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 May 29, 1998 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 July 1, 1998, 9,640,659 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
Nine Months Ended
May 29, May 30,
(in thousands, except for per share data) 1998 1997
Net sales $88,633 $78,273
Cost of sales 83,131 69,964
_______ _______
Gross profit 5,502 8,309
Expenses:
Sales and marketing 7,416 6,833
General and administrative 6,056 4,997
Research and development 3,048 3,302
Restructuring costs 8,500 -
Impairment charges 3,300 -
Interest 1,688 708
_______ _______
Loss before income taxes and
Cumulative effect of change
in method of accounting (24,506) (7,531)
Benefit (provision) for
income taxes (2,952) 2,560
_______ _______
Net loss before cumulative effect
of change in method of accounting
for start-up costs (27,458) (4,971)
Cumulative effect of change in
method of accounting for
start-up costs (5,205) -
_______ _______
Net loss before preferred dividends (32,663) (4,971)
Convertible preferred stock dividends (455) -
_______ _______
Net loss applicable to common
shareholders $(33,118) $(4,971)
======= =======
Net loss per common share:
Basic:
Net loss before change in
method of accounting $(2.96) $(0.56)
======= =======
Change in method of accounting $(0.56) $ -
======= =======
Net loss per common share $(3.57) $(0.56)
======= =======
Diluted:
Net loss before change in
method of accounting $(2.96) $(0.56)
======= =======
Change in method of accounting $(0.56) $ -
======= =======
Net loss per common share $(3.57) $(0.56)
======= =======
Number of shares outstanding:
Basic 9,267 8,952
Diluted 9,267 8,952
The accompanying notes are an integral part of these statements.
<PAGE>
SHELDAHL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
Unaudited
Three Months Ended
May 29, May 30,
(in thousands, except for per share data) 1998 1997
Net sales $31,890 $27,593
Cost of sales 29,094 24,865
_______ _______
Gross profit 2,796 2,728
Expenses:
Sales and marketing 2,501 2,227
General and administrative 2,115 1,697
Research and development 1,046 983
Restructuring costs 4,500 -
Impairment charges 3,300 -
Interest 566 412
_______ _______
Loss before income taxes (11,232) (2,591)
Benefit (provision) for income taxes (7,792) 880
_______ _______
Net loss before preferred dividends (19,024) (1,711)
Convertible preferred stock dividends (96) -
_______ _______
Net loss applicable to common
shareholders $(19,120) $(1,711)
======= =======
Net loss per common share - basic $(1.98) $(0.19)
======= =======
Net loss per common share - diluted $(1.98) $(0.19)
======= =======
Number of shares outstanding:
Basic 9,634 8,989
Diluted 9,634 8,989
<PAGE>
SHELDAHL, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
ASSETS
unaudited
(In thousands) May 29, August 29,
1998 1997
Current assets:
Cash and cash equivalents $ 885 $ 5,567
Accounts receivable, net 17,490 15,880
Inventories 14,838 13,078
Prepaid expenses and other
current assets 848 406
Deferred taxes - 765
_______ _______
Total current assets 34,061 35,696
_______ _______
Construction in process 30,444 19,303
Land and buildings 27,353 26,467
Machinery and equipment 107,328 112,071
Less: accumulated depreciation (64,181) (57,036)
_______ _______
Net plant and equipment 100,944 100,805
_______ _______
Deferred taxes - 2,187
_______ _______
Other assets 660 679
_______ _______
$135,665 $139,367
======= =======
LIABILITIES AND SHAREHOLDERS INVESTMENT
Current liabilities:
Current maturities of
long-term debt $ 15,332 $ 818
Accounts payable 9,833 7,309
Customer overpayment 9,334 -
Accrued salaries 1,707 1,606
Other accruals 5,031 3,020
Restructuring reserves 5,264 -
_______ _______
Total current liabilities 46,501 12,753
_______ _______
Long-term debt 32,051 40,869
_______ _______
Other non-current liabilities 7,214 2,813
_______ _______
Shareholders investment:
Preferred stock 8 15
Common stock 2,410 2,258
Additional paid-in capital 66,863 66,923
Retained earnings (deficit) (19,382) 13,736
_______ _______
Total shareholders investment 49,899 82,932
_______ _______
$135,665 $139,367
======= =======
<PAGE>
SHELDAHL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Unaudited
Nine Months Ended
(in thousands) May 29, May 30,
1998 1997
Operating activities:
Net loss $ (32,663) $ (4,971)
Adjustments to reconcile net loss
to net cash provided by
operating activities:
Depreciation and amortization 10,808 7,378
Deferred income taxes 2,952 (2,559)
Non-cash restructuring charges 8,500 -
Non-cash impairment charges 3,300 -
Non-cash change in method of
accounting 5,205 -
Net change in other operating activities:
Accounts receivable (1,610) 2,864
Inventories (1,760) (1,350)
Prepaid expenses and other current
assets (442) (43)
Other assets 19 1
Accounts payable and accrued
