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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM 10-K
(MARK ONE)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000
OR
/ / 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, CALIFORNIA 92123
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (858) 279-5100
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: COMMON STOCK,
PAR VALUE $.10 PER SHARE
NAME OF EACH EXCHANGE ON WHICH REGISTERED: NASDAQ
NATIONAL MARKET ("NASDAQ") SECURITIES REGISTERED PURSUANT TO
SECTION 12(g) OF THE ACT: NONE
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 / /
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. / /
The aggregate market value of the Common Stock of the Registrant held by
non-affiliates of the Registrant on February 28, 2001, based on the closing
price at which the Common Stock was sold on Nasdaq as of February 28, 2001, was
$164,822,786.
The number of shares of the Registrant's Common Stock outstanding as of
February 28, 2001 was 9,935,122 shares.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's definitive Proxy Statement for the 2001 Annual
Meeting of Stockholders to be filed with the Securities and Exchange Commission
pursuant to Regulation 14A (including the Appendix thereto) are incorporated by
reference in Part III of this Report.
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MAXWELL TECHNOLOGIES, INC.
INDEX TO ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000
PAGE
--------
PART I
Item 1. Business................................................................................. 1
Item 2. Properties............................................................................... 25
Item 3. Legal Proceedings........................................................................ 25
Item 4. Submission of Matters to a Vote of Security Holders...................................... 25
Item 4.1 Executive Officers of the Registrant .................................................... 26
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.................... 27
Item 6. Selected Financial Data.................................................................. 28
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.... 29
Item 7a. Quantitative and Qualitative Disclosures about Market Risk............................... 44
Item 8. Financial Statements..................................................................... 45
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure..... 70
PART III
Item 10. Directors and Executive Officers of the Registrant....................................... 70
Item 11. Executive Compensation................................................................... 70
Item 12. Security Ownership of Certain Beneficial Owners and Management........................... 70
Item 13. Certain Relationships and Related Transactions........................................... 70
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K......................... 70
PART I
UNLESS THE CONTEXT OTHERWISE REQUIRES, ALL REFERENCES IN THIS ANNUAL REPORT
ON FORM 10-K TO "MAXWELL," THE "COMPANY," "WE," "US," AND "OUR" REFER TO MAXWELL
TECHNOLOGIES, INC. AND ITS SUBSIDIARIES; ALL REFERENCES TO "ELECTRONIC
COMPONENTS GROUP" REFER TO OUR SUBSIDIARY, MAXWELL ELECTRONIC COMPONENTS GROUP,
INC.; ALL REFERENCES TO "I-BUS/PHOENIX" REFER TO OUR SUBSIDIARY, I-BUS/PHOENIX,
INC., AND ITS SUBSIDIARIES; AND ALL REFERENCES TO "PUREPULSE" REFER TO OUR
SUBSIDIARY, PUREPULSE TECHNOLOGIES, INC. THIS FORM 10-K MAY CONTAIN
FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES
ACT OF 1933 AND SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934. SUCH
FORWARD-LOOKING STATEMENTS INVOLVE RISKS AND UNCERTAINTIES. THE COMPANY'S ACTUAL
RESULTS MAY DIFFER SIGNIFICANTLY FROM THE RESULTS DISCUSSED IN ANY
FORWARD-LOOKING STATEMENTS. FACTORS THAT MIGHT CAUSE SUCH A DIFFERENCE INCLUDE,
BUT ARE NOT LIMITED TO, THOSE DISCUSSED IN "RISK FACTORS" HEREIN. DISCUSSIONS
CONTAINING SUCH FORWARD-LOOKING STATEMENTS MAY BE FOUND IN THE MATERIAL SET
FORTH UNDER "ITEM 1. BUSINESS," AND "ITEM 7. MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS," AS WELL AS WITHIN
THIS FORM 10-K GENERALLY.
ITEM 1. BUSINESS
OVERVIEW
Maxwell develops, manufactures and markets high reliability electronic
components and power and computing systems for use in the transportation,
telecommunications, consumer and industrial electronics, medical and
aerospace industries. Products include PowerCache-Registered Trademark-
ultracapacitors, electromagnetic interference filters for implantable medical
devices, radiation-shielded microelectronics and custom power and computing
systems for original equipment manufacturers, or OEMs.
INDUSTRY
We have focused our business on the following areas:
- power delivery components;
- high reliability specialized electronic components for medical, space
and military applications; and
- high availability, customized, applied computing and power systems.
POWER DELIVERY
New power hungry electronic products such as digital cameras and wireless
communications devices, and increasing demand for electric power in motor
vehicles to assist vehicle acceleration and to operate on-board electronic
systems, are creating significant markets for energy storage and high power
delivery. In many applications, power demand varies widely from moment to
moment. Typically, peak power demand is much greater than the average power
requirement. For example, automobiles require much more power to accelerate from
a stop than to maintain a constant speed. In other applications, such as in a
digital camera, more power is needed to operate the flash than to store images
in memory.
Engineers generally address peak power needs by designing the primary
energy source, such as an engine or a battery system, to the size needed to
provide for peak demands, even if those demands occur for only a few seconds.
Building an entire system based on peak power needs, rather than designing for
the average power requirement, is costly and inefficient. Such systems can be
significantly improved by storing electrical energy generated from a primary
energy source such as an engine or battery and then delivering that energy in
controlled high power bursts only when high power is required. Such high power
delivery provides electrical systems with dynamic power range to meet peak power
demands for periods of time ranging from fractions of a second to several
minutes. This enables new system functions, reduces system size and cost and
improves performance.
1
Many markets and applications can benefit from high power delivery
components that:
- store large amounts of electrical energy;
- are in a small, lightweight package;
- operate reliably at extreme temperatures;
- can discharge and recharge in less than a second or provide power as
required for up to several minutes;
- deliver high power;
- require low maintenance; and
- have minimal environmental issues associated with disposal.
Following are some of the currently identified markets and applications for
high power delivery components:
MARKET APPLICATIONS
-------------------------------------------- ---------------------------------------------------------------
Automotive/transportation - Energy storage and peak power to assist acceleration and to
recapture energy from braking in hybrid internal
combustion/electric buses, trucks and automobiles; energy
storage and on demand power for on-board electrical systems.
- Peak power, energy storage and braking energy recapture for
new electric braking systems for locomotives and railroad
cars.
Battery enhancement - Energy storage and on-demand peak power for consumer
electronic devices such as digital cameras, toys, wireless
communications devices, scanners and remote transmitters.
Alternative energy generation - Starting power, peak load buffering and energy storage to
optimize performance of alternative energy generation
systems, such as fuel cells and microturbines.
Uninterruptible power supply systems power. - Supplement or replace battery
Industrial electronics - Low cost, low maintenance replacement for mechanical drives
in actuators and hydraulic devices.
Any other application that requires the storage of energy and the discharge
of highly variable amounts of power is a potential market for power delivery
components. We expect that components designed to meet these power delivery
requirements will capture an increasingly larger and more important segment of
the energy storage market.
EMI FILTERING OF IMPLANTABLE MEDICAL DEVICES
Electromagnetic interference, or EMI, generated by cellular phones,
security systems, microwave ovens, embedded computing systems and other
electronic devices can disrupt the safe operation of pacemakers and other
implantable medical devices. EMI can enter implantable devices via wire
feedthrough sensors that carry signals from the body into the device, causing
malfunctions.
2
In 2000, safety issues associated with EMI from cellular telephones
prompted the Association for the Advancement of Medical Instrumentation, or
AAMI, and the United States Food and Drug Administration, or FDA, to adopt
standards requiring manufacturers of cardiac pacemakers and implantable
defibrillators to demonstrate that their products are immune to EMI. Devices
that do not demonstrate immunity to strong electromagnetic fields must carry a
warning related to the use of cellular telephones. Similar standards are being
considered by regulatory authorities in Europe and other jurisdictions.
Manufacturers of implantable devices need small, high reliability
components that block EMI from entering implantable devices via feedthrough
sensors without interfering with signals from the body. Expertise in power
electronics, EMI filtering and materials science, particularly in ceramics, is
necessary to produce filters that provide the required immunity to EMI from
cellular telephones and other frequently encountered devices, allowing
implantable device manufacturers to comply with the new standards.
Current North American sales of filtered and unfiltered feedthroughs are
estimated at $50 million annually, with a historic yearly growth rate of
approximately 20 percent. We expect this market to expand significantly as the
medical implantable device industry introduces new products such as congestive
heart failure devices, devices to control tremors associated with neurological
disorders such as Parkinson's disease and epilepsy, and hearing augmentation
devices. We believe that the portion of this market represented by filtered
feedthrough sales will increase as a result of recent regulatory developments in
the U.S. and other jurisdictions.
RADIATION-SHIELDED MICROELECTRONICS
Manufacturers of satellites and other spacecraft and military vehicles
require on-board microelectronics that meet specific functional requirements and
will operate reliably in environments in which they may encounter radiation. In
the past, microelectronics for these special applications used
radiation-hardened silicon. The supply of radiation-hardened silicon is
diminishing because there are fewer fabricators of specialty silicon. As a
result, demand for off-the-shelf silicon, protected in radiation-shielded
packages, is growing. Radiation-shielded off-the-shelf silicon provides higher
functionality at lower costs than radiation-hardened silicon. The ability to
provide radiation-shielded silicon requires expertise in power electronics,
custom integrated circuit design, silicon selection, radiation shielding and
high quality assurance testing.
Current worldwide sales of radiation-shielded microelectronics for the
satellite market are estimated at more than $500 million annually, with a
historic yearly growth rate of approximately nine percent. An additional large
market is emerging for the replacement of radiation-hardened microelectronics in
military vehicles with commercial off-the-shelf microelectronics protected in
radiation-shielded packages. This market is emerging as the service life of
military vehicles, such as armored vehicles, ships and aircraft, extends beyond
the operational life of on-board electronics. The market is driven by the lack
of availability of radiation-hardened silicon and the desire to upgrade on-board
electronics with modern microprocessors produced with commercial silicon, which
is not radiation-hardened.
APPLIED COMPUTING AND POWER QUALITY SYSTEMS
High reliability applied computing systems and power quality systems are
required to support larger systems for telecommunications, Internet
infrastructure, broadcasting and industrial automation. Many such systems are
responsible for mission critical applications that require "five nines", or
99.999% availability. This high availability equates to approximately five
minutes of down time per year for a system operating 24 hours a day, seven days
a week.
Applied computing systems provide a platform to perform specific functions
within a larger system made by an OEM. OEMs generally focus their efforts on
overall system design and integration, including application-specific software
and network support and service. OEMs frequently outsource the design and
manufacture of the applied computing and power products that will be part of the
larger system being supplied by the OEM to the end customer.
3
To satisfy both functional and high availability requirements, power and
computing solutions generally require customization. Also, as time-to-market is
critical for many such applications, rapid design and production capabilities
are required of suppliers providing these systems. Therefore, the proliferation
of complex electronics applications has created attractive markets for
specialized applied computer manufacturers and power product manufacturers who
possess the engineering and manufacturing know-how and experience to provide
design intensive, custom solutions.
In 2000, the market for applied computing systems incorporating ISA/PCI
(industry standard architecture/peripheral components interconnect) and cPCI
(compact peripheral components interconnect) architectures is estimated to have
been approximately $1 billion. The market for such systems is estimated to grow
to approximately $2.5 billion by 2004, with cPCI being the fastest growing
industry standard architecture. In 2000, the market for uninterruptible power
supplies, or UPS, and power protection and power quality products of three
kilovolts and lower, which is the power range most appropriate to support
applied computing requirements, is estimated to have been approximately $2.8
billion, growing to approximately $4.5 billion by 2004.
MAXWELL'S SOLUTIONS
Our solutions apply our expertise and proprietary technology in power and
computing at both the component level and the systems level for specialized,
high value applications where high reliability and high availability are
required by the customer. We intend to be a leading supplier of power and
computing components and systems for such specialized, high-value applications.
ULTRACAPACITORS
We are a leader in commercialized ultracapacitor technology.
Ultracapacitors are ideally suited for applications that require repeated bursts
of electric power for fractions of a second up to several minutes. With no
moving parts, ultracapacitors provide a simple, highly reliable solution to
buffer short term mismatches between power available and power required.
Unlike batteries, capacitors can be recharged from any power source as
quickly as they are discharged, and they operate reliably for up to 10 years
through hundreds of thousands of discharge/recharge cycles with minimal
degradation of performance. Traditional capacitors discharge power too rapidly
to be suitable for many power delivery applications. Ultracapacitors have
greater energy storage capability than traditional capacitors and can discharge
power over time periods ranging from fractions of a second to several minutes.
Used in tandem with batteries, ultracapacitors can provide bursts of power to
meet power demand peaks, enhance performance and significantly extend battery
life. When alternative sources of recharge energy are available, ultracapacitors
can replace batteries entirely.
We offer our proprietary PowerCache ultracapacitors in several form
factors, ranging from five-farad postage stamp size cells to 2,500-farad large
cells that measure 2" x 2" x 6". We are able to supply these cells in volumes
and at price points that are opening numerous market opportunities for
ultracapacitors to satisfy power delivery requirements. For example, in December
2000 we entered into a supply agreement with General Motors Corporation to
supply our large cell ultracapacitors for incorporation into the power trains of
hybrid diesel electric buses and trucks produced by GM's Allison Transmission
division.
We are redesigning our large cell ultracapacitors to double power density
and dramatically reduce cost. The new design incorporates proprietary technology
in a form factor suitable for high speed automated manufacturing. The goal of
this initiative is to penetrate cost sensitive applications in high volume
markets (millions of cells per year by 2004).
EMI FILTERED FEEDTHROUGHS
We design, manufacture and market proprietary ceramic filter capacitors
that protect implantable medical devices such as cardiac pacemakers and
implantable defibrillators from EMI. We integrate our filters with wire
feedthrough sensors to make filtered feedthroughs. Our EMI filtered feedthroughs
permit manufacturers of implantable medical devices to satisfy new FDA test
standards for EMI. Our EMI filter technology and its use to block EMI from
interfering with implantable medical devices are protected extensively by
patents in the U.S. and in many foreign jurisdictions.
4
We currently supply EMI filtered feedthroughs for pacemakers and
defibrillators to manufacturers of implantable medical devices, including
Guidant Corporation and the Pacesetter division of St. Jude Medical, Inc. In the
future, we expect to supply filtered feedthroughs for new types of implantable
devices to control conditions such as congestive heart failure, tremors
associated with neurological disorders such as Parkinson's disease and epilepsy,
and to augment hearing.
RADIATION-SHIELDED MICROELECTRONICS
We design, manufacture and market radiation-shielded microelectronics,
including integrated circuits, power modules and single board computers,
primarily for the satellite and spacecraft market. We engineer customized
microelectronics together with highly adaptable, proprietary packaging and
shielding techniques to allow OEMs to use powerful, low cost, commercial
off-the-shelf components protected with the required level of radiation
shielding for the environment in which they are to be deployed.
We are a supplier of radiation-shielded microelectronics in volumes that
have opened market opportunities in the satellite and spacecraft market. We also
are seeking to penetrate the military electronics replacement market.
APPLIED COMPUTING AND POWER QUALITY SYSTEMS
We design, manufacture and market a diverse line of application-ready
computing platforms and single board computers based on advanced, industry
standard electromechanical architectures. OEMs integrate our products into
larger systems for telecommunications, Internet infrastructure, broadcasting and
industrial automation.
Our engineering and design capabilities allow quick-turn customization of
boards, systems, and enclosures for customer specific applications. In 2001, we
are introducing several new computing products that support multiple operating
systems such as Windows, Windows NT, Windows 2000, Solaris VX Works and Linux
and provide redundant, high availability computing for mission critical
applications requiring 99.999% availability.
We believe that power technology, such as uninterruptible power, is a
requirement for providing high reliability applied computing systems. In
addition to the discrete power quality products we now offer, we have computing
products in development and scheduled for introduction by year end that will
incorporate power protection capabilities within the computer chassis. These
built-in power protection features will include up to 10 seconds of
"ride-through" protection for brief power fluctuations in some designs and up to
10 minutes of backup power in other designs. These products will incorporate our
PowerCache ultracapacitors, either alone or in combination with batteries. We
recently introduced rack-mount UPS products, and we are developing redundant DC
to AC power inverters as part of high reliability integrated power and computing
solutions for our applied computing OEM customers.
Our extensive design and integration experience and capabilities shorten
time-to-market for OEMs and allow them to outsource these functions to us. This
permits them to concentrate on differentiating, value-added capabilities they
bring to an overall system or network application.
STRATEGY
Our strategy is to apply our expertise and proprietary technology in power
and computing at both the component level and the systems level to develop,
manufacture and market products with specialized, high value applications where
high reliability and high availability are necessary for customer value.
BE A RELIABLE, LOW-COST, HIGH-VOLUME SUPPLIER OF TECHNOLOGICALLY ADVANCED,
PROPRIETARY PRODUCTS
We have expanded and now are automating some of our manufacturing
capabilities to meet anticipated demand and reduce per unit manufacturing costs.
We invested more than $11 million in 2000 to build and outfit state-of-the-art
production facilities, including information technology infrastructure, and
implement new manufacturing and business processes and systems to increase
production capacity and improve efficiency and product quality. We are now able
to produce commercial quantities of all of our products.
5
EXPAND ADDRESSABLE MARKET FOR ULTRACAPACITORS
We will pursue new applications for our PowerCache ultracapacitors. We will
use our new low-cost, high-volume manufacturing capabilities to increase volumes
and achieve competitive price points for our components. We believe this will
open new market opportunities for our ultracapacitors to become industry
standard components for power delivery, displacing competing component products.
REFINE AND IMPROVE OUR PROPRIETARY TECHNOLOGIES
We will continue our 35-year history of developing proprietary
technologies. Our product development efforts will focus both on enhancing
existing products and developing technologically advanced products to meet
customer demands. New products will be designed to meet our identified market
opportunities, capitalizing on existing design-in wins and targeting OEMs' next
generation products. We also will continue to enhance our existing proprietary
technologies to make our products more reliable, more functional and less
expensive to manufacture in order to meet the performance, form factor and
pricing demands of our customers.
CONTINUE TO DEVELOP LEADING EDGE POWER AND COMPUTING SYSTEMS
We are positioned to capitalize on increasing demand for high availability
power and computing products across a range of applications, and from growing
acceptance of the cPCI architecture. We will provide enhanced solutions for our
customers by integrating our proprietary power quality technologies into our
computing systems. We provide customers with quick turn, customized solutions
and we will continue to develop stylized modular components to increase
efficiency and allow faster response time to meet customer application
requirements.
EXPAND AND IMPROVE INTERNATIONAL OPERATIONS TO MARKET AND SELL OUR PRODUCTS
We intend to pursue international markets as key avenues for growth and
increase the percentage of our sales generated in international markets. In
2000, our international sales accounted for 25.2% of total sales, as compared to
24.7% of total sales in 1999. As part of our plan to pursue international
markets, we will expand and improve our manufacturing, assembly, distribution,
marketing and sales operations in England, France and Germany to increase our
sales penetration in Europe. We believe we are in a position to capitalize on
market opportunities and enhance brand recognition in local markets through our
local presence in Europe. Increased local assembly and marketing will allow us
to avoid import tariffs and access local private or public sector financing if
opportunities to expand our operations arise. We also intend to develop
distribution, marketing and sales operations in Asia to increase sales in the
Asia-Pacific region.
PRODUCTS AND CUSTOMERS
We sell our electronic components products to OEMs serving numerous
markets, including transportation, consumer and industrial electronics, medical
and aerospace. We sell our applied computing products primarily to OEMs serving
the telecommunications and Internet infrastructure, broadcast and industrial
automation markets. We sell power distribution and power quality products mainly
to OEMs serving the medical and industrial markets. Following are descriptions
of our key products and the markets they address.
ELECTRONIC COMPONENTS GROUP
ULTRACAPACITORS
Our Electronic Components Group designs, manufactures and markets
PowerCache ultracapacitors. Capacitors are passive electronic components that
store and discharge electricity. Our PowerCache ultracapacitors store high
quantities of electrical energy in a high density electric field through a
proprietary carbon-based material that has large surface area (more than three
thousand square meters per gram of carbon) to permit high electrical storage
density in a small package. As a result, our products have two to four times
greater power density than competing ultracapacitors or supercapacitors.
6
PowerCache ultracapacitors provide peak and dynamic power for applications
that require periodic bursts of power, whether for an internal
combustion/electric hybrid drive train, a fuel cell system or a battery pack for
industrial or consumer electronics. Ultracapacitors can be charged from any
primary energy source, such as a battery, engine, fuel cell or electrical
outlet, and deliver high power on demand. Virtually any device with peak power
demands greater than its average power requirement is a candidate for our
ultracapacitors as part of its power delivery system.
ULTRACAPACITOR APPLICATION MODEL
[GRAPHIC]
Although batteries currently are the prevailing energy storage device,
ultracapacitors have significant performance advantages over batteries,
including:
- delivery of up to 10 times the power;
- lower weight for storage of comparable electrical energy;
- deeper discharge and faster recharge;
- more reliable operation in extreme temperatures (-40 degrees C to +75
degrees C); and
- up to 10 times the useful life.
Our PowerCache ultracapacitors can be linked together in modules or banks
to meet the energy storage and peak power requirements of applications ranging
from hybrid internal combustion/electric buses, trucks and automobiles to fuel
cells, actuators, toys and hand-held consumer electronic devices.
We are pursuing opportunities to incorporate our ultracapacitors into
hybrid diesel/electric and gasoline/electric power trains that either are being
commercialized now for buses and large trucks or are in development for sport
utility vehicles, light trucks and automobiles. The hybrid internal
combustion/electric power train depicted below shows how electrical energy will
be generated and stored in vehicles and supplied to the power train.
The hybrid power train has a large alternator connected to the crankshaft
that generates electricity when the alternator engages the crank shaft to help
brake the vehicle or when the engine is running. The electricity produced by the
alternator is stored in a power pack containing approximately 300 to 500
PowerCache ultracapacitors for buses or large trucks and 18 to 20
ultracapacitors for automobiles, light trucks or sport utility vehicles. The
electrical energy stored in the ultracapacitors is then sent back through the
alternator to turn the crankshaft to accelerate the vehicle. The power pack also
powers on-board electrical systems, such as power steering, braking, locks,
seats, air conditioning, mobile communications and audio systems.
7
HYBRID INTERNAL COMBUSTION/ELECTRIC POWER TRAIN
[GRAPHIC]
- power pack drives crankshaft motor to assist initial acceleration;
- power pack starts internal combustion engine to provide cruising
power;
- crankshaft alternator charges the power pack;
- control electronics manage power storage and usage;
- power pack powers electrical system, operating steering, braking,
heating, air conditioning, mobile communications, stereo, etc.; and
- alternator engages the crankshaft to assist braking, generate energy
and store it in the power pack.
Hybrid power train designs such as the one depicted above are part of the
future plans of all of the major automotive companies as the industry seeks to
improve fuel economy, reduce emissions and graduate from 12-volt electrical
systems to 42-volt systems. The dramatic increase in electrical demand in modern
automobiles for features such as power steering, air conditioning, global
positioning and audio systems has initiated the redesign of electrical systems
to 42 volts. All of the major automotive companies have announced plans to
introduce 42-volt systems and hybrid power trains in automobiles beginning in
2004 or 2005.
All of the 42-volt hybrid power train systems require an energy storage
system that can recapture energy from braking, satisfy peak power requirements,
operate reliably in extreme temperatures, last the life of the vehicle and
require low maintenance. We believe that ultracapacitors uniquely satisfy all of
these requirements and have the opportunity to become an industry standard
energy storage and power delivery device for such systems.
In December 2000, we entered into a supply agreement with General Motors
Corporation to supply our large cell ultracapacitors for incorporation into the
power trains of hybrid diesel/electric buses and trucks produced by GM's Allison
Transmission division. Allison has reported that by supplementing the primary
diesel engine with an ultracapacitor-powered electric motor that assists initial
acceleration and recaptures and reuses braking energy, fuel efficiency of buses
and trucks can be increased by more than 50 percent, particulate emissions
reduced by approximately 90 percent and nitrogen oxide emissions reduced by more
than 50 percent, as compared to conventional diesel power trains.
8
Allison selected our PowerCache ultracapacitors over conventional and
advanced batteries because our ultracapacitors:
- last up to 10 times as long;
- weigh up to 2000 pounds less per vehicle;
- operate reliably at extreme temperatures (-40 degrees C to +75 degrees
C);
- recapture more energy from vehicle braking systems;
- deliver up to 10 times the power;
- require lower maintenance; and
- reduce environmental issues associated with disposal.
Our small cell ultracapacitors have been designed into, or are being
considered for, consumer electronics such as toys and digital cameras,
industrial electronics such as actuators, remote transmitting devices and bar
code scanners, and transportation electronics such as electric brakes for trains
and safety features for automobiles. We anticipate that several of the end
products into which our ultracapacitors have been designed will go into
production in 2001. We currently are installing an automated production line for
small cell ultracapacitors to position us to meet anticipated demand in 2001.
EMI FILTERED FEEDTHROUGHS
Our Electronic Components Group also integrates our proprietary ceramic
capacitor filters with wire feedthroughs that we source from third party
suppliers to make filtered feedthroughs that protect implantable medical
devices, such as cardiac pacemakers and implantable defibrillators, from EMI.
EMI produced by cellular telephones, microwave ovens and other electronic
equipment can enter implantable devices via wire feedthrough sensors that carry
signals from the body, causing the devices to malfunction. We design and produce
integrated filtered feedthrough components that meet implantable device
manufacturers' specifications for various types of implantable devices.
As diagramed below, our EMI filters prevent EMI from entering the pacemaker
or other implantable device via feedthrough wires.
FILTERED FEEDTHROUGH PACEMAKER
[GRAPHIC] [GRAPHIC]
We are a leading manufacturer of EMI filtered feedthroughs that permit
manufacturers of implantable medical devices to satisfy AAMI and FDA testing
standards for immunity to EMI. Our current OEM customers for filtered
feedthroughs include Guidant Corporation and the Pacesetter division of St. Jude
Medical, Inc.
9
Our EMI filter technology and its use to block EMI from interfering with
implantable medical devices are protected extensively by patents, and additional
patent applications are pending in the U.S. and in many foreign jurisdictions.
RADIATION-SHIELDED MICROELECTRONICS
Our Electronic Components Group also designs, manufactures and markets
radiation-shielded microelectronics, including integrated circuits, power
modules and single board computers, primarily for the satellite and spacecraft
market. We engineer customized microelectronics together with highly adaptable
proprietary packaging and shielding techniques to allow OEMs to use powerful,
low cost, commercial off-the-shelf components, protected with the required level
of radiation shielding for the orbit or environment in which they are to be
used.
We supply microelectronics to multiple satellite and space vehicle
manufacturers, including Lockheed Martin Corporation and The Boeing Corporation.
We also are pursuing opportunities for the replacement of original
microelectronics in military battlefield vehicles, aircraft and ships, which
represents a large potential market for our radiation-shielded microelectronics.
