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 October 31, 1999 Commission File Number 0-10964
MAXWELL TECHNOLOGIES, INC.
Delaware IRS ID #95-2390133
9275 Sky Park Court
San Diego, California 92123
Telephone (858) 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 November 30, 1999, Registrant had only one class of common stock of
which there were 9,563,984 shares outstanding.
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
Maxwell Technologies, Inc.
Consolidated Condensed Balance Sheets
(in thousands)
<CAPTION>
Assets
------
October 31, July 31,
1999 1999
---------- ----------
(Unaudited) (Note)
<S> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents $ 8,986 $ 8,839
Accounts receivable - net 41,675 49,978
Inventories:
Finished products 3,132 3,624
Work in process 4,028 3,907
Parts and raw materials 15,860 16,096
---------- ----------
23,020 23,627
Prepaid expenses 3,984 3,733
Deferred income taxes 10,493 10,493
---------- ----------
Total current assets 88,158 96,670
Property, plant and equipment - net 24,874 27,880
Goodwill and other non-current assets 10,294 9,884
---------- ----------
$ 123,326 $ 134,434
========== ==========
</TABLE>
<TABLE>
<CAPTION>
Liabilities and Stockholders' Equity
------------------------------------
<S> <C> <C> <C> <C>
Current liabilities:
Accounts payable $ 18,019 $ 23,817
Accrued employee compensation 7,082 7,363
Current portion of long-term debt 435 3,252
---------- ----------
Total current liabilities 25,536 34,432
Long-term debt 205 436
Minority interest 2,216 2,398
Stockholders' equity:
Common stock 957 956
Additional paid-in capital 78,146 78,082
Deferred compensation (144) (204)
Accumulated other comprehensive income (195) (132)
Retained earnings 16,605 18,466
---------- ----------
95,369 97,168
---------- ----------
$ 123,326 $ 134,434
========== ==========
Note: The Balance Sheet at July 31, 1999 has been derived from the audited
financial statements as of that date.
See notes to consolidated condensed financial statements.
</TABLE>
<PAGE>
PART I - FINANCIAL INFORMATION, continued
<TABLE>
Maxwell Technologies, Inc.
Consolidated Condensed Statements of Operations - (Unaudited)
(in thousands, except per share data)
<CAPTION>
Three Months
Ended October 31,
--------------------------
1999 1998
---------- ----------
<S> <C> <C> <C> <C>
Sales $ 40,656 $ 42,986
Cost of sales 30,060 28,379
---------- ----------
Gross profit 10,596 14,607
Operating expenses:
Selling, general and
administrative expenses 10,624 9,507
Research and development expenses 2,926 2,503
---------- ----------
Total operating expenses 13,550 12,010
---------- ----------
Operating income (loss) (2,954) 2,597
Interest expense 112 118
Interest income and other, net (28) (288)
---------- ----------
Income (loss) before income taxes and
minority interest (3,038) 2,767
Provision (credit) for income taxes (995) 100
Minority interest in net income (loss)
of subsidiaries (182) 195
---------- ----------
Net income (loss) $ (1,861) $ 2,472
========== ==========
Net income (loss) per share:
Basic income (loss) per share $ (0.19) $ 0.27
========== ==========
Diluted income (loss) per share $ (0.19) $ 0.25
========== ==========
Shares used in computing:
Basic income (loss) per share 9,560 9,228
========== ==========
Diluted income (loss) per share 9,560 9,618
========== ==========
See notes to consolidated condensed financial statements.
</TABLE>
<PAGE>
PART I - FINANCIAL INFORMATION, continued
<TABLE>
Maxwell Technologies, Inc.
