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 November 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 January 2, 1998, 9,046,480 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
Three Months Ended
November 28, November 29,
(in thousands,
except for per share data) 1997 1996
_______ _______
Net sales $28,992 $24,301
Cost of sales 27,349 21,846
_______ _______
Gross profit 1,643 2,455
_______ _______
Expenses:
Sales and marketing 2,400 2,299
General and administrative 1,850 1,580
Research and development 932 1,140
Interest 513 69
_______ _______
Total expenses 5,695 5,088
_______ _______
Loss before income taxes (4,052) (2,633)
Benefit for income taxes 1,375 900
_______ _______
Net loss (2,677) (1,733)
Convertible preferred
stock dividends (187) -
_______ _______
Net loss applicable to
common shareholders $(2,864) $(1,733)
======= =======
Net loss per common share $(0.32) $(0.19)
======= =======
Weighted average common
shares and common share
equivalents outstanding 9,038 8,913
======= =======
<PAGE>
SHELDAHL, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
unaudited
(In thousands) November 28, August 29,
1997 1997
_______ _______
Current assets:
Cash and cash equivalents $ 1,309 $ 5,567
Accounts receivable, net 16,037 15,880
Inventories 13,362 13,078
Prepaid expenses and other
current assets 721 406
Deferred taxes 765 765
_______ _______
Total current assets 32,194 35,696
_______ _______
Construction in process 24,373 19,303
Land and buildings 27,295 26,467
Machinery and equipment 115,144 112,071
Less: accumulated
depreciation (60,966) (57,036)
_______ _______
Net plant and equipment 105,846 100,805
_______ _______
Deferred taxes 3,562 2,187
Other assets 604 679
_______ _______
$142,206 $139,367
======= =======
LIABILITIES AND SHAREHOLDERS INVESTMENT
Current liabilities:
Current maturities of
long-term debt $ 2,331 $ 818
Accounts payable 9,054 7,309
Accrued salaries 1,806 1,606
Other accruals 3,400 3,020
_______ _______
Total current liabilities 16,591 12,753
_______ _______
Long-term debt 42,627 40,869
_______ _______
Other non-current liabilities 2,819 2,813
_______ _______
Shareholders investment:
Preferred stock 15 15
Common stock 2,261 2,258
Additional paid-in capital 67,021 66,923
Retained earnings 10,872 13,736
_______ _______
Total shareholders investment 80,169 82,932
_______ _______
$142,206 $139,367
======= =======
<PAGE>
SHELDAHL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Unaudited
Three Months Ended
(in thousands) November 28, November 29,
1997 1996
_______ _______
Operating activities:
Net loss $ (2,677) $ (1,733)
Adjustments to reconcile
net income to net cash
provided by operating activities:
Depreciation and amortization 3,945 2,072
Deferred income taxes (1,375) (900)
Net change in other operating
activities:
Accounts receivable (157) 3,977
Inventories (284) (1,300)
Prepaid expenses and other
current assets (315) (256)
Other assets 75 45
Accounts payable and accrued
liabilities 1,014 2,065
Other non-current liabilities 6 59
_______ _______
Net cash provided by
operating activities 232 4,029
_______ _______
Capital expenditures, net (7,862) (9,251)
_______ _______
Financing activities:
Borrowings under revolving
credit facilities, net 3,502 5,682
Repayments of long-term debt (231) (116)
Proceeds from stock option
exercises 101 -
Dividends paid on preferred stock - -
_______ _______
Net cash provided by
financing activities 3,372 5,566
_______ _______
Increase (decrease) in cash (4,258) 344
Cash at beginning of period 5,567 904
_______ _______
Cash at end of period $ 1,309 $ 1,248
======= =======
Supplemental cash flow
information:
Income taxes paid $ 2 $ 195
======= =======
Interest paid $ 715 $ 458
======= =======
<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):
November 28, 1997 August 29, 1997
_______________ _______________
Raw materials $ 3,285 $ 3,069
Work-in-process 6,390 6,484
Finished goods 3,687 3,525
_______ _______
$13,362 $13,078
======= =======
2) Convertible Preferred Stock.
During the period ended November 28, 1997, the Company had 15,000 shares of
Series B Convertible Preferred stock outstanding. This preferred stock,
with a stated value of $15 million, is convertible to common stock at
any time at the option of the holders. The conversion price fluctuates,
subject to a maximum, based on the price of the Company's common stock
during the 30 day period immediately prior to conversion. As of November
28, 1997, the conversion price was estimated to be $15.625, and if
converted in its entirety, the Series B Preferred Stock would represent
approximately 960,000 shares of common stock.
