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 September 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.)
9244 Balboa Avenue, San Diego, CA 92123
(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 October 31, 2000, Registrant had only one class of common stock,
of which there were 9,867,532 shares outstanding.
<PAGE>
MAXWELL TECHNOLOGIES, INC.
INDEX TO QUARTERLY REPORT ON FORM 10-Q
For the quarter ended September 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 9
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>
September 30, December 31,
2000 1999
------------ -----------
<S> <C> <C>
Assets (Unaudited) (Note)
Current assets:
Cash and cash equivalents $ 1,777 $ 4,100
Accounts receivable, net 30,182 26,134
Inventories 25,224 22,805
Prepaid expenses and other current assets 3,042 715
Deferred income taxes 18,673 14,894
Net assets of discontinued operations 1,483 6,927
-------- --------
Total current assets 80,381 75,575
Property, plant and equipment, net 22,769 18,848
Goodwill and other non-current assets 12,629 12,021
-------- --------
$115,779 $106,444
======== ========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable and accrued liabilities $ 12,304 $ 14,267
Accrued employee compensation 7,731 5,402
Short-term borrowings 17,708 264
Current portion of long-term debt 21 24
-------- --------
Total current liabilities 37,764 19,957
Long-term debt, excluding current portion 172 186
Minority interest 5,624 1,885
Commitments and contingencies
Stockholders' equity:
Common stock 986 957
Additional paid-in capital 81,013 78,378
Notes receivable from executives for stock
purchases (900) --
Deferred compensation (27) (117)
Retained earnings (deficit) (8,189) 5,375
Accumulated other comprehensive loss -
foreign currency translation adjustments (664) (177)
-------- --------
72,219 84,416
-------- --------
$115,779 $106,444
======== ========
</TABLE>
Note: The Balance Sheet at December 31, 1999 has been derived from the
audited financial statements as of that date.
See notes to unaudited condensed consolidated financial statements.
<PAGE>
MAXWELL TECHNOLOGIES, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
<TABLE>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ ------------------
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Sales $ 31,673 $42,614 $106,434 $121,129
Cost of sales 27,947 29,925 83,641 83,237
-------- -------- -------- --------
Gross profit 3,726 12,689 22,793 37,892
Operating expenses:
Selling, general and administrative 8,520 10,026 26,617 26,898
Research and development 2,759 1,847 7,126 5,797
Restructuring, acquisition and
other charges 8,281 1,405 10,191 2,896
-------- -------- -------- --------
Total operating expenses 19,560 13,278 43,934 35,591
-------- -------- -------- --------
Operating income (loss) (15,834) (589) (21,141) 2,301
Interest expense (369) (37) (560) (236)
Interest income and other, net (101) 55 (24) 544
-------- -------- -------- --------
Income (loss) before income taxes
and minority interest (16,304) (571) (21,725) 2,609
Provision (credit) for income taxes (6,522) (6,401) (8,690) (6,121)
Minority interest in net income
(loss) of subsidiaries (94) (161) (289) 156
-------- -------- -------- --------
Income (loss) from continuing
operations (9,688) 5,991 (12,746) 8,574
Discontinued operations, net of tax:
Income (loss) from operations (526) (1,466) (2,268) 2,554
Credit for adjustment of
estimated loss on disposal -- -- 1,450 --
-------- -------- -------- --------
(526) (1,466) (818) 2,554
-------- -------- -------- --------
Net income (loss) $(10,214) $ 4,525 $ (13,564) $ 11,128
======== ======== ======== ========
Basic net income (loss) per share:
Income (loss) from continuing
operations $ (0.98) $ 0.63 $ (1.31) $ 0.90
Income (loss) from discontinued
operations (0.05) (0.16) (0.08) 0.27
-------- -------- -------- --------
$ (1.03) $ 0.47 $ (1.39) $ 1.17
======== ======== ======== ========
Diluted net income (loss) per share:
Income (loss) from continuing
operations $ (0.98) $ 0.62 $ (1.31) $ 0.87
Income (loss) from discontinued
operations (0.05) (0.15) (0.08) 0.26
-------- -------- -------- --------
$ (1.03) $ 0.47 $ (1.39) $ 1.13
======== ======== ======== ========
Shares used in computing:
Basic net income (loss)per share 9,848 9,555 9,778 9,528
======== ======== ======== ========
Diluted net income (loss)per share 9,848 9,838 9,778 9,863
======== ======== ======== ========
</TABLE>
See notes to unaudited condensed consolidated financial statements.