liabilities 3,907 996
Other non-current liabilities (39) 36
_______ _______
Net cash provided by (used in)
operating activities (1,823) 2,352
_______ _______
Investing activities:
Capital expenditures, net (17,764) (25,805)
_______ _______
Financing activities:
Customer overpayment 9,334 -
Borrowings under revolving credit
facilities, net 4,125 22,625
Proceeds from long-term debt 2,334 791
Repayments of long-term debt (814) (434)
Preferred stock issuance cost (300) -
Proceeds of stock option exercises 226 859
_______ _______
Net cash provided by financing activities 14,905 23,841
_______ _______
Increase (decrease) in cash (4,682) 388
_______ _______
Cash and cash equivalents at beginning
of period 5,567 904
_______ _______
Cash and cash equivalents at end
of period $ 885 $ 1,292
======= =======
Supplemental cash flow information:
Income taxes paid $ 36 $ 266
======= =======
Interest paid $ 2,901 $ 1,961
======= =======
<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):
May 29, 1998 August 29, 1997
Raw materials $4,693 $ 3,069
Work-in-process 6,431 6,484
Finished goods 3,714 3,525
_______ _______
$14,838 $13,078
======= =======
2) Convertible Preferred Stock.
As of May 29, 1998, 7,650 shares of preferred stock remained outstanding.
This preferred stock, with a stated value of $7.7 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 trading day period immediately prior to
conversion. As of May 29, 1998, the conversion price was estimated to be
$9.00 per share, and if converted in its entirety, the Series B Preferred
Stock would represent approximately 850,000 additional shares of common
stock.
As of May 29, 1998, the Company accrued dividends on this preferred stock
of approximately $281,000, which are payable in cash or common stock, at
the Company's option, on the date the preferred stock is converted into
common stock.
3) Restructuring Costs.
In February 1998, a restructuring charge of $4.0 million was recorded
related to the culmination of the Company's business process design
initiative that began two years ago. Due to significant productivity
benefits resulting from the initiative, the Company is reducing the size of
its salaried workforce. The resulting workforce reduction involves
layoffs, early retirement offerings, reassignments and reclassifications of
positions. The restructuring costs provide for approximately $2.5 million
for severance and early retirement salary costs, approximately $1.3 million
for medical, dental and other benefits being provided to the affected
individuals, and approximately $0.2 million for outplacement and other
costs. Approximately 65 people will be affected.
In May 1998, an additional restructuring charge of $4.5 million was
recorded. This restructuring charge relates to the closing of the
Company's Aberdeen, South Dakota assembly facility and reducing its
Northfield production workforce. The restructuring costs provide for
approximately $2.6 million for severance costs, approximately $0.6 million
for medical, dental and other benefits being provided to the affected
individuals, approximately $1.0 million for equipment disposal and losses
related to the closure of the Aberdeen facility, and approximately $0.3
million for outplacement and other costs. Approximately 240 jobs will be
affected.
As of May 29, 1998, approximately $75,000 has been charged to the Company's
restructuring reserves and 41 employees have terminated employment with the
Company.
4) Per Share Information.
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards (SFAS) No. 128, Earnings Per Share. This
new standard replaces prior EPS reporting requirements and requires a dual
presentation of basic and diluted EPS. Basic EPS excludes dilution and is
computed by dividing net income by the weighted average amount of common
shares outstanding for the period. Diluted EPS reflects the potential
dilution that could occur if securities or other contracts to issue common
stock were exercised or converted into common stock. As with current EPS
reporting requirements, the standard requires common equivalent shares to
be excluded in loss periods, as they are anti-dilutive.
(in thousands except Nine Months Ended Three Months Ended
per share data) 5/29/98 5/30/97 5/29/98 5/30/97
_____ _____ _____ _____
Basic EPS:
Net loss applicable to
common shareholders $ (33,118) $ (4,971) $ (19,118) $ (1,711)
Weighted average common
shares outstanding 9,267 8,952 9,634 8,989
Number of shares 9,267 8,952 9,634 8,989
Net income per share $ (3.57) $ (0.56) $ (1.98) $ (0.19)
The Company's outstanding preferred shares and options have been computed
to be anti-dilutive, and therefore are excluded from the calculation of
diluted EPS and therefore diluted EPS equals basic EPS for the periods
presented above.
