<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
For the quarterly period ended: APRIL 28, 1996
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: 0-19330
SPECIAL DEVICES, INCORPORATED
(Exact name of Registrant as specified in its charter)
DELAWARE 95-3008754
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
16830 W. PLACERITA CANYON ROAD, NEWHALL, CALIFORNIA 91321
(Address of principal executive offices)
(805) 259-0753
(Registrant's telephone number, including area code)
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. X YES NO
--- ---
At June 11, 1996, the total number of outstanding shares of registrant's common
stock was 7,667,271.
<PAGE> 2
PART I - FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
SPECIAL DEVICES, INCORPORATED
AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS
October 31, April 28,
1995 1996
----------- -----------
(Unaudited)
<S> <C> <C>
Current assets:
Cash and short-term marketable securities $12,628,185 $12,333,068
Accounts receivable, net of allowance of
$216,604 at October 31, 1995 and $210,964
at April 28, 1996 for doubtful accounts 12,562,082 9,979,833
Inventories 17,239,608 19,157,504
Prepaid expenses 299,506 362,793
Deferred income taxes 591,000 530,000
----------- -----------
Total current assets 43,320,381 42,363,198
----------- -----------
Property, plant and equipment, at cost:
Land 1,559,827 1,611,331
Building 4,941,897 7,214,168
Machinery and equipment 28,646,606 30,838,965
Furniture and fixtures 1,778,829 1,927,714
Transportation equipment 3,008,482 3,045,239
Leasehold improvements 2,124,280 2,212,246
Construction in progress 5,050,924 4,375,622
----------- -----------
47,110,845 51,225,285
Less accumulated depreciation 12,195,400 14,842,063
----------- -----------
34,915,445 36,383,222
----------- -----------
Other assets 385,050 283,993
----------- -----------
$78,620,876 $79,030,413
=========== ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
- 2 -
<PAGE> 3
SPECIAL DEVICES, INCORPORATED
AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
October 31, April 28,
1995 1996
----------- -----------
(Unaudited)
<S> <C> <C>
Current liabilities:
Current portion of long-term debt $ 1,864,710 $ 1,848,026
Trade accounts payable 4,314,767 3,065,186
Accounts payable to related parties 1,573,660 1,471,434
Accrued payroll and benefits 1,721,332 1,467,333
Accrued expenses 548,862 374,171
Income taxes 127,101 39,901
----------- -----------
Total current liabilities 10,150,432 8,266,051
Long-term debt, less current portion 4,026,574 3,409,297
Deferred income taxes 2,390,000 2,340,000
----------- -----------
Total liabilities 16,567,006 14,015,348
----------- -----------
Commitments and contingencies - -
Stockholders' equity:
Preferred stock, $.01 par value. Authorized
2,000,000 shares; no shares issued or outstanding - -
Common stock, $.01 par value. Authorized
20,000,000 shares; issued and outstanding
7,655,076 shares, at October 31, 1995, and
7,662,772 shares at April 28, 1996
76,551 76,667
Additional paid-in capital 49,711,881 49,787,509
Retained earnings 12,265,438 15,150,889
----------- -----------
Total stockholders' equity 62,053,870 65,015,065
----------- -----------
$78,620,876 $79,030,413
=========== ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
- 3 -
<PAGE> 4
SPECIAL DEVICES, INCORPORATED
AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS - UNAUDITED
<TABLE>
<CAPTION>
Three months ended Six months ended
--------------------------- -----------------------------
April 30, April 28, April 30, April 28,
1995 1996 1995 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales $25,091,853 $24,221,910 $47,245,389 $46,763,353
Cost of sales 20,597,452 19,717,945 38,934,900 38,301,715
----------- ----------- ----------- -----------
Gross profit 4,494,401 4,503,965 8,310,489 8,461,638
----------- ----------- ----------- -----------
Operating expenses 1,536,448 2,085,868 3,278,442 3,830,051
----------- ----------- ----------- -----------
Operating income 2,957,953 2,418,097 5,032,047 4,631,587
----------- ----------- ----------- -----------
Other income (expense):
Interest expense (450,994) (80,262) (760,735) (195,788)
Interest income - 116,770 - 236,041
Other 22,844 910 (4,720) 8,611
----------- ----------- ----------- -----------
Net other (expense) income (428,150) 37,418 (765,455) 48,864
----------- ----------- ----------- -----------
Income before income taxes 2,529,803 2,455,515 4,266,592 4,680,451
Income taxes 1,008,000 930,000 1,710,000 1,795,000
----------- ----------- ----------- -----------
Net income $ 1,521,803 $ 1,525,515 $ 2,556,592 $ 2,885,451
=========== =========== =========== ===========
Net income per share $ 0 .26 $ .20 $ .44 $ .37
=========== =========== =========== ===========
Weighted average common shares
outstanding and common equivalents 5,851,937 7,754,242 5,847,624 7,748,446
=========== =========== =========== ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
- 4 -
