UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
--- OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended June 30, 2000
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
--- OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period From _____ to ____
Commission File Number 0-10964
MAXWELL TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
Delaware 95-2390133
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
9275 Sky Park Court, San Diego, CA 92123-4303
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code: (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 July 31, 2000, Registrant had only one class of common stock, of which
there were 9,831,269 outstanding.
<PAGE>
MAXWELL TECHNOLOGIES, INC.
INDEX TO QUARTERLY REPORT ON FORM 10-Q
For the quarter ended June 30, 2000
Page
PART I
Item 1. Condensed Consolidated Financial Statements 1
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 10
Item 3. Quantitative and Qualitative Disclosures
About Market Risk 19
PART II
Item 1. Legal Proceedings 19
Item 2. Changes in Securities and Use of Proceeds 19
Item 3. Defaults Upon Senior Securities 19
Item 4. Submission of Matters to a Vote of Security Holders 19
Item 5. Other Information 19
Item 6. Exhibits and Reports on Form 8-K 19
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
MAXWELL TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
---------- ----------
<S> <C> <C>
Assets (Unaudited) (Note)
Current assets:
Cash and cash equivalents $ -- $ 4,100
Accounts receivable, net 34,976 26,134
Inventories 25,832 22,805
Prepaid expenses and other current assets 2,820 715
Deferred income taxes 18,673 14,894
Net assets of discontinued operations 1,312 6,927
-------- --------
Total current assets 83,613 75,575
Property, plant and equipment, net 20,154 18,848
Goodwill and other non-current assets 13,990 12,021
-------- --------
$117,757 $106,444
======== ========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable and accrued liabilities $ 21,558 $ 14,267
Accrued employee compensation 6,787 5,402
Short term borrowings 5,786 264
Current portion of long-term debt 24 24
-------- --------
Total current liabilities 34,155 19,957
Long-term debt, excluding current portion 174 186
Minority interest 1,677 1,885
Commitments and contingencies
Stockholders' equity:
Common stock 977 957
Additional paid-in capital 80,259 78,378
Notes receivable from executives for
stock purchases (875) --
Deferred compensation (39) (117)
Retained earnings 2,025 5,375
Accumulated other comprehensive loss
- foreign currency translation adjustments (596) (177)
-------- --------
81,751 84,416
-------- --------
$117,757 $106,444
======== ========
Note: The Balance Sheet at December 31, 1999 has been derived from the audited
financial statements as of that date. As discussed in Note 1, certain balances as
of December 31, 1999 have been reclassified.
See notes to condensed consolidated financial statements.
</TABLE>
<PAGE>
MAXWELL TECHNOLOGIES, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------ ------------------
2000 1999 2000 1999
------- ------- ------- -------
<S> <C> <C> <C> <C>
Sales $37,501 $41,054 $74,761 $78,515
Cost of sales 27,872 28,845 55,694 53,312
------- ------- ------- -------
Gross profit 9,629 12,209 19,067 25,203
Operating expenses:
Selling, general and administrative 8,851 8,799 18,097 16,872
Research and development 2,262 2,039 4,367 3,950
Restructuring, acquisition and other charges 1,387 -- 1,910 1,491
------- ------- ------- -------
Total operating expenses 12,500 10,838 24,374 22,313
------- ------- ------- -------
Operating income (loss) (2,871) 1,371 (5,307) 2,890
Interest expense (117) (134) (191) (199)
Interest income and other, net 32 102 77 489
------- ------- ------- -------
Income (loss) before income taxes and
minority interest (2,956) 1,339 (5,421) 3,180
Provision (credit) for income taxes (1,182) 109 (2,168) 280
Minority interest in net income (loss)
of subsidiaries (88) 234 (195) 317
------- ------- ------- -------
Income (loss) from continuing operations (1,686) 996 (3,058) 2,583
Discontinued operations, net of tax:
Income (loss) from operations (1,307) 3,671 (1,742) 4,020
Credit for adjustment of estimated loss on disposal 1,134 -- 1,450 --
------- ------- ------- -------
(173) 3,671 (292) 4,020
------- ------- ------- -------
Net income (loss) $(1,859) $ 4,667 $(3,350) $ 6,603
======= ======= ======= =======
Basic net income (loss) per share:
Income (loss) from continuing operations $ (0.17) $ 0.10 $ (0.31) $ 0.27
Income (loss) from discontinued operations (0.02) 0.39 (0.03) 0.42
------- ------- ------- -------
$ (0.19) $ 0.49 $ (0.34) $ 0.69
======= ======= ======= =======
Diluted net income (loss) per share:
Income (loss) from continuing operations $ (0.17) $ 0.10 $ (0.32) $ 0.26
Income (loss) from discontinued operations (0.02) 0.37 (0.03) 0.41
------- ------- ------- -------
$ (0.19) $ 0.47 $ (0.35) $ 0.67
======= ======= ======= =======
Shares used in computing:
Basic net income (loss) per share 9,757 9,531 9,742 9,515
======= ======= ======= =======
Diluted net income (loss) per share 9,757 9,798 9,742 9,880
======= ======= ======= =======
See notes to condensed consolidated financial statements.
</TABLE>
<PAGE>
MAXWELL TECHNOLOGIES, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
------------------------
2000 1999
-------- --------
<S> <C> <C>
Operating activities:
Income (loss) from continuing operations $(3,058) $2,583
Adjustments to reconcile income (loss) from continuing
operations to net cash used in operating activities:
Depreciation and amortization 2,884 2,720
Non-cash restructuring, acquisition and other charges 940 --
Deferred compensation 78 120
Minority interest in net income (loss) of subsidiaries (257) 317
Changes in operating assets and liabilities, net (7,711) (13,981)
-------- --------
Net cash used in operating activities (7,124) (8,241)
Investing activities:
Purchases of property and equipment (4,288) (3,586)
Proceeds from sale of businesses 3,600 --
-------- --------
Net cash used in investing activities (688) (3,586)
Financing activities:
Proceeds from short-term borrowings 7,089 1,412
Principal payments on long-term debt and
short-term borrowings (1,579) (118)
Proceeds from issuance of Company and subsidiary stock 800 1,100
Repurchase of Company and subsidiary stock -- (354)
-------- --------
Net cash provided by financing activities 6,310 2,040
Net cash provided by (used in) discontinued operations (2,551) 886
Effect of exchange rate changes on cash and cash equivalents (47) (74)
-------- --------
Decrease in cash and cash equivalents (4,100) (8,975)
Cash and cash equivalents at beginning of period 4,100 12,811
-------- --------
Cash and cash equivalents at end of period $ -- $3,836
======== ========
See notes to condensed consolidated financial statements.