5) The Company adopted Statement of Position No. 98-5, Reporting on the Costs
of Start-Up Activities (SOP 98-5), during the third quarter of 1998 which
requires the expensing of these items as incurred, versus capitalizing and
expensing them over a period of time. The early adoption of SOP 98-5
resulted in a cumulative effect of a change in method of accounting of
approximately $5.2 million, related to costs capitalized by the Company
from its Micro Products venture. The adoption of SOP 98-5 was applied
retroactively to the beginning of fiscal 1998, and the Company's first and
second quarters have been restated to reflect this change in method of
accounting, in accordance with the provisions of SOP 98-5 and Accounting
Principles Board Opinion No. 20, Accounting Changes.
6) In June 1998, the Company executed a new credit agreement which provides
the Company with up to $60 million in financing and completely replaces the
Company's prior credit facilities. This agreement provides the Company
with up to $60 million in financing and completely replaces the prior
credit facilities. The new agreement provides three separate facilities: a
revolver facility of up to $25 million based on the Company's working
capital; a term facility for $16 million based on the appraised value of
the Company's unencumbered equipment; and a bridge facility for $19
million. Interest on the revolver and the term facility will be charged at
the base rate (prime rate) plus 1%. Interest on the bridge facility will
be charged at base plus 3%. The bridge facility also carries a deferred
interest charge of 13.5 percent due at payment of the facility. Once the
bridge facility is paid off, interest on the remaining two facilities will
then be charged at the base rate. The agreement also calls for the
issuance of warrants at a price to be determined based on future events.
The minimum number of warrants will be 100,000. The maximum number of
warrants will be 250,000. The bridge facility calls for principal
amortization of $5.0 million on August 28, 1998, $4.5 million on November
30, 1998, and $3.2 million on May 31, 1999 and November 30, 1999, with the
remaining balance due on May 31, 2001. The term loan calls for interest
only payments until January 1, 1999, when monthly principal payments of
$205,000 begin. All unamortized term facility amounts are due May 31,
2001. The revolving facility requires monthly interest payments and is due
May 31, 2001. The agreement requires certain covenants that restrict the
payments of cash dividends, capital expenditures, maintain certain levels
of net worth and net income, and maintain certain levels of cash flows from
operations as defined.
The May 29, 1998 balance sheet reflects the new credit agreement in the
classification of bank debt as current and non-current liabilities.
<PAGE>
SHELDAHL, INC. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
CONSOLIDATED OPERATING RESULTS AND FINANCIAL CONDITION
Nine Months Ended May 29, 1998, and May 30, 1997
Recent Developments:
The Company's unaudited results for the third quarter of fiscal 1998,
including a pretax charge for restructuring costs and asset impairment charges
as well as further charges relating to a tax asset allowance and the adoption
of a FASB pronouncement on start-up costs, resulted in a net loss applicable
to common shareholders for the nine months and quarter ended May 29, 1998 of
$33.1 million or $3.57 per share and $19.0 million or $1.98 per share,
respectively. For the most recent quarter, the Company's core business
generated operating pretax profit of $1.4 million, while its Micro Products
business posted an operating pretax loss of $4.9 million. The core business,
based on increased sales and reduced costs, improved operating pretax profits
by $2.8 million for the third quarter, as compared to the second quarter.
Gross margin in the core business rose to 19.1 percent compared to 12.7
percent last quarter. Additionally, for the nine months ended May 29, 1998,
the loss was due in part to the following:
- - The Company's decision to move approximately 240 jobs from its Northfield,
Minnesota and Aberdeen, South Dakota facilities to Mexico resulted in a
restructuring charge of $4.5 million in the third quarter of 1998. This
charge relates to the cost of staff reductions, the sale of certain assets
and the closing of the Company's Aberdeen assembly facility. The Company
expects that 200 of the affected jobs will move to Mexico by the close of
its 1998 fiscal year, with the balance completed in the third quarter of
fiscal 1999.
- - The write down of equipment amounting to $3.3 million in the third quarter
of 1998, principally at the Company's Longmont, Colorado facility, which
equipment, based upon analysis by management and anticipated production
processes, is not expected to contribute to the Company's future cash
flows.
