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 January 31, 1997 Commission File Number 0-10964
MAXWELL TECHNOLOGIES, INC.
Delaware IRS ID #95-2390133
8888 Balboa Avenue
San Diego, California 92123
Telephone (619) 279-5100
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
----- -----
As of February 28, 1997 Registrant had only one class of common stock of which
there were 5,992,577 shares outstanding.
PART I - FINANCIAL STATEMENTS
Maxwell Technologies, Inc.
Consolidated Condensed Balance Sheet
(in thousands)
Assets
------
January 31, July 31,
1997 1996
--------- ---------
(Unaudited) (Note)
Current assets:
Cash and cash equivalents $ 2,453 $ 1,465
Accounts receivable - net 19,743 15,573
Inventories:
Finished products 1,354 714
Work in process 2,231 1,836
Parts and raw materials 4,605 4,258
--------- ---------
8,190 6,808
Recoverable income taxes -- 740
Prepaid expenses 1,186 548
Deferred income taxes 161 161
--------- ---------
Total current assets 31,733 25,295
Property, plant and equipment - net 14,978 14,809
Deposits and other assets 526 620
--------- ---------
$ 47,237 $ 40,724
========= =========
Liabilities and Shareholders' Equity
------------------------------------
Current liabilities:
Accounts payable $ 17,567 $ 14,231
Accrued employee compensation 3,648 2,866
Current portion of long-term debt 910 910
--------- ---------
Total current liabilities 22,125 18,007
Long-term debt 522 1,018
Minority interest 611 954
Shareholders' equity:
Common stock 598 568
Additional paid-in capital 21,147 19,752
Deferred compensation (524) (605)
Retained earnings 2,758 1,030
--------- ---------
23,979 20,745
--------- ---------
$ 47,237 $ 40,724
========= =========
<FN>
Note: The Balance Sheet at July 31, 1996 has been derived from the audited
financial statements at that date.
See notes to consolidated condensed financial statements.
PART I - FINANCIAL STATEMENTS, continued
Maxwell Technologies, Inc.
Consolidated Condensed Statement of Income - (Unaudited)
(in thousands except per share data)
Three Months
Ended January 31,
-------------------------
1997 1996
--------- ---------
Sales $ 24,577 $ 19,340
Costs and expenses:
Cost of sales 16,939 17,997
Research and development expenses 1,212 1,335
Selling, administrative and general expenses 5,489 4,569
Sierra operation restructure and asset
impairment losses -- 2,568
Other - net 7 (129)
--------- ---------
23,647 26,340
--------- ---------
Income (loss) before income taxes
and minority interest 930 (7,000)
Provision for income taxes -- 1,172
Minority interest in net income of subsidiary 18 7
--------- ---------
Net income (loss) $ 912 $ (8,179)
========= =========
Earnings (loss) per share $ 0.14 $ (1.50)
========= =========
Weighted average number of shares 6,696,000 5,442,000
========= =========
<FN>
Note: Earnings (loss) per share is based upon weighted average number of shares
of common stock outstanding and all dilutive stock options. Per share
amounts are unchanged on a fully diluted basis.
See notes to consolidated condensed financial statements.
PART I - FINANCIAL STATEMENTS, continued
Maxwell Technologies, Inc.
Consolidated Condensed Statement of Income - (Unaudited)
(in thousands except per share data)
Six Months
Ended January 31,
-------------------------
1997 1996
--------- ---------
Sales $ 48,594 $ 38,512
Costs and expenses:
Cost of sales 33,897 32,861
Research and development expenses 2,270 2,318
Selling, administrative and general expenses 10,668 7,702
Sierra operation restructure and asset
impairment losses -- 2,568
Other - net (5) (219)
--------- ---------
46,830 45,230
--------- ---------
Income (loss) before income taxes,
minority interest and loss from
cumulative effect of change in
accounting principle 1,764 (6,718)
Provision for income taxes -- 1,200
Minority interest in net income of subsidiary 36 19
Loss from cumulative effect of change in
accounting principle -- 2,569
--------- ---------
Net income (loss) $ 1,728 $ (10,506)
========= =========
Earnings (loss) per share before cumulative
effect of change in accounting principle $ 0.26 $ (1.47)
========= =========
Earnings (loss) per share $ 0.26 $ (1.94)
========= =========
Weighted average number of shares 6,573,000 5,412,000
========= =========
<FN>
Note: Earnings (loss) per share is based upon weighted average number of shares
of common stock outstanding and all dilutive stock options. Per share
amounts are unchanged on a fully diluted basis.