<PAGE> 5
SPECIAL DEVICES, INCORPORATED
AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY - UNAUDITED
FOR THE SIX MONTHS ENDED APRIL 28, 1996
<TABLE>
<CAPTION>
Additional Total
Common paid-in Retained Stockholders'
Stock Capital Earnings Equity
------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
Balance at October 31, 1995 $76,551 $49,711,881 $12,265,438 $62,053,870
Issuance of common stock on
exercise of stock options 116 75,628 - 75,744
Net income (unaudited) - - 2,885,451 2,885,451
------- ----------- ----------- -----------
Balance at April 28, 1996 $76,667 $49,787,509 $15,150,889 $65,015,065
======= =========== =========== ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
- 5 -
<PAGE> 6
SPECIAL DEVICES, INCORPORATED
AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED
<TABLE>
<CAPTION>
Six months ended
---------------------------
April 30, April 28,
1995 1996
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 2,556,592 $ 2,885,451
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Depreciation 2,026,657 2,646,663
Changes in assets and liabilities:
(Increase) decrease in accounts receivable (3,752,352) 2,582,249
(Increase) in inventories (2,813,260) (1,917,896)
(Increase) in prepaid expenses (115,556) (63,286)
Decrease in deferred taxes - 61,000
Decrease in other assets - 101,057
Increase (decrease) in accounts payable,
accounts payable to related parties and other
accrued expenses 1,898,079 (1,780,500)
Increase (decrease) in income taxes payable 693,000 (87,200)
(Decrease) in net deferred taxes (99,000) (50,000)
----------- -----------
Net cash provided by operating activities 394,158 4,377,538
----------- -----------
Cash flows from investing activities:
Purchases of property, plant and equipment (8,055,253) (4,114,438)
----------- -----------
Net cash (used in) investing activities (8,055,253) (4,114,438)
----------- -----------
Cash flows from financing activities:
Proceeds from exercise of stock options 359,718 75,744
Proceeds from issuance of long term debt 6,220,521 -
Payments of long-term debt (602,754) (633,961)
Net advance of notes payable to bank 1,800,000 -
----------- -----------
Net cash provided by (used in) financing activities 7,777,485 (558,217)
----------- -----------
Net increase (decrease) in cash 116,392 (295,117)
Cash at beginning of period 481,135 12,628,185
----------- -----------
Cash at end of period $ 597,527 $12,333,068
=========== ===========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $ 647,558 $ 175,180
Income taxes $ 1,384,500 $ 1,940,000
=========== ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
- 6 -
<PAGE> 7
SPECIAL DEVICES, INCORPORATED
AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
APRIL 28, 1996
(UNAUDITED)
(1) INTERIM FINANCIAL STATEMENTS
The accompanying unaudited condensed consolidated financial statements
of Special Devices, Incorporated, a Delaware corporation, include all
adjustments (consisting of normal recurring entries) which management believes
are necessary for a fair presentation of the financial position and results of
operations for the periods presented. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted.
It is suggested that the accompanying financial statements be read in
conjunction with the Company's audited financial statements and footnotes as of
and for the year ended October 31, 1995. Operating results for the six month
period ended April 28, 1996 are not necessarily indicative of the operating
results for the full fiscal year.
(2) ACCOUNTS RECEIVABLE
Accounts receivable are as follows:
<TABLE>
<CAPTION>
October 31, April 28,
1995 1996
----------- -----------
<S> <C> <C>
U.S. Government $ 374,305 $ 3,484
U.S. Government Subcontractors 4,579,129 4,315,174
Commercial Customers 7,825,252 5,872,139
----------- -----------
12,778,686 10,190,797
Less allowance for doubtful accounts 216,604 210,964
----------- -----------
Total $12,562,082 $ 9,979,833
=========== ===========
</TABLE>
(3) INVENTORIES
Inventories and inventoried costs relating to long-term contracts are classified
as follows:
<TABLE>
<CAPTION>
October 31, April 28,
1995 1996
----------- -----------
<S> <C> <C>
Raw materials and components $ 4,998,400 $ 5,355,265
Work in process 5,766,087 8,897,137
Finished goods 1,103,141 769,670
Inventoried costs relating to
long term contracts, net of
amounts attributed to revenues
recognized to date 5,568,687 4,139,180
----------- -----------
17,436,315 19,161,252
Less progress payments related
to long-term contracts 196,707 3,748
----------- -----------
$17,239,608 $19,157,504
=========== ===========
</TABLE>
Inventoried costs relate to costs of products currently in progress. There are
no significant inventoried costs relating
- 7 -
<PAGE> 8
SPECIAL DEVICES, INCORPORATED
AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
APRIL 28, 1996
(UNAUDITED)
to the production costs of delivered units over the estimated average cost of
all units expected to be produced.