Consolidated Condensed Statements of Cash Flows - (Unaudited)
(in thousands)
<CAPTION>
Three Months
Ended October 31,
--------------------------
1999 1998
---------- ----------
<S> <C> <C> <C> <C>
Operating Activities:
Net income (loss) $ (1,861) $ 2,472
Adjustments to reconcile net income
(loss) to net cash provided by
(used in) operating activities:
Depreciation and amortization 1,486 1,285
Deferred compensation 60 60
Loss on sales of property and
equipment 64 --
Minority interest in net income
(loss) of subsidiaries (182) 195
Changes in operating assets and
liabilities - net 2,069 (6,706)
---------- ----------
Net cash provided by (used
in) operating activities 1,636 (2,694)
---------- ----------
Investing Activities:
Purchases of property and equipment (1,843) (2,043)
Proceeds from sale of building 3,400 --
---------- ----------
Net cash provided by (used
in) investing activities 1,557 (2,043)
---------- ----------
Financing Activities:
Principal payments on long-term
debt and short-term borrowings (3,048) (445)
Proceeds from long-term debt and
short-term borrowings -- 620
Proceeds from issuance of Company
and subsidiary stock 65 240
Repurchase of Company and
subsidiary stock -- (695)
---------- ----------
Net cash used in
financing activities (2,983) (280)
---------- ----------
Effect of exchange rate changes on
cash and cash equivalents (63) 4
---------- ----------
Increase (decrease) in cash and cash
equivalents 147 (5,013)
Cash and cash equivalents at beginning
of period 8,839 21,397
---------- ----------
Cash and cash equivalents at end of
period $ 8,986 $ 16,384
========== ==========
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 October 31, 1999 and the results of operations for the
three month period then ended. These interim financial statements should be
read in conjunction with the Company's July 31, 1999 audited consolidated
financial statements and notes thereto included in its Annual Report on Form
10-K for fiscal year 1999. 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.
2. Foreign Currencies
A portion of the Company operations consists of manufacturing and sales
activity in foreign countries, specifically the United Kingdom, France and
Germany. As a result, the Company's financial results could be significantly
affected by factors such as changes in foreign currency exchange rates or weak
economic conditions in the European markets that the Company serves. The
operating results of the Company are exposed to changes in exchange rates
between the United States dollar and the British pound, French franc, and the
German mark. The Company does not currently hedge its foreign exchange risk,
which is not significant at this time. The assets and liabilities of the
Company's foreign subsidiaries are translated from their functional currencies
into United States dollars at exchange rates in effect on the balance sheet
date, and revenues and expenses are translated at weighted-average rates
prevailing during the year.
3. Comprehensive Income (Loss)
In fiscal year 1999, the Company adopted Statement of Financial Accounting
Standards No. 130, Reporting Comprehensive Income ("Statement No. 130").
Statement No. 130 established new rules for the reporting and display of
comprehensive income and its components; however the adoption of Statement No.
130 had no impact on the Company's net income (loss) or total stockholders'
equity. The components of comprehensive income (loss) for the three months
ended October 31, 1999 and 1998 were as follows (in thousands):
<TABLE>
<CAPTION>
Three Months
Ended October 31,
--------------------------
1999 1998
---------- ----------
<S> <C> <C> <C> <C>
Net income (loss) $ (1,861) $ 2,703
Foreign currency translation adjustments (63) 4
---------- ----------
Comprehensive income (loss) $ (1,924) $ 2,707
========== ==========
</TABLE>
4. Income (Loss) Per Share
In accordance with Financial Accounting Standards Board Statement No. 128,
Earnings Per Share ("Statement No. 128"), 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
convertible preferred shares outstanding at certain subsidiaries of the
Company, assuming their conversion. For the three months ended October 31,
1999, all potentially dilutive securities were excluded from the calculation
of diluted loss per share as their inclusion would have been antidilutive.
<PAGE>
PART I - continued
The following table sets forth the computation of basic and diluted income
(loss) per share:
<TABLE>
<CAPTION>
Three Months
Ended October 31,
--------------------------
1999 1998
---------- ----------
<S> <C> <C> <C> <C>
Basic:
Net income (loss) $ (1,861) $ 2,472
========== ==========
Weighted average shares 9,560 9,228
========== ==========
Basic income (loss) per share $ (0.19) $ 0.27
========== ==========
Diluted:
Net income (loss) $ (1,861) $ 2,472
Effect of majority-owned
subsidiaries dilutive securities -- (66)
---------- ----------
Income (loss) available to common
shareholders, as adjusted $ (1,861) $ 2,406
========== ==========
Weighted average shares 9,560 9,228
Effect of dilutive stock options
and other securities -- 390
---------- ----------
Weighted average shares, as adjusted 9,560 9,618
========== ==========
Diluted income (loss) per share $ (0.19) $ 0.25
========== ==========
</TABLE>
5. Business Segments
The following table sets forth sales and operating profit (loss) data of the
Company's business segments as defined by the Company under the guidelines of
Financial Accounting Standards Board Statement No. 131, Disclosures About
Segments of an Enterprise and Related Information ("Statement No. 131").
