SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended April 2, 2000
---------
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number: 0-15930
SOUTHWALL TECHNOLOGIES INC.
----------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 94-2551470
------------------------------- ---------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
1029 Corporation Way, Palo Alto, California 94303
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (650) 962-9111
--------------
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
-----
As of April 17, 2000 there were 7,608,547 shares of the Registrant's Common
Stock outstanding.
1
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SOUTHWALL TECHNOLOGIES INC.
INDEX
PART I FINANCIAL INFORMATION
Item 1 Financial Statements: Page Number
Consolidated Balance Sheets - April 2, 2000
and December 31, 1999..............................................3
Consolidated Statements of Operations -
three months ended April 2, 2000
and April 4, 1999..................................................4
Consolidated Statements of Cash Flows -
three months ended April 2, 2000
and April 4, 1999..................................................5
Notes to Consolidated Financial Statements.........................6
Item 2 Management's Discussion and Analysis
of Financial Condition and Results of Operations..................10
Item 3 Quantitative and Qualitative Disclosures about Market Risk........13
PART II OTHER INFORMATION
Item 1 Legal Proceedings.................................................14
Item 2 Changes in Securities.............................................14
Item 3 Defaults Upon Senior Securities...................................14
Item 4 Submission of Matters to a Vote of Stockholders...................14
Item 5 Other Information.................................................14
Item 6 Exhibits and Reports on Form 8-K..................................14
Signatures........................................................15
2
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PART I FINANCIAL INFORMATION
Item 1 - Financial Statements:
SOUTHWALL TECHNOLOGIES INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
(Unaudited)
ASSETS April 2, December 31,
2000 1999
-------- --------
Current assets:
Cash and cash equivalents $ 25 $ 1,794
Restricted cash 3,140 1,883
Accounts receivable, net of allowance
for doubtful accounts of $852 and $875 14,465 11,417
Inventories 13,232 7,601
Other current assets 1,266 1,294
-------- --------
Total current assets 32,128 23,989
Property and equipment, net 45,190 42,824
Other assets 3,176 3,310
-------- --------
Total Assets $ 80,494 $ 70,123
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Bank credit line $ 7,997 $ 4,849
Accounts payable 13,286 9,775
Accrued compensation 1,079 1,817
Other accrued liabilities 2,552 2,410
Current portion of long-term debt 1,658 2,091
-------- --------
Total current liabilities 26,572 20,942
Long-term debt 25,047 21,789
Deferred income taxes 437 437
-------- --------
Total liabilities 52,056 43,168
Stockholders' equity:
Common stock, $.001 par value,
20,000 shares authorized:
Issued and outstanding: 7,889 and 7,598 8 8
Capital in excess of par value 51,641 51,771
Less cost of treasury stock, 290
and 371 shares (1,474) (1,888)
Notes Receivable (597) (906)
Translation loss on subsidiary (44) (40)
Accumulated deficit (21,096) (21,990)
-------- --------
Total stockholders' equity 28,438 26,955
-------- --------
Total liabilities and
stockholders' equity $ 80,494 $ 70,123
======== ========
See accompanying notes to consolidated financial statements.
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<TABLE>
SOUTHWALL TECHNOLOGIES INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(Unaudited)
<CAPTION>
Three Months Ended
----------------------
April 2, April 4,
2000 1999
-------- --------
<S> <C> <C>
Net revenues $ 17,640 $ 10,858
-------- --------
Costs and expenses:
Cost of sales 12,317 8,911
Research and development 1,511 1,233
Selling, general and
administrative 2,412 1,966
-------- --------
Total costs and expenses 16,240 12,110
-------- --------
Income(loss) from operations 1,400 (1,252)
Interest expense, net (470) (255)
-------- --------
Income(loss)before income taxes 930 (1,507)
Provision for income taxes 36 12
-------- --------
Net Income(loss) $ 894 $ (1,519)
======== ========
Net Income(loss) per share - Basic $ 0.12 $ (0.21)
======== ========
- Diluted $ 0.11 $ (0.21)
======== ========
Weighted average shares of
common stock and common
stock equivalents - Basic 7,567 7,324
- Diluted 8,380 7,324
<FN>
See accompanying notes to consolidated financial statements.