</TABLE>
<PAGE>
MAXWELL TECHNOLOGIES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED STATEMENTS
Note 1 - General
Maxwell Technologies, Inc. ("Maxwell" or the "Company") applies industry-
leading capabilities in power and computing to develop and market power and
computing systems, electronic components and services for customers in multiple
industries, including telecommunications, e-commerce, consumer electronics,
energy, transportation, space, defense, medical and bioprocessing.
In November 1999, the Company's Board of Directors adopted a resolution to
change the Company's fiscal year to a calendar year effective January 1, 2000.
The Company previously reported results on a fiscal year of August 1 through
July 31. In December 1999, the Company adopted a plan to restructure its
operations (the Restructuring Plan"). This Restructuring Plan (i) consolidates
certain commercial business operations and improves their manufacturing and
other operational capabilities, (ii) focuses the defense contracting business on
pulsed power systems and computer-based analysis for government and national
laboratories, (iii) focuses the application of PureBright(r) technology on
bioprocessing, medical and consumer water markets, and (iv) provides for the
sale of certain non-strategic business operations. The Company expects to
complete the Restructuring Plan by the fourth quarter of calendar year 2000.
The accompanying condensed consolidated financial statements have been
reclassified to present the financial position and results of operations of the
continuing businesses of the Company. Businesses which the Company intends
to sell or discontinue, and certain businesses sold or discontinued by the
Company in prior periods, have been classified as discontinued operations in
the accompanying condensed consolidated financial statements. During the
three months ended June 30, 2000 the Company decided to retain Tekna Seal,
a supplier of glass-to-metal seals, which had previously been classified as
discontinued. Tekna Seal supplies seals to the Company's PowerCache(tm)
ultracapacitor business unit and to other third party customers and will be
included within the Company's Electronic Components business segment. Certain
amounts in the accompanying condensed consolidated financial statements for
all dates and periods presented have been reclassified to present Tekna Seal
as part of the Company's continuing operations.
The accompanying unaudited interim condensed consolidated 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 June 30, 2000 and the results of
operations for the three months ended June 30, 2000, June 30, 1999, March 31,
2000 and December 31, 1999, and the six months ended June 30, 2000 and June 30,
1999. These interim financial statements should be read in conjunction with
the Company's audited consolidated financial statements and notes thereto
included in its Annual Report on Form 10-K for the five-month period from
August 1, 1999 to December 31, 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.
<PAGE>
MAXWELL TECHNOLOGIES, INC.
NOTES UNAUDITED CONDENSED CONSOLIDATED STATEMENTS
Note 2 - Reclassification of Prior Period Financial Information
As discussed in Note 1, during the three months ended June 30, 2000, the
Company decided to retain its glass-to-metal seals business. Accordingly,
previously reported financial information has been reclassified to reflect the
operating results of this business in continuing operations. The reclassified
unaudited statements of operations for the three months ended March 31, 2000
and 1999 and December 31, 1999 are as follows (in thousands, except per
share amounts):
<TABLE>
<CAPTION>
Three Months Ended
------------------------------------
March 31, December 31,
-----------------
2000 1999 1999
------- ------- -------
<S> <C> <C> <C>
Sales $37,260 $37,461 $32,270
Cost of sales 27,822 24,467 26,473
------- ------- -------
Gross profit 9,438 12,994 5,797
Operating expenses:
Selling, general and administrative 9,246 8,073 11,053
Research and development 2,105 1,911 2,319
Restructuring, acquisition and other charges 523 1,491 5,373
------- ------- -------
Total operating expenses 11,874 11,475 18,745
------- ------- -------
Operating income (loss) (2,436) 1,519 (12,948)
Interest expense (74) (65) (95)
Interest income and other, net 45 387 64
------- ------- -------
Income (loss) before income taxes and minority interest (2,465) 1,841 (12,979)
Provision (credit) for income taxes (986) 171 (5,288)
Minority interest in net income (loss) of subsidiaries (107) 83 (410)
------- ------- -------
Income (loss) from continuing operations (1,372) 1,587 (7,281)
Discontinued operations, net of tax:
Income (loss) from operations (435) 349 (2,035)
Provision (credit) for estimated loss on disposal 316 -- (2,065)
------- ------- -------
(119) 349 (4,100)
------- ------- -------
Net income (loss) $(1,491) $ 1,936 $(11,381)
======= ======= =======
Basic net income (loss) per share:
Income (loss) from continuing operations $ (0.14) $ 0.16 $ (0.76)
Income (loss) from discontinued operations (0.01) 0.04 (0.43)
------- ------- -------
$ (0.15) $ 0.20 $ (1.19)
======= ======= =======
Diluted net income (loss) per share:
Income (loss) from continuing operations $ (0.14) $ 0.15 $ (0.76)
Income (loss) from discontinued operations (0.01) 0.04 (0.43)
------- ------- -------
$ (0.15) $ 0.19 $ (1.19)
======= ======= =======
</TABLE>
<PAGE>
MAXWELL TECHNOLOGIES, INC.
NOTES UNAUDITED CONDENSED CONSOLIDATED STATEMENTS
Note 3 - Inventories
Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
------- -------
<S> <C> <C> <C> <C>
Finished products $ 4,711 $ 2,030
Work-in-process 6,418 4,779
Parts and raw materials 14,703 15,996
------- -------
$25,832 $22,805
======= =======
</TABLE>
Note 4 - Credit Agreement
In June 2000, the Company completed an amendment to its $20 million bank
line-of-credit agreement. The amendment extended the agreement through
June 2001; modified certain financial covenants; adjusted the interest rate
at which the Company may borrow to the bank's reference rate plus .25% or
LIBOR plus 2.5%; and provided the lender with a general security interest
in the personal property of the Company and its subsidiaries in the
United States, excluding PurePulse Technologies, Inc. At June 30, 2000,
the Company was in compliance with all covenants and conditions of the
amended agreement. Outstanding borrowings under the agreement were
$5.5 million at June 30, 2000, at a weighted average interest rate of 8.47%.