<TABLE>
<CAPTION>
Space and Industrial Sterilization
Technology Computers Power and
Products and and Conversion Purification
Programs Subsystems Products Systems Other Total
----------- ---------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Three months ended October 31, 1999:
Revenues $14,139 $16,896 $ 9,154 $ 467 $ -- $40,656
Operating income (loss) (467) 1,342 (1,792) (1,242) (795) (2,954)
Three months ended October 31, 1998:
Revenues $17,204 $10,267 $11,455 $ 2,919 $ 1,141 $42,986
Operating income (loss) (49) 83 900 1,272 391 2,597
</TABLE>
<PAGE>
PART I - continued
6. Subsequent Events
In November 1999, the Company adopted a plan to integrate several of its
commercial businesses to form two new business segments based on the Company's
core capabilities in power and computing. Effective January 1, 2000, the
Company will report the following segments:
- A new Systems segment, integrating its Industrial Computers and Subsystems
business segment with its power conditioning and distribution business
unit;
- A new Components segment, integrating its ultracapacitor business with its
Space Electronics and Sierra-KD business units;
- A Government segment including its government contracting business, and;
- A Sterilization and Purification segment as currently reported.
In addition, the Company plans to divest its business software, high-voltage
capacitor and glass-to-metal seals businesses.
Also in November 1999, the Company's Board of Directors adopted a resolution
to change the Company's fiscal year to a calendar year. The Company will file
an Annual Report on Form 10-K for the transition period from August 1 to
December 31, 1999.
The Company expects to record charges associated with the integration of its
commercial business in the stub period ended December 31, 1999.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Overview
Maxwell Technologies, Inc. ("Maxwell" or the "Company") applies industry-
leading capabilities in power and computing to develop and market products
and services for commercial and government customers in multiple industries,
including telecommunications, consumer electronics, satellite, defense, energy,
transportation, medical products and water purification.
A worldwide leader in pulsed power technologies, the storage of electrical
energy and delivery of power in brief controlled bursts, the Company has
leveraged its technical expertise, gained from over 30 years of experience
performing research and development primarily for the United States Department
of Defense ("DOD"), to develop a portfolio of pulsed power based products,
ranging from components such as ultracapacitors and EMI filters to systems
for purification and sterilization and major pulsed power x-ray simulators.
For the space and satellite market, Maxwell offers a line of microelectronic
components and subsystems, as well as sophisticated analysis and services
involving the effects of the space environment on spacecraft and sensor signal
processing for space systems. The Company also designs and manufacturers
industrial computers and subsystems which are sold to original equipment
manufacturers and as standard catalogue products in the computer telephony,
broadcasting, manufacturing automation and e-commerce.
The Company generates revenue from the sale of commercial products, from
licensing technology and other rights to strategic partners and from performing
contract research and other projects for the United States government and other
customers. The Company's commercial products sales teams consist of sales
personnel based in its operating facilities and for the Company's industrial
computer and Space Electronics, Inc. ("SEi") units, geographically dispersed
sales offices. These sales teams are often supported by scientists, application
engineers and technical specialists. Sales and marketing for the Company's
products in the United States, and, for industrial computers, Europe, is
handled directly by the Company, and elsewhere the Company utilizes sales
representatives and distributors to assist in the marketing of its products.
The Company conducts marketing programs intended to position and promote its
products and services, including trade shows, seminars, advertising, public
relations, distribution of product literature and web-sites on the Internet.
<PAGE>
PART I - continued
The Company's operating expenses are substantially impacted by selling,
general and administrative activities and by research and development
activities. Selling, general and administrative expenses are primarily driven
by (1) sales volume, with respect to sales force expenses and commission
expenses; (2) the extent of market research activities for new product design
efforts; (3) advertising and trade show activities and (4) the number of new
products launched in the period. General and administrative expenses primarily
include costs associated with the Company's administrative employees,
facilities and functions. The Company incurs expenses in foreign countries
primarily in the functional currencies of such locations. As a result of the
Company's international operations, the United States dollar amount of its
revenue and expenses is impacted by changes in foreign currency exchange
rates. The Company's ability to maintain and grow its sales depends on a
variety of factors including its ability to maintain its competitive position
in areas such as technology, performance, price, brand identity, quality,
reliability, distribution and customer service and support. The Company's
sales growth also depends on its ability to continue to introduce new products
that respond to technological change and market demand in a timely manner.