<PAGE>
MAXWELL TECHNOLOGIES, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
Nine Months Ended
September 30,
----------------------
2000 1999
-------- --------
<S> <C> <C>
Operating activities:
Income (loss) from continuing operations $(12,746) $ 8,574
Adjustments to reconcile income (loss)
from continuing operations to net cash
used in operating activities:
Depreciation and amortization 4,138 4,004
Non-cash restructuring, acquisition
and other charges 7,731 1,491
Deferred compensation 90 149
Minority interest in net income (loss)
of subsidiaries (351) 156
Changes in operating assets and
liabilities, net (8,085) (19,227)
-------- --------
Net cash used in operating activities (9,223) (4,853)
Investing activities:
Purchases of property and equipment (7,634) (6,420)
Proceeds from sale of building -- 3,400
Purchase of businesses, net of cash
acquired, including earn out payment (4,864) --
Proceeds from sale of businesses 3,600 --
-------- --------
Net cash used in investing activities (8,898) (3,020)
Financing activities:
Proceeds from short-term borrowings 19,262 1,657
Principal payments on long-term debt and
short-term borrowings (1,835) (188)
Proceeds from issuance of Company and
subsidiary stock 1,700 1,719
Repurchase of Company and subsidiary stock -- (354)
-------- --------
Net cash provided by financing
activities 19,127 2,834
Net cash provided by (used in) discontinued
operations (3,248) 1,965
Effect of exchange rate changes on cash and
cash equivalents (81) (161)
-------- --------
Decrease in cash and cash equivalents (2,323) (3,235)
Cash and cash equivalents at beginning
of period 4,100 12,811
-------- --------
Cash and cash equivalents at end of period $ 1,777 $ 9,576
======== ========
</TABLE>
See notes to unaudited condensed consolidated financial statements.
<PAGE>
MAXWELL TECHNOLOGIES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL 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 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. In October 2000, the
Company completed its facilities and organizational consolidation program,
which essentially completes the Company's Restructuring Plan.
The accompanying unaudited 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 unaudited condensed consolidated
financial statements.
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 the Company's financial position at September 30, 2000 and
its results of operations for the three and nine months ended September
30, 2000 and September 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.
Note 2 - Acquisition
In September 2000, the Company's subsidiary, I-Bus/Phoenix, Inc., acquired
Gateworks Corporation ("Gateworks"), which designs and supplies embedded
computer boards, in a transaction accounted for as a purchase. On the
closing date, I-Bus/Phoenix, Inc. paid $500,000 in cash and issued 855,153
new shares of I-Bus/Phoenix, Inc. common stock to the selling shareholders
of Gateworks in exchange for all outstanding shares of Gateworks.
<PAGE>
MAXWELL TECHNOLOGIES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 2 - Acquisition (Continued)
The total purchase price will be determined based upon the sales revenue
of Gateworks in calendar year 2001. The closing date payment was based upon
assumed 2001 sales of $7.5 million. The number of I-Bus/Phoenix, Inc. shares
issued to the selling Gateworks shareholders will be adjusted in the first
quarter of 2002 to reflect the final purchase price based upon actual
Gateworks and I-Bus/Phoenix, Inc. 2001 sales revenue. For purchase
accounting purposes, the closing date payment was valued at approximately
$4.4 million, which was allocated as follows: ($0.1) million to the net
liabilities acquired; $0.5 million to acquired in-process technology,
which was charged to operations on the closing date and $4.0 million to
goodwill and other intangible assets, which will be amortized over a
period of five years.
MAXWELL TECHNOLOGIES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 3 - Inventories
Inventories consist of the following (in thousands):
<TABLE>
September 30, December 31,
2000 1999
-------- --------
<S> <C> <C>
Finished products $ 4,872 $ 2,030
Work-in-process 5,593 4,779
Parts and raw materials 14,759 15,996
-------- --------
$ 25,224 $ 22,805
======== ========
</TABLE>
Note 4 - Credit Agreement
In October 2000, the Company completed an amendment to its bank credit
agreement (the "Amended Agreement"). The Amended Agreement provides for
total maximum borrowings of $26 million through February 2001, with
interest at the bank's reference rate plus 2%. Borrowings under the Amended
Agreement are secured by the assets of the Company and its subsidiaries in
the United States, as well as a pledge of two-thirds of the shares of the
Company's subsidiaries outside of the United States. The Amended Agreement
requires the Company to comply with certain financial covenants. The
Company was in compliance with all such amended covenants at September 30,
2000. Outstanding borrowings under the Amended Agreement were $17.7 million
at September 30, 2000, at a weighted average interest rate of 11.1%.
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 nine months ended September 30, 2000 and 1999
were as follows (in thousands):
<TABLE>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ ------------------
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net income (loss) $(10,214) $ 4,525 $(13,596) $ 11,128
Foreign currency translation
adjustments (68) (87) (487) (136)
-------- -------- -------- --------
Comprehensive income (loss) $(10,282) $ 4,438 $(14,083) $ 10,992
======== ======== ======== ========
</TABLE>
<PAGE>
MAXWELL TECHNOLOGIES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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.
The following table sets forth the computation of basic and diluted income
(loss) per share (in thousands, except per share amounts).