I-BUS/PHOENIX POWER AND COMPUTING SYSTEMS
I-Bus/Phoenix designs, develops and manufactures high availability custom
computing systems and power quality products. Combining our computing systems
and power quality and reliability expertise allows us to offer superior high
availability computing products and innovative power quality solutions. Our
current product offerings include applied computing systems, power distribution
systems and power conditioning units. We sell our products mainly to OEMs
serving the telecommunications and Internet infrastructure, industrial
automation, broadcasting and medical imaging markets.
As part of our restructuring in 2000, we expanded I-Bus/Phoenix's
engineering and product development capabilities. We also acquired Gateworks
Corporation, a CPU engineering and board design company. As a result of adding
these board design capabilities and increasing our investment in engineering and
product development, we are scheduled to introduce several new products this
year. Incorporating our competencies in the latest system architecture,
including cPCI, our computing systems will offer additional flexibility and
reliability to end users. For example, to promote high availability, these new
systems are designed to allow key components to be "hot-swapped," meaning that
they can be replaced without shutting down the system.
We view power reliability as an enabling technology for high availability
computing. Accordingly, we have computing products in development and scheduled
for introduction in late 2001 that will incorporate power protection features
built into the computer chassis itself to provide up to 10 seconds of
ride-through power with certain designs and up to 10 minutes of backup power
with other designs. Such embedded power solutions will incorporate our
PowerCache ultracapacitors, either alone or in combination with hot-swappable
batteries. We recently introduced UPS products designed to fit into computer
server racks to facilitate integration of power reliability features to support
high availability computing systems for our OEM customers. We also are
developing redundant DC to AC power inverters to bring additional power
reliability features to integrated applied computing system solutions. Our
extensive design and integration experience and resources can shorten
time-to-market for OEMs and allow them to outsource these functions entirely to
us so that they can concentrate on the differentiating value-added capabilities
they bring to the overall system application.
I-Bus/Phoenix also designs, develops and manufactures power conditioning
and power distribution units for medical imaging equipment and power protection
and power conditioning systems for other industrial applications. At present,
many of our power quality products are based on our customers' designs. We are
developing improved power quality products based on our own designs that intend
to improve performance and reduce cost for our customers while also permitting
us to expand sales and improve product line gross margins.
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The following table describes new power and computing products scheduled
for introduction in 2001.
NEW PRODUCTS/KEY FEATURES MARKET APPLICATIONS
------------------------------------------ -----------------------------------------------
cPCI systems - hot-swappable and/or Telecommunications
redundant cluster systems Central office
ISA/PCI systems Application service providers
- Windows/Pentium base Voice over Internet protocols
- Solaris/Sparc base Internet service providers
- Redundant power input module for Computer telephony
cPCI Broadcast
DC to DC converter with ride-through power Embedded computers
- Embedded in the CPU board High availability servers
- 10 second ride-through via board- Medical equipment
mounted PowerCache ultracapacitors Digital signal processing systems
- Power fail output Alarm modules
- Regulated DC output
Embedded UPS Embedded computers
- Embedded in the server chassis High availability servers
- Hot-swappable battery backup Ride-through to system quiescence
Ride-through/bridge to alternate power source
High frequency power conditioner Industrial equipment
- AC to AC operation Broadcast industry equipment
- Transient surge suppression Medical equipment
- Rack-mountable Semiconductor fabrication
- Electrical frequency conversion
- AC voltage regulation
Rack-mount UPS High availability servers
- Thin chassis design Industrial process equipment
- Standard and extended backup times Telecom equipment
- Power management software Emergency ride-through power
We supply applied computing systems or power systems to many leading OEMs,
including Motorola, Inc., Compagnie Finciere Alcatel, Deutsche Telekom AG,
Rockwell International Corporation, the GE Medical Systems division of the
General Electric Company, Toshiba Corporation and Siemens AG.
MANUFACTURING
We manufacture our electronic components products principally at facilities
located in San Diego, California, and Carson City, Nevada. Our power and
computing systems are produced at facilities in San Diego, California, Havant
and Uckfield, England, Sophia, France and Munich, Germany.
During the year ended December 31, 2000, we restructured our operations,
divesting certain non-core businesses and consolidating our core businesses into
the commercial business units described above. We also invested more than $11
million in 2000 to build and outfit state-of-the-art production facilities,
including information technology infrastructure, and implement new manufacturing
and business processes and systems to increase our production capacity and
improve efficiency and product quality. We completed this restructuring in
October 2000. We believe that Maxwell now has ample production capacity to meet
current demand for our products and any near term increase in demand.
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We consolidated our ultracapacitor and radiation-shielded microelectronics
manufacturing operations into a new 46,000 square foot facility in San Diego in
September 2000. New manufacturing lines for our EMI filtered feedthrough
manufacturing operations were completed at our 25,000 square foot facility in
Carson City, Nevada, in October 2000. Our power and computing systems
manufacturing operations moved into an expanded and refurbished 84,000 square
foot facility in San Diego in October 2000. A new 20,000 square foot production
and warehousing facility planned in Tangmere, England, will replace our existing
Havant facility and provide a distribution center for products and materials for
the I-Bus/Phoenix operations in France and Germany.
All of our new production facilities have been designed with flexible
overhead power grids and modular manufacturing cells and equipment that allow
factory operations to be reconfigured rapidly at minimal expense. We believe
that our manufacturing facilities and resources give us sufficient capacity to
meet near term demand for all of our products.
ULTRACAPACITORS
We currently are installing automated production machinery to make our
small cell ultracapacitors. Together with Ismeca, Inc., a leading manufacturer
of high speed automated manufacturing equipment, we designed, built, integrated
and tested this equipment over the course of the past year. This automated
production line is expected to give us production capacity of approximately
50,000 small cells per day. In 1999, we could produce only approximately 50
small cells per day. In 2000, with some mechanized assistance, we were able to
increase production of small cells to up to 5,000 cells per day. We have also
increased the production capacity for our large cell ultracapacitors from
approximately 100 cells per day in early 2000, to more than 400 cells per day
currently, with improved yield. We are currently redesigning our large cells to
incorporate lower cost materials and facilitate high-speed automated
manufacturing. In addition to significantly reducing material cost, the new
design will reduce the number of components required to make a finished cell and
reduce the number of manufacturing process steps to a fraction of those required
for our current design. Our objective with all of our ultracapacitor products is
to be the most reliable supplier of these products for customer applications
that require high power density in small packages for burst mode power delivery.
In 1998, we entered into a collaborative agreement with EPCOS AG, formerly
Siemens Matsushita Components GmbH, a joint venture of Siemens AG and Matsushita
Electrical Industries. The agreement provides for the sharing of PowerCache
ultracapacitor technology and ongoing manufacturing developments by both parties
and the nonexclusive licensing right for EPCOS to manufacture products based on
PowerCache ultracapacitor technology and sell them worldwide except in the
United States, Canada and Mexico. We received initial license fees and are
entitled to ongoing royalties under the agreement.
EMI FILTERED FEEDTHROUGHS
In 2000, we redesigned a major portion of our facility in Carson City,
Nevada to manufacture EMI filtered feedthroughs for the implantable medical
device market. Our production capacity for EMI filtered feedthroughs has
increased from approximately 500 per week at the beginning of 2000 to our
current weekly capacity of approximately 2,000. Our factory design will allow us
to continue to increase capacity to match demand and position us to be the
largest, most reliable supplier of EMI filtered feedthroughs for the implantable
medical device market.
RADIATION-SHIELDED MICROELECTRONICS
In 2000, we reengineered our production processes for radiation-shielded
microelectronics, resulting in dramatic improvement in cycle time to produce and
test microelectronics and a significant increase in yield of components that
comply with customer-required quality and performance standards. We believe we
now have top tier manufacturing capabilities for highly reliable,
radiation-shielded power and computing microelectronics for the space and
military electronics replacement markets.
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POWER AND COMPUTING SYSTEMS
We assemble applied computing products at our San Diego, California,
Havant, England, Sophia, France, and Munich, Germany facilities. We manufacture
sheet metal enclosures for the systems we sell in Europe and some that we sell
in the U.S. at our Uckfield, England facility. We rely on third party suppliers
for the fabrication and assembly of printed circuit boards and major
subassemblies. We assemble and test power quality products at our San Diego
production facility. We manufacture harnesses and transformers for power quality
products and contract with third party suppliers for sheet metal and printed
circuit boards.
SUPPLIERS
We generally purchase components and materials, such as electronic
components, dielectric materials and enclosures of metal and plastic, from a
number of suppliers. For certain products, we rely on a limited number of
suppliers or a single supplier. Our applied computing business relies on single
qualified suppliers for some of its critical components, primarily CPU boards
and some power supplies. The EMI filtered feedthroughs we produce rely primarily
on one domestic source for wire feedthrough casings to which we attach our EMI
filters. Although we believe there are alternative sources for components and
materials currently obtained from a single source, there can be no assurance
that we will be able to identify and qualify alternative suppliers in a timely
manner. We seek to reduce our dependence on sole and limited source suppliers.
MARKETING AND SALES
Across all our product lines, we market and sell components and systems for
integration by OEMs into larger systems and other end products through both
direct and indirect sales organizations in North America, Europe and Asia. As
the introduction of emerging technologies requires customer acceptance of new
and different technical approaches, and many of our OEM customers have rigorous
vendor qualification processes, the initial sale for our products can take weeks
or months.
Our principal marketing strategy is to cultivate long-term customer
relationships by becoming a preferred supplier with an opportunity to compete
for multiple supply agreements and follow-on contracts with our key OEM
customers. As these design-in sales tend to be technical and engineering
intensive, we organize customer specific teams composed of sales, engineering,
research and development and other technical personnel to work closely with our
customers across multiple disciplines to satisfy their requirements for form,
fit, function, environment and mechanics. As time-to-market often is the primary
consideration in our customers' decisions to outsource components or systems and
in their selection of a vendor, the initial sale and design-in process
frequently evolves into ongoing account management to ensure on time delivery
and responsive technical support and problem solving.
Our business units conduct marketing programs intended to position and
promote their products, including trade shows, seminars, advertising, public
relations, distribution of product literature and websites on the Internet. We
maintain a central marketing communications group to support our marketing
programs. The group designs and develops marketing materials, negotiates
advertising media purchases, writes and places product news releases and manages
our marketing websites.
COMPETITION
Each of our business operations has competitors, many of whom have longer
operating histories, significantly greater financial, technical, marketing and
other resources, greater name recognition, and a larger installed base of
customers. In some of the target markets for our emerging technologies, we face
competition from products utilizing alternative technologies.
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ULTRACAPACITORS
Although a number of companies are developing capacitor technology, we have
two principal competitors in ultracapacitor or supercapacitor products:
Panasonic, a division of Matsushita Electric Industries, Ltd.; and Ness
Corporation, a privately held company. The key competitive factors are price,
performance (energy stored and power delivered per unit volume), form factor,
operational lifetime and breadth of product offerings. Our PowerCache
ultracapacitors have two to four times greater power density and longer
operational life than competing, commercially available ultracapacitors and
supercapacitors. We believe that we also compete favorably with respect to the
other competitive factors identified above. Ultracapacitors also compete with
other technologies, including high power batteries, in power quality and
automobile load-leveling applications, with flywheels in power quality and
automotive applications (including as a power source for electric vehicles) and
with superconducting magnetic energy storage in power quality.
EMI FILTERED FEEDTHROUGHS
Our primary competitor in the EMI filter capacitor business is AVX Filter,
a subsidiary of Kyocera Corporation. Competitive factors in this market include
price, consistent availability, breadth of electromagnetic spectrum filtered and
component reliability. We believe that we compete favorably with respect to each
of these factors. Our EMI filter technology and its use to block EMI from
interfering with implantable medical devices are protected extensively by
patents, including additional patent applications, in the U.S. and in many
foreign jurisdictions.
RADIATION-SHIELDED MICROELECTRONICS
Our radiation-shielded monolithic integrated circuits (ICs), application
specific integrated circuits (ASICs), processors and single board computers
compete with the products of traditional radiation-hardened IC suppliers such as
Honeywell Corporation and Lockheed Martin Corporation. We also have competition
from commercial suppliers with product lines that have favorable radiation
tolerance characteristics, such as Temic Instruments B.V. in Europe and National
Semiconductor and Analog Devices Inc. Our proprietary radiation shielding
technology enables us to provide flexible, low cost radiation protection
solutions utilizing the most advanced commercial off-the-shelf electronic
circuits. In that market segment, we compete with high reliability packaging
houses such as Austin Semiconductor, Inc., White Microelectronics, Inc. and
Teledyne Microelectronics, a unit of Teledyne Technologies, Inc. for monolithic
and multichip modules.
POWER AND COMPUTING SYSTEMS
Our primary competitors in the applied computing markets include RadiSys
Corporation, SBS Technologies, Inc., Diversified Technology, Inc., American
Advantech Corp., ICS Advent, Teknor Applicom, a Kontron company, and Trenton
Technology, Inc., among others, resulting in a highly fragmented market in which
no one entrant is dominant. Motorola Inc. and the Force Computer division of
Solectron Corporation have entered the cPCI market, and represent strong
competition in the applied computing market based on cPCI architecture.
Competitive factors in this market include price, custom design expertise,
functionality, fault tolerance and time-to-market. We believe we compete
favorably with respect to each of these factors.
The markets for our power quality products are highly fragmented, with no
single dominant participant. In the medical and industrial markets in which our
product offerings are concentrated, we compete with several participants,
including Liebert Corporation, OnLine Power, Inc., Teal Electronics Corporation
and Controlled Power Corporation. We believe we compete favorably in these
markets on price, quality and functionality.
RESEARCH AND DEVELOPMENT
We maintain active research and development programs to improve existing
products and to develop new products. For the year ended December 31, 2000,
research and development expenditures totaled approximately $8.7 million, as
compared to $6.4 million, $6.8 million and $5.8 million in the year ended
December 31, 1999, and in the fiscal years ended July 31, 1999 and 1998,
respectively. We intend to increase our investment in research and development
in calendar year 2001 over prior years.
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In general, our product development focuses on:
- enhancing existing products and developing technologically advanced
products;
- developing new products to meet identified market opportunities; and
- making our products more reliable, more compact and less expensive to
manufacture to meet the performance, form factor and pricing demands
of our customers.
Most of the current research, development and engineering activity of the
Electronic Components Group is focused on material sciences, including
electrically conducting and dielectric materials, ceramics and radiation
tolerant silicon and ceramic composites, to improve performance, reliability,
ease of manufacture and cost of our electronic components. Efforts also are
focused on product design for high volume manufacturing.
We currently are reengineering our large cell ultracapacitors to double
power density and dramatically reduce cost. The new design consists of
proprietary technology in a low cost, high capacity package. The new large cell
design also incorporates a form factor and assembly process suited for
high-speed automated manufacturing. The goal of this initiative is to penetrate
cost sensitive applications at very high volumes (millions of cells per year
beginning in 2004). The initiative involves product design, reduced material
cost and automated manufacturing.
I-Bus/Phoenix's research, development and engineering efforts are focused
on joint projects with OEM customers, resulting in customer computing and power
system level products tailored to customer requirements. We invest our resources
in the research and development of technology building blocks such as:
- CPU board design and applied modules and platforms;
- power conditioning, storage and distribution platforms;
- Design processes and tools; and
- high availability, application-ready systems integration capabilities,
including software operating systems.
Our engineering staff works closely with customers to operate as a "virtual
division" interacting with the customer's internal organization to develop
computing and power systems that satisfy specific customer requirements. We
typically retain the rights to any technology developed as part of joint design
programs.
INTELLECTUAL PROPERTY
As our commercial businesses expand, we are placing increased emphasis on
patents to provide protection for certain key technologies and products. Our
success will depend in part on our ability to maintain our patents, add to them
where appropriate, and to develop new products and applications without
infringing the patent and other proprietary rights of third parties, and without
breaching or otherwise losing rights in technology licenses we have obtained.
We have well established patent portfolios covering the various
technologies associated with our electronic components businesses, consisting of
22 issued patents and 18 patent applications in the United States. We also
routinely secure corresponding foreign patents in principal countries of Europe,
Asia and in Canada. Our power and computing systems business involves designs
based largely on industry standard architecture and patents have not been an
important competitive factor. This may change, however, as the designs to meet
high availability requirements become more complex and proprietary. We have
filed one patent application in this area and are pursuing others.
Establishing and maintaining proprietary products and technologies is a key
element of our success. Although we attempt to protect our intellectual property
rights through patents, copyrights, trade secrets and other measures, there can
be no assurance that these steps will be adequate to prevent misappropriation by
third parties, or will be adequate under the laws of some foreign countries,
which may not protect our proprietary rights to the same extent as do the laws
of the United States.
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We use employee and third party confidentiality and nondisclosure
agreements to protect our trade secrets and unpatented know-how. We require each
of our employees to enter into a proprietary rights and nondisclosure agreement
in which the employee agrees to maintain the confidentiality of all proprietary
Company information and, subject to certain exceptions, to assign to the Company
all rights in any proprietary information or technology made or contributed by
the employee during his or her employment. In addition, we regularly enter into
nondisclosure agreements with third parties, such as potential joint venture
partners and customers.
BACKLOG
Our backlog for continuing operations as of December 31, 2000 and 1999
amounted to approximately $36 million, and $34 million, respectively. Backlog
consists of firm orders for products not yet delivered. We expect to deliver
substantially all of our current backlog within 12 months.
GOVERNMENT REGULATION
Clinical and commercial application of our EMI filtered feedthroughs for
the implantable medical device market is subject to regulation by the FDA. The
FDA regulates pre-clinical and clinical testing, manufacture, labeling, storage,
distribution and promotion of food and medical products and processes. Our EMI
filters have been approved for use in cardiac pacemakers and implantable
defibrillators manufactured by certain medical device OEMs, and our filtered
feedthroughs are a component of new products being developed by our OEM
customers that are now undergoing clinical trials as part of the FDA approval
process.
Required testing and the preparation and processing of FDA applications may
take several years to complete. There is no assurance that the FDA will act
favorably, and we, or our customers may encounter significant difficulties or
costs in obtaining FDA approvals. Those costs or delays may preclude us from
marketing regulated products or may furnish an advantage to our competitors. The
FDA may also require post marketing testing and surveillance to monitor the
effects of approved products or place conditions on any approvals that could
restrict the commercial applications of our products. Product approvals may be
withdrawn if compliance with regulatory standards is not maintained or if
problems occur following initial marketing.
The testing, sale and application of our computing and power systems
require compliance and certification with a number of U.S. and foreign standards
for electromechanical systems, such as Underwriters Laboratories (UL), Canadian
Standards Association (CSA) and Committee European (CE). We incorporate
compliance with such standards into the quality assurance protocols in building
and testing our computing and power products.
Because of the nature of our operations and the use of hazardous substances
in some of our ongoing manufacturing and research and development activities, we
are subject to stringent federal, state and local laws, rules, regulations and
policies governing the use, generation, manufacturing, storage, air emission,
effluent discharge, handling and disposal of certain materials and wastes.
FOREIGN SALES
Our revenue from customers outside of the United States was $25.8 million
and $25.3 million in the years ended December 31, 2000 and 1999, respectively,
and $10.7 million, $24.0 million, and $14.8 million in the five months ended
December 31, 1999 and in the fiscal years ended July 31, 1999 and 1998,
respectively. Of the total foreign sales in the year ended December 31, 2000,
the five months ended December 31, 1999 and the fiscal years ended July 31, 1999
and 1998, $12.4 million, $5.6 million, $12.2 million and $7.8 million,
respectively, were attributable to sales to customers located in the United
Kingdom.
EMPLOYEES
At December 31, 2000, our continuing operations had 702 full-time
employees, including 293 employees within the Electronic Components Group, 377
within I-Bus/Phoenix and 32 at the corporate level. None of our employees is
represented by a labor union. We consider our relations with our employees to be
good.
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DISCONTINUED OPERATIONS - PUREPULSE TECHNOLOGIES
OVERVIEW - PUREBRIGHT PATHOGEN INACTIVATION
We are exploring strategic alternatives for our PurePulse subsidiary, which
we expect will result in the sale of all or a majority interest in the business
in 2001. PurePulse has been classified as a discontinued operation for financial
reporting purposes.
PurePulse is developing PureBright sterilization and purification systems
to inactivate viruses and other pathogens that contaminate products sourced from
human or animal tissues, such as plasma derivatives, transfusion blood
components, and biopharmaceuticals, and in the production of vaccines.
PureBright systems employ pulsed power technology to produce broad spectrum
pulsed light (BSPL) 90,000 times more intense than sunlight at sea level to
inactivate viruses and other pathogens while preserving the efficacy of
beneficial proteins and other therapeutic compounds.
Base material passes through a BSPL chamber and receives one or more
flashes to inactivate all viruses and other microbial contaminants in the
material. Each BSPL flash, lasting a fraction of a second, inactivates pathogens
in base materials without generating heat or other undesirable residual effects
in the sterilization process. PurePulse has developed PureBright systems that
are used commercially to sterilize medical products and packaging. Prototype
PureBright systems also have been developed to purify water.
PUREBRIGHT SYSTEM VS. CURRENT METHODOLOGIES
Producers of blood products, vaccines, biopharmaceuticals and other medical
products currently rely on screening tests to avoid the use of contaminated
starting materials and on manufacturing processes that inactivate pathogens.
Pathogen inactivation processes currently in use include heat, solvent
detergent, and gamma radiation. None of these processes is entirely
satisfactory. Chemical solvents added to base materials to inactivate viruses
must later be removed, which often results in a loss of valuable base material.
Heat treatment for virus activation, in addition to causing damage to beneficial
proteins and some loss of base material, takes up to 72 hours. Additionally,
some pathogens, such as human parvovirus and hepatitis A, are resistant to
currently approved inactivation methods.
By contrast, extensive pre-clinical testing of our PureBright systems by
multiple strategic partners in the blood fractionation, vaccine and
biopharmaceutical industries has shown BSPL treatments of only a few seconds'
duration to be effective in inactivating viruses by breaking down the nucleic
acids required for viral reproduction. And, because therapeutic protein base
materials are made up of amino acids that are not damaged by BSPL at levels
required for virus inactivation, recovery of PureBright treated protein base
materials is in the range of 95-100 percent. PureBright is of interest for
vaccine production because BSPL treatments break down genetic material required
for viral reproduction and leave intact viral protein structures that are used
as antigenic material. We believe that this may allow development of more potent
vaccines, reduce the risk of adverse reactions and eliminate the need for harsh
chemical additives.
MARKET SIZE AND BUSINESS FOCUS
Blood fractionation companies and producers of vaccines and certain
biopharmaceuticals pay royalties for pathogen inactivation with respect to
estimated annual end product sales of $15 billion. PureBright technology has
also been applied successfully to medical devices and solutions that represent a
global market of $8 billion. Other potential applications for PureBright include
point of use systems for purifying drinking water, as well as purification of
bottled water. Sales of such systems and bottled water exceed $10 billion
annually.
At the beginning of 2000, we restructured PurePulse to focus on
inactivation of pathogens that contaminate high value products sourced from
human or animal tissues. Prior to that time, PurePulse had developed
sterilization systems and opportunities for food processing, high volume water
purification and surgical and medical instrument sterilization.
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STRATEGIC COLLABORATIONS
Since the beginning of 2000, we have entered into collaboration agreements
with five global market leaders in the plasma derivative and vaccine markets to
participate in the development of inflow PUREBRIGHT systems for incorporation
and evaluation in their pharmaceutical product manufacturing lines for multiple
products per collaborator. These development programs require us to deliver
advanced design PUREBRIGHT systems in 2001 for testing and evaluation, and for
each collaborator to begin clinical and regulatory work in late 2001 or in 2002.
We also have developed BSPL based prototype water purification systems that
inactivate microbial contaminants in water, including cryptosporidium, which is
not affected by many other water treatment processes. Our prototype purification
systems vary in capacity from 4 gallons of water per minute to 250 gallons per
minute. Such systems can be installed at the point of entry into a food service,
grocery or manufacturing facility. PUREBRIGHT also can be used to purify bottled
water after it has been packaged and sealed with a compatible translucent
packaging material. While market data suggest that a significant market exists
for water applications, we believe that penetration of this market will require
assistance from one or more marketing partners, which we are pursuing.
RISK FACTORS
AN INVESTMENT IN OUR COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. YOU
SHOULD CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS AND THE OTHER INFORMATION
INCLUDED IN THIS FORM 10-K BEFORE INVESTING IN OUR COMMON STOCK. OUR BUSINESS,
FINANCIAL CONDITION AND RESULTS OF OPERATIONS COULD BE SERIOUSLY HARMED IF ANY
OF THE FOLLOWING RISKS OCCUR. IN ANY SUCH CASE, THE MARKET PRICE OF OUR COMMON
STOCK COULD DECLINE AND YOU MAY LOSE ALL OR PART OF THE MONEY YOU PAID TO BUY
OUR COMMON STOCK.
THE RISKS AND UNCERTAINTIES DESCRIBED BELOW ARE NOT THE ONLY ONES WE FACE.
ADDITIONAL RISKS AND UNCERTAINTIES, INCLUDING THOSE NOT PRESENTLY KNOWN TO US OR
THAT WE CURRENTLY DEEM IMMATERIAL, MAY ALSO RESULT IN DECREASED REVENUES,
INCREASED EXPENSES OR OTHER EVENTS WHICH COULD RESULT IN A DECLINE IN THE PRICE
OF OUR COMMON STOCK.
WE MAY NOT BE ABLE TO DEVELOP OR MARKET COMMERCIAL PRODUCTS SUCCESSFULLY WHICH
WOULD PREVENT US FROM ACHIEVING OR MAINTAINING PROFITABILITY IN THE FUTURE.
Historically, we have relied in part upon government contracts to fund our
research and development, and we have derived a significant portion of our
revenues from the government sector. We have signed letters of intent and are
scheduled to close the sale of our defense contracting business by the end of
March 2001. After the sale of that business, we will generate revenue solely
from developing, manufacturing and marketing commercial products. If we are
unable to successfully develop or market commercial products, we may not achieve
or maintain profitability in the future.
We have recently introduced many of our products into commercial markets
and, upon such introductions, we also must introduce our capabilities as a
reliable supplier of these products. Some of our products are alternatives to
established products or provide capabilities that do not presently exist in the
marketplace. Our products are sold in highly competitive and rapidly changing
markets. The success of our products is significantly affected by their cost,
technology standards and end user preferences. In addition, the success of our
products depends on a number of factors, including our ability to:
- maintain an engineering and marketing staff sufficiently skilled to
identify and design new products;
- overcome technical, financial and other risks involved in introducing
new products and technologies;
- identify and develop a market for our new products and technologies
and accurately anticipate demand;
- develop appropriate commercial sales and distribution channels;
- develop and manufacture new products at competitive prices;
- increase our manufacturing capacity and improve manufacturing
efficiency;
- respond to technological changes by improving our existing products
and technologies;
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- demonstrate that our products have technological and/or economic
advantages over the products of our competitors; and
- respond to competitors that are more experienced, have significantly
greater resources, and have a larger base of customers.