See notes to consolidated condensed financial statements.
PART I - FINANCIAL STATEMENTS, continued
Maxwell Technologies, Inc.
Consolidated Condensed Statement of Cash Flows - (Unaudited)
(in thousands)
Six Months
Ended January 31,
-------------------------
1997 1996
--------- ---------
OPERATING ACTIVITIES
Net income (loss) $ 1,728 $ (10,506)
Adjustments to reconcile net income
(loss) to net cash provided by
(used in) operating activities:
Depreciation and amortization 1,357 1,075
Deferred compensation 81 --
Sierra operation restructure and
asset impairments and losses -- 2,825
Cumulative effect of change in
accounting principle -- 2,569
Minority interest in net income of
subsidiary 36 19
Changes in operating assets and
liabilities - net (1,651) 830
--------- ---------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES 1,551 (3,188)
--------- ---------
INVESTING ACTIVITIES
Purchases of property and equipment (1,526) (994)
--------- ---------
NET CASH USED IN
INVESTING ACTIVITIES (1,526) (994)
--------- ---------
FINANCING ACTIVITIES
Principal payments on long-term debt (496) (454)
Proceeds from short-term borrowings -- 2,000
Proceeds from issuance of Company and
subsidiary stock 1,459 382
--------- ---------
NET CASH PROVIDED BY
FINANCING ACTIVITIES 963 1,928
--------- ---------
INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 988 (2,254)
Cash and cash equivalents at beginning
of period 1,465 4,053
--------- ---------
CASH AND CASH EQUIVALENTS
AT END OF PERIOD $ 2,453 $ 1,799
========= =========
<FN>
See notes to consolidated condensed financial statements.
PART I - continued
NOTES TO FINANCIAL STATEMENTS
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 January 31, 1997 and the results of operations for the
three and six month periods then ended. These interim financial statements
should be read in conjunction with the Company's July 31, 1996 audited
financial statements included in its Proxy Statement for the 1996 Annual
Meeting of Shareholders. Interim results are not necessarily indicative of
those to be expected for the full year.
The consolidated financial statements include the accounts of Maxwell
Technologies, Inc., and its subsidiaries. All significant intercompany
transactions and account balances are eliminated in consolidation.
Fiscal year 1996 first half results included charges of approximately
$9.5 million, about $7 million of which were included in last year's second
quarter, and about $2.5 million of which were recorded in the first quarter as
the cumulative effect of a change in accounting principle. The change in
accounting principle was for the adoption of Financial accounting Standards
Board Statement No. 121, which addresses the recoverability of the carrying
costs of long-lived assets. The impact of these charges on the first half of
fiscal 1996 was approximately as follows:
Cost of Sales $ 2,100,000
Selling, Administrative & General Expenses 1,200,000
Statement No. 121 and Sierra Operation
Restructure 5,100,000
Income Tax Expense 1,100,000
-----------
$ 9,500,000
===========
The cost of sales and selling, administrative and general expense charges
included contract and inventory reserves, a write-down of certain capitalized
software, and charges at the Corporate level, including costs related to the
search, completed in April of last year, for a Chief Executive Officer for the
Company and other reserves.
In November 1996, the Company declared a 2-for-1 split of the Company's
common shares, effected as a 100% stock dividend that was distributed on
December 17, 1996 to shareholders of record as of November 26, 1996. Common
stock accounts, earnings per share and weighted average number of share amounts
from prior periods have been restated to reflect the stock split.
Backlog of unfilled orders at January 31, 1997 was $64.6 million, of
which $48.4 million is fully funded.
PART I - continued
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
POSITION
Results of Operations
- - ---------------------
Sales for the quarter ended January 31, 1997 were $24,577,000, or a 27%
increase over the $19,340,000 for the same period one year ago. Six-month
sales were $48,594,000, or a 26% increase over the $38,512,000 for last year's
first six months. For both the three and six-month periods, the Commercial
and Industrial PC Products and the Power Conversion Products business segments
comprised most of the revenue gains as sales of PC controllers and pulsed power
products continue to ramp-up strongly. In the pulsed power products area, the
gains are attributable to sales of both filter capacitors for implantable
defibrillator/pacemakers and the Company's new Ultracapacitor products, as
further described in the separate discussion of each business segment that
follows.
