SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
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For the quarter ended December 31, 2000 Commission File No. 0-20600
----------------- -------
ZOLTEK COMPANIES, INC.
----------------------
(Exact name of registrant as specified in its charter)
Missouri 43-1311101
-------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3101 McKelvey Road, St. Louis, Missouri 63044
- --------------------------------------- -----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (314) 291-5110
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
--- ---
Indicate the number of shares outstanding of each of the registrant's
classes of common stock as of the latest practicable date: As of February
14, 2001, 16,252,338 shares of Common Stock, $.01 par value, were
outstanding.
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ZOLTEK COMPANIES, INC.
CONSOLIDATED BALANCE SHEET
--------------------------
(Amounts in thousands, except share and per share amounts)
DECEMBER 31, SEPTEMBER 30,
ASSETS 2000 2000
- ---------------------------------------------------------------------------------------------------------------------------
(Unaudited)
Current assets:
Cash and cash equivalents.................................................................$ 2,033 $ 2,222
Marketable securities..................................................................... 1,305 1,327
Accounts receivable, less allowance for doubtful accounts of $1,009 and
$899, respectively...................................................................... 10,326 11,033
Inventories............................................................................... 34,447 31,876
Prepaid expenses.......................................................................... 675 500
Other receivables......................................................................... 743 321
Refundable income taxes................................................................... 1,556 1,556
Net assets of discontinued operations held for sale....................................... - 57,360
--------- ---------
Total current assets................................................................. 51,085 106,195
Property and equipment, net.................................................................... 83,341 81,922
Intangible assets, net (including goodwill).................................................... 2,285 2,196
Other assets................................................................................... 5,638 1,548
Deferred income taxes.......................................................................... 302 -
--------- ---------
Total assets.........................................................................$ 142,651 $ 191,861
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
- ---------------------------------------------------------------------------------------------------------------------------
Current liabilities:
Current maturities of long-term debt......................................................$ 10,809 $ 10,751
Trade accounts payable.................................................................... 13,009 9,169
Accrued expenses and other liabilities.................................................... 4,854 4,451
Long-term debt extinguished with discontinued operations.................................. - 35,375
--------- ---------
Total current liabilities............................................................ 28,672 59,746
Other long-term liabilities.................................................................... 370 379
Long-term debt, less current maturities........................................................ 6,718 6,667
Deferred income taxes.......................................................................... - 1,429
--------- ---------
Total liabilities.................................................................... 35,760 68,221
--------- ---------
Majority interest in consolidated partnership.................................................. 405 829
Commitment and contingencies (notes 10 and 11)
Shareholders' equity:
Preferred stock, $.01 par value, 1,000,000 shares authorized,
no shares issued or outstanding......................................................... - -
Common stock, $.01 par value, 50,000,000 shares authorized,
16,222,338 and 16,041,338 shares issued and outstanding, respectively................... 187 187
Additional paid-in capital................................................................ 127,761 127,690
Retained earnings......................................................................... 18,203 22,500
Treasury common stock at cost, 2,514,993 and 15,000 shares, respectively.................. (19,180) (118)
Accumulated other comprehensive loss...................................................... (20,485) (27,448)
--------- ---------
Total shareholders' equity........................................................... 106,486 122,811
--------- ---------
Total liabilities and shareholders' equity...........................................$ 142,651 $ 191,861
========= =========
The accompanying notes are an integral part of the consolidated financial statements.