Business Segments
In accordance with Statement of Financial Accounting Standards No. 131,
Disclosure About Segments of an Enterprise and Related Information ("Statement
No. 131"), Maxwell's operations have been classified into the following
business segments:
- Space and Technology Products and Programs: Includes design, development
and manufacture of high reliability radiation-hardened electronic
components and consulting services for commercial and government space
systems, research and development programs in pulsed power, pulsed power
systems design and construction, computer-based analytic services and
software, and weapons effects simulation, primarily for the DOD. Over the
last several periods, the Company has re-directed some of its space effects
modeling and analysis services, with expertise developed over a 25-year
period, from government to commercial programs. To complement its
consulting services, in fiscal year 1999, the Company acquired SEi, a San
Diego based supplier of specially treated electronic components for use in
space environments, primarily by commercial satellite manufacturers.
- Industrial Computers and Subsystems: Includes design and assembly of
standard, custom and semi-custom industrial computer modules, platforms
and fully integrated systems primarily for OEMs.
- Power Conversion Products: Includes design, development and manufacture
of electrical components, systems and subsystems, including products that
capitalize on pulsed power such as ultracapacitors, high voltage
capacitors and other electrical components, power distribution and
conditioning systems, and EMI filter capacitors.
- Sterilization and Purification Systems: Includes design, development and
manufacture of systems based on two patented pulsed power processes
incorporating capacitors and other pulsed power components designed and
manufactured by the Company. The PureBright system utilizes intense pulsed
light to kill microorganisms and viruses in water and blood plasma and
other biopharmaceutical products, and on food, food packaging and medical
products. The CoolPure system uses pulsed electrical fields to kill
microorganisms in liquids and liquid foods, such as juices, dairy products
and sauces.
<PAGE>
PART I - continued
In November 1999, the Company adopted a plan to integrate several of its
commercial businesses to form two new business segments based on the Company's
core capabilities in power and computing. Effective January 1, 2000, the
Company will report the following segments:
- A new Systems segment, integrating its Industrial Computers and Subsystems
business segment with its power conditioning and distribution business
unit;
- A new Components segment, integrating its ultracapacitor business with its
Space Electronics and Sierra-KD business units;
- A Government segment including its government contracting business, and;
- A Sterilization and Purification segment as currently reported.
In addition, the Company plans to divest its business software, high-voltage
capacitor and glass-to-metal seals businesses.
Also in November 1999, the Company's Board of Directors adopted a resolution
to change the Company's fiscal year to a calendar year. The Company will file
an Annual Report on Form 10-K for the transition period from August 1 to
December 31, 1999.
The Company expects to record charges associated with the integration of its
commercial business in the stub period ended December 31, 1999.
Results of Operations
The results of operations for the first quarter of fiscal year 1999 have been
restated to include the results of acquisitions completed during fiscal year
1999 and accounted for using the pooling-of-interests method.
The following table sets forth, for the periods indicated selected operating
data for the Company, expressed as a percentage of sales:
<TABLE>
<CAPTION>
Three Months
Ended October 31,
--------------------------
1999 1998
---------- ----------
<S> <C> <C> <C> <C>
Sales 100.0% 100.0%
Cost of sales 73.9 66.0
---------- ----------
Gross profit 26.1 34.0
Operating expenses:
Selling, general and administrative 26.1 22.1
Research and development 7.2 5.8
---------- ----------
Total operating expenses 33.3 27.9
---------- ----------
Operating income (loss) (7.2) 6.1
Interest expense 0.3 0.3
Interest income and other, net (0.1) (0.7)
---------- ----------
Income (loss) before income taxes
and minority interest (7.4) 6.5
Provision (credit) for income taxes (2.4) 0.2
Minority interest in net income (loss)
of subsidiaries (0.4) 0.5
---------- ----------
Net income (loss) (4.6)% 5.8%
========== ==========
</TABLE>
<PAGE>
PART I - continued
The following table sets forth sales, gross profit and gross profit as a
percentage of sales for each of the Company's business segments for the
three-month periods ended October 31, 1999 and 1998:
<TABLE>
<CAPTION>
Three Months