<TABLE>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ ------------------
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Basic:
Income (loss) from continuing operations $ (9,688) $ 5,991 $(12,746) $ 8,574
Income (loss) from discontinued operations (526) (1,466) (818) 2,554
-------- -------- -------- --------
Net income (loss) $(10,214) $ 4,525 $(13,564) $ 11,128
======== ======== ======== ========
Weighted average shares 9,848 9,555 9,778 9,528
======== ======== ======== ========
Basic net income (loss) per share:
Income (loss) from continuing operations $ (0.98) $ 0.63 $ (1.31) $ 0.90
Income (loss) from discontinued operations (0.05) (0.16) (0.08) 0.27
-------- -------- -------- --------
Basic net income (loss) per share $ (1.03) $ 0.47 $ (1.39) $ 1.17
======== ======== ======== ========
Diluted:
Income (loss) from continuing operations $ (9,688) $ 5,991 $(12,746) $ 8,574
Income (loss) allocated to minority interest
in majority-owned subsidiaries (19) (32) (58) (19)
-------- -------- -------- --------
Income (loss) from continuing operations
available to common shareholders, as adjusted (9,707) 5,959 (12,804) 8,555
Income (loss) from discontinued operations (526) (1,466) (818) 2,554
-------- -------- -------- --------
Net income (loss), as adjusted $(10,233) $ 4,493 $(13,622) $ 11,109
======== ======== ======== ========
Weighted average shares 9,848 9,555 9,778 9,528
Effect of dilutive stock options and other
securities -- 283 -- 335
-------- -------- -------- --------
Weighted average shares, as adjusted 9,848 9,838 9,778 9,863
======== ======== ======== ========
Diluted net income (loss) per share:
Income (loss) from continuing operations $ (0.98) $ 0.62 $ (1.31) $ 0.87
Income (loss) from discontinued operations (0.05) (0.15) (0.08) 0.26
-------- -------- -------- --------
Diluted net income (loss) per share $ (1.03) $ 0.47 $ (1.39) $ 1.13
======== ======== ======== ========
</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>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ ------------------
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Sales:
Power and Computing Systems $ 13,146 $ 21,964 $ 48,000 $ 58,964
Electronic Components 8,525 7,110 26,905 23,171
Government Systems 9,800 10,723 30,576 32,622
Sterilization and Purification Systems 202 2,817 953 6,372
-------- -------- -------- --------
Consolidated total $ 31,673 $ 42,614 $106,434 $121,129
======== ======== ======== ========
Operating profit (loss):
Power and Computing Systems $ (4,350) $ 1,931 $ (2,500) $ 4,892
Electronic Components (1,632) (2,372) (4,052) (4,467)
Government Systems 715 606 2,433 3,945
Sterilization and Purification Systems (902) 1,201 (2,955) 918
-------- -------- -------- --------
Total segment operating profit (loss) (6,169) 1,366 (7,074) 5,288
Corporate expenses, including total
restructuring, acquisition and other charges (9,665) (1,955) (14,067) (2,987)
-------- -------- -------- --------
Consolidated total $(15,834) $ (589) $(21,141) $ 2,301
======== ======== ======== ========
</TABLE>
Note 8 - Restructuring and Other Related Charges
In connection with the Restructuring Plan, the Company has undertaken
various actions to consolidate its facilities and reduce the cost structure
of the Company. As a result, the Company recorded restructuring and other
related charges in the nine months ended September 30, 2000 of approximately
$9.7 million, including $7.8 million in the third 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 Exitan 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, including goodwill
balances of $4.8 million related to a previous acquisition. The Company has
essentially completed its Restructuring Plan and has finalized the
consolidation and integration of its operations and related facilities.
Accordingly, the Company does not expect to record additional restructuring
related charges.
<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>
Three Months Ended Nine Months Ended
September 30, 2000 September 30, 2000
------------------ ------------------
<S> <C> <C>
Write-down of abandoned operating assets and
impaired assets $1,483 $2,423
Severance costs for involuntary employee
terminations 421 740
Costs to exit certain contractual and lease
obligations 661 935
Moving and other costs related to consolidation
of facilities 408 785
Write-off of impaired goodwill and other
intangible assets 4,808 4,808
------------------ ------------------
$7,781 $9,691
================== ==================
</TABLE>
Of the total restructuring and other related charges, approximately $1.9
million is included in accrued liabilities at September 30, 2000.
In addition, in September 2000, the Company recorded a charge of $0.5
million related to the write-off of in-process technology acquired in
connection with the acquisition of Gateworks (Note 2).
Note 9 - Discontinued Operations
In November 1999, the Company adopted a plan to divest its high voltage
wound film capacitors, high voltage power supplies and time card and job
cost accounting software 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
thebusinesses occupied, which extended through 2006, with annual rent of
approximately $0.5 million. In the nine months ended September 30, 2000,
provisions for estimated losses on the sale of the discontinued businesses
were reduced by $1.4 million, net of tax, to reflect revised estimates of
losses to be incurred upon disposition.