2
ZOLTEK COMPANIES, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
------------------------------------
(Amounts in thousands, except per share data)
(Unaudited)
THREE MONTHS ENDED DECEMBER 31,
-------------------------------
2000 1999
- -----------------------------------------------------------------------------------------------------------------------------
Net sales........................................................................................$ 22,532 $ 17,465
Cost of sales.................................................................................... 20,076 13,741
--------- ---------
Gross profit............................................................................ 2,456 3,724
Available unused capacity costs.................................................................. 1,418 989
Goodwill amortization............................................................................ 27 -
Selling, general and administrative expenses..................................................... 4,672 3,810
--------- ---------
Operating loss from continuing operations............................................... (3,661) (1,075)
Other income (expense):
Interest expense........................................................................ (775) (297)
Interest income......................................................................... 285 198
Other, net.............................................................................. 47 (38)
--------- ---------
Loss from continuing operations before income taxes.............................................. (4,104) (1,212)
Income tax benefit............................................................................... (1,143) (468)
--------- ---------
Net loss from continuing operations before
majority interest in consolidated partnership...................................... (2,961) (744)
Majority interest in loss of consolidated partnership............................................ 424 -
--------- ---------
Net loss from continuing operations..................................................... (2,537) (744)
--------- ---------
Discontinued operations:
Operating loss, net of taxes............................................................ - (454)
Loss on disposal of discontinued operations, net of taxes............................... (1,760) -
--------- ---------
Total loss on discontinued operations, net of taxes................................ (1,760) (454)
--------- ---------
Net loss.........................................................................................$ (4,297) $ (1,198)
========= =========
Net loss per share:
Basic and diluted loss per share:
Continuing operations..............................................................$ (0.15) $ (0.04)
Discontinued operations............................................................ (0.10) (0.03)
--------- ---------
Total..............................................................................$ (0.25) $ (0.07)
========= =========
Weighted average common and common equivalent shares outstanding................................. 17,225 17,343
The accompanying notes are an integral part of the consolidated financial statements.
3
ZOLTEK COMPANIES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
------------------------------------
(Amounts in thousands)
(Unaudited)
THREE MONTHS ENDED DECEMBER 31,
-------------------------------
2000 1999
- ----------------------------------------------------------------------------------------------------------------------------
Cash flows from operating activities:
Net loss.................................................................................$ (4,297) $ (1,198)
Adjustments to reconcile net income (loss) to net cash
provided (used) by operating activities:
Loss from discontinued operations, net............................................... 1,760 454
Depreciation and amortization........................................................ 1,646 1,539
Unrealized foreign exchange (gain) loss.............................................. 181 (57)
Majority interest in loss of consolidated partnership................................ (424) -
Other, net........................................................................... 21 13
Changes in assets and liabilities before acquisitions:
Decrease in accounts receivable............................................... 1,052 3,688
Increase in other receivables................................................. (351) (309)
Increase in inventories....................................................... (1,753) (3,554)
Increase in prepaid expenses and other assets................................. (158) (878)
Increase in trade accounts payable............................................ 3,340 1,456
Decrease in accrued expenses and other liabilities............................ (979) (58)
Decrease in income taxes payable/refundable and deferred taxes................ (1,249) (692)
Decrease in other long-term liabilities....................................... (18) (75)
--------- ---------
Total adjustments........................................................ 3,068 1,527
--------- ---------
Net cash provided (used) by continuing operations........................................ (1,229) 329
Net cash provided by discontinued operations............................................. - 1,383
--------- ---------
Net cash provided (used) by operating activities............................................... (1,229) 1,712
--------- ---------
Cash flows from investing activities:
Payments for purchase of Zoltek Intermediates companies,
net of cash acquired................................................................ - (3,972)
Payments for purchase of property and equipment...................................... (1,729) (2,247)
Other, net........................................................................... 13 (40)
--------- ---------
Net cash used by continuing operations................................................... (1,716) (6,259)
Net cash provided (used) by discontinued operations...................................... 37,924 (33,525)
--------- ---------
Net cash provided (used) by investing activities............................................... 36,208 (39,784)
--------- ---------
Cash flows from financing activities:
Proceeds from exercise of stock options.............................................. 72 -
Proceeds from sale of common stock put options....................................... - 98
Proceeds from issuance of notes payable.............................................. 135 40,000
Repayment of notes payable........................................................... (35,401) (5,125)
--------- ---------
Net cash provided (used) by continuing operations........................................ (35,194) 34,973
Net cash used by discontinued operations................................................. - (3,429)
--------- ---------
Net cash provided (used) by financing activities............................................... (35,194) 34,973
Effect of exchange rate changes on cash........................................................ 26 (8)
--------- ---------
Net decrease in cash........................................................................... (189) (474)
Cash and cash equivalents at beginning of period............................................... 2,222 4,250
--------- ---------
Cash and cash equivalents at end of period.....................................................$ 2,033 $ 3,776
========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Net cash paid during the period for:
Interest..................................................................................$ 1,236 $ 152
Income taxes..............................................................................$ 103 $ 739
Non-cash financing activities:
Issuance (return) of common stock in acquisition and divestiture..........................$ (19,063) $ 27,500
Note receivable received in divestiture...................................................$ (5,000) -
The accompanying notes are an integral part of the consolidated financial statements.