Ended October 31,
--------------------------
1999 1998
---------- ----------
(in thousands)
<S> <C> <C> <C> <C>
Space and Technology Products and Programs
Sales $ 14,139 $ 17,204
Gross profit 3,915 4,807
Gross profit as a percentage of sales 27.7% 38.7%
Industrial Computers and Subsystems:
Sales $ 16,896 $ 10,267
Gross profit 5,257 3,193
Gross profit as a percentage of sales 31.1% 31.1%
Power Conversion Products:
Sales $ 9,154 $ 11,455
Gross profit 1,483 4,273
Gross profit as a percentage of sales 16.2% 37.3%
Sterilization and Purification Systems:
Sales $ 467 $ 2,919
Gross profit (loss) (59) 1,893
Gross profit (loss) as a percentage
of sales (12.6)% 64.9%
Other:
Sales $ -- $ 1,141
Gross profit -- 441
Gross profit as a percentage of sales -- 38.7%
Consolidated
Sales $ 40,656 $ 42,986
Gross profit 10,596 14,607
Gross profit as a percentage of sales 26.1% 34.0%
</TABLE>
Sales
Sales for the three months ended October 31, 1999 were $40.7 million, a 5.4%
decrease from $43.0 million for the same period last year. The decrease in
sales from the prior year occurred in most of the Company's business segments,
the exception being the Industrial Computers and Subsystems segment, for which
revenues increased over 60% as compared to the prior year first quarter. These
results are more fully described in the business segment discussion below.
Space and Technology Products and Programs. In the quarter ended October 31,
1999, sales in the Space and Technology Products and Programs segment decreased
$3.1 million, or 17.8%, to $14.1 million from $17.2 million in the first
quarter of last fiscal year. This decrease was primarily the result of reduced
revenues from the wind-down of certain Government programs. Additionally,
revenues from the Company's customers in the commercial satellite market
decreased in the current period due to recent economic issues affecting such
customers.
<PAGE>
PART I - continued
Industrial Computers and Subsystems. In the quarter ended October 31, 1999,
sales in the Industrial Computers and Subsystems segment increased $6.6
million, or 64.6%, to $16.9 million from $10.3 million in the first quarter of
last fiscal year. The increase in sales for the quarter is attributable both
to an increase in European sales over the prior year of $2.3 million, and new
design-in wins for a customized OEM product for a SiemensElectroCom, LP
program with the US Postal Service which contributed sales of $5.9 million in
the current period.
Power Conversion Products. In the quarter ended October 31, 1999, sales in
the Power Conversion Products segment decreased $2.3 million, or 20.0%, to
$9.2 million from $11.5 million in the first quarter of last fiscal year. This
decrease primarily resulted from decreases in revenue received from technology
licenses and other collaborative agreements. In addition, at the Company's
Sierra-KD operation, over-stock issues at its primary medical filter customer
and weakness in the oil and space markets resulted in a decrease in sales from
the prior year. Partially offsetting the above decreases was continued growth
in sales of power protection and delivery systems and sales of traditional
high-voltage capacitors related to a large multi-year order under a National
Laboratory program which is expected to be completed in mid-fiscal year 2000.
Sterilization and Purification Products. In the quarter ended October 31,
1999, sales in the Sterilization and Purification Products segment decreased
$2.4 million, or 84.0%, to $0.5 million from $2.9 million in the first quarter
of last fiscal year. During the prior year first quarter, revenues in this
business segment were primarily comprised of licensing and rights fees received
from strategic partners and included revenue related to the grant of certain
non-exclusive rights for manufacturing and distribution of its products. The
revenues in the first quarter of the current fiscal year did not benefit from
such licensing and rights fees. The Company is redefining its product strategy
and market focus and, as a result, revenue contribution from license fees may
not continue at historical levels.
Gross Profit
In the quarter ended October 31, 1999, the Company's gross profit was $10.6
million, or 26.1% of sales, compared to $14.6 million, or 34.0% of sales, in
the first quarter of last fiscal year. Gross profit is discussed by business
segment in the sections that follow.
Space and Technology Products and Programs. In the quarter ended October 31,
1999, gross profit in the Space and Technology Products and Programs segment
decreased $0.9 million, or 18.6%, to $3.9 million from $4.8 million in the
first quarter of last fiscal year primarily as a result of lower revenues. As
a percentage of sales, gross profit decreased slightly to 27.7% in this year's
first quarter from 27.9% in the first quarter of the prior year.