(4) NOTES PAYABLE AND LONG-TERM DEBT
<TABLE>
<CAPTION>
Long-term debt consisted of the following:
October 31, April 28,
1995 1996
----------- -----------
<S> <C> <C>
Bank term notes $3,201,339 $2,684,656
Finance company 2,667,555 2,556,334
Other notes 22,390 16,333
---------- ----------
5,891,284 5,257,323
Less current portion 1,864,710 1,848,026
---------- ----------
$4,026,574 $3,409,297
========== ==========
</TABLE>
The bank term notes consist of a $5,000,000 term note payable in 60 equal
installments of $83,333 plus interest at a fixed annual rate of 7.3 percent. The
unpaid balance at April 28, 1996, was $2,083,000. The Company's wholly-owned
subsidiary, Scot, Inc. also has a term loan with a bank, secured by certain real
property of Scot. The principal balance outstanding at April 28, 1996, was
$602,000. The loan is being amortized with monthly payments of approximately
$13,000, including interest of 10.0%, through August 1996, at which time the
remaining balance is due.
The finance company notes are secured by related equipment. The first note
is being amortized over 12 years, with interest at 5.9% through November 1996,
and with interest at prime plus one-half percent through November 2006, when the
note will be fully amortized. Monthly payments are approximately $20,300
through November 1996. The unpaid balance at April 28, 1996, was $1,899,000. The
second note is being amortized over 10 years, with interest of 4.9% through
December 1996, and with interest at prime plus one-half percent through December
2004, when the note will be fully amortized. Monthly payments are approximately
$7,100 through December 1996. The unpaid balance at April 28, 1996 was
$588,000.
(5) STOCK INCENTIVE
The Company's amended and restated 1991 Stock Incentive Plan (the
"Plan") is administered by a committee of the Board of Directors which
determines the amount, type, terms and conditions of the awards made pursuant to
the Plan. The Plan provides for issuance of restricted stock, grants of
incentive and non-qualified stock options, stock appreciation rights and
performance share awards. There are 560,000 shares of common stock reserved for
issuance under the Plan.
Pursuant to the Plan, no option may be granted that is exercisable in less
than six months or more than ten years from the grant date. Certain events,
including a change in control of the Company, may accelerate exercise dates,
cause forfeiture of all shares of any restricted stock and terminate all
conditions relating to the realization of any performance awards.
During the quarter ended April 28, 1996, no options were granted, and 3,132
options were exercised at $10.00 per share. At April 28, 1996, there were
outstanding options to purchase 237,809 shares, which option were exercisable
with respect to 113,479 shares.
- 8 -
<PAGE> 9
SPECIAL DEVICES, INCORPORATED
AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
APRIL 28, 1996
(UNAUDITED)
(6) INCOME PER SHARE
Net income per share is computed by dividing net income by the weighted
average number of common stock and dilutive common stock equivalents outstanding
during the period. Fully diluted earnings per share are presented when
dilutive.
(7) INCOME TAXES
Effective November 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" (" SFAS 109"). SFAS
109 requires a change to the "asset and liability method" of accounting for
income taxes from the "deferred method" of accounting for income taxes which was
required by Accounting Principles Board Opinion No. 11 ("APB 11"). Under SFAS
109, deferred tax assets and liabilities are recognized with respect to the tax
consequences attributable to the differences between the financial statement
carrying values and the tax basis of existing assets and liabilities. Deferred
tax assets and liabilities are measured using enacted tax rates expected to
apply to the taxable income in the years in which these temporary differences
are expected to be recovered or settled. Further, the effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date. Under the deferred method, deferred
taxes were not adjusted for subsequent changes in tax rates.
There was no cumulative effect on the prior years financial statements as a
result of this adoption on November 1, 1993. Deferred income taxes at October
31, 1995 and April 28, 1996 reflect the impact of "temporary differences"
between assets and liabilities for financial reporting purposes and their
carrying values as measured by tax laws. These temporary differences are
determined in accordance with SFAS 109 and are more inclusive in nature than
the "timing differences" as determined under previously applicable accounting
principles.
