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, 1997 Commission File Number 0-10964
MAXWELL TECHNOLOGIES, INC.
Delaware IRS ID #95-2390133
9275 Sky Park Court
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 November 30, 1997, Registrant had only one class of common stock of which
there were 7,775,345 shares outstanding.
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PART I - FINANCIAL STATEMENTS
Maxwell Technologies, Inc.
Consolidated Condensed Balance Sheet
(in thousands)
Assets
October 31, July 31,
1997 1997
-------- --------
(Unaudited) (Note)
Current assets:
Cash and cash equivalents $ 1,022 $ 826
Accounts receivable - net 21,409 18,612
Inventories:
Finished products 961 1,793
Work in process 1,652 882
Parts and raw materials 5,715 6,047
-------- --------
8,328 8,722
Prepaid expenses 1,412 1,203
Deferred income taxes 161 161
-------- --------
Total current assets 32,332 29,524
Property, plant and equipment - net 17,380 16,929
Deposits and other assets 869 667
-------- --------
$ 50,581 $ 47,120
======== ========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 12,672 $ 13,640
Accrued employee compensation 3,919 4,465
Short-term borrowings and
current portion of long-term debt 2,611 511
-------- --------
Total current liabilities 19,202 18,616
Long-term debt 337 465
Minority interest 1,610 629
Stockholders' equity:
Common stock 641 614
Additional paid-in capital 22,891 22,364
Deferred compensation (570) (622)
Retained earnings 6,470 5,054
-------- --------
29,432 27,410
-------- --------
$ 50,581 $ 47,120
======== ========
Note: The Balance Sheet at July 31, 1997 has been derived from the audited
financial statements at that date.
See notes to consolidated condensed financial statements.
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PART I - FINANCIAL STATEMENTS, continued
Maxwell Technologies, Inc.
Consolidated Condensed Statement of Operations - (Unaudited)
(in thousands except per share data)
Three Months
Ended October 31,
1997 1996
------- -------
Sales $27,756 $24,017
Cost of sales 18,481 16,958
------- -------
Gross profit 9,275 7,059
Operating expenses:
Selling, general and administrative expenses 6,132 5,179
Research and development expenses 1,689 1,058
------- -------
Total operating expenses 7,821 6,237
------- -------
Operating income 1,454 822
Interest expense 105 44
Other--net (48) (56)
------- -------
Income before income taxes and minority interest 1,397 834
Income tax expense -- --
Minority interest in net income (loss) of subsidiary (19) 18
------- -------
Net income $ 1,416 $ 816
======= =======
Earnings per share $ 0.20 $ 0.12
======= =======
Weighted average number of shares 6,912 6,450
======= =======
Note: Earnings 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.
4
PART I - FINANCIAL STATEMENTS, continued
Maxwell Technologies, Inc.
Consolidated Condensed Statement of Cash Flows - (Unaudited)
(in thousands)
Three Months
Ended October 31,
1997 1996
------- -------
Operating Activities:
Net income $ 1,416 $ 816
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Depreciation and amortization 694 725
Deferred compensation 52 41
Minority interest in net income (loss) of subsidiary (19) 18
Changes in operating assets and liabilities - net (4,328) (1,196)
------- -------
Net cash provided by (used in)
operating activities (2,185) 404
------- -------
Investing Activities:
Purchases of property and equipment (1,145) (619)
------- -------
Net cash used in
investing activities (1,145) (619)
------- -------
Financing Activities:
Principal payments on long-term debt (128) (269)
Proceeds from short-term borrowings 2,100 --
Proceeds from issuance of Company and subsidiary stock 1,554 995
------- -------
Net cash provided by
financing activities 3,526 726
------- -------
Increase in cash and
cash equivalents 196 511
Cash and cash equivalents at beginning of period 826 1,465
------- -------
Cash and cash equivalents
at end of period $ 1,022 $ 1,976
======= =======
See notes to consolidated condensed financial statements.
