-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, CGJ24t51STAEyyQ9HZgDNq4UAb1QLuAmy3VzQ4EpJp3DqmWf/CWIB0qr6p3FURqJ gGbFtO5FPKqeTxvBZnC/Pg== /in/edgar/work/20000710/0000089615-00-000015/0000089615-00-000015.txt : 20000712 0000089615-00-000015.hdr.sgml : 20000712 ACCESSION NUMBER: 0000089615-00-000015 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20000526 FILED AS OF DATE: 20000710 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SHELDAHL INC CENTRAL INDEX KEY: 0000089615 STANDARD INDUSTRIAL CLASSIFICATION: [3672 ] IRS NUMBER: 410758073 STATE OF INCORPORATION: MN FISCAL YEAR END: 0831 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-11861 FILM NUMBER: 670289 BUSINESS ADDRESS: STREET 1: 1150 SHELDAHL RD CITY: NORTHFIELD STATE: MN ZIP: 55057 BUSINESS PHONE: 5076638000 MAIL ADDRESS: STREET 1: 1150 SHELDAHL ROAD CITY: NORTHFIELD STATE: MN ZIP: 55057-0170 FORMER COMPANY: FORMER CONFORMED NAME: SCHJELDAHL G T CO DATE OF NAME CHANGE: 19741017 10-Q 1 0001.txt 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 26, 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 July 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 PART I: FINANCIAL INFORMATION Item 1. Financial Statements SHELDAHL, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) Nine Months Ended (In thousands, except for per share data) May 26, 2000 May 28, 1999 Net sales $102,994 $89,091 Cost of sales 91,794 79,224 _______ _______ Gross profit 11,200 9,867 _______ _______ Expenses: Sales and marketing 6,103 6,923 General and administrative 6,640 6,153 Research and development 2,375 1,870 Interest 2,746 1,787 Restructuring costs - 2,600 _______ _______ Total expenses 17,864 19,333 _______ _______ Loss before income taxes (6,664) (9,466) Income taxes - - _______ _______ Net loss before preferred dividends (6,664) (9,466) Convertible preferred stock dividends (1,555) (1,593) _______ _______ Net loss applicable to common shareholders $ (8,219) $ (11,059) ======= ======= Net loss after convertible preferred stock dividends - - basic and diluted $ (0.70) $ (1.02) ======= ======= Weighted average number of shares outstanding - basic and diluted 11,680 10,857 ======= ======= SHELDAHL, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) Three Months Ended (In thousands, except for per share data) May 26, 2000 May 28, 1999 Net sales $36,152 $32,575 Cost of sales 33,801 28,527 _______ _______ Gross profit 2,351 4,048 _______ _______ Expenses: Sales and marketing 2,151 2,172 General and administrative 2,134 2,396 Research and development 793 616 Interest 940 799 Restructuring costs - (500) _______ _______ Total expenses 6,018 5,483 _______ _______ Loss before income taxes (3,667) (1,435) Income taxes - - _______ _______ Net loss before preferred dividends (3,667) (1,435) Convertible preferred stock dividends (528) (521) _______ _______ Net loss applicable to common shareholders $ (4,195) $ (1,956) ======= ======= Net loss per common share - - basic and diluted $ (0.36) $ (0.18) ======= ======= Weighted average number of shares outstanding - basic and diluted 11,762 11,153 ======= ======= SHELDAHL, INC. CONSOLIDATED BALANCE SHEETS ASSETS (Unaudited) (In thousands) May 26, August 27, 2000 1999 Current assets: Cash and cash equivalents $ 972 $ 1,043 Accounts receivable, net 22,330 19,908 Inventories 18,434 18,746 Prepaid expense and other current assets 939 593 _______ _______ Total current assets 42,675 40,290 _______ _______ Construction in progress 793 3,399 Land and buildings 28,662 28,560 Machinery and equipment 130,786 127,377 Less: accumulated depreciation (88,274) (76,491) _______ _______ Net plant and equipment 71,967 82,845 _______ _______ Other assets 773 795 _______ _______ $115,415 $123,930 ======= ======= LIABILITIES AND SHAREHOLDERS' INVESTMENT Current liabilities: Current maturities of long-term debt $ 3,468 $ 4,142 Accounts payable 12,082 10,493 Accrued salaries 1,310 1,323 Other accrued liabilities 5,069 4,682 Restructuring reserves 1,227 2,713 _______ _______ Total current liabilities 23,156 23,353 _______ _______ Long-term debt 27,708 29,284 Restructuring reserves 1,734 2,484 Other non-current liabilities 3,340 3,477 _______ _______ Total liabilities 55,938 58,598 _______ _______ Shareholders' investment: Convertible preferred stock 42 40 Common stock 2,940 2,903 Additional paid-in capital 111,732 109,407 Accumulated deficit (55,237) (47,018) _______ _______ Total shareholders' investment 59,477 65,332 _______ _______ $115,415 $123,930 ======== ======= SHELDAHL, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) Nine Months Ended (In thousands) May 26, 2000 May 28, 1999 Operating activities: Net loss $(8,219) $(11,059) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 12,459 12,620 Preferred stock dividends 1,555 1,593 Deferred income taxes - - Restructuring costs charged to operations - 2,600 Net change in other operating activities: Accounts