Note 5 - Comprehensive Income (Loss)
The Company reports and displays comprehensive income (loss) in accordance
with Statement of Financial Accounting Standards No. 130, Reporting
Comprehensive Income. The components of comprehensive income (loss) for the
three and six months ended June 30, 2000 and 1999 were as follows (in
thousands):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------- -------------------
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net income (loss) $(1,859) $4,667 $(3,350) $6,603
Foreign currency translation adjustments (289) (49) (419) (49)
-------- -------- -------- --------
Comprehensive income (loss) $(2,148) $4,618 $(3,769) $6,554
======== ======== ======== ========
</TABLE>
Note 6 - Income (Loss) Per Share
The Company reports basic and diluted income (loss) per share in accordance
with Financial Accounting Standards Board Statement No. 128, Earnings Per
Share ("Statement No. 128"). Basic income (loss) per share is calculated using
the weighted average number of common shares outstanding. Diluted income (loss)
per share is calculated on the basis of the weighted average number of common
shares outstanding plus the dilutive effect of outstanding stock options of the
Company and certain of its subsidiaries, assuming their exercise using the
"treasury stock" method, and convertible preferred shares outstanding at
certain subsidiaries of the Company, assuming their conversion.
<PAGE>
MAXWELL TECHNOLOGIES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 6 - Income (Loss) Per Share (Continued)
The following table sets forth the computation of basic and diluted income
(loss) per share (in thousands, except per share amounts).
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------ ------------------
2000 1999 2000 1999
------- ------- ------- -------
<S> <C> <C> <C> <C>
Basic:
Income (loss) from continuing operations $(1,686) $ 996 $(3,058) 2,583
Income (loss) from discontinued operations (173) 3,671 (292) 4,020
------- ------- ------- -------
Net income (loss) $(1,859) $4,667 $(3,350) $6,603
======= ======= ======= =======
Weighted average shares 9,757 9,531 9,742 9,515
======= ======= ======= =======
Basic net income (loss) per share:
Income (loss) from continuing operations $ (0.17) $ 0.10 $ (0.31) $ 0.27
Income (loss) from discontinued operations (0.02) 0.39 (0.03) 0.42
------- ------- ------- -------
Basic net income (loss) per share $ (0.19) $ 0.49 $ (0.34) $ 0.69
======= ======= ======= =======
Diluted:
Income (loss) from continuing operations $(1,686) $ 996 $(3,058) $2,583
Effect of dilutive securities of
majority-owned subsidiaries (31) -- (45) --
------- ------- ------- -------
Income (loss) from continuing operations
available to common shareholders, as adjusted (1,717) 996 (3,103) 2,583
Income (loss) from discontinued operations (173) 3,671 (292) 4,020
------- ------- ------- -------
Net income (loss), as adjusted $(1,890) $4,667 $(3,395) $6,603
======= ======= ======= =======
Weighted average shares 9,757 9,531 9,742 9,515
Effect of dilutive stock options and other securities -- 267 -- 365
------- ------- ------- -------
Weighted average shares, as adjusted 9,757 9,798 9,742 9,880
======= ======= ======= =======
Diluted net income (loss) per share:
Income (loss) from continuing operations $ (0.17) $ 0.10 $ (0.32) $ 0.26
Income (loss) from discontinued operations (0.02) 0.37 (0.03) 0.41
------- ------- ------- -------
Diluted net income (loss) per share $ (0.19) $ 0.47 $ (0.35) $ 0.67
======= ======= ======= =======
</TABLE>
Note 7 - Business Segments
Maxwell evaluates the performance of its business segments and allocates
resources based on a measure of segment operating profit (loss), excluding
restructuring, acquisition and other charges. Maxwell does not evaluate
segment performance on amounts provided for restructuring, acquisition
and other charges, or on items of income or expense below operating profit
(loss). Accordingly, such items are not segregated by operating segment.
<PAGE>
MAXWELL TECHNOLOGIES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 7 - Business Segments (Continued)
The following table sets forth sales and operating income (loss) data for
each of the Company's four 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 (in
thousands).
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------ ------------------
2000 1999 2000 1999
------- ------- ------- -------
<S> <C> <C> <C> <C>
Sales:
Power and Computing Systems $17,368 $20,862 $34,854 $37,000
Electronic Components 9,717 7,801 18,380 16,061
Government Systems 10,021 11,071 20,776 21,899
Sterilization and Purification Systems 395 1,320 751 3,555
------- ------- ------- -------
Consolidated total $37,501 $41,054 $74,761 $78,515
======= ======= ======= =======
Operating profit (loss):
Power and Computing Systems $ 853 $ 2,321 $ 1,850 $ 2,961
Electronic Components (953) (1,685) (2,420) (2,095)
Government Systems 829 1,515 1,718 3,339
Sterilization and Purification Systems (903) (785) (2,053) (283)
------- ------- ------- -------
Total segment operating profit (loss) (174) 1,366 (905) 3,922
Corporate expenses, including total
restructuring, acquisition and other charges (2,697) 5 (4,402) (1,032)
------- ------- ------- -------
Consolidated total $(2,871) $ 1,371 $(5,307) $ 2,890
======= ======= ======= =======
</TABLE>
Note 8 - Restructuring and Other Related Charges
In connection with the Restructuring Plan, the Company has undertaken various
actions to reduce the cost structure of the Company. As a result, the Company
recorded restructuring and other related charges in the six months ended
June 30, 2000 of approximately $1.9 million, including $1.4 million in the
second quarter. Such charges were determined in accordance with Staff
Accounting Bulletin No. 100, Restructuring and Impairment Charges, and Emerging
Issues Task Force No. 94-3, Liability Recognition for Certain Employee
Termination Benefits and Other Costs to Exit an Activity (including Certain
Costs Incurred in a Restructuring). These charges include severance costs
related to a reduction in workforce, the closure and combination of certain
facilities, and the write-off of certain non-performing operating assets.
The Company expects to record additional restructuring-related charges as the
Company completes its Restructuring Plan and finalizes the consolidation and
integration of its operations and related facilities.
<PAGE>
MAXWELL TECHNOLOGIES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 8 - Restructuring and Other Related Charges (Continued)
The following table summarizes the restructuring and other related
Charges recorded by the Company in connection with the Restructuring Plan
(in thousands).