Reserves and Other Charges in the Prior Year. First half results for
fiscal year 1996 included charges of approximately $9.5 million, about $7
million of which were included in last year's second quarter, and about $2.5
million of which were recorded in last year's first quarter as the cumulative
effect of a change in accounting principle. The change in accounting principle
was for the adoption of Financial Accounting Standards Board Statement No. 121,
which addresses the recoverability of the carrying costs of long-lived assets.
The impact of these charges on the fiscal 1996 income statement was
approximately as follows:
Cost of Sales $ 2,100,000
Selling, Administrative & General Expenses 1,200,000
Statement No. 121 and Sierra Operation
Restructure 5,100,000
Income Tax Expense 1,100,000
-----------
$ 9,500,000
===========
The cost of sales and selling, administrative and general expense charges
included contract and inventory reserves, a write-down of certain capitalized
software, and charges at the Corporate level, including costs related to the
search, completed in April 1996, for a Chief Executive Officer for the Company
and other reserves.
Sales and cost of sales by business segment for the second quarter and
first six months of the current and prior years are shown in the tables below.
For purposes of these tables, the Chemical Analytical Services business, which
was sold in June 1996, is included with the Technology Programs and Systems
business segment.
PART I - continued
Sales
---------------------------------------------
Three Months Six Months
Ended January 31, Ended January 31,
-------------------- -------------------
(In 000's) 1997 1996 1997 1996
-------- -------- -------- --------
Commercial and Industrial
PC Products $ 8,712 $ 6,746 $ 17,087 $ 12,730
Technology Programs &
Systems 7,305 6,223 14,194 14,019
Information Products &
Services 2,272 3,200 4,723 4,590
Power Conversion Products 6,288 3,171 12,590 7,173
-------- -------- -------- --------
$ 24,577 $ 19,340 $ 48,594 $ 38,512
======== ======== ======== ========
Cost of Sales
---------------------------------------------------
Three Months Six Months
Ended January 31, Ended January 31,
------------------------------- -------------------
% of % of % of % of
(In 000's) 1997 Sales 1996 Sales 1997 Sales 1996 Sales
------ ------ ------ ------ -------- ------ ------- ------
Commercial and Industrial
PC Products $ 5,842 67.1% $ 4,897 72.6% $ 11,415 66.8% $ 8,912 70.0%
Technology Programs &
Systems 5,932 81.2% 5,696 91.5% 11,566 81.5% 11,975 85.4%
Information Products &
Services 1,107 48.7% 4,676 146.1% 2,850 60.3% 6,043 131.7%
Power Conversion Products 4,058 64.5% 2,728 86.0% 8,066 64.1% 5,931 82.7%
-------- -------- -------- -------
$ 16,939 68.9% $ 17,997 93.1% $ 33,897 69.8% $32,861 85.3%
======== ======== ======== =======
The Commercial and Industrial PC Products segment is operated through the
I-Bus business unit. I-Bus' sales to OEM customers, primarily in the
telecommunications market for use in end products such as voice mail, fax
servers and switching test equipment, account for the majority of the increase
in sales as compared to last year both for the second quarter and the first six
months. Shipments to Lucent Technologies comprise the largest portion of the
increase. Lucent signed an agreement early in the first quarter of this year
that is worth up to $4.5 million for PCs to be used in customized test
equipment, with deliveries expected over a period of approximately
one-and-a-half-years. Cost of sales in the prior year was impacted by
inventory reserves taken as part of the $9.5 million in second quarter charges,
as referred to above. Cost of sales as a percent of sales in both the current
quarter and first six months of this year also decreased compared to fiscal
1996 due to the effect of the higher sales volume on the fixed portion of the
costs of operations, and the shipments of certain products with higher than
typical margins on the material content of the product.