Operating results of the discontinued operations are separately shown,
net of tax, in the accompanying condensed consolidated statements of
operations. The businesses included in discontinued operations had sales
aggregating $1.1 million and $6.5 million for the three months ended
September 30, 2000 and 1999, respectively, and $4.7 and $19.2 million for
the nine months ended September 30, 2000 and 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. In October 2000, the
Company completed its facilities and organizational consolidation program,
which essentially completes the Company's Restructuring Plan.
As part of the Restructuring Plan, the Company combined its industrial
computer business and its power quality business. The Company 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 is
concentrating 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 and time card and job cost accounting software. 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.
The Company generates revenue from the sale of commercial products and
from performing contract research and other projects for the United States
governmentand other customers. From time to time, the Company also generates
revenue fromlicensing 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 (i) sales volume, with
respect to sales force expenses and commission expenses; (ii) the extent of
market research activities for new product design efforts; (iii) advertising
andtrade show activities, and (iv) 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 operatingdivisions. 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 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 power quality products and broadens the global
reach of the power quality products. As part of the Restructuring
Plan, the Company has combined the San Diego operations of these two
subsidiaries into a single facility in San Diego. The new San Diego
facility has been 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. The acquisition of Gateworks Corporation in September
2000 added enhanced capabilities in CompactPCI computer architecture,
the industry standard for servers that support telecommunications,
internet infrastructure and other mission critical applied computing
solutions requiring high availability. The Company intends to introduce
enhanced ISA/PCI and CompactPCI product lines in the fourth quarter of
2000.
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 organized 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 Space Electronics, Inc. high-reliability
and radiation-hardened microelectronics business and its Tekna Seal
glass-to-metal seal business. The Company has integrated the PowerCache
ultracapacitor business and the microelectronic components business into
one new manufacturing site in San Diego, while the EMI filters and ceramic
capacitors are manufactured at the Company's redesigned facility in Carson
City, Nevada. Both facilities were 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 nine months ended September 30, 2000 to the
comparable three and nine months ended September 30, 1999, and to the
sequentially prior quarter for the three months ended June 30, 2000.
<PAGE>
The following table sets forth, for the periods indicated, selected
operating data for the Company, expressed as a percentage of sales.
<TABLE>
Three Months Ended Nine Months Ended
---------------------------- September 30,
Sept. 30 June 30 Sept. 30 ------------------
2000 2000 1999 2000 1999
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Sales 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales 88.2 74.3 70.2 78.6 68.7
-------- -------- -------- -------- --------
Gross profit 11.8 25.7 29.8 21.4 31.3
Operating expenses:
Selling, general and administrative 26.9 23.6 23.5 25.0 22.2
Research and development 8.7 6.0 4.3 6.7 4.8
Restructuring, acquisition and other
charges 26.2 3.7 3.3 9.6 2.4
-------- -------- -------- -------- --------
Total operating expenses 61.8 33.3 31.1 41.3 29.4
-------- -------- -------- -------- --------
Operating income (loss) (50.0) (7.6) (1.3) (19.9) 1.9
Interest expense (1.2) (0.3) (0.1) (0.5) (0.2)
Interest income and other, net (0.3) 0.1 0.1 -- 0.5
-------- -------- -------- -------- --------
Income (loss) before income taxes and
minority interest (51.5) (7.8) (1.3) (20.4) 2.2
Provision (credit) for income taxes (20.6) (3.1) (15.0) (8.1) (5.0)
Minority interest in net income (loss)
of subsidiaries (0.3) (0.2) (0.4) (0.3) 0.1
-------- -------- -------- -------- --------
Income (loss) from continuing operations (30.6) (4.5) 14.1 (12.0) 7.1
Income (loss) from discontinued
operations (1.7) (0.5) (3.5) (0.8) 2.1
-------- -------- -------- -------- --------
Net income (loss) (32.3)% (5.0)% 10.6% (12.8)% 9.2%
</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>
Three Months Ended Nine Months Ended
------------------------- September 30,
Sept. 30 June 30 Sept. 30 ------------------
2000 2000 1999 2000 1999
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Power and Computing Systems:
Sales $ 13,146 $ 17,368 $ 21,964 $ 48,000 $ 58,964
Gross profit (loss) (160) 4,663 6,700 9,628 18,409
Gross profit (loss) as a percentage of
sales n/a 26.8% 30.5% 20.1% 31.2%
Electronic Components:
Sales $ 8,525 $ 9,717 $ 7,110 $ 26,905 $ 23,171
Gross profit 1,934 2,976 1,041 7,289 6,093
Gross profit as a percentage of sales 22.7% 30.6% 14.6% 27.1% 26.3%
Government Systems:
Sales $ 9,800 $ 10,021 $ 10,723 $ 30,576 $ 32,622
Gross profit 1,956 2,196 2,604 6,324 9,370
Gross profit as a percentage of sales 20.0% 21.9% 24.3% 20.7% 28.7%
Sterilization and Purification Systems:
Sales $ 202 $ 395 $ 2,718 $ 953 $ 6,372
Gross profit (loss) (4) (206) 2,344 (448) 4,020
Gross profit (loss) as a percentage
of sales n/a n/a 83.2% n/a 63.1%
Consolidated:
Sales $ 31,673 $ 37,501 $ 42,614 $106,434 $121,129
Gross profit 3,726 9,629 12,689 22,793 37,892
Gross profit as a percentage of sales 11.8% 25.7% 29.8% 21.4% 31.3%
</TABLE>
<PAGE>
Sales
Sales for the three months ended September 30, 2000 were $31.7 million,
reflecting a $10.9 million, or 25.7%, decrease from sales of $42.6 million for
the three months ended September 30, 1999. Total sales for the current quarter
also decreased $6.2 million, or 15.5%, from total sales of $37.5 million for the
three months ended June 30, 2000. For the nine months ended September 30, 2000,
sales were $106.4 million, or $14.7 million and 12.1% less than sales of $121.1
million in the comparable nine-month period of the prior year.
