-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, K85WLFS8uG5jXmOmBYabsDfcxtLPSx6XJRPiOugyY4bH69eSoNdP/8e6ySorRa3A SwLsHazZexvwj/5A7GDG0w== 0000319815-99-000009.txt : 19991216 0000319815-99-000009.hdr.sgml : 19991216 ACCESSION NUMBER: 0000319815-99-000009 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19991031 FILED AS OF DATE: 19991215 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MAXWELL TECHNOLOGIES INC CENTRAL INDEX KEY: 0000319815 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRONIC COMPUTERS [3571] IRS NUMBER: 952390133 STATE OF INCORPORATION: DE FISCAL YEAR END: 0731 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-15477 FILM NUMBER: 99775313 BUSINESS ADDRESS: STREET 1: 9275 SKY PARK COURT CITY: SAN DIEGO STATE: CA ZIP: 92123 BUSINESS PHONE: 8582795100 MAIL ADDRESS: STREET 1: 8888 BALBOA AVE STREET 2: 8888 BALBOA AVE CITY: SAN DIEGO STATE: CA ZIP: 92123 FORMER COMPANY: FORMER CONFORMED NAME: MAXWELL LABORATORIES INC /DE/ DATE OF NAME CHANGE: 19920703 10-Q 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarter Ended October 31, 1999 Commission File Number 0-10964 MAXWELL TECHNOLOGIES, INC. Delaware IRS ID #95-2390133 9275 Sky Park Court San Diego, California 92123 Telephone (858) 279-5100 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----- ----- As of November 30, 1999, Registrant had only one class of common stock of which there were 9,563,984 shares outstanding. PART I - FINANCIAL INFORMATION Item 1. Financial Statements Maxwell Technologies, Inc. Consolidated Condensed Balance Sheets (in thousands)
Assets ------ October 31, July 31, 1999 1999 ---------- ---------- (Unaudited) (Note) Current assets: Cash and cash equivalents $ 8,986 $ 8,839 Accounts receivable - net 41,675 49,978 Inventories: Finished products 3,132 3,624 Work in process 4,028 3,907 Parts and raw materials 15,860 16,096 ---------- ---------- 23,020 23,627 Prepaid expenses 3,984 3,733 Deferred income taxes 10,493 10,493 ---------- ---------- Total current assets 88,158 96,670 Property, plant and equipment - net 24,874 27,880 Goodwill and other non-current assets 10,294 9,884 ---------- ---------- $ 123,326 $ 134,434 ========== ==========
Liabilities and Stockholders' Equity ------------------------------------ Current liabilities: Accounts payable $ 18,019 $ 23,817 Accrued employee compensation 7,082 7,363 Current portion of long-term debt 435 3,252 ---------- ---------- Total current liabilities 25,536 34,432 Long-term debt 205 436 Minority interest 2,216 2,398 Stockholders' equity: Common stock 957 956 Additional paid-in capital 78,146 78,082 Deferred compensation (144) (204) Accumulated other comprehensive income (195) (132) Retained earnings 16,605 18,466 ---------- ---------- 95,369 97,168 ---------- ---------- $ 123,326 $ 134,434 ========== ========== Note: The Balance Sheet at July 31, 1999 has been derived from the audited financial statements as of that date. See notes to consolidated condensed financial statements.
PART I - FINANCIAL INFORMATION, continued Maxwell Technologies, Inc. Consolidated Condensed Statements of Operations - (Unaudited) (in thousands, except per share data)
Three Months Ended October 31, -------------------------- 1999 1998 ---------- ---------- Sales $ 40,656 $ 42,986 Cost of sales 30,060 28,379 ---------- ---------- Gross profit 10,596 14,607 Operating expenses: Selling, general and administrative expenses 10,624 9,507 Research and development expenses 2,926 2,503 ---------- ---------- Total operating expenses 13,550 12,010 ---------- ---------- Operating income (loss) (2,954) 2,597 Interest expense 112 118 Interest income and other, net (28) (288) ---------- ---------- Income (loss) before income taxes and minority interest (3,038) 2,767 Provision (credit) for income taxes (995) 100 Minority interest in net income (loss) of subsidiaries (182) 195 ---------- ---------- Net income (loss) $ (1,861) $ 2,472 ========== ========== Net income (loss) per share: Basic income (loss) per share $ (0.19) $ 0.27 ========== ========== Diluted income (loss) per share $ (0.19) $ 0.25 ========== ========== Shares used in computing: Basic income (loss) per share 9,560 9,228 ========== ========== Diluted income (loss) per share 9,560 9,618 ========== ========== See notes to consolidated condensed financial statements.