- - The decision and analysis performed by management, based upon recent
restructuring, write-offs and continued losses at the Company's Micro
Products venture, to provide a valuation allowance for its net deferred tax
assets, resulted in a $7.8 million charge to income during the third
quarter of 1998. As a result, the Company will not reflect in immediate
future periods any tax provision or benefit until such net deferred tax
assets are offset by reported pretax profits or that the degree of
certainty increases as to the future profit performance of the Company to
allow for the reversal of the valuation allowance for deferred tax assets.
- - The adoption by the Company of Statement of Position No. 98-5, Reporting on
the Costs of Start-Up Activities, which requires the expensing of these
items as incurred, versus capitalizing and expensing them over a period of
time. The early adoption of this statement resulted in a cumulative effect
of a change in method of accounting of approximately $5.2 million, related
to costs capitalized by the Company from its Micro Products venture. The
adoption of this statement was applied retro-actively to the beginning of
fiscal 1998, and the Company's first and second quarters have been restated
to reflect this change in method of accounting, in accordance with the
provisions of SOP 98-5 and APB 20. The Company's depreciation and
amortization expense is reduced by almost $0.5 million per quarter as a
result of the adoption of reporting for start-up costs and the write down
of certain equipment, which was noted above.
Sales:
The Company's net sales increased $10.4 million, or 13.2%, from $78.2 million
for the nine months ended May 30, 1997, to $88.6 million for the nine months
ended May 29, 1998. The automotive market sales for the nine months ended May
29, 1998, increased 15.4% to $61.8 million. This increase in sales reflects
the demand recovery from the numerous automotive industry work stoppages that
affected all of fiscal 1997 and increases in demand of Novaflex HD
interconnect products to both the automotive and datacom markets.
Sales to the datacom market increased 28.8% to $11.2 million for the nine
months ended May 29, 1998. Sales of Novaflex HD accounted for approximately
half of the $2.5 million increase. The remainder of the increase in the
datacom market is represented by increased sales of Novaclad and other
laminated materials plus increased sales of approximately $0.8 million of
high-density ViaThin substrates. Sales to all other markets reflect a
decrease of $.4 million, or 2%, for the nine months ended May 29, 1998, and is
detailed below.
Sales by Market
Nine Months Ended
(in thousands) May 29, 1998 May 30, 1997 Gross Change % Change
Automotive $61,776 $53,555 $8,221 15.4%
Datacommunications 11,169 8,670 2,499 28.8%
Industrial 5,662 6,047 (385) (6.4%)
Consumer 2,582 3,200 (618) (19.3%)
Aerospace/Defense 7,444 6,801 643 9.5%
_______ _______ _______ _______
$88,633 $78,273 $10,360 13.2%
Gross Profit:
Gross profit declined $2.8 million from $8.3 million for the nine months ended
May 30, 1997 to $5.5 million for the nine months ended May 29, 1998. As
reflected in the chart below, the Micro Products gross loss increased by 22%,
or $1.6 million to $9.0 million. The increase relates primarily to increased
depreciation expense. The combined Materials and Interconnect business units'
gross profit declined $1.2 million to $15.5 million, or 16.5% of sales. The
primary reasons for the lower gross profit are related to increased
depreciation and higher labor costs, and less favorable product mix due to a
higher concentration of Novaflex HD sales, which at current operating levels,
have less margin.
Nine Months Ended May 29, 1998 May 30, 1997
(in millions)
Interc and Micro Total Interc and Micro Total
Materials Prod Company Materials Prod Company
Sales $87,812 $ 821 $88,633 $77,947 $ 326 $78,273
Cost of sales 73,314 9,817 83,131 62,266 7,698 69,964
Gross profit 14,498 (8,996) 5,502 15,681 (7,372) 8,309
% of sales 16.5% N/A 6.2% 20.1% N/A 10.6%
Sales and marketing expense increased $583,000, or 8.5%, from $6.8 million for
the nine months ended May 30, 1997, to $7.4 million for the nine months ended
May 29, 1998. Increased sales staffing, travel costs, and commission expenses
were offset by declines in consulting costs. The majority of the increase was
related to additional support for Micro Products.
General and administrative expenses increased $1.1 million, or 21%, from $5.0
million for the nine months ended May 30, 1997, to $6.0 million for the nine
months ended May 29, 1998. Increased staffing, salaries, consulting,
depreciation, and outside maintenance costs were incurred to support improved
information systems. General and administrative expenses totaled 6.8% of
sales for the nine months ended May 29, 1998, and 7.1% of sales for the nine
months ended May 30, 1997.