The provisions for income taxes consist of the following for each
respective six month period ended:
<TABLE>
<CAPTION>
April 30, April 28,
1995 1996
---------- ----------
<S> <C> <C>
Current:
Federal $1,297,000 $1,320,000
State 388,000 400,000
---------- ----------
$1,685,000 $1,720,000
========== ==========
Deferred:
Federal $ 15,000 $ 20,000
State 10,000 55,000
---------- ----------
$ 25,000 $ 75,000
========== ==========
Total:
Federal $1,312,000 $1,340,000
State 398,000 455,000
---------- ----------
$1,710,000 $1,795,000
========== ==========
</TABLE>
- 9 -
<PAGE> 10
SPECIAL DEVICES, INCORPORATED
AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
APRIL 28, 1996
(UNAUDITED)
Temporary differences which give rise to deferred tax assets and
liabilities are as follows:
<TABLE>
<CAPTION>
October 31, April 28,
Deferred tax liabilities: 1995 1996
------------------------- ------------ ------------
<S> <C> <C>
Depreciation $(2,390,000) $(2,340,000)
=========== ===========
Deferred tax assets:
-------------------
Allowance for doubtful accounts $ 87,000 $ 101,000
Inventory 80,000 61,000
Vacation 268,000 293,000
Other reserves 36,000 14,000
State taxes 120,000 61,000
----------- -----------
591,000 530,000
----------- -----------
Net deferred tax liability $(1,799,000) $(1,810,000)
=========== ===========
</TABLE>
Management believes it is more likely than not that future operations will
generate sufficient taxable income to realize deferred tax assets.
The provisions for income tax expense for the six months ended 1995 and
1996 differ from the provisions that would have resulted from applying the
Federal statutory rates during such periods to the income before income taxes.
The reasons for these differences are as follows:
<TABLE>
<CAPTION>
April 30, April 28,
1995 1996
---------- ----------
<S> <C> <C>
Income taxes at Federal rate $1,450,000 $1,591,000
State income taxes 260,000 435,000
Other - (231,000)
---------- ----------
$1,710,000 $1,795,000
========== ==========
</TABLE>
(8) COMMITMENTS AND CONTINGENCIES
The Company is a defendant in various pending claims and lawsuits. In the
opinion of the Company's management, after consultation with counsel,
disposition of such matters are not expected to have a material adverse effect
upon the results of operations or the financial position of the Company.
At April 28, 1996, the Company had commitments to acquire capital equipment
aggregating approximately $1,000,000, related primarily to additional production
equipment, and other support equipment required for the increased operations of
the Automotive Products Division. In addition, in order to improve
manufacturing efficiencies and to provide facilities for growth, the Company has
entered into an escrow to acquire approximately 280 acres of land in the City of
Moorpark located in Ventura County, north of Los Angeles. The closing of this
escrow is contingent upon the Company receiving the necessary permits and zoning
approvals required for completion
- 10 -
<PAGE> 11
SPECIAL DEVICES, INCORPORATED
AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
APRIL 28, 1996
(UNAUDITED)
of this project. The Company anticipates closing this escrow in approximately
August 1996, completing the land infrastructure work in early 1997, and
completing facility construction by the end of 1997. Total capital expenditures
are estimated at approximately $18,000,000, of which approximately $950,000 had
been expended at April 28, 1996. The Company anticipates additional
expenditures of approximately $4,000,000 in fiscal 1996, and approximately
$13,000,000 in fiscal 1997 for completion of this project.
The statements above regarding the land purchased by the Company in
Moorpark and the construction of facilities on the land by the Company are
forward-looking statements. Actual results and the timing of those results may
vary depending on various factors including, for example, the ability of the
Company to obtain permits and approvals that do not contain conditions or
restrictions that are unduly restrictive or otherwise unacceptable to the
Company, the Company's not encountering any unforeseen conditions relating to
the property that make completion of the land infrastructure work or
construction more expensive, difficult or time intensive than is currently
expected, the ability of the contractors and subcontractors retained by the
Company to complete the work on the schedule and for the costs described above,
and other factors which may develop during the course of this project.