The decrease in current period sales from the prior year periods and from
the three months ended June 30, 2000 is primarily the result of the conclusion
of a major supply agreement in the Company's Power and Computing Systems
segment during the current quarter and the phase out of certain marginal product
lines in the current year. The major supply agreement contributed sales of $1.2
million and $8.4 million, respectively, in the three and nine months ended
September 30, 2000, compared to sales of $7.5 million and $17.1 million,
respectively, in the three and nine months ended September 30, 1999. In
addition, sales in the three and nine months ended September 30, 1999 included
contributions from licensing and strategic transactions of $2.8 million and
$5.7 million, respectively, which contributed no sales revenue in the current
year periods. Excluding sales from the major supply agreement and from
licensing and strategic transactions, sales in the three months ended
September 30, 2000 were $30.5 million, compared to sales of $32.3 million for
the three months ended September 30, 1999 and sales in the nine months ended
September 30, 2000 were $98.0 million, compared to sales of $98.3 million
for the nine months ended September 30, 1999.
Sales in each of the Company's business segments are discussed below.
Power and Computing Systems. For the three months ended September 30, 2000,
sales in the Power and Computing Systems segment decreased $8.8 million, or
40.1%, to $13.1 million from sales of $21.9 million for the three months ended
September 30, 1999. For the nine months ended September 30, 2000, sales in this
segment decreased $11.0 million, or 18.6%, to $48.0 million, from sales of $59.0
million for the comparable nine-month period of the prior year.
The decrease in revenues in the three and nine-month periods is primarily
attributable to a decline in revenues from the Company's supply agreement with
Siemens ElectroCom L.P. and the United States Postal Service, which concluded
in the current quarter and was winding down during the current fiscal year.
This supply agreement contributed sales of $1.2 million and $8.4 million,
respectively, in the three and nine months ended September 30, 2000, compared
to sales of $7.5 million and $17.1 million, respectively, in the three and
nine months ended September 30, 1999. Excluding sales from this supply
agreement, sales for this segment in the three months ended September 30, 2000
were $11.9 million, or 17.4% less than sales of $14.4 million for the three
months ended September 30, 1999; and, sales in the nine months ended
September 30, 2000 were $39.6 million, or 5.5% less than sales of $41.9
million for the nine months ended September 30, 1999.
Excluding the major supply agreement, sales decreased in this segment during
the current period due primarily to the phase out of certain marginal product
lines. Third quarter sales in the Power and Computing Systems segment
decreased by $4.2 million, or 24.3%, from the three months ended June 30, 2000,
reflecting $2.3 million in reduced revenue from the major supply agreement and
reduced revenue related to the product line phase-outs mentioned above. The
Company expects sales in this segment to increase beginning in the fourth
quarter of this year, reflecting the contribution from the acquisition of
Gateworks, completed in September 2000, as well as the contribution from new
products which will be introduced beginning in the fourth quarter.
Electronic Components. For the three months ended September 30, 2000, sales
in the Electronic Components segment increased $1.4 million, or 19.9%, to $8.5
million from $7.1 million for the three months ended September 30, 1999. For the
nine months ended September 30, 2000, sales in this segment increased $3.7
million, or 16.1%, to $26.9 million from $23.2 million for the comparable nine-
month period of the prior year. The increase in both the three-month and nine-
month periods is primarily attributable to increased sales in the radiation-
hardened microelectronics product lines of this segment. Increased sales in the
segment's glass-to-metal seals product lines also contributed to total increased
sales in the three and nine months ended September 30, 2000. These increases
were partially offset by decreases in revenue received from technology licenses
and other collaborative agreements of $0.1 million and $0.9 million in the three
and nine months ended September 30, 2000, respectively.
