SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10-Q
(X) QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended February 25, 2000 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 (Zip Code)
executive offices)
Registrant's telephone number, including area code: (507) 663-8000
As of April 1, 2000, 11,762,111 shares of the Registrant's common stock were
outstanding. Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that
the registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. YES X NO
<PAGE>
PART I: FINANCIAL INFORMATION
SHELDAHL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Six Months Ended
(In thousands, except for per share data)
February 25, February 26,
2000 1999
Net sales $66,842 $56,516
Cost of sales 57,993 50,697
_______ _______
Gross profit 8,849 5,819
_______ _______
Expenses:
Sales and marketing 3,951 4,751
General and administrative 4,506 3,758
Research and development 1,582 1,253
Interest 1,806 987
Restructuring costs - 3,100
_______ _______
Total expenses 11,845 13,849
_______ _______
Loss before income taxes (2,996) (8,030)
Income taxes - -
_______ _______
Net loss before preferred dividends (2,996) (8,030)
Convertible preferred stock
dividends (1,028) (1,072)
_______ _______
Net loss applicable to common
shareholders $ (4,024) $ (9,102)
======= =======
Net loss after convertible
preferred stock dividends
- - basic and diluted $ (0.35) $ (0.84)
======= =======
Weighted average number of
shares outstanding
- - basic and diluted 11,638 10,772
======= =======
The accompanying notes are an integral part of these statements.
<PAGE>
SHELDAHL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended
(In thousands, except for per share data)
February 25, February 26,
2000 1999
Net sales $32,030 $28,042
Cost of sales 27,937 24,930
_______ _______
Gross profit 4,093 3,112
_______ _______
Expenses:
Sales and marketing 1,861 2,531
General and administrative 2,274 1,831
Research and development 662 679
Interest 890 664
Restructuring costs - 3,100
_______ _______
Total expenses 5,687 8,805
_______ _______
Loss before income taxes (1,594) (5,693)
Income taxes - -
_______ _______
Net loss before preferred
dividends (1,594) (5,693)
Convertible preferred
stock dividends (520) (418)
_______ _______
Net loss applicable to
common shareholders $ (2,114) $ (6,111)
======= =======
Net loss per
common share
- - basic and diluted $ (0.18) $ (0.55)
======= =======
Weighted average number
of shares outstanding
- - basic and diluted 11,663 11,037
======= =======
The accompanying notes are an integral part of these statements.
<PAGE>
SHELDAHL, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
(Unaudited)
(In thousands) February 25, August 27,
2000 1999
Current assets:
Cash and cash equivalents $ 1,201 $ 1,043
Accounts receivable, net 21,459 19,908
Inventories 20,987 18,746
Other current assets 911 593
_______ _______
Total current assets 44,558 40,290
_______ _______
Construction in progress 1,091 3,399
Land and buildings 28,567 28,560
Machinery and equipment 130,288 127,377
Less: accumulated depreciation (84,095) (76,491)
_______ _______
Net plant and equipment 75,851 82,845
_______ _______
Other assets 851 795
_______ _______
$121,260 $123,930
======= =======
LIABILITIES AND SHAREHOLDERS INVESTMENT
Current liabilities:
Current maturities of long-term debt $ 3,468 $ 4,142
Accounts payable 10,388 10,493
Accrued salaries 1,272 1,323
Other accrued liabilities 5,106 4,682
Restructuring reserves 1,368 2,713
_______ _______
Total current liabilities 21,602 23,353
_______ _______
Long-term debt 30,745 29,284
Restructuring reserves 2,303 2,484
Other non-current liabilities 3,341 3,477
_______ _______
Total liabilities 36,389 58,598
_______ _______
Shareholders' investment:
Convertible preferred stock 42 40
Common stock 2,924 2,903
Additional paid-in capital 111,345 109,407
Accumulated deficit (51,042) (47,018)
_______ _______
Total shareholders' investment 63,269 65,332
_______ _______
$121,260 $123,930
======= =======
The accompanying notes are an integral part of these statements.