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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, 1997 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, 1997 audited consolidated financial
statements and notes thereto included in its Proxy Statement for the 1997 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.
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 fiscal year 1997 have been restated to reflect the stock split.
Backlog of unfilled orders at October 31, 1997 was $72.4 million, of
which $34.0 million is fully funded.
2. Issuance of Stock by Subsidiary
In October 1997, Maxwell Energy Products, Inc., a subsidiary of the
Company, issued a 7.5% equity interest consisting of preferred stock to
PacifiCorp Energy Ventures, Inc. in exchange for cash and certain rights as part
of a strategic alliance involving ultracapacitors. After one year and for a five
year period thereafter, PacifiCorp has the right, under certain conditions, to
exchange its equity interest in Maxwell Energy Products, Inc. for common stock
of the Company.
3. Subsequent Event
In November 1997, the Company issued 1,500,000 shares of its common
stock in a follow-on public offering at $34.00 per share. Net proceeds to the
Company were approximately $47 million.
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PART I - continued
4. Pending Adoption of Accounting Standard
In February 1997, the Financial Accounting Standards Board issued
Statement No. 128, Earnings Per Share, which is required to be adopted for the
quarter ending January 31, 1998. At that time, the Company will be required to
change the method currently used to compute earnings per share and to restate
all prior periods. Under the new standard, the dilutive effect of stock options
will be excluded from basic earnings per share. The impact is expected to result
in the following basic earnings per share for the three months ended October 31:
Three Months
Ended October 31,
-----------------
1997 1996
---- ----
Primary earnings per share, as reported $ 0.20 $ 0.12
======= ======
Basic earnings per share, as
restated under Statement No. 128 $ 0.23 $ 0.14
======= ======
Diluted earnings per share as reported under Statement No. 128 for the
above periods is not expected to be materially different than primary earnings
per share as previously reported.
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PART I - continued
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
POSITION
BUSINESS SEGMENTS
The Company operates in four business segments, as follows:
o Power Conversion Products: Includes design, development and
manufacture of electrical components and subsystems, including
products that capitalize on pulsed power such as
ultracapacitors, microbial purification systems, high voltage
capacitors and other electrical components and EMI filter
capacitors.
o Industrial Computers and Subsystems: Includes design and
manufacture of standard, custom and semi-custom industrial
computer modules, platforms and fully integrated systems
primarily for OEMs.
o Technology Programs and Systems: Includes research and
development programs in pulsed power, pulsed power systems
design and construction, weapons effects simulation and
computer-based analytic services, primarily for the Department
of Defense (DOD).
o Information Products and Services: Includes design, development
and integration of software products and services including job
cost accounting and management information systems and other
software products including applications for the Internet, as
well as wide-area and local-area network and software
integration services.
RESULTS OF OPERATIONS
The following table sets forth selected operating data for the Company,
expressed as a percentage of sales, for the quarters ended October 31, 1997 and
1996.
Three Months
Ended October 31,
1997 1996
Sales 100.0% 100.0%
Cost of sales 66.6 70.6
------ -------
Gross profit 33.4 29.4
Operating expenses:
Selling, general and administrative expenses 22.1 21.6
Research and development expenses 6.1 4.4
------ -------
Total operating expenses 28.2 26.0
------ ------
Operating income 5.2 3.4
Interest expense 0.4 0.1
Other--net (0.2) (0.2)
------ ------
Income before income taxes and minority interest 5.0 3.5
Income tax expense -- --
Minority interest in net income (loss) of subsidiary (0.1) 0.1
------- ------
Net income 5.1% 3.4%
====== ======
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PART I - continued
The following table sets forth the Company's business segment sales,
gross profit and gross profit as a percentage of business segment sales for the
quarters ended October 31, 1997 and 1996.