receivable (2,422) (4,799) Inventories 312 (2,535) Prepaid expenses and other current assets (222) (118) Other assets 22 204 Accounts payable and accrued liabilities 461 2,219 Restructuring payments made (2,289) (4,195) Other non-current liabilities (136) (238) _______ _______ Net cash provided by (used in) operating activities 1,521 (3,708) _______ _______ Investing activities: Capital expenditures, net (1,705) (5,547) _______ _______ Financing activities: Net borrowings (repayments) under revolving credit facilities (290) 4,599 Payments of term facility - (1,025) Proceeds from other long-term debt 4,300 - Repayments of long-term debt (6,261) (2,452) Costs and redemption of Series B preferred stock - (837) Net proceeds of Series E preferred stock - 8,437 Net proceeds of Series F preferred stock 1,800 - Stock options exercised 564 156 _______ _______ Net cash provided by financing activities 113 8,878 _______ _______ Net decrease in cash equivalents (71) (377) _______ _______ Cash and cash equivalents at beginning of period 1,043 1,005 _______ _______ Cash and cash equivalents at end of period $ 972 $ 628 ======= ======= Supplemental cash flow information: Interest paid $ 2,746 $ 2,547 ======= ======= Income taxes paid $ 42 $ 152 ======= ======= 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): May 26, 2000 August 27, 1999 Raw materials $ 8,549 $ 6,635 Work-in-process 6,250 7,751 Finished goods 3,635 4,360 _______ _______ $18,434 $18,746 ======= ======= 2) Liquidity and Going Concern Matters Cash requirements to fund restructuring charges taken during fiscal 1999 and 1998 were $2.3 million in the nine months of fiscal 2000 and are expected to be approximately $0.4 million in the fourth quarter of fiscal 2000, compared to $5.0 million in total for fiscal 1999. Fiscal 2000 capital expenditures for the Company are planned at approximately $3.0 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 nine months of fiscal 2000 and anticipated operating results during the fourth quarter of fiscal 2000, tighter borrowing levels for the fourth quarter 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. The Company was out of compliance with one of its debt covenants at May 26, 2000 and received a waiver from its lenders with respect to such matters of non-compliance. In addition, new debt covenants have been established for the Company's fourth quarter ending September 1, 2000. 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 May 26, 2000, approximately $1.8 million has been charged to the aforementioned restructuring reserve and by May 26, 2000, 46 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 May 26, 2000, approximately $6.8 million had been charged to these restructuring reserves and by May 26, 2000, 269 employees had terminated employment with the Company related to the fiscal 1998 restructuring actions. In the fiscal quarters ended August 1999 and May 1998, non-cash impairment charges of $7.6 million and $3.3 million were recorded against the Company's statements 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, was not expected to contribute to the Company's future cash flows. 4 ) Subsequent Event On June 26, 2000, the Company announced that it has begun exclusive negotiations with International Flex Technologies Inc. (IFT), a privately-held company which acquired IBM Corporation's fine-line flexible circuit business in February 1999, concerning a proposal under which the Company would acquire IFT in exchange for shares of the Company's common stock. In addition, IFT shareholders and other potential investors have proposed to infuse approximately $40 million in new capital into the Company in exchange for shares of a new series of the Company's convertible preferred stock. As a result of the proposed acquisition and new investment, the IFT shareholders and potential other investors would hold securities representing beneficial ownership of approximately 43% of the Company. 5) Segment Reporting The following is a summary of certain financial information relating to the two segments for the nine months ended as follows: May 26, 2000 May 28, 1999 Total sales by segment: Core Business $ 99,239 $ 88,245 Micro Products 3,755 846 _______ _______ Total company sales $102,994 $ 89,091 ======= ======= Operating Profit (loss) by segment: Core Business: Before corporate allocation $ 11,536 $ 13,401 Corporate cost allocation 5,435 4,922 Interest expense 2,252 1,430 _______ _______ Total $ 3,849 $ 7,049 ======= ======= Micro Products: Before corporate allocation $ (8,816) $(12,323) Corporate cost allocation 1,203 1,235 Interest expense 494 357 _______ _______ Total $(10,513) $(13,915) ======= ======= Total segments operating losses (6,664) (6,866) Sales by product line: Laminate material $ 24,855 $ 21,262 ViaThin 3,755 846 Novaflex HD 32,346 23,337 Novaflex VHD 3,267 4,188 Flexbase interconnects 38,771 39,458 _______ _______ $102,994 $ 89,091 ======= ======= The following is a summary of certain financial information relating to the two segments for the three months ended as follows: May 26, 2000 May 28, 1999 Total sales by segment: Core Business $34,808 $32,364 Micro Products 1,344 211 _______ _______ Total company sales $36,152 $32,575 ======= ======= Operating Profit (loss) by segment: Core Business: Before corporate allocation $ 2,821 $ 5,301 Corporate cost allocation 1,758 1,911 Interest expense 771 639 _______ _______ Total $ 292 $ 2,751 ======= ======= Micro Products: Before corporate allocation $(3,401) $(4,054) Corporate cost allocation 389 474 Interest expense 169 160 _______ _______ Total $(3,959) $(4,687) ======= ======= Total segments operating losses (3,667) (1,935) Sales by product line: Laminate material $ 8,585 $ 8,513 ViaThin 1,345 211 Novaflex HD 11,444 8,470 Novaflex VHD 994 1,358 Flexbase interconnects 13,784 14,023 _______ _______ $36,152 $32,575 ======= ======= Item 2. Management Discussion and Analysis SHELDAHL, INC. AND SUBSIDIARY MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED OPERATING RESULTS AND FINANCIAL CONDITION Nine Months Ended May 26, 2000 and May 28, 1999 SALES The Company's net sales increased $13.9 million, or 15.6% from $89.1 million for the nine months ended May 28, 1999 to $103.0 million for the nine months ended May 26, 2000. Core Business sales increased $11.0 million, or 12.5%, to $99.2 million, while Micro Products sales increased $2.9 million, or 343.9% when compared to the first nine 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 nine months ended May 26, 2000 to the automotive market decreased 0.6% to $60.2 million and represents 58.4% of total Company sales. Datacom sales for the same period increased $16.0 million, or 117.7%, to $29.5 million, driven mainly by new customers in the computer segment. Datacom sales represent 28.7% of total Company sales of which $25.7 million is from the Core Business segment and $3.8 million is from the Micro Products segment. Sales to the Company's other markets totaled $13.3 million, or 12.9%, of total Company revenue reflecting a decrease of $1.7 million, or 11.5% from the same period one year ago. The chart below details the Company's sales by market during the period (in thousands): Nine Month Ended Nine Months Ended Market May 26, 2000 May 28, 1999 Inc(Dec)% Change Automotive $ 60,162 $ 60,513 $ (351) (.6)% Datacom 29,510 13,558 15,952 117.7% Industrial 5,142 5,880 (738) (12.6)% Consumer 2,744 2,531 213 8.4% Aerospace/Defense 5,436 6,609 (1,173) (17.7)% _______ _______ _______ _______ Total $102,994 $ 89,091 $ 13,903 15.6% ======= ======= ======= ======= GROSS PROFIT Gross profit decreased to 10.9% of sales, or $11.2 million, for the nine months ended May 26, 2000 compared to $9.9 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 $6.6 million compared to $10.0 million for the same period one year ago. Core Business gross profit decreased $2.1 million to $17.8 million, or 17.9% 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 $1.0 million when compared to the same period one year ago with freight costs being a major part of the increase. Nine Months Fiscal 2000 Nine Months Fiscal 1999 Core Micro Total Core Micro Total Business Products Company Business Products Company Sales $99,239 $ 3,755 $102,994 $88,245 $ 846 $89,091 Cost of sales 81,487 10,307 91,794 68,370 10,854 79,224 _______ _______ _______ _______ _______ _______ Gross profit $17,752 $(6,552) $ 11,200 $19,875 $(10,008) $ 9,867 ======= ======= ======= ======= ======= ======= % of sales 17.9% N/A 10.9% 22.5% N/A 11.1% OTHER EXPENSES The Company's expenses excluding interest and restructuring charges increased $0.2 million, or 1.2% from $14.9 million for the nine months ended May 28, 1999 to $15.1 million for the nine months ended May 26, 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 first nine months, higher interest rates and borrowing level's 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 $0.8 million for the nine months ended May 26, 2000 when compared to the same period one year ago. As a result, net interest expense rose $1.0 million, or 53.7% to $2.7 million compared to the same period one year ago. Interest costs and activities for the noted period are detailed below: Nine Months Nine Months May 26, 2000 May 28, 1999 Change Gross interest expense $ 2,856 $ 2,648 $ 208 Capitalized interest (110) (862) 752 _______ _______ _______ Net interest $ 2,746 $ 1,786 $ 960 ======= ======= ======= INCOME TAXES As the result of the continuing losses in the Company's Micro Products business, the Company has not and will not reflect in immediate future periods any tax provision or benefit. SHELDAHL, INC. AND SUBSIDIARY MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED OPERATING RESULTS AND FINANCIAL CONDITION Three Months Ended May 26, 2000 and May 28, 1999 SALES The Company's