- 11 -
<PAGE> 12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
COMPARISON OF THE THREE MONTHS ENDED APRIL 28, 1996 TO THE THREE MONTHS ENDED
APRIL 30, 1995
Net Sales
Net sales for the Automotive Products Division increased by $304,000, or
1.6%, to $19,005,000 for the quarter ended April 28, 1996 compared to sales of
$18,701,000 for the same quarter of the previous year. The increase in sales
represents an approximate 16% increase in units shipped in the current year
quarter compared to the same quarter last year, offset by a reduction in the
average unit selling price of an initiator which the Automotive Products
Division absorbed in August, 1995. The increase in the number of initiators
sold was due to increased shipments of initiators used in airbag systems,
primarily to TRW, Inc. and also to the Company's other initiator customers. The
increased demand for initiators reflects increasing implementation by U.S.
automotive manufacturers of airbags for both driver and front passenger for cars
produced in the United States. Sales to TRW as a percent of Automotive Products
Division sales were 84.0% for the second quarter, compared to 88.7% for the same
period last year, and were 65.9% of total Company sales in the second quarter
compared to 66.1% of total Company sales for the same period last year.
Net sales for the Aerospace Division were $5,217,000 for the second
quarter, a decrease of $1,174,000, or 18.4% compared to sales of $6,391,000 for
the second quarter last year. The reduction in sales in the current year second
quarter occurred primarily in 2 missile programs, the Hellfire and TOW. These
programs contributed to sales in the prior year period, but did not contribute
in the current year.
Cost of Sales
Cost of sales for the Automotive Products Division increased by $133,000,
or .8%, to $16,265,000 for the three months ended April 28, 1996, compared to
cost of sales of $16,132,000 for the same period of 1995. Gross profit as a
percent of sales was 14.4% for the second quarter compared to 13.7% for the same
period last year. The average sales price of an initiator decreased by 17% in
the second quarter of the current year compared to the same period last year,
however, this was more than offset by a) improved yields from automated
equipment; b) reduced scrap rates; and c) improved absorption of overhead costs.
Cost of sales for the Aerospace Division decreased by $1,012,000, or
11.5%, to $3,453,000, compared to cost of sales of $4,465,000 for the same
period last year. The decrease was due to the decrease in sales of $1,174,000
during the second quarter of the current year. Gross profit as a percent of
sales was 33.8% in the second quarter compared to 30.1% for the same quarter
last year. The increase in gross profit percent during the current year was due
to the mix of products shipped.
Operating Expenses
Operating expenses for each division (Automotive Products and Aerospace)
are comprised of two components. First, each division is allocated those
operating expenses incurred by that division. Second, each division is
allocated administrative operating expenses incurred by the Company (which are
not attributable to a particular division) on an equitable basis to fairly
reflect the benefit received by each operating division. During the current
year, these expenses have been allocated equally to each division. During the
first six months of the preceding year, these expenses were allocated as a
percent of each division's sales to total sales. The effect of the change in
allocation is not material, and was adjusted to an equal basis for the fiscal
year ended October 31, 1995.
Operating expenses for the Automotive Products Division increased by
$221,000, or 26.1%, to $1,068,000 for the three months ended April 28, 1996
compared to operating expenses of $847,000 for the same period in 1995. The
increase in operating expenses was incurred in most expense categories to
support the increase in units shipped in the current year quarter.
- 12 -
<PAGE> 13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS, CONTINUED
Operating expenses for the Aerospace Division increased by $329,000, or
47.8%, to $1,018,000 in the second quarter compared to operating expenses of
$689,000 for the same quarter last year. The increase in operating expense was
the result of higher corporate expenses allocated to the Aerospace Division in
the current year. The increase in corporate expenses occurred primarily in
salaries due to more personnel required to support the growth in operations in
the current year.
Other Income and Expense
Other income (expense) consists primarily of interest income and interest
expense. Net other income (expense) was $37,000 income in the second quarter of
1996, compared to other expense of $428,000 for the same period last year.
Interest income was $117,000 in the second quarter of 1996; there was no
interest income in the comparable period last year. Interest income was earned
on short-term investments made from investing a portion of the proceeds of a
sale of stock by the Company in May 1995. Interest expense was $80,000 in the
second quarter of 1996, compared to interest expense of $451,000 for the same
period last year. The decrease of $371,000 was the result of the payment of
short-term bank borrowings in May 1995 from the proceeds of the stock sale, and
because the average balance outstanding for long-term debt (not paid from the
stock sale proceeds) was less in the second quarter of 1996 compared to the same
period last year.