Research and development expenses decreased $254,000, or 8%, from $3.3 million
for the nine months ended May 30, 1997, to $3.0 million for the nine months
ended May 29, 1998. The decrease is a combination of increased depreciation
offset by a decline in outside consulting and testing services. Research and
development expenses totaled 3.4% of sales for the nine months ended May 29,
1998, and 4.2% in sales for the nine months ended May 30, 1997.
Interest costs and activities for the noted periods are detailed below:
(in thousands) Nine Months Ended
May 29, 1998 May 30, 1997 Change
Gross interest expense $ 3,063 $ 1,961 $ 1,102
Capitalized interest (1,375) (1,253) (122)
_______ _______ _______
Net interest $ 1,688 $ 708 $ 980
During the current nine months, significantly higher borrowings accounted for
the increase in gross interest costs. Total borrowings have increased nearly
$16 million since the beginning of the fiscal year.
Including the restructuring costs, impairment charges, and actual performance
for the period, the pretax operating loss for the nine months ended May 29,
1998 was $24.5 million. This compares with a pretax loss for the nine months
ended May 30, 1997 of $7.5 million.
For the nine months ended May 29, 1998, the tax provision of $3.0 million
reflects a change in estimate concerning the ultimate recovery of the
Company's deferred tax assets. Because of recent restructuring and write-
offs, as well as continuing losses at the Company's Micro Products venture,
the Company has established an allowance for all of its tax assets. This
provision effectively writes down all tax assets to zero. During the nine
months of 1997, tax benefits were provided at 34%.
This results in a net loss before cumulative changes of accounting method of
$27.5 million for the current nine month period. This compares with a loss of
$5.0 million for the nine months ended May 30, 1997.
Net loss before convertible stock dividends was $32.6 million, and after
$455,000 of preferred stock dividends, net loss available to common
shareholders was $33.1 million. For the same period one year ago, net loss
available to common shareholders was $5.0 million.
On a per share basis, after a $0.56 per share charge for adopting SOP 98-5,
net loss available to common shareholders was $3.57 on both a basic and
diluted basis. Weighted average shares outstanding during the nine month
period were approximately 9,267,000.
<PAGE>
SHELDAHL, INC. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
CONSOLIDATED OPERATING RESULTS AND FINANCIAL CONDITION
Three Months Ended May 29, 1998, and May 30, 1997
Sales:
The Company's net sales increased $4.3 million, or 16%, from $27.6 million for
the three months ended May 30, 1997, to $31.9 million for the three months
ended May 29, 1998. The automotive market sales for the three months ended
May 29, 1998, increased 13% to $21.7 million. This increase in sales reflects
the demand recovery from the labor unrest that affected the three months ended
May 29, 1997, and increased demand for HD Novaflex products in the automotive
market.
Sales to the datacom market increased 40% to $4.5 million for the three months
ended May 29, 1998. HD Novaflex products used in computers and portable
communication devices account for this increase. Sales to all other markets
are reflected below.
Market Three Months Ended
(in thousands) May 29, 1998 May 30, 1997 Gross Change % Change
Automotive $21,683 $19,272 $2,411 12.5%
Datacommunications 4,529 3,233 1,296 40.1%
Industrial 1,814 2,019 (205) (10.2%)
Consumer 1,051 1,054 (3) (.3%)
Aerospace/Defense 2,814 2,015 799 39.7%
_______ _______ _______ _______
$31,891 $27,593 $4,298 15.6%
Gross Profit:
In total, gross profit increased $70,000 from $2.7 million for the three
months ended May 30, 1997 to $2.8 million for the three months ended May 29,
1998. The gross loss at Micro Products decreased $288,000 reflecting somewhat
higher revenue and lower depreciation expenses.
The Interconnect and Materials gross margin declined $217,000 on $4.2 million
more sales. Lower margins on HD Novaflex products and higher overhead costs
account for this decline. HD Novaflex products accounted for 21% of
Interconnect and Materials revenue. These products are experiencing high
demand and total gross margin dollars is expected to increase with greater
throughput. Increased depreciation and labor costs account for the increases
in overhead expenses.
Three Months Ended May 29, 1998 May 30, 1997
(in millions)
Interc & Micro Total Intercon & Micro Total
Materials Prod Company Materials Prod Company
Sales $31,537 $ 353 $31,890 $27,382 $ 211 $27,593
Cost of sales 25,522 3,572 29,094 21,150 3,715 24,865
Gross profit 6,015 (3,219) 2,796 6,232 (3,504) 2,728
% of sales 19.1% N/A 8.8% 22.7% N/A 9.9%
Sales and marketing expenses increased $274,000, or 12%, from $2.2 million for
the three months ended May 30, 1997, to $2.5 million for the three months
ended May 29, 1998. Increased sales staffing, travel costs, and commission
expense accounted for the increase.