Three Months
Ended October 31,
-----------------
1997 1996
---- ----
Power Conversion Products:
Sales $8,391 $6,302
Gross profit 3,575 2,294
Gross profit as a percentage of sales 42.6% 36.4%
Industrial Computers and Subsystems
Sales $8,903 $8,375
Gross profit 3,600 2,802
Gross profit as a percentage of sales 40.4% 33.5%
Technology Programs and Systems
Sales $8,509 $6,889
Gross profit 1,422 1,255
Gross profit as a percentage of sales 16.7% 18.2%
Information Products and Services
Sales $1,953 $2,451
Gross profit 678 708
Gross profit as a percentage of sales 34.7% 28.9%
Consolidated
Sales $27,756 $24,017
Gross profit 9,275 7,059
Gross profit as a percentage of sales 33.4% 29.4%
Sales
Sales for the three months ended October 31, 1997 were $27,756,000, a
record quarterly high for the Company and a 16% increase over the $24,017,000
for the same period one year ago. The sales gains occurred primarily in the
Power Conversion Products and Technology Programs and Systems business segments,
as more fully described in the discussion below.
Power Conversion Products. In the quarter ended October 31, 1997, Power
Conversion Products sales increased $2.1 million, or 33.1%, to $8.4 million from
$6.3 million in the first quarter of last fiscal year. This increase was
primarily attributable to higher revenues from the Company's PowerCache(TM)
ultracapacitor business, including marketing and technology access rights with
PacifiCorp, our new strategic partner in power quality applications of the
ultracapacitor, increased sales of electromagnetic interference (EMI) filters
for implantable heart defibrillators and pacemakers and higher sales of other
pulsed power components including switches under an 18-month, $3.6 million
contract received in April of 1997.
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PART I - continued
Industrial Computers and Subsystems. In the quarter ended October 31,
1997, Industrial Computers and Subsystems sales increased $0.5 million, or 6.3%,
to $8.9 million from $8.4 million in the first quarter of last fiscal year.
Sales in this business segment are made principally to OEM customers and are
primarily derived from the shipment of computers and subsystems that are
"designed-in" to the OEM's products. The sales increase was derived from
increased sales to OEM customers primarily in the computer telephony market,
including sales to a single, long-standing OEM customer for use in products that
are nearing the conclusion of their product cycles. The Company does not
currently expect that it will receive orders from this customer for their next
generation of products. However, the Company's components have been integrated
into several new OEM products which have been or will be introduced by other OEM
customers. The Company believes that orders for industrial computers and
subsystems from these new OEM customers, some of which began shipping shortly
after the end of the fiscal quarter, should largely offset the loss of sales
described above when full ramp-up of these new products is achieved.
Technology Programs and Systems. In the quarter ended October 31, 1997,
sales in the Technology Programs and Systems segment increased $1.6 million, or
23.5%, to $8.5 million from $6.9 million in the first quarter of last fiscal
year. This increase was primarily attributable to revenues from a contract for
high-voltage power supplies for a Department of Energy accelerator project, work
on which was substantially completed shortly after the end of the quarter, and
increased revenues from two large multi-year DOD contracts. These increases were
partially offset by the decrease in revenue related to the closure of three DOD
pulsed power simulation facilities operated by the Company for many years in San
Diego. These closures are substantially complete at this time. However, in the
last several months the Company has received several long-term contracts from
the DOD which, if funded up to the ceiling amounts, could amount to over $35
million. These and other contracts with the DOD could maintain or increase
revenue levels in this business segment; however, these programs are subject to
periodic Government funding provisions. The level of future DOD expenditures in
the Company's research and development area and the related impact on funding
for the Company's contracts are not predictable and, therefore, previously
reported results are not necessarily indicative of those to be expected in the
future.
Information Products and Services. In the quarter ended October 31,
1997, sales of Information Products and Services decreased $0.5 million, or
20.3%, to $2.0 million from $2.5 million in the first quarter of last fiscal
year. This decrease primarily reflects a decline in revenues from two large
multi-year software development contracts for criminal justice information
systems (the "CJIS Contracts"). Work on the CJIS Contracts is winding down and
is scheduled to be substantially completed in the second quarter of fiscal 1998.