<PAGE>
Third quarter sales in the Electronic Components segment decreased by $1.2
million, or 12.3%, from sales in the three months ended June 30, 2000. This
decrease was primarily related to a reduced revenue contribution from the EMI
filter and ceramic capacitor product lines of this segment resulting from
certain remodeling efforts which took place in the related manufacturing
facility, temporarily reducing the capacity of the facility during the current
period. The remodeling has been completed and the facility now has increased
capacity to deliver products beginning in the fourth quarter of the current
fiscal year.
Government Systems. For the three months ended September 30, 2000, sales in
the Government Systems segment decreased $0.9 million, or 8.6%, to $9.8 million
from $10.7 million for the three months ended September 30, 1999. For the nine
months ended September 30, 2000, sales in this segment also decreased $2.0
million, or 6.3%, to $30.6 million from $32.6 million for the comparable nine-
month period of the prior year. Third quarter sales in the Government Systems
segment decreased by $0.2 million, or 2.2%, over the three months ended June 30,
2000. 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 changes
in Government funding provisions.
Sterilization and Purification Systems. For the three months ended September
30, 2000, sales in the Sterilization and Purification Systems segment decreased
$2.6 million, or 92.8%, to $0.2 million from $2.8 million for the third quarter
of last year. For the nine months ended September 30, 2000, sales in this
segment decreased $5.4 million, or 85.0%, to $1.0 million from $6.4 million for
the first nine months of the prior year. During the three and nine months ended
September 30, 1999, revenues in this business segment included $2.6 million and
$4.8 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 has redefined its product strategy
and market focus and, as a result, revenue contribution from license fees will
not continue at historical levels. This segment is not expected to contribute
significant revenues in the near term future.
Gross Profit
In the three months ended September 30, 2000, the Company's gross profit was
$3.7 million, or 11.8% of sales, compared to $12.7 million, or 29.8% of sales,
in the three months ended September 30, 1999. In the nine months ended
September 30, 2000, the Company's gross profit was $22.8 million, or 21.4% of
sales, as compared to $37.9 million, or 31.3% of sales, in the nine months ended
September 30, 1999. Gross profit and gross profit as a percentage of sales were
negatively impacted in the three months ended September 30, 2000 by the reduced
sales volume in the quarter, which was inadequate to fully absorb fixed
manufacturing costs. In addition, gross profit in the current quarter was
impacted by $2.1 million of adjustments to inventories and other costs of goods
sold variances in the Phoenix Power product lines of the Company's Power and
Computing Systems segment. The three and nine months ended September 30, 1999
also benefited from 100% gross margins associated with licensing and technology
collaborations of $2.8 million and $5.7 million, respectively, which did not
recur in the current year. On a sequential basis, quarterly gross profit at
September 30, 2000 decreased $5.9 million, or 61.3%, to $3.7 million, or 11.8%
of sales, from $9.6 million, or 25.7% of sales, for the three months ended June
30, 2000. The sequential decline in gross profit is also attributable to the
reduced sales volume in the quarter and $2.1 million adjustment discussed above.
Gross profit by business segment is discussed below.
Power and Computing Systems. In the three months ended September 30, 2000,
gross profit in the Power and Computing Systems segment decreased by $6.9
million, or 102%, to a loss of $(0.2) million from $6.7 million in the three
months ended September 30, 1999. In the nine months ended September 30, 2000,
gross profit decreased $8.8 million, or 47.7%, to $9.6 million from $18.4
million in the nine months ended September 30, 1999. As a percentage of sales,
gross profit decreased to (1.2)% and 20.1% in the three and nine-month periods
of the current year, as compared to 30.5% and 31.2% in the respective periods of
the prior year. The decrease in gross profit is primarily attributable to the
impact of reduced sales volume for this segment in the current year periods and
the $2.1 million adjustment discussed above. In addition, this segment has
experienced a change in product mix to include a higher proportion of lower-
margin power protection and delivery systems, as compared to higher margin
industrial computer solutions. The reduced gross profit in the current year also
reflects costs incurred in the current year in connection with training
personnel in improved manufacturing processes and certain write-offs of
inventories deemed excess or obsolete.
<PAGE>
Electronic Components. In the three months ended September 30, 2000, gross
profit in the Electronic Components segment increased by $0.9 million, or 85.8%,
to $1.9 million from $1.0 million in the three months ended September 30, 1999.
As a percentage of sales, gross profit improved to 22.7% in the current quarter
from 14.6% in the three months ended September 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 product lines.
The increase in gross profit as a percentage of sales also 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 nine months ended
September 30, 2000, gross profit increased to $7.3 million from $6.1 million in
the nine months ended September 30, 1999. As a percentage of sales, gross
profit increased in the nine-month period to 27.1% from 26.3%. 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 3.7%. On a sequential basis, gross profit in
the Electronic Components segment decreased from $3.0 million, or 30.6% of
sales, in the three months ended June 30, 2000 to $1.9 million, or 22.7% of
sales in the current quarter. The sequential decrease in gross profit is
primarily attributable to the impact of a reduced sales volume in the current
quarter, as discussed above.