General and administrative expenses increased $418,000, or 25%, from $1.7
million for the three months ended May 30, 1997, to $2.1 million for the three
months ended May 28, 1998. The increases were due to a variety of expenses
including salaries, maintenance, and depreciation expense primarily incurred
to support improved information systems. General and administrative expenses
totaled 7% of sales for the three months ended May 29, 1998, and 6% of sales
for the three months ended May 30, 1997.
Research and development expenses increased $63,000, or 6%, from $983,000 for
the three months ended May 30, 1997, to $1,046,000 for the three months ended
May 29, 1998. The increase is a combination of increased salaries and
depreciation offset by a decline in outside consulting and travel cost.
Interest costs and activities for the noted period are detailed below:
(in thousands) Three Months Ended
May 29, 1998 May 30, 1997 Change
Gross interest expense $ 1,141 $ 811 $ 330
Capitalized interest (525) (399) (176)
_______ _______ _______
Net interest $ 566 $ 412 $ 154
During the current quarter, significantly higher borrowings accounted for the
increase in gross interest costs. These borrowings were incurred to support
capital expenditures and losses from Micro Products operation.
After the restructuring costs, impairment charges, and other expenses, the
pretax operating loss for the three months ended May 29, 1998 was $11.2
million. This compares with a pretax loss for the three months ended May 30,
1997 of $2.6 million.
For the three months ended May 29, 1998, the tax provision of $7.8 million
reflects a change in estimate concerning the ultimate recovery of the
Company's deferred tax assets. Because of recent restructuring and write-
offs, as well as continuing losses at the Company's Micro Products venture,
the Company has established an allowance for all of its tax assets. This
provision effectively writes down all tax assets to zero. During the three
months of 1997, tax benefits were provided at 34%.
Net loss before convertible stock dividends, including all charges and
allowances, was $19.0 million. After $96,000 of preferred stock dividends,
net loss applicable to common shareholders was $19.1 million. For the same
period one year ago, net loss applicable to common shareholders was $1.7
million.
On a per share basis, net loss applicable to common shareholder was $1.98 on
both a basic and diluted basis. Weighted average shares outstanding during
the three months ended May 29, 1998 were approximately 9,634,000.
Financial Condition:
On June 19, 1998, the Company executed a new credit agreement with a group of
lenders lead by Norwest Bank, N.A. as agent. This agreement provides the
Company with up to $60 million in financing and completely replaces the
prior credit facilities. The new agreement provides three separate
facilities: a revolver facility of up to $25 million based on the
Company's working capital; a term facility for $16 million based on the
appraised value of the Company's unencumbered equipment; and a bridge
facility for $19 million. Interest on the revolver and the term facility
will be charged at the base rate (prime rate) plus 1%. Interest on the
bridge facility will be charged at base plus 3%. The bridge facility also
carries a deferred interest charge of 13.5 percent due at payment of the
facility. Once the bridge facility is paid off, interest on the remaining
two facilities will then be charged at the base rate (prime rate). The
agreement also calls for the issuance of warrants at a price to be
determined based on future events. The minimum number of warrants will
be 100,000. The maximum number of warrants will be 250,000. The bridge
facility calls for principal amortization of $5.0 million on August 28,
1998, $4.5 million on November 30, 1998, and $3.2 million on May 31, 1999
and November 30, 1999, with the remaining balance due on May 31, 2001. The
term loan calls for interest only payments until January 1, 1999, when
monthly principal payments of $205,000 begin. All unamortized term
facility amounts are due May 31, 2001. The revolving facility requires
monthly interest payments and is due May 31, 2001. The agreement requires
certain covenants that restrict the payments of cash dividends, capital
expenditures, maintain certain levels of net worth and net income, and
maintain certain levels of cash flows from operations as defined.
The May 29, 1998 balance sheet reflects the new credit agreement in the
classification of bank debt as current and non-current liabilities.
The Company anticipates the addition of new equity capital to enhance
liquidity, to fund the payment of the bridge bank facility, and to provide
additional funds for general corporate purposes. Additional funds are
expected before the end of the fiscal year in the amount of $25 - $35
million, although there can be no assurance the Company can complete such
financing.