4
ZOLTEK COMPANIES, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------------
1. UNAUDITED FINANCIAL STATEMENTS
In the opinion of management, the accompanying unaudited consolidated
financial statements include all adjustments of a normal and recurring
nature necessary for a fair presentation of the financial position and
results of operations as of the dates and for the periods presented. These
financial statements should be read in conjunction with the Company's 2000
Annual Report on Form 10-K which includes consolidated financial statements
and notes thereto for the fiscal year ended September 30, 2000. Certain
reclassifications have been made to conform prior year's data to the current
presentation. The results for the quarter ended December 31, 2000 are not
necessarily indicative of the results which may be expected for the fiscal
year ending September 30, 2001.
2. PRINCIPLES OF CONSOLIDATION
Zoltek Companies, Inc. (the "Company") is a holding company which operates
through wholly owned subsidiaries, Zoltek Corporation, Zoltek Properties
Inc., Zoltek Rt., Cape Composites, Inc., Engineering Technology Corporation
("Entec"), and a 45%-membership interest in Hardcore Composites Operations,
LLC which is reported as a consolidated subsidiary due to the Company's
operational control. From November 1999 to November 2000, the Company also
owned Structural Polymer (Holdings) Limited ("SP Systems").
The consolidated balance sheets of the Company's international subsidiaries,
Structural Polymer (Holdings) Limited and Zoltek Rt., were translated from
British Pounds and Hungarian Forints, respectively, to U.S. Dollars at the
exchange rate in effect at the applicable balance sheet date, while their
consolidated statements of operations were translated using the average
exchange rates in effect during the periods presented. Adjustments resulting
from foreign currency transactions are recognized in income, whereas
adjustments resulting from the translation of financial statements are
reflected as other comprehensive income (loss) within shareholders' equity.
Gains and losses from foreign currency transactions of Zoltek Rt. and SP
Systems are included in the results of operations. These financial statements
have been prepared in accordance with U.S. generally accepted accounting
principles and on a consistent basis with the consolidated financial
statements as of and for the year ended September 30, 2000. All significant
intercompany transactions and balances have been eliminated upon consolidation.
The Company's business consists of three primary business segments. The
Company's Carbon Fiber business segment is primarily focused on the low cost
manufacturing and application of carbon fibers used as reinforcement in
composite materials and aircraft brakes. The Company's Composite
Intermediates business segment (Cape Composites, Entec and Hardcore
Composites) provides composite engineering and design technology, composite
fabrication and processing technology and composite materials. The Company's
Specialty Products business segment (Zoltek Rt.) manufactures and markets
acrylic and nylon products and fibers, primarily for the textile industry.
3. DISCONTINUED OPERATIONS
In the fourth quarter of fiscal 2000 the Company decided to dispose of SP
Systems, its only wind energy and marine related business unit. Accordingly,
the Company reported the results of the operations of SP Systems as
discontinued operations.
The Company originally acquired SP Systems on November 19, 1999 for $30.0
million cash and 2.5 million shares of the Company's common stock valued at
a price of $11.00 per share or $27.5 million for a total purchase price of
approximately $57.5 million. The acquisition resulted in the recognition of
$49.3 million of goodwill. In connection with the acquisition, the Company
borrowed $30.0 million to finance the purchase.
5
On November 6, 2000, the Company sold SP Systems to a group consisting of
the original shareholders and a merchant-banking firm. In connection with
the sale, the Company received $30.0 million in cash, an interest-bearing
note receivable of $5.0 million the return of 2.5 million shares of the
Company's common stock valued at $7.625 per share ($19.1 million aggregate
value) and was repaid approximately $7.9 million consisting of intercompany
loans, accrued interest and closing expenses. Cash proceeds from the sale
and repayment of the intercompany balances were used to retire $35.4 million
of bank debt and interest of $0.8 million. In connection with the sale of SP
Systems, the Company recorded a loss of $1.8 million in the quarter ended
December 31, 2000 related to early repayment of debt and other costs
incurred to dispose of SP Systems. The Company also entered into a 10-year
carbon fibers supply agreement and certain technology license agreements
with SP Systems.