net sales increased $3.6 million, or 11.0%, from $32.6 million for the three months ended May 28, 1999 to $36.2 million for the three months ended May 26, 2000. Core Business sales increased $2.4 million, or 7.6%, to $34.8 million while Micro Products sales increased $1.1 million, or 537.0%, when compared to the third 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 May 26, 2000 to the automotive market decreased 6.0% from the same quarter last year to $20.4 million and represents 56.4% of total Company sales. Datacom sales for the same period increased $6.0 million, or 110.1%, to $11.4 million. Datacom sales represent 31.7% of total Company sales of which $10.1 million is from the Core Business segment and $1.3 million is from the Micro Products segment. Sales to the Company's other markets totaled $4.3 million, or 11.9%, of total Company revenue reflecting a decrease of $1.2 million, or 21.3%, 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 May 26, 2000 May 28, 1999 Gross Change % Change Automotive $20,402 $21,660 $(1,258) (6.0)% Datacom 11,444 5,446 5,998 110.1% Industrial 1,752 1,480 272 18.4% Consumer 878 1,130 (252) (22.3)% Aerospace/Defense 1,676 2,859 (1,183) (41.4)% _______ _______ _______ _______ Total $36,152 $32,575 $ 3,577 11.0% ======= ======= ======= ======= GROSS PROFIT Total gross profit decreased $1.7 million to 6.5% of sales for the three months ended May 26, 2000 compared to the same period one year ago. As reflected in the chart below, Micro Products gross loss decreased by 27.1% to $2.6 million compared to $3.5 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 decreased $2.6 million resulting in a gross profit percent to sales of 14.1% compared to 23.4% 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 Sales $34,808 $ 1,344 $36,152 $32,364 $ 211 $32,575 Cost of sales 29,895 3,906 33,801 24,805 3,722 28,527 _______ _______ _______ _______ _______ _______ Gross profit $ 4,913 $(2,562) $ 2,351 $ 7,560 $(3,512) $ 4,048 ======= ======= ======= ======= ======= ======= % of sales 14.1% N/A 6.5% 23.4% N/A 12.4% OTHER EXPENSES The Company's expenses, excluding interest and restructuring charges, decreased $0.1 million, or 2.0%, from $5.2 million for the three months ended May 28, 1999 to $5.1 million for the quarter ended May 26, 2000. A decline in headcount and controlled discretionary spending 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 $0.1 million for the three months ended May 26, 2000 when compared to the same period one year ago. As a result, net interest expense rose $0.1 million, or 17.6% 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 May 26, 2000 May 28, 1999 Change Gross interest expense $ 951 $ 929 $ 22 Capitalized interest (11) (130) 119 _______ _______ _______ Net interest $ 940 $ 799 $ 141 ======= ======= ======= 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 and Security Agreement with Norwest Bank, N.A. and the CIT Group/Equipment Financing Inc. 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 by $2.5 million and then modified on June 29, 2000 to $1.5 million. 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 June 2, 2000, the Company's reduced borrowing base was $17.7 million. Actual borrowing under this working capital revolver was $11.1 million as of June 2, 2000 and the amount available to borrow was $6.6 million (see Capital Reserves). The applicable interest rate for borrowings under the credit agreement at May 26, 2000 was at 11.5%. 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, with 1.8 million raised in the issuance of newly created Series F Convertible Preferred Stock, $1.00 par value per share, and Warrants in January 2000. 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 and produced all or in part at the Longmont facility. For the first nine months of fiscal 2000, $39.4 million of Novaclad-based product was sold and produced all or in part at the Longmont facility. At of the end of fiscal 1999, the Longmont facility was operating at approximately 20% of stated production capacity with projected gross margin 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. As of May 26, 2000, 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 $3.0 million, compared to $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 nine month period ended May 26, 2000, the Company improved its operating performance with cash flow from operations, excluding restructuring cost payments, with a positive $3.8 million but did not meet all of the financial covenants established by its bank group. The Company received a waiver from its lenders with respect to such matters of non-compliance. Anticipated operating results during the fourth quarter of fiscal 2000, tighter borrowing levels for the fourth quarter 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. Capital spending for the nine months ended May 26, 2000 was $1.7 million or $3.8 million below the same period one year ago. Net working capital increased to $19.5 million for the nine months ended May 26, 2000 from $16.9 million as of August 27, 1999. An increase in the Company's accounts receivable of $2.4 million reflected greater sales growth in the first nine months of fiscal 2000. 