In late April, the Company received an overpayment from a customer in the
amount of $9.3 million. The customer has been contacted and the overpayment
will be applied to the customer's accounts and the excess will be
refunded. The refund of the overpayment is expected to take place in
July 1998. Such payment is estimated to be $6.2 million, offsetting trade
receivables due from the customer.
The Company's current ratio at May 29, 1998 was 0.73, reflecting $15.3
million of current long-term debt and a $9.3 million liability for a
customer overpayment in current liabilities.
On August 29, 1997, the Company sold an aggregate of 15,000 shares of Series B
Convertible Preferred Stock, to the selling shareholders pursuant to the
Convertible Preferred Stock Purchase Agreement among the Company and the
selling shareholders. The Series B Preferred Stock is entitled to
dividends, payable in cash or shares of common stock at the election of
the Company. The conversion price for the Series B Preferred Stock is
dependent on the market prices for the Company's common stock. In
connection with the issuance of the Series B Preferred Stock, the Company
granted to each selling shareholder warrants to purchase shares of the
Company's common stock. The aggregate amount of shares of common stock
the Company is obligated to issue under the warrants is 67,812 shares at
an exercise price of $27.65 per share. The Company also granted to the
selling shareholders certain registration rights with respect to the shares
of the Company's common stock issuable to the selling shareholders upon
conversion of the Series B preferred Stock, accrued dividends and the
warrants.
Pursuant to the terms of the Agreement, the Company was given the right,
subject to the satisfaction of certain conditions, to require the selling
shareholders to purchase shares of Series C Convertible Preferred Stock,
par value $1.00 per share, with terms identical to the Series B Preferred
Stock for an aggregate additional purchase price of up at $15 million.
However, one of the conditions to the Company's exercise of such right has
failed to occur, since the Company's common stock has traded below $12.00
for a period of five consecutive trading days. As a result, the selling
shareholders can refuse to purchase such shares of Series C Preferred
Stock upon any attempted exercise by the Company of such right. The
Company does not intend to seek funding of the Series C Preferred shares.
There were no conversions of Series B Preferred Stock during the third
quarter. $7.65 million or 7,650 shares of preferred remained outstanding
at May 29, 1998. If all of the Series B were converted at May 29, 1998,
approximately 850,000 shares of common stock would be issued.
Prospective Information:
Significant events are currently taking place and will continue to take place
during the next several months. The expected production ramp up at the Micro
Products business is one of these events. 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.
Also, margins in the core businesses have been unacceptably weak. The
Company is taking specific steps to increase gross margin dollars by
reducing production costs and increasing throughput and related revenues.
Demand for the Company's Novaflex HD products is expected to increase over
the near term. The Company has the capacity in place to meet this demand
and expects greater revenue to result in greater gross margin dollars from
this family of products.
The current strike at General Motors will have an adverse effect on the
Company's revenue during the fourth quarter of fiscal 1998. The Company's
average weekly shipment to GM and first-tier suppliers supporting GM is
$350,000 per week.
The Company is aware of computer programming problems associated with the
year 2000 and has elected to install new year 2000 compliant systems which
is expected to be in full use by early fiscal 1999. The Company is in the
process of evaluating its remaining peripheral computer systems and has
not made a determination of the year 2000 effect on these systems or the
cost to correct any problems that should arise. Additionally, the Company
cannot reasonably estimate or anticipate problems or expenses due to a
customer or supplier's system experiencing year 2000 problems.
<PAGE>
PART II - OTHER INFORMATION
SHELDAHL, INC. AND SUBSIDIARY
FORM 10-Q
Item 6. Exhibits and Reports on Form 8-K
A) Exhibits
11 Statement regarding computation of earnings per share
27 Financial data schedule
27.1 Restated financial data schedule for the quarter ended
November 28, 1997
27.2 Restated financial data schedule for the quarter ended
February 27, 1998
B) Reports on Form 8-K
No reports on Form 8-K were filed by the Registrant during the
quarter ended May 29, 1998.