<PAGE>
SHELDAHL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended
(In thousands) February 25, February 26,
2000 1999
Operating activities:
Net loss $ (4,024) $ (9,102)
Adjustments to reconcile net
loss to net cash used in
operating activities:
Depreciation and amortization 8,281 8,066
Preferred stock dividends 1,028 1,072
Deferred income taxes - -
Restructuring costs charged to operations - 3,100
Net change in other operating activities:
Accounts receivable (1,551) (3,373)
Inventories (2,241) (1,736)
Prepaid expenses and other
current assets (195) (630)
Other assets (56) 93
Accounts payable and accrued
liabilities (713) 1,700
Restructuring payments made (1,550) (3,427)
Other non-current liabilities (137) (41)
_______ _______
Net cash used in operating activities (1,158) (4,278)
_______ _______
Investing activities:
Capital expenditures, net (1,410) (3,642)
_______ _______
Financing activities:
Net borrowings under revolving
credit facilities 1,900 5,980
Proceeds from other long-term debt 4,300 -
Repayments of long-term debt (5,412) (2,449)
Costs and redemption of Series B
preferred stock - (837)
Net proceeds of Series E preferred stock - 5,392
Net proceeds of Series F preferred stock 1,800 -
Stock options exercised 138 156
_______ _______
Net cash provided by
financing activities 2,726 8,242
_______ _______
Net increase in cash equivalents 158 322
Cash and cash equivalents at
beginning of period 1,043 1,005
_______ _______
Cash and cash equivalents at
end of period $ 1,201 $ 1,327
======= =======
Supplemental cash flow information:
Interest paid $ 1,806 $ 1,662
======= =======
Income taxes paid $ 29 $ 69
======= =======
The accompanying notes are an integral part of these statements.
<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, consist of (in thousands):
February 25, 2000 August 27, 1999
Raw materials $10,173 $ 6,635
Work-in-process 6,197 7,751
Finished goods 4,617 4,360
_______ _______
$20,987 $18,746
======= =======
2) Liquidity and Going Concern Matters
Cash requirements to fund restructuring charges taken during fiscal 1999
and 1998 were $1.6 million in the first half of fiscal 2000 and are
expected to be approximately $1.1 million in the second half of fiscal
2000, compared to $5.0 million in total for fiscal 1999. Fiscal 2000
capital expenditures for the Company are planned at approximately $5.0
million compared with $5.5 million in fiscal 1999. Debt repayments for
fiscal 2000, including refinancing of the Longmont facility, will be $3.8
million including $2.5 million on the bank term facility and $1.0 million
for various capital lease payments.
The impact of operating losses incurred during the first six months of
fiscal 2000 and anticipated operating losses during the second half of
fiscal 2000, tighter borrowing levels for the third and fourth quarters
of fiscal 2000 pursuant to the Company's amended debt agreements and the
continued uncertainty of the timing of sales growth of the Company's
Micro Products business places significant pressure on the cash reserves
of the Company. While the Company executed its plans during the first
six months of fiscal 2000, it decreased its cash position by
approximately $1.2 million when compared to fiscal year end 1999. The
Company's cash position was improved by the issuance of the Series F
Convertible Preferred Stock with gross proceeds totaling $1.8 million
during the second quarter. Cash flow projections based on the Company's
operating plan for the second half of fiscal 2000 reflect an increased
demand for cash as Micro Product sales are anticipated to be at a level
comparable with the first two quarters of fiscal 2000. As a result of
the projected Micro Product sales, there will be intervals of time where
borrowing capacity under the Company's debt agreements will be severely
reduced. The inability of the Company to i) obtain sufficient production
orders and sales for Micro Product's ViaThin in the range of $2 to $3
million for the remainder of fiscal 2000; ii) improve operating results
in Micro Products for the remainder of fiscal 2000; iii) achievement of
the sales acceleration in the Core Business during the second half of
fiscal 2000 at levels necessary to offset any Micro Product losses
resulting from an inability to obtain Micro Product sales in the range
stated; iv) achieve the spending targets projected for the second half of
fiscal 2000; and v) maintain adequate liquidity to fund normal
operations, would result in the Company being out of compliance with
certain of its debt covenants thereby allowing the Company's lenders to
require full repayment of the outstanding borrowings under the Company's
credit agreement and/or leave the Company in a cash reserve position that
would require additional capital to fund operations. These matters raise
substantial doubt about the Company's ability to continue as a going
concern. Management has and will continue to implement operational
measures designed to assist the Company in achieving its remaining fiscal
2000 budget and cash flow objectives. Should any of the matters
discussed above ultimately occur, management may not be able to obtain
the necessary additional new capital to fund operations. There can be no
assurance that the Company will be successful in achieving its projected
operating results for the remaining six months of fiscal 2000, in meeting
its quarterly debt covenants or in any attempt to raise additional
capital to fund operations on terms acceptable to the Company.
3) Restructuring Expenses and Impairment Charges
In February 1999, the Company recorded a charge of $3.1 million for
separation costs incurred in reducing its salaried work force. This
charge was increased by $0.5 million in August 1999. The restructuring
costs provide for approximately $2.0 million for severance and early
retirement salary costs and approximately $1.6 million for medical,
dental and other benefits being provided to the affected individuals.
Approximately 46 people were affected by this action. The fiscal 1999
restructuring costs are in addition to the $8.5 million of similar costs
charged to operations in fiscal 1998. As of February 25, 2000,
approximately $1.3 million has been charged to the aforementioned
restructuring reserve and by February 25, 2000, 45 employees had
terminated employment with the Company.