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 and Sheldahl not entering into an agreement with respect to a strategic transaction or any such transaction not being consummated. 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 quarters ended November 26, 1999, February 25, 2000, May 26, 2000 and other SEC filings. Item 3. Quantitative and Qualitative Disclosures about Market Risk The Company's Credit and Security carries interest rate risk. Amounts borrowed under this Agreement are subject to interest charges at a rate equal to the lender's prime rate +2%, which as of May 26, 2000 was 11.5%. Should the lender's base rate change, the Company's interest expense will increase or decrease accordingly. As of May 26, 2000, to Company had borrowed approximately $23.6 million subject to the interest rate risk. On this amount, a 1% increase would cost the Company $236,000 in additional gross interest on an annual basis. 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 claimed 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 sought 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 law suit. In April 2000, the remaining lawsuits were also voluntarily dismissed. Item 6. Exhibits and Reports on Form 8-K A) Exhibits 10.1 Fifth Amendment to the Credit and Security Agreement, dated June 16, 2000 between the Company and Norwest Bank, Minnesota, N.A. and The CIT Group/Equipment Financing, Inc. 10.2 Sixth Amendment to the Credit and Security Agreement, dated June 27, 2000 between the Company and Norwest Bank, Minnesota, N.A. and The CIT Group/Equipment Financing, Inc. 10.3 Exclusive Letter Agreement among the Registrant, Morgenthaler Partners and International Flex Technologies, Inc. dated June 25, 2000, incorporated by reference to Exhibit 99.1 of the Current Report on Form 8-K filed by the Registrant on June 26, 2000. 27 Financial data schedule B) Reports on Form 8-K Reports on Form 8-K filed March 15, 2000 announcing continued discussions with Molex. Reports on Form 8-K filed March 20, 2000 announcing cessation of negotiations with Molex. 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 10, 2000 By /s/ Edward L. Lundstrom President and Chief Executive Officer Dated: July 10, 2000 By /s/ Jill D. Burchill Vice President and Chief Financial Officer EX-10 2 0002.txt FIFTH AMENDMENT TO CREDIT AND SECURITY AGREEMENT This Amendment, dated as of _______________, 2000, is made by and among Sheldahl, Inc., a Minnesota corporation (the "Borrower"), NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION, a national banking association ("Norwest"; in its separate capacity as administrative agent for the Lenders, the "Agent"), and each of the financial institutions appearing on the signature pages hereof. Recitals The Borrower, the Agent and the Lenders are parties to a Credit and Security Agreement dated as of June 19, 1998, as amended by a First Amendment to Credit and Security Agreement dated as of November 25, 1998, a Second Amendment to Credit and Security Agreement dated as of March 31, 1999, a Third Amendment to Credit and Security Agreement dated as of April 5, 1999, a Fourth Amendment to Credit and Security Agreement dated as of November ___, 1999 (as so amended, the "Credit Agreement"). Capitalized terms used in these recitals have the meanings given to them in the Credit Agreement unless otherwise specified. The Borrower has requested that the Agent and the Lenders extend the Maturity Date for the facilities to December 1, 2001. The Agent and the Lenders are willing to grant the Borrower's requests pursuant to the terms and conditions set forth herein. Accordingly, in consideration of the premises and of the mutual covenants and agreements herein contained, it is agreed as follows: 1. Defined Terms. Capitalized terms used in this Amendment which are defined in the Credit Agreement shall have the same meanings as defined therein, unless otherwise defined herein. In addition, Section 1.1 of the Credit Agreement is amended by adding or amending, as the case may be, the following definitions: "`Maturity Date' means December 1, 2001." 2. Permitted Investments. Section 7.4(a) of the Credit Agreement is amended as follows by amending clause (v) to read as follows: "(v) the Borrower's investment in Sidrabe in the approximate amount of $625,000;" 3. No Other Changes. Except as explicitly amended by this Amendment, all of the terms and conditions of the Credit Agreement shall remain in full force and effect and shall apply to any advance or letter of credit thereunder. 