SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10-Q
(X) QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended February 28, 1997 Commission File Number: 0-45
SHELDAHL, INC.
(exact name of registrant as specified in its charter)
Minnesota 41-0758073
(State or other jurisdiction of (IRS Employer Identification Number)
incorporation or organization)
Northfield, Minnesota 55057
(Address of principal executive offices) (zip code)
Registrant's telephone number, including area code: (507) 663-8000
As of April 4, 1997, 8,989,172 shares of the Registrant's common stock were
outstanding.
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:
<PAGE>
PART I: FINANCIAL INFORMATION
SHELDAHL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
Unaudited
Six Months Ended
February 28, March 1,
(in thousands, except for per share data) 1997 1996
Net sales $50,680 $55,051
Cost of sales 45,099 42,930
_______ _______
Gross profit 5,581 12,121
_______ _______
Expenses:
Sales and marketing 4,606 4,535
General and administrative 3,300 2,450
Research and development 2,318 1,200
Interest 296 389
_______ _______
Total expenses 10,520 8,574
_______ _______
Income (loss) before provision for
income taxes (4,939) 3,547
Benefit (provision) for income taxes 1,680 (1,065)
_______ _______
Net income (loss) $(3,259) $2,482
======= =======
Net income (loss) per share $(0.36) $0.30
======= =======
Weighted average common shares and
common share equivalents outstanding 8,934 8,188
======= =======
<PAGE>
SHELDAHL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
Unaudited
Three Months Ended
February 28, March 1,
(in thousands, except for per share data) 1997 1996
Net sales $26,379 $28,954
Cost of sales 23,253 22,520
_______ _______
Gross profit 3,126 6,434
_______ _______
Expenses:
Sales and marketing 2,307 2,314
General and administrative 1,720 1,280
Research and development 1,178 510
Interest 227 6
_______ _______
Total expenses 5,432 4,110
_______ _______
Income (loss) before provision for
income taxes (2,306) 2,324
Benefit (provision) for income taxes 780 (700)
_______ _______
Net income (loss) $(1,526) $1,624
======= =======
Net income (loss) per share $(0.17) $0.18
======= =======
Weighted average common shares and
common share equivalents outstanding 8,956 9,119
======= =======
<PAGE>
SHELDAHL, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
(unaudited)
(In thousands) February 28, August 30,
1997 1996
Current assets:
Cash and cash equivalents $ 1,677 $ 904
Accounts receivable, net 19,056 21,091
Inventories 12,215 11,525
Prepaid expenses and other current
assets 433 390
Deferred tax assets 2,750 1,660
_______ _______
Total current assets 36,131 35,570
_______ _______
Construction in process 26,206 37,650
Land and buildings 25,513 24,718
Machinery and equipment 90,845 64,754
Less: accumulated depreciation (50,823) (47,630)
_______ _______
Net plant and equipment 91,741 79,492
_______ _______
Other assets 799 825
_______ _______
$128,671 $115,887
======= =======
LIABILITIES AND SHAREHOLDERS INVESTMENT
Current liabilities:
Current maturities of long-term debt $ 412 $ 466
Accounts payable 10,330 9,824
Accrued compensation 1,306 1,390
Other accruals 2,904 1,839
_______ _______
Total current liabilities 14,952 13,519
_______ _______
Long-term debt 36,318 21,858
_______ _______
Other non-current liabilities 2,346 2,269
_______ _______
Deferred taxes 2,314 2,904
_______ _______
Shareholders investment:
Common stock 2,242 2,228
Additional paid-in capital 52,053 51,404
Retained earnings 18,446 21,705
_______ _______
Total shareholders investment 72,741 75,337
_______ _______
$128,671 $115,887
======= =======
<PAGE>
SHELDAHL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Unaudited
Six Months Ended
(in thousands) February 28, March 1,
1997 1996
Operating activities:
Net income(loss) $ (3,259) $ 2,482
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 4,329 3,180
Deferred income taxes (1,680) 724
Net change in other operating activities:
Accounts receivable 2,035 (1,345)
Inventories (690) 1,100
Prepaid expenses and other current
assets (43) (804)
Other assets 26 68
Accounts payable and accrued
liabilities 1,487 1,276
Other non-current liabilities 77 (10)
_______ _______
Net cash provided by operating activities 2,282 6,671
_______ _______
Investing activities:
Capital expenditures, net (16,578) (12,151)
_______ _______
Net cash used in investing activities (16,578) (12,151)
_______ _______
Financing activities:
Borrowings (repayments) under
revolving credit facilities, net 14,639 (23,832)
Repayments of long-term debt (233) (217)
Issuance of common stock - 29,049
Proceeds of stock option exercises 663 128
_______ _______
Net cash provided by financing
activities 15,069 5,128
_______ _______
Increase (decrease) in cash 773 (352)
Cash at beginning of period 904 1,045
_______ _______
Cash at end of period $ 1,677 $ 693
======= =======
Supplemental cash flow information:
Income taxes paid $ 206 $ 70
======= =======
Interest paid $ 1,159 $ 1,556
======= =======
<PAGE>
SHELDAHL, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Unaudited
These condensed and unaudited consolidated financial statements have been
prepared by the Company pursuant to the rules and regulations of the
Securities and Exchange Commission. In the opinion of management, these
condensed unaudited consolidated financial statements reflect all adjustments,
of a normal and recurring nature, necessary for a fair statement of the
interim periods, on a basis consistent with the annual audited financial
statements. Certain information, accounting policies and footnote disclosures
normally included in financial statements prepared in accordance with
generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations. Although these disclosures should be
considered adequate, the Company strongly suggests that these condensed
unaudited financial statements be read in conjunction with the financial
statements and summary of significant accounting policies and notes thereto
included in the Company's latest annual report on Form 10-K.