</FN>
</TABLE>
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SOUTHWALL TECHNOLOGIES INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
Three Months Ended
April 2, April 4,
2000 1999
-------- --------
Cash flows from (used in) operating activities:
Net income (loss) $ 894 $ (1,519)
Adjustments to reconcile net income (loss)
to net cash provided by (used in)
operating activities:
Depreciation and amortization 1,208 1,152
Translation loss on foreign subsidiary (4) --
Decrease (increase) in accounts receivable (3,048) 2,495
Decrease (increase) in inventories (5,631) (464)
Decrease (increase) in other current assets 124 (286)
(Decrease) increase in accounts payable
and accrued liabilities 2,915 (2,912)
-------- --------
Cash used in operating activities (4,799) (1,534)
-------- --------
Cash flows from investing activities:
Decrease (increase) in short-term investments -- 7
Expenditures for property and equipment
and other assets (3,536) (2,530)
-------- --------
Net cash used in investing activities (3,536) (2,523)
-------- --------
Cash flows from financing activities:
Proceeds from long-term debt 3,898 39
Principal payments on long-term debt (1,073) (388)
Proceeds from bank line of credit 11,933 500
Principal payments on bank like of credit (8,785) --
Repayment of stock option loans 309 --
Issuance of treasury stock, net 284 --
-------- --------
Net cash provided by financing activities 6,566 151
-------- --------
Net decrease in cash and cash
equivalents (1,769) (3,906)
Cash and cash equivalents, beginning of year 1,794 4,136
-------- --------
Cash and cash equivalents, end of period $ 25 $ 230
======== ========
See accompanying notes to consolidated financial statements.
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SOUTHWALL TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands)
(Unaudited)
Note 1 - Interim Period Reporting:
While the information presented in the accompanying consolidated
financial statements is unaudited, it includes all adjustments
(consisting only of normal recurring adjustments) which, in the opinion
of management, are necessary to present fairly the Company's financial
position and results of operations, and changes in financial position
as of the dates and for the periods indicated.
Certain information and footnote disclosures normally contained in
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted. These
consolidated financial statements should be read in conjunction with
the financial statements contained in the Company's Form 10-K for the
year ended December 31, 1999. The condensed consolidated balance sheet
at December 31, 1999 has been derived from the audited financial
statements as of that date. The results of operations for the interim
periods presented are not necessarily indicative of the operating
results of the full year.
Note 2 - Balance Sheet:
The restricted cash reflected on the balance sheet is for the
purpose of the German project.
Inventories are stated at the lower of cost or market (determined
by the first-in, first-out method). Inventories consisted of the
following:
April 2, 2000 December 31, 1999
------------- -----------------
Raw materials $5,283 $2,940
Work-in-process 6,695 2,972
Finished goods 1,254 1,689
------ -----
Total $13,232 $7,601
====== =====
Note 3 - Line of Credit Agreement:
The Company has an $8 million receivable financing line of credit
("line of credit") with a bank. Availability under the line is based
upon 80% of the approved accounts receivable balance and the line bears
a finance fee of 0.088% per month (approximately 12% per annum) of the
average daily account balance outstanding during the settlement period.
In connection with the line of credit, the Company granted to the bank
a continuing lien upon and security interest in, and right of set off
with respect to all of the Company's rights, title and interest in all
accounts receivable, inventory, monies, remittances and fixed assets.