PART I - continued
The Technology Programs and Systems business segment is operated through
Maxwell's Federal Division, and a significant portion of this business is with
the US Government Department of Defense. The $1.1 million increase in second
quarter Federal Division sales as compared to the same period last year is
primarily attributable to work on a $4 million, 15-month program for the
production of advanced, large-scale power supplies for the National Incinerator
Facility's accelerator project. This program began in April 1996, and is now
ramped-up to its full run-rate. Increased work, primarily in the form of
subcontractor efforts, on a large, multi-year Defense contract for space-based
sensors, as well as closure efforts on a simulator facility which had been
operated for the Government for a number of years, also contributed to the rise
in second quarter sales. The simulator facility closure effort is currently
scheduled for completion late this calendar year. For the six-month period,
the increase in second quarter sales referred to above was nearly offset by
lower sales in this year's first three months. First quarter revenues were
lower this year due to the impact of the sale in last year's fourth quarter of
the Chemical Analytical Services business, a winding-down of the Division's
environmental consulting programs, and the shipment in fiscal 1996 of a large
hardware system with no such large hardware shipment in this year's first
quarter. Federal government funding of Defense related projects has been key
to this business segment. The level of future Defense cutbacks and their
impact on the Company is not predictable and, therefore, previously reported
results are not necessarily indicative of those to be expected in the future.
Adjusted for the effects of losses from the Chemical Analytical Services group,
which, as mentioned above, was later sold, cost of sales as a percent of sales
is generally consistent from year to year, both for the quarter and the
year-to-date.
The Information Products and Services segment is operated through the
Information Systems business unit. Sales in this business unit consist
primarily of the Business Systems group's JAMIS accounting and MIS software
package, and three large multi-year contracts, two for integrated justice
information systems (IJIS) in the State of Florida, and one for the network
component of a Child Support Enforcement System in South Carolina. All three
of these multi-year contracts are scheduled for completion in the current
fiscal year, and work is beginning to wind-down, resulting in a decrease in
current year second quarter sales as compared to the same period last year.
Primarily due to greater JAMIS-related sales in the Business Systems group in
this year's first quarter, six-month sales in the current year are slightly
ahead of the comparable amount for the prior year. Due to prior year
performance on the IJIS contracts, $1 million of charges were taken last year
for the impact of anticipated financial results and, therefore, these jobs are
not currently contributing meaningfully to segment gross profit. In addition
to the impact of the $1 million charge and a write-down last year of
approximately $800,000 of capitalized software, as previously discussed in the
description of fiscal 1996 second quarter charges, cost of sales as a percent
of sales is also lower this year due to the profit margins associated with the
increased Business Systems sales. To replace the work related to the IJIS
contracts nearing completion, Information Systems is pursuing funding for
add-ons and enhancements to these software projects, and has bid on additional
large justice information systems, but the ultimate realization of such new
business and its impact on the Company is not currently predictable.
The Power Conversion Products business segment is operated through the
Energy Products and PurePulse Technologies business units. The increase in
revenue in this segment for both the three and six-month periods was nearly
evenly split among sales of the Company's new Ultracapacitor product and
related applications and funded development work, sales of filter capacitors
for implantable defibrillator/pacemakers at the Sierra operation, and greater
PurePulse revenue. At PurePulse, the revenue increase is primarily
attributable to prototype systems and related funded development underway for
the evaluation of the subsidiary's CoolPure/TM/ system in the processing of
food products such as tomato-based sauces, and work being performed for an
international restaurant
PART I - continued
chain for final testing and production of beta units of in-restaurant water
purification systems. Cost of sales in this business segment was impacted in
the prior year by inventory reserves and other charges taken by the Energy
Products business unit in last year's second quarter. Aside from those
charges, current quarter and year-to-date improvements in cost of sales as a
percent of sales are primarily due to the impact on this percentage of the
increase in sales, as well as the results of the restructuring undertaken at
Sierra to focus the business on the new medical product.
Selling, administrative and general expenses in the second quarter were
$5,489,000, or 22.3% of sales, compared to $4,569,000, or 23.6% of sales, in
the prior year's second quarter. For the six months, these expenses were
$10,668,000, or 22.0% of sales, compared to $7,702,000, or 20.0% of sales, one
year ago. As previously discussed, approximately $1.2 million of one-time
charges were recorded in selling, administrative and general expenses in last
year's second quarter. Excluding those charges, the fiscal 1996 second quarter
and year-to-date expenses would have been 17.4% and 16.9% of sales,
respectively. In both the three and six-month periods, the major factors
contributing to the current year increase in these expenses include: (1)
increased sales and marketing costs in the three commercial business segments
in order to support the significant revenue growth; (2) accruals under new
Company incentive and profit sharing plans that were implemented in fiscal year
1997; and (3) additions to staff to support the Company's new strategic
directions, including new executive management with skills in technology
commercialization and high-volume manufacturing.