4. ACQUISITIONS
During the first and third quarters of fiscal 2000, the Company acquired a
series of downstream businesses which now comprise its Composite
Intermediates business segment. The businesses acquired included Cape
Composites, Entec and Hardcore Composites.
The Company acquired Cape Composites and Entec in the first quarter of
fiscal 2000 for an aggregate purchase price of $4.0 million in cash. The
Company also assumed certain liabilities at acquisition and provided working
capital and credit facilities for the acquired companies.
In the third quarter of fiscal 2000 the Company acquired a 45%-preferred
membership interest in Hardcore Composites Operations, LLC for $1.4 million
in cash and guaranteed a note payable of $1.0 million. The Company also
provided additional funding for working capital. The Company has the option
to purchase the remaining interest in 2002 based upon a pre-determined
formula. The financial statements of Hardcore are consolidated with the
Company due to the ability to directly control the operations.
These acquisitions were accounted under the purchase method of accounting
and are included in the Company's consolidated financial statements from the
date of acquisition. The purchase prices were allocated to the fair value of
the assets acquired. The excess of the amount paid for the companies over
the fair value of the assets acquired was recognized as goodwill and is to
be amortized over 15 years.
Set forth below is aggregate selected unaudited purchase price data of the
acquired companies at the dates of acquisition.
TOTAL
---------
Fair value of assets and liabilities acquired:
Current assets................................................$ 2,631
Long-term assets.............................................. 9,034
Goodwill and intangibles...................................... 1,898
Liabilities................................................... (8,704)
---------
Net purchase price.........................................$ 4,859
=========
Set forth below is selected unaudited pro forma combined results of
operations data of the Company for the three months ended December 1999, as
if the acquisitions had been completed as of October 1, 1999. The pro forma
combined financial information set forth below is not necessarily indicative
of future results of operations or results of operations that would have
been reported for the periods indicated had the transaction had actually
occurred on that date (amounts in thousands, except per share data).
(Unaudited)
DECEMBER 31,
1999
------------
Net sales............................................................$ 18,238
Net loss from continuing operations.................................. (1,231)
Net loss per share from continuing operations - basic and diluted....$ (0.04)
6
5. COMPREHENSIVE INCOME
Comprehensive loss was as follows for the three-month period ended (amounts
in thousands):
DECEMBER 31,
2000 1999
----------- -----------
(Unaudited)
Net loss...........................................................................$ (4,297) $ (1,198)
Other comprehensive income (loss).................................................. 208 (1,621)
----------- -----------
Comprehensive loss.................................................................$ (4,089) $ (2,819)
=========== ===========
6. CASH AND CASH EQUIVALENTS
All highly liquid investments purchased with an original maturity of three
months or less are considered to be cash equivalents. Such investments
amounted to $0.1 million and $1.9 million at December 31, 2000 and September
30, 2000, respectively.
7. INVENTORIES
Inventories consist of the following (amounts in thousands):
DECEMBER 31, SEPTEMBER 30,
2000 2000
------------ -------------
(Unaudited)
Raw materials..................................................................$ 10,499 $ 7,930
Work-in-process................................................................ 1,648 1,516
Finished goods................................................................. 20,782 20,893
Supplies, spares and other..................................................... 1,568 1,537
----------- -----------
$ 34,447 $ 31,876
=========== ===========
8. PROPERTY AND EQUIPMENT
Property and equipment consist of the following (amounts in thousands):
DECEMBER 31, SEPTEMBER 30,
2000 2000
------------ -------------
(Unaudited)
Land...............................................................................$ 1,552 $ 1,515
Buildings and improvements......................................................... 23,680 23,102
Machinery and equipment............................................................ 47,483 46,108
Furniture and fixtures............................................................. 4,467 4,291
Construction in progress........................................................... 29,910 28,748
----------- -----------
107,092 103,764
Less: accumulated depreciation.................................................... (23,751) (21,842)
----------- -----------
$ 83,341 $ 81,922
=========== ===========
9. INTANGIBLE ASSETS
In connection with the acquisitions of Entec and Hardcore Composites, the
Company recorded goodwill and intangible assets of $1.9 million. In
addition, Hardcore Composites entered into a licensing agreement ($0.5
million) for selected technology rights. The goodwill and intangibles are
being amortized over 15 and 10 years, respectively. The license agreement is
being amortized over 5 years.