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Note 4 - Net income (loss) per share:
Basic net income (loss) per share is computed as net income (loss)
available to common stockholders divided by the weighted-average number
of common shares outstanding. Diluted net income per share is computed
as net income available to common stockholders divided by the
weighted-average number of common shares outstanding and dilutive
potential common shares outstanding, including stock options,
restricted stock awards, warrants and other convertible securities.
Diluted net loss per share is computed the same as basic net income
(loss) per share since the inclusion of potential common shares would
result in an anti-dilutive (lower) loss per share amount.
During the period ended April 2, 2000, the total amount of the
differences in the denominator is attributable to the effect of 813,000
outstanding non-exercised, dilutive common stock options.
Note 5 - Long-term debt:
The Company's long-term debt consists of the following at April 2,
2000:
Promissory note dated December 16, 1996............. $ 961
Promissory note dated May 6, 1997................... 10,000
Sale-leaseback agreement dated July 19,1999......... 2,934
Sale-leaseback agreement dated October 19, 1999..... 3,600
Bank loan dated May 28, 1999........................ 3,565
Bank loan dated August 14, 1999..................... 1,612
Bank loan dated May 12, 1999........................ 3,890
Other............................................... 143
--------
Total............................................... 26,705
Less current portion................................ 1,658
$ 25,047
========
The promissory note dated December 16, 1996 is payable to a
leasing company. The borrowings are collateralized by certain
production equipment, bear interest at an annual rate of 9.7037% and
are subject to certain financial covenants. The Note is payable in
monthly installments plus interest for a term of 48 months. At April 2,
2000 the Company was not in compliance with certain of the financial
covenants pertaining to this promissory note. The Company has received
a waiver from the leasing company for failure to comply with such
covenants through the remaining term of the loan. The amount
outstanding is repayable within the year and has been classified as
current debt.
The promissory note dated May 6, 1997 is payable to a bank. The
note payments are guaranteed by Teijin Limited of Japan ("Teijin"), a
stockholder and supplier of the Company. The Teijin guarantee is
collateralized by certain equipment located in the Company's Tempe,
Arizona manufacturing facility and inventory to the extent necessary to
provide 120% net book value coverage of the outstanding loan balance.
The interest rate on the loan is re-set semi-annually at LIBOR plus
0.4375%, (6.1313% at April 2, 2000), and the Company is subject to
certain financial covenants. A loan guarantee service fee is payable to
Teijin semi-annually on the outstanding balance at the rate of 0.5625%.
The note provides for semi-annual payments of interest only during the
first four years, followed by semi-annual installments plus interest
for the remaining three and one half year term. Teijin also holds
warrants in 1997 to purchase 158,000 shares of the Company's Common
Stock at $9.00 per share. These warrants expire on May 30, 2000. At
April 2, 2000 the Company was not in compliance with certain of the
financial covenants with Teijin, the guarantor, pertaining to this
promissory note. The Company received a waiver from Teijin through June
30, 2001.
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During 1999, the Company entered into two equipment sale-leaseback
agreements with a leasing company ("Lessor"). Because the Company has
an option to purchase the equipment at a price to be determined between
the Company and the Lessor at the end of the lease period, the
sale-leaseback agreements have been treated as financing. One lease
agreement has a lease term of three years and the other lease agreement
has an initial lease term of two years with an option to extend it an
additional year. At April 2, 2000, the Company had a total of $6,534
outstanding and due under the leases. The leases are collateralized by
the leased equipment and certain other production equipment of the
Company. The effective interest rate of both leases is approximately
13% per annum and they are repayable over their term commencing in May
2000. Additionally, the Company has provided the Lessor an irrevocable
standby letter of credit in the amount of $500 to collateralize all of
the Company's obligations under these agreements. The letter of credit
shall not expire before January 1, 2002. In addition, $1 million of the
amount received from the Lessor is in an escrow account and will be
released upon the Company meeting certain financial conditions. Due to
the uncertainty of compliance with these financial conditions, the
Company has classified the amount in escrow under non-current "Other
Assets."