4. Amendment Fee. The Borrower shall pay the Lenders as of the date hereof a fully earned, non-refundable fee in the amount of $42,500 in consideration of the Lenders' execution of this Amendment. 5. Conditions Precedent. This Amendment shall be effective when the Agent shall have received an executed original hereof, together with each of the following, each in substance and form acceptable to the Agent in its sole discretion: (a) Payment of the fee described in Paragraph 4. (b) Such other matters as the Lender may require. 6. Representations and Warranties. The Borrower hereby represents and warrants to the Lenders as follows: (a) The Borrower has all requisite power and authority to execute this Amendment and to perform all of its obligations hereunder, and this Amendment has been duly executed and delivered by the Borrower and constitute the legal, valid and binding obligation of the Borrower, enforceable in accordance with its terms. (b) The execution, delivery and performance by the Borrower of this Amendment have been duly authorized by all necessary corporate action and do not (i) require any authorization, consent or approval by any governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign, (ii) violate any provision of any law, rule or regulation or of any order, writ, injunction or decree presently in effect, having applicability to the Borrower, or the articles of incorporation or by-laws of the Borrower, or (iii) result in a breach of or constitute a default under any indenture or loan or credit agreement or any other agreement, lease or instrument to which the Borrower is a party or by which it or its properties may be bound or affected. (c) All of the representations and warranties contained in Article V of the Credit Agreement are correct on and as of the date hereof as though made on and as of such date, except to the extent that such representations and warranties relate solely to an earlier date. 7. References. All references in the Credit Agreement to "this Agreement" shall be deemed to refer to the Credit Agreement as amended hereby; and any and all references in the Security Documents to the Credit Agreement shall be deemed to refer to the Credit Agreement as amended hereby. 8. No Other Waiver. The execution of this Amendment and acceptance of any documents related hereto shall not be deemed to be a waiver of any Default or Event of Default under the Credit Agreement or breach, default or event of default under any Security Document or other document held by the Lenders, whether or not known to the Lenders and whether or not existing on the date of this Amendment. 9. Release. The Borrower hereby absolutely and unconditionally releases and forever discharges the Lenders, and any and all participants, parent corporations, subsidiary corporations, affiliated corporations, insurers, indemnitors, successors and assigns thereof, together with all of the present and former directors, officers, agents and employees of any of the foregoing, from any and all claims, demands or causes of action of any kind, nature or description, whether arising in law or equity or upon contract or tort or under any state or federal law or otherwise, which the Borrower has had, now has or has made claim to have against any such person for or by reason of any act, omission, matter, cause or thing whatsoever arising from the beginning of time to and including the date of this Amendment, whether such claims, demands and causes of action are matured or unmatured or known or unknown. 10. Costs and Expenses. The Borrower hereby reaffirms its agreement under the Credit Agreement to pay or reimburse the Lenders on demand for all costs and expenses incurred by the Lenders in connection with the Credit Agreement, the Security Documents and all other documents contemplated thereby, including without limitation all reasonable fees and disbursements of legal counsel. Without limiting the generality of the foregoing, the Borrower specifically agrees to pay all fees and disbursements of counsel to the Lenders for the services performed by such counsel in connection with the preparation of this Amendment and the documents and instruments incidental hereto. The Borrower hereby agrees that the Lenders may, at any time or from time to time in its sole discretion and without further authorization by the Borrower, make a loan to the Borrower under the Credit Agreement, or apply the proceeds of any loan, for the purpose of paying any such fees, disbursements, costs and expenses and the fee required under paragraph 4 hereof. 