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, 2000 June 30, 2000
------------------ ----------------
<S> <C> <C>
Write-down of abandoned operating assets and
impaired assets $ 714 $ 940
Severance costs for involuntary employee terminations 145 319
Costs to exit certain contractual and lease obligations 189 274
Estimated moving costs related to consolidation of
facilities 339 377
------- -------
$1,387 $1,910
======= =======
Of the total restructuring and other related charges, $0.9 million is
included in accrued liabilities at both June 30, 2000 and December 31, 1999.
</TABLE>
Note 9 - Discontinued Operations
In November 1999, the Company adopted a plan to divest its high voltage wound
film capacitors, high voltage power supplies, time card and job cost accounting
software and glass-to-metal seals businesses. As a result, in December 1999,
the Company recorded certain provisions for estimated losses on the sale of the
discontinued businesses. In the first quarter of this year, the Company sold
the high voltage wound film capacitors and high voltage power supplies
businesses for cash of $3.5 million, approximately the book value of the net
assets sold as of that date. In addition, the buyer assumed certain
liabilities of the businesses, including a long-term lease for the facility the
businesses occupied, which extended through 2006 with annual rent of
approximately $0.5 million. As discussed in Note 1, in the second quarter of
this year, the Company decided to retain its glass-to-metal seals business.
In the three and six months ended June 30, 2000, provisions for estimated losses
on the sale of the discontinued businesses were reduced by $1.1 million and
$1.4 million, respectively, net of tax, to reflect revised estimates of losses
to be incurred upon disposition.
Operating results of the discontinued operations are shown, net of tax,
separately in the accompanying condensed consolidated statements of operations.
The businesses included in discontinued operations had sales aggregating
$0.2 million and $8.5 million for the three months ended June 30, 2000 and
June 30, 1999, and $3.6 and $13.7 million for the six months ended
June 30, 2000 and June 30, 1999, respectively. These amounts are not included
in net sales in the accompanying condensed consolidated statements of
operations.
<PAGE>
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 power and
computing systems, electronic components and services for customers in multiple
industries, including telecommunications, e-commerce, consumer electronics,
energy, transportation, space, defense, medical and bioprocessing.
In November 1999, the Company's Board of Directors adopted a resolution to
change the Company's fiscal year to a calendar year effective January 1, 2000.
The Company previously reported results on a fiscal year of August 1 through
July 31. In December 1999, the Company adopted a plan to restructure its
operations (the "Restructuring Plan"). This Restructuring Plan
(i) consolidates certain commercial business operations and improves their
manufacturing and other operational capabilities, (ii) focuses the defense
contracting business on pulsed power systems and computer-based analysis for
government and national laboratories, (iii) focuses the application of
PureBright technology on bioprocessing, medical and consumer water markets,
and (iv) provides for the sale of certain non-strategic business operations.
The Restructuring Plan intends to make Maxwell a product-driven, profitable,
high-growth company beginning with the fourth quarter of calendar year 2000.
Since January 2000, the Restructuring Plan has included activities such as
laying out new factories, recruiting additional talent into the Company,
training personnel in demand flow manufacturing processes, and improving
other aspects of operations, information management and financial controls.
The Company has experienced a high level of change and has made significant
progress since the beginning of the year in achieving the objectives of the
Restructuring Plan on schedule.
As part of the Restructuring Plan, the Company has combined its industrial
computer business and its power quality business. The Company has also
combined three components businesses - PowerCache ultracapacitors,
electromagnetic interference ("EMI") filters and other ceramic capacitor
products and radiation-hardened microelectronics - into a commercial, high-
reliability electronic components group. The Company has focused its defense
contracting business on pulsed power systems and computer-based analysis for
government and national laboratories. Maxwell's PurePulse Technologies
subsidiary will concentrate on significant opportunities in the application of
PureBright technology to pathogen inactivation in medical and bioprocessing
markets and to consumer water applications. Finally, the Company initiated the
sale of its businesses involving high voltage wound film capacitors, high
voltage power supplies, time card and job cost accounting software and
glass-to-metal seals. On February 29, 2000, the Company sold the high voltage
wound film capacitors and high voltage power supplies businesses for cash of
$3.5 million, approximately the book value of the net assets sold as of that
date. In addition, the buyer assumed certain liabilities of the businesses,
including a long-term lease for the facility the businesses occupied, which
extended through 2006 with annual rent of approximately $0.5 million. During
the three months ended June 30, 2000 the Company decided to retain
Tekna Seal, its glass-to-metal seals business, which had previously been
classified as discontinued. Tekna Seal supplies seals to the Company's
PowerCache ultracapacitor business unit and to other third party customers
and will be included within the Company's Electronic Components business
segment.
The Company generates revenue from the sale of commercial products and from
performing contract research and other projects for the United States
government and other customers. From time to time, the Company also generates
revenue from licensing technology and other rights to strategic partners.
Sales and marketing for the Company's products in the United States, and for
industrial computers in Europe, are handled directly by the Company.
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. 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, 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.
<PAGE>
The Company's operating expenses are substantially impacted by selling,
general and administrative activities and by research and development
activities. Selling 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.
Business Segments
In accordance with the requirements and guidelines of 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 business segments. In connection with the Company's
Restructuring Plan, the Company has integrated its businesses into new
operating divisions. Accordingly, the Company has defined four new reporting
segments as follows (prior period segment information has been restated to
conform to the new segmentation):
* Power and Computing Systems
As part of its Restructuring Plan, the Company has integrated its I-Bus,
Inc. and Phoenix Power Systems, Inc. subsidiaries ("I-Bus/Phoenix").
The new I-Bus/Phoenix operation expands the industrial computer product
line of I-Bus, Inc. with complementary power quality products and
broadens the global reach of the power quality products. As part of the
Restructuring Plan, the Company is combining the San Diego operations of
these two subsidiaries into a single facility in San Diego. The new San
Diego facility is being designed for highly-efficient manufacturing, with
improved processes, improved personnel training and more disciplined cost
control practices.
The Company designs, manufactures and supplies standard, custom and semi-
custom industrial computer modules, platforms and fully-integrated
systems to original equipment manufacturers ("OEMs"), on a worldwide
basis. The I-Bus/Phoenix industrial computer product line ranges from
enclosures, CPU boards and backplanes to fully-integrated and highly-
customized computer systems. This product line primarily employs passive
backplane architecture, complemented by a newly-introduced CompactPCI
line of products.
The I-Bus/Phoenix power quality products consist of power distribution
units, power conditioners and inverters, uninterruptible power supplies
("UPS") and other power protection products. These products are designed
and engineered by the Company for customer applications primarily in the
medical and telecommunications markets.
