Edward L. Lundstrom, President and Chief Executive Officer commented on the year, stating, "Fiscal 2000 proved to be a very difficult year for the Company as we worked toward a definitive agreement to resolve liquidity issues while simultaneously focusing on building the business. Sheldahl’s Core Business, particularly work associated with the automotive sector, slowed, affecting product mix and margins, some of which was precipitated by customer concerns related to the future of the Company. On the other hand, we gained strong momentum in the Datacom market and in our Micro Products segment."

"The data communications market is proving to be an excellent growth area for Sheldahl’s Novacladâ family of products -- Novaflexâ VHD, Novaflexâ HD and ViaThinâ . Major new programs were started for an integrated circuit manufacturer and Sheldahl delivered quality goods on time," Lundstrom continued. "Micro Products finished the year with $6.7 million in sales and an annualized run rate of $12.0 million. We remain optimistic that our technology and production capabilities are real assets. However, there is definitely room for cost improvement as we initiate new programs and work to improve margins."

Gross profits were off due to a less profitable sales mix, higher material costs and increased costs associated with new production runs in Micro Products. In addition, the Company’s Core Business, which historically has relatively higher margins associated with the automotive sector, reported sales growth, up 7.8% but with a 3.6% decrease in automotive business. Datacom sales during this quarter, while up significantly, carried with them lower gross margins which have been negatively impacted by competitive price erosion."

In the fourth quarter, the Company took a charge for $371,000 in expenses associated with strategic alternatives advisory services. Cash requirements to fund restructuring charges taken during fiscal 2000 were $2.7 million versus $5.0 million for fiscal 1999. These expenses, coupled with capital expenditures of $2.4 million in fiscal 2000 versus $5.5 million in fiscal 1999 and debt repayments of $2.7 million, continue to place significant pressure on the cash position of the Company.

Sheldahl received a waiver from its lenders with respect to matters of non-compliance. In addition new debt covenants have been established for the Company’s 2001 fiscal year, with quarterly targets pinpointed.

Lundstrom stated, "We are survivors and look forward to completing the IFT/Morgenthaler/Ampersand transaction. An aggressive close to this transaction is central to our cash situation. We have improved many aspects of the business, including inventory and accounts receivable management, datacom market penetration and Micro Products commercialization. Our banks are supporting us as we move forward to a positive resolution to the cash situation. Cash flow from operations after capital expenditures was negative at $5.6 million compared to last year’s negative $9.5 million. We enter fiscal 2001 cautiously optimistic, focused on achieving customer satisfaction while closing our transaction."

FOURTH QUARTER RESULTS

For the fourth quarter of fiscal 2000, Sheldahl reported sales of $33.7 million, an increase of 2.1% over the $33.0 million reported for the fourth quarter of fiscal 1999. Gross profits were off substantially due to a less profitable sales mix, higher material costs, competitive pricing issues and manufacturing inefficiencies that resulted from the start-up of new programs in Micro Products. However, spending controls are proving effective as operating expenses decreased 8% from $6.3 million in the fiscal 1999 fourth quarter to $5.8 million in the last quarter of fiscal 2000. Fiscal 2000 sales and expenses represent a period of fourteen weeks as compared to thirteen weeks in fiscal 1999.

Operating losses before preferred dividends amounted to $6.2 million versus $12.0 million in the comparable quarter of fiscal 1999, which included $8.1 million in restructuring costs. Net losses for the 2000 fourth quarter were $6.8 million versus $12.5 million a year ago.

Sheldahl is a leading producer of high-density substrates, high-quality flexible printed circuitry, and flexible laminates primarily for sale to the automotive electronics and data communications markets. The Company, which is headquartered in Northfield, Minnesota, has operations in Northfield; Longmont, Colorado; Detroit, Michigan; South Dakota; Toronto, Ontario, Canada; and Chihuahua, Chih., Mexico. Its sales offices are located in Hong Kong, China; Singapore; and Mainz, Germany. As of June 1, 2000, Sheldahl employed approximately 820 people. Sheldahl’s common stock trades on the Nasdaq National Market tier of the Nasdaq Stock Market under the symbol: SHEL. Sheldahl news and information can be found on the World Wide Web at http://www.sheldahl.com.

The discussion above contains forward-looking 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 defaults on its debt covenants, the achievement of efficient volume production and relates sales revenue results at Longmont, the ability of Sheldahl to identify and successfully pursue other business opportunities, and Sheldahl not consummating the announced transactions 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, forms 10-Q for the quarters ending November 26, 1999, February 25, 2000, and May 26, 2000, and other SEC filings. Sheldahl does not undertake any obligation to update any such factors or to publicly announce developments or events related to the matters described herein.

SHELDAHL, INC. AND SUBSIDIARY

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