1) Inventories, which are valued at the lower of first-in first-out cost or
market, consists of (in thousands):
February 28, 1997 August 30, 1996
Raw materials $ 3,039 $ 2,599
Work-in-process 6,079 5,572
Finished goods 3,097 3,354
_______ _______
$12,215 $11,525
======= =======
<PAGE>
SHELDAHL, INC. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
CONSOLIDATED OPERATING RESULTS AND FINANCIAL CONDITION
Six Months Ended February 28, 1997 and March 1, 1996:
February 28, March 1, Gross %
Sales by Market 1997 1996 Change Change
Automotive $34,283 $38,913 $(4,630) (12%)
Datacommunication 5,436 5,628 (192) (3%)
Aerospace 4,786 4,607 179 4%
Industrial 3,934 4,195 (261) (6%)
Consumer 2,241 1,708 533 31%
_______ _______ _______ ____
Total $50,680 $55,051 $(4,371) (8%)
======= ======= ======= ====
Automotive sales, as reflected in the above table, declined 12% over the
comparative period for fiscal year 1996. As discussed in the first quarter,
this sales decline was primarily due to industry wide inventory adjustments
flowing from an inventory build up in anticipation of prolonged UAW labor
negotiations. This build up occurred in the Company's fiscal 1996 fourth
quarter, and inventories have since returned to normal. By the end of this
quarter, the automotive market appears to be past these adjustments.
The datacommunications market sales shows a small 3% decline. Sales in the
datacom market are expected to grow from the Company's Micro Products
operation in Longmont, Colorado, which is currently coming on-line. The
aerospace/defense market sales grew modestly with a 4% increase.
The industrial and consumer markets combined increased $272,000 or 4.5%.
Normal demand fluctuations account for the change in these non-primary
markets.
Gross margin for the period declined $6,540,000 or 54% from $12,121,000 for
the six months ended March 1, 1996, to $5,581,000 for the six months ended
February 28, 1997. Lower sales, unfavorable product mix, increased core
business depreciation, and increased expenses due to the Micro Products
operation accounted for the decline.
Sales and marketing expense increased $71,000 or 2% from $4,535,000 for the
six months ended March 1, 1996, to $4,606,000 for the six months ended
February 28, 1997. Increased sales staffing costs and advertising expenses
were offset by declines in consulting costs.
General and administrative expenses increased $850,000 or 35% from $2,450,000
for the six months ended March 1, 1996, to $3,300,000 for the six months ended
February 28, 1997. Increased staffing and associated recruiting costs needed
to implement several company-wide support system upgrades, along with reduced
ARPA funding, account for the majority of the increase. These upgrades
include company-wide efforts to gain QS9000 and ISO9001 quality certification,
and accounting and information technology system enhancements which support
our Micro Products and core businesses.
Research and development expenses increased $1,118,000 or 93% from $1,200,000
for the six months ended March 1, 1996, to $2,318,000 for the six months ended
February 28, 1997. ARPA funding applied to research and development cost has
decreased by $186,000. Increases in staffing and travel supporting the Micro
Products operation and the ARPA Consortium, as well as outside consulting and
testing services related to the Micro Products operation, caused this increase
in research and development expenses.
Interest expense, net of capitalized interest is as follows:
February 28, 1997 March 1, 1996
Gross interest $ 1,151 $ 1,549
Less capitalized interest (855) (916)
Interest income - (244)
_______ _______
Interest expense $ 296 $ 389
======= =======
Lower interest rates, as well as lower average borrowings, account for the
decline in both the interest expense and capitalized interest.