PART I - FINANCIAL INFORMATION, continued Maxwell Technologies, Inc. Consolidated Condensed Statements of Cash Flows - (Unaudited) (in thousands)
Three Months Ended October 31, -------------------------- 1999 1998 ---------- ---------- Operating Activities: Net income (loss) $ (1,861) $ 2,472 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization 1,486 1,285 Deferred compensation 60 60 Loss on sales of property and equipment 64 -- Minority interest in net income (loss) of subsidiaries (182) 195 Changes in operating assets and liabilities - net 2,069 (6,706) ---------- ---------- Net cash provided by (used in) operating activities 1,636 (2,694) ---------- ---------- Investing Activities: Purchases of property and equipment (1,843) (2,043) Proceeds from sale of building 3,400 -- ---------- ---------- Net cash provided by (used in) investing activities 1,557 (2,043) ---------- ---------- Financing Activities: Principal payments on long-term debt and short-term borrowings (3,048) (445) Proceeds from long-term debt and short-term borrowings -- 620 Proceeds from issuance of Company and subsidiary stock 65 240 Repurchase of Company and subsidiary stock -- (695) ---------- ---------- Net cash used in financing activities (2,983) (280) ---------- ---------- Effect of exchange rate changes on cash and cash equivalents (63) 4 ---------- ---------- Increase (decrease) in cash and cash equivalents 147 (5,013) Cash and cash equivalents at beginning of period 8,839 21,397 ---------- ---------- Cash and cash equivalents at end of period $ 8,986 $ 16,384 ========== ========== See notes to consolidated condensed financial statements.
PART I - continued NOTES TO FINANCIAL STATEMENTS 1. General The preceding interim consolidated condensed financial statements contain all adjustments (consisting of normal recurring accruals) which are, in the opinion of management, necessary for a fair and accurate presentation of financial position at October 31, 1999 and the results of operations for the three month period then ended. These interim financial statements should be read in conjunction with the Company's July 31, 1999 audited consolidated financial statements and notes thereto included in its Annual Report on Form 10-K for fiscal year 1999. Interim results are not necessarily indicative of those to be expected for the full year. The consolidated financial statements include the accounts of Maxwell Technologies, Inc., and its subsidiaries. All significant intercompany transactions and account balances are eliminated in consolidation. 2. Foreign Currencies A portion of the Company operations consists of manufacturing and sales activity in foreign countries, specifically the United Kingdom, France and Germany. As a result, the Company's financial results could be significantly affected by factors such as changes in foreign currency exchange rates or weak economic conditions in the European markets that the Company serves. The operating results of the Company are exposed to changes in exchange rates between the United States dollar and the British pound, French franc, and the German mark. The Company does not currently hedge its foreign exchange risk, which is not significant at this time. The assets and liabilities of the Company's foreign subsidiaries are translated from their functional currencies into United States dollars at exchange rates in effect on the balance sheet date, and revenues and expenses are translated at weighted-average rates prevailing during the year. 3. Comprehensive Income (Loss) In fiscal year 1999, the Company adopted Statement of Financial Accounting Standards No. 130, Reporting Comprehensive Income ("Statement No. 130"). Statement No. 130 established new rules for the reporting and display of comprehensive income and its components; however the adoption of Statement No. 130 had no impact on the Company's net income (loss) or total stockholders' equity. The components of comprehensive income (loss) for the three months ended October 31, 1999 and 1998 were as follows (in thousands):
Three Months Ended October 31, -------------------------- 1999 1998 ---------- ---------- Net income (loss) $ (1,861) $ 2,703 Foreign currency translation adjustments (63) 4 ---------- ---------- Comprehensive income (loss) $ (1,924) $ 2,707 ========== ==========
4. Income (Loss) Per Share In accordance with Financial Accounting Standards Board Statement No. 128, Earnings Per Share ("Statement No. 128"), basic earnings per share is calculated using the weighted average number of common shares outstanding. Diluted earnings per share is calculated on the basis of the weighted average number of common shares outstanding plus the dilutive effect of outstanding stock options, assuming their exercise using the "treasury stock" method, and convertible preferred shares outstanding at certain subsidiaries of the Company, assuming their conversion. For the three months ended October 31, 1999, all potentially dilutive securities were excluded from the calculation of diluted loss per share as their inclusion would have been antidilutive. PART I - continued The following table sets forth the computation of basic and diluted income (loss) per share:
Three Months Ended October 31, -------------------------- 1999 1998 ---------- ---------- Basic: Net income (loss) $ (1,861) $ 2,472 ========== ========== Weighted average shares 9,560 9,228 ========== ========== Basic income (loss) per share $ (0.19) $ 0.27 ========== ========== Diluted: Net income (loss) $ (1,861) $ 2,472 Effect of majority-owned subsidiaries dilutive securities -- (66) ---------- ---------- Income (loss) available to common shareholders, as adjusted $ (1,861) $ 2,406 ========== ========== Weighted average shares 9,560 9,228 Effect of dilutive stock options and other securities -- 390 ---------- ---------- Weighted average shares, as adjusted 9,560 9,618 ========== ========== Diluted income (loss) per share $ (0.19) $ 0.25 ========== ==========
5. Business Segments The following table sets forth sales and operating profit (loss) data of the Company's business segments as defined by the Company under the guidelines of Financial Accounting Standards Board Statement No. 131, Disclosures About Segments of an Enterprise and Related Information ("Statement No. 131").
Space and Industrial Sterilization Technology Computers Power and Products and and Conversion Purification Programs Subsystems Products Systems Other Total ----------- ---------- --------- --------- --------- --------- Three months ended October 31, 1999: Revenues $14,139 $16,896 $ 9,154 $ 467 $ -- $40,656 Operating income (loss) (467) 1,342 (1,792) (1,242) (795) (2,954) Three months ended October 31, 1998: Revenues $17,204 $10,267 $11,455 $ 2,919 $ 1,141 $42,986 Operating income (loss) (49) 83 900 1,272 391 2,597
PART I - continued 6. Subsequent Events In November 1999, the Company adopted a plan to integrate several of its commercial businesses to form two new business segments based on the Company's core capabilities in power and computing. Effective January 1, 2000, the Company will report the following segments: - A new Systems segment, integrating its Industrial Computers and Subsystems business segment with its power conditioning and distribution business unit; - A new Components segment, integrating its ultracapacitor business with its Space Electronics and Sierra-KD business units; - A Government segment including its government contracting business, and; - A Sterilization and Purification segment as currently reported. In addition, the Company plans to divest its business software, high-voltage capacitor and glass-to-metal seals businesses. Also in November 1999, the Company's Board of Directors adopted a resolution to change the Company's fiscal year to a calendar year. The Company will file an Annual Report on Form 10-K for the transition period from August 1 to December 31, 1999. The Company expects to record charges associated with the integration of its commercial business in the stub period ended December 31, 1999. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Overview Maxwell Technologies, Inc. ("Maxwell" or the "Company") applies industry- leading capabilities in power and computing to develop and market products and services for commercial and government customers in multiple industries, including telecommunications, consumer electronics, satellite, defense, energy, transportation, medical products and water purification. A worldwide leader in pulsed power technologies, the storage of electrical energy and delivery of power in brief controlled bursts, the Company has leveraged its technical expertise, gained from over 30 years of experience performing research and development primarily for the United States Department of Defense ("DOD"), to develop a portfolio of pulsed power based products, ranging from components such as ultracapacitors and EMI filters to systems for purification and sterilization and major pulsed power x-ray simulators. For the space and satellite market, Maxwell offers a line of microelectronic components and subsystems, as well as sophisticated analysis and services involving the effects of the space environment on spacecraft and sensor signal processing for space systems. The Company also designs and manufacturers industrial computers and subsystems which are sold to original equipment manufacturers and as standard catalogue products in the computer telephony, broadcasting, manufacturing automation and e-commerce. The Company generates revenue from the sale of commercial products, from licensing technology and other rights to strategic partners and from performing contract research and other projects for the United States government and other customers. The Company's commercial