On May 28, 1999, the Company entered into a loan agreement with a
German bank that provides for borrowings up to $6.4 million (DM 12.5
million). Under the terms of this agreement, the funds will be used
solely for capital investment by the German subsidiary. The term of the
loan is for 20 years and the principle is repayable after the end of 10
years in 20 equal semi-annual payments. The loan bears interest at
7.10% per annum for the first ten years, and will be revised to the
prevailing rate at the end of the tenth year.
On May 12, 1999, the Company entered into a loan agreement with a
German bank that provides for borrowings up to $3.9 million (DM 7.5
million). Under the terms of this agreement, the funds will be used
solely for capital investment by the German subsidiary. The term of the
loan is for a period of 10 years and the principal is repayable after
the end of 5 years in 10 equal semi-annual payments. The loan bears
interest at 7.10% per annum for the first five years, and will be
revised to the prevailing rate at the end of the fifth year. The loan
is repayable in Deutscheman.
An additional loan for $733 (DM 1.5 million) was received from the
bank discussed above. This loan is an advance on a government grant to
be received approximately August 2001. The proceeds of the grant are
collateral for the loan and, per legal arrangement will be paid
directly to the bank by the government at the time of issue.
The preceding three loans are collateralized by the building the
machine(s) and the land owned by the German subsidiary.
On August 14, 1999, the Company entered into a loan agreement with
a German bank that provides for borrowings up to $1.7 million (DM 3.3
million). Under the terms of this agreement, the funds will be used
solely for capital investment by the German subsidiary. The principle
balance is due in a single installment on June 30, 2009 and bears
interest at a rate of 5.75% per annum. The interest is payable
quarterly. 50% of the loan is restricted in an escrow account for the
duration of the loan period and was, therefore, classified as a
non-current "Other Asset."
Other long-term debt consists of capitalized leases related
primarily to certain computer equipment used by the Company.
Principal reductions of long-term debt are scheduled as follows:
Year Amount
---- ------
2000 $ 1,658
2001 4,538
2002 4,870
2003 4,073
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2004 2,500
2005 -
Thereafter 9,328
------
Total $ 26,967
========
The Company incurred total interest expense of $1,478 and $287 in
the first quarter of 2000 and 1999, respectively. Of these amounts, the
Company capitalized $1,065 and nil in the first quarter of 2000 and
1999, respectively as part of the costs related to the construction of
new manufacturing facilities in Tempe, Arizona.
Note 6 - Contingencies:
The Company has been named a co-defendant in a purported class
action lawsuit. Plaintiffs contend that heat mirror glass units
manufactured throughout the country are subject to clouding and
discoloration. The Company is in the process of filing demurrers and
setting pleadings. In addition, several of the Company's co-defendants
have settled their portions of the case. At this point, the Company
intends to vigorously defend this lawsuit by moving to defeat the class
action certification.
In 1997, the Company was named a defendant in a lawsuit with a
manufacturer of insulated glass units wherein the plaintiff claimed
that the insulated glass manufactured with the use of coated film
manufactured by the Company was subject to various failures and
deficiencies, giving rise to warranty and other consumer claims.
Plaintiff is claiming damages for past replacement cost and future
potential claims. The Company is in the process of negotiating a
settlement of these claims.
The company has been named a defendant in a lawsuit filed on April
5, 1996 by one of its customers in the United States District Court for
the Eastern District of New York. The lawsuit alleges certain unfair
competition, tort and contractual violations by the Company and seeks
relief in an aggregate amount in excess of $32 million. In addition,
the Company is involved in a number of other legal actions arising in
the ordinary course of business.
The Company believes, that the various asserted claims and
litigation in which it is involved will not materially affect its
consolidated financial position, future operating results or cash
flows.