7
10. DEBT
In November 1999, the Company entered into a six-year multi-purpose credit
facility with Firstar Bank Missouri National Association ("Firstar Bank") in
the original aggregate amount of $71.0 million. The Company paid $0.71
million as a nonrefundable fee to the bank for the arrangement of the credit
facility.
The Company amended and restated the credit agreement from Firstar Bank on
May 31, 2000, to among other things, reduce the amount of borrowings available
and modify certain financial covenants. The facility, as amended, contains
financial covenants, including financial covenants related to borrowings,
future acquisitions, working capital, net worth, cash flow and fixed charge
coverage.
The Company repaid the Firstar Bank term loan of $32.4 million and $3.0
million of the revolving credit loan on November 6, 2000 from the proceeds
of the sale of SP Systems.
At December 31, 2000, the Company did not meet the covenants of the credit
facility with Firstar Bank. The Company expects to receive a waiver of
covenant non-compliance at December 31, 2000 as future financing is being
renegotiated. The Company has initiated negotiations with Firstar Bank and
other financial institutions to modify or refinance its credit facilities.
The Company expects to enter into a revised long-term credit facility
during the third quarter of fiscal 2001. At December 31, 2000, all debt to
Firstar Bank was classified as a current liability.
The Company executed a one-year, $1.0 million note to Master Builders, LLC
in connection with the purchase of Hardcore Composites in April 2000. This
note is non-interest bearing and is due on or before April 28, 2001.
11. COMMITMENTS AND CONTINGENCIES
The Company entered into an assignment and assumption agreement at the time
of the purchase of Hardcore Composite Operations, LLC that requires it to
guarantee Hardcore's obligation to purchase of land and buildings that are
currently occupied by it in New Castle, Delaware. Hardcore is obligated to
purchase the facilities on or before April 28, 2001 for $3.7 million, which
approximates their market value.
12. NET LOSS PER SHARE
The following table sets forth the computation of shares used in the
computations of basis and diluted net loss per share (in thousands):
THREE MONTHS ENDED
DECEMBER 31,
2000 1999
--------------------
Weighted average common shares outstanding
used in computation of basic and diluted net loss per share... 17,225 17,342
8
Because the Company reported a net loss for the three months ended December
31, 2001 and 2000, the calculation of diluted earnings per share does not
include common stock equivalents as it would result in a reduction of net
loss per share. If the Company had reported net income for the three months
ended December 31, 2000 and 1999 there would have been 23,984 and 61,252
additional shares, respectively, in the calculation of diluted earnings per
share.
The following options to purchase shares of common stock were not included
in the computation of diluted net loss per share because the options'
exercise price was greater than the average market price of the Company's
common stock for the periods stated and, therefore, are not common stock
equivalents for purposes of this calculation (in thousands, except exercise
price data):
THREE MONTHS ENDED
DECEMBER 31,
2000 1999
-------------------------
Options excluded from computation of diluted
net income (loss) per share......................... 156,000 477,500
Exercise price ranges:
High..................................................$ 39.00 $ 39.00
Low...................................................$ 9.34 $ 6.01
13. SEGMENT INFORMATION
The Company's operations consist of three business segments: Carbon Fibers,
Composite Intermediate Materials and Specialty Products.
The Carbon Fibers Business Segment manufactures and markets carbon fibers
and develops applications for carbon fibers. At plants in Abilene, Texas,
Hungary and St. Charles, Missouri, the Company's rated annual carbon fibers
production capacity of 12.5 million pounds is the largest in the world. The
Carbon Fibers Business Segment also sells oxidized fiber and performs
certain downstream processing, such as chopping and milling. The Company's
primary focus is creating integrated solutions for large potential end
users, by working directly with users in the primary market sectors
identified by the Company.
The Composite Intermediate Materials Business Segment, which is
substantially comprised of the various operations acquired by the Company
during fiscal 2000, develops, manufactures and markets reinforcements,
prepregs (glass or carbon fiber pre-impregnated with resin), specialty
resins, consumable supplies and manufacturing equipment for the composite
manufacturing industry. In addition, the Composite Intermediates Materials
Business Segment supports the Carbon Fibers Business Segment by providing
composite design and engineering for development of applications for carbon
fiber reinforced composites. The Company intends to consider strategic
partnerships and joint ventures for the Composite Intermediates Materials
Business Segment.