products sales teams consist of sales personnel based in its operating facilities and for the Company's industrial computer and Space Electronics, Inc. ("SEi") units, geographically dispersed sales offices. These sales teams are often supported by scientists, application engineers and technical specialists. Sales and marketing for the Company's products in the United States, and, for industrial computers, Europe, is handled directly by the Company, and elsewhere the Company utilizes sales representatives and distributors to assist in the marketing of its products. The Company conducts marketing programs intended to position and promote its products and services, including trade shows, seminars, advertising, public relations, distribution of product literature and web-sites on the Internet. PART I - continued The Company's operating expenses are substantially impacted by selling, general and administrative activities and by research and development activities. Selling, general and administrative expenses are primarily driven by (1) sales volume, with respect to sales force expenses and commission expenses; (2) the extent of market research activities for new product design efforts; (3) advertising and trade show activities and (4) the number of new products launched in the period. General and administrative expenses primarily include costs associated with the Company's administrative employees, facilities and functions. The Company incurs expenses in foreign countries primarily in the functional currencies of such locations. As a result of the Company's international operations, the United States dollar amount of its revenue and expenses is impacted by changes in foreign currency exchange rates. The Company's ability to maintain and grow its sales depends on a variety of factors including its ability to maintain its competitive position in areas such as technology, performance, price, brand identity, quality, reliability, distribution and customer service and support. The Company's sales growth also depends on its ability to continue to introduce new products that respond to technological change and market demand in a timely manner. Business Segments In accordance with Statement of Financial Accounting Standards No. 131, Disclosure About Segments of an Enterprise and Related Information ("Statement No. 131"), Maxwell's operations have been classified into the following business segments: - Space and Technology Products and Programs: Includes design, development and manufacture of high reliability radiation-hardened electronic components and consulting services for commercial and government space systems, research and development programs in pulsed power, pulsed power systems design and construction, computer-based analytic services and software, and weapons effects simulation, primarily for the DOD. Over the last several periods, the Company has re-directed some of its space effects modeling and analysis services, with expertise developed over a 25-year period, from government to commercial programs. To complement its consulting services, in fiscal year 1999, the Company acquired SEi, a San Diego based supplier of specially treated electronic components for use in space environments, primarily by commercial satellite manufacturers. - Industrial Computers and Subsystems: Includes design and assembly of standard, custom and semi-custom industrial computer modules, platforms and fully integrated systems primarily for OEMs. - Power Conversion Products: Includes design, development and manufacture of electrical components, systems and subsystems, including products that capitalize on pulsed power such as ultracapacitors, high voltage capacitors and other electrical components, power distribution and conditioning systems, and EMI filter capacitors. - Sterilization and Purification Systems: Includes design, development and manufacture of systems based on two patented pulsed power processes incorporating capacitors and other pulsed power components designed and manufactured by the Company. The PureBright system utilizes intense pulsed light to kill microorganisms and viruses in water and blood plasma and other biopharmaceutical products, and on food, food packaging and medical products. The CoolPure system uses pulsed electrical fields to kill microorganisms in liquids and liquid foods, such as juices, dairy products and sauces. PART I - continued In November 1999, the Company adopted a plan to integrate several of its commercial businesses to form two new business segments based on the Company's core capabilities in power and computing. Effective January 1, 2000, the Company will report the following segments: - A new Systems segment, integrating its Industrial Computers and Subsystems business segment with its power conditioning and distribution business unit; - A new Components segment, integrating its ultracapacitor