WE MAY EXPERIENCE DIFFICULTY MANUFACTURING OUR PRODUCTS, WHICH WOULD PREVENT US
FROM ACHIEVING INCREASED SALES AND MARKET SHARE.
We may experience difficulty in manufacturing our products in increased
quantities, outsourcing the manufacturing of our products and improving our
manufacturing process. If we are unable to manufacture our products in increased
quantities, or if we are unable to outsource the manufacture of our products or
improve the manufacturing process, we may be unable to increase sales and market
share for our products. We have limited experience in manufacturing our products
in high volume. It may be difficult for us to achieve the following results:
- increase the quantity of the new products we manufacture, especially
those products that contain new technologies;
- reduce our manufacturing costs to a level needed to produce adequate
profit margins; and
- design and procure automated manufacturing equipment.
It may also be difficult for us to solve management, technological,
engineering and other problems related to our manufacturing processes. These
problems include production yields, quality assurance, component supply and
shortages of qualified management and other personnel. In addition, we may elect
to have some of our products manufactured by third parties. If we outsource the
manufacture of our products, we will face risks with respect to quality
assurance, cost and the absence of close engineering support.
WE MAY BE UNABLE TO PRODUCE OUR ULTRACAPACITORS IN COMMERCIAL QUANTITIES OR
REDUCE THE COST OF PRODUCTION ENOUGH TO BE COMMERCIALLY VIABLE FOR WIDESPREAD
APPLICATION.
If we are not able to produce large quantities of our ultracapacitors in
the near future at a dramatically reduced per unit cost, our ultracapacitors may
not be a commercially viable alternative to traditional or other alternative
power delivery devices. Although we have already begun selling a new type of
PowerCache ultracapacitor designed for automotive and transportation
applications, we have only produced this ultracapacitor in limited quantities
and at a relatively high cost as compared with traditional power delivery
devices. We are currently investing significant resources in automating and
scaling up our manufacturing capacity to permit us to produce this product in
large, commercial quantities sufficient to meet the needs of our potential
customers. In particular, because these products are very complex to
manufacture, we cannot be certain that we will be able to maintain quality
standards at high production levels. Furthermore, we believe based on
discussions with potential customers in the automotive and transportation
industry that our ultracapacitors will not provide a commercially viable
solution for our customers' needs unless we are able to reduce the per unit cost
dramatically below our current per unit cost. If we are not successful in
producing large quantities of ultracapacitors in the near future, we may not be
able to generate sufficient revenue from this product to recapture our
significant investment in the development and manufacturing scale-up of this
product and our overall business prospects will be significantly impaired.
19
OUR ULTRACAPACITORS DESIGNED FOR AUTOMOTIVE AND TRANSPORTATION APPLICATIONS MAY
NOT GAIN WIDESPREAD COMMERCIAL ACCEPTANCE.
We have designed one of our PowerCache ultracapacitor products primarily
for use in automotive and transportation applications. Currently, most of the
major automotive companies are pursuing large initiatives to develop alternative
power sources for cars and trucks and to replace the traditional 12-volt
electrical system with a 42-volt system. We believe our ultracapacitor provides
an innovative, alternative power solution for both of these applications and are
currently in discussions with several major automotive companies and their
suppliers with regard to designing our ultracapacitor into their future
products. However, there are many competing technologies such as nickel metal
hydride batteries, combustion engines using alternative fuels and competing
ultracapacitors. In particular, although we are currently working with the
Allison Transmission division of General Motors Corporation in the early stages
of incorporating our ultracapacitors into its first generation of hybrid drive
trains, GM is under no obligation to ultimately use our ultracapacitors in their
products or purchase any minimum quantity of our ultracapacitors. We believe
that the long-term success of our ultracapacitors will be determined by our
ability to outperform the competing technologies and to have our ultracapacitors
widely designed into the next generation of the power drive trains in hybrid
powered cars and trucks and the first generation of 42-volt electrical systems.
If our ultracapacitors fail to achieve widespread commercial acceptance in this
next generation of automotive products, our revenues will be adversely impacted
in future periods and our overall business prospects will be significantly
impaired.
WE HAVE A HISTORY OF LOSSES AND WE MAY NOT ACHIEVE OR MAINTAIN PROFITABILITY IN
THE FUTURE, WHICH MAY DECREASE THE MARKET VALUE OF OUR STOCK.
We have incurred net losses in our most recent fiscal year and in three of
our past five fiscal periods. In the future, we may experience significant
fluctuations in our revenues and we may incur net losses from period to period
as a result of a number of factors, including the following:
- the amounts invested in developing and marketing our products in any
period as compared to the volume of sales of those products in the
same period;
- fluctuations in demand for our products by OEMs;
- the prices at which we sell our products and services as compared to
the prices of our competitors;
- the timing of our product introductions as compared to those of our
competitors;
- the profit margins on our mix of product sales; and
- the dilution, debt, expenses, and/or charges we incur as part of our
acquisition strategy.
In addition, we incur significant costs developing and marketing products
based on new technologies. For example, we expect our investment in PurePulse to
significantly exceed the revenues achieved by that operation, and operating
losses due to this investment will continue until such time as we complete a
strategic transaction for the business.
We anticipate that, in order to increase our market share, we may sell our
products and services at profit margins below those we ultimately expect to
achieve and/or significantly reduce the prices of our products and services in a
particular quarter or quarters. The impact of the foregoing may cause our
operating results to be below the expectations of public market analysts and
investors, which may decrease the market value of our stock.
20
IF OUR OEM CUSTOMERS FAIL TO SELL A SUFFICIENT QUANTITY OF PRODUCTS
INCORPORATING OUR COMPONENTS, OR IF THE OEM'S SALES TIMING AND VOLUME
FLUCTUATES, IT WOULD PREVENT US FROM ACHIEVING INCREASED SALES AND MARKET SHARE.
Sales to a relatively small number of OEMs, as opposed to direct retail
sales to customers, make up a significant percentage of our revenues. The timing
and volume of these sales depend upon the sales levels and shipping schedules
for the products of our OEM customers. Thus, even if we develop a successful
component, our sales will not increase unless the product into which our
component is incorporated is successful. If our OEM customers fail to sell a
sufficient quantity of products incorporating our components, or if the OEM's
sales timing and volume fluctuates, it could prevent us from achieving sales.
Our OEM customers typically require a long development and engineering process
before incorporating our products and services into their systems and products.
This period of time is in addition to the time we spend on basic research and
product development. As a result, we are vulnerable to changes in technology or
end user preferences.
Our opportunity to sell our products to our OEM customers typically occurs
at infrequent intervals, depending on when the OEM customer designs a new
product or enhances an existing one. If we are not aware of an OEM's product
development schedule, or if we cannot provide components or technologies when
they develop their products, we may miss an opportunity that may not reappear
for some time.
OUR ABILITY TO INCREASE MARKET SHARE AND SALES DEPENDS ON OUR ABILITY TO
SUCCESSFULLY HIRE AND TRAIN MARKETING AND SALES PERSONNEL.
We have limited experience marketing and selling our products. To sell our
products, we need to train marketing and sales personnel to effectively
demonstrate the advantages of our products over the products offered by our
competitors. The highly technical nature of the products we offer requires that
we retain and attract adequate marketing and sales personnel, and we may have
difficulty doing that in a highly competitive employment market. Also, as part
of our sales and marketing strategy, we enter into arrangements with
distributors and sales representatives and depend upon their efforts to sell our
products. Our arrangements with outside distributors and sales representatives
may not be successful.
IF WE ARE UNABLE TO PROTECT OUR INTELLECTUAL PROPERTY ADEQUATELY, WE COULD LOSE
OUR COMPETITIVE ADVANTAGE IN EACH OF THE INDUSTRY SEGMENTS IN WHICH WE DO
BUSINESS.
Our success depends on establishing and maintaining our intellectual
property rights. If we are unable to protect our intellectual property
adequately, we could lose our competitive advantage in each of the industry
segments in which we do business. Although we try to protect our intellectual
property rights through patents, trademarks, copyrights, trade secrets and other
measures, these steps may not prevent misappropriation by third parties. We have
taken steps to protect our intellectual property rights under the laws of
certain foreign countries, but our efforts may not be effective to the extent
that foreign laws are not as protective as United States laws. In addition, we
face the possibility that third parties might "reverse engineer" our products in
order to determine their method of operation and produce and introduce competing
products.
As our business has expanded, we have emphasized protecting our
technologies and products through patents. Our success depends on maintaining
our patents, adding to them where appropriate, and developing products and
applications without infringing on the patent and proprietary rights of others.
The following risks are involved in protecting our patents:
- our patents may be circumvented or challenged and held unenforceable
or invalid;
- our pending or future patent applications, if any, may not be issued
in a timely manner and may not provide the protections we seek; and
- others may claim rights in the patented and other proprietary
technology that we own or license.
If our patents are invalidated or if it is determined that we, or the
licensor of the patent, does not hold sole rights to the patent, we could lose
our competitive advantage in each of the industry segments in which we do
business.
21
Competing research and patent activity in our product areas is substantial.
Conflicting patent and other proprietary rights claims may result in disputes or
litigation. Although we do not believe that our products or proprietary rights
infringe third party rights, infringement claims could be asserted against us in
the future. Also, we may not be able to stop a third party product from
infringing our proprietary rights without litigation. If we are subject to such
claims, or if we are forced to bring such claims, we could endure
time-consuming, costly litigation resulting in product shipment delays and
possible damage payments or injunctions which prevent us from making, using or
selling the infringing product. We may also be required to enter into royalty or
licensing agreements as part of a judgment or settlement which could have a
negative impact on the amount of revenue derived from our products or
proprietary rights.
WE FACE RISKS ASSOCIATED WITH THE MARKETING, DISTRIBUTION AND SALE OF OUR
PRODUCTS INTERNATIONALLY, AND IF WE ARE UNABLE TO EFFECTIVELY MANAGE THESE
RISKS, IT COULD IMPAIR OUR ABILITY TO GROW OUR BUSINESS ABROAD.
We derive a significant portion of our revenues from sales to customers
located outside the United States. We expect our international sales to continue
to represent a significant and increasing portion of our future revenues. As a
result, our business will continue to be subject to certain risks, such as
foreign government regulations, export controls, changes in tax laws, tax
treaties, tariffs and freight rates. If we are unable to effectively manage
these risks, it could impair our ability to grow our business abroad.
We have only recently established or acquired operations in foreign
countries. Since we are relatively inexperienced in managing our international
operations, we may be unable to focus on the operation and expansion of our
worldwide business and to manage cultural, language and legal differences
inherent in international operations. In addition, to the extent we are unable
to effectively respond to political, economic and other conditions in these
countries, our business, results of operations and financial condition could be
materially adversely affected. Moreover, changes in the mix of income from our
foreign subsidiaries, expiration of tax holidays and changes in tax laws and
regulations could increase our tax rates.
As a result of our international operations, the United States dollar
amount of our revenue and expenses is impacted by changes in foreign currency
exchange rates.
WE MAY FACE DIFFICULTIES IN OBTAINING FOOD AND DRUG ADMINISTRATION APPROVAL FOR
CERTAIN OF OUR PRODUCTS, WHICH COULD PREVENT US FROM MARKETING SUCH PRODUCTS.
Some of our products, such as EMI filters, are subject to the approval
process of the Food and Drug Administration because they are used in or with
medical devices or processes. There are many aspects of the FDA approval process
that could impact our ability to bring our products to market, including the
following:
- the FDA testing and application process is expensive and lengthy, and
varies based on the type of product;
- our products may not ultimately receive FDA approval or clearance;
- the FDA may restrict a product's intended use as a condition to
approving or clearing such product, or place conditions on any
approval that restrict commercial applications of such products;
- the FDA may require post-marketing testing and surveillance to monitor
the effects of products it initially approves; and
- the FDA may withdraw its approval or clearance of any product if
compliance with regulatory standards is not maintained, or if problems
occur following initial marketing.
If we fail to comply with existing or future regulatory requirements we may
face, among other things, fines, injunctions, civil penalties, recall or seizure
of products, total or partial suspension of production, failure of the United
States government to grant pre-market clearance or pre-market approval for
products, withdrawal of marketing clearances or approvals and criminal
prosecution.
22
Although several pacemaker manufacturers have included our EMI filters in
their new pacemaker designs, these products have not yet been approved by the
FDA. We are unable to predict when, if ever, the FDA will approve these products
for commercial sale. We will not generate any significant revenue from these
products until and unless the pacemakers or other products into which they are
incorporated are available for commercial sale.
IF WE ARE UNABLE TO RETAIN KEY PERSONNEL, WE COULD LOSE OUR TECHNOLOGICAL AND
COMPETITIVE ADVANTAGE IN SOME PRODUCT AREAS AND BUSINESS SEGMENTS.
Since we primarily focus on emerging technologies, our success depends upon
the continued service of our key technical and senior management personnel. Some
of our engineers are the key developers of our products and technologies and are
recognized as leaders in their area of expertise. The loss of such engineers to
our competitors could threaten our technological and competitive advantage in
some product areas and business segments.
Our performance also depends on our ability to identify, hire, train,
retain and motivate high quality personnel, especially key operations executives
and highly skilled engineers. The industries in which we compete are
characterized by a high level of employee mobility and aggressive recruiting of
skilled personnel. Our employees may terminate their employment with us at any
time.
IF WE ARE UNABLE TO SECURE QUALIFIED AND ADEQUATE SOURCES FOR OUR MATERIALS,
COMPONENTS AND SUB-ASSEMBLIES WE MAY NOT BE ABLE TO MAKE OUR PRODUCTS AT
COMPETITIVE COSTS AND WE MAY HAVE DIFFICULTY MEETING CUSTOMER DEMAND WHICH COULD
DAMAGE OUR RELATIONSHIPS WITH OUR CUSTOMERS.
Our ability to manufacture products depends in part on our ability to
secure qualified and adequate sources of materials, components and
sub-assemblies at prices that enable us to make our products at competitive
costs. Some of our suppliers are currently the sole source of one or more items
that we need to manufacture our products. Although we seek to reduce our
dependence on sole and limited source suppliers, the partial or complete loss of
these sources could have at least a temporary material effect on our business
and results of operations, and damage customer relationships. On occasion, we
have experienced difficulty in obtaining timely delivery of supplies from
outside suppliers. This has adversely impacted our delivery time to our
customers and there can be no assurance that such supply problems will not
recur.
WE MAY NOT BE ABLE TO OBTAIN A SUFFICIENT AMOUNT OF CAPITAL NEEDED TO GROW OUR
BUSINESS WHICH COULD REQUIRE US TO CHANGE OUR BUSINESS STRATEGY AND RESULT IN
DECREASED PROFITABILITY AND CAUSE A LOSS OF CUSTOMERS.
We believe that in the future we will need a substantial amount of capital
for a number of purposes including the following:
- to meet anticipated volume production requirements for several of our
product lines, in particular our ultracapacitors, which require
high-speed automated production lines to achieve targeted customer
volume and price requirements;
- to expand our manufacturing capabilities and establish viable
production alternatives;
- to fund our continuing expansion into commercial markets;
- to achieve our long-term strategic objectives;
- to maintain and enhance our competitive position; and
- to acquire new or complementary businesses, product lines and
technologies.
There can be no assurance that the necessary additional financing will be
available to us on acceptable terms or at all. If adequate funds are not
available, we may be required to change or delay our planned product
commercialization strategy or our anticipated facilities expenditures which
could result in decreased profitability and cause a loss of customers.
23
WE COULD INCUR SIGNIFICANT LIABILITIES IF WE DO NOT COMPLY WITH THE
ENVIRONMENTAL REGULATIONS APPLICABLE TO OUR OPERATIONS.
We are subject to a variety of environmental regulations relating to the
use, storage, discharge, handling, emission, generation, manufacture and
disposal of toxic or other hazardous substances. If we fail to comply with
current or future regulations, substantial fines could be imposed against us,
our production could be suspended or stopped, or our manufacturing process could
be altered. Such regulations could require us to acquire expensive remediation
or abatement equipment or to incur substantial expenses to comply with
environmental regulations. If we fail to adequately control the use, discharge,
disposal or storage of hazardous or toxic substances, we could incur significant
liabilities.
OUR FINANCIAL CONDITION COULD BE NEGATIVELY AFFECTED IF WE ISSUE ADDITIONAL
STOCK OF OUR SUBSIDIARIES.
We operate our businesses through separate subsidiaries. In the future, we
could engage in public offerings or other sales of the common stock of our
subsidiaries, sales of entire subsidiaries or make strategic acquisitions using
subsidiary stock. For example, our September 2000 acquisition of Gateworks
Corporation was accomplished with a combination of cash and I-Bus/Phoenix stock.
We may use subsidiary stock for future acquisitions if our board of directors
determines that it is in the best interests of our stockholders to do so.
Issuance of additional subsidiary stock could adversely affect our financial
condition and results of operations. For example, any public offering or other
sale of a minority portion of a subsidiary's stock would reduce that
subsidiary's contribution to our net income and earnings per share, and could
reduce our net proceeds if we were to sell that subsidiary.
ANTI-TAKEOVER PROVISIONS IN OUR CERTIFICATE OF INCORPORATION AND BYLAWS COULD
PREVENT TRANSACTIONS WHICH ARE IN THE BEST INTEREST OF OUR STOCKHOLDERS.
Some provisions in our certificate of incorporation could make it more
difficult for a third party to acquire control of Maxwell, even if such change
in control would be beneficial to our stockholders. We have a staggered board of
directors, which means that our directors are divided into three classes. The
directors in each class are elected to serve three-year terms. Since the
three-year terms of each class overlap the terms of the other classes of
directors, the entire board of directors cannot be replaced in any one year.
Furthermore, our certificate of incorporation contains a "fair price provision"
which may require a potential acquirer to obtain the consent of our board to any
business combination involving Maxwell. Our certificate of incorporation and
bylaws do not permit stockholder action by written consent or the calling by
stockholders of a special meeting.
We have adopted a program under which our stockholders have rights to
purchase our stock directly from us at a below-market price if a company or
person attempts to buy us without negotiating with the Board. This program is
intended to encourage a buyer to negotiate with us, but may have the effect of
discouraging offers from possible buyers.
The provisions of our certificate of incorporation and bylaws could delay,
deter or prevent a merger, tender offer, or other business combination or change
in control involving us that some, or a majority, of our stockholders might
consider to be in their best interests. This includes offers or attempted
takeovers that could result in our stockholders receiving a premium over the
market price for their shares of our common stock.
OUR COMMON STOCK EXPERIENCES LIMITED TRADING VOLUME AND OUR STOCK PRICE HAS BEEN
VOLATILE.
Our common stock is traded on the Nasdaq National Market. The trading
volume of our common stock each day is relatively low. This means that sales or
purchases of relatively small blocks of stock can have a significant impact on
the price at which our stock is traded. We believe that factors such as
quarterly fluctuations in financial results, announcements of new technologies
impacting our products, announcements by competitors or changes in securities
analysts' recommendations could cause the price of our stock to fluctuate
substantially. These fluctuations, as well as general economic conditions such
as recessions or higher interest rates, may adversely affect the market price of
our common stock.
24
ITEM 2. PROPERTIES
We conduct our operations in the following major facilities:
APPROXIMATE
LOCATION SQUARE FEET USES LEASED/OWNED
- ---------------------------------------------------- ----------- ------------------------- ------------
MAXWELL ELECTRONIC COMPONENTS GROUP, INC.
San Diego, California(1) 45,500 Manufacturing; R&D; Leased
sales and administration
Carson City, Nevada 25,000 Manufacturing; R&D; Owned
sales and administration
I-BUS/PHOENIX, INC.
San Diego, California 84,500 Manufacturing and Owned
assembly and test; R&D;
sales and administration
Havant, Hampshire, England 12,000 Manufacturing and Leased
assembly and test; R&D;
sales and administration
Uckfield East Sussex, England 11,000 Manufacturing Leased
Munich, Germany 8,900 Assembly and test; sales Leased
and administration
Sophia, France 3,100 Assembly and test; sales Leased
and administration
PUREPULSE TECHNOLOGIES, INC.
San Diego, California 20,000 Administration; R&D Leased
- ---------------
(1) Our corporate offices are also located in this facility.
In addition, we occupy other small sales and research facilities in the
United States and Europe. We also sublease certain other leased facilities to
third parties.
ITEM 3. LEGAL PROCEEDINGS
As of the date of this Form 10-K, we are not engaged in any legal
proceedings that we expect will have a material adverse effect on our business,
financial condition or results of operations.
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.
Approval was obtained on November 21, 2000 with holders of a total of 6,181,940
shares (or 62.7% of the total outstanding on the record date of September 24,
2000) casting votes. Of the shares voted, 4,941,147 shares, or 50.1% of the
total outstanding on the record date, were voted in favor of the amendment;
1,167,933 shares, or 11.8% of the total outstanding on the record date, were
voted against the amendment; and 72,860 shares, or 0.7% of the total outstanding
on the record date, were cast to abstain.
25
ITEM 4.1 EXECUTIVE OFFICERS OF THE REGISTRANT
The Executive officers of the Company are set forth below. The Company's
officers serve at the pleasure of the Board of Directors.
NAME AGE POSITION
- -------------------- ---- ----------------------------------------------------------------------
Carlton J. Eibl 40 President, Chief Executive Officer and Director. Mr. Eibl was
appointed a director in July 1998 and named chief executive officer
and president in November 1999. From February 1999 until he formally
joined us on December 1, 1999, Mr. Eibl served as president and chief
operating officer of Stratagene Corporation, a privately-held
biotechnology company. Mr. Eibl previously held various executive
positions with Mycogen Corporation, a publicly-held diversified
agribusiness and biotechnology company. Mr. Eibl joined Mycogen in
1993 as executive vice president and general counsel. In 1995, he
was appointed president and chief operating officer of Mycogen and in
1997 he became chief executive officer. The Dow Chemical Company
acquired Mycogen at the end of 1998.
Richard D. Balanson 51 Vice President, President of Maxwell Electronic Components Group,
Inc. Mr. Balanson is corporate vice president and president of
Maxwell Electronic Components Group, Inc. From 1996 until joining
Maxwell in August 1999, Mr. Balanson was the president and chief
operating officer for 3D Systems, a California-based manufacturer of
rapid prototyping equipment. From 1994 to 1996, Mr. Balanson was the
general manager and executive vice president of Maxtor Corporation,
and before that was president and chief operating officer of Applied
Magnetics Corporation.
Vickie L. Capps 39 Vice President, Finance and Administration, Treasurer and Chief
Financial Officer. Ms. Capps served Wavetek Wandel Golterman, Inc.
as group controller from 1992 through 1994, vice president, corporate
finance from 1994 through 1996 and then chief financial officer from
1996 through 1999, prior to joining Maxwell in July 1999.
Previously, she spent 10 years with the firm of Ernst & Young LLP.
Donald M. Roberts 52 Vice President, General Counsel and Secretary. Mr. Roberts has
served as general counsel since joining us in April 1994, and was
appointed secretary in June 1996 and vice president in January 1999.
For more than five years prior to that, Mr. Roberts was a shareholder
of the law firm of Parker, Milliken, Clark, O'Hara & Samuelian, a
Professional Corporation, and a partner of the predecessor law
partnership, and in that capacity had served as our outside legal
advisor for more than ten years.
Ted Toch 52 Vice President, President of PurePulse Technologies, Inc. Mr. Toch
joined us in June 1998 as corporate vice president and president of
PurePulse Technologies, Inc. Prior to joining PurePulse Technologies
he was vice president of marketing and sales for Johnson & Johnson's
Advanced Sterilization Products Division from 1993 to 1998 with
earlier experience as vice-president and general manager of the
Instruments Division of Nellcor, Inc.
26
John D. Werderman 54 Vice President, President of I-Bus/Phoenix, Inc. Mr. Werderman was
named corporate vice president and president of I-Bus/Phoenix, Inc.
in July 1997. Previously, Mr. Werderman served as chief operating
officer of Maxwell Technologies Systems Division, Inc. Prior to
joining Maxwell in October 1996, Mr. Werderman worked for M/A.COM,
Inc. for over 15 years, most recently as President and General
Manager of their Baltimore, Maryland operation, M/A.COM Government
Products, Inc.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Our common stock has been quoted on the Nasdaq National Market under the
symbol "MXWL" since 1983. The following table sets forth the high and low sale
prices per share of our common stock as reported on the Nasdaq National Market
for the periods indicated.
HIGH LOW
------- -------
CALENDAR YEAR ENDED DECEMBER 31, 1999 (1) First Quarter............. $39.625 $22.000
Second Quarter............ 24.250 18.188
Third Quarter............. 30.688 11.750
Fourth Quarter............ 12.875 7.875
CALENDAR YEAR ENDED DECEMBER 31, 2000 First Quarter............. $17.000 $10.250
Second Quarter............ 16.922 10.563
Third Quarter............. 19.063 13.875
Fourth Quarter............ 17.500 13.813
(1) We changed our fiscal year to a calendar year effective January 1, 2000. We
previously reported results on a fiscal year of August 1 through July 31.
The last reported sale price of common stock on the Nasdaq National market
on March 15, 2001, was $19.43 per share. As of December 31, 2000, there were 513
holders of record of the Company's Common Stock.
We currently anticipate that any earnings will be retained for the
development and expansion of our business and, therefore, we do not anticipate
paying dividends on our Common Stock in the foreseeable future. In addition,
under our bank credit agreement, neither we nor any of our subsidiaries may,
directly or indirectly, pay any cash dividends to our stockholders.
27
ITEM 6. SELECTED FINANCIAL DATA
The following selected consolidated statement of operations data for the
fiscal years ended July 31, 1996 and 1997 and consolidated balance sheet data as
of July 31, 1996, 1997, 1998 and 1999 are derived from audited consolidated
financial statements of the Company not included in this Form 10-K. The
following selected consolidated statement of operations data for the fiscal
years ended July 31, 1998 and 1999, the five months ended December 31, 1999 and
the fiscal year ended December 31, 2000, and consolidated balance sheet data as
of December 31, 1999 and December 31, 2000 are derived from the Consolidated
Financial Statements of the Company and Notes thereto included herein, which
have been audited by Ernst & Young LLP, independent auditors. All selected
consolidated financial data presented has been restated to reflect certain
businesses divested and to be divested by the Company as discontinued
operations. The following selected data should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Consolidated Financial Statements" appearing elsewhere in this
Form 10-K.