In 1995 the Company started selling its anti-reflective film
under a Supply Agreement to Sony Corporation of Japan ("Sony"). In the
fourth quarter of 1998 the Company experienced some quality problems
related to the anti-reflective film that did not meet Sony's
specifications. The Company further did not meet the minimum shipping
requirements stated in the Supply Agreement. As a result, in the fourth
quarter of 1998, the Company recorded a $4.0 million charge to cover
any loss contingency, involving write-off of inventory, sales returns
and any penalties associated with the shipment shortfall. During the
second quarter of 1999, the Company reached a settlement with Sony,
wherein Sony agreed to release the Company from any and all penalties,
claims, demands and liabilities that Sony has or will have against the
Company in connection with the shipment shortfall experienced in 1998.
In consideration of Sony's waiver, the Company agreed to wave its
claims for payment of the outstanding accounts receivable with Sony
totaling $2.5 million brought forward from 1998. The amount was written
off against the sales return reserve booked in 1998. As of September
30, 1998, Southwall terminated all production of anti-reflective film
for Sony, as mutually agreed
9
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under an amended Supply Agreement, and there were no further shipments
to Sony.
Item 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations:
Except for the historical information contained herein, certain
matters discussed in this Form 10-Q Report are forward-looking
statements that involve risks and uncertainties, including those
discussed below and in the Company's Annual Report on Form 10-K. Actual
results may differ materially from those projected. These
forward-looking statements represent the Company's judgment as of the
date of the filing of this Form 10-Q Report. The Company disclaims,
however, any intent or obligation to update these forward-looking
statements.
General
The Company has experienced significant fluctuations in quarterly
results of operations. Revenues have varied from quarter to quarter
due, in part, to the timing of short-term sales contracts and the
seasonal buying patterns for the Company's Heat Mirror(TM) products,
which typically have been strongest in the second and third quarters.
Sales of the Company's energy conservation products are significantly
influenced by the residential and commercial construction industries. A
reduction in construction has generally resulted in a reduction in the
sales of the Company's Heat Mirror(TM) products.
Historically, operating results have varied from quarter to
quarter as a function of the utilization of the Company's production
machines. In 1998, and in the first quarter of 1999, operating results
were affected by process and machine problems resulting in quality
issues associated with the anti-reflective film product manufactured in
Tempe, Arizona. These problems have been corrected but the Company is
continuing to bring new production machines online in Tempe and
Dresden, Germany. Until all the new machines are in production, the
Company will continue to experience minor production problems and
inefficiencies. As a result of these factors, and in view of the
Company's strategy of developing additional applications for its
thin-film technology, and its ongoing practice of upgrading its
manufacturing processes, the Company may continue to experience
quarterly fluctuations in its results of operations.
In 1995, Southwall started selling its anti-reflective film to
Sony Corporation of Japan ("Sony") for use on computer monitor CRTs
under a Supply Agreement. During the second quarter of 1999, the supply
agreement between the Company and Sony was amended. As a result, the
Company received purchase orders from Sony for a significantly reduced
amount of product. As of September 30, 1999, Southwall terminated all
production of film as mutually agreed in the amendment to the supply
agreement and there have been no further shipments to Sony since.
The Company has not experienced a significant amount of inventory
obsolescence and believes that its inventory is recoverable. However,
technological change, competition, loss of customers, reduction in
demand, or other factors could result in the obsolescence of the
Company's products.
The Company believes that it must continue to increase revenues
and improve manufacturing processes and yields to achieve sustained
profitability. The Company expanded its capacity during the first
quarter of 2000 by initiating limited production on the second
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production machine in Tempe and a third machine is slated for delivery
during the third quarter of 2000. It is scheduled to commence
production early in 2001.
Additionally, the Company is building another production facility
in Dresden, Germany that will house up to three production machines.
The first production machine in Dresden is undergoing initial testing
and is expected to begin limited production in the third quarter of
2000.
The Company is constantly working to develop new applications,
expand existing applications, and to expand international marketing and
sales efforts. However, there can be no assurance that the Company will
be successful in these efforts and continue to increase revenues.