business with its Space Electronics and Sierra-KD business units; - A Government segment including its government contracting business, and; - A Sterilization and Purification segment as currently reported. In addition, the Company plans to divest its business software, high-voltage capacitor and glass-to-metal seals businesses. Also in November 1999, the Company's Board of Directors adopted a resolution to change the Company's fiscal year to a calendar year. The Company will file an Annual Report on Form 10-K for the transition period from August 1 to December 31, 1999. The Company expects to record charges associated with the integration of its commercial business in the stub period ended December 31, 1999. Results of Operations The results of operations for the first quarter of fiscal year 1999 have been restated to include the results of acquisitions completed during fiscal year 1999 and accounted for using the pooling-of-interests method. The following table sets forth, for the periods indicated selected operating data for the Company, expressed as a percentage of sales:
Three Months Ended October 31, -------------------------- 1999 1998 ---------- ---------- Sales 100.0% 100.0% Cost of sales 73.9 66.0 ---------- ---------- Gross profit 26.1 34.0 Operating expenses: Selling, general and administrative 26.1 22.1 Research and development 7.2 5.8 ---------- ---------- Total operating expenses 33.3 27.9 ---------- ---------- Operating income (loss) (7.2) 6.1 Interest expense 0.3 0.3 Interest income and other, net (0.1) (0.7) ---------- ---------- Income (loss) before income taxes and minority interest (7.4) 6.5 Provision (credit) for income taxes (2.4) 0.2 Minority interest in net income (loss) of subsidiaries (0.4) 0.5 ---------- ---------- Net income (loss) (4.6)% 5.8% ========== ==========
PART I - continued The following table sets forth sales, gross profit and gross profit as a percentage of sales for each of the Company's business segments for the three-month periods ended October 31, 1999 and 1998:
Three Months Ended October 31, -------------------------- 1999 1998 ---------- ---------- (in thousands) Space and Technology Products and Programs Sales $ 14,139 $ 17,204 Gross profit 3,915 4,807 Gross profit as a percentage of sales 27.7% 38.7% Industrial Computers and Subsystems: Sales $ 16,896 $ 10,267 Gross profit 5,257 3,193 Gross profit as a percentage of sales 31.1% 31.1% Power Conversion Products: Sales $ 9,154 $ 11,455 Gross profit 1,483 4,273 Gross profit as a percentage of sales 16.2% 37.3% Sterilization and Purification Systems: Sales $ 467 $ 2,919 Gross profit (loss) (59) 1,893 Gross profit (loss) as a percentage of sales (12.6)% 64.9% Other: Sales $ -- $ 1,141 Gross profit -- 441 Gross profit as a percentage of sales -- 38.7% Consolidated Sales $ 40,656 $ 42,986 Gross profit 10,596 14,607 Gross profit as a percentage of sales 26.1% 34.0%
Sales Sales for the three months ended October 31, 1999 were $40.7 million, a 5.4% decrease from $43.0 million for the same period last year. The decrease in sales from the prior year occurred in most of the Company's business segments, the exception being the Industrial Computers and Subsystems segment, for which revenues increased over 60% as compared to the prior year first quarter. These results are more fully described in the business segment discussion below. Space and Technology Products and Programs. In the quarter ended October 31, 1999, sales in the Space and Technology Products and Programs segment decreased $3.1 million, or 17.8%, to $14.1 million from $17.2 million in the first quarter of last fiscal year. This decrease was primarily the result of reduced revenues from the wind-down of certain Government programs. Additionally, revenues from the Company's customers in the commercial satellite market decreased in the current period due to recent economic issues affecting such customers. PART I - continued Industrial Computers and Subsystems. In the quarter ended October 31, 1999, sales in the Industrial Computers and Subsystems segment increased $6.6 million, or 64.6%, to $16.9 million from $10.3 million in the first quarter of last fiscal year. The increase in sales for the quarter is attributable both to an increase in European sales over the prior year of $2.3 million, and new design-in wins for a customized OEM product for a SiemensElectroCom, LP program with the US Postal Service which contributed sales of $5.9 million in the current period. Power Conversion Products. In the quarter ended October 31, 1999, sales in the Power Conversion Products segment decreased $2.3 million, or 20.0%, to $9.2 million from $11.5 million in the first quarter of last fiscal year. This decrease primarily resulted from decreases in revenue received from technology licenses and other collaborative agreements. In addition, at the Company's Sierra-KD operation, over-stock