In February 1998, a restructuring charge of $4.0 million was recorded
related to the culmination of the Company's business re-engineering
initiative that began two years ago. Due to significant productivity
benefits resulting from the initiative, the Company reduced the size of
its salaried workforce. The resulting workforce reduction involved
layoffs, early retirement offerings, reassignments and reclassifications
of positions. The restructuring costs provided 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 73 jobs were affected by this action.
In May 1998, an additional restructuring charge of $4.5 million was
recorded and subsequently reduced by $0.5 million in May 1999. 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 $1.4
million for severance costs, approximately $0.4 million for medical,
dental and other benefits being provided to the affected individuals and
approximately $2.2 million for equipment disposal, losses related to the
closure of the Aberdeen facility, outplacement and other costs.
Approximately 196 jobs were affected by this action.
Both 1998 aforementioned restructuring charges were related to the
Company's efforts to decrease cost and increase throughput. As of
February 25, 2000, approximately $6.6 million had been charged to the
Company's restructuring reserves and by November 1999, 269 employees had
terminated employment with the Company related to the fiscal 1998
restructuring actions.
In August 1999 and May 1998, non-cash impairment charges of $7.6 million
and $3.3 million were recorded against the Company's statement of
operations. These charges relate to equipment located principally at the
Company's Longmont, Colorado facility and certain computer software
which, based upon analysis by management and anticipated production
processes, is not expected to contribute to the Company's future cash
flows.
4) Segment Reporting
The following is a summary of certain financial information relating to
the two segments for the six months ended as follows:
February 25, February 26,
2000 1999
Total sales by segment:
Core Business $ 64,432 $ 55,881
Micro Products 2,410 635
_______ _______
Total company sales $ 66,842 $ 56,516
======= =======
Operating Profit (loss) by segment:
Core Business:
Before corporate allocation $ 8,715 $ 8,278
Corporate cost allocation 3,677 3,012
Interest expense 1,481 968
_______ _______
Total $ 3,557 $ 4,298
======= =======
Micro Products:
Before corporate allocation $ (5,414) $ (8,269)
Corporate cost allocation 814 762
Interest expense 325 197
_______ _______
Total $ (6,553) $ (9,228)
======= =======
Total segments
operating losses $ (2,996) $ (4,930)
======= =======
Sales by product line:
Laminate material $ 16,270 $ 12,749
ViaThin 2,410 635
Novaflex HD 20,902 14,867
Novaflex VHD 2,273 2,830
Flexbase interconnects 24,987 25,435
_______ _______
$ 66,842 $ 56,516
======= =======
The following is a summary of certain financial information relating to
the two segments for the three months ended as follows:
February 25, February 26,
2000 1999
Total sales by segment:
Core Business $ 30,840 $ 27,551
Micro Products 1,190 491
_______ _______
Total company sales $ 32,030 $ 28,042
======= =======
Operating Profit (loss) by segment:
Core Business:
Before corporate allocation $ 4,376 $ 3,723
Corporate cost allocation 1,840 1,475
Interest expense 730 531
_______ _______
Total $ 1,806 $ 1,717
======= =======
Micro Products:
Before corporate allocation $ (2,833) $ (3,802)
Corporate cost allocation 407 375
Interest expense 160 133
_______ _______
Total $ (3,400) $ (4,310)
======= =======
Total segments operating
losses $ (1,594) $ (2,593)
======= =======
Sales by product line:
Laminate material $ 7,632 $ 6,530
ViaThin 1,191 491
Novaflex HD 11,059 6,979
Novaflex VHD 758 1,641
Flexbase interconnects 11,390 12,401
_______ _______
$ 32,030 $ 28,042
======= =======
<PAGE>
SHELDAHL, INC. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
CONSOLIDATED OPERATING RESULTS AND FINANCIAL CONDITION
Six Months Ended February 25, 2000 and February 26, 1999
SALES
The Company's net sales increased $10.3 million, or 18.3%, from $56.5 million
for the six months ended February 26, 1999 to $66.8 million for the six months
ended February 25, 2000. Core Business sales increased $8.5 million, or
15.3%, to $64.4 million while Micro Products sales increased $1.8 million, or
280%, when compared to the first six months of fiscal 1999. The increased
sales were principally realized from the Company's family of Novacladr
products - ViaThinr, Novaflexr HD and VHD - for applications serving the
datacom market.
Core Business sales for the six months ended February 25, 2000 to the
automotive market increased 2.7% to $39.8 million and represents 59.5% of
total Company sales. Datacom sales for the same period increased $8.9
million, or 95.8%, to $18.1 million, driving mainly by new customers in the
computer segment. Datacom sales represent 27% of total Company sales of which
$15.7 million is from the Core Business segment and $2.4 million is from the
Micro Products segment.