Operating profit declined $8,486,000 from a profit of $3,547,000 for the six
months ended March 1, 1996, to a loss of $4,939,000 for the six months ended
February 28, 1997. Of this decline, nearly $3.8 million is related to the
Micro Products operation and the ARPA Consortium activities. The remainder of
the decrease is due to lower sales, higher core business depreciation, and
higher general and administrative expenses.
Tax benefits for the current period were provided at 34%. Net income,
therefore, declined $5,741,000 from income of $2,482,000 in 1996 to a loss of
$3,259,000 in1997.
Three Months Ended February 28, 1997 and March 1, 1996:
February 28, March 1, Gross %
Sales by Market 1997 1996 Change Change
Automotive $17,759 $21,229 $ (3,470) (16%)
Datacommunications 3,056 2,220 836 38%
Aerospace/Defense 2,429 2,869 (440) (15%)
Industrial 1,947 1,732 215 12%
Consumer 1,188 904 284 31%
_______ _______ _______ ______
Total $26,379 $28,954 $(2,575) $ (9%)
======= ======= ======= ======
The increase in datacommunication sales reflects increased demand for the
Company's core business laminate materials and standard flexible interconnect
products serving these markets. Explanations of changes in all other market
sales in the above table are consistent with those given in the six month
analysis. Gross profit for the quarter declined $3,308,000 or 51% from
$6,434,000 for the three months ended March 1, 1996, to $3,126,000 for the
three months ended February 28, 1997. As a percentage of sales, gross profit
was 12% in the second quarter of 1997 compared to 10% in the first quarter of
1997 and 22% in the second quarter of 1996. Lower sales, increased core
business factory overhead, and increased expenses due to the Micro Products
operation accounted for the decline.
Sales and marketing expense remained relatively unchanged at $2,307,000 for
the three months ended February 28, 1997, compared to $2,314,000 for the three
months ended March 1, 1996.
General and administrative expenses increased $440,000 or 34% from $1,280,000
for the three months ended March 1, 1996, to $1,720,000 for the three months
ended February 28, 1997. Reduced ARPA funding plus increased staffing and
consulting costs accounted for the majority of the increase.
Research and development expenses increased $668,000 or 131% from $510,000 for
the three months ended March 1, 1996, to $1,178,000 for the three months ended
February 28, 1997. Increases in staffing, travel, outside testing services,
and a decrease in ARPA funding accounted for the large increase in research
and development expenses.
Interest cost and activities for the noted period are explained below:
February 28, 1997 March 1, 1996
Gross interest $ 672 $ 641
Less capitalized interest (445) (391)
Interest income - (244)
_______ _______
Interest expense $ 227 $ 6
======= =======
Pretax operating results declined $4.6 million from income of $2,324,000 for
the three months ended March 1, 1996 to a loss of $2,306,000 for the three
months ended February 28, 1997. Of this decline, nearly $2.0 million is
related to the Micro Products business and related ARPA programs. The
remaining loss is attributed to lower sales, higher core business
depreciation expense, and higher general and administrative costs. Income
taxes for the current quarter were provided at 34%, resulting in a net loss of
$1,526,000. This compares with a net income of $1,624,000 for the three
months ended March 1, 1996.
Financial Condition:
The Company has a $35 million revolving credit facility secured by the
Company's assets. As of February 28, 1997, borrowings under this facility
were $29.9 million with $5.1 million available. The Company is currently
examining additional financing options to support the Company's growth and
expects to obtain additional debt financing during the third quarter of fiscal
1997. During the first six months, the Company invested $16,578,000 in
capital expenditures. The current ratio declined from 2.63 at August 30, 1996
to 2.42 at February 28, 1997.
Prospective Information:
Significant operating events will take place during the next several months of
operations. First, the ARPA funded consortium will be completing its purpose
and funding will continue to slow dramatically throughout fiscal 1997. The
Company has no obligation to any member after the consortium objectives and
related ARPA fundings are completed. Only normal business relationships will
remain among the members of the ARPA Consortium.
Secondly, the Company's Longmont, Colorado, production facility is complete.
The facility and its products are undergoing an intensive production
qualification process with a number of key customers. The facility has
commenced operations, and is having a negative impact on the Company's
operating results. This financial impact will continue until such time that
qualifications are complete and sales increase enough to cover fixed and other
operating expenses.
In addition in fiscal 1996, the Company began planning a complete upgrade and
replacement of all informational technology systems. This renewal is required
to support the Company's plans for growth and changes in major business
processes. The approximate $12-15 million program has commenced and is
expected to be completed by the end of fiscal 1998. The Company plans to
finance a large portion of this program by executing capitalized lease
instruments and debt financing.