* Electronic Components
The Restructuring Plan organizes a high-reliability electronic components
group (the "Electronic Components Group") within the Company by combining
its PowerCache ultracapacitor business, its Sierra-KD EMI filter and
ceramic capacitor business, its Tekna Seal glass-to-metal seal business,
and its Space Electronics, Inc. high-reliability and radiation-
hardened microelectronics business. These businesses each design and
manufacture high-reliability electronic components based on the Company's
core competencies in power and computing. During the current fiscal year,
the Company will integrate the PowerCache ultracapacitor business and the
microelectronic components business into one manufacturing site in San
Diego, while the EMI filters and ceramic capacitors will continue to be
manufactured at the Company's facility in Carson City, Nevada. Both
facilities are being designed for highly-efficient manufacturing, with
improved processes, improved personnel training and more disciplined cost
control practices.
<PAGE>
The Electronic Components Group designs, manufactures and sells the
following high-reliability electronic components based on the Company's
core competencies in power and computing:
PowerCache Ultracapacitors: PowerCache ultracapacitors provide bursts
of power when a rapid injection of energy is required for an application.
The PowerCache ultracapacitor is scaleable, in that it can be manufactured
in a broad range of shapes and sizes. Currently, the Company is developing
ultracapacitors from sub-matchbook size to cells measuring 2" x 2" x 6",
while maintaining the same high energy storage per unit volume.
PowerCache ultracapacitors can also be linked together in modules to
supply higher power for applications such as automotive and power supply
systems.
EMI Filters: Ceramic capacitor filters absorb the electromagnetic fields
and signals generated by electronic devices which interfere with and
disrupt the functioning of other electronic devices, including implantable
medical devices such as pacemakers and defibrillators, and aerospace
guidance and communications systems. These products block EMI from
entering an electronic device at the opening used by, for example, power
leads or sensors.
Radiation-Hardened Microelectronics: Radiation-hardened microelectronic
components and assemblies primarily for the space market, including
integrated circuits and multi-chip modules are designed and adapted for
space flight and other high-reliability applications. In the space
market, these products are used in satellites which experience extreme
environmental conditions, often in radiation-intense orbits.
Glass-to-Metal Seals: Hermetic glass-to-metal seals are designed and
manufactured for industrial and automotive applications.
* Government Systems
Through its Systems Division, Maxwell is engaged in a variety of research
and development programs in pulsed power, pulsed power systems design and
construction, and weapons effects simulation. These services are
primarily supplied to the United States government and its agencies
including the Air Force and the Defense Threat Reduction Agency. The
Systems Division also provides systems and services to national
laboratories and industrial and defense companies. The Systems Division
typically performs research and development under contracts that allow
the Company to apply developed technology in commercial markets.
* Sterilization and Purification Systems
The Company's PurePulse Technologies, Inc. subsidiary ("PurePulse")
applies PureBright intense broad spectrum pulsed light technology to kill
viruses and other microorganisms in water, blood plasma and other
biopharmaceutical and medical products, and on medical product packaging
material.
As part of the Restructuring Plan, PurePulse will pursue PureBright
applications in the medical, biopharmaceutical and consumer water
markets. Other PureBright applications involving food and food
packaging, industrial water applications and niche markets in medical
packaging, as well as applications involving the CoolPure(r) pulsed
electric field technology, will be de-emphasized and possibly sold or
licensed.
Results of Operations
The following discussion provides a comparison of current results of
operations for the three and six months ended June 30, 2000 to the comparable
three and six months ended June 30, 1999, and to the sequentially prior
quarters for the three months ended March 31, 2000 and December 31, 1999.
<PAGE>
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 Six Months Ended
June 30, March 31, December 31, June 30, June 30,
2000 1999 2000 1999 2000 1999
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Sales 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales 74.3 74.7 82.0 70.3 74.5 67.9
------- ------- ------- ------- ------- -------
Gross profit 25.7 25.3 18.0 29.7 25.5 32.1
Operating expenses:
Selling, general and administrative 23.6 24.8 34.3 21.4 24.2 21.5
Research and development 6.0 5.6 7.2 5.0 5.8 5.0
Restructuring, acquisition
and other charges 3.7 1.4 16.6 -- 2.6 1.9
------- ------- ------- ------- ------- -------
Total operating expenses 33.3 31.8 58.1 26.4 32.6 28.4
------- ------- ------- ------- ------- -------
Operating income (loss) (7.6) (6.5) (40.1) 3.3 (7.1) 3.7
Interest expense (0.3) (0.2) (0.3) (0.3) (0.3) (0.3)
Interest income and other, net -- 0.1 0.2 0.2 0.1 0.6
------- ------- ------- ------- ------- -------
Income (loss) before income taxes
and minority interest (7.9) (6.6) (40.2) 3.2 (7.3) 4.0
Provision (credit) for income taxes (3.2) (2.6) (16.4) 0.2 (2.9) 0.3
Minority interest in net income
(loss) of subsidiaries (0.2) (0.3) (1.2) 0.6 (0.3) 0.4
------- ------- ------- ------- ------- -------
Income (loss) from continuing operations (4.5) (3.7) (22.6) 2.4 (4.1) 3.3
Income (loss) from discontinued
operations (0.5) (0.3) (12.7) 9.0 (0.4) 5.1
------- ------- ------- ------- ------- -------
Net income (loss) (5.0)% (4.0)% (35.3)% 11.4% (4.5)% 8.4%
======= ======= ======= ======= ======= =======
</TABLE>
The following table sets forth sales, gross profit and gross profit as a
percentage of sales for each of the Company's business segments.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, March 31, December 31, June 30, June 30,
2000 1999 2000 1999 2000 1999
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Power and Computing Systems:
Sales $17,368 $17,486 $15,311 $20,862 $34,854 $37,000
Gross profit 4,663 5,125 4,439 6,706 9,788 11,709
Gross profit as a percentage of sales 26.8% 29.3% 29.0% 32.1% 28.1% 31.6%
Electronic Components:
Sales $ 9,717 $ 8,663 $ 6,165 $ 7,801 $18,380 $16,061
Gross profit 2,976 2,379 145 2,023 5,355 5,052
Gross profit as a percentage of sales 30.6% 27.5% 2.4% 25.9% 29.1% 31.5%
Government Systems:
Sales $10,021 $10,755 $10,372 $11,071 $20,776 $21,899
Gross profit 2,196 2,172 2,197 3,096 4,368 6,766
Gross profit as a percentage of sales 21.9% 20.2% 21.2% 28.0% 21.0% 30.9%
Sterilization and Purification Systems:
Sales $ 395 $ 356 $ 422 $ 1,320 $ 751 $ 3,555
Gross profit (loss) (206) (238) (984) 384 (444) 1,676
Gross profit (loss) as a
percentage of sales n/a n/a n/a 29.1% n/a 47.1%
Consolidated:
Sales $37,501 $37,260 $32,270 $41,054 $74,761 $78,515
Gross profit 9,629 9,438 5,797 12,209 19,067 25,203
Gross profit as a percentage of sales 25.7% 25.3% 18.0% 29.7% 25.5% 32.1%
</TABLE>
<PAGE>
Sales
Sales for the three months ended June 30, 2000 were $37.5 million, an 8.7%
decrease from $41.1 million for the same period last year. For the six months
ended June 30, 2000, sales were $74.8 million, as compared to $78.5 million in
the comparable six-month period of the prior year. The prior year included
revenue of $0.8 million in the second quarter and $3.0 million in the first six
months from sales of licenses and other collaborative agreements, while there
was no such revenue in the current periods. Excluding such revenue, second
quarter sales of products and services decreased by 6.7% to $37.5 million from
$40.3 million in the prior year, however sales in the first six months
decreased less than 1% from the comparative period. In addition, total sales
in the second quarter increased 0.6% and 16.2% sequentially from total sales of
$37.3 million and $32.3 million in the three months ended March 31, 2000 and
December 31, 1999, respectively. Sales in each of the Company's business
segments are discussed below.