Sales to the Company's other markets totaled $9.0 million, or 13.5%, of total
Company revenue reflecting a modest increase of $0.4 million, or 5%, from the
same period one year ago.
The chart below details the Company's sales by market during the period (in
thousands):
Six Month Ended Six Months Ended
Market February 25, 2000 February 26, 1999 Inc (Dec) % Change
Automotive $ 39,760 $ 38,702 $ 1,058 2.7%
Datacom 18,066 9,225 8,841 95.8%
Industrial 3,391 3,683 (292) (7.9%)
Consumer 1,866 1,402 464 33.1%
Aerospace/Defense 3,760 3,504 256 7.3%
_______ _______ _______ _______
Total $ 66,842 $ 56,516 $ 10,326 18.3%
======= ======= ======= =======
GROSS PROFIT
Gross profit increased to 13.2% of sales, or $8.8 million, for the six months
ended February 25, 2000 compared to $5.8 million the same period one year ago.
As reflected in the table below, increased sales volume and improved
manufacturing operations reduced Micro Products gross loss to $4.0 million
compared to $6.7 million for the same period one year ago. Core Business
gross profit increased $0.3 million to $12.8 million, or 19.9%, of sales.
This reflected a less profitable sales mix with higher material costs as a
percent of sales. Additionally, conversion costs consisting of direct labor
and factory cost of sales for the Core Business product lines increased $1.4
million when compared to the same period one year ago with freight costs being
a major part of the increase.
Six Months Fiscal 2000 Six Months Fiscal 1999
Core Micro Total Core Micro Total
Business Products Company Business Products Company
(In millions)
Sales $64,432 $ 2,410 $66,842 $55,881 $ 635 $56,516
Cost of
sales 51,593 6,400 57,993 43,361 7,336 50,697
_______ _______ _______ _______ _______ _______
Gross
profit $12,839 $(3,990) $ 8,849 $12,520 $(6,701) $ 5,819
====== ======= ======= ======= ======= =======
% of sales 19.9% N/A 13.2% 22.4% N/A 10.3%
OTHER EXPENSES
The Company's expenses excluding interest and restructuring charges increased
$0.3 million, or 2.8%, from $9.7 million for the six months ended February 26,
1999 to $10.0 million for the six months ended February 25, 2000. Increased
depreciation expenses for the Company's information technology upgrade fully
deployed in the second half of fiscal 1999 was partially offset by declines in
salaries.
During the quarter, higher interest rates on the Company's credit and security
agreement with its bank group increased gross interest expense $0.2 million.
Reflecting reduced capital spending, capitalized interest declined nearly $0.6
million for the six months ended February 25, 2000 when compared to the same
period one year ago. As a result, net interest expense rose $0.8 million, or
83%, to $1.8 million compared to the same period one year ago.
Interest costs and activities for the noted period are detailed below:
Six Months Six Months
February 25, 2000 February 26, 1999 Change
Gross interest expense $ 1,905 $ 1,719 $ 186
Capitalized interest (99) (732) 633
_______ _______ _______
Net interest $ 1,806 $ 987 $ 819
======= ======= =======
INCOME TAXES
In May 1998, based upon restructuring charges, write-offs and continued losses
at the Company's Longmont, Colorado facility, management provided a valuation
allowance for its net deferred tax assets. This resulted in a $3.1 million
charge to income during fiscal 1998. Since that time, the Company has not and
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.
<PAGE>
Three Months Ended February 25, 2000 and February 26, 1999
SALES
The Company's net sales increased $4.0 million, or 14.2%, from $28.0 million
for the three months ended February 26, 1999 million for the three months
ended February 25, 2000. Core Business sales increased $3.3 million, or
11.9%, to $30.8 million while Micro Products sales increased $0.7 million, or
142%, when compared to the second Quarter of fiscal 1999. The increased sales
were principally realized from the Company's family of Novacladr products -
ViaThinr, Novaflexr HD and VHD - for applications serving the datacom market.
Core Business sales for the three months ended February 25, 2000 to the
automotive market increased 2.3% to $19.0 million and represents 59.5% of
total Company sales. Datacom sales for the same period increased $3.3
million, or 61.8%, to $8.6 million. Datacom sales represent 26.8% of total
Company sales of which $7.4 million is from the Core Business segment and $1.2
million is from the Micro Products segment.
Sales to the Company's other markets totaled $4.4 million, or 13.7%, of total
Company revenue reflecting a modest increase of $0.3 million, or 7%, from the
same period one year ago.