In addition, the Company accrued dividends on this preferred stock of
approximately $187,000, which are payable in cash or common stock, at the
Company's option, on the date the preferred stock is converted into common
stock.
<PAGE>
SHELDAHL, INC. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
CONSOLIDATED OPERATING RESULTS AND FINANCIAL CONDITION
Three Months Ended November 28, 1997 and November 29, 1996
Sales
__________
The Company's net sales increased $4.7 million, or 19%, to $29.0 million for
the three months ended November 28, 1997, compared to the same period one year
ago. The automotive market sales for the three months ended November 29,
1997, had an increase of 23% to $20.3 million. This increase in sales
reflects the demand recovery from the labor unrest that affected all of fiscal
1997 automotive market sales.
Sales to the datacom market increased 50% to $3.6 million for the three months
ended November 28, 1997. Sales of Novaflex HD accounted for approximately
half of the $1.2 million increase. The remainder of the increase in the
datacom market is represented by increased sales of Novaclad and other
laminated materials plus sales of $224,000 of high density substrates, trade
name ViaThin. Sales to all other market reflect normal quarterly demand
fluctuations.
Markets Three Months Ended
_______ _________________
(in thousands) Nov. 28, Nov. 29, Gross %
1997 1996 Change Change
_______ _______ _______ _______
Automotive $20,298 $16,524 $ 3,774 23%
Datacommunications 3,570 2,380 1,190 50%
Aerospace/Defense 2,501 2,357 144 6%
Industrial 2,040 1,987 53 3%
Consumer 583 1,053 (470) (45%)
_______ _______ _______ _______
$28,992 $24,301 $ 4,691 19%
======= ======= ======= =======
Gross Profit
__________
Gross profit declined to 6% of sales, or $1.6 million for the three months
ended November 28, 1997, compared to the same period one year ago. As
reflected in the chart below, the Micro Products business gross loss increased
by 150%, or $2.0 million, to $3.3 million. The increase relates primarily to
increased depreciation expense. On the other hand, the combined materials and
interconnect business units gross profit increased 32% to $5.0 million, or
17%, of sales. The primary reason for the increased gross profit is the
increase in sales as explained above.
November 28, 1997 November 29, 1996
_______________ _______________
Inter & Micro Total Inter & Micro Total
Material Products Company Materials Products Company
______ ______ ______ ______ ______ ______
Sales $28,768 $ 224 $28,992 $24,301 $ 0 $24,301
Cost of sales 23,780 3,569 27,349 20,510 1,336 21,846
Gross profit 4,988 (3,345) 1,643 3,791 (1,336) 2,455
% of sales 17% N/A 6% 16% N/A 10%
Sales and marketing expenses increased $101,000, or 4%, from $2.3 million for
the three months ended November 29, 1996, to $2.4 million for the three months
ended November 28, 1997. Sales and marketing expenses totaled 8% of sales for
quarters ended November 28, 1997, and 9% for November 29, 1996.
General and administrative expenses increased $270,000 or 17% from $1.6
million for the three months ended November 29, 1996, to $1.9 million for the
three months ended November 28, 1997. The increases were due to a variety of
expenses including salaries, consulting, and depreciation primarily incurred
to support improved information systems. General and administrative expenses
total 6% of sales for the three months ended November 28, 1997, and 6.4% of
sales for the three months ended November 29, 1996.
The Company is aware of computer programming problems associated with the year
2000 and has elected to install a new year 2000 compliant system which is
expected to be in full use by early fiscal 1999. Therefore, the Company will
not incur any significant additional costs related to year 2000 problems
associated with certain computer programs.
Research and development expenses decreased $208,000, or 18%, from $1,140,000
for the three months ended November 29, 1996, to $932,000 for the three months
ended November 28, 1997. The decrease is a combination of increased salaries
and offset by a decline in outside consulting and testing services. Research
and development expenses totaled 3.2% of sales for the three months ended
November 28, 1997, and 4.7% in sales for the three months ended November 29,
1996.
Interest costs and activities for the noted period are detailed below (three
months ended, in thousands):
Nov. 28, Nov. 29,
1997 1996 Change
_______ _______ _______
Gross interest expense $ 860 $ 481 $ 379
Capitalized interest (347) (412) 65
_______ _______ _______
Net interest $ 513 $ 69 $ 444
======= ======= =======
During the current quarter, significantly higher borrowings accounted for the
increase in gross interest costs. At November 29, 1996, total borrowings were
$27.9 million while at November 28, 1997, total borrowings were $45.0 million.