Industrial Computers and Subsystems. In the quarter ended October 31, 1999,
due to increased revenues, the gross profit in the Industrial Computers and
Subsystems segment increased $2.1 million, or 64.6%, to $5.3 million from $3.2
million in the first quarter of last fiscal year. As a percentage of sales,
gross profit remained level with the prior year at 31.1%.
Power Conversion Products. In the quarter ended October 31, 1999, gross
profit in the Power Conversion Products segment decreased by $2.8 million, or
65.3%, to $1.5 million from $4.3 million in the first quarter of last fiscal
year. As a percentage of sales, gross profit declined to 16.2% in this year's
first quarter from 37.3% in the first quarter of the prior year. The decrease
in gross profit as a percentage of sales reflects a lower margin mix of
products and services, including decreased contribution from high-margin
technology licenses and other collaborative agreements. In addition, in its
PowerCache ultracapacitor product line, the Company is making required
infrastructure and other investments which impact gross profit at current sales
volumes. As product sales ramp up, gross margins will continue to be impacted
until full production volumes are reached and maintained.
Sterilization and Purification Products. In the quarter ended October 31,
1999, gross profit in the Sterilization and Purification Products segment
decreased $2.0 million, or 103%, to $(0.1) million from $1.9 million in the
first quarter of last fiscal year. Gross profit in the first quarter of the
prior fiscal year benefited from high-margin revenue from grants of licenses
and rights. As the Company redefines its product strategy and market focus,
gross profit margins will likely continue to be negatively impacted.
<PAGE>
PART I - continued
Selling, General and Administrative Expenses
In the quarter ended October 31, 1999, the Company's selling, general and
administrative expenses increased $0.9 million, or 11.7%, to $10.6 million
from $9.5 million in the first quarter of last fiscal year. As a percentage of
total sales, selling, general and administrative expenses increased to 26.1%
in this year's first quarter from 22.1% in the first quarter of the prior
year. The increase in the dollar amount of these expenses is primarily in
support of the Company's growth over the course of the prior fiscal year and
the continued expansion in Europe related to the industrial computer business
area. In addition, the current quarter includes approximately $750,000 of
severance costs related to the Company's former CEO.
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 $2.9
million and $2.5 million for the three months ended October 31, 1999 and 1998,
respectively. The increase in these expenses for the current three-month
period as compared to the same period last year is primarily due to efforts
to accelerate new product introductions.
Interest Income and Other-net and Provision (Credit) for Income Taxes
Interest income and other-net decreased to $28,000 for the three months ended
October 31, 1999 from $288,000 in the first quarter of the prior year. These
decreases are primarily due to a reduction in interest earned on cash
investments in the current year. In the prior year's first quarter, the
Company's provision for income taxes consisted primarily of taxes for its
foreign operations, while the provision in the current quarter reflects the
Company's expected world-wide tax rate for the current fiscal year.
Liquidity and Capital Resources
Net cash provided by operations for three months ended October 31, 1999 was
$1.6 million. The increase in cash in the current quarter was primarily
attributable to decreases in receivables and inventories, and proceeds from
the sale of an unoccupied building. This increase was offset by the repayment
of the Company's outstanding obligation under its bank line-of-credit and by
capital expenditures. The Company's capital expenditures during the first
quarter amounted to $1.8 million, and primarily consisted of production and
other capital assets in the Power Conversion Products business segment, and
expenditures related to the Company's information systems infrastructure.
Maxwell has an unsecured bank line-of-credit amounting to $20.0 million,
under which the Company has no borrowings outstanding as of October 31, 1999.
The Company believes that funds on-hand, together with cash generated from
operations and funds available under its bank line-of-credit, will be
sufficient to finance its operations and expected capital expenditures through
fiscal year 2000. In addition to addressing manufacturing requirements, the
Company may also 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, cash equivalents and short-term investments on hand;
cash flow from operations; borrowings under the existing bank line of credit;
investments by strategic partners and additional debt or equity financings.
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.