The table below details the Company's sales by market for the period (in
thousands):
Three Months Three Months
Market February 25, 2000 February 26, 1999 Gross Change % Change
Automotive $ 19,043 $ 18,621 $ 422 2.3%
Datacom 8,580 5,303 3,277 61.8%
Industrial 1,605 1,559 46 3.0%
Consumer 880 646 234 36.2%
Aerospace/Defense 1,922 1,913 9 .5%
_______ _______ _______ _______
Total $ 32,030 $ 28,042 $ 3,988 14.2%
======= ======= ======= =======
GROSS PROFIT
Total gross profit increased $1.0 million to 12.8% of sales for the three
months ended February 25, 2000 compared to the same period one year ago. As
reflected in the chart below, Micro Products gross loss decreased by 29.5% to
$2.1 million compared to $3.0 million for the same period one year ago.
Increased sales, reduced direct material usage in relation to sales and
reduced fixed costs positively impacted gross loss. The Core Business gross
profit increased $0.1 million resulting in a gross profit percent to sales of
20.2% compared to 22.3% for the same period one year ago. This reflected a
less profitable sales mix with higher material costs as a percent of sales.
Three Months Fiscal 2000 Three Months Fiscal 1999
Core Micro Total Core Micro Total
Business Products Company Business Products Company
(In millions)
Sales $30,840 $ 1,190 $32,030 $27,551 $ 491 $28,042
Cost of
sales 24,612 3,325 27,937 21,411 3,519 24,930
_______ _______ _______ _______ _______ _______
Gross
profit $ 6,228 $(2,135) $ 4,093 $ 6,140 $(3,028) $ 3,112
======= ======= ======= ======= ======= =======
% of
sales 20.2% N/A 12.8% 22.3% N/A 11.1%
OTHER EXPENSES
The Company's expenses excluding interest and restructuring charges decreased
$0.2 million, or 4.9%, from $5.0 million for the three months ended February
26, 1999 to $4.8 million for the quarter ended February 25, 2000. A decline
in salaries was the principle area contributing to this decrease.
During the quarter, gross interest expense was unchanged from the same period
one year ago. Reflecting reduced capital spending, capitalized interest
declined $0.2 million for the three months ended February 25, 2000 when
compared to the same period one year ago. As a result, net interest expense
rose $0.2 million, or 34%, to $0.9 million compared to the same period one
year ago.
Interest costs and activities for the noted period are detailed below:
Three Months Three Months
February 25, 2000 February 26, 1999 Change
Gross interest expense $ 920 $ 921 $ (1)
Capitalized interest (30) (257) 227
_______ _______ _______
Net interest $ 890 $ 664 $ 226
======= ======= =======
FINANCIAL CONDITION
On November 16, 1999, the Company refinanced its outstanding secured real
estate loan. The new $4.3 million, ten-year secured real estate mortgage
carries an interest rate of 8.53% and requires the Company to meet certain
reporting requirements. Annual principal payments and interest under the new
secured loan will be $417,000 versus $1.3 million on the previous loan.
Concurrent with the closing of this refinancing, the Company fully satisfied
the $3.6 million secured real estate loan plus accrued and unpaid interest
that was outstanding to the lender. The net effect of this refinancing
enhanced fiscal 2000 liquidity by $0.9 million by reducing debt payments by
approximately $0.4 million and interest payments by approximately $0.5
million.
The Company's 1998 three-year credit agreement with Norwest Bank, N.A. and
C.I.T. consists of a working capital revolver of $25 million based on levels
of working capital and a term facility of $16 million based on the Company's
fixed assets. As of August 27, 1999, the amount available to borrow on the
revolver was approximately $6.6 million based on a $18.3 million borrowing
base on the revolver. The term facility of $16 million had an outstanding
balance as of the end of fiscal 1999 of $14.4 million with monthly repayments
of $205,000 through May 2001. On November 8, 1999, the Company's borrowing
available under the working capital portion of its 1998 credit facility was
reduced. This change was initiated by the Company's lenders in conjunction
with a waiver issued by the lenders related to (I) The Company's failure to
achieve certain quarterly financial ratios and (II) The Company's then current
level of borrowing under the working capital revolver related to its events of
non-compliance. Under the $25 million working capital revolver, the Company
has the ability to borrow based on the levels of accounts receivable and
inventory, which establishes a borrowing base. As of March 9, 2000, the
Company's reduced borrowing base was $16.2 million. Actual borrowing under
this working capital revolver was $11.1 million as of March 9, 2000 and the
amount available to borrow was $5.1 million (see Capital Reserves). The
applicable interest rate for borrowings under the credit agreement at February
25, 2000 was at 10.75%.
Capital Reserves. Since fiscal 1995, the Company has invested significantly
in new plant and equipment providing manufacturing capacity to deliver its
patented Novacladr-based line of products to both existing and new customers.