The decrease in revenue from the CJIS Contracts was partially offset by
increased revenue from the Company's new contract with Addison Wesley to expand
educational math software products on CD-ROM.
Gross Profit
In the quarter ended October 31, 1997, the Company's gross profit was
$9.3 million, or 33.4% of sales, compared to $7.1 million, or 29.4% of sales, in
the first quarter of last fiscal year. The increase in gross profit as a
percentage of sales was primarily due to the improved overhead absorption
resulting from the overall increase in sales as compared to the prior year, and
an improved mix of products and services, particularly in the Power Conversion
Products and Industrial Computers and Subsystems business segments.
Power Conversion Products. In the quarter ended October 31, 1997, Power
Conversion Products gross profit increased $1.3 million to $3.6 million from
$2.3 million in the first quarter of last fiscal year.
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PART I - continued
As a percentage of sales, gross profit increased to 42.6% in this year's first
quarter from 36.4% in the first quarter of the prior year. This increase in
gross profit as a percentage of sales reflected improved overhead absorption and
a higher margin mix of products and services, including funded ultracapacitor
development and marketing and technology access rights as a part of the
strategic relationship with PacifiCorp, and higher sales of EMI filters for
implantable heart defibrillators and pacemakers.
As the Company introduces ultracapacitor or other new products it may
offer aggressive pricing to gain market penetration. This would have an adverse
impact on gross profit margins until the Company reaches full production
volumes.
Industrial Computers and Subsystems. In the quarter ended October 31,
1997, Industrial Computers and Subsystems gross profit increased $0.8 million,
or 28.5%, to $3.6 million from $2.8 million in the first quarter of last fiscal
year. As a percentage of sales, gross profit increased to 40.4% in this year's
first quarter from 33.5% in the first quarter of the prior year primarily due to
a sales mix which included certain higher margin OEM products which are nearing
the end of their product cycle. According to OEM projections, sales of these
higher margin products will comprise a smaller portion of the product mix after
the end of the fiscal 1998 first quarter.
Technology Programs and Systems. Technology Programs and Systems gross
profit was $1.4 million and $1.3 million for the quarters ended October 31, 1997
and 1996, respectively. As a percentage of sales, gross profit decreased to
16.7% in this year's first quarter from 18.2% in the first quarter of the prior
year. This decrease is primarily the result of current quarter under-absorbed
overhead costs on cost plus government contracts. The Company expects that the
recovery of these costs under current billing rates will occur in the second
half of fiscal year 1998, resulting in a full-year gross profit margin in this
business segment comparable to that of the prior fiscal year.
Information Products and Services. In the quarter ended October 31,
1997, Information Products and Services gross profit was $0.7 million, virtually
unchanged from the first quarter of last fiscal year. As a percentage of sales,
however, gross profit increased to 34.7% in this year's first quarter from 28.9%
in the first quarter of the prior year. This increase in gross profit as a
percent of sales over the prior year is due to the increased revenue and
associated gross margin on the educational software contracts, which more than
offsets reduced margins on the CJIS Contracts.
Selling, General and Administrative Expenses
In the quarter ended October 31, 1997, the Company's selling, general
and administrative expenses increased $0.9 million, or 18.4 %, to $6.1 million
from $5.2 million in the first quarter of last fiscal year. As a percentage of
total sales, selling, general and administrative expenses increased to 22.1% in
this year's first quarter from 21.6% in the first quarter of the prior year. The
increase in the dollar amount of selling, general and administrative expenses is
primarily attributable to costs associated with additional sales and marketing
personnel and infrastructure, which the Company continues to enhance, and the
current management team, which was put into place over the course of the prior
fiscal year.
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
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PART I - continued
significant portion of its research and product development activities.