YEARS ENDED JULY 31,
------------------------------------------------
1996 1997 1998 1999
--------- --------- --------- ---------
CONSOLIDATED STATEMENT OF
OPERATIONS DATA: (IN THOUSANDS, EXCEPT PER SHARE DATA)
Continuing Operations:
Sales ...................................................... $ 42,565 $ 63,736 $ 78,014 $ 102,878
Cost of sales .............................................. 30,150 36,734 48,570 70,044
--------- --------- --------- ---------
Gross profit ............................................... 12,415 27,002 29,444 32,834
Operating expenses:
Selling, general and administrative .................... 14,421 14,608 18,901 26,070
Research and development ............................... 1,913 3,014 5,823 6,779
Restructuring, acquisition and other charges ........... 1,202 -- 3,889 2,620
--------- --------- --------- ---------
Total operating expenses .......................... 17,536 17,622 28,613 35,469
--------- --------- --------- ---------
Operating income (loss) .................................... (5,121) 9,380 831 (2,635)
Interest expense ........................................... (368) (220) (338) (404)
Interest income and other, net ............................. 44 194 1,343 565
--------- --------- --------- ---------
Income (loss) from continuing operations before income
taxes, minority interest and cumulative effect of change
in accounting principle ................................ (5,445) 9,354 1,836 (2,474)
Provision (credit) for income taxes ........................ 1,738 1,473 413 (6,417)
Minority interest in net income (loss) of subsidiaries ..... -- -- -- 4
--------- --------- --------- ---------
Income (loss) from continuing operations ................... (7,183) 7,881 1,423 3,939
Discontinued operations, net of tax:
Income (loss) from operations .............................. (6,239) (1,374) (3,130) 7,129
Gain (provision for estimated loss) on disposal ............ -- -- -- --
--------- --------- --------- ---------
(6,239) (1,374) (3,130) 7,129
Cumulative effect of change in accounting principle ............. 564 -- -- --
--------- --------- --------- ---------
Net income (loss) ............................................... $ (13,986) $ 6,507 $ (1,707) $ 11,068
========= ========= ========= =========
Basic net income (loss) per share:
Income (loss) from continuing operations ................... $ (1.13) $ 1.16 $ 0.17 $ 0.42
Income (loss) from discontinued operations ................. (0.98) (0.20) (0.37) 0.76
Cumulative effect of change in accounting principle ........ (0.09) -- -- --
--------- --------- --------- ---------
Basic net income (loss) per share ............................... $ (2.20) $ 0.96 $ (0.20) $ 1.18
========= ========= ========= =========
Diluted net income (loss) per share:
Income (loss) from continuing operations ................... $ (1.13) $ 1.06 $ 0.16 $ 0.40
Income (loss) from discontinued operations ................. (0.98) (0.19) (0.35) 0.72
Cumulative effect of change in accounting principle ........ (0.09) -- -- --
--------- --------- --------- ---------
Diluted net income (loss) per share ............................. $ (2.20) $ 0.87 $ (0.19) $ 1.12
========= ========= ========= =========
FIVE MONTHS
ENDED YEARS ENDED DECEMBER 31,
DECEMBER 31, ------------------------
1999 1999 2000
------------ --------- -----------
(UNAUDITED)
CONSOLIDATED STATEMENT OF
OPERATIONS DATA: (IN THOUSANDS, EXCEPT PER SHARE DATA)
Continuing Operations:
Sales ...................................................... $ 36,863 $ 103,611 $ 102,347
Cost of sales .............................................. 28,322 74,525 79,472
--------- --------- ---------
Gross profit ............................................... 8,541 29,086 22,875
Operating expenses:
Selling, general and administrative .................... 12,204 27,501 26,260
Research and development ............................... 2,618 6,363 8,713
Restructuring, acquisition and other charges ........... 2,801 5,267 9,220
--------- --------- ---------
Total operating expenses .......................... 17,623 39,131 44,193
--------- --------- ---------
Operating income (loss) .................................... (9,082) (10,045) (21,318)
Interest expense ........................................... (112) (331) (1,430)
Interest income and other, net ............................. (29) 501 9
--------- --------- ---------
Income (loss) from continuing operations before income
taxes, minority interest and cumulative effect of change
in accounting principle ................................ (9,223) (9,875) (22,739)
Provision (credit) for income taxes ........................ (3,408) (9,925) (6,267)
Minority interest in net income (loss) of subsidiaries ..... -- 4 (181)
--------- --------- ---------
Income (loss) from continuing operations ................... (5,815) 46 (16,291)
Discontinued operations, net of tax:
Income (loss) from operations .............................. (5,211) 1,766 (2,880)
Gain (provision for estimated loss) on disposal ............ (2,065) (2,065) 2,854
--------- --------- ---------
(7,276) (299) (26)
Cumulative effect of change in accounting principle ............. -- -- --
--------- --------- ---------
Net income (loss) ............................................... $ (13,091) $ (253) $ (16,317)
========= ========= =========
Basic net income (loss) per share:
Income (loss) from continuing operations ................... $ (0.61) $ -- $ (1.66)
Income (loss) from discontinued operations ................. (0.76) (0.03) --
Cumulative effect of change in accounting principle ........ -- -- --
--------- --------- ---------
Basic net income (loss) per share ............................... $ (1.37) $ (0.03) $ (1.66)
========= ========= =========
Diluted net income (loss) per share:
Income (loss) from continuing operations ................... $ (0.61) $ -- $ (1.66)
Income (loss) from discontinued operations ................. (0.76) (0.03) (0.01)
Cumulative effect of change in accounting principle ........ -- -- --
--------- --------- ---------
Diluted net income (loss) per share ............................. $ (1.37) $ (0.03) $ (1.67)
========= ========= =========
JULY 31, DECEMBER 31,
----------------------------------------- -------------------
1996 1997 1998 1999 1999 2000
-------- -------- -------- -------- ------- --------
(UNAUDITED)
CONSOLIDATED BALANCE SHEET DATA: (IN THOUSANDS)
Total assets ................... $ 40,295 $ 47,315 $100,200 $113,486 $ 98,151 $122,109
Cash and cash equivalents ...... 1,015 1,326 20,934 7,948 2,885 2,686
Short-term debt ................ -- -- -- -- -- 22,754
Long-term debt, including
current portion ............. 2,193 1,762 2,462 3,688 474 --
Stockholders' equity at year-end 23,243 32,617 80,153 97,168 84,416 69,754
Shares outstanding at year-end . 6,513 6,969 9,210 9,557 9,564 9,877
28
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
We apply industry-leading capabilities in power and computing to develop
and commercialize electronic components and power and computing systems for OEM
customers in multiple industries, including transportation, telecommunications,
consumer and industrial electronics, medical and aerospace.
In December 1999, we adopted a plan to restructure our operations. This
restructuring plan:
- consolidated certain commercial business operations and improved their
manufacturing and other operational capabilities;
- focused our defense contracting business on pulsed power systems and
computer-based analysis for government and national laboratories;
- focused the application of PureBright broad-spectrum pulsed light
technology on bioprocessing, medical and consumer water markets; and
- provided for the sale of certain non-strategic business operations.
The goal of the restructuring plan was to create a product-driven,
high-growth company and to improve operating results by the fourth quarter of
calendar year 2000. Since January 2000, we have recruited more than 50 key
managers with extensive commercial experience in engineering, manufacturing,
material procurement, supply chain management, information technology, financial
controls and sales and marketing. We have also invested over $11 million to
build and outfit state-of-the-art production facilities, including information
technology infrastructure, and implement new manufacturing and business
processes and systems to increase our production capacity and improve efficiency
and product quality. We experienced significant change in the early part of 2000
as part of our efforts to achieve the objectives of the restructuring plan on
schedule. We made significant progress and essentially completed our facilities
and organizational consolidation program in October 2000.
As part of the restructuring plan, we combined our high reliability
electronic components businesses, including our PowerCache ultracapacitors, EMI
filtered feedthroughs and other ceramic capacitor products, and
radiation-shielded microelectronics, into a single commercial, high reliability
electronic components group. We also combined our applied computing systems
business and our power quality systems business. We focused our defense
contracting business on pulsed power systems and computer-based analysis for
government and national laboratories and expect to sell this part of our
business by the end of March 2001. We focused PurePulse on significant
opportunities in the application of our PureBright technology to pathogen
inactivation in medical and bioprocessing markets and to consumer water
applications. We are now exploring strategic alternatives for PurePulse, which
we expect will result in the sale of all or a majority interest in the business
in 2001. Finally, in calendar year 2000, we sold our businesses involving high
voltage wound film capacitors, high voltage power supplies and time card and job
cost accounting software. All financial information contained in this Form 10-K
has been restated for all periods presented to reflect our defense contracting
and PurePulse businesses, as well as the businesses divested in 2000, as
discontinued operations.
Our Electronic Components Group and I-Bus/Phoenix power and computing
systems business generate all of our revenues from continuing operations. We are
currently investing in our PurePulse operations to develop broad-spectrum pulsed
light pathogen inactivation systems. This investment will continue until such
time as we complete a strategic transaction for the business.
29
We generate substantially all of our revenue from continuing operations
from the sale of commercial products. From time to time, we also generate
revenue from licensing technology and other rights to strategic partners. Sales
and marketing for our products in the United States, Europe and Asia are
conducted through both direct and indirect sales channels. We conduct marketing
programs intended to position and promote our products, including trade shows,
seminars, advertising, public relations, distribution of product literature and
websites on the Internet. Our ability to maintain and grow our sales depends on
a variety of factors including our ability to maintain our competitive position
in areas such as technology, performance, price, brand identity, quality,
reliability, distribution, customer service and support. Our sales growth also
depends on our ability to continue to introduce new products that respond to
technological change, competitive pricing pressure and market demand in a timely
manner.
Our operating expenses are impacted by research and product development and
selling, general and administrative activities. Selling expenses are primarily
driven by:
- sales volume, with respect to sales force expenses and commission
expenses;
- the extent of market research activities for new product design
efforts;
- advertising and trade show activities; and
- the number of new products launched in the period.
General and administrative expenses primarily include costs associated with
our administrative employees, facilities and functions.
We incur expenses in foreign countries primarily in the functional
currencies of such locations. As a result of our international operations,
changes in foreign currency exchange rates impact the United States dollar
amount of our revenue and expenses.
In 1999, we changed our fiscal year to a calendar year effective January 1,
2000. We previously reported results on a fiscal year of August 1 through July
31.
BUSINESS SEGMENTS
Our continuing operations are comprised of the following two business
segments.
ELECTRONIC COMPONENTS GROUP
As part of the restructuring plan, we organized the Electronic Components
Group by combining numerous business units and product lines including our
PowerCache ultracapacitors, EMI filtered feedthroughs, ceramic capacitors and
our radiation-shielded microelectronics. In October 2000, we integrated the
PowerCache ultracapacitor operations and the radiation-shielded microelectronics
operations into one new manufacturing site in San Diego. Our EMI filters and
ceramic capacitors are manufactured at our facility in Carson City, Nevada,
which was redesigned in 2000. Both facilities were designed for highly efficient
manufacturing, with improved processes, improved personnel training and more
disciplined cost control practices.
The Electronic Components Group consists primarily of the following power
delivery and other high reliability devices product lines:
- ultracapacitors for electrical energy storage and delivery of peak
power for a variety of applications;
- EMI filtered feedthroughs for cardiac pacemakers, defibrillators and
other implantable medical devices and high temperature ceramic
capacitors and filters used in oil exploration; and
- radiation-shielded microelectronics, including integrated circuits,
power modules and single board computers for space and military
markets.
30
I-BUS/PHOENIX POWER AND COMPUTING SYSTEMS
As part of our restructuring plan, we integrated our I-Bus, Inc. and
Phoenix Power Systems, Inc. subsidiaries. The I-Bus/Phoenix organization has
operations in the U.S., Europe and Asia. The new I-Bus/Phoenix operation is
focused on providing high availability custom computing systems and power
quality products. As part of the restructuring plan, we combined the San Diego
operations of these two businesses into a single facility in October 2000. The
new facility has been designed for highly efficient manufacturing, with improved
processes, improved personnel training and more disciplined cost control
practices.
Our current I-Bus/Phoenix product offerings include applied computing
systems, power distribution systems and power conditioning units. We sell our
products mainly to OEMs serving the telecommunications and Internet
infrastructure, industrial automation, broadcasting and medical imaging markets.
We have classified the following business segment as a discontinued
operation for financial reporting purposes.
PUREPULSE
PurePulse designs and develops systems that generate extremely intense,
broad-spectrum, pulsed light to inactivate viruses and other pathogens that
contaminate products sourced from human or animal tissues, such as plasma
derivatives, transfusion blood components and biopharmaceuticals, and in the
production of vaccines. PurePulse also is developing systems to purify water. We
are exploring strategic alternatives for PurePulse, which we expect will result
in the sale of all or a majority interest in the business in 2001.
RESULTS OF OPERATIONS
COMPARISON AND DISCUSSION OF RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED
DECEMBER 31, 2000 AND THE THREE MONTHS ENDED SEPTEMBER 30, 2000.
The following table sets forth our selected data, expressed as a percentage
of sales, for the three months ended December 31, 2000, compared to the three
months ended September 30, 2000. The three months ended December 31, 2000 was
the first quarter of operations in our new facilities following the completion
of the restructuring plan.
THREE MONTHS ENDED
--------------------------------------
SEPTEMBER 30, 2000 DECEMBER 31, 2000
------------------ -----------------
Continuing Operations:
Sales........................................................ 100.0% 100.0%
Cost of sales................................................ 95.2 75.6
------------------ -----------------
Gross profit................................................. 4.8 24.4
Operating expenses:
Selling, general and administrative........................ 31.4 18.2
Research and development................................... 10.8 9.6
Restructuring, acquisition and other charges............... 34.8 --
------------------ -----------------
Total operating expenses................................. 77.0 27.8
------------------ -----------------
Operating loss............................................... (72.2) (3.4)
Interest expense............................................. (1.7) (3.2)
Interest income and other, net............................... (0.5) 0.3
------------------ -----------------
Loss from continuing operations before income taxes and
minority interest.......................................... (74.4) (6.3)
Credit for income taxes...................................... (17.5) (2.4)
Minority interest in net loss of subsidiaries................ -- (0.7)
------------------ -----------------
Loss from continuing operations.............................. (56.9) (3.2)
Discontinued operations, net of tax:
Loss from operations......................................... (3.0) (1.9)
Gain on disposal............................................. -- 5.1
------------------ -----------------
Net income (loss)............................................... (59.9)% --%
================== =====================
31
The following table sets forth sales, gross profit (loss) and gross profit
as a percentage of sales for each of our business segments.
THREE MONTHS ENDED
--------------------------------------------
SEPTEMBER 30, 2000 DECEMBER 31, 2000
--------------------- -------------------
(dollar amounts in thousands)
Electronic Components Group:
Sales............................................... $ 8,525 $12,234
Gross profit........................................ 1,634 4,157
Gross profit as a percentage of sales............... 19.2% 34.0%
I-Bus/Phoenix Power and Computing Systems:
Sales............................................... $ 13,146 $15,208
Gross profit (loss)................................. (594) 2,535
Gross profit as a percentage of sales............... N/A 16.7%
Consolidated (from continuing operations):
Sales............................................... $ 21,671 $27,442
Gross profit........................................ 1,040 6,692
Gross profit as a percentage of sales............... 4.8% 24.4%
Following the completion of the restructuring plan, we achieved
significantly higher sales from continuing operations and improved operating
results in the three months ended December 31, 2000, or the fourth quarter, as
compared to the three months ended September 30, 2000, or the third quarter. A
discussion of these improved quarterly results from continuing operations
follows.
SALES
Sales for the fourth quarter were $27.4 million, reflecting a $5.7 million,
or 26.6%, increase from sales of $21.7 million for the third quarter. Sales in
the fourth quarter in the I-Bus/Phoenix power and computing systems segment
increased by $2.1 million, or 15.7%, from sales in the third quarter, driven
primarily by increased sales of power quality products made possible by the
increased manufacturing capacity available in the new facility. We expect sales
in this segment to continue to increase in 2001, reflecting the contribution of
sales of products acquired in connection with the acquisition of Gateworks
Corporation, as well as the contribution of sales from new applied computing
products, the first of which were introduced in the first quarter of 2001. We
expect to introduce additional applied computing products in 2001.
Sales in the fourth quarter in the Electronic Components Group segment
increased by $3.7 million, or 43.5%, from sales in the third quarter,
representing increased sales in all product lines of the Electronic Components
Group segment. The increase in sales was largely attributable to increased
production capacity in these business areas in their new or redesigned
facilities. Sales of PowerCache ultracapacitors also increased due to shipments
made during the fourth quarter in connection with our supply agreement with the
Allison Transmission division of General Motors Corporation.
GROSS PROFIT
In the fourth quarter, our gross profit was $6.7 million, or 24.4% of
sales, compared to $1.0 million, or 4.8% of sales, in the third quarter. The
improvement in gross profit is attributable partly to increased sales volume in
the fourth quarter and partly to the fact that $2.1 million of valuation
adjustments to inventories and other costs of goods sold variances in the power
quality product lines of I-Bus/Phoenix were recorded to cost of sales in the
third quarter, which did not recur in the fourth quarter. In addition, we wrote
off certain inventories in the third quarter related to decisions made to
discontinue certain product lines. We also had a higher margin mix of product
sales in the fourth quarter in the microelectronics product lines of our
Electronic Components Group segment. We began to realize the gross margin
benefits of reduced overhead expenses in the fourth quarter of 2000 when we
began to occupy our new and redesigned manufacturing facilities.
32
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
In the fourth quarter, our selling, general and administrative expenses
decreased $1.8 million, or 26.6%, to $5.0 million from $6.8 million in the third
quarter. As a percentage of total sales these expenses decreased to 18.2% in the
fourth quarter, from 31.4% in the third quarter, primarily due to the increase
in sales volume. These expenses in the fourth quarter reflect certain year-end
adjustments to accrued expenses, which reduced total selling, general and
administrative expenses. While we are continuing to focus on opportunities to
decrease our selling, general and administrative expenses, we expect the level
of such expenses in future quarters to more closely approximate the amount of
such expenses in the third quarter.
RESEARCH AND DEVELOPMENT EXPENSES
Our research and development expenses reflect internally funded research
and development programs. Research and development expenses were $2.6 million,
or 9.6% of sales, for the fourth quarter, as compared to $2.3 million, or 10.8%
of sales, for the third quarter. We have increased the level of spending in
research and development to accelerate new product introductions and we expect
our level of spending to remain at increased levels, as a percentage of sales,
in future periods.
RESTRUCTURING, ACQUISITION AND OTHER CHARGES
In connection with our restructuring plan, we undertook various actions to
improve our cost structure. As a result, we recorded restructuring and other
related charges of $2.3 million during the third quarter. These charges included
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. In the third quarter, we also recorded a charge
of $4.8 million to reduce the carrying value of goodwill related to our 1998
acquisition of Phoenix Power Systems, Inc. to an amount representative of the
current appraised value of that asset. Also, in the third quarter, we recorded a
charge of $0.5 million related to in-process technology acquired in connection
with our acquisition of Gateworks Corporation in September 2000. We have
completed the facilities and organizational consolidation program started as
part of our restructuring plan, and therefore, we did not record any additional
charges related to the restructuring plan in the fourth quarter and we do not
expect to incur any such additional charges in the future.
OPERATING LOSS
As a result of the factors mentioned above, the operating loss was $0.9
million for the fourth quarter as compared to an operating loss of $15.6 million
for the third quarter. Excluding restructuring, acquisition and other charges,
operating loss was $0.9 million for the fourth quarter as compared to $8.1
million for the third quarter.
33
COMPARISON AND DISCUSSION OF RESULTS OF OPERATIONS FOR THE YEARS ENDED
DECEMBER 31, 2000 AND 1999, THE FIVE MONTHS ENDED DECEMBER 31, 1999, AND THE
FISCAL YEARS ENDED JULY 31, 1999 AND 1998
The following table sets forth, for the periods indicated, our selected
operating data, expressed as a percentage of sales.
YEARS ENDED FIVE MONTHS YEARS ENDED
JULY 31, ENDED DECEMBER 31,
--------------------------- DECEMBER 31, ---------------------------
1998 1999 1999 1999 2000
----------- ----------- ----------- ---------- ------------
Continuing Operations:
Sales.......................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales.................................. 62.2 68.1 76.8 71.9 77.7
----------- ----------- ----------- ---------- ------------
Gross profit................................... 37.8 31.9 23.2 28.1 22.3
Operating expenses:
Selling, general and administrative.......... 24.2 25.3 33.1 26.5 25.7
Research and development..................... 7.5 6.6 7.1 6.2 8.5
Restructuring, acquisition and other charges. 5.0 2.6 7.6 5.1 8.9
----------- ----------- ----------- ---------- ------------
Total operating expenses................... 36.7 34.5 47.8 37.8 43.1
----------- ----------- ----------- ---------- ------------
Operating income (loss)........................ 1.1 (2.6) (24.6) (9.7) (20.8)
Interest expense............................... (0.5) (0.4) (0.3) (0.3) (1.4)
Interest income and other, net................. 1.7 0.6 (0.1) 0.5 --
----------- ----------- ----------- ---------- ------------
Income (loss) from continuing operations before
income taxes and minority interest........... 2.3 (2.4) (25.0) (9.5) (22.2)
Provision (credit) for income taxes............ 0.5 (6.3) (9.2) (9.6) (6.1)
Minority interest in net loss of subsidiaries.. -- -- -- -- (0.2)
----------- ----------- ----------- ---------- ------------
Income (loss) from continuing operations....... 1.8 3.9 (15.8) 0.1 (15.9)
Discontinued operations, net of tax:
Income (loss) from operations.................. (4.0) 6.9 (14.1) 1.7 (2.8)
Gain (provision for estimated loss) on disposal -- -- (5.6) (2.0) 2.8
----------- ----------- ----------- ---------- ------------
Net income (loss)................................. (2.2)% 10.8% (35.5)% (0.2)% (15.9)%
=========== =========== =========== ========== ============
The following table sets forth sales, gross profit and gross profit as a
percentage of sales for each of our continuing business segments.
YEARS ENDED FIVE MONTHS YEARS ENDED
JULY 31, ENDED DECEMBER 31,
---------------------------- DECEMBER 31, ---------------------------
1998 1999 1999 1999 2000
------------ ----------- ---------- ------------ -----------
(dollar amounts in thousands)
Electronic Components Group:
Sales....................................... $35,166 $ 37,783 $ 9,143 $ 29,336 $ 39,139
Gross profit................................ 14,884 12,415 543 6,238 11,146
Gross profit as a percentage of sales....... 42.3% 32.9% 5.9% 21.3% 28.5%
I-Bus/Phoenix Power and Computing Systems:
Sales....................................... $42,848 $ 65,095 $ 27,720 $ 74,275 $ 63,208
Gross profit................................ 14,560 20,419 7,998 22,848 11,729
Gross profit as a percentage of sales....... 34.0% 31.4% 28.9% 30.8% 18.6%
Consolidated (from continuing operations):
Sales....................................... $78,014 $ 102,878 $ 36,863 $103,611 $102,347
Gross profit................................ 29,444 32,834 8,541 29,086 22,875
Gross profit as a percentage of sales....... 37.7% 31.9% 23.2% 28.1% 22.3%
34
SALES
Sales from continuing operations for the year ended December 31, 2000 were
$102.3 million, reflecting a $1.3 million, or 1.2%, decrease from sales of
$103.6 million for the year ended December 31, 1999. The decrease in sales from
the prior year is primarily the result of the conclusion of a major
I-Bus/Phoenix supply agreement during the current year, as well as the
elimination of revenue from licensing and strategic transactions, which made a
contribution to revenue in the prior year, offset by increases in sales in the
current year in our Electronic Components Group segment. The major supply
agreement contributed sales of $8.6 million in the year ended December 31, 2000,
compared to sales of $19.3 million in 1999. Sales in the year ended December 31,
1999 included contributions from licensing and strategic transactions of $1.0
million, which contributed no sales revenue in the current year. Excluding sales
from the major supply agreement and from licensing and strategic transactions,
sales in the year ended December 31, 2000 were $93.7 million, a $10.4 million,
or 12.5%, increase over sales of $83.3 million for the year ended December 31,
1999.
In the five months ended December 31, 1999, sales totaled $36.9 million. In
the fiscal year ended July 31, 1999, total sales were $102.9 million, an
increase of $24.9 million, or 31.9%, from $78.0 million in fiscal year 1998.
Sales in the five months ended December 31, 1999 were negatively impacted by
reduced revenues from licensing and strategic transactions and by economic
issues facing certain customers in the commercial satellite and oil markets.
Sales in the fiscal year ended July 31, 1999 increased over the fiscal year
ended July 31, 1998 in each of our business segments.
Sales to customers outside of the United States totaled $25.8 million and
$25.3 million in the calendar years ended December 31, 2000 and 1999,
respectively, and $10.7 million, $24.0 million and $14.8 million in the five
months ended December 31, 1999 and in the fiscal years ended July 31, 1999 and
1998, respectively. Expansion of our applied computing business in Germany and
France and the contribution of sales from our United Kingdom applied computing
operation, which was acquired in fiscal year 1998, are the primary drivers for
the increased foreign sales beginning in the fiscal year ended July 31, 1999.
Sales within each of our continuing business segments is as follows:
ELECTRONIC COMPONENTS GROUP. For the year ended December 31, 2000, sales in
the Electronic Components Group segment increased $9.8 million, or 33.4%, to
$39.1 million from $29.3 million for the year ended December 31, 1999. Sales
increased in all product lines of the Electronic Components Group segment during
2000, including a $6.9 million increase in sales in our microelectronics product
lines to customers in the commercial satellite market. Sales in our PowerCache
ultracapacitor product lines also increased in 2000, despite a $1.0 million
decrease in revenue received from technology license agreements, due primarily
to shipments made during the fourth quarter in connection with our supply
agreement with the Allison Transmission division of General Motors Corporation.
In the five months ended December 31, 1999, Electronic Components Group
sales totaled $9.1 million, representing lower average monthly sales volumes
than those achieved in the fiscal year ended July 31, 1999. The decrease in
sales in the five months ended December 31, 1999 is partly attributable to the
fact that no revenue was received in the five months ended December 31, 1999
from technology licenses and other collaborative agreements, while $3.7 million
of such revenue was received in the fiscal year ended July 31, 1999 in the
PowerCache ultracapacitor product lines. In addition, revenues from customers of
our microelectronic components product lines in the commercial satellite market
decreased in the five months ended December 31, 1999 due to economic issues
affecting such customers. Also, over-stock issues at our primary filtered
feedthrough customer and weakness in oil and space markets resulted in decreased
sales of our filtered feedthroughs and ceramic capacitors late in 1999. In the
fiscal year ended July 31, 1999, Electronic Components Group sales increased
$2.6 million, to $37.8 million from $35.2 million in the fiscal year ended
July 31, 1998. Sales of our filtered feedthroughs and ceramic capacitors
contributed to this sales increase due partly to the acquisition of a small
manufacturer of ceramic capacitors used in a variety of high-voltage
applications, including commercial space, defense and medical equipment,
which was combined with the ceramic capacitor product lines in our Carson
City, Nevada facility. Partially offsetting the increased product sales,
revenue from licenses and collaborative agreements decreased to $3.7 million
in the fiscal year ended July 31, 1999 from $7.3 million in the fiscal year
ended July 31, 1998.