This included building and equipping a facility in Longmont, Colorado, to
manufacture substrates for integrated circuit (IC) packages. This capital
expenditure was funded by a series of equity offerings commencing in June 1994
through January 2000, raising $102.3 million. The longer than expected period
of time to achieve full product and market acceptance has resulted in greater
losses generated from an under-utilized manufacturing facility and its
supporting workforce. At the Longmont facility, the Company manufactures
ViaArrayr and ViaThin - both Novaclad-based substrates for IC packages, plus
the Company's Novaflex VHD product targeted at the high-end disc drive market.
Sheldahl received its initial volume order for the VHD product line in
October 1998. The Company's fiscal 1999 sales volume from Novaflex VHD was
$5.6 million. Additionally, the base material for the Company's Novaflex HD
is also produced in the Longmont facility. For all of fiscal 1999, $40.8
million of Novaclad based product was sold, produced all or in part at the
Longmont facility. For the first half of fiscal 2000, $25.6 million of
Novaclad-based product was sold, produced all or in part at the Longmont
facility.
As of the end of fiscal 1999, the Longmont facility was operating at
approximately 20% of stated production capacity with projected breakeven at
40% - 60% of factory utilization or approximately $24 - $26 million of annual
revenue of ViaThin and ViaArray products plus related volume of the Novaflex
HD and VHD product lines. There has been no material change in the
utilization. Breakeven volume at the Longmont facility is not expected until
the second half of fiscal 2001 at the earliest.
During the three-year period ended August 27, 1999, the Company incurred,
principally at its Micro Products operations, cumulative net losses totaling
approximately $68.7 million, including restructuring and other charges of
$27.7 million. During this three-year period, the Company used cash of
approximately $59.5 million supporting capital expenditures and approximately
$6.8 million for net operating activities. The Company has financed these
transactions principally through equity and debt financing.
Cash requirements to fund restructuring charges taken during fiscal 1999 and
1998 are expected to be approximately $2.7 million in fiscal 2000 compared to
$5.0 million in fiscal 1999. Fiscal 2000 capital expenditures for the Company
are planned at approximately $7.0 million, compared with $5.5 million in
fiscal 1999. Debt repayments for fiscal 2000, including refinancing of the
Longmont facility, will be $3.8 million including $2.5 million on the bank
term facility and $1.0 million for various capital lease payments.
For the six month period ended February 25, 2000, the Company improved its
operating performance with cash flow from operations excluding restructuring
cost payments with a positive $0.3 million and met the financial covenants
established by its bank group. Capital spending for the six months ended
February 25, 2000 was $1.4 million or $2.2 million below the same period one
year ago.
Net working capital increased to $23.0 million for the six months ended
February 25, 2000 from $16.9 million as of August 27, 1999. An increase in
the Company's accounts receivable of $1.6 million reflected greater sales
growth in the first six months of fiscal 2000.
One of the Company's major contract manufacturers is in the process of
securing new financing. A failure to successfully complete such refinancing
could cause disruption to the Company's operations and have a material adverse
impact on the Company's financial condition and results of operations.
YEAR 2000 DISCLOSURE
As of March 23, 2000, the Company has not experienced any negative material
event related to the Y2K issue.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities," effective
for years beginning after June 15, 2000. SFAS No. 133 establishes accounting
and reporting standards requiring that every derivative instrument, including
certain derivative instruments embedded in other contracts, be recorded in the
balance sheet as either an asset or liability measured at its fair value.
SFAS No. 133 requires that changes in the derivative's fair value be
recognized currently in earnings unless specific hedge criteria are met.
Special accounting for qualifying hedges allow a derivative's gains or losses
to offset related results on the hedged item in the income statement and
requires that a company must formally document, designate and assess the
effectiveness of transactions that receive hedge accounting. The Company has
not yet quantified the impacts of adopting SFAS No. 133 and has not yet
determined the timing or method of adoption.
CAUTIONARY STATEMENT
The discussion above contains statements within the meaning of the Private
Securities Litigation Reform Act of 1995. These statements by their nature
involve substantial risks and uncertainties as described by Sheldahl's
periodic filings. Actual results may differ materially depending on a variety
of factors, including but not limited to the following: the achievement of
Sheldahl's projected operating results, the ability of Sheldahl to
successfully obtain waivers from its lenders for any defaults on its debt
covenants, the achievement of efficient volume production and related sales
revenue results at Longmont, the ability of the Company's major contract
manufacturer to secure financing for its business operations, the ability of
the Company to generate sufficient cash flow to fund operations, the ability
of Sheldahl to identify and successfully pursue other business opportunities,
Sheldahl not entering into an agreement with respect to a strategic
transaction or any such transaction not being consummated and Sheldahl
successfully defending and ultimately prevailing on the actions brought by
Sheldahl shareholders. Additional information with respect to the risks and
uncertainties faced by Sheldahl may be found in, and the prior discussion is
qualified in its entirety by, the Risk Factors contained in the Company's
filings with the Securities and Exchange Commission, including Sheldahl's
Annual Report, Form 10-K for the fiscal year ended August 27, 1999, Form 10-Q
for the quarter ended November 26, 1999 and other SEC filings.