Power and Computing Systems. In the three months ended June 30, 2000, sales
in the Power and Computing Systems segment decreased $3.5 million, or 16.7 %,
to $17.4 million from $20.9 million in the three months ended June 30, 1999.
For the six months ended June 30, 2000, sales in this segment decreased $2.1
million, or 5.8%, to $34.9 million from $37.0 million in the comparable six-
month period of the prior year. The decrease in revenues in the three and six-
month periods is primarily attributable to a decline in revenues from the
Company's programs with Siemens ElectroCom L.P. and the United States Postal
Service, which are nearing completion. Such sales decreases in both the three
and six-month periods were partially offset by increases in sales of power
protection and delivery systems over the comparable prior year periods. Second
quarter sales in the Power and Computing Systems segment decreased by
$0.1 million, or less than 1%, and increased by $2.1 million, or 13.4%,
sequentially over the three months ended March 31, 2000 and December 31, 1999,
respectively.
Electronic Components. In the three months ended June 30, 2000, sales in the
Electronic Components segment increased $1.9 million, or 24.6 %, to $9.7
million from $7.8 million in the three months ended June 30, 1999. For the six
months ended June 30, 2000, sales in this segment increased $2.3 million, or
14.4%, to $18.4 million from $16.1 million in the comparable six-month period
of the prior year. The increase in both the three-month and six-month periods
is primarily attributable to increased sales of radiation-hardened
microelectronics. Increased sales in the Company's glass-to-metal seals business
also contributed to improved sales in the three and six months ended
June 30, 2000. The above increases were partially offset by decreases in
revenue received from technology licenses and other collaborative agreements of
$0.2 million and $0.8 million in the three and six-months ended June 30, 2000,
respectively. Second quarter sales in the Electronic Components segment
increased by $1.1 million, or 12.2%, and $3.6 million, or 57.6% sequentially
over the three months ended March 31, 2000 and December 31, 1999, respectively.
Each business unit within the segment contributed to these increases.
Government Systems. In the three months ended June 30, 2000, sales in the
Government Systems segment decreased $1.1 million, or 9.5 %, to $10.0 million
from $11.1 million in the three months ended June 30, 1999. For the six months
ended June 30, 2000, sales in this segment also decreased $1.1 million, or
5.1%, to $20.8 million from $21.9 million in the comparable six-month period of
the prior year. Second quarter sales in the Government Systems segment
decreased by $0.8 million, or 6.8%, and $0.4 million, or 3.4%, sequentially over
the three months ended March 31, 2000 and December 31, 1999, respectively. The
decrease in revenues is primarily attributable to the wind-down or completion
of several Government programs. The Company has won follow-on or replacement
contracts for several of these programs, however work under the new programs
is still ramping up. These and other contracts with the Department of Defense
are subject to such increases and decreases, as well as periodic Government
funding provisions.
Sterilization and Purification Systems. In the three months ended June 30,
2000, sales in the Sterilization and Purification Systems segment decreased
$0.9 million, or 70.0%, to $0.4 million from $1.3 million in the second quarter
of last year. For the six months ended June 30, 2000, sales in this segment
decreased $2.8 million, or 78.9%, to $0.8 million from $3.6 million in the first
six months of the prior year. During the three and six months ended June 30,
1999, revenues in this business segment included $0.6 million and $2.2 million,
respectively, from licensing and rights fees received from strategic partners.
The revenues in the current fiscal year do not include any such licensing and
rights fees. The Company is redefining its product strategy and market focus
and, as a result, revenue contribution from license fees will not continue at
historical levels.
<PAGE>
Gross Profit
In the three months ended June 30, 2000, the Company's gross profit was
$9.6 million, or 25.7% of sales, compared to $12.2 million, or 29.7% of sales
in the three months ended June 30, 1999. In the six months ended June 30,
2000, the Company's gross profit was $19.1 million, or 25.5% of sales, as
compared to $25.2 million, or 32.1% of sales in the six months ended June 30,
1999. The three and six months ended June 30, 1999 benefited from high gross
margins associated with the licensing and technology collaborations discussed
above. On a sequential basis, quarterly gross profit in June 2000 increased
$0.2 million, or 2.0%, to $9.6 million, or 25.7% of sales, from $9.4 million,
or 25.3% of sales for the three months ended March 31, 2000. In addition, gross
profit increased by $3.8 million, or 66.1%, from the $5.8 million earned in the
three months ended December 31, 1999. The sequential improvement is due partly
to increased sales volumes and improvements in the cost structure of certain
products, partially offset by certain costs incurred in the three and six-month
periods related to training personnel in improved manufacturing processes. The
three-month period ended December 31, 1999 was also negatively impacted by
certain write-offs of inventories determined to be excess or obsolete. Gross
profit by business segment is discussed below.