35
I-BUS/PHOENIX POWER AND COMPUTING SYSTEMS. For the year ended December 31,
2000, I-Bus/Phoenix sales decreased $11.1 million, or 14.9%, to $63.2 million
from sales of $74.3 million for the year ended December 31, 1999. For the year
ended December 31, 2000, foreign sales represented 34% of our total sales in
this segment compared to 32% for the year ended December 31, 1999. Domestic
sales in this segment are made principally to OEM customers and are primarily
derived from the shipment of power and computing systems that are "designed-in"
to the OEMs' products. Beginning in 1998, we strengthened the international
presence of this segment through the acquisition of applied computing businesses
in England and Germany and through the inception of operations in France. To
date, these European businesses have focused primarily on lower-priced standard
products.
The decrease in sales for the year ended December 31, 2000 is primarily
attributable to a decline in revenues from our OEM supply agreement with Siemens
ElectroCom L.P. and the United States Postal Service, which concluded in the
third quarter of 2000 and was winding down during 2000. This supply agreement
contributed sales of $8.6 million in the year ended December 31, 2000, compared
to sales of $19.3 million in 1999. Excluding sales from this supply agreement,
sales for this segment in 2000 were $54.6 million, or approximately the same as
sales of $55.0 million for 1999. Excluding the major supply agreement, sales
decreased in the applied computing product lines of this segment during the
current year due primarily to the phase-out of certain marginal older technology
product lines without a comparable contribution in the current year from new
products, which were introduced beginning in the first quarter of 2001.
Offsetting reduced applied computing sales, sales within the power quality
product lines of this segment increased during the current year.
In the five months ended December 31, 1999, sales in this segment totaled
$27.7 million. In the fiscal year ended July 31, 1999, I-Bus/Phoenix sales
increased $22.3 million, or 51.9%, to $65.1 million from $42.8 million in the
fiscal year ended July 31, 1998. The increase in sales in the fiscal year ended
July 31, 1999, was partly attributable to an increase in European sales due to
the expansion of our applied computing businesses in Germany and France and the
contribution of sales from our United Kingdom applied computing operation, which
was acquired in the fiscal year ended July 31, 1998. In addition, sales
increased in the fiscal year ended July 31, 1999 in both the segment's power
quality product lines, following the February 1998 acquisition of Phoenix Power
Systems, Inc., and its applied computing product lines due to new design-in wins
for customized OEM products, including the major supply agreement with Siemens
ElectroCom L.P. and the United States Postal Service. Partially offsetting these
increases was the completion in the second quarter of the fiscal year ended July
31, 1998 of sales to a single, long-standing OEM customer under a multi-year
program and the curtailment at the end of the fiscal year ended July 31, 1998 of
a program with Digital Equipment Corporation due to its acquisition by Compaq
Computers.
While this segment does market certain standard products, and the segment
continues to expand its presence in Europe, sales under large OEM programs
remain a critical element of this business. As a current enhancement of our
marketing strategy, we have engaged a network of independent sales
representatives in the United States and certain territories outside of the
United States with the dual aim of generating direct sales, as well as leads for
additional OEM design-in opportunities. In addition, the recent integration of
our applied computing and power quality businesses should improve the
international sales of the power quality products and services by providing
access to the segment's existing international sales channels to those product
lines. If sales of OEM products do not achieve the levels projected by the OEM,
or if OEM projects are curtailed due to consolidations or other market
conditions, we may be unable to offset such loss of sales.
GROSS PROFIT
In the year ended December 31, 2000, our gross profit was $22.9 million, or
22.3% of sales, compared to $29.1 million, or 28.1% of sales, in the year ended
December 31, 1999. Gross profit and gross profit as a percentage of sales were
negatively impacted in the year ended December 31, 2000 by reduced sales volume
in the year, primarily during the third quarter of 2000, which was inadequate to
fully absorb fixed manufacturing costs. In addition, the reduced gross profit in
the current year reflects costs incurred in the current year in connection with
training personnel in improved manufacturing processes and certain write-offs of
inventories related to discontinued product lines or deemed excess or obsolete.
In the five months ended December 31, 1999, our gross profit was $8.5
million, or 23.2% of sales, a substantial decrease from prior years. Reduced
sales volumes, decreases in high margin revenues from licenses and other
collaborative agreements, and certain write-offs of inventories determined to be
excess or obsolete were the primary reasons for the reduced gross margins during
the five months ended December 31, 1999.
36
In the fiscal year ended July 31, 1999, our gross profit increased $3.4
million, or 11.5%, to $32.8 million as compared to $29.4 million in the fiscal
year ended July 31, 1998. As a percentage of sales, gross profit was 31.9% in
the fiscal year ended July 31, 1999 compared to 37.7% in the fiscal year ended
July 31, 1998. Reductions in gross margins as a percentage of sales from the
fiscal year ended July 31, 1998 to the fiscal year ended July 31, 1999 resulted
from a combination of factors, including an increase in revenues from sales of
applied computing systems with significant third party content, upon which lower
overall gross profit margins are realized; a decrease in high margin development
funding and technology license fees; and changes in the mix of products and
services sold.
We believe that our improved manufacturing and other operational
capabilities obtained through the completion of the restructuring plan in
October 2000, will result in improved gross margins in future periods.
Gross profit within each of our continuing business segments is as follows:
ELECTRONIC COMPONENTS GROUP. In the year ended December 31, 2000, gross
profit in the Electronic Components Group segment increased by $4.9 million, or
78.7%, to $11.1 million from $6.2 million in the year ended December 31, 1999.
As a percentage of sales, gross profit improved to 28.5% in the current year
from 21.3% in the prior year. The increase in gross profit for the current year
is the result of increased sales volume and an improved cost structure,
primarily in our microelectronics and PowerCache product lines, offset by a
reduction in gross margins associated with revenue from licenses and other
collaborative agreements and by costs incurred in connection with training
personnel in improved manufacturing processes and certain write-offs of
inventories related to discontinued product lines or deemed excess or obsolete.
The increase in gross profit as a percentage of sales also reflects the
increased sales volume and the impact of the process and cost improvements in
this business segment. In our PowerCache ultracapacitor product line, we
continue to make required infrastructure and other investments which negatively
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 Group segment.
Gross profit for the Electronic Components Group segment was $0.5 million
in the five months ended December 31, 1999, or 5.9% of sales. Gross profit in
this segment was significantly impacted in the five months ended December 31,
1999 by unabsorbed overhead and other production costs in the PowerCache
ultracapacitor business area, which was in the start-up phase of volume
production, resulting in negative gross margins. In addition, this business area
received no contribution in the five months ended December 31, 1999 from high
margin revenue from licenses and other collaborative agreements. Low sales
volumes in the other Electronic Components Group business areas also contributed
to reduced gross margins in the five months ended December 31, 1999. In
addition, charges were recorded in our filtered feedthrough, ceramic capacitors
and microelectronics product lines in the five months ended December 31, 1999 to
write-off certain inventories deemed excess or obsolete, also impacting gross
margins.
In the fiscal year ended July 31, 1999, Electronic Components Group gross
profit decreased $2.5 million to $12.4 million from $14.9 million in the fiscal
year ended July 31, 1998. As a percentage of sales, gross profit decreased to
32.9% in fiscal year 1999 from 42.3% in fiscal year 1998. The decrease in gross
profit primarily reflected a decrease in high margin development funding and
technology license fees of $3.7 million, and also reflected a lower margin mix
of products and services. This decrease also reflected changes in our pricing
strategies in response to competitive pressures, as we continued to improve our
penetration in various markets.
I-BUS/PHOENIX POWER AND COMPUTING SYSTEMS. In the year ended December 31,
2000, I-Bus/Phoenix gross profit decreased by $11.1 million, or 48.7%, to $11.7
million from $22.8 million in the year ended December 31, 1999. As a percentage
of sales, gross profit decreased to 18.6% in the current year, as compared to
30.8% in the year ended December 31, 1999. The decrease in gross profit is
primarily attributable to the impact of reduced sales volume for this segment in
the current year. In addition, this segment has experienced a change in product
mix to include a higher proportion of lower-margin power quality products, as
compared to higher margin applied computing 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 related to discontinued product lines or
deemed excess or obsolete.
37
In the five months ended December 31, 1999, I-Bus/Phoenix gross profit
totaled $8.0 million, or 28.9% of sales, representing a decrease in gross margin
as a percentage of sales from prior periods. This decrease was primarily
attributable to a lower margin mix of product sales in the five months ended
December 31, 1999 and certain write-offs of excess and obsolete inventories.
In the fiscal year ended July 31, 1999, I-Bus/Phoenix gross profit
increased $5.8 million, or 40.2%, to $20.4 million from $14.6 million in the
fiscal year ended July 31, 1998. As a percentage of sales, gross profit
decreased to 31.4% in the fiscal year ended July 31, 1999 from 34.0% in the
fiscal year ended July 31, 1998. This decrease was primarily due to a change in
sales mix which, in the fiscal year ended July 31, 1998, included certain higher
margin products that were near the end of their life cycle, with no such sales
in the fiscal year ended July 31, 1999. In addition, a higher proportion of our
revenues in the fiscal year ended July 31, 1999, were derived from contracts
which include applied computing systems with greater third party content, upon
which lower overall gross profit margins were realized.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
In the year ended December 31, 2000, our selling, general and
administrative expenses decreased $1.2 million, or 4.7%, to $26.3 million from
$27.5 million in the year ended December 31, 1999. As a percentage of total
sales, these expenses decreased to 25.7% in the year ended December 31, 2000,
from 26.5% in the year ended December 31, 1999. We are continuing to focus on
opportunities to decrease our selling, general and administrative expenses.
In the five months ended December 31, 1999, selling, general and
administrative expenses were approximately $12.2 million, or 33.1% of sales. The
increase in these expenses was primarily in support of our continuing growth and
the continuing expansion into Europe by I-Bus/Phoenix. The five months ended
December 31, 1999 also included $750,000 of severance costs related to our
former CEO.
In the fiscal year ended July 31, 1999, our selling, general and
administrative expenses increased $7.2 million, or 37.9%, to $26.1 million from
$18.9 million in the fiscal year ended July 31, 1998. As a percentage of total
sales, selling, general and administrative expenses increased to 25.3% in the
fiscal year ended July 31, 1999 from 24.2% in the fiscal year ended July 31,
1998. The increase in these expenses was primarily in support of our sales
growth, including the businesses acquired in the fiscal years ended 1999 and
1998. In addition, we made certain investments related to administrative
infrastructure and in administrative and sales support which increased the
expenses as a percentage of sales.
RESEARCH AND DEVELOPMENT EXPENSES
Our research and development expenses reflect internally funded research
and development programs. Research and development expenses were $8.7 million,
or 8.5% of sales, for the first three years ended December 31, 2000, as compared
to $6.4 million, or 6.2% of sales, for the year ended December 31, 1999. We have
increased our level of spending in research and development to accelerate new
product introductions and we expect this level of spending to remain at
increased levels in future periods.
Research and development expenses were $2.6 million, $6.8 million and $5.8
million for the five months ended December 31, 1999 and the fiscal years ended
July 31, 1999 and 1998, respectively. As a percentage of sales, research and
development expenses were 7.1% in the five months ended December 31, 1999, 6.6%
in the fiscal year ended July 31, 1999, and 7.5% in the fiscal year ended July
31, 1998.
38
RESTRUCTURING, ACQUISITION AND OTHER CHARGES
In connection with the restructuring plan, we undertook various actions to
improve our cost structure. As a result, we recorded restructuring and other
related charges of $3.9 million during the first three quarters of the year
ended December 31, 2000. These charges included severance costs related to
reductions in personnel, costs associated with the closure and combination of
certain facilities and the write-off of non-performing operating assets. We
completed the facilities and organizational consolidation program started as
part of our restructuring plan and do not expect to record any additional
charges related to the restructuring plan. In the three months ended September
30, 2000, we also recorded a charge of $4.8 million to reduce the carrying value
of goodwill related to our 1998 acquisition of Phoenix Power Systems, Inc. to an
amount representative of the current appraised value of that asset. Also, in the
three months ended September 30, 2000, we recorded a charge of $0.5 million
related to in-process technology acquired in connection with our acquisition of
Gateworks Corporation in September 2000.
We also recorded restructuring and other related charges in connection with
the restructuring plan in the five months ended December 31, 1999 totaling
approximately $2.8 million.
During the fiscal year ended July 31, 1999, we recorded restructuring,
acquisition and other charges of approximately $2.6 million. Of these charges,
approximately $1.6 million consisted of direct acquisition costs for business
combinations accounted for using the pooling-of-interests method. The remaining
$1.0 million charge consisted primarily of amounts provided for revised
estimates of costs to resolve certain environmental and legal contingencies
which occurred in prior years, as well as other restructuring provisions,
including employee and facility expenses, related to decisions made in July 1999
to reduce certain administrative infrastructure in Europe and the United States.
We recorded a $3.9 million charge in the fiscal year ended July 31, 1998
related to the acquisition of two businesses, including transaction costs for a
business combination accounted for as a pooling-of-interest, and the appraised
amount of acquired in-process research and development for the business
combination accounted for as a purchase.
INTEREST EXPENSE
Interest expense increased to $1.4 million in the year ended December 31,
2000 from $0.3 million in the prior year. The increased interest expense relates
to higher borrowing levels in the current year compared to the prior year. At
December 31, 2000, we had $22.7 million outstanding under our bank
line-of-credit. We expect borrowings and related interest expense to decrease in
the second quarter of 2001, following the sale of our defense contracting
business by the end of March 2001, the proceeds of which will be used to repay
debt.
Interest expense was $112,000, $404,000 and $338,000 in the five months
ended December 31, 1999 and in the fiscal years ended July 31, 1999 and 1998,
respectively.
INTEREST INCOME AND OTHER, NET
Interest income and other, net, consisting primarily of interest income,
foreign currency transaction gains and losses and gains and losses on
dispositions of fixed assets, was $9,000 in the year ended December 31, 2000 and
$501,000 in the year ended December 31, 1999. Interest income has decreased
reflecting lower average cash balances in the year ended December 31, 2000.
Interest income and other, net, was $(29,000), $565,000 and $1.3 million in
the five months ended December 31, 1999 and in the fiscal years ended July 31,
1999 and 1998, respectively. The decrease in interest income reflects lower
average cash balances in both the five months ended December 31, 1999 and in the
fiscal year ended July 31, 1999. During the fiscal year ended July 31, 1998, we
received proceeds of approximately $47 million from a follow-on offering of our
common stock. Such cash proceeds were used to fund growth in operations and
acquisitions through December 31, 1999.
39
PROVISION (CREDIT) FOR INCOME TAXES
The credit for income taxes for the year ended December 31, 2000 reflects
our expected world-wide tax rate for the current fiscal year. Our effective tax
rate was reduced by the fact that no tax credit was provided for the $4.8
million charge recorded to reduce the carrying value of goodwill since that
amount will never be deductible for tax purposes. In future years, we will
continue to provide income taxes approximating applicable statutory rates,
although cash payments for taxes will be substantially lower in the near-term as
tax loss carryforwards are utilized. We have net deferred tax assets of
approximately $24.6 million at December 31, 2000, which relate primarily to net
operating loss carryforwards that we expect to use as a result of expected gains
on dispositions of discontinued operations and future income from operations.
For the year ended December 31, 1999, our credit for income taxes included a
credit of $4.3 million, representing the reversal of a valuation allowance
provided in previous years against certain deferred tax benefits. The valuation
allowance was reversed based on our determination that it had become more likely
than not that such deferred tax benefits will be realized in the future. The
deferred income tax credit was partially offset by certain foreign and state
income tax expense.
The credit for income taxes in the five months ended December 31, 1999
reflected our expected world-wide tax rate for that period. The credit for
income taxes for the fiscal year ended July 31, 1999 includes the credit of $4.3
million, discussed above, representing the reversal of a valuation allowance
provided in previous years against certain deferred tax benefits. Our provision
for income taxes for the fiscal year ended July 31, 1998 related primarily to
taxes of the businesses acquired in the fiscal year ended July 31, 1999 using
the pooling-of-interests method.
MINORITY INTEREST IN NET INCOME (LOSS) OF SUBSIDIARIES
Minority interest in net income (loss) of subsidiaries was $(181,000) for
the year ended December 31, 2000 and $4,000 for the year ended December 31,
1999. The reduction in our net loss results from losses incurred by our
minority-owned subsidiaries.
Minority interest in net income (loss) of subsidiaries was not material in
the five months ended December 31, 1999 or in the fiscal years ended July 31,
1999 and 1998.
INCOME (LOSS) FROM CONTINUING OPERATIONS
As a result of the factors mentioned above, income (loss) from continuing
operations was $(16.3) million and $46,000 for the years ended December 31, 2000
and 1999, respectively.
As a result of the factors mentioned above, the income (loss) from
continuing operations was $(5.8) million for the five months ended December 31,
1999, compared to $3.9 million and $1.4 million in the fiscal years ended July
31, 1999 and 1998, respectively.
DISCONTINUED OPERATIONS
In connection with the restructuring plan, we divested three of our
businesses in 2000:
- our high voltage wound film capacitors;
- high voltage power supplies; and
- time card and job cost accounting software businesses.
40
In February 2000, we 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. In November 2000, we sold our time card and
job cost accounting software business for cash of $2.5 million and shares of
common stock of the buyer with an immaterial value. In the fourth quarter of
2000, we also received cash of approximately $0.7 million related to our equity
investment in an unconsolidated entity, which was classified as a discontinued
operation. In December 1999, we recorded provisions of approximately $2.1
million, net of tax, for estimated losses on the sale of these discontinued
businesses. Based on the actual proceeds received and the net assets of the
discontinued businesses at their respective dates of sale, we reversed the
provisions we estimated in December 1999 and recorded an aggregate gain on these
sales of $2.9 million, net of tax, including the reversal.
In late 2000, we decided to focus on our Electronic Components Group and
I-Bus/Phoenix businesses. Accordingly, in late 2000, we offered for sale our
defense contracting business and signed letters of intent to sell the business
in separate transactions with two buyers. Both transactions are expected to be
completed by March 31, 2001. Also, we are now seeking strategic alternatives for
our PurePulse business, which we expect will result in the sale of all or a
majority of the business in 2001. Accordingly, both the defense contracting
business and PurePulse have been classified as discontinued operations for
financial reporting purposes. See Note 10 to the "Consolidated Financial
Statements" included elsewhere in this Form 10-K.
Income (loss) from operations of these discontinued businesses was $(2.9)
million in the year ended December 31, 2000, compared to $1.8 million for the
year ended December 31, 1999 and $(5.2) million, $7.1 million and $(3.1) million
for the five months ended December 31, 1999 and the fiscal years ended July 31,
1999 and 1998, respectively. The income from operations of the discontinued
businesses for the year ended December 31, 1999 and the fiscal year ended July
31, 1999 includes a $1.7 million tax credit representing the reversal of an
income tax valuation allowance provided in previous years against certain
deferred tax assets.
LIQUIDITY AND CAPITAL RESOURCES
We have historically relied on a combination of cash on hand, internally
generated funds, proceeds from sales of stock and bank borrowings to finance our
working capital requirements and capital expenditures. In the fiscal year ended
July 31, 1998, we received cash of $47.1 million in connection with a public
offering of our stock. In addition, in the fiscal years ended July 31, 1999 and
December 31, 2000, we received approximately $1.7 million and $2.9 million,
respectively, from the exercise of stock options and purchases under employee
stock purchase plans.
Cash used by continuing operations in the year ended December 31, 2000 was
approximately $15.3 million, as compared to $13.0 million in the year ended
December 31, 1999. In the current year, the use of cash was primarily
attributable to operating losses, cash expenditures in connection with
completing our restructuring plan and certain increases in working capital.
Capital expenditures in the years ended December 31, 2000 and 1999 were $11.8
million and $5.2 million, respectively. The capital expenditures in 2000 include
approximately $8.9 million related to the design, construction, remodeling and
outfitting of our manufacturing facilities. The remaining expenditures relate
primarily to other capital assets needed to support growth. We have ordered
additional equipment for volume manufacturing of ultracapacitors and for the
manufacture of EMI filter capacitors. We 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 we decide to construct additional facilities or purchase high-volume
manufacturing equipment, a significant amount of capital may be required. In the
year ended December 31, 2000, we also received cash of $6.0 million in
connection with sales of businesses and 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 Corporation.
41
Cash used by continuing operations in the five months ended December 31,
1999 was approximately $3.5 million, as compared to $13.4 million and $1.8
million in fiscal years 1999 and 1998, respectively. In the five months ended
December 31, 1999, the operating losses were partially offset by decreases in
operating assets, primarily accounts receivable. In the fiscal years ended July
31, 1999 and 1998, the use of cash was primarily attributable to increases in
accounts receivable and inventories, due both to acquired businesses and in
support of increased sales. Our capital expenditures in the five months ended
December 31, 1999 and in the fiscal years ended July 31, 1999 and 1998 were $1.6
million, $5.5 million and $4.6 million, respectively, and related primarily to
production and other capital assets needed to support growth in all of our
business units.
We believe 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 our bank credit agreement, will be
sufficient to finance our operations and our capital expenditures for 2001, as
well as finance remaining payments required in connection with the restructuring
plan. In addition to addressing manufacturing requirements, we 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 cash and cash equivalents, cash flow
from operations, borrowings under the existing bank credit agreement, and
additional debt or equity financings. There can be no assurance that we will be
able to obtain additional sources of financing on favorable terms, if at all, at
such time or times as we may require such capital.
We had borrowings of $22.7 million outstanding under a bank credit
agreement as of December 31, 2000. The bank was repaid in full with proceeds of
our new bank credit agreement and the old agreement was terminated effective
February 26, 2001. Our bank debt will be reduced following the sale of our
defense contracting business, which is expected to be completed by March 31,
2001.
NEW BANK CREDIT AGREEMENT
In February 2001, we and all of our U.S. subsidiaries entered into a Loan
and Security Agreement with Comerica Bank - California. The agreement consists
of a $15.0 million term loan and a revolving credit facility. The term loan is
due on the earlier of June 15, 2001, or the date we complete the sale of our
defense contracting business. If we sell only part of this business for proceeds
less than that necessary to repay the term loan, we must make a partial payment
on the term loan. The term loan bears interest at the bank's reference rate,
plus 1.50%. If we fail to repay the term loan by June 15, 2001, we must grant
Comerica Bank a security interest in our real property, and we will need to
negotiate with the bank a new due date, payment schedule and other terms. There
can be no assurance that we will be able to negotiate such terms on a favorable
basis.
The current borrowing availability under the revolving credit facility is
determined from a borrowing base, consisting of a portion of our accounts
receivable and inventory, but the total availability will not exceed $15.0
million. After we sell our defense contracting business, repay the term loan and
have a profit for one fiscal quarter, the availability under the revolving
credit facility will be $15.0 million and will no longer be determined from a
borrowing base. Amounts borrowed as revolving loans bear interest, at our
option, at either the bank's reference rate plus 1.0%, or the LIBOR rate plus
3.0%. We may prepay revolving loans at any time, and all amounts borrowed are
due on May 30, 2002. On March 15, 2001, $15.0 million was outstanding under the
Term Loan and $10.0 million was outstanding under the revolving facility.
The bank credit facility contains financial and other covenants and certain
restrictions on our ability to sell assets, engage in mergers or acquisitions,
incur additional indebtedness or pay dividends on our common stock. As of the
date of this Form 10-K, we are in compliance with all required covenants. The
bank credit facility is secured by all of our assets in the United States,
except for our real property, and the pledge of two-thirds of the stock of
certain of our foreign subsidiaries.
42
MINORITY EQUITY INTERESTS IN SUBSIDIARIES AND SUBSIDIARY OPTION PROGRAMS
Each of the Electronic Components Group, I-Bus/Phoenix and PurePulse have
minority equity investors. These investors are former strategic partners
associated with relationships established in the past, former shareholders of
companies acquired using our subsidiaries' stock and former and current
employees who have exercised stock options in those entities. As of December 31,
2000, minority investors owned, of the outstanding shares, approximately 5.1% of
the Electronic Components Group, 6.3% of I-Bus/Phoenix and 19.3% percent of
PurePulse. In addition, each such subsidiary has an employee stock option plan
that permits the issuance of incentive and nonqualified stock options to
purchase subsidiary common stock. The option programs at I-Bus/Phoenix and at
PurePulse are active and the Electronic Components Group program is not active,
although options issued previously remain outstanding. As of mid-2000, key
employees of I-Bus/Phoenix and PurePulse are eligible for option grants in their
respective subsidiary plans and are not eligible for grants at the parent
company level. Key parent company and Electronic Components Group employees are
eligible for option grants at the parent company level, but not in any
subsidiaries.
The option plans are intended to encourage an entrepreneurial atmosphere in
each business segment, providing focused incentives to appreciate the equity
value of each business. Options that are "in-the-money" at the subsidiary level
will have a negative impact on our earnings per share. We expect to report
diluted earnings per share in future quarters due to in-the-money subsidiary
options. Except to the extent exercised, however, such subsidiary options will
not affect our consolidated net income as reported in our consolidated statement
of operations. Such options, when and if exercised, will dilute our actual
ownership interest in our subsidiaries, thus reducing our share of the net
income, potential dividends or distributions and proceeds of any sale or other
disposition of such subsidiary. The equity interest upon exercise of stock
options in the subsidiaries is accounted for as a minority interest. At December
31, 2000, the potential percentage ownership interest attributable to
exercisable subsidiary options was, on a diluted basis, approximately 3% of the
Electronic Components Group, 3% percent of I-Bus/Phoenix and 5% of PurePulse.
INFLATION AND CHANGES IN PRICES
Generally, we have been able to increase prices to offset inflation-related
increased costs in our commercial businesses.
CONVERSION TO THE EURO CURRENCY
On January 1, 1999, certain member countries of the European Union
established fixed conversion rates between their existing currencies and the
European Union's common currency (euro). The transition period for the
introduction of the euro ends June 30, 2002. Issues we face as a result of the
introduction of the euro include converting information technology systems,
reassessing currency risk, negotiating and amending licensing agreements and
contracts, and processing tax and accounting records. We are addressing these
issues and we do not expect the conversion to the euro to have a material effect
on our financial condition or results of operations.
FORWARD-LOOKING STATEMENTS
To the extent that the above discussion goes beyond historical information
and indicates results or developments which we plan or expect 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. We undertake no obligation to
revise these forward-looking statements to reflect future events or
circumstances. You are referred to the "Risk Factors" section of this Form 10-K
for a further and more detailed discussion of certain of those factors.
43
NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement No.
133, Accounting for Derivative Instruments and Hedging Activities (later amended
by Statement Nos. 137 and 138), which we are required to adopt beginning January
1, 2001. Statement No. 133 requires us to recognize all derivatives as either
assets or liabilities measured at fair value. The accounting for changes in the
fair value of a derivative depends on the use of the derivative. Because we make
minimal use of derivatives and hedges, we do not anticipate that the adoption of
Statement No. 133 will have a significant effect on the results of operations or
our financial position.