11. Miscellaneous. This Amendment may be executed in any number of counterparts, each of which when so executed and delivered shall be deemed an original and all of which counterparts, taken together, shall constitute one and the same instrument. IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed as of the date first written above. NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION, as Agent By /s/ Perry T. Larson Perry T. Larson Its Vice President SHELDAHL, INC. By /s/ Jill Burchill Jill Burchill Its Chief Financial Officer NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION By /s/ Perry T. Larson Perry T. Larson Its Vice President THE CIT GROUP/EQUIPMENT FINANCING, INC. By /s/ Danny Nichols Danny Nichols Its Assistant Vice President EX-10 3 0003.txt SIXTH AMENDMENT TO CREDIT AND SECURITY AGREEMENT This Amendment, dated as of June 27, 2000, is made by and among Sheldahl, Inc., a Minnesota corporation (the "Borrower"), NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION, a national banking association ("Norwest"; in its separate capacity as administrative agent for the Lenders, the "Agent"), and each of the financial institutions appearing on the signature pages hereof. Recitals The Borrower, the Agent and the Lenders are parties to a Credit and Security Agreement dated as of June 19, 1998, as amended by a First Amendment to Credit and Security Agreement dated as of November 25, 1998, a Second Amendment to Credit and Security Agreement dated as of March 31, 1999, a Third Amendment to Credit and Security Agreement dated as of April 5, 1999, a Fourth Amendment to Credit and Security Agreement dated as of November 9, 1999, and a Fifth Amendment to Credit and Security Agreement dated as of June 16, 2000 (as so amended, the "Credit Agreement"). Capitalized terms used in these recitals have the meanings given to them in the Credit Agreement unless otherwise specified. The Borrower has requested that certain amendments be made to the Credit Agreement and that a certain default be waived. The Agent and the Lenders are willing to grant the Borrower's requests pursuant to the terms and conditions set forth herein. Accordingly, in consideration of the premises and of the mutual covenants and agreements herein contained, it is agreed as follows: 1. Defined Terms. Capitalized terms used in this Amendment which are defined in the Credit Agreement shall have the same meanings as defined therein, unless otherwise defined herein. In addition, the following definition in Section 1.1 of the Credit Agreement is amended to read as follows: "`Liquidity Reserve' means the amount of $1,500,000." 2. Financial Covenants. Sections 6.20 and 6.21 of the Credit Agreement are amended to read as follows: "Section 6.20 Minimum Pre-tax Net Income. The Borrower will achieve Pre-tax Net Income, determined as of the end of the fiscal quarter described below, of not less than the amount set forth opposite such fiscal quarter: Fiscal Quarter Ending on or about Minimum Pre-tax Net Income 8/31/00 $(8,014,000) "Section 6.21 Minimum Net Worth. The Borrower will maintain its Net Worth, determined as at the end of the fiscal quarter described below, of not less than the amount set forth opposite such fiscal quarter: Fiscal Quarter Ending on or about Minimum Net Worth 8/31/00 $59,682,000 The determination of Borrower's Net Worth will not consider the expense associated with accruing for preferred dividends, nor the payment of preferred dividends in common stock." 3. Waiver of Default. For the Borrower's fiscal quarter ending on or about May 31, 2000, the Borrower is in default of the following provision of the Credit Agreement (the "Default"): Covenant Required Actual Section 6.20 Minimum Pre-tax Net Not less than $(6,664,000) Income $(4,488,000) Upon the terms and subject to the conditions set forth in this Amendment, the Agent hereby waives the Default. This waiver shall be effective only in this specific instance and for the specific purpose for which it is given, and this waiver shall not entitle the Borrower to any other or further waiver in any similar or other circumstances. 4. No Other Changes. Except as explicitly amended by this Amendment, all of the terms and conditions of the Credit Agreement shall remain in full force and effect and shall apply to any advance or letter of credit thereunder. 5. Amendment Fee. The Borrower shall pay the Lenders as of the date hereof a fully earned, non-refundable fee in the amount of $100,000 in consideration of the Lenders' execution of this Amendment. 6. Conditions Precedent. This Amendment shall be effective when the Agent shall have received an executed original hereof, together with each of the following, each in substance and form acceptable to the Agent in its sole discretion: (a) Payment of the fee described in Paragraph 5. (b) Such other matters as the Lender may require. 