issues at its primary medical filter customer and weakness in the oil and space markets resulted in a decrease in sales from the prior year. Partially offsetting the above decreases was continued growth in sales of power protection and delivery systems and sales of traditional high-voltage capacitors related to a large multi-year order under a National Laboratory program which is expected to be completed in mid-fiscal year 2000. Sterilization and Purification Products. In the quarter ended October 31, 1999, sales in the Sterilization and Purification Products segment decreased $2.4 million, or 84.0%, to $0.5 million from $2.9 million in the first quarter of last fiscal year. During the prior year first quarter, revenues in this business segment were primarily comprised of licensing and rights fees received from strategic partners and included revenue related to the grant of certain non-exclusive rights for manufacturing and distribution of its products. The revenues in the first quarter of the current fiscal year did not benefit from such licensing and rights fees. The Company is redefining its product strategy and market focus and, as a result, revenue contribution from license fees may not continue at historical levels. Gross Profit In the quarter ended October 31, 1999, the Company's gross profit was $10.6 million, or 26.1% of sales, compared to $14.6 million, or 34.0% of sales, in the first quarter of last fiscal year. Gross profit is discussed by business segment in the sections that follow. Space and Technology Products and Programs. In the quarter ended October 31, 1999, gross profit in the Space and Technology Products and Programs segment decreased $0.9 million, or 18.6%, to $3.9 million from $4.8 million in the first quarter of last fiscal year primarily as a result of lower revenues. As a percentage of sales, gross profit decreased slightly to 27.7% in this year's first quarter from 27.9% in the first quarter of the prior year. Industrial Computers and Subsystems. In the quarter ended October 31, 1999, due to increased revenues, the gross profit in the Industrial Computers and Subsystems segment increased $2.1 million, or 64.6%, to $5.3 million from $3.2 million in the first quarter of last fiscal year. As a percentage of sales, gross profit remained level with the prior year at 31.1%. Power Conversion Products. In the quarter ended October 31, 1999, gross profit in the Power Conversion Products segment decreased by $2.8 million, or 65.3%, to $1.5 million from $4.3 million in the first quarter of last fiscal year. As a percentage of sales, gross profit declined to 16.2% in this year's first quarter from 37.3% in the first quarter of the prior year. The decrease in gross profit as a percentage of sales reflects a lower margin mix of products and services, including decreased contribution from high-margin technology licenses and other collaborative agreements. In addition, in its PowerCache ultracapacitor product line, the Company is making required infrastructure and other investments which impact gross profit at current sales volumes. As product sales ramp up, gross margins will continue to be impacted until full production volumes are reached and maintained. Sterilization and Purification Products. In the quarter ended October 31, 1999, gross profit in the Sterilization and Purification Products segment decreased $2.0 million, or 103%, to $(0.1) million from $1.9 million in the first quarter of last fiscal year. Gross profit in the first quarter of the prior fiscal year benefited from high-margin revenue from grants of licenses and rights. As the Company redefines its product strategy and market focus, gross profit margins will likely continue to be negatively impacted. PART I - continued Selling, General and Administrative Expenses In the quarter ended October 31, 1999, the Company's selling, general and administrative expenses increased $0.9 million, or 11.7%, to $10.6 million from $9.5 million in the first quarter of last fiscal year. As a percentage of total sales, selling, general and administrative expenses increased to 26.1% in this year's first quarter from 22.1% in the first quarter of the prior year. The increase in the dollar amount of these expenses is primarily in support of the Company's growth over the course of the prior fiscal year and the continued expansion in Europe related to the industrial computer business area. In addition, the current quarter includes approximately $750,000 of severance costs related to the Company's former CEO. Research and Development Expenses The Company's research and development expenses reflect only internally funded research and development programs. Costs associated with United States Government and other customer funded research and development contracts are included in cost of sales. The level of internally funded research and development expenses