In December 1999, the SEC issued Staff Accounting Bulletin No. 101, Revenue
Recognition in Financial Statements. SAB 101 provides guidance in applying
generally accepted accounting principles to revenue recognition in financial
statements. The adoption of SAB 101 in the current fiscal year did not have a
material effect on our financial statements.
In March 2000, the FASB issued FASB Interpretation No. 44, Accounting for
Certain Transactions Involving Stock Compensation. FIN 44 clarifies certain
issues in the application of Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees. FIN 44 is effective July 1, 2000, but
certain provisions cover specific events that occur after either December 15,
1998 or January 12, 2000. The adoption of FIN 44 did not have a material impact
on our financial statements.
ITEM 7a. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
We have not entered into or invested in any instruments that are subject to
market risk, except as follows.
We face exposure to financial market risks, including adverse movements in
foreign currency exchange rates and changes in interest rates. These exposures
may change over time and could have a material adverse impact on our financial
results.
Our primary foreign currency exposure has been related to local currency
revenue and operating expenses in Europe. As a result of our international
operations, changes in foreign currency exchange rates impact the United States
dollar amount of our revenue and expenses. Historically, we have not hedged
specific currency exposures as gains and losses on foreign currency transactions
have not been material to date.
At December 31, 2000, we had $22.7 million outstanding related to variable
rate U.S dollar denominated short-term debt. The carrying value of these
short-term borrowings approximates fair value due to the short maturities of
these instruments. Assuming a hypothetical 10% adverse change in the interest
rate, annual interest expense on our short-term borrowings, if the amount
outstanding remained unchanged, would increase by approximately $220,000.
44
ITEM 8. FINANCIAL STATEMENTS
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
----
Report of Ernst & Young LLP, Independent Auditors........................................................46
Consolidated Balance Sheets as of December 31, 1999 and December 31, 2000................................47
Consolidated Statements of Operations for the Fiscal Years Ended July 31, 1998 and 1999, the
Five Months Ended December 31, 1999 and the Calendar Years Ended December 31, 1999 (unaudited)
and 2000.................................................................................................48
Consolidated Statements of Stockholders' Equity for the Fiscal Years Ended July 31, 1998 and
1999, the Five Months Ended December 31, 1999 and the Calendar Year Ended December 31, 2000..............49
Consolidated Statements of Cash Flows for the Fiscal Years Ended July 31, 1998 and 1999, the
Five Months Ended December 31, 1999 and the Calendar Years Ended December 31, 1999 (unaudited)
and 2000.................................................................................................50
Notes to Consolidated Financial Statements...............................................................51
45
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Board of Directors and Stockholders
Maxwell Technologies, Inc.
We have audited the accompanying consolidated balance sheets of Maxwell
Technologies, Inc. and subsidiaries, as of December 31, 1999 and 2000, and the
related consolidated statements of operations, stockholders' equity and cash
flows for each of the two years in the period ended July 31, 1999, for the five
months ended December 31, 1999 and for the year ended December 31, 2000. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Maxwell
Technologies, Inc. and subsidiaries at December 31, 1999 and 2000, and the
consolidated results of their operations and their cash flows for each of the
two years in the period ended July 31, 1999, for the five months ended December
31, 1999 and for the year ended December 31, 2000, in conformity with accounting
principles generally accepted in the United States.
/s/ ERNST & YOUNG LLP
San Diego, California
February 9, 2001, except for Note 4, as to which the date is
February 26, 2001 and Note 12, as to which the date is
March 16, 2001.
46
MAXWELL TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
DECEMBER 31,
---------------------------------
1999 2000
--------------- -------------
ASSETS
Current assets:
Cash and cash equivalents.................................................. $ 2,885 $ 2,686
Trade and other accounts receivable, less allowance for doubtful accounts
of $811 and $826 at December 31, 1999 and 2000, respectively............. 15,836 24,652
Inventories................................................................ 21,641 24,769
Prepaid expenses........................................................... 443 1,133
Deferred income taxes...................................................... 12,095 13,031
Net assets of discontinued operations...................................... 23,821 13,963
--------------- -------------
Total current assets..................................................... 76,721 80,234
Property, plant and equipment, net............................................ 14,751 22,567
Goodwill and other non-current assets......................................... 6,679 19,308
--------------- -------------
$ 98,151 $ 122,109
=============== =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities................................... $ 8,762 $ 21,711
Accrued employee compensation.............................................. 3,347 2,825
Current portion of long-term debt and short-term borrowings................ 288 22,754
--------------- -------------
Total current liabilities................................................ 12,397 47,290
Long-term debt, excluding current portion..................................... 186 --
Minority interest............................................................. 1,152 5,065
Commitments and contingencies
Stockholders' equity:
Common stock, $0.10 par value per share, 40,000 shares authorized; 9,564 and
9,877 shares issued and outstanding at December 31,
1999 and 2000, respectively.............................................. 957 988
Additional paid-in capital................................................. 78,378 81,204
Notes receivable from executives for stock purchases....................... -- (900)
Deferred compensation...................................................... (117) (15)
Retained earnings (deficit)................................................ 5,375 (10,942)
Accumulated other comprehensive loss - foreign currency translation
adjustments.............................................................. (177) (581)
--------------- -------------
Total stockholders' equity............................................... 84,416 69,754
--------------- -------------
$ 98,151 $ 122,109
=============== =============
See accompanying notes.
47
MAXWELL TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
FIVE MONTHS YEARS ENDED
YEARS ENDED JULY 31, ENDED DECEMBER 31,
---------------------- DECEMBER 31, ----------------------
1998 1999 1999 1999 2000
--------- --------- --------- --------- ---------
(Unaudited)
Continuing Operations:
Sales .................................. $ 78,014 $ 102,878 $ 36,863 $ 103,611 $ 102,347
Cost of sales .......................... 48,570 70,044 28,322 74,525 79,472
--------- --------- --------- --------- ---------
Gross profit ........................... 29,444 32,834 8,541 29,086 22,875
Operating expenses:
Selling, general and administrative .. 18,901 26,070 12,204 27,501 26,260
Research and development ............. 5,823 6,779 2,618 6,363 8,713
Restructuring, acquisition and other
charges ............................ 3,889 2,620 2,801 5,267 9,220
--------- --------- --------- --------- ---------
Total operating expenses ........... 28,613 35,469 17,623 39,131 44,193
--------- --------- --------- --------- ---------
Operating income (loss) ................ 831 (2,635) (9,082) (10,045) (21,318)
Interest expense ....................... (338) (404) (112) (331) (1,430)
Interest income and other, net ......... 1,343 565 (29) 501 9
--------- --------- --------- --------- ---------
Income (loss) from continuing operations
before income taxes and minority
interest ..... 1,836 (2,474) (9,223) (9,875) (22,739)
Provision (credit) for income taxes .... 413 (6,417) (3,408) (9,925) (6,267)
Minority interest in net income (loss)
of subsidiaries ...................... -- 4 -- 4 (181)
--------- --------- --------- --------- ---------
Income (loss) from continuing operations 1,423 3,939 (5,815) 46 (16,291)
Discontinued operations, net of tax:
Income (loss) from operations .......... (3,130) 7,129 (5,211) 1,766 (2,880)
Gain (provision for estimated loss) on
disposal ............................. -- -- (2,065) (2,065) 2,854
--------- --------- --------- --------- ---------
(3,130) 7,129 (7,276) (299) (26)
--------- --------- --------- --------- ---------
Net income (loss) ......................... $ (1,707) $ 11,068 $ (13,091) $ (253) $ (16,317)
========= ========= ========= ========= =========
Basic net income (loss) per share:
Income (loss) from continuing operations $ 0.17 $ 0.42 $ (0.61) $ -- $ (1.66)
Income (loss) from discontinued
operations ........................... (0.37) 0.76 (0.76) (0.03) --
--------- --------- --------- --------- ---------
$ (0.20) $ 1.18 $ (1.37) $ (0.03) $ (1.66)
========= ========= ========= ========= =========
Diluted net income (loss) per share:
Income (loss) from continuing operations $ 0.16 $ 0.40 $ (0.61) $ -- $ (1.66)
Income (loss) from discontinued
operations ........................... (0.35) 0.72 (0.76) (0.03) (0.01)
--------- --------- --------- --------- ---------
$ (0.19) $ 1.12 $ (1.37) $ (0.03) $ (1.67)
========= ========= ========= ========= =========
Shares used in computing:
Basic net income (loss) per share ...... 8,503 9,414 9,562 9,537 9,801
========= ========= ========= ========= =========
Diluted net income (loss) per share .... 9,111 9,801 9,562 9,830 9,801
========= ========= ========= ========= =========
See accompanying notes.
48
MAXWELL TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
TWO YEARS ENDED JULY 31, 1999,
FIVE MONTHS ENDED DECEMBER 31, 1999 AND YEAR ENDED DECEMBER 31, 2000
(IN THOUSANDS, EXCEPT SHARE DATA)
DEFERRED
COMPENSATION
AND NOTES ACCUMULATED
ADDITIONAL RECEIVABLE RETAINED OTHER TOTAL
COMMON PAID-IN FROM EARNINGS COMPREHENSIVE STOCKHOLDERS'
STOCK CAPITAL EXECUTIVES (DEFICIT) LOSS EQUITY
---------- ---------- ---------- ---------- ---------- ----------
Balance at July 31, 1997 ................. $ 696 $ 23,246 $ (622) $ 9,297 $ -- $ 32,617
Issuance of 1,500,000 shares in a
public stock offering, net of
offering costs of $3.9 million ...... 150 46,967 -- -- -- 47,117
Issuance of 356,240 shares under stock
purchase and option plans ........... 36 2,348 -- -- -- 2,384
Issuance of 544,785 shares in
connection with acquisitions ........ 54 3,270 -- 609 -- 3,933
Repurchase of 162,073 shares for cash
under repurchase program ............ (16) (3,586) -- (391) -- (3,993)
Amortization of deferred compensation . -- -- 209 -- -- 209
Dividends paid to shareholders of
acquired company prior to acquisition -- -- -- (407) -- (407)
Comprehensive loss - net loss ......... -- -- -- (1,707) -- (1,707)
---------- ---------- ---------- ---------- ---------- ----------
Balance at July 31, 1998 ................. 920 72,245 (413) 7,401 -- 80,153
Issuance of 296,451 shares under stock
purchase and option plans, including
related income tax benefit of $4,623 30 7,498 -- -- -- 7,528
Repurchase of 62,316 shares for cash
under repurchase program ............ (6) (1,679) -- (41) -- (1,726)
Issuance of 113,514 shares in
connection with acquisition ......... 12 18 -- 184 -- 214
Amortization of deferred compensation . -- -- 209 -- -- 209
Dividends paid to shareholder of
acquired company prior to acquisition -- -- -- (146) -- (146)
Comprehensive income (loss):
Net income .......................... -- -- -- 11,068 -- 11,068
Other comprehensive loss - foreign
currency translation adjustments .. -- -- -- -- (132) (132)
---------- ---------- ---------- ---------- ---------- ----------
Total comprehensive income ............ -- -- -- 11,068 (132) 10,936
---------- ---------- ---------- ---------- ---------- ----------
Balance at July 31, 1999 ................. 956 78,082 (204) 18,466 (132) 97,168
Issuance of 6,680 shares under stock
option plans, including related
income tax benefit of $220 .......... 1 296 -- -- -- 297
Amortization of deferred compensation . -- -- 87 -- -- 87
Comprehensive loss:
Net loss ............................ -- -- -- (13,091) -- (13,091)
Other comprehensive loss - foreign
currency translation adjustments .. -- -- -- -- (45) (45)
---------- ---------- ---------- ---------- ---------- ----------
Total comprehensive loss .............. -- -- -- (13,091) (45) (13,136)
---------- ---------- ---------- ---------- ---------- ----------
Balance at December 31, 1999 ............. 957 78,378 (117) 5,375 (177) 84,416
Issuance of 267,084 shares under stock
purchase and option plans, including
related income tax benefit of $219 .. 27 2,330 (900) -- -- 1,457
Issuance of 45,506 shares in
connection with acquisition ......... 4 496 -- -- -- 500
Amortization of deferred compensation . -- -- 102 -- -- 102
Comprehensive loss:
Net loss ............................ -- -- -- (16,317) -- (16,317)
Other comprehensive loss - foreign
currency translation adjustments .. -- -- -- -- (404) (404)
---------- ---------- ---------- ---------- ---------- ----------
Total comprehensive loss .............. -- -- -- (16,317) (404) (16,721)
---------- ---------- ---------- ---------- ---------- ----------
Balance at December 31, 2000 ............. $ 988 $ 81,204 $ (915) $ (10,942) $ (581) $ 69,754
========== ========== ========== ========== ========== ==========
See accompanying notes
49
MAXWELL TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
FIVE MONTHS YEARS ENDED
YEARS ENDED JULY 31, ENDED DECEMBER 31,
--------------------- DECEMBER 31, --------------------
1998 1999 1999 1999 2000
-------- -------- ----------- -------- --------
Operating activities: (Unaudited)
Income (loss) from continuing operations .... $ 1,423 $ 3,939 $ (5,815) $ 46 $(16,291)
Adjustments to reconcile income (loss) from
continuing operations to net
cash used in operating activities:
Depreciation and amortization ........... 2,105 3,161 1,534 3,716 3,678
Non-cash restructuring, acquisition
and other charges ..................... 3,000 1,405 2,381 4,292 6,997
Provision for losses on accounts
receivable ............................ 714 291 223 514 194
Loss (gain) on sales of property and
equipment ............................. 72 76 52 (1) (3)
Deferred income taxes ................... 37 (2,674) (4,268) (6,302) (9,312)
Minority interest in net income
(loss) of subsidiaries ................ -- 4 -- 4 (181)
Amortization of deferred compensation ... 209 209 87 196 102
Changes in operating assets and
liabilities:
Trade and other accounts receivable ... (7,798) (7,435) 7,079 (817) (9,229)
Inventories ........................... (4,588) (2,640) (3,277) (3,933) (2,904)
Prepaid expenses and other ............ (1,404) (4,117) (242) 375 2,586
Accounts payable and accrued
liabilities.......................... 3,898 (2,892) (1,149) (8,807) 9,631
Accrued employee compensation ......... 555 (242) 42 274 (573)
Income taxes payable and
refundable, net ..................... (45) (2,468) (104) (2,572) --
-------- -------- ----------- -------- --------
Net cash used in operating ............ (1,822) (13,383) (3,457) (13,015) (15,305)
activities
Investing activities:
Purchases of property and equipment ......... (4,607) (5,484) (1,599) (5,236) (11,790)
Purchases of businesses, net of cash
acquired .................................. (1,308) -- -- -- (5,524)
Proceeds from sales of property and
equipment ................................. 70 43 3,244 3,225 119
Proceeds from sales of businesses ........... -- -- -- -- 6,000
-------- -------- ----------- -------- --------
Net cash provided by (used in)
investing activities ................ (5,845) (5,441) 1,645 (2,011) (11,195)
Financing activities:
Principal payments on long-term debt and
short-term borrowings ..................... (2,339) (2,531) (3,214) (3,012) (4,976)
Proceeds from long-term debt and
short-term borrowings ..................... 1,197 3,575 -- 1,657 27,256
Proceeds from issuance of Company and
subsidiary stock .......................... 50,567 2,946 332 2,055 1,678
Repurchase of Company and subsidiary
stock ..................................... (4,000) (1,726) -- (354) --
Dividends paid to shareholders of
acquired companies prior to acquisition ... (407) (146) -- -- --
-------- -------- ----------- -------- --------
Net cash provided by (used in)
financing activities ................ 45,018 2,118 (2,882) 346 23,958
Net cash provided by (used in) discontinued
operations .................................. (17,743) 3,852 (324) 5,229 2,355
Effect of exchange rate changes on cash and
cash equivalents ............................ -- (132) (45) (202) (12)
-------- -------- ----------- -------- --------
Increase (decrease) in cash and cash
equivalents .................................. 19,608 (12,986) (5,063) (9,653) (199)
Cash and cash equivalents at beginning of
period ....................................... 1,326 20,934 7,948 12,538 2,885
-------- -------- ----------- -------- --------
Cash and cash equivalents at end of period ..... $ 20,934 $ 7,948 $ 2,885 $ 2,885 $ 2,686
======== ======== =========== ======== ========
Cash (paid) received for:
Interest ..................................... $ 1,287 $ 379 $ 86 $ (331) $ (875)
Income taxes ................................. $ (577) $ (633) $ (168) $ (801) $ (566)
See accompanying notes.
50
MAXWELL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION FOR THE FULL YEAR ENDED DECEMBER 31, 1999 IS UNAUDITED)
NOTE 1 -- DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
Maxwell Technologies, Inc. ("Maxwell" or the "Company") applies
industry-leading capabilities in power and computing to develop and
commercialize electronic components and power and computing systems for original
equipment manufacturer ("OEM") customers in multiple industries, including
transportation, telecommunications, consumer and industrial electronics, medical
and aerospace.
In December 1999, the Company adopted a plan to restructure its operations
(the "Restructuring Plan"). This Restructuring Plan (i) consolidated certain
commercial business operations and improved their manufacturing and other
operational capabilities, (ii) focused the defense contracting business on
pulsed power systems and computer-based analysis for government and national
laboratories, (iii) focused the application of PUREBRIGHT broad-spectrum pulsed
light technology on bioprocessing, medical and consumer water markets, and (iv)
provided for the sale of certain non-strategic business operations. The Company
also changed its 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.
The Restructuring Plan intended to make Maxwell a product-driven,
high-growth company with improving operating results beginning with the fourth
quarter of calendar year 2000. Since January 2000, the Company recruited more
than 50 key managers with extensive commercial experience in engineering,
manufacturing, material procurement, supply chain management, information
technology, financial controls and sales and marketing. The Company also
invested over $11 million to build and outfit state-of-the-art production
facilities, including information technology infrastructure, and implement new
manufacturing and business processes and systems to increase its production
capacity and improve efficiency and product quality. The Company has experienced
a high level of change and has made significant progress since the beginning of
2000 to achieve the objectives of the Restructuring Plan on schedule. In October
2000, the Company completed its facilities and organizational consolidation
program, which essentially completed the Company's Restructuring Plan.
BASIS OF PRESENTATION
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. The
accompanying 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 the current and prior
periods, have been classified as discontinued operations in the accompanying
consolidated financial statements (Note 10).
CASH EQUIVALENTS
The Company classifies all highly liquid investments with a maturity of
three months or less when purchased as cash equivalents.
INVENTORIES
Inventories are stated at the lower of cost or market. Inventory cost is
determined principally using the average cost (first-in first-out) method.
51
MAXWELL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION FOR THE FULL YEAR ENDED DECEMBER 31, 1999 IS UNAUDITED)
NOTE 1-- DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are carried at cost and are generally
depreciated using the straight-line method. Depreciation and amortization is
provided over the estimated useful lives of the related assets (three to thirty
years). Depreciation and amortization of property, plant and equipment amounted
to $2.1 million, $3.1 million, $1.5 million and $3.1 million in the fiscal years
ended July 31, 1998 and 1999, the five months ended December 31, 1999 and the
year ended December 31, 2000, respectively.
CONCENTRATION OF CREDIT RISK
Financial instruments which subject the Company to potential concentrations
of credit risk consist principally of the Company's accounts receivable. The
Company's accounts receivable result from product sales to customers in various
industries and in various geographical areas, both domestic and foreign. The
Company performs ongoing credit evaluations of its customers and generally
requires no collateral.
REVENUE RECOGNITION
The Company derives substantially all of its revenue from the sale of
manufactured products. Such revenue is typically recognized upon shipment of the
products.
In December 1999, the SEC issued Staff Accounting Bulletin No. 101, REVENUE
RECOGNITION IN FINANCIAL STATEMENTS ("SAB 101"). SAB 101 provides guidance in
applying generally accepted accounting principles to revenue recognition in
financial statements. The adoption of SAB 101 in the current fiscal year did not
have a material effect on the Company's financial statements.
FOREIGN CURRENCIES
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 euro, British pound, French franc, and
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 period.
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 from the original dates
of issuance.
52
MAXWELL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION FOR THE FULL YEAR ENDED DECEMBER 31, 1999 IS UNAUDITED)
NOTE 1-- DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
The following table sets forth the computation of basic and diluted income
(loss) per share (in thousands, except per share amounts).
FIVE MONTHS YEARS ENDED
YEARS ENDED JULY 31, ENDED DECEMBER 31,
--------------------- DECEMBER 31, --------------------
1998 1999 1999 1999 2000
-------- -------- ----------- -------- --------
(unaudited)
Basic:
Income (loss) from continuing operations .... $ 1,423 $ 3,939 $ (5,815) $ 46 $(16,291)
Income (loss) from discontinued
operations ................................ (3,130) 7,129 (7,276) (299) (26)
-------- -------- ----------- -------- --------
Net income (loss) ........................... $ (1,707) $ 11,068 $ (13,091) $ (253) $(16,317)
======== ======== =========== ======== ========
Weighted average shares ........................ 8,503 9,414 9,562 9,537 9,801
======== ======== =========== ======== ========
Basic net income (loss) per share:
Income (loss) from continuing operations .... $ 0.17 $ 0.42 $ (0.61) $ -- $ (1.66)
Income (loss) from discontinued
operations ................................ (0.37) 0.76 (0.76) (0.03) --
-------- -------- ----------- -------- --------
Basic net income (loss) per share ........... $ (0.20) $ 1.18 $ (1.37) $ (0.03) $ (1.66)
======== ======== =========== ======== ========
Diluted:
Income (loss) from continuing operations .... $ 1,423 $ 3,939 $ (5,815) $ 46 $(16,291)
Effect of majority-owned subsidiaries'
dilutive securities ....................... -- -- -- -- --
-------- -------- ----------- -------- --------
Income (loss) from continuing operations
available to common stockholders, as
adjusted ................................ 1,423 3,939 (5,815) 46 (16,291)
Income (loss) from discontinued
operations ................................ (3,130) 7,129 (7,276) (299) (26)
Effect of majority-owned subsidiaries'
dilutive securities ....................... (24) (78) -- -- (116)
-------- -------- ----------- -------- --------
Income (loss) from discontinued
operations, as adjusted ................... (3,154) 7,051 (7,276) (299) (142)
-------- -------- ----------- -------- --------
Net income (loss), as adjusted .............. $ (1,731) $ 10,990 $ (13,091) $ (253) $(16,433)
======== ======== =========== ======== ========
Weighted average shares ........................ 8,503 9,414 9,562 9,537 9,801
Effect of dilutive stock options and
other securities .......................... 608 387 -- 293 --
-------- -------- ----------- -------- --------
Weighted average shares, as adjusted ........ 9,111 9,801 9,562 9,830 9,801
======== ======== =========== ======== ========
Diluted net income (loss) per share:
Income (loss) from continuing operations .... $ 0.16 $ 0.40 $ (0.61) $ -- $ (1.66)
Income (loss) from discontinued
operations ................................ (0.35) 0.72 (0.76) (0.03) (0.01)
-------- -------- ----------- -------- --------
Diluted net income (loss) per share ......... $ (0.19) $ 1.12 $ (1.37) $ (0.03) $ (1.67)
======== ======== =========== ======== ========
53
MAXWELL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION FOR THE FULL YEAR ENDED DECEMBER 31, 1999 IS UNAUDITED)
NOTE 1-- DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement No. 133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
(later amended by Statement Nos. 137 and 138) ("Statement No. 133"), which is
required to be adopted by the Company beginning January 1, 2001. Statement No.
133 requires the Company to recognize all derivatives as either assets or
liabilities measured at fair value. The accounting for changes in the fair value
of a derivative depends on the use of the derivative. The Company adopted
Statement No. 133 on January 1, 2001. Because of the Company's minimal use of
derivatives and hedges, management does not anticipate that the adoption of
Statement No. 133 will have a significant effect on the results of operations or
the financial position of the Company.
In March 2000, the FASB issued FASB Interpretation No. 44, ACCOUNTING FOR
CERTAIN TRANSACTIONS INVOLVING STOCK COMPENSATION ("FIN 44"). FIN 44 clarifies
certain issues in the application of Accounting Principles Board Opinion No. 25,
ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES. FIN 44 is effective July 1, 2000, but
certain provisions cover specific events that occur after either December 15,
1998 or January 12, 2000. The adoption of FIN 44 did not have a material impact
on the Company's financial statements.
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, the disclosure of contingent assets and liabilities at the dates of
the financial statements and the reported amounts of revenues and expenses
during the reporting periods. Several of the industries in which the Company
operates are characterized by rapid technological change and short product life
cycles. As a result, estimates are required to provide for product returns and
product obsolescence as well as other matters. Historically, actual amounts
recorded have not varied significantly from estimated amounts.
NOTE 2 -- BUSINESS COMBINATIONS
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. Additional purchase
consideration may be due in the future based upon the sales revenue of Gateworks
in calendar year 2001. In connection with this acquisition, I-Bus-Phoenix, Inc.
granted certain rights to the selling Gateworks shareholders that permit such
shareholders, in January 2002, to require I-Bus/Phoenix, Inc. to repurchase
certain of the I-Bus/Phoenix, Inc. shares issued to the shareholders on the
closing date for cash not to exceed $2.9 million. The total 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 revenue. For purchase
accounting purposes, the closing date payment was valued at approximately $4.4
million, of which $(0.1) million was allocated to the net liabilities acquired
and $4.0 million was allocated to goodwill and other identifiable intangible
assets, which are being amortized over a period of five years. The remaining
$0.5 million related to acquired technologies, which had not achieved
technological or commercial feasibility as of the closing date and was charged
to operations as of the closing date. The pro forma results of operations of the
Company and Gateworks, assuming Gateworks was acquired January 1, 2000, would
not be materially different than reported results.
54
MAXWELL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION FOR THE FULL YEAR ENDED DECEMBER 31, 1999 IS UNAUDITED)
NOTE 2 -- BUSINESS COMBINATIONS (CONTINUED)
In January 1999, the Company acquired Space Electronics, Inc. ("SEi"), a
closely held company that specialized in the manufacture of radiation-shielded
microelectronics for the commercial space market. Under the terms of this
agreement, which was accounted for as a pooling-of-interests, Maxwell purchased
all of the outstanding stock of SEi in exchange for approximately 681,000 shares
of Maxwell common stock valued at approximately $25 million on the closing date.
The Company incurred direct acquisition costs of approximately $1.1 million,
which were charged to operations in the fiscal year ended July 31, 1999.
Also in January 1999, the Company purchased a German company, which was
formerly a distributor for the Company's applied computing business. The
acquisition was accounted for as a pooling-of-interests and consisted of the
purchase of all the outstanding stock of the German company in exchange for
approximately 114,000 shares of Maxwell common stock valued at approximately $5
million on the closing date. The Company incurred direct acquisition costs of
approximately $75,000, which were charged to operations in the fiscal year ended
July 31, 1999. The historical results of operations of the acquired company were
not material in relation to those of Maxwell and financial information for prior
periods was not restated to reflect the merger. During the fiscal year ended
July 31, 1999, the Company's retained earnings were restated to reflect the
retained earnings of the acquired company as of the acquisition date of
approximately $184,000.