Income taxes were applied at 34% in both periods. Convertible preferred stock
dividends were $187,000 for the three months ended November 28, 1997. This is
the first quarter that preferred stock dividends were recorded after the
preferred stock offering completed in August 1997. As a result, net loss to
common shareholders for the three months ended November 28, 1997 was $2.9
million, or $0.32 per share. This compares to a net loss of $1.7 million, or
$0.19 per share, for the three months ended November 29, 1996.
Financial Condition
__________
The Company's credit lines totals $47 million. The $12 million facility has
been extended to expire on March 31, 1998; $35 million expires on December 31,
1998. Total borrowings as of November 28, 1997, were $36.0 million and $11.0
million was available to the Company. Interest rates on borrowings under
these facilities averaged 8.3% on November 28, 1997. The Company is pursuing
additional financing, and it is anticipated the revolving credit facility will
be restructured and renewed. The current ratio declined from 2.80 at August
29, 1997, to 1.94 at November 28, 1997, reflecting the nearly $2 million of
credit facility borrowings recorded as a current liability. The Company has
the option, subject to certain conditions, to issue up to $15 million worth of
convertible preferred stock (Series C) under the same terms and conditions as
the Series B Convertible Preferred. This option expires in May 1998.
New Accounting Pronouncements
_________
In February 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 128, Earnings per Share (SFAS
128). SFAS 128 is effective for financial statements issued for periods
ending after December 15, 1997, including interim periods; earlier application
is not permitted. This statement requires restatement of all prior-period EPS
data presented. The Company will adopt SFAS 128 beginning in the second
quarter of fiscal 1998.
Following is the pro forma effect of adoption of SFAS 128 on the Company's
earnings per share:
November 28, 1997 November 29, 1996
_______________ _______________
Primary EPS as reported $ (0.32) $ (0.19)
Effect of SFAS 128 - -
_______ _______
Basic EPS $ (0.32) $ (0.19)
======= =======
Fully diluted EPS $ (0.32) $ (0.19)
Effect of SFAS 128 - -
_______ _______
Diluted EPS $ (0.32) $ (0.19)
======= =======
Prospective Information
__________
Significant events are currently taking place and will continue to take place
during the next several months. The most significant will be the expected
production ramp up at the Micro Products business. The Company's ability to
generate significant revenues with acceptable production costs will be
critical. Failure to do so will result in continued losses from this business
unit.
Other Factors
__________
The Company has foreign currency risks from some of 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.
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 28, 1997.
<PAGE>
PART II - OTHER INFORMATION
SHELDAHL, INC. AND SUBSIDIARY
FORM 10-Q
Item 6. Exhibits and Reports on Form 8-K
A) Exhibits
10.1 Eighth Amendment to Amended and Restated Credit and
Security Agreement dated November 17, 1997, among Norwest
Bank, Harris Bank, NBD Bank and Sheldahl, Inc.
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 November 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: January 9, 1998 By /s/ James E. Donaghy
Chief Executive Officer
Dated: January 9, 1998 By /s/ John V. McManus
Vice President, Finance
<PAGE>
Exhibit 11
SHELDAHL, INC. AND SUBSIDIARY
STATEMENT REGARDING COMPUTATION OF EARNINGS PER SHARE
(in thousands, except per share data)
For The Three Months Ended
November 28, November 29,
1997 1996
____ ____
Primary earnings per share
Weighted average number of issued
shares outstanding 9,038 8,913
Effect of exercise of stock options
under the treasury stock method - -
_______ _______
Weighted average shares outstanding
used to compute primary earnings
per share 9,038 8,913
======= =======
Net loss $(2,677) $(1,733)
Convertible preferred dividends accrued (187) -
_______ _______
Net loss applicable to common
shareholders $(2,864) $(1,733)
======= =======
Net loss per common share $(0.32) $(0.19)
======= ======
Fully diluted earnings per share
Weighted average number of issued
shares outstanding 9,038 8,913
Effect of exercise of stock options
under the treasury stock method - -
_______ _______
Weighted average shares outstanding
used to compute primary earnings
per share 9,038 8,913
======= =======
Net loss $(2,677) $(1,733)
Convertible preferred dividends accrued (187) -
_______ _______
Net loss applicable to common shareholders $(2,864) $(1,733)
======= =======
Net loss per common share $(0.32) $(0.19)
======= =======
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the November
28, 1997 financial statements and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> AUG-28-1998
<PERIOD-END> NOV-28-1997
<CASH> 1309
<SECURITIES> 0
<RECEIVABLES> 16037
<ALLOWANCES> 0
<INVENTORY> 13362
<CURRENT-ASSETS> 32194
<PP&E> 166782
<DEPRECIATION> 60966
<TOTAL-ASSETS> 142206
<CURRENT-LIABILITIES> 16591
<BONDS> 0
0
15
<COMMON> 2261
<OTHER-SE> 77893
<TOTAL-LIABILITY-AND-EQUITY> 142206
<SALES> 28992
<TOTAL-REVENUES> 28992
<CGS> 27349
<TOTAL-COSTS> 5182
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 513
<INCOME-PRETAX> 4052
<INCOME-TAX> 1375
<INCOME-CONTINUING> 2677
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2677
<EPS-PRIMARY> .32
<EPS-DILUTED> .32
</TABLE>
Exhibit 10.1
November 17, 1997
Sheldahl, Inc.