Three Months Ended April 2, 2000 and April 4, 1999
Net revenues increased 62% to $17.6 million for the first three
months of 2000, compared to $10.9 million for the similar period of
1999. The increase was primarily attributable to increased sales of
$6.7 million for anti-reflective film. The increase in anti-reflective
film sales was primarily due to the successful improvements to the
production machines located in both Palo Alto and Tempe. Due to quality
concerns, only a minimum amount was produced in the Tempe plant during
the first quarter of 1999. Full production recommenced in March 1999
after re-certification.
Cost of sales for the first quarter of 2000 was 70% of net
revenue, compared to 82% for the similar period of 1999. The reduction
in cost of sales was due to the production of anti-reflective film with
improved yields and machine throughput during the first quarter of
2000. This compared to a loss of production capacity and product yields
in Tempe during the first three months of 1999. Also, the costs for the
Company's XIR(R) automotive film were slightly lower than those for the
comparable quarter last year due to ongoing yield and throughput
improvement programs.
Research and development expenses were 8.6% of net revenues for
the first three months of 2000, compared to 11.4% for the similar
period in 1999. The absolute dollars increased to $1.5 million in the
first quarter of 2000 from $1.2 million in the comparable period of
1999. The increase in 2000 is attributable to additional travel and
personnel costs supporting the installation of the new productions
machines in the Tempe, Arizona and Dresden, Germany plants. Also,
during the current year's quarter, additional costs were incurred in
the further development of the wide bandwidth antenna and the heatable
windshield for automobiles using the Company's XIR(R) films.
Selling, general and administrative expenses were 13.7% of net
revenues in the first three months of 2000, compared to 18.1% for the
similar period in 1999. The absolute dollars increased to $2.4 million
for the first three months of 2000 from $2.0 million for the similar
period in 1999. The increase in absolute dollars was primarily due to
an increase in sales personnel and marketing materials to support the
anticipated increasing production capacities. Since a significant
portion of the Company's first quarter sales came from non-U.S.
customers, travel and communication expenses also increased as the
additional sales personnel devoted themselves to international sales.
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Net interest expense increased to $0.5 million for the first three
months of 2000 compared to $0.3 million for the similar period of 1999
due to a decrease in interest income and an increase in borrowings from
debt and bank credit lines. Debt increased to $35.3 million compared to
$15.8 million for the similar period of 1999. These additional amounts
were borrowed at average annual interest rates that are higher than the
average annual rates paid previously.
The effective tax rate differs from the federal statutory rate
primarily as a result of the utilization of net operating loss carry
forwards in 1997 and 1999 and the reserves established for deferred tax
assets in 1998.
As a result of the factors discussed above, the Company reported a
pre-tax income of $0.9 million for the first three months of 2000,
compared to a pre-tax loss of $1.5 million for the similar period in
1999.
Liquidity and Capital Resources
Cash and cash equivalents were $25 at April 2, 2000 and $1.8
million at December 31, 1999. The decrease in cash and cash equivalents
was due to increases in both inventories and accounts receivables as
well as expenditures for property and equipment that were partially
offset by cash provided by financing and the net income for the
quarter. Restricted cash (restricted for use only in the German
production facility) was $3.1 million at April 2, 2000 and $1.9 million
at December 31, 1999. The increase was due to proceeds from a loan from
a German bank offset by progress payments for that plant.
The $4.8 million in cash used in operating activities consisted
primarily of an $8.6 million increase in inventories and accounts
receivable offset by a $2.9 million increase in accounts payable and
accrued liabilities, $1.2 million of depreciation and amortization and
$0.9 million of net income for the quarter.