In December 1998, the Company acquired KD Components, Inc. ("KD"), a
privately held company that developed and manufactured high-voltage multilayer
ceramic capacitors and switch mode power supply capacitors for military,
aerospace, medical and other applications. Under the terms of the agreement,
which was accounted for as a pooling-of-interests, Maxwell purchased all of the
outstanding stock of KD in exchange for approximately 145,000 shares of Maxwell
common stock valued at approximately $5.5 million on the closing date. The
Company incurred direct acquisition costs of approximately $120,000, which were
charged to operations in the fiscal year ended July 31, 1999.
In March 1998, the Company acquired Tri-MAP International, Ltd.
("Tri-MAP"), a privately held, United Kingdom-based manufacturer of
industrial-grade PC-compatible computer systems. Tri-MAP was acquired in a
stock-for-stock exchange accounted for as a pooling-of-interests for an
aggregate of 290,000 shares of Maxwell common stock valued at approximately $7.0
million. The Company incurred direct transaction costs of approximately $0.6
million, which were charged to operations during the fiscal year ended July 31,
1998.
Also in March 1998, the Company acquired Phoenix Power Systems, Inc.
("Phoenix Power"), a privately held manufacturer of power quality protection
products. Under the terms of this agreement, Maxwell purchased all of the
outstanding stock of Phoenix Power for approximately $4 million ($1.3 million in
cash and 100,679 shares of Maxwell common stock valued at approximately $2.7
million). The acquisition was accounted for as a purchase. Direct acquisition
costs were approximately $95,000. The purchase price was allocated to the
estimated fair values of the net tangible and intangible assets acquired,
approximately $3 million of which was charged to acquired in-process technology
in the fiscal year ended July 31, 1998. The value assigned to other intangible
assets was $1.6 million, and is being amortized on a straight-line basis over
the estimated economic lives. The terms of the agreement provided for additional
contingent purchase price based upon the financial performance of Phoenix Power
following the acquisition. In January 2000, the Company agreed to pay $5.0
million of such additional purchase price which was paid in the form of 45,506
shares of the Company's common stock issued in January 2000 and valued at an
aggregate of $500,000 and $4.5 million cash, paid in July 2000. The additional
purchase price was initially assigned to intangible assets. The book value of
such intangible assets was reduced by $4.8 million in the third quarter of 2000,
to an amount representing the current appraised value of such assets as of that
date (Note 9).
55
MAXWELL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION FOR THE FULL YEAR ENDED DECEMBER 31, 1999 IS UNAUDITED)
NOTE 3 -- BALANCE SHEET DETAILS
Trade and other accounts receivable consists of the following (in thousands):
DECEMBER 31,
------------------------------
1999 2000
------------- -------------
Amounts billed........................................................ $ 14,415 $ 21,556
Amounts unbilled under long-term contracts............................ 1,421 1,096
Note receivable from related party (Note 12).......................... -- 2,000
------------- -------------
$ 15,836 $ 24,652
============= =============
Inventories consist of the following (in thousands):
DECEMBER 31,
------------------------------
1999 2000
------------- -------------
Finished goods........................................................ $ 2,003 $ 4,927
Work-in-process....................................................... 4,090 5,850
Raw materials and purchased parts..................................... 15,548 13,992
------------- -------------
$ 21,641 $ 24,769
============= =============
Property, plant and equipment consists of the following (in thousands):
DECEMBER 31,
------------------------------
1999 2000
------------- -------------
Land and land improvements............................................ $ 2,738 $ 2,810
Building and building improvements.................................... 6,537 6,748
Machinery, furniture and office equipment............................. 21,684 21,901
Leasehold improvements................................................ 563 1,936
------------- -------------
31,522 33,395
Less accumulated depreciation and amortization........................ (17,151) (13,667)
------------- -------------
14,371 19,728
Construction-in-progress.............................................. 380 2,839
------------- -------------
$ 14,751 $ 22,567
============= =============
Goodwill and other non-current assets consists of the following (in thousands):
DECEMBER 31,
------------------------------
1999 2000
------------- -------------
Goodwill and other intangible assets, net of accumulated amortization
of $194 and $701 at December 31, 1999 and 2000, respectively....... $ 1,596 $ 6,276
Note receivable from related party, including accrued interest
(Note 12).......................................................... 2,092 --
Equity investments in unconsolidated companies........................ 566 666
Deposits and other.................................................... 2,574 757
Long-term deferred income taxes....................................... (149) 11,609
------------- -------------
$ 6,679 $ 19,308
============= =============
Accounts payable and accrued liabilities consists of the following (in thousands):
DECEMBER 31,
------------------------------
1999 2000
------------- -------------
Accounts payable and accrued liabilities.............................. $ 7,205 $19,722
Accrued restructuring costs........................................... 978 1,127
Customer deposits..................................................... 579 862
------------- -------------
$ 8,762 $21,711
============= =============
56
MAXWELL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION FOR THE FULL YEAR ENDED DECEMBER 31, 1999 IS UNAUDITED)
NOTE 4 -- CREDIT AGREEMENT
Outstanding borrowings under the Company's bank credit agreement were $22.7
million at December 31, 2000, at a weighted average interest rate of 11.0%. On
February 26, 2001, the agreement was terminated and repaid in full with the
proceeds of a new bank credit agreement (the "Credit Agreement"). The Credit
Agreement provides for (i) revolving borrowings of up to $15.0 million, subject
to a borrowing base computation, through May 2002, bearing interest at LIBOR
plus 3% or the bank's reference rate plus 1%, and (ii) a term loan of an
additional $15.0 million through June 15, 2001, bearing interest at the bank's
reference rate plus 1.5% (the "Term Loan"). Borrowings under the Credit
Agreement are secured by the Company's assets in the United States, except for
real property, and a pledge of two-thirds of the stock of certain foreign
subsidiaries. The Company will be required to comply with certain financial
covenants effective March 31, 2001. The Company intends to repay the Term Loan
with proceeds from the sale of its defense contracting business, which is
expected to be completed by March 31, 2001 (Note 10). If this sale is not
completed by June 15, 2001, or the proceeds are inadequate to repay the Term
Loan in full, the Company and the bank will negotiate terms on which the Term
Loan may be extended. Such terms are expected to include a pledge of the
Company's real property.
NOTE 5 -- STOCK ACTIVITY AND STOCK PLANS
STOCK OPTION PLANS
In December 1995, the Company adopted the 1995 Stock Option Plan under
which, as amended, 3,340,000 shares of common stock were reserved for future
grant. The Company's 1999 Director Stock Option Plan, under which 75,000 shares
were reserved for future grant, was adopted in 1999 and approved by the
Company's shareholders in January 2000. The plans provide for granting either
Incentive Stock Options or Non-Qualified Stock Options to employees and
non-employee members of the Company's board of directors, respectively. In
December 1999, the Company granted 294,030 non-qualified options to the
Company's new President and Chief Executive Officer, outside of the Company's
other option plans. Options are also outstanding under expired stock option
plans, which were superceded by the current plans. Options granted under all
stock option plans are for the purchase of common stock of the Company at not
less than the stock's fair market value at the date of grant. Employee options
are generally exercisable in cumulative annual installments of 20 - 30 percent,
while options in the Director Option Plan are exercisable in full one year after
date of grant. The options have terms of five to ten years. As of December 31,
2000, the Company has 693,726 shares available for future grant under its stock
option plans.
57
MAXWELL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION FOR THE FULL YEAR ENDED DECEMBER 31, 1999 IS UNAUDITED)
NOTE 5 -- STOCK ACTIVITY AND STOCK PLANS (CONTINUED)
The following table summarizes total aggregate stock option activity for
the period July 31, 1997 through December 31, 2000:
NUMBER WEIGHTED AVERAGE
OF SHARES EXERCISE PRICE
------------- --------------------
Balance at July 31, 1997...................... 1,054,680 $ 8.60
Granted..................................... 591,500 $25.23
Exercised................................... (324,825) $ 5.49
Expired or forfeited........................ (56,200) $18.57
-------------
Balance at July 31, 1998...................... 1,265,155 $16.73
Granted..................................... 684,140 $23.87
Exercised................................... (285,400) $ 9.65
Expired or forfeited........................ (41,340) $19.96
-------------
Balance at July 31, 1999...................... 1,622,555 $20.90
Granted..................................... 647,602 $10.42
Exercised................................... (6,680) $ 3.63
Expired or forfeited........................ (106,580) $21.41
-------------
Balance at December 31, 1999.................. 2,156,897 $17.78
Granted..................................... 1,028,092 $12.92
Exercised................................... (81,105) $ 5.74
Expired or forfeited........................ (427,710) $21.44
-------------
Outstanding at December 31, 2000.............. 2,676,174 $15.70
=============
The following table summarizes information concerning outstanding and
exercisable Company common stock options at December 31, 2000:
WEIGHTED
WEIGHTED AVERAGE WEIGHTED
AVERAGE REMAINING AVERAGE
RANGE OF EXERCISE OPTIONS EXERCISE CONTRACTUAL OPTIONS EXERCISE
PRICES OUTSTANDING PRICE LIFE EXERCISABLE PRICE
------------------- -------------- ------------ ---------------- ----------- --------------
$ 0.01 - 6.55 127,897 $ 4.37 3.3 years 127,897 $ 4.37
$ 6.56 - 9.82 520,614 $ 8.79 8.7 years 152,164 $ 8.63
$ 9.83 - 13.10 396,092 $ 11.58 8.7 years 23,650 $ 10.80
$ 13.11 - 16.37 616,000 $ 13.85 9.8 years 15,600 $ 13.13
$ 16.38 - 19.65 125,281 $ 18.93 2.8 years 100,529 $ 18.93
$ 19.66 - 22.92 259,750 $ 21.12 8.0 years 93,450 $ 21.08
$ 22.93 - 24.99 242,200 $ 23.88 7.7 years 130,800 $ 23.92
$ 25.00 - 25.00 227,890 $ 25.00 0.3 years 94,954 $ 25.00
$ 25.01 - 32.75 160,450 $ 27.51 7.0 years 121,645 $ 27.76
-------------- -----------
2,676,174 860,689
============== ===========
Each of the Company's subsidiaries has minority equity investors. These
investors are former strategic partners, former stockholders of businesses
acquired using subsidiary stock and former and current employees who have
exercised stock options in those entities. As of December 31, 2000, minority
investors owned, of the outstanding shares, approximately 5.1% of Maxwell
Electronic Components Group, Inc., 6.3% of I-Bus/Phoenix, Inc. and 19.3% percent
of PurePulse Technologies, Inc. In addition, each such subsidiary has an
employee stock option plan providing for the issuance of incentive and
nonqualified stock options to purchase subsidiary common stock. Only the option
programs at I-Bus/Phoenix, Inc. and at PurePulse Technologies, Inc. are active
with respect to current grants of options. As of mid-2000, certain employees of
I-Bus/Phoenix, Inc. and PurePulse Technologies, Inc. are eligible for option
grants in their respective subsidiary plans and are not eligible for grants at
the Maxwell level. Certain corporate and Maxwell Electronic Components Group,
Inc. employees are eligible for option grants at the Maxwell level, but not in
any subsidiaries.
58
MAXWELL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION FOR THE FULL YEAR ENDED DECEMBER 31, 1999 IS UNAUDITED)
NOTE 5 -- STOCK ACTIVITY AND STOCK PLANS (CONTINUED)
The subsidiary option plans intend to encourage an entrepreneurial
atmosphere in each business segment, providing focused incentives to appreciate
the equity value of each business. Options that are "in-the-money" at the
subsidiary level have a negative impact on Maxwell's earnings per share. The
Company expects to report diluted earnings per share in future periods due to
in-the-money subsidiary options. Except to the extent exercised, however, such
subsidiary options will not affect Maxwell's consolidated net income as reported
in its consolidated statement of operations. Such options, when and if
exercised, will dilute Maxwell's actual ownership interest in its subsidiaries,
thus reducing Maxwell's share of the net income (loss), potential dividends or
distributions and proceeds of any sale or other disposition of such subsidiary.
The equity interest upon exercise of stock options in the subsidiaries is
accounted for as a minority interest. Based on current programs, the potential
percentage ownership interest attributable to exercisable subsidiary options as
of December 31, 2000 is, on a diluted basis, approximately 3% of Maxwell
Electronic Components Group, Inc., 3% percent of I-Bus/Phoenix, Inc. and 5% of
PurePulse Technologies, Inc.
The Company has adopted the disclosure only provisions of FASB Statement
No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION ("Statement No. 123"). In
accordance with the provisions of Statement No. 123, the Company applies
Accounting Principles Board Opinion No. 25 and related interpretations in
accounting for its stock option plans, and accordingly, no compensation expense
has been recognized for stock options granted in the fiscal years ended July 31,
1998 or 1999, the five months ended December 31, 1999 or the year ended December
31, 2000, as the stock options have been granted at their current fair market
value. If the Company had elected to recognize compensation based on the fair
value method prescribed by Statement No. 123, the Company's net income (loss)
from continuing operations and diluted income (loss) from continuing operations
per share would have been adjusted to the pro forma amounts indicated below (in
thousands, except per share amounts):
FIVE MONTHS YEARS ENDED
YEARS ENDED JULY 31, ENDED DECEMBER 31,
--------------------- DECEMBER 31, --------------------
1998 1999 1999 1999 2000
-------- -------- ----------- -------- --------
(unaudited)
Income (loss) from continuing operations,
as reported ................................. $ 1,423 $ 3,939 $ (5,815) $ 46 $(16,291)
Pro forma income (loss) from continuing
operations .................................. $ (2,083) $ (1,643) $ (8,290) $ (5,685) $(24,668)
Diluted income (loss) from continuing
operations per share, as reported ........... $ 0.16 $ 0.40 $ (0.61) $ -- $ (1.66)
Pro forma diluted income (loss) from
continuing operations per share ............. $ (0.24) $ (0.17) $ (0.87) $ (0.58) $ (2.52)
The impact of outstanding non-vested stock options granted prior to 1997
has been excluded from the pro forma calculations; accordingly, the pro forma
adjustments shown above are not indicative of future period pro forma
adjustments when the calculation will reflect all applicable stock options. The
fair value of Company options at the date of grant was estimated using the
Black-Scholes option-pricing model with assumptions as follows:
RISK-FREE DIVIDEND VOLATILITY WEIGHTED-AVERAGE
YEARS ENDED INTEREST RATES YIELDS FACTORS EXPECTED TERMS
- -------------------------- ----------------- ------------------ ------------------ -----------------------
July 31, 1998 5.5% -- 54.0% 4 Years
July 31, 1999 5.0% -- 66.0% 5 Years
December 31, 1999 5.0% -- 106.0% 5 Years
December 31, 2000 5.0% -- 74.0% 5 Years
59
MAXWELL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION FOR THE FULL YEAR ENDED DECEMBER 31, 1999 IS UNAUDITED)
NOTE 5 -- STOCK ACTIVITY AND STOCK PLANS (CONTINUED)
Based on these assumptions, the estimated weighted average fair value at
grant date for Company options granted during the fiscal years ended July 31,
1998 and 1999, the five months ended December 31, 1999, and the year ended
December 31, 2000 was $12.00, $12.53, $9.13 and $10.01 per option, respectively.
STOCK PURCHASE PLANS
In December 1994, the Company established the 1994 Employee Stock Purchase
Plan and a Director Stock Purchase Plan. The employee plan permits substantially
all employees to purchase common stock through payroll deductions at 85% of the
lower of the trading price of the stock at the beginning or at the end of each
six-month offering period. The director plan permits non-employee directors to
purchase common stock at 100% of the trading price of the stock on the date a
request for purchase is received. In the fiscal years ended July 31, 1998 and
1999, and in the year ended December 31, 2000, aggregate shares of 40,795,
48,388 and 118,666, respectively, were issued under the two plans for aggregate
proceeds to the Company of $759,000, $970,000 and $997,000 respectively. No
shares were issued under the plans in the five months ended December 31, 1999.
At December 31, 2000, 131,486 shares are reserved for future issuance under
these plans.
In January 2000, the Board adopted, and the Company's stockholders
subsequently approved, the Company's Management Equity Ownership Program (the
"Program"). Under the Program, executive officers of the Company and other
members of senior management selected by the Committee are offered full-recourse
loans from the Company to be used to purchase stock of the Company. The loans
bear interest and must be repaid in annual installments of principal and
interest over a four-year period. Repayment of the loans is secured by the
shares purchased with the loan proceeds. On February 1, 2000, loans in the
aggregate amount of $900,000, bearing interest at 6.56%, were made in connection
with the aggregate purchase of 74,995 newly issued shares of the Company's
common stock at $12.00 per share, the closing market price on the date of
purchase.
DEFERRED COMPENSATION
In 1996 and 1997, the Chairman of the Company was granted shares of the
Company's common stock subject to certain restrictions. The shares granted vest
ratably over a four-year period, and at the grant dates the shares had a fair
value of approximately $645,000 and $190,000, respectively. Those values, net of
accumulated amortization, are shown as deferred compensation in the accompanying
consolidated balance sheets and consolidated statements of stockholders' equity.
The deferred compensation is being amortized to expense over the four-year
vesting periods, and such amortization totaled $209,000, $209,000, $87,000 and
$102,000 in the fiscal years ended July 31, 1998 and 1999, in the five months
ended December 31, 1999 and the year ended December 31, 2000, respectively.
STOCKHOLDER RIGHTS PLAN
In October 1999, the Company adopted a new Stockholder Rights Plan as a
successor to its previous plan, which expired in June 1999. In accordance with
the new plan, the Company distributed one non-voting common stock purchase right
("Right") for each outstanding share of common stock. The Rights are not
exercisable and will not trade separately from the common stock unless a person
or group acquires, or makes a tender offer for, 15% or more of the Company's
common stock. Initially, each Right entitles the registered holder to purchase
one share of Company common stock at a price of $75 per share, subject to
certain anti-dilution adjustments. If the Rights become exercisable and certain
conditions are met, then each Right not owned by the acquiring person or group
will entitle its holder to receive, upon exercise, Company common stock having a
market value of twice the exercise price of the Right. In addition, the Company
may redeem the Rights at a price of $0.01 per Right, subject to certain
restrictions. The new Stockholder Rights Plan expires on October 21, 2009.
60
MAXWELL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION FOR THE FULL YEAR ENDED DECEMBER 31, 1999 IS UNAUDITED)
NOTE 6 -- INCOME TAXES
The provision (credit) for income taxes based on income (losses) from
continuing operations is as follows (in thousands):
FIVE MONTHS YEARS ENDED
YEARS ENDED JULY 31, ENDED DECEMBER 31,
--------------------- DECEMBER 31, --------------------
1998 1999 1999 1999 2000
-------- -------- ----------- -------- --------
(unaudited)
Federal:
Current ...................................... $ 127 $ -- $ -- $ -- $ --
Deferred ..................................... 16 (4,903) (3,207) (8,110) (6,134)
-------- -------- ----------- -------- --------
143 (4,903) (3,207) (8,110) (6,134)
State:
Current ...................................... 25 82 399 565 122
Deferred ..................................... 19 (1,964) (920) (2,884) (751)
-------- -------- ----------- -------- --------
44 (1,882) (521) (2,319) (629)
Foreign:
Current ...................................... 200 394 320 504 496
Deferred ..................................... 26 (26) -- -- --
-------- -------- ----------- -------- --------
226 368 320 504 496
-------- -------- ----------- -------- --------
$ 413 $ (6,417) $ (3,408) $ (9,925) $ (6,267)
======== ======== =========== ======== ========
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. The primary components of
the Company's deferred tax assets and liabilities are as follows (in thousands):
DECEMBER 31,
------------------------------
1999 2000
------------- -------------
Deferred tax assets:
Tax loss carryforwards.............................................. $ 4,000 $20,300
Research and development and other tax credit carryforwards......... 2,900 2,900
Uniform capitalization, contract and inventory-related reserves..... 2,538 1,319
Environmental and restructuring provisions.......................... 2,000 408
Asset write-downs under FASB Statement No. 121...................... 349 343
Accrued vacation.................................................... 401 430
Allowance for doubtful accounts..................................... 285 301
Other............................................................... 207 145
------------- -------------
Total deferred tax assets................................... 12,680 26,146
Deferred tax liabilities:
Book investment basis in excess of tax basis........................ -- (1,166)
Tax basis depreciation in excess of book depreciation............... (734) (340)
------------- -------------
Total deferred tax liabilities.............................. (734) (1,506)
------------- -------------
Net deferred tax assets............................................... $ 11,946 $24,640
============= =============
61
MAXWELL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION FOR THE FULL YEAR ENDED DECEMBER 31, 1999 IS UNAUDITED)
NOTE 6 -- INCOME TAXES (CONTINUED)
The Company cannot carry losses back to prior years. Through the fiscal
year ended July 31, 1998, the Company had provided a valuation allowance against
the future tax benefits of its net operating loss carryforwards and net deferred
income tax assets as realization of such future benefits was deemed to be
uncertain. Based on the Company's earnings from continuing operations in the
fiscal years ended July 31, 1998 and 1999, management determined in July 1999
that it was more likely than not that the Company would receive the future
benefits from its net deferred income tax assets, including tax credits and
remaining net operating loss carryforwards. Accordingly, in fiscal year 1999,
the Company reversed the valuation allowance and recorded net deferred income
tax assets of approximately $8.9 million, of which $4.6 million was recorded as
a credit to additional paid-in capital for tax benefits relating to employee
stock option and stock purchase plan activity in the current and prior years.
Management believes that realization of the Company's deferred tax assets, which
are primarily comprised of net operating loss carryforwards and tax credits, is
more likely than not, based on the expected gains on the disposition of
discontinued operations and future taxable income.
As of December 31, 2000, the Company had net operating loss carryforwards
for federal and state income tax of approximately $51.8 million and $30.5
million, respectively. The federal loss carryforward begins to expire in
calendar year 2011, while the state loss carryforwards begin to expire in 2001
and expire through 2010. In addition, the Company has research and development
and other tax credit carryforwards for federal and state income tax purposes of
$2.0 million and $0.9 million, which begin to expire in 2004.
The provision (credit) for income taxes in the accompanying consolidated
statements of operations differs from the amount calculated by applying the
statutory income tax rate of 35% to income (loss) from continuing operations
before income taxes and minority interest. The primary components of such
difference are as follows (in thousands):
FIVE MONTHS YEARS ENDED
YEARS ENDED JULY 31, ENDED DECEMBER 31,
--------------------- DECEMBER 31, --------------------
1998 1999 1999 1999 2000
-------- -------- ----------- -------- --------
(unaudited)
Tax at federal statutory rate .................. $ 848 $ (865) $ (3,228) $ (3,456) $ (7,959)
State taxes, net of federal benefit ............ 167 (221) (374) (1,072) (637)
Effect of tax rate differential for foreign
subsidiary .................................. (47) 84 141 142 125
Impact of asset basis difference in
acquisitions ................................ 1,237 (793) -- (970) 2,191
Utilization of net operating loss
carryforwards ............................... (500) (400) -- (400) --
Valuation allowance, including tax benefits
of stock activity ........................... (1,119) (4,280) -- (4,280) --
Other items not reflected in consolidated
statement of operations ..................... (173) 58 53 111 13
-------- -------- ----------- -------- --------
$ 413 $ (6,417) $ (3,408) $ (9,925) $ (6,267)
======== ======== =========== ======== ========
62
MAXWELL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION FOR THE FULL YEAR ENDED DECEMBER 31, 1999 IS UNAUDITED)
NOTE 7 -- LEASES
Rental expense amounted to $1.7 million, $2.4 million, $1.0 million and
$2.6 million in fiscal years ended July 31, 1998 and 1999, the five months ended
December 31, 1999, and the year ended December 31, 2000, respectively, and was
incurred primarily for facility rental. Future annual minimum rental commitments
as of December 31, 2000, are as follows (in thousands):
FISCAL YEARS
- ------------
2001.......................................................... $2,017
2002.......................................................... 1,603
2003.......................................................... 858
2004.......................................................... 766
2005.......................................................... 787
Thereafter.................................................... 1,308
--------
$7,339
========
Certain leases include renewal options for periods ranging from one to ten
years and are subject to rental adjustment based on consumer price indices.
Substantially all leases provide that the Company pay for property taxes,
insurance, and repairs and maintenance. The Company also subleases certain of
its leased facilities under non-cancelable subleases through 2003. Future annual
amounts due to the Company under such subleases, aggregating $2,001,000, are as
follows: calendar year 2001 - $1,044,000; 2002 - $863,000; and 2003 - $94,000.
NOTE 8 -- EMPLOYEE BENEFIT PLANS
Substantially all United States employees are eligible to elect coverage
under contributory employee savings plans which provide for Company matching
contributions based on one-half of employee contributions up to certain plan
limits. The Company's matching contributions under these plans totaled $345,000,
$446,000, $269,000 and $387,000 in the fiscal years ended July 31, 1998 and
1999, the five months ended December 31, 1999, and the year ended December 31,
2000, respectively.
NOTE 9 -- RESTRUCTURING, ACQUISITION AND OTHER 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 year ended December 31, 2000 of approximately $8.7 million. Such
charges were determined in accordance with Staff Accounting Bulletin No. 100,
RESTRUCTURING AND IMPAIRMENT CHARGES, and Emerging Issues Task Force No. 94-3,
LIABILITY RECOGNITION FOR CERTAIN EMPLOYEE TERMINATION BENEFITS AND OTHER COSTS
TO EXIT AN ACTIVITY (INCLUDING CERTAIN COSTS INCURRED IN A RESTRUCTURING). These
charges include severance costs related to a reduction in workforce, the closure
and combination of certain facilities, and the write-off of certain
non-performing operating assets, including goodwill balances of $4.8 million
related to a previous acquisition based on a current appraisal of the acquired
business. The Company completed its Restructuring Plan in October 2000 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.
In September 2000, the Company also 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).