Government Systems. For the three months ended September 30, 2000, gross
profit in the Government Systems segment decreased $0.6 million, or 24.9%, to
$2.0 million from $2.6 million in the three months ended September 30, 1999. As
a percentage of sales, gross profit decreased to 20.0% from 24.3% in the three-
month period ended September 30, 1999. In the nine months ended September 30,
2000, gross profit decreased $3.1 million, or 67.5%, to $6.3 million from $9.4
million in the comparable period of the prior year. As a percentage of sales,
gross profit decreased to 20.7% from 28.7% in the nine-month period ended
September 30, 1999. The gross profit decrease is partially attributable to a
decrease in sales in the current year period. In addition, gross profit in
the prior year was much higher than normal for this segment as a result of the
recovery of certain cost overruns and other expenses incurred in prior years.
Gross profit in the current year has been consistently in the range of 20% of
sales to 22% of sales and the Company expects future gross margins to remain
near the levels achieved over the last three quarters.
Sterilization and Purification Products. For the three months ended September
30, 2000, gross profit in the Sterilization and Purification Products segment
decreased $2.3 million, or 100%, to approximately break-even from a gross profit
of $2.3 million for the three months ended September 30, 1999. For the nine
months ended September 30, 2000, gross profit decreased $4.4 million, or 111% to
a loss of $0.4 million from gross profit of $4.0 million in the prior year.
Gross profit in both the three and nine-months ended September 30, 1999
benefited from high-margin revenue from grants of licenses and rights, which the
Company did not receive in the current year. Based on the Company's redefined
product strategy and market focus for this segment, gross profit margins will
likely continue to be negatively impacted in the near-term.
Selling, General and Administrative Expenses
In the three months ended September 30, 2000, the Company's selling, general
and administrative expenses decreased $1.5 million, or 15.0%, to $8.5 million
from $10.0 million in the three months ended September 30, 1999. Although the
absolute amount of selling, general and administrative expenses has decreased,
as a percentage of total sales these expenses increased to 26.9% in the three
months ended September 30, 2000, from 23.5% in the three months ended September
30, 1999, due to a decrease in sales volumes. In the nine months ended
September 30, 2000, the Company's selling, general and administrative expenses
decreased $0.3 million, or 1.0%, to $26.6 million from $26.9 million in the nine
months ended September 30, 1999. As a percentage of total sales, selling,
general and administrative expenses increased to 25.0% in the nine months ended
September 20, 2000, from 22.2% in the nine months ended September 30, 1999. On
a sequential basis, selling, general and administrative expenses in the quarter
ended September 30, 2000 decreased $0.7 million as compared to the $9.2 million,
or 23.6% of sales incurred in the three-month period ended June 30, 2000. The
Company is continuing to focus on opportunities to decrease its selling, general
and administrative expenses.
<PAGE>
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 $2.8 million and $7.1 million for the three and nine months ended
September 30, 2000, as compared to $1.8 million and $5.8 million in the three
and nine months ended September 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
September 30, 2000, June 30, 2000 and March 31, 2000 of $3.0 million, $1.4
million and $0.5 million, respectively, for total restructuring charges of $4.9
million for the nine months ended September 30, 2000. These charges include
severance costs related to reductions in headcount, costs associated with the
closure and combination of certain facilities and the write-off of non-
performing operating assets. The Company has completed the facilities and
organizational consolidation program started as part of its Restructuring Plan
and does not expect to record any additional charges related to the
Restructuring Plan. In the three months ended September 30, 2000, the Company
also recorded a charge of $4.8 million to reduce the carrying value of goodwill
related to its 1998 acquisition of Phoenix Power Systems, Inc. to an amount
representative of the current fair value of that asset. Also, in the three
months ended September 30, 2000, the Company recorded a charge of $0.5 million
related to in-process technology acquired in connection with the Company's
acquisition of Gateworks in September 2000.
In the nine months ended September 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. In addition, in the three months ended September
30, 1999, the Company recorded charges aggregating $1.4 million related to
revised estimates of costs to resolve certain environmental and legal
contingencies which occurred in prior years and certain restructuring provisions
related to reductions in the Company's administrative infrastructure in Europe.
Interest Expense
Interest expense increased to $0.4 million in the three months ended
September 30, 2000 from $37,000 in the prior year and increased to $0.6 million
for the nine months ended September 30, 2000 from $0.2 million for the nine
months ended September 30, 1999. The increased interest expense relates to
higher borrowing levels in the current year compared to the prior year. At
September 30, 2000, the Company had $17.7 million outstanding under its bank
line-of-credit. The Company expects borrowings, and related interest expense,
to continue to increase for the remainder of the current year.