Power and Computing Systems. In the three months ended June 30, 2000, gross
profit generated by the Power and Computing Systems segment decreased by
$2.0 million, or 30.5%, to $4.7 million from $6.7 million in the three months
ended June 30, 1999. In the six months ended June 30, 2000, gross profit
decreased $1.9 million, or 16.4%, to $9.8 million from $11.7 million in the six
months ended June 30, 1999. As a percentage of sales, gross profit decreased
to 26.8% and 28.1% in the three and six-months periods of the current year, as
compared to 32.1% and 31.6% in the respective periods of the prior year. The
decrease in gross profit is primarily attributable to changes in product mix
to include a higher content of lower-margin power protection and delivery
systems and costs incurred in the current year in connection with training
personnel in improved manufacturing processes.
Electronic Components. In the three months ended June 30, 2000, gross profit
in the Electronic Components segment increased by $1.0 million, or 47.1%, to
$3.0 million from $2.0 million in the three months ended June 30, 1999. As a
percentage of sales, gross profit improved to 30.6% in the current quarter
from 25.9% in the three months ended June 30, 1999. The increase in
gross profit for the current quarter is the result of increased sales volume
and an improved cost structure, primarily in the segment's PowerCache operation.
The increase in gross profit as a percentage of sales reflects the impact of
the process and cost improvements in the PowerCache business. In its
PowerCache ultracapacitor product line, the Company continues to make required
infrastructure and other investments which impact gross profit at current sales
volumes. Although gross margins have improved in the PowerCache business,
such margins continue to reduce the overall gross margins for the Electronic
Components segment. Gross margins will continue to be negatively impacted until
full production volumes are reached and maintained. In the six months ended
June 30, 2000, gross margin increased to $5.4 million from $5.1 million in the
six months ended June 30, 1999. As a percentage of sales, gross profit
decreased in the six-month period to 29.1% from 31.5%. Excluding the impact of
a contribution from high-margin technology licenses and other collaborative
agreements received in the prior year, gross profit as a percentage of sales
increased by 1.0%. On a sequential basis, gross profit in the Electronic
Components segment continues to improve from $2.4 million and $0.1 million
in the three months ended March 31, 2000 and December 31, 1999, respectively.
The sequential improvement is due partly to increased sales volumes and
improvements in the cost structure of certain product lines, partially
offset by certain costs incurred in each quarter of the current year
related to training personnel in improved manufacturing processes. In addition,
the three-month period ended December 31, 1999 was negatively impacted by
certain write-offs of inventories deemed excess or obsolete.
Government Systems. In the three months ended June 30, 2000, gross profit in
the Government Systems segment decreased $0.9 million, or 29.1%, to
$2.2 million from $3.1 million in the three months ended June 30, 1999. As a
percentage of sales, gross profit decreased to 21.9% from 28.0% in the three-
month period ended June 30, 1999. In the six months ended June 30, 2000, gross
profit decreased $2.4 million, or 35.4%, to $4.4 million from $6.8 million in
the comparable period of the prior year. The gross margin decrease is
partially attributable to the decrease in sales. In addition, the gross
margins in the prior year were much higher than normal for this segment as a
result of the recovery of certain cost overruns and other expenses incurred
in prior years. On a sequential basis, gross margins have remained constant
at $2.2 million for the three-month periods ended March 31, 2000 and
December 31, 1999. As a percentage of sales, gross margins were 20.2% and
21.2% for the three-month periods ended March 31, 2000 and December 31, 1999,
respectively. The Company expects future gross margins to remain near the
levels achieved over the last three quarters.
<PAGE>
Sterilization and Purification Products. In the three months ended
June 30, 2000, gross profit in the Sterilization and Purification Products
segment decreased $0.6 million, or 154%, to a loss of $0.2 million from a profit
of $0.4 million in the three months ended June 30, 1999. For the six months
ended June 30, 2000, gross profit decreased $2.1 million, or 126% to a loss of
$0.4 million from $1.7 million in the prior year. Gross profit in both the
three and six-months ended June 30, 1999 benefited from high-margin revenue
from grants of licenses and rights, which the Company did not receive in the
current year. As the Company redefines its product strategy and market focus,
gross profit margins will likely continue to be negatively impacted.
Selling, General and Administrative Expenses
In the three months ended June 30, 2000, the Company's selling, general and
administrative expenses increased $0.1 million, or 0.6%, to $8.9 million from
$8.8 million in the three months ended June 30, 1999. As a percentage of total
sales, selling, general and administrative expenses increased to 23.6% in the
three months ended June 30, 2000, from 21.4% in the three months ended
June 30, 1999. In the six months ended June 30, 2000, the Company's selling,
general and administrative expenses increased $1.2 million, or 7.3%, to
$18.1 million from $16.9 million in the six months ended June 30, 1999. As a
percentage of total sales, selling, general and administrative expenses
increased to 24.2% in this year's first six months from 21.5% in the six
months ended June 30, 1999. On a sequential basis, selling, general and
administrative expenses in the quarter ended June 2000 decreased as compared
to the $9.2 million, or 24.8% of sales, and $11.1 million, or 34.3% of sales,
incurred in the three month periods ended March 31, 2000 and
December 31, 1999, respectively. As part of its Restructuring Plan, the
Company is continuing to focus on opportunities to decrease its expenses in
these areas.
Research and Development Expenses
The Company's research and development expenses reflect 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 is affected from time to time by the Company's ability to
obtain customer or grant funding to support a portion of its research and
product development activities. Internally funded research and development
expenses were $2.3 million and $4.4 million for the three and six months ended
June 30, 2000, as compared to $2.0 million and $4.0 million in the three
and six months ended June 30, 1999. The Company expects its level of spending
in research and development to increase in future periods to accelerate new
product introductions.
Restructuring, Acquisition and Other Charges
In connection with the Restructuring Plan, the Company has undertaken various
actions to improve the cost structure of the Company. As a result, the Company
recorded restructuring and other related charges in the three months ended
June 30, 2000, March 31, 2000 and December 31, 1999 of $1.4 million,
$0.5 million and $5.4 million, respectively. These charges primarily include
severance costs related to a reduction in work force, the closure and
combination of certain facilities and the write-off of non-performing operating
assets. The Company expects to record additional restructuring-related charges
as the Company completes its Restructuring Plan and finalizes the
consolidation and integration of its operations and related facilities.