<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: July 13, 1998 By /s/ James E. Donaghy
Chief Executive Officer
Dated: July 13, 1998 By /s/ Edward L. Lundstrom
President
Dated: July 13, 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 Nine Months Ended
May 29, May 29,
1998 1997
Basic earnings per share
Weighted average number of issued
shares outstanding 9,267 8,952
======= =======
Net loss $(32,663) $(4,971)
Convertible preferred dividends
accrued (455) -
_______ _______
Net loss applicable to common
shareholders $(33,118) $(4,971)
======= =======
Net loss per common share $(3.57) $(0.56)
======= =======
Diluted earnings per share
Weighted average number of issued
shares outstanding 9,267 8,952
Effect of preferred stock under
treasury method - -
Effect of exercise of stock options
under the treasury stock method - -
_______ _______
Weighted average shares outstanding used
to compute basic earnings per share 9,267 8,952
======= =======
Net loss $(32,633) $(4,971)
Convertible preferred dividends
accrued (455) -
_______ _______
Net loss applicable to common
shareholders $(33,118) $(4,971)
======= =======
Net loss per common share $(3.57) $(0.56)
======= =======
<PAGE>
For The Three Months Ended
May 29, May 29,
1998 1997
Basic earnings per share
Weighted average number of issued
shares outstanding 9,634 8,989
======= =======
Net loss $(19,024) $(1,711)
Convertible preferred dividends
accrued (96) -
_______ _______
Net loss applicable to common
shareholders $(19,120) $(1,711)
======= =======
Net loss per common share $(1.98) $(0.19)
======= =======
Diluted earnings per share
Weighted average number of issued
shares outstanding 9,634 8,989
Effect of preferred stock under
treasury method - -
Effect of exercise of stock options
under the treasury stock method - -
_______ _______
Weighted average shares outstanding used
to compute basic earnings per share 9,634 8,989
======= =======
Net loss $(19,024) $(1,711)
Convertible preferred dividends
accrued (96) -
_______ _______
Net loss applicable to common
shareholders $(19,120) $(1,711)
======= =======
Net loss per common share $(1.98) $(0.19)
======= =======
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE MAY 29,
1998 FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
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<PERIOD-TYPE> 3-MOS 9-MOS
<FISCAL-YEAR-END> AUG-28-1998 AUG-28-1998
<PERIOD-END> MAY-29-1998 MAY-29-1998
<CASH> 885 885
<SECURITIES> 0 0
<RECEIVABLES> 17490 17490
<ALLOWANCES> 0 0
<INVENTORY> 14838 14838
<CURRENT-ASSETS> 34061 34061
<PP&E> 165125 165125
<DEPRECIATION> 64181 64181
<TOTAL-ASSETS> 135665 135665
<CURRENT-LIABILITIES> 46501 46501
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8 8
<COMMON> 2410 2410
<OTHER-SE> 47481 47481
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<CGS> 29094 83131
<TOTAL-COSTS> 5662 16520
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<INTEREST-EXPENSE> 566 1688
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<INCOME-CONTINUING> 19024 27458
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<CHANGES> 0 5205
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<EPS-PRIMARY> 1.98 3.57
<EPS-DILUTED> 1.98 3.57
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<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE IS RESTATED PURSUANT TO REG S-K, ITEM 601(C)2 TO COMPLY WITH SEC
REQUIREMENTS CONCERNING THE FASB NO. 128 EARININGS PER SHARE.
</LEGEND>
<RESTATED>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> AUG-28-1998
<PERIOD-END> NOV-28-1997
<CASH> 1309
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<RECEIVABLES> 16037
<ALLOWANCES> 0
<INVENTORY> 13362
<CURRENT-ASSETS> 32194
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<DEPRECIATION> 57825
<TOTAL-ASSETS> 137498
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<BONDS> 0
0
15
<COMMON> 2261
<OTHER-SE> 73185
<TOTAL-LIABILITY-AND-EQUITY> 142206
<SALES> 28992
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<TOTAL-COSTS> 5182
<OTHER-EXPENSES> 0
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<INCOME-TAX> 1375
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<EPS-PRIMARY> .84
<EPS-DILUTED> .84
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<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE IS RESTATED PURSUANT TO REG S-K, ITEM 601(C)2 TO COMPLY WITH
REQUIREMENTS CONCERNING THE FASB NO. 128 EARNINGS PER SHARE.
</LEGEND>
<RESTATED>
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS
<FISCAL-YEAR-END> AUG-28-1998 AUG-28-1998
<PERIOD-END> FEB-27-1998 FEB-27-1998
<CASH> 1101 1101
<SECURITIES> 0 0
<RECEIVABLES> 16878 16878
<ALLOWANCES> 0 0
<INVENTORY> 14566 14566
<CURRENT-ASSETS> 33992 33992
<PP&E> 165988 165988
<DEPRECIATION> 61478 61478
<TOTAL-ASSETS> 146154 146154
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<OTHER-SE> 66541 66541
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<TOTAL-REVENUES> 27751 56743
<CGS> 27185 54037
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<OTHER-EXPENSES> 0 0
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