Interest Income and Other, Net
Interest income and other, net, consisting primarily of interest income,
foreign currency transaction gains and losses and losses on the disposition of
fixed assets, was $(101,000) and $55,000 in the three months ended September
30, 2000 and 1999, respectively. For the nine months ended September 30, 2000
and 1999, interest income and other, net, was $(24,000) and $544,000,
respectively. Interest income has decreased reflecting lower average cash
balances in the three and nine months ended September 30, 2000.
Provision (Credit) for Income Taxes
The provision (credit) for income taxes for the three and nine months ended
September 30, 2000 reflects the Company's expected world-wide tax rate for the
current fiscal year. For the three and nine months ended September 30, 1999, the
Company's provision (credit) for income taxes included a credit of $5.9 million,
representing the reversal of a valuation allowance provided in previous years
against certain deferred tax benefits.
<PAGE>
Minority Interest in Net Income (Loss) of Subsidiaries
Minority interest in net income (loss) of subsidiaries was $(94,000) for the
three months ended September 30, 2000 and $(161,000) for the three months ended
September 30, 1999. For the nine months ended September 30, 2000 and 1999,
minority interest in net income (loss) of subsidiaries was $(289,000) and
$156,000, respectively. The current period credit 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 $(9.7) million for the three months ended September 30, 2000,
compared to $6.0 million for the three months ended September 30, 1999. In the
nine months ended September 30, 2000 and 1999, the income (loss) from continuing
operations was $(12.7) million and $8.6 million, respectively.
Discontinued Operations
In November 1999, the Company adopted a plan to divest its high voltage wound
film capacitors, high voltage power supplies and time card and job cost
accounting software 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 $0.3
million, respectively, net of tax, to reflect revised estimates of losses to be
incurred.
Total income (loss) from discontinued operations was $(0.5) million in the
three months ended September 30, 2000, compared to $(1.4) million for the three
months ended September 30, 1999 and $(0.2) million for the three months ended
June 30, 2000. For the nine months ended September 30, 2000 and 1999, the total
income (loss) from discontinued operations was $(0.8) million and $2.6 million,
respectively.
Liquidity and Capital Resources
The Company has historically relied on a combination of cash on hand,
internally generated funds, proceeds form sales of stock and bank borrowings to
finance its working capital requirements and capital expenditures. In its fiscal
year ended July 31, 1998, the Company received cash of $47.1 million in
connection with a public offering of its stock. In addition, in each of its two
most recent full fiscal years, the Company received approximately $2.9 million
and $2.4 million, respectively, from the exercise of stock options and purchases
under employee stock purchase plans.
Cash used by operating activities in the nine months ended September 30, 2000
was approximately $9.2 million, as compared to $4.9 million in the nine months
ended September 30, 1999. In the current period, the use of cash was primarily
attributable to operating losses, cash restructuring expenses and certain
increases in working capital. The Company's capital expenditures in the nine
months ended September 30, 2000 and 1999 were $7.6 million and $6.4 million,
respectively, and relate 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 new facilities
for its 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. In the three
months ended September 30, 2000, the Company also used cash of $4.5 million in
connection with the payment of an earn-out obligation related to a 1998
acquisition, and $500,000 of cash was paid in connection with the September
2000 acquisition of Gateworks.
<PAGE>
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 operations and its capital expenditures, as well as finance
remaining payments required in connection with its Restructuring Plan. 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 which was amended in October 2000 to provide
maximum borrowings of $26.0 million. The Company had borrowings of $17.7 million
outstanding under this agreement as of September 30, 2000.
Inflation and Changes in Prices
Generally, the Company has been able to increase prices to offset its
inflation-related cost increases 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 on 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 bank's reference rate. As of September 30, 2000, the
Company has approximately $17.7 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
On September 15, 2000, the Company mailed a Consent Solicitation
Statement to its shareholders seeking the approval of the
shareholders by written consent in lieu of a meeting of a proposed
amendment to the Company's 1995 Stock Option Plan to increase the
number of shares authorized for issuance by 950,000. The consent
solicitation process is on-going at the current date and the outcome
has not yet been determined.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.1 Agreement and Plan of Reorganization among Gateworks
Corporation, The Shareholders of Gateworks Corporation,
I-Bus/Phoenix, Inc. and Maxwell Technologies, Inc. as of
September 13, 2000.
10.2 PurePulse Technologies, Inc. 2000 Stock Option Plan
10.3 I-Bus/Phoenix, Inc. 2000 Stock Option Plan
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.
November 14, 2000 /s/ Carlton J. Eibl
----------------- ------------------------------
Date Carlton J. Eibl, President and
Chief Executive Officer
November 14, 2000 /s/ Vickie L. Capps
----------------- ------------------------------
Date Vickie L. Capps, Vice President
- Finance, Treasurer and Chief
Financial Officer (Principal Financial
and Accounting Officer)