Inventories increased to $13.2 million during the first three
months of 2000 from $7.6 million at December 31, 1999 due to increased
production throughput to meet anticipated increased sales. Accounts
receivable increased to $14.5 million during the first three months of
2000 from $11.4 million at December 31, 1999 due to significant
shipments during the month of March 2000. Accounts payable increased to
$13.3 million during the first three months of 2000 from $9.8 million
at December 31, 1999 due to an increase in the number of vendors with
longer terms of settlement.
Major components of the $3.5 million used in investing activities
during the first quarter 2000 included $2.8 million for the new
manufacturing building and two production machines located in Dresden
(which the Company anticipates will begin limited production of
automotive film products in the second half of 2000), and $0.7 million
for the new production machines for the Tempe facility.
The $6.6 million provided by financing activities include $6.0
million of short and long-term debt. $3.6 million of the long-term debt
came from a German bank to provide progress payments on the Dresden
plant.
The Company has an $8.0 million receivable financing line of
credit with a bank, which expires in June 2000 and bears interest at
12% per annum. There was $8.4 million of borrowing outstanding under
this line of credit at April 2, 2000. The Company is currently
negotiating with the bank to extend the line of credit for an
additional year and to obtain an increase in the line amount.
At April 2, 2000 the Company was not in compliance with some of
the required financial covenants. However, the Company has received
waivers for the breached financial covenant from corresponding
creditors through the period June 30, 2001.
The Company anticipates that it will spend approximately $17
million on new capital equipment in 2000 that includes $12 million for
Dresden
12
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and $5.0 million for Tempe. The $12 million for Dresden will be used
for progress payments for two new production machines (to be used for
Heat Mirror XIR(R) automotive film products) and the completion of the
building. The Company expects to finance its capital expenditures in
Germany primarily with the receipt of foreign government grants and
additional bank loans. In April 2000, the Company entered into
additional financing in Germany, consisting of loans and grants of $2.9
million to finance additional equipment and furniture to bring the
project to production readiness. The loans are payable after five years
with quarterly payments of interest only during the initial five years.
The interest rates will be determined at the time the Company draws
down the loan amounts.
The remaining $5.0 million of capital expenditures relates to a
third production machine and other capital improvement projects in the
Tempe facility, and, the Company expects, will be financed with the
anticipated increase in the bank line of credit and funds generated
from operations.
The Company believes that existing cash, cash anticipated to be
generated from operations, the anticipated extended line of credit, and
the availability of foreign grants and additional bank loans, as
discussed above, will be sufficient to meet the Company's operating
cash requirements through fiscal 2000.
- -
Item 3 - Quantitative and Qualitative Disclosures about Market Risk:
Disclosure about market risk is contained in the Company's Form
10-K for the year ended December 31, 1999 filed on April 6, 2000.
Subsequent to such filing, no material developments have occurred with
respect to the risks described therein.
13
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PART II OTHER INFORMATION
Item 1 Legal Proceedings and Other Matters
Certain litigation filed against the Company was described under
Item 3 in the Company's Form 10-K filed on April 6, 2000. Subsequent to
such filing, no material developments have occurred with respect to the
litigation described therein.
In addition, the Company is involved in certain other legal actions
arising in the ordinary course of business. The Company believes,
however, that none of these actions, either individually or in the
aggregate, will have a material adverse effect on the Company's
business or its consolidated financial position or results of
operations.
Item 2 Changes in Securities
Not applicable
Item 3 Defaults upon Senior Securities
Not applicable
Item 4 Submission of Matters to a Vote of Stockholders
No matters were submitted to a vote of security
holders during the quarter ended April 2, 2000.
Item 5 Other Information
Not applicable
Item 6 Exhibits and Reports on Form 8-K
(a) Exhibits - None
(b) Reports on Form 8-K - None
14
<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.
Dated: May 19, 2000
By:/s/Thomas G. Hood
------------------------------
Thomas G. Hood
President and
Chief Executive Officer
By:/s/Bill R. Finley
------------------------------
Bill R. Finley
Vice President and
Chief Financial Officer
15
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0
0
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