COMPARISON OF THE SIX MONTHS ENDED APRIL 28, 1996 TO THE SIX MONTHS ENDED APRIL
30, 1995
Net Sales
Sales for the Automotive Products Division were $36,859,000 for the six
months ended April 28, 1996, compared to sales of $33,093,000 for the comparable
period of the preceding year. The increase in sales represents an approximate
25% increase in units shipped for the first six months of the current fiscal
year compared to the same period last year, offset partially by a reduction in
the average unit selling price of an initiator which the Automotive Products
Division absorbed in August, 1995. The increase of $3,766,000, or 11.4%, was
the result of increased shipments of initiators used in airbag systems
primarily to TRW and secondarily to other customers, reflecting the increasing
rate of implementation of airbags in automobiles produced and sold in the United
States. Sales to TRW as a percent of the Division's total sales were 84.1% for
the first six months of the current fiscal year compared to 89.0% for the same
period last year, and were 66.3% of total Company sales this year compared to
62.3% for the same period last year.
Sales for the Aerospace Division were $9,904,000 for the first six months
of the current year, compared to sales of $14,152,000 for the same period last
year, a decrease of $4,248,000 or 30.0%. The decrease in sales was due primarily
to decreased shipments under the TOW and Hellfire missile programs discussed
previously.
Cost of Sales
Cost of sales for the Automotive Products Division were $31,858,000 for the
first six months of the current fiscal year, compared to cost of sales of
$28,744,000 for the same period last year. The increase of $3,114,000, or
10.8%, was the result of increased costs associated with increased sales during
the same period. Gross profit as a percent of sales was 13.6% for the current
six month period compared to 13.1% for the same period last year. The increase
was due to the a) improved yields from automated equipment; b) reduced scrap
rates; and c) improved absorption of overhead costs, offset partially by a
reduction of 15% in the average sales price of an initiator in the current year
period compared to the same period last year.
Cost of sales for the Aerospace Division decreased $3,747,000, or 36.8%, to
$6,444,000 for the first six months of the current year, compared to cost of
sales of $10,191,000 for the same period last year. The decrease was due to the
decrease in sales of $4,248,000 during the first six months of the current year.
Gross profit as a percent of sales was 34.9% in the current period, compared to
28.0% last year, due to the mix of products shipped in the current year.
- 13 -
<PAGE> 14
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS, CONTINUED
Operating Expenses
Operating expenses for each division (Automotive Products and Aerospace)
are comprised of two components. First, each division is allocated those
operating expenses incurred by that division. Second, each division is
allocated administrative operating expenses incurred by the Company (which are
not attributable to a particular division) on an equitable basis to fairly
reflect the benefit received by each operating division. During the current
year, these expenses have been allocated equally to each division. During the
first six months of the preceding year, these expenses were allocated as a
percent of each divisions sales to total sales. The effect of the change in
allocation is not material, and was adjusted to an equal basis for the fiscal
year ended October 31, 1995.
Operating expenses for the Automotive Products Division were $1,876,000 for
the first six months of the current fiscal year, an increase of $249,000, or
15.3%, compared to operating expenses of $1,627,000 for the same period last
year. The increase occurred primarily for more personnel required to support
the 25% increase in initiators sold during the current year.
Operating expenses for the Aerospace Division were $1,954,000 for the first
six months of the current fiscal year, an increase of $303,000, or 18.4%,
compared to operating expenses of $1,651,000 last year. The increase in
operating expenses was the result of higher corporate expenses allocated to the
Aerospace Division in the current year compared to the same period last year.
The increase in corporate expenses occurred primarily in increased personnel
required to support the growth in operations in the current year.
Other Income and Expense
Other income (expense) consists primarily of interest income and interest
expense. Net other income (expense) was $49,000 income in the first six months
of 1996, compared to other expense of $765,000 for the same period last year.
Interest income was $236,000 in the first six months of 1996; there was no
interest income in the comparable period last year. Interest income was earned
on short-term investments made from investing a portion of the proceeds of a
sale of stock by the Company in May 1995. Interest expense was $196,000 in the
first six months of 1996, compared to interest expense of $761,000 for the same
period last year. The decrease of $565,000 was the result of the payment of
short-term bank borrowings in May 1995 from the proceeds of the stock sale, and
because the average balance outstanding for long-term debt (not paid from the
stock sale proceeds), was less in the first six months of 1996 compared to the
same period last year.
Liquidity and Capital Resources
The Company's primary sources of capital since its initial public offering
in 1991 have been cash from operations and bank borrowings and, in fiscal year
1995, an additional public offering of its common stock.
Pursuant to a credit agreement (the "Credit Agreement") with its bank, the
Company currently has in place a revolving credit facility (the "Revolver") and
a $5,000,000, five-year term loan (the "Term Loan"). Under the terms of the
Revolver (as amended in October 1995), the Company may borrow up to a maximum of
$6,500,000 in advances from November 1, 1995 through March 1, 1997. As of April
28, 1996, there were no amounts outstanding under the Revolver. Proceeds
advanced under the Revolver may be used to support working capital needs and
capital expenditures. The Revolver expires and becomes due on March 1, 1997.