<PAGE>
PART II - OTHER INFORMATION
SHELDAHL, INC. AND SUBSIDIARY
FORM 10-Q
Item 1. Legal Proceedings
In late February and early March, five state court lawsuits were commenced
against the Company, its directors and Molex Incorporated. The initial
lawsuit was filed by Kelly Townsend, on behalf of herself and others similarly
situated, in the Hennepin County District Court. That lawsuit was followed by
similar lawsuits filed in the Rice County District Court by James Delmonte,
John DeSchepper and Michael Miller, each on behalf of the named plaintiff and
others similarly situated. A fifth lawsuit was filed by Irwin L. Jacobs,
Daniel T. Lindsay, Dennis M. Mathisen and Marshall Financial Group, Inc. in
the Rice County District Court. Each of the lawsuits claim that the
consideration to be paid in a proposed transaction between the Company and
Molex Incorporated, as announced by the Company on February 17, 2000, is
unfair and inadequate for the Company's shareholders. Each of the Complaints,
other than the Complaint filed by Irwin Jacobs, et al., requested
certification as a class action. All of the Complaints seek injunctive relief
and compensatory damages. Subsequent to the receipt of the Complaints by the
Company, the plaintiffs sought temporary restraining orders and preliminary
injunctions in both the Hennepin and Rice County Courts. Both Courts denied
the plaintiffs' relief. On March 20, 2000, the Company announced that Molex
Incorporated had notified the Company that it would not make a proposal to
enter into an agreement to acquire the remaining equity interests of Sheldahl
not currently owned by Molex. On March 22, 2000, Irwin Jacobs, et al.
voluntarily dismissed their lawsuit. On April 5, 2000, Kelly Townsend, et al.
and Michael Miller, et al. voluntarily dismissed their lawsuits. The Company
has filed motions to dismiss the remaining lawsuits and expects that such
motions will be granted. The Company has also requested that the two
remaining plaintiffs voluntarily dismiss their lawsuits.
Item 2. Changes in Securities and Use of Proceeds
On January 4, 2000, the Board of Directors of the Company, ratified and
approved a private placement of its newly created Series F Convertible
Preferred Stock, $1.00 par value per share, and Warrants (the "Warrants") to
purchase shares of the Company's Common Stock, $.25 par value per share (the
"Preferred Stock"), to two accredited investors (the "Investors"). The
Board also authorized granting the Investors certain registration rights with
regard to the shares of Common Stock underlying the Preferred Stock and the
Warrants. The closing of the private placement of $1,800,000 occurred on
January 11, 2000. Based on the manner of sale and representations of the
Investors, all of which were accredited, the Company believes that pursuant to
Rule 506 of Regulation D, the private placement was a transaction not
involving any public offering within the meaning of section 4(2) of the
Securities Act of 1933, as amended, and was, therefore, exempt from the
registration requirements thereof.
The Company sold an aggregate of 1,800 shares of the Preferred Stock to the
Investors for an aggregate purchase price of $1,800,000, pursuant to the
Convertible Preferred Stock Purchase Agreement among the Company and the
Investors (the "Agreement").
The Preferred Stock is entitled to 5% dividends, payable annually, in shares
of Common Stock or, in limited circumstances, cash. The Preferred Stock is
convertible into shares of the Company's Common Stock at any time. Each
holder of Preferred Stock is entitled to convert each share of Preferred Stock
into that number of shares of Common Stock that equals $1,000 plus accrued
dividends divided by the Conversion Price. The Conversion Price is $5.46 per
share. The Conversion Price is subject to adjustment for certain dilution and
market price events.
The Agreement between the Company and the Investors, and the Certificate of
Designation for the Preferred Stock, are incorporated herein by reference as
Exhibits 4.1 and 4.2 to the Company's Current Report on Form 8-K filed January
11, 2000.
Warrants
_______________
In connection with the issuance of the Preferred Stock, the Company also
granted to each Investor a Warrant 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 55,800 at an exercise price of $5.46
per share. The Warrants are exercisable for a period of five years. The form
of Warrant issued by the Company to the Investors is incorporated herein by
reference as Exhibit 4.3 to the Company's Current Report on Form 8-K filed
January 11, 2000.