1150 Sheldahl Road
P.O. Box 170
Northfield, MN 55057
Attention: John V. McManus
Dear Mr. McManus:
Sheldahl, Inc., (the Borrower), Norwest Bank Minnesota, National
Association (Norwest), Harris Trust and Savings Bank (Harris), and NBD Bank
(NBD, together with Norwest and Harris, the Lenders) have entered into an
Amended and Restated Credit and Security Agreement dated as of November 24,
1993, as amended by a First Amendment to Amended and Restated Credit and
Security Agreement dated as of December 2, 1993, a Second Amendment to Amended
and Restated Credit and Security Agreement dated as of May 12, 1994, a Third
Amendment to Amended and Restated Credit and Security Agreement dated as of
January 24, 1995, a Fourth Amendment to Amended and Restated Credit and
Security Agreement dated as of January 29, 1996, a Fifth Amendment to Amended
and Restated Credit and Security Agreement dated as of March 12, 1996, a Sixth
Amendment to Amended and Restated Credit and Security Agreement dated as of
November 1, 1996, and a Seventh Amendment to Amended and Restated Credit and
Security Agreement dated as of April 4, 1997 (as amended, the Credit
Agreement). Capitalized terms used in this letter but not defined herein
shall have the meanings given to them in the Credit Agreement.
The Borrower has requested that the Lenders amend certain terms of
the Credit Agreement and waive certain defaults under the Credit Agreement.
The Lenders are willing to do so on the terms and conditions of this letter
amendment.
The Credit Agreement is amended as follows:
1. Section 1.1 of the Credit Agreement is hereby amended by
amending and restating in its entirety the following definition:
Maturity Date means (i) December 31, 1998, with respect to
Facility A and (ii) March 31, 1998, with respect to Facility B.
The Borrower is in Default with respect to the following Sections
of the Credit Agreement (the Defaults):
2. Under the definition of Capital Expenditure Limit in Section
1.1, within sixty (60) days after the end of each fiscal year, the
Borrower and the Required Lenders are to agree, in writing, upon the
appropriate level of Capital Expenditures for the immediately succeeding
fiscal year. As of the date hereof, the Borrower and the Required
Lenders have not reached such an agreement.
3. Under Section 6.15, within sixty (60) days after the end of
each fiscal year, the Borrower and the Required Lenders are to agree, in
writing, upon the appropriate level of Net Income for the immediately
succeeding fiscal year. As of the date hereof, the Borrower and the
Required Lenders have not reached such an agreement.
4. Under Section 7.11, the Capital Expenditure Limit for the
Borrower during any fiscal year is set at a maximum amount of
$33,000,000. The actual Capital Expenditures by the Borrower during the
fiscal year ended August 29, 1997, were $33,942,000.
Upon the terms and subject to the conditions set forth in this
letter, the Lenders hereby waive the Defaults. This waiver shall be effective
only in this specific instance and for the specific purpose for which it is
given. This waiver shall not be deemed to be a waiver of any other default or
Event of Default now existing or hereafter arising under the Credit Agreement.
This waiver shall not entitle the Borrower to any other or further waiver in
any similar or other circumstances.
The Borrower and the Lenders agree to establish, in writing, the
appropriate level of both Capital Expenditures and Net Income, for the fiscal
year ending August 28, 1998, on or before December 15, 1997. The Borrower and
the Lenders agree that the Lenders may, in their discretion, declare an Event
of Default if such levels are not established by such date.
Except as otherwise provided in this letter, the Credit Agreement
and the other Loan Documents remain in full force and effect in accordance
with their original terms.
Very truly yours,
NORWEST BANK MINNESOTA,
NATIONAL ASSOCIATION
HARRIS TRUST AND SAVINGS BANK
NBD BANK
ACKNOWLEDGED AND ACCEPTED
THIS 17TH DAY OF NOVEMBER, 1997.
<PAGE>