The Term Loan, the principal balance of which is amortized on a monthly
basis, bears interest at a fixed rate per annum of 7.30% and had an outstanding
principal balance of $2,083,000 at April 28, 1996. Proceeds from the term loan
were applied to repay a prior credit facility with a different bank. The Term
Loan is required to be fully amortized by May 1, 1998.
- 14 -
<PAGE> 15
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULT
OF OPERATIONS, CONTINUED
The Company's wholly owned subsidiary, Scot, Inc., has a term loan with a
bank, secured by certain real property of Scot. The principal balance
outstanding at April 28, 1996, was $602,000. The loan is being amortized with
monthly payments of $13,000, including interest of approximately 10.0%, through
April 2002, with the balance due in August 1996.
Substantially all of the Company's assets are pledged under the Credit
Agreement. In addition, the Credit Agreement contains covenants that include
requirements to meet certain financial tests and ratios (including minimum
current ratio, debt service ratio, minimum tangible net worth, maximum debt
ratio and maintenance of profitable annual operations) and restrictions and
limitations on the sale of assets, new borrowings, mergers and purchases of
stock. The Company was in compliance with all Credit Agreement covenants at
April 28, 1996.
In November 1994, the Company purchased a new airplane from United
Beechcraft, Inc. for $2,210,000. The Company made an initial payment of $110,500
for the plane, and entered into a promissory note with Beech Acceptance
Corporation, Inc. to finance the remaining balance of $2,099,500 over a 12-year
period. In December 1994, the Company purchased a second airplane from United
Beechcraft, Inc. for $669,419. The Company entered into a promissory note with
Beech Acceptance Corporation, Inc. to finance the purchase over a 10-year
period. The planes are being used primarily to transport Company officials
between its Newhall, California and Mesa, Arizona facilities. In addition, the
Company leases the first airplane for use to third parties when not in use by
the Company in order to defray a portion of the costs. As of April 28, 1996,
the principle balances due under the two promissory notes were $1,899,000 and
$588,000, respectively.
During the six months ended April 28, 1996, the Company generated cash flow
from operations of $4,378,000. Capital expenditures, primarily for payments
related to automated manufacturing equipment and production facilities, amounted
to $4,114,000. Principal payments of long-term debt aggregated $634,000. These
net cash outflows were funded by cash flow from operations and the use of
existing cash on hand. At April 28, 1996, the Company had cash on hand of
$12,333,000 and additional borrowing capacity available under its Credit
Agreement of $6,500,000.
At April 28, 1996, the Company had working capital of $34,097,000 as
compared to working capital of $33,170,000 at October 31, 1995. The increase of
$927,000 was due primarily to an increase in inventories of $1,918,000 and a
decrease in accounts payable and accrued expenses of $1,780,000, offset by a
decrease in accounts receivable of $2,582,000 and a decrease in cash of
$295,000. The increase in inventories was due primarily to higher levels of raw
material purchases and work-in-process required to support the increasing
production and shipping volume of the Automotive Products Division. The
decrease in accounts receivable occurred as the Company collected funds for
shipments at a faster rate in the first six months of 1996. The decrease in
cash occurred as the Company reduced the balance in accounts payable, current
portion of long-term debt, and other accrued liabilities.
In order to improve manufacturing efficiencies and to provide facilities
for growth, the Company has entered into an escrow to acquire approximately 280
acres of land in the City of Moorpark located in Ventura County, north of Los
Angeles. The closing of this escrow is contingent upon the Company receiving
the necessary permits and zoning approvals required for completion of this
project. The Company anticipates closing this escrow in approximately August
1996, completing the land infrastructure work in early 1997, and completing the
facility construction by the end of 1997. Total capital expenditures are
estimated at approximately $18,000,000, of which approximately $950,000 had been
expended at April 28, 1996. The Company anticipates additional expenditures of
approximately $4,000,000 in fiscal 1996, and approximately $13,000,000 in fiscal
1997 for completion of this project. See Footnote 8 regarding uncertainties
with respect to this forward looking statement.