Other-net for the three and six months ended January 31, 1997 was expense
of $7,000 and income of $5,000, respectively, compared to income of $129,000
and $219,000 for the comparable periods last year. This change primarily
reflects completing the amortization into income of amounts contributed by
minority shareholders upon the organization of PurePulse Technologies over such
shareholders' proportionate share of PurePulse's equity. This amortization
began in 1993 and was completed in April 1996. Thus, last year's second
quarter and first six months other-net included $127,000 and $254,000 of such
income, respectively, while none is included in the current year.
The Company has net operating loss carryforwards to offset pre-tax
income, and therefore no income tax expense is provided on current year
profits. As a result of the factors described above, net income for the three
months ended January 31, 1997 was $912,000, as compared to a net loss of
$8,179,000 for the same period one year ago. For the six months, the current
year income of $1,728,000 compares to a net loss of $10,506,000 in the prior
year.
Liquidity and Capital Resources
- - -------------------------------
The ratio of current assets to current liabilities was 1.4 to 1 at
January 31, 1997, unchanged from the end of fiscal year 1996. The balance
sheet is still strong, with very little long-term debt and working capital of
$9.6 million. In addition, the Company has renegotiated its line of credit
with its bank, converting it to an unsecured arrangement and increasing the
amount available from $5 to $10 million. Management believes that funds on
hand and those generated by future operations and available through its bank
line of credit will be sufficient to finance current working capital
requirements. The Company is considering financing plans, including plans
whereby one or more of its subsidiaries could pursue the issuance of shares of
stock to the public. The proceeds of any such financings would be available
for long-term capital needs such as manufacturing facilities and for funding
anticipated future growth.
PART I - continued
Note on Forward-Looking Information
- - -----------------------------------
To the extent that the above discussion goes beyond historical
information and indicates results or developments which the Company plans or
expects to achieve, these forward-looking statements are identified by the use
of terms such as "expected," "anticipates," "believes," "plans" and the like.
Readers are cautioned that such future results are uncertain and could be
affected by a variety of factors that could cause actual results to differ from
those expected. Readers are referred to item 1 of the Company's Annual Report
on Form 10-K for fiscal 1996 for a discussion of certain of those factors.
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
The Registrant's Annual Meeting of Shareholders was held on January 22,
1997. At the meeting, Kenneth F. Potashner and Thomas L. Horgan were elected
as Class I directors for terms expiring at the 1999 Annual Meeting of
Shareholders. Directors Alan C. Kolb, Karl M. Samuelian, Thomas B. Hayward,
Lewis J. Colby, Jr., Donn A. Starry, and Henry F. Owsley continue to serve as
directors with terms expiring at the 1997 and 1998 Annual Meetings of
Shareholders.
In addition, the Registrant's shareholders approved an amendment to the
Company's 1995 Stock Option Plan, increasing the number of shares reserved for
options thereunder by 300,000 shares.
The Registrant's shareholders also approved an amendment to the Company's
Director Stock Option Plan to remove the provision that options held by
directors whose Board membership terminates will expire 60 days after such
termination.
The following numbers of votes were cast "for" and to "withhold authority
to vote for" on the election of the two directors elected as Class I directors
at the meeting:
Kenneth F. Potashner For: 5,139,676 Withhold Authority: 379,424
Thomas L. Horgan For: 5,128,214 Withhold Authority: 390,886
The vote on the approval of the amendments to the Company's 1995 Stock
Option and Directors' Stock Option Plans was as follows:
1995 Stock Option Plan Directors' Stock Option Plan
---------------------- ----------------------------
For: 3,139,128 4,103,792
Against: 620,474 1,001,868
Abstain: 31,194 26,248
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
--------
No exhibits are included with the Form 10-Q for the period ended
January 31, 1997.
(b) Reports on Form 8-K
-------------------
No reports on Form 8-K were filed during the quarter ended
January 31, 1997.
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.
March 17, 1997 /s/ Gary Davidson
- - --------------------------
Date Gary Davidson, Chief Financial Officer
and Authorized Officer