63
MAXWELL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION FOR THE FULL YEAR ENDED DECEMBER 31, 1999 IS UNAUDITED)
NOTE 9 -- RESTRUCTURING, ACQUISITION AND OTHER CHARGES (CONTINUED)
The following table summarizes the restructuring, acquisition and other
charges recorded, and the activity related to such charges, in the five months
ended December 1999 and the year ended December 31, 2000 (in thousands):
WRITE-DOWN OF
ABANDONED SEVERANCE COSTS TO MOVING AND
OPERATING COSTS FOR EXIT CERTAIN OTHER COSTS WRITE-OFF
ASSETS AND INVOLUNTARY CONTRACTUAL RELATED TO OF
IMPAIRED EMPLOYEE AND LEASE CONSOLIDATION IN-PROCESS
ASSETS TERMINATIONS OBLIGATIONS OF FACILITIES TECHNOLOGY TOTAL
--------------- ------------- ------------ -------------- ------------ -----------
Five Months Ended December 31, 1999:
Reserves Established ...... $ 1,813 $ 831 $ 127 $ 30 $ -- $ 2,801
Utilization of Reserves:
Cash .................... -- -- (10) -- -- (10)
Non-Cash ................ (1,813) ` -- -- -- -- (1,813)
------------ ------------ ------------ ------------ ------------ ------------
Balance at December 31, -- 831 117 30 -- 978
1999
Year Ended December 31, 2000:
Reserves Established ...... 6,433 740 907 640 500 9,220
Utilization of Reserves:
Cash .................... -- (951) (828) (359) -- (2,138)
Non-Cash ................ (6,433) -- -- -- (500) (6,933)
------------ ------------ ------------ ------------ ------------ ------------
Balance at December 31,
2000 ................... $ -- $ 620 $ 196 $ 311 $ -- $ 1,127
============ ============ ============ ============ ============ ============
During the fiscal year ended July 31, 1999, the Company recorded
restructuring, acquisition and other charges of approximately $2.6 million. Of
these charges, approximately $1.6 million consisted of direct acquisition costs
for business combinations accounted for using the pooling-of-interests method.
The remaining $1.0 million charge consists primarily of amounts provided for
revised estimates of costs to resolve certain environmental and legal
contingencies which occurred in prior years, as well as other restructuring
provisions, including employee and facility expenses, related to decisions made
in July 1999 to reduce certain administrative infrastructure of the Company in
Europe and the United States.
The Company recorded a $3.9 million charge in the fiscal year ended July
31, 1998 related to the acquisition of two businesses, including $0.9 million of
transaction costs for a business combination accounted for as a
pooling-of-interests, and $3.0 million related to the appraised amount of
acquired in-process technology for a business combination accounted for as a
purchase.
NOTE 10 -- DISCONTINUED OPERATIONS
In connection with its Restructuring Plan, the Company divested its high
voltage wound film capacitors, high voltage power supplies and time card and job
cost accounting software businesses in 2000. In February 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. In November 2000, the Company sold its time card and job cost
accounting software business for cash of $2.5 million and certain minority
shares of common stock of the buyer with an immaterial value. In the fourth
quarter of 2000, the Company also received cash of approximately $0.7 million
related to its equity investment in an unconsolidated entity, which was
classified as a discontinued operation. In December 1999, the Company recorded
provisions of approximately $2.1 million, net of tax, for estimated losses on
the sale of these discontinued businesses. Based on the actual proceeds received
and the net assets of the discontinued businesses at their respective dates of
sale, the Company reversed the provisions recorded in December 1999 and recorded
an aggregate gain on these sales of $2.9 million, net of tax, in the year ended
December 31, 2000, including such reversal.
64
MAXWELL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION FOR THE FULL YEAR ENDED DECEMBER 31, 1999 IS UNAUDITED)
NOTE 10 -- DISCONTINUED OPERATIONS (CONTINUED)
In late 2000, the Company decided to focus on its Electronic Components
Group and I-Bus/Phoenix segments (Note 11). Accordingly, in late 2000, the
Company offered for sale its defense contracting business and signed letters of
intent to sell the business in separate transactions with two buyers. Both
transactions are expected to be completed by March 31, 2001. The Company is also
seeking strategic alternatives for its PurePulse business, which the Company
expects will result in the sale of all or a majority of the Company's interest
in the business in 2001. Accordingly, both the defense contracting business and
PurePulse, each of which was previously classified as a separate segment, have
been classified as discontinued operations for financial reporting purposes.
Operating results of the discontinued operations are shown separately, net
of tax, in the accompanying consolidated statements of operations. The provision
(credit) for income taxes related to the discontinued operations was $0.6
million and $4.2 million in the fiscal year ended July 31, 1999 and the five
months ended December 31, 1999, respectively. For the fiscal year ended July 31,
1999, the provision for income taxes was net of a credit of $1.7 million
representing the reversal of a valuation allowance provided in previous years
against certain deferred tax assets of the discontinued operations. No provision
for income taxes was provided for discontinued operations for the fiscal year
ended July 31, 1998 or the calendar year ended December 31, 2000. The businesses
included in discontinued operations had sales aggregating $62.6 million, $76.8
million, $24.7 million and $47.2 million in the fiscal years ended July 31, 1998
and 1999, the five months ended December 31, 1999, and the year ended December
31, 2000, respectively. These amounts are not included in net sales in the
accompanying consolidated statements of operations.
Assets and liabilities of the discontinued operations consisted of the
following (in thousands):
DECEMBER 31,
-----------------------------------------
1999 2000
------------------- ------------------
Assets:
Cash............................................................... $ 1,162 $ --
Accounts receivable................................................ 18,998 10,442
Inventories........................................................ 3,443 1,083
Prepaid expenses and other current assets.......................... 7,020 189
Property and equipment, net........................................ 6,678 3,484
Goodwill and other non-current assets.............................. 5,204 5,725
------------------- ------------------
42,505 20,923
Liabilities:
Accounts payable and other current liabilities, including
provisions for estimated losses upon disposal.................... 18,684 6,960
------------------- ------------------
$ 23,821 $ 13,963
=================== ==================
Net assets of the discontinued operations have been separately classified
in the accompanying consolidated balance sheets as of December 31, 1999 and
2000. Prior year consolidated financial statements have been restated to conform
to the current year presentation.
65
MAXWELL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION FOR THE FULL YEAR ENDED DECEMBER 31, 1999 IS UNAUDITED)
NOTE 11 -- 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, Maxwell's operations have been classified
into two business segments as follows:
- - Electronic Components Group
As part of its Restructuring Plan, the Company organized the
Electronic Components Group by combining numerous business units and
product lines: its POWERCACHE ultracapacitors, EMI filtered
feedthroughs, ceramic capacitors and radiation-shielded
microelectronics. In October 2000, the Company integrated the
POWERCACHE ultracapacitor operations and the radiation-shielded
microelectronics operations into one new manufacturing site in San
Diego, while the EMI filters and ceramic capacitors are manufactured
at the Company's facility in Carson City, Nevada, which was redesigned
in 2000. Both facilities were designed for highly efficient
manufacturing, with improved processes, improved personnel training
and more disciplined cost control practices.
The Electronic Components Group consists primarily of the following
power delivery and other high reliability devices product lines:
- ultracapacitors for electrical energy storage and delivery of
peak power for a variety of applications;
- EMI filtered feedthroughs for cardiac pacemakers, defibrillators
and other implantable medical devices and high temperature
ceramic capacitors and filters used in oil exploration; and
- radiation-shielded microelectronics, including integrated
circuits, power modules and single board computers for space and
military markets.
- I-Bus/Phoenix Power and Computing Systems
As part of its Restructuring Plan, the Company integrated its
I-Bus, Inc. and Phoenix Power Systems, Inc. subsidiaries. The
I-Bus/Phoenix organization has operations in the U.S., Europe and
Asia. The new I-Bus/Phoenix operation is focused on providing
high availability custom computing systems and power quality
products. As part of the Restructuring Plan, the Company combined
the San Diego operations of these two businesses into a single
facility in October 2000. The new facility has been designed for
highly efficient manufacturing, with improved processes, improved
personnel training and more disciplined cost control practices.
The Company's I-Bus/Phoenix product offerings include applied
computing systems, power distribution systems and power
conditioning units. These products are sold mainly to OEMs
serving the telecommunications and Internet infrastructure,
industrial automation, broadcasting and medical imaging markets.
Maxwell's management evaluates performance and allocates resources based on
a measure of segment operating profit (loss), excluding restructuring,
acquisition and other charges. The accounting policies of the reportable
segments are the same as those described in the summary of significant
accounting policies. Maxwell does not evaluate segment performance on amounts
provided for restructuring, acquisition and other charges, or on items of income
or expense below operating income (loss). Accordingly, such items are not
segregated by operating segment.
66
MAXWELL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION FOR THE FULL YEAR ENDED DECEMBER 31, 1999 IS UNAUDITED)
NOTE 11 -- BUSINESS SEGMENTS (CONTINUED)
Business segment financial data is as follows (in thousands):
FIVE MONTHS YEARS ENDED
YEARS ENDED JULY 31, ENDED DECEMBER 31,
--------------------- DECEMBER 31, --------------------
1998 1999 1999 1999 2000
-------- -------- ----------- -------- --------
(unaudited)
Sales:
Electronic Components Group ................. $ 35,166 $ 37,783 $ 9,143 $ 29,336 $ 39,139
I-Bus/Phoenix Power and Computing Systems ... 42,848 65,095 27,720 74,275 63,208
-------- -------- ----------- -------- --------
Consolidated total ........................ $ 78,014 $102,878 $ 36,863 $103,611 $102,347
======== ======== =========== ======== ========
Operating income (loss):
Electronic Components Group ................. $ 3,053 $ (2,275) $ (5,138) $ (7,878) $ (3,001)
I-Bus/Phoenix Power and Computing Systems ... 3,297 3,444 128 4,403 (3,782)
-------- -------- ----------- -------- --------
Total operating income (loss) ............. 6,350 1,169 (5,010) (3,475) (6,783)
Corporate expenses, including total
restructuring, acquisition and other charges (5,519) (3,804) (4,072) (6,570) (14,535)
Interest and other, net ..................... 1,005 161 (141) 170 (1,421)
-------- -------- ----------- -------- --------
Income (loss) from continuing operations before
income taxes, and minority interest ......... $ 1,836 $ (2,474) $ (9,223) $ (9,875) $(22,739)
======== ======== =========== ======== ========
Depreciation and amortization:
Electronic Components Group ................. $ 1,025 $ 1,409 $ 688 $ 1,832 $ 1,530
I-Bus/Phoenix Power and Computing Systems ... 754 1,357 612 1,409 1,545
Corporate ................................... 326 395 234 475 603
-------- -------- ----------- -------- --------
Consolidated total ........................ $ 2,105 $ 3,161 $ 1,534 $ 3,716 $ 3,678
======== ======== =========== ======== ========
Capital expenditures:
Electronic Components Group ................. $ 2,797 $ 3,698 $ 807 $ 3,504 $ 1,233
I-Bus/Phoenix Power and Computing Systems ... 861 1,223 587 1,240 3,982
Corporate ................................... 949 563 205 492 6,575
-------- -------- ----------- -------- --------
Consolidated total ........................ $ 4,607 $ 5,484 $ 1,599 $ 5,236 $ 11,790
======== ======== =========== ======== ========
JULY 31, DECEMBER 31,
------------------------ ---------------------
1998 1999 1999 2000
------------ --------- ----------- ---------
Identifiable Assets:
Electronic Components Group................. $ 23,648 $ 27,834 $ 27,147 $ 35,169
I-Bus/Phoenix Power and Computing Systems... 23,700 33,163 29,517 33,199
Corporate................................... 28,481 24,884 17,666 39,778
Net assets of discontinued operations....... 24,371 27,605 23,821 13,963
------------ --------- ----------- ---------
Consolidated total........................ $100,200 $113,486 $ 98,151 $122,109
============ ========= =========== =========
Intersegment sales are insignificant. Identifiable assets by segment
include the assets directly identified with those segments. Corporate assets
consist primarily of cash and cash equivalents, deferred tax assets and credits,
and the centralized telecommunications, networking and other information
technology equipment of the Company.
International sales amounted to $14.8 million, $24.0 million, $10.7 million
and $25.8 million in the fiscal years ended July 31, 1998 and 1999, in the five
months ended December 31, 1999, and in the year ended December 31, 2000,
respectively, and were made principally to customers in the United Kingdom,
Europe and the Pacific Rim. Company assets located outside the United States
totaled approximately $8.9 million and $10.5 million at December 31, 1999 and
2000, respectively.
67
MAXWELL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION FOR THE FULL YEAR ENDED DECEMBER 31, 1999 IS UNAUDITED)
NOTE 11 -- BUSINESS SEGMENTS (CONTINUED)
The Company made sales to one major customer of its I-Bus/Phoenix Power and
Computing Systems segment which aggregated 13.1%, 16.7%, 18.6% and 8.4% of total
Company sales for the fiscal year ended July 31, 1999, the five months ended
December 31, 1999 and the years ended December 31, 1999 and 2000, respectively.
In addition, one other major customer of the I-Bus/Phoenix Power and Computing
Systems segment accounted for 10.2% of total Company sales for the fiscal year
ended July 31, 1998.
NOTE 12 - RELATED PARTY TRANSACTIONS
In February 1999, the Company loaned $2.0 million to its Chairman and
former CEO under a full recourse promissory note agreement, bearing interest at
5% per year and secured in part by a pledge of Company stock owned by the
Chairman. Principal and accumulated interest was paid in full in January 2001.
In January 2001, the Company borrowed $1.5 million from its Chief Executive
Officer under an unsecured promissory note bearing interest at 11.0%. The note
and accrued interest was fully repaid in March 2001.
68
MAXWELL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION FOR THE FULL YEAR ENDED DECEMBER 31, 1999 IS UNAUDITED)
NOTE 13 - UNAUDITED QUARTERLY RESULTS OF OPERATIONS
The following is a summary of the unaudited quarterly results of operations
for the years ended December 31, 1999 and 2000, respectively. The unaudited
financial information reflects all normal recurring adjustments, which are in
the opinion of management, necessary for the fair statement of the results of
the interim periods (in thousands, except per share amounts).
THREE MONTHS ENDED
------------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
------------ ------------ ------------ ------------
Year Ended December 31, 1999:
Continuing operations:
Sales .................................... $ 24,398 $ 28,663 $ 29,074 $ 21,476
Cost of sales ............................ 16,366 19,934 21,333 16,892
------------ ------------ ------------ ------------
Gross profit ............................. 8,032 8,729 7,741 4,584
Total operating expenses ................. 8,409 8,088 10,137 12,497
------------ ------------ ------------ ------------
Operating income (loss) .................. (377) 641 (2,396) (7,913)
Income (loss) from continuing operations . (241) 440 4,607 (4,760)
Discontinued operations, net of tax ........ 2,177 4,227 (82) (6,621)
------------ ------------ ------------ ------------
Net income (loss) .......................... $ 1,936 $ 4,667 $ 4,525 $ (11,381)
============ ============ ============ ============
Basic net income (loss) per share:
Income (loss) from continuing operations . $ (0.03) $ (0.05) $ 0.48 $ (0.50)
Income (loss) from discontinued operations 0.23 (0.44) (0.01) (0.69)
------------ ------------ ------------ ------------
$ 0.20 $ (0.49) $ 0.47 $ (1.19)
============ ============ ============ ============
Diluted net income (loss) per share:
Income (loss) from continuing operations . $ (0.03) $ (0.04) $ 0.47 $ (0.50)
Income (loss) from discontinued operations 0.23 (0.43) (0.01) (0.69)
------------ ------------ ------------ ------------
$ 0.20 $ (0.47) $ 0.46 $ (1.19)
============ ============ ============ ============
Year Ended December 31, 2000:
Continuing operations:
Sales .................................... $ 26,149 $ 27,085 $ 21,671 $ 27,442
Cost of sales ............................ 18,645 19,446 20,631 20,750
------------ ------------ ------------ ------------
Gross profit ............................. 7,504 7,639 1,040 6,692
Total operating expenses ................. 9,654 10,226 16,685 7,628
------------ ------------ ------------ ------------
Operating loss ........................... (2,150) (2,587) (15,645) (936)
Loss from continuing operations .......... (1,384) (1,692) (12,331) (884)
Discontinued operations, net of tax ........ (107) (167) (644) 892
------------ ------------ ------------ ------------
Net income (loss) .......................... $ (1,491) $ (1,859) $ (12,975) $ 8
============ ============ ============ ============
Basic net income (loss) per share:
Loss from continuing operations .......... $ (0.14) $ (0.18) $ (1.25) $ (0.09)
Income (loss) from discontinued operations (0.04) (0.14) (0.07) 0.09
------------ ------------ ------------ ------------
$ (0.18) $ (0.32) $ (1.32) $ --
============ ============ ============ ============
Diluted net income (loss) per shares:
Loss from continuing operations .......... $ (0.14) $ (0.18) $ (1.25) $ (0.09)
Income (loss) from discontinued operations (0.04) (0.14) (0.07) 0.09
------------ ------------ ------------ ------------
$ (0.18) $ (0.32) $ (1.32) $ --
============ ============ ============ ============
Per share amounts for the quarters and full years have each been calculated
separately. Accordingly, quarterly amounts may not add to the annual amounts
presented elsewhere in this report because of differences in the average common
shares outstanding during each period, and with regard to diluted per share
amounts only, because of the inclusion of the effect of potentially dilutive
securities only in the periods in which such effect would have been dilutive.
69
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEMS 10 THROUGH 13.
The information required under Item 10 (Directors and Executive Officers of
the Registrant), Item 11, (Executive Compensation), Item 12 (Security Ownership
of Certain Beneficial Owners and Management) and Item 13 (Certain Relationships
and Related Transactions) will be reported in the Company's Proxy Statement for
the 2001 Annual Meeting of Shareholders to be filed with the Securities and
Exchange Commission pursuant to Regulation 14A as follows and is incorporated
herein by reference:
ITEM NUMBER HEADING IN PROXY STATEMENT
- ----------- --------------------------
10-------- "ELECTION OF DIRECTORS"
11-------- "EXECUTIVE COMPENSATION"
12-------- "SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT"
13-------- "EXECUTIVE COMPENSATION"
(See also Item 4.1 - "Executive Officers of the Registrant," Part I, SUPRA)
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)(1) FINANCIAL STATEMENTS
See Item 6, Item 7 and Item 8.
(a)(2) FINANCIAL STATEMENT SCHEDULES
Schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are omitted because they
are inapplicable or not required under the related instructions.
(a)(3) LIST OF EXHIBITS
3.1 Restated Certificate of Incorporation of the Registrant -- Exhibit
3.1 to the Registrant's Form 10-K Annual Report for the year ended
July 31, 1987 ("1987 Form 10-K") is incorporated by reference.
3.2 Certificate of Amendment of Restated Certificate of Incorporation
of the Registrant increasing the number of authorized shares to 20
million, dated November 22, 1996 -- Exhibit 3.2 to the
Registrant's Form 10-K Annual Report for the year ended July 31,
1997 ("1997 Form 10-K") is incorporated by reference.
3.3 Certificate of Amendment of Restated Certificate of Incorporation
of the Registrant increasing the number of authorized shares to 40
million, dated February 9, 1998 -- Exhibit 3.3 to the Registrant's
Form 10-K Annual Report for the year ended July 31, 1999 ("1999
Form 10-K") is incorporated by reference.
3.4 Bylaws of the Registrant as amended to date-- Exhibit 3.2 to the
1987 Form 10-K is incorporated by reference.
3.5 Revised Article IV of the Bylaws of the Registrant-- Exhibit 3.4
to the 1997 Form 10-K is incorporated by reference.
70
4.1 Rights Agreement dated November 5, 1999 between Registrant and
ChaseMellon Shareholders Services, LLC, as Rights Agent - Exhibit
1 to the Registrant's Form 8-A filed November 18, 1999 is hereby
incorporated by reference.
10.1 Maxwell Laboratories, Inc. 1995 Stock Option Plan-- Exhibit 10.3
to the Registrant's Form 10-K Annual Report for the year ended
July 31, 1995 ("1995 Form 10-K") is incorporated by reference.
10.2 Amendment Number One to Maxwell Laboratories, Inc. 1995 Stock
Option Plan, dated March 19, 1997-- Exhibit 10.6 to the 1997 Form
10-K is incorporated by reference.
10.3 Amendment Number Two to Maxwell Technologies, Inc. 1995 Stock
Option Plan, dated January 28, 1998-- Exhibit 10.6 to the 1998
Form 10-K is incorporated by reference.
10.4 Amendment Number Three to Maxwell Technologies, Inc. 1995 Stock
Option Plan, dated January 28, 1999 -- Exhibit 10.8 to the 1999
Form 10-K is incorporated by reference.
10.5 Amendment Number Four to Maxwell Technologies, Inc. 1995 Stock
Option Plan, dated January 28, 2000-- Exhibit 10.9 to the
Registrant's December 31, 1999 Form 10-K is incorporated by
reference.
10.6* Amendment Number Five to Maxwell Technologies, Inc. 1995 Stock
Option Plan, dated August 14, 2000.
10.7 Maxwell Laboratories, Inc. Director Stock Option Plan-- Exhibit
10.23 to the Registrant's Form 10-K Annual Report for the year
ended July 31, 1989 ("1989 Form 10-K") is incorporated by
reference.
10.8 Amendment Number One to Maxwell Laboratories, Inc. Director Stock
Option Plan, dated February 7, 1997-- Exhibit 10.2 to the 1997
Form 10-K is incorporated by reference.
10.9 Amendment Number Two to Maxwell Laboratories, Inc. Director Stock
Option Plan, dated January 28, 1999-- Exhibit 10.3 to the 1999
Form 10-K is incorporated by reference.
10.10 Maxwell Technologies, Inc. 1999 Director Stock Option Plan, dated
January 28, 2000-- Exhibit 10.12 to the Registrant's December 31,
1999 Form 10-K is incorporated by reference.
10.11 Maxwell Laboratories, Inc. 1994 Employee Stock Purchase Plan--
Exhibit 10.4 to the 1995 Form 10-K is incorporated by reference.
10.12 Amendment Number One to the Maxwell Laboratories, Inc. 1994
Employee Stock Purchase Plan, effective as of April 30, 1997--
Exhibit 10.38 to the 1997 Form 10-K is incorporated by reference.
10.13 Maxwell Technologies, Inc. 1999 Management Equity Ownership
Program dated January 28, 2000-- Exhibit 10.45 to the Registrant's
December 31, 1999 Form 10-K is incorporated by reference.
10.14 Maxwell Laboratories, Inc. 1994 Director Stock Purchase Plan--
Exhibit 10.5 to the 1995 Form 10-K is incorporated by reference.
10.15 Maxwell Energy Products, Inc. 1996 Stock Option Plan-- Exhibit
10.35 to the 1997 Form 10-K is incorporated by reference.
10.16* Maxwell Electronic Components Group, Inc. 2000 Stock Option Plan.
10.17 I-Bus, Inc. 1996 Stock Option Plan-- Exhibit 10.36 to the 1997
Form 10-K is incorporated by reference.
10.18 I-Bus/Phoenix, Inc. 2000 Stock Option Plan-- Exhibit 10.3 to the
Registrant's September 30, 2000 Form 10-Q is incorporated by
reference.
10.19 PurePulse Technologies, Inc. 1994 Stock Option Plan-- Exhibit
10.26 to the 1996 Form 10-K is incorporated by reference.
10.20 PurePulse Technologies, Inc. 2000 Stock Option Plan-- Exhibit 10.2
to the September 30, 2000 Form 10-Q is incorporated by reference.
71
10.21 Maxwell Federal Division, Inc. 1996 Stock Option Plan-- Exhibit
10.34 to the 1997 Form 10-K is incorporated by reference.
10.22 Maxwell Technologies, Inc. Employment Agreement dated November 9,
1999 between the Registrant and Carlton J. Eibl-- Exhibit 10.19 to
the Registrant's December 31, 1999 Form 10-K is incorporated by
reference.
10.23 Maxwell Technologies, Inc. Employment Agreement dated April 30,
1999 between the Registrant and Thomas L. Horgan-- Exhibit 10.19
to the 1999 Form 10-K is incorporated by reference.
10.24 Restricted Stock Agreement dated July 25, 1996, between the
Registrant and Kenneth F. Potashner -- Exhibit 10.17 to the
Registrant's Form 10-K Annual Report for the year ended July 31,
1996 is incorporated by reference.
10.25 Amendment Number One to Restricted Stock Agreement, dated June 24,
1997, between the Registrant and Kenneth F. Potashner -- Exhibit
10.23 to the 1997 Form 10-K is incorporated by reference.
10.26 Secured Promissory Note dated February 2, 1999 and Stock Pledge
Agreement dated February 2, 1999 between Registrant and Kenneth F.
Potashner -- Exhibit 10.24 to the 1999 Form 10-K is incorporated
by reference.
10.27 Stock Pledge Agreement dated February 2, 1999 between Registrant
and Kenneth F. Potashner -- Exhibit 10.25 to the 1999 Form 10-K is
incorporated by reference.
10.28* Subordinated Promissory Note dated January 17, 2001, between
Maxwell Technologies, Inc. and Carl Eibl.
10.29* Executive Bonus Plan for Calendar Year 2001
10.30 Stock Purchase Agreement among Maxwell Technologies, Inc., Maxwell
Energy Products, Inc., and PacifiCorp Energy Ventures, Inc., dated
October 30, 1997-- Exhibit 10 to the Registrant's October 31, 1997
Form 10-Q is incorporated by reference.
10.31 Shareholder Agreement among Maxwell Technologies, Inc., PurePulse
Technologies, Inc., Sanyo E&E Corporation and Three Oceans Inc.,
dated January 28, 1999-- Exhibit 10.44 to the 1999 Form 10-K is
incorporated by reference.
10.32 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.-- Exhibit
10.1 to the Registrant's September 30, 2000 Form 10-Q is
incorporated by reference.
10.33* Loan and Security Agreement dated February 26, 2001, between
Maxwell Technologies, Inc., Maxwell Electronic Components Group,
Inc., I-Bus/Phoenix, Inc., PurePulse Technologies, Inc., Maxwell
Technologies Systems Division, Inc., MML Acquisition Corporation
and Comerica Bank - California.
10.34* Lease dated March 28, 2000 by and between Balboa Boulevard
Building, G.P., as Lessor, and the Registrant, as Lessee.
10.35 Lease dated November 1, 1996, by and between Ponderosa Pines
Partnership, as Lessor, and PurePulse Technologies, Inc., as
Lessee -- Exhibit 10.25 to the 1997 Form 10-K is incorporated by
reference.
21.1* List of subsidiaries of the Registrant.
23.1* Consent of Ernst & Young, LLP, Independent Auditors.
(b) REPORTS ON FORM 8-K
None.
- ----------
* Filed herewith.
72
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, in the City of San
Diego, State of California, on this 19th day of March, 2001.
MAXWELL TECHNOLOGIES, INC.
By: /s/ Carlton J. Eibl
-------------------------------------
Carlton J. Eibl
Chief Executive Officer and President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the Registrant in
the capacities and on the dates indicated.
SIGNATURE TITLE DATE
/s/ Carlton J. Eibl Chief Executive Officer, President and March 19, 2001
- --------------------------- Director
Carlton J. Eibl
s/ Kenneth F. Potashner Chairman of the Board, Director March 19, 2001
- ---------------------------
Kenneth F. Potashner
/s/ Vickie L. Capps Vice President, Finance and March 19, 2001
- --------------------------- Administration, Treasurer
Vickie L. Capps and Chief Financial Officer
(Principal Financial and Accounting Officer)
/s/ Mark Rossi Director March 19, 2001
- ---------------------------
Mark Rossi
/s/ Jean Lavigne Director March 19, 2001
- ---------------------------
Jean Lavigne
/s/ Robert Guyett Director March 19, 2001
- ---------------------------
Robert Guyett
73