7. Representations and Warranties. The Borrower hereby represents and warrants to the Lenders as follows: (a) The Borrower has all requisite power and authority to execute this Amendment and to perform all of its obligations hereunder, and this Amendment has been duly executed and delivered by the Borrower and constitute the legal, valid and binding obligation of the Borrower, enforceable in accordance with its terms. (b) The execution, delivery and performance by the Borrower of this Amendment have been duly authorized by all necessary corporate action and do not (i) require any authorization, consent or approval by any governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign, (ii) violate any provision of any law, rule or regulation or of any order, writ, injunction or decree presently in effect, having applicability to the Borrower, or the articles of incorporation or by-laws of the Borrower, or (iii) result in a breach of or constitute a default under any indenture or loan or credit agreement or any other agreement, lease or instrument to which the Borrower is a party or by which it or its properties may be bound or affected. (c) All of the representations and warranties contained in Article V of the Credit Agreement are correct on and as of the date hereof as though made on and as of such date, except to the extent that such representations and warranties relate solely to an earlier date. 8. References. All references in the Credit Agreement to "this Agreement" shall be deemed to refer to the Credit Agreement as amended hereby; and any and all references in the Security Documents to the Credit Agreement shall be deemed to refer to the Credit Agreement as amended hereby. 9. No Other Waiver. Except as set forth in Paragraph 3 above, the execution of this Amendment and acceptance of any documents related hereto shall not be deemed to be a waiver of any Default or Event of Default under the Credit Agreement or breach, default or event of default under any Security Document or other document held by the Lenders, whether or not known to the Lenders and whether or not existing on the date of this Amendment. 10. Release. The Borrower hereby absolutely and unconditionally releases and forever discharges the Lenders, and any and all participants, parent corporations, subsidiary corporations, affiliated corporations, insurers, indemnitors, successors and assigns thereof, together with all of the present and former directors, officers, agents and employees of any of the foregoing, from any and all claims, demands or causes of action of any kind, nature or description, whether arising in law or equity or upon contract or tort or under any state or federal law or otherwise, which the Borrower has had, now has or has made claim to have against any such person for or by reason of any act, omission, matter, cause or thing whatsoever arising from the beginning of time to and including the date of this Amendment, whether such claims, demands and causes of action are matured or unmatured or known or unknown. 11. Costs and Expenses. The Borrower hereby reaffirms its agreement under the Credit Agreement to pay or reimburse the Lenders on demand for all costs and expenses incurred by the Lenders in connection with the Credit Agreement, the Security Documents and all other documents contemplated thereby, including without limitation all reasonable fees and disbursements of legal counsel. Without limiting the generality of the foregoing, the Borrower specifically agrees to pay all fees and disbursements of counsel to the Lenders for the services performed by such counsel in connection with the preparation of this Amendment and the documents and instruments incidental hereto. The Borrower hereby agrees that the Lenders may, at any time or from time to time in its sole discretion and without further authorization by the Borrower, make a loan to the Borrower under the Credit Agreement, or apply the proceeds of any loan, for the purpose of paying any such fees, disbursements, costs and expenses and the fee required under paragraph 5 hereof. 12. Miscellaneous. This Amendment may be executed in any number of counterparts, each of which when so executed and delivered shall be deemed an original and all of which counterparts, taken together, shall constitute one and the same instrument. IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed as of the date first written above. NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION, as Agent By /s/ Perry T. Larson Perry T. Larson Its Vice President SHELDAHL, INC. By /s/ Jill Burchill Jill Burchill Its Chief Financial Officer NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION By /s/ Perry T. Larson Perry T. Larson Its Vice President THE CIT GROUP/EQUIPMENT FINANCING, INC. By /s/ Danny Nichols Danny Nichols Its Assistant Vice President EX-27 4 0004.txt
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE MAY 26, 2000 FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 9-MOS 3-MOS SEP-1-2000 SEP-1-2000 MAY-26-2000 MAY-26-2000 972 972 0 0 22330 22330 0 0 18434 18434 42675 42675 160241 160241 88274 88274 115415 115415 23156 233156 0 0 0 0 42 42 2940 2940 56495 56495 115415 115415 102994 36152 102994 36152 91794 33801 15118 5225 0 0 0 0 2746 793 6664 3667 0 0 6664 3667 0 0 0 0 0 0 8219 4195 .70 .36 .70 .36
-----END PRIVACY-ENHANCED MESSAGE-----