reflects the Company's ability to obtain customer funding to support a significant portion of its research and product development activities. Internally funded research and development expenses were $2.9 million and $2.5 million for the three months ended October 31, 1999 and 1998, respectively. The increase in these expenses for the current three-month period as compared to the same period last year is primarily due to efforts to accelerate new product introductions. Interest Income and Other-net and Provision (Credit) for Income Taxes Interest income and other-net decreased to $28,000 for the three months ended October 31, 1999 from $288,000 in the first quarter of the prior year. These decreases are primarily due to a reduction in interest earned on cash investments in the current year. In the prior year's first quarter, the Company's provision for income taxes consisted primarily of taxes for its foreign operations, while the provision in the current quarter reflects the Company's expected world-wide tax rate for the current fiscal year. Liquidity and Capital Resources Net cash provided by operations for three months ended October 31, 1999 was $1.6 million. The increase in cash in the current quarter was primarily attributable to decreases in receivables and inventories, and proceeds from the sale of an unoccupied building. This increase was offset by the repayment of the Company's outstanding obligation under its bank line-of-credit and by capital expenditures. The Company's capital expenditures during the first quarter amounted to $1.8 million, and primarily consisted of production and other capital assets in the Power Conversion Products business segment, and expenditures related to the Company's information systems infrastructure. Maxwell has an unsecured bank line-of-credit amounting to $20.0 million, under which the Company has no borrowings outstanding as of October 31, 1999. The Company believes that funds on-hand, together with cash generated from operations and funds available under its bank line-of-credit, will be sufficient to finance its operations and expected capital expenditures through fiscal year 2000. In addition to addressing manufacturing requirements, the Company may also from time to time consider acquisitions of complementary businesses, products or technologies, which may require additional funding. Sources of additional funding for these purposes could include one or more of the following: cash, cash equivalents and short-term investments on hand; cash flow from operations; borrowings under the existing bank line of credit; investments by strategic partners and additional debt or equity financings. There can be no assurance that the Company will be able to obtain additional sources of financing on favorable terms, if at all, at such time or times as the Company may require such capital. PART I - continued Software Compatibility with Year 2000 Date Processing The Year 2000 issue is the result of computer programs using a two-digit format, as opposed to four digits, to indicate the year. Computer systems utilizing such programs may be unable to interpret dates beyond the year 1999, which could cause a system failure or other computer errors, leading to disruptions in operations. This issue is often referred to as "Y2K" or a "Y2K" issue or problem. In fiscal year 1998, the Company commenced a three- phase program to ensure Y2K information systems compliance. Phase 1 is to identify and remedy Y2K issues in the Company's significant information systems infrastructure and enterprise business applications, including telecommunications and networking systems, manufacturing/production and delivery systems, as well as accounting and manufacturing software. Phase 2 is to identify and plan for Y2K issues that are specific to the Company's business units, including local software, product matters, facilities related systems and vendor and key partner concerns. Phase 3 is the final testing of each major area of exposure to ensure compliance, and the development of contingency plans for unsolved Y2K deficiencies, such as key vendors failing to adequately address their Y2K problems. The Company has identified four major areas determined to be critical for successful Y2K compliance: (1) networking and telecommunications; (2) financial and manufacturing information systems applications; (3) products; and (4) third-party relationships. In Phase 1 of the program, the Company has completed its review of company- wide and significant systems, several of which have been identified as being Y2K compliant due to their recent implementation or upgrade. Such installations and upgrades were unrelated to the Y2K concern, but rather were implemented in the ordinary course of business. For certain accounting and manufacturing systems, upgrades were needed and all such upgrades have been installed. Identified