The Company anticipates that working capital requirements will increase in
1996 as compared to 1995 to support the investment in inventories and accounts
receivable related to the anticipated increased demand for initiators
manufactured by the Company. The Company believes that it can meet its expected
working capital requirements for the foreseeable future from existing cash on
hand, cash flow from operations and borrowings under its Credit Agreement. The
Company had commitments to acquire capital equipment at April 28, 1996
aggregating approximately $1,000,000 related primarily to additional production
equipment, and other support equipment required
- 15 -
<PAGE> 16
for the increased operations of the Automotive Products Division.
PART II - OTHER INFORMATION
Items 1 through 3 are omitted as they are not applicable.
Item 4. Submission of matters to a vote of stockholders.
The Company's Annual Stockholders' Meeting was held on March 20, 1996
at which time the stockholders voted to re-elect Donald A. Bendix and
John M. Cuthbert as directors to serve until the 1999 Annual
Stockholders' Meeting. The voting was as follows:
<TABLE>
<CAPTION>
Election of Directors
---------------------
Donald A. John M.
Votes Bendix Cuthbert
--------------- ---------- ---------
<S> <C> <C>
For 6,479,315 6,479,595
Withheld 41,464 41,184
Abstain - -
Broker non-vote - -
Against - -
</TABLE>
Item 5. is omitted or it is not applicable
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
11.1 Statement RE: Computation of Per Share Earnings
(b) Reports on Form 8-K - None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SPECIAL DEVICES, INCORPORATED
DATED: June 11, 1996 /s/ THOMAS F. TREINEN
-----------------------------
Chairman of the Board and
President
DATED: June 11, 1996 /s/ JOHN T. VINKE
-----------------------------
Vice President Finance and
Chief Financial Officer
-16-
<PAGE> 1
Exhibit 11.1
COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
Three months ended Six months ended
------------------------- -----------------------
April 30, April 28, April 30, April 28,
1995 1996 1995 1996
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Primary Earnings per Common and
Common Equivalent Share:
Average Market Price $ 17.65 $ 17.59 $ 17.59 $ 16.72
Weighted average common shares
outstanding during period 5,799,788 7,656,992 5,795,186 7,656,992
Common Stock Equivalents -
Common Stock Options 52,149 97,250 52,438 91,454
---------- ---------- ---------- ----------
Weighted average common and
common equivalent shares 5,851,937 7,754,242 5,847,624 7,748,446
========== ========== ========== ==========
Net earnings for the period $1,521,803 $1,525,815 $2,556,592 $2,885,451
========== ========== ========== ==========
Primary earnings per share $ .26 $ .20 $ .44 $ .37
========== ========== ========== ==========
Fully Diluted Earnings per Common and
Common Equivalent Share:
Greater of average market price or
closing market price $ 18.00 $ 21.25 $ 18.00 $ 21.25
Weighted average common shares
outstanding during period (from above) 5,799,788 7,656,992 5,795,186 7,656,992
Common Stock Equivalents - Common
Stock Options 53,317 120,850 53,024 98,790
---------- ---------- ---------- ----------
Fully diluted weighted average
common and common equivalent shares 5,853,105 7,777,842 5,848,210 7,755,782
========== ========== ========== ==========
Net earnings for the period $1,521,803 $1,525,515 $2,556,592 $2,885,451
========== ========== ========== ==========
Fully diluted earnings per share $ .26 $ .20 $ .44 $ .37
========== ========== ========== ==========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED BALANCE SHEET AT APRIL 28, 1996, AND THE CONDENSED
CONSOLIDATED STATEMENT OF OPERATIONS FOR THE 3 MONTHS ENDED APRIL 28, 1996 AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-END> APR-28-1996
<CASH> 12,333,068
<SECURITIES> 0
<RECEIVABLES> 9,979,833
<ALLOWANCES> (210,964)
<INVENTORY> 19,157,504
<CURRENT-ASSETS> 42,363,198
<PP&E> 51,225,285
<DEPRECIATION> 14,842,063
<TOTAL-ASSETS> 79,030,413
<CURRENT-LIABILITIES> 8,266,051
<BONDS> 0
0
0
<COMMON> 76,667
<OTHER-SE> 64,938,398
<TOTAL-LIABILITY-AND-EQUITY> 79,030,413
<SALES> 24,221,910
<TOTAL-REVENUES> 24,221,910
<CGS> 19,717,945
<TOTAL-COSTS> 19,717,945
<OTHER-EXPENSES> 2,085,868
<LOSS-PROVISION> 24,000
<INTEREST-EXPENSE> 80,262
<INCOME-PRETAX> 2,455,515
<INCOME-TAX> 930,000
<INCOME-CONTINUING> 1,525,515
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,525,515
<EPS-PRIMARY> .20
<EPS-DILUTED> .20
</TABLE>