Other Factors:
The Company has foreign currency risks from its international sales. Major
contracts have "risk sharing" arrangements with the customer, allowing
repricing in the event of long-term and/or significant foreign currency
fluctuations.
To deal with short-term fluctuations, the Company, from time-to-time, will use
a variety of natural and contractual hedging techniques to prudently reduce,
but not eliminate, its exposure to foreign currency fluctuations. Historical
transactions have not been material in nature. The Company expects its foreign
currency contracts to increase and will increase its hedging activities
accordingly. The recent strength of the dollar against the German Mark and
the French Franc has caused reduced margins on sales contracted in these
currencies. These reduced margins may continue through fiscal 1997.
Cautionary Statement:
The statements included herein which are not historical or current facts are
forward-looking statements made pursuant to the safe harbor provisions of the
Private Securities Reform Act of 1995. Factors which could cause actual
results to differ materially from those anticipated by some of the statements
made herein include, but are not limited to, the Company's ability to achieve
full volume production at its Micro Products facility and other factors
detailed from time to time in the Company's SEC reports, including the report
on Form 10-K for the year ended August 30, 1996.
<PAGE>
PART II - OTHER INFORMATION
SHELDAHL, INC. AND SUBSIDIARY
FORM 10-Q
Item 4. Submission of Matters to a Vote of Securities Holders
On January 8, 1997, Sheldahl, Inc. held its Annual Meeting of
Shareholders. Of the 8,912,695 shares of common stock eligible to
vote, 7,879,455 shares were represented at the Meeting and votes were
taken on the following matters:
1. The votes cast for the eight (8) directors to serve until the next
annual meeting of shareholders were:
For Withhold Authority
James E. Donaghy 7,525,290 354,166
John G. Kassakian 7,525,709 353,747
Gerald E. Magnuson 7,493,288 386,168
William B. Miller 7,523,903 355,553
Kenneth J. Roering 7,525,653 353,803
Richard S. Wilcox 7,520,009 359,447
Beekman Winthrop 7,523,403 356,053
James S. Womack 7,518,490 360,966
2. The votes cast to amend the 1994 Stock Option Plan were:
For: 5,913,269 Against: 1,710,557 Not Voted: 26,894
3. The votes cast to approve the appointment of Arthur Andersen LLP
as independent auditors for the current fiscal year were:
For: 7,849,957 Against: 9,436 Not Voted: 20,062
Item 6. Exhibits and Reports on Form 8-K
A) Exhibits
11 Statement regarding computation of earnings per share
27 Financial data schedule
B) Reports on Form 8-K
No reports on Form 8-K were filed by the Registrant during the
quarter ended February 28, 1997.
<PAGE>
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.
SHELDAHL, INC.
(Registrant)
Dated: April 11, 1997 /s/ James E. Donaghy
President and Chief Executive Officer
Dated: April 11, 1997 /s/ John V. McManus
Vice President, Finance
Exhibit 11
SHELDAHL, INC. AND SUBSIDIARY
STATEMENT REGARDING COMPUTATION OF EARNINGS PER SHARE
(in thousands, except per share data)
For The Six Months Ended
February 28, March 1,
1997 1996
Primary earnings per share
Weighted average number of issued
shares outstanding 8,934 7,925
Effect of exercise of stock options
under the treasury stock method - 263
_______ _______
Weighted average shares outstanding used
to compute primary earnings per share 8,934 8,188
======= =======
Net income $(3,259) $2,482
======= =======
Net income per share $(0.36) $ 0.30
======= =======
Fully diluted earnings per share
Weighted average number of issued
shares outstanding 8,934 7,925
Effect of exercise of stock options
under the treasury stock method - 313
_______ _______
Weighted average shares outstanding used
to compute fully diluted earnings per
share 8,934 8,238
======= =======
Net income $(3,259) $2,482
======= =======
Net income per share $ (0.36) $ 0.30
======= =======
For The Three Months Ended
February 28, March 1,
1997 1996
Primary earnings per share
Weighted average number of issued
shares outstanding 8,956 8,856
Effect of exercise of stock options
under the treasury stock method - 263
_______ _______
Weighted average shares outstanding used
to compute primary earnings per share 8,956 9,119
======= =======
Net income $(1,526) $1,624
======= =======
Net income per share $(0.17) $ 0.18
======= =======
Fully diluted earnings per share
Weighted average number of issued
shares outstanding 8,956 8,856
Effect of exercise of stock options
under the treasury stock method - 313
_______ _______
Weighted average shares outstanding used
to compute fully diluted earnings per
share 8,956 9,169
======= =======
Net income $(1,526) $1,624
======= =======
Net income per share $ (0.17) $ 0.18
======= =======
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the February
28, 1997 financial statements and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<S> <C> <C>
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