulation D of such Act.
On March 24, 1998, the Company issued 290,076 shares of its
common stock in connection with an acquisition of all the
outstanding capital stock of a privately-held company located
in the United Kingdom. The form of transaction was an exchange
of the Company's common stock for the capital stock of the
acquired business. No underwriters were used and the recipients
of the Company's common stock were the shareholders of the
acquired company and its affiliates. The shares issued were
not registered under the Securities Act of 1933, as amended,
pursuant to the exemption contained in Regulation S of such
Act. All the shareholders of the acquired business are
residents of the United Kingdom.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
27 - Financial Data Schedule
(b) Reports on Form 8-K
The Company filed two reports on Form 8-K during the quarter
ended April 30, 1998.
On April 3, 1998, the Company filed a report on Form 8-K to
report its acquisition of all the outstanding capital stock of
a privately-held company located in the United Kingdom.
On April 29, 1998, the Company filed a report on Form 8-K to
report its acquisition of the assets of the ElectroMagnetic
Systems Group of Primex Physics International Company.
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 TECHNOLOGIES, INC.
/s/ Gary Davidson
- -------------------------- --------------------------------------
Date Gary Davidson, Chief Financial Officer
and Authorized Officer
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