Internally funded research and development expenses were $1.7 million and $1.1
million for the three months ended October 31, 1997 and 1996, respectively. As a
percentage of sales, these expenses increased to 6.1% in this year's first
quarter from 4.4% in the first quarter of the prior year. This increase in
internally funded research and development expense is due to ultracapacitor
development, including associated power electronics systems, and CompactPCI and
product development for major new programs in the Industrial Computers and
Subsystems business segment.
Interest and Income Tax Expense
In the three months ended October 31, 1997, interest expense increased
to $105,000 from $44,000 in the first quarter of last fiscal year, primarily as
a result of increased average borrowings under the Company's bank line of
credit. The Company has net operating loss carryforwards which offset the
Company's provision for income taxes in both the current quarter and in the
prior fiscal year.
LIQUIDITY AND CAPITAL RESOURCES
Net cash used in operations in the current year's first quarter was $2.2
million. This is attributable to an increase in accounts receivable due to the
higher quarterly sales volume plus a reduction in accounts payable and accrued
compensation for required first quarter payments, including payments under the
Company's incentive and profit sharing plans, with such uses of cash more than
offsetting first quarter net income and non-cash depreciation and amortization
expenses. The Company has an unsecured bank line of credit of $10.0 million,
with the interest rate tied to LIBOR or the bank's prime rate. As of October 31,
1997, $2.1 million was outstanding under the line of credit to fund first
quarter working capital requirements. In November 1997, the Company completed a
follow-on public offering of 1.5 million shares of its Common Stock, and
received net proceeds of approximately $47 million. A portion of the proceeds
was used to repay the balance on the bank line of credit, and the remainder of
the proceeds are intended for general corporate purposes, including working
capital and the current forecast of capital expenditures for facilities and
equipment, including manufacturing requirements for EMI filters and
ultracapacitors.
The Company believes that the net proceeds from the follow-on offering,
together with cash generated from operations and funds available under its bank
line of credit, will be sufficient to finance its operations and capital
expenditures for the next 18 to 24 months. During this period, the Company will
be addressing the need for high-volume manufacturing of ultracapacitors, and may
make commitments to acquire facilities and manufacturing equipment for such
purposes. Alternatively, the Company may consider leasing such facilities or may
satisfy volume manufacturing requirements through outsourcing or under licensing
arrangements with third parties. If the Company decides to internally finance
construction of facilities, a significant amount of capital would be required.
In addition to addressing the need for high volume manufacturing, 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 flow from operations; investments by strategic partners and
additional debt or equity financing. 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.
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PART I - continued
ACCOUNTING PRINCIPLES
In February 1997, the Financial Accounting Standards Board issued
Statement No. 128, Earnings Per Share. Under Statement No. 128, the Company will
be required to present basic net income per share, which excludes the effects of
dilutive common stock equivalents, and diluted net income per share. Basic net
income per share is expected to be higher than the currently presented primary
net income per share in periods of positive earnings due to the exclusion of
dilutive stock options in its computation. Diluted net income per share is not
expected to be materially different from the earnings per share amounts which
would be computed under the current method.
The Company is required to adopt Statement No. 128 in its fiscal quarter
ending January 31, 1998, and at that time all historical net income per share
data presented will be restated to conform to the provisions of Statement No.
128.
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 1997 for a discussion of certain of those factors.
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10 - Stock Purchase Agreement among Maxwell Technologies,
Inc., Maxwell Energy Products, Inc. and PacifiCorp
Energy Ventures, Inc.
27 - Financial Data Schedule
(b) Reports on Form 8-K
The Company filed one report on Form 8-K relating to events
occurring during the quarter ended October 31, 1997. The Form 8-K was
filed on November 10, 1997, and reported under Item 5 Other Events,
that the Company issued a Press Release concerning a transaction with
PacifiCorp Energy Ventures, Inc. which as completed on October 30,
1997.
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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, 1997 /s/ Gary Davidson
- ---------------------------------- --------------------------------------
Date Gary Davidson, Chief Financial Officer
and Authorized Officer