Registration Rights
_______________
The Company granted the Investors certain registration rights. The
registration rights cover all shares of Common Stock issuable to the Investors
(i) upon conversion of shares of the Preferred Stock, (ii) as accrued
dividends on the Preferred Stock, and (iii) upon exercise of the Warrants.
Under the terms of the Agreement, the Company was obligated to file a shelf
Registration Statement within sixty (60) days of January 11, 2000 on Form S-3
but has delayed such filing.
The Registration Rights Agreement between the Company and the Investors
specifying the terms of the registration rights is incorporated herein by
reference as Exhibit 4.4 to the Company's Current Report on Form 8-K filed
January 11, 2000.
Special Covenants
_______________
In addition to special covenants some of which have expired, in the event the
Investors and the Company decide to pursue an additional purchase of Series F
Convertible Preferred Stock and it is determined that shareholder approval of
such additional investment is required, the Company agreed to use its best
efforts to obtain shareholder approval of the potential additional investment,
including a Board of Directors recommendation in favor of approval.
Use of Proceeds
_______________
The proceeds from the Series F private placement were used by the Company to
improve the Company's liquidity position. The Company will not receive any
proceeds from the resale of the shares of Common Stock issuable to the
Investors upon conversion of the Preferred Stock. If the Warrants issued to
the Investors are exercised in full, the Company will receive approximately
$304,668. Such amount is intended to be used by the Company for working
capital purposes. There can be no assurance, however, that the Warrants will
be exercised.
Conversion and Exercise Price Adjustments
_______________
On February 26, 2000, the Company issued shares of its Common Stock in respect
of a dividend owed to holders of its Series E Convertible Preferred Stock.
Under the terms of the Company's Series D Convertible Preferred Stock (the
"Series D") and warrants issued in connection therewith as well as under the
terms of the Company's warrants outstanding to its lenders, the payment of the
Common Stock dividend required adjustments to the Series D conversion price
and the warrants' respective exercise prices. As a result, as of February 26,
2000, the Company's Series D is convertible at a per share price of $6.12, the
warrants issued in connection with the Series D are exercisable at a per share
price of $7.6454 for 330,983 shares and the Company's bank warrant is
exercisable at a per share price of $6.78915 for 101,909 shares.
Item 4. Submission to matters to a vote of securities holders
a) The Annual Meeting of the shareholders of Sheldahl, Inc. was held on
January 12, 2000.
b) A proposal was made to ratify and approve an amendment to the Company's
Bylaws to reduce the number of directors from nine to eight. Since a
majority of all outstanding shares did not vote in favor of such
amendment, as required in the Company's Bylaws, the proposal was not
approved. Shares were voted as follows:
For Against Abstain Broker Non-Vote
4,305,905 690,539 893,074 0
c) Eight directors were elected at the meeting to serve for one year or
until their successors are elected and qualified. Shares were voted as
follows:
For Withheld Authority
James E. Donaghy 4,108,400 1,781,118
John G. Kassakain 3,792,200 2,097,318
Edward L. Lundstrom 4,124,369 1,765,149
Gerald E. Magnuson 3,790,044 2,099,474
William B. Miller 4,129,512 1,760,006
Kenneth J. Roering 3,794,299 2,095,219
Raymond C. Wieser 4,132,647 1,756,871
Beekman Winthrop 4,130,735 1,758,783
d) A proposal was made to approve the selection of the Company's
independent public accountants for the current fiscal year. The
proposal was approved and shares were voted as follows:
For Against Abstain
5,335,731 153,323 400,464
Item 6. Exhibits and Reports on Form 8-K
A) Exhibits
27 Financial data schedule
B) Reports on Form 8-K
Current Report on Form 8-K filed January 11, 2000, reporting the
Company's Series F Preferred Stock private placement.
Current Report on Form 8K filed February 17, 2000, reporting
that the Company and Molex, Incorporated were engaged in
discussion regarding a potential acquisition of the Company by
Molex.
Current Report on Form 8-K filed February 23, 2000, reporting
that the Company was served with a Minnesota State court
complaint by a Sheldahl shareholder against the Company, its
directors and Molex Incorporated.
Current Report on Form 8-K filed March 15, 2000, reporting that
the Company and Molex remain in discussions.
Current Report on Form 8-K filed March 20, 2000, reporting that
Molex Incorporated had notified the Company that Molex would not
make a proposal to enter into an agreement to acquire the
remaining equity interests of the Company not currently owned by
Molex.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SHELDAHL, INC.
(Registrant)
Dated April 10, 2000 By /s/ Edward L. Lundstrom
President and
Chief Executive Officer
Dated April 10, 2000 By /s/ Jill D. Burchill
Vice President and
Chief Financial Officer
<PAGE>
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THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FEBRUARY
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SUCH FINANCIAL STATEMENTS.
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