<PAGE>
PART I - continued
Software Compatibility with Year 2000 Date Processing
The Year 2000 issue is the result of computer programs using a two-digit
format, as opposed to four digits, to indicate the year. Computer systems
utilizing such programs may be unable to interpret dates beyond the year 1999,
which could cause a system failure or other computer errors, leading to
disruptions in operations. This issue is often referred to as "Y2K" or a
"Y2K" issue or problem. In fiscal year 1998, the Company commenced a three-
phase program to ensure Y2K information systems compliance. Phase 1 is to
identify and remedy Y2K issues in the Company's significant information
systems infrastructure and enterprise business applications, including
telecommunications and networking systems, manufacturing/production and
delivery systems, as well as accounting and manufacturing software. Phase 2
is to identify and plan for Y2K issues that are specific to the Company's
business units, including local software, product matters, facilities related
systems and vendor and key partner concerns. Phase 3 is the final testing of
each major area of exposure to ensure compliance, and the development of
contingency plans for unsolved Y2K deficiencies, such as key vendors failing
to adequately address their Y2K problems. The Company has identified four
major areas determined to be critical for successful Y2K compliance: (1)
networking and telecommunications; (2) financial and manufacturing information
systems applications; (3) products; and (4) third-party relationships.
In Phase 1 of the program, the Company has completed its review of company-
wide and significant systems, several of which have been identified as being
Y2K compliant due to their recent implementation or upgrade. Such
installations and upgrades were unrelated to the Y2K concern, but rather were
implemented in the ordinary course of business. For certain accounting and
manufacturing systems, upgrades were needed and all such upgrades have been
installed. Identified upgrades of the system infrastructure, such as telephone
and networking equipment, are also completed. Final testing and documentation
under Phase 1 has been completed. Under Phase 2, the Company has completed
identifying, evaluating and resolving business unit exposures. In the third-
party area, the Company contacted its significant third parties, primarily key
vendors and customers, regarding their Y2K readiness and evaluated their
responses. As to products, initial findings indicated that most Company
products were not impacted by the potential Y2K problem and that most of those
that were impacted appeared to be Y2K compliant. For all products that were
not Y2K compliant, the Company has made upgrades available via the Company's
Internet web site. Final testing and contingency plan development under Phase
3 was completed in October 1999. Accordingly, the Company believes that it has
now fully completed its Y2K Information Systems Compliance Plan.
The Company has incurred costs of approximately $1.5 million to complete all
three phases of its Y2K Information Systems Compliance Program. Such costs
include approximately $700,000 related to purchases of certain computer
hardware and software, which addressed the Company's Y2K program, but would
have been purchased by the Company in any event in connection with the normal
periodic upgrade of its systems. In addition, such costs include Company
labor costs and amounts paid to external consultants and advisors.
There can be no assurance that Y2K compliance problems will not be revealed
in the future which could have a material adverse affect on the Company's
business, financial condition and results of operations. Many of the Company's
customers and suppliers may be affected by Y2K issues that may require them to
expend significant resources to modify or replace their existing systems, which
may result in those customers having reduced funds to purchase the Company's
products or those suppliers experiencing difficulties in producing or shipping
key components to the Company on a timely basis or at all. Such third party
issues could have a material adverse affect on the Company's business,
financial condition and results of operations. This discussion of the
Company's Y2K status constitutes a "Year 2000 Readiness Disclosure" as that
item is defined in the Year 2000 Information and Readiness Disclosure Act,
and also contains forward-looking statements (see "Forward-Looking Statements"
below).
<PAGE>
PART I - continued
Forward-Looking Statements
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, and such differences could be material. The Company undertakes no
obligation to publicly release the result of any revisions to these forward-
looking statements that may be made to reflect any future events or
circumstances. Readers are referred to item 1 of the Company's Annual Report
on Form 10-K for fiscal year 1999 for a discussion of certain of those
factors.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The Company has not entered into or invested in any instruments that are
subject to market risk.
The Company's bank line-of-credit agreement bears interest at a rate that
varies based on the LIBOR or the bank's prime rate. As of October 31, 1999,
the Company has no amounts outstanding under its bank line-of-credit.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities and Use of Proceeds
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27 - Financial Data Schedule
(b) Reports on Form 8-K
None.
<PAGE>
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.
December 15, 1999 /s/ Carlton J. Eibl
- ---------------------------- ---------------------------------
Date Carlton J. Eibl, Chief Executive
Officer and Authorized Officer
December 15, 1999 /s/ Vickie L. Capps
- ---------------------------- ---------------------------------
Date Vickie L. Capps, Vice President -
Finance, Treasurer and Chief
Financial Officer (Principal
Financial and Accounting Officer)
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