In the six months ended June 30, 1999, the Company recorded approximately
$1.5 million of direct acquisition costs for business combinations completed
during the first quarter of 1999, which were accounted for using the pooling-
of-interests method.
Interest Expense
Interest expense remained level at $0.1 million in the three months ended
June 2000 and 1999 and remained level at $0.2 million for six months ended June
30, 2000 and 1999. At June 30, 2000, the Company had $5.5 million outstanding
under its bank line-of-credit. The Company expects borrowings, and related
interest expense, to increase as the Company completes its Restructuring Plan.
<PAGE>
Interest Income and Other, Net
Interest income and other, net, consisting primarily of interest income, was
$32,000 and $102,000 in the three months ended June 30, 2000 and 1999,
respectively. For the six months ended June 30, 2000 and 1999, interest income
and other, net, was $77,000 and $489,000, respectively. The decrease in
interest income reflects lower average cash balances in the three and six
months ended June 30, 2000.
Provision (Credit) for Income Taxes
The provision (credit) for income taxes in the current quarter reflects the
Company's expected world-wide tax rate for the current fiscal year, while in
the prior year's second quarter, the Company's provision for income taxes
consisted primarily of taxes related to its foreign operations.
Minority Interest in Net Income (Loss) of Subsidiaries
Minority interest in net income (loss) of subsidiaries was $(88,000) in the
three months ended June 30, 2000 and $234,000 in the three months ended June
30, 1999. In the six months ended June 30, 2000 and 1999, minority interest in
net income (loss) of subsidiaries was $(195,000) and $317,000, respectively.
The current period loss results from losses incurred by the Company's minority-
owned subsidiaries.
Income (Loss) from Continuing Operations
As a result of the factors mentioned above, the income (loss) from continuing
operations was $(1.7) million for the three months ended June 30, 2000,
compared to $1.0 million for the three months ended June 30, 1999. In the six
months ended June 30, 2000 and 1999, the income (loss) from continuing
operations was $(3.1) million and $2.6 million, respectively.
Discontinued Operations
In November 1999, the Company adopted a plan to divest its high voltage wound
film capacitors, high voltage power supplies, time card and job cost accounting
software and glass-to-metal seals businesses. On February 29, 2000, the
Company sold the high voltage wound film capacitors and high voltage power
supplies businesses for cash of $3.5 million, approximately the book value of
the net assets sold as of that date. In addition, the buyer assumed certain
liabilities of the businesses, including a long-term lease for the facility the
businesses occupy, which extends through 2006 with annual rent of approximately
$0.5 million. In December 1999, the Company recorded certain provisions for
estimated losses on the sale of the discontinued businesses. In the three
months ended June 30, 2000 and March 31, 2000 such provisions were reduced by
$1.1 million and $316,000, respectively, net of tax, to reflect revised
estimates of losses to be incurred. During the three months ended June 30, 2000
the Company decided to retain Tekna Seal, its glass-to-metal seals business,
which had previously been classified as discontinued.
Total income (loss) from discontinued operations was $(173,000) in the three
months ended June 30, 2000, compared to $3.7 million for the three months ended
June 30, 1999 and sequentially $(119,000) and $(4.1) million for the three
months ended March 31, 2000 and December 31, 1999, respectively. For the six
months, the total income (loss) from discontinued operations was $(0.3) and
$4.0 million in June 2000 and 1999, respectively.
Liquidity and Capital Resources
The Company has historically relied on a combination of cash on hand,
internally generated funds and bank borrowings to finance its working capital
requirements and capital expenditures. In addition, in each of the two most
recent full fiscal years, the Company received approximately $2.3 million from
the exercise of stock options and purchases under employee stock purchase plans.
<PAGE>
Cash used by operating activities in the six months ended June 30, 2000 was
approximately $7.1 million as compared to $8.2 million in the six months ended
June 30, 1999. In the current period, the use of cash was primarily
attributable to operating losses and increases in accounts receivable and
inventories. The Company's capital expenditures in the six months ended
June 30, 2000 and 1999 were $4.3 million and $3.6 million, respectively, and
related primarily to production and other capital assets needed to support
growth in all of the Company's business units. The Company has ordered
additional equipment for volume manufacturing of ultracapacitors and for the
manufacture of EMI filter capacitors. In addition, the Company is incurring
expenditures in connection with the design and construction of the new
facilities for its newly-integrated commercial divisions. The Company may also
consider leasing facilities or manufacturing equipment or both or may satisfy
high-volume manufacturing requirements through outsourcing or under licensing
arrangements with third parties. If the Company decides to internally finance
construction of additional facilities, a significant amount of capital may be
required. The Company will also incur additional cash expenditures in the
current fiscal year in connection with completing its Restructuring Plan.
The Company believes that funds on-hand, together with cash generated from
operations, cash expected to be received from the divestiture of certain
businesses and funds available under its bank line-of-credit, will be
sufficient to finance its Restructuring Plan, its operations and its capital
expenditures through the current fiscal year. 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 and cash equivalents; 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.
Maxwell has a bank line-of-credit of $20 million, under which the Company had
borrowings of $5.5 million outstanding as of June 30, 2000.
Inflation and Changes in Prices
Generally, the Company has been able to increase prices to offset its
inflation-related increased costs in its commercial businesses. A substantial
portion of the Company's business with agencies of the United States government
consists of cost-reimbursement contracts, which permit recovery of inflation
costs. Fixed-price contracts with government and other customers typically
include estimated costs for inflation in the contract price.
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. These factors include
achievement of sales forecasts, completion of the Restructuring Plan within
budget and one time and realizing forecasted improvements in gross margins
and operating expenses. 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 the transition period
from August 1 to December 31, 1999 for a discussion of certain of those factors.
<PAGE>
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 reference rate. As of June 30, 2000,
the Company has approximately $5.5 million outstanding under its bank line-of-
credit.
The Company has foreign subsidiaries which conduct manufacturing and sales
activities 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, the French franc and the
German mark. The Company does not currently hedge its foreign exchange risk,
which is not significant at this time.
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.
August 11, 2000 /s/ Carlton J. Eibl
------------------------------------ -------------------------------
Date Carlton J. Eibl, President and
Chief Executive Officer
August 11, 2000 /s/ Vickie L. Capps
------------------------------------ -------------------------------
Date Vickie L. Capps, Vice President -
Finance, Treasurer and Chief
Financial Officer (Principal
Financial and Accounting
Officer)