upgrades of the system infrastructure, such as telephone and networking equipment, are also completed. Final testing and documentation under Phase 1 has been completed. Under Phase 2, the Company has completed identifying, evaluating and resolving business unit exposures. In the third- party area, the Company contacted its significant third parties, primarily key vendors and customers, regarding their Y2K readiness and evaluated their responses. As to products, initial findings indicated that most Company products were not impacted by the potential Y2K problem and that most of those that were impacted appeared to be Y2K compliant. For all products that were not Y2K compliant, the Company has made upgrades available via the Company's Internet web site. Final testing and contingency plan development under Phase 3 was completed in October 1999. Accordingly, the Company believes that it has now fully completed its Y2K Information Systems Compliance Plan. The Company has incurred costs of approximately $1.5 million to complete all three phases of its Y2K Information Systems Compliance Program. Such costs include approximately $700,000 related to purchases of certain computer hardware and software, which addressed the Company's Y2K program, but would have been purchased by the Company in any event in connection with the normal periodic upgrade of its systems. In addition, such costs include Company labor costs and amounts paid to external consultants and advisors. There can be no assurance that Y2K compliance problems will not be revealed in the future which could have a material adverse affect on the Company's business, financial condition and results of operations. Many of the Company's customers and suppliers may be affected by Y2K issues that may require them to expend significant resources to modify or replace their existing systems, which may result in those customers having reduced funds to purchase the Company's products or those suppliers experiencing difficulties in producing or shipping key components to the Company on a timely basis or at all. Such third party issues could have a material adverse affect on the Company's business, financial condition and results of operations. This discussion of the Company's Y2K status constitutes a "Year 2000 Readiness Disclosure" as that item is defined in the Year 2000 Information and Readiness Disclosure Act, and also contains forward-looking statements (see "Forward-Looking Statements" below). PART I - continued Forward-Looking Statements To the extent that the above discussion goes beyond historical information and indicates results or developments which the Company plans or expects to achieve, these forward-looking statements are identified by the use of terms such as "expected," "anticipates," "believes," "plans" and the like. Readers are cautioned that such future results are uncertain and could be affected by a variety of factors that could cause actual results to differ from those expected, and such differences could be material. The Company undertakes no obligation to publicly release the result of any revisions to these forward- looking statements that may be made to reflect any future events or circumstances. Readers are referred to item 1 of the Company's Annual Report on Form 10-K for fiscal year 1999 for a discussion of certain of those factors. Item 3. Quantitative and Qualitative Disclosures About Market Risk The Company has not entered into or invested in any instruments that are subject to market risk. The Company's bank line-of-credit agreement bears interest at a rate that varies based on the LIBOR or the bank's prime rate. As of October 31, 1999, the Company has no amounts outstanding under its bank line-of-credit. PART II - OTHER INFORMATION Item 1. Legal Proceedings None Item 2. Changes in Securities and Use of Proceeds None Item 3. Defaults Upon Senior Securities None Item 4. Submission of Matters to a Vote of Security Holders None Item 5. Other Information None Item 6. Exhibits and Reports on Form 8-K (a) Exhibits 27 - Financial Data Schedule (b) Reports on Form 8-K None. SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. MAXWELL TECHNOLOGIES, INC. December 15, 1999 /s/ Carlton J. Eibl - ---------------------------- --------------------------------- Date Carlton J. Eibl, Chief Executive Officer and Authorized Officer December 15, 1999 /s/ Vickie L. Capps - ---------------------------- --------------------------------- Date Vickie L. Capps, Vice President - Finance, Treasurer and Chief Financial Officer (Principal Financial and Accounting Officer) EX-27 2 EXHIBIT 27
5 1,000 3-MOS JUL-31-2000 AUG-01-1999 OCT-31-1999 8,986 0 41,675 0 23,020 88,158 66,812 (41,938) 123,326 25,536 205 0 0 957 94,412 123,326 40,656 40,656 30,060 30,060 13,550 0 112 (3,038) (995) (1,861) 0 0 0 (1,861) (0.19) (0.19)
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