The Specialty Products Business Segment, which is primarily comprised of the
Company's Hungarian-based subsidiary, Zoltek Rt., manufactures and markets
acrylic fibers, nylon products and industrial materials. Acrylic fibers
currently represent the Specialty Products Business Segment's primary
product line and are used in producing a variety of end products, including
clothing and carpet. The segment's acrylic fibers are sold in regional
markets, principally to textile mills in Europe and, to a limited extent,
Taiwan and the United States. The Specialty Products Business Segment's
other principal fiber product line consists of nylon-6 fibers and granules.
Granular nylon-6 is used as a thermoplastic molding material and combined in
certain applications with glass or carbon fibers. The Specialty Products
Business Segment has targeted Western Europe export markets, the largest of
which is Italy, and also sells significant amounts in Central and Eastern
Europe.
The Carbon Fibers segment is located geographically in the United States and
Hungary. The Composite Intermediates segment manufactures and markets carbon
fiber and glass composite products and filament winding equipment used in
the composites industry and is located in the United States. The Specialty
Products segment manufactures and markets acrylic and nylon products and
fibers primarily to the textile industry and is located in Hungary. The
Company markets all of its products globally. The Corporate and unallocated
assets incur no cost of sales expenses so it has no gross profit or loss to
report.
9
Management evaluates the performance of its operating segments on the basis
of operating income (loss) contribution to the Company. The Company's
operating segments have responsibility for managing sales, costs of sales
and the selling, general and administrative efforts of each of the segments.
Therefore, management in the evaluation of the individual segment's primary
performance considers these costs. The following table presents financial
information on the Company's operating segments as of and for the
three-month periods ended December 31, 2000 and 1999 (in thousands):
THREE MONTHS ENDED DECEMBER 31, 2000
------------------------------------
(Unaudited)
CORPORATE
HEADQUARTERS
CARBON COMPOSITE SPECIALTY AND
FIBERS INTERMEDIATES PRODUCTS ELIMINATIONS TOTAL
----------- ------------- ----------- ------------ -----------
Net sales - external $ 7,357 $ 4,421 $ 10,754 $ - $ 22,532
Net sales - intersegment 370 - - (370) -
----------- ----------- ----------- ------------ -----------
Total net sales 7,727 4,421 10,754 (370) 22,532
Operating loss (1,076) (1,521) (413) (651) (3,661)
Available unused capacity expenses 1,418 - - - 1,418
Depreciation and amortization expense 1,119 301 205 21 1,646
Capital expenditures 1,135 553 41 - 1,729
THREE MONTHS ENDED DECEMBER 31, 1999
------------------------------------
(Unaudited)
CORPORATE
HEADQUARTERS
CARBON COMPOSITE SPECIALTY AND
FIBERS INTERMEDIATES PRODUCTS ELIMINATIONS TOTAL
----------- ------------- ----------- ------------ -----------
Net sales - external $ 5,497 $ 1,507 $ 10,461 $ - $ 17,465
Net sales - intersegment 95 - - (95) -
----------- ----------- ----------- ------------ -----------
Total net sales 5,592 1,507 10,461 (95) 17,465
Operating income (loss) (412) (628) 662 (697) (1,075)
Available unused capacity expenses 989 - - - 989
Depreciation and amortization expense 1,113 160 239 28 1,540
Capital expenditures 968 29 1,250 - 2,247
TOTAL ASSETS, NET OF DISCONTINUED OPERATIONS
---------------------------------------------
(Unaudited)
CORPORATE
HEADQUARTERS
CARBON COMPOSITE SPECIALTY AND
FIBERS INTERMEDIATES PRODUCTS ELIMINATIONS TOTAL
----------- ------------- ----------- ------------ -----------
December 31, 2000 $ 93,147 $ 18,579 $ 22,453 $ 8,472 $ 142,651
September 30, 2000 89,615 17,513 23,873 3,500 134,501
GEOGRAPHIC INFORMATION (UNAUDITED) / (AMOUNTS IN THOUSANDS)
- -----------------------------------------------------------
REVENUES (1)
THREE MONTHS ENDED LONG-LIVED ASSETS (2)
DECEMBER 31, DECEMBER 31, SEPTEMBER 30,
2000 1999 2000 2000
-------------------- -----------------------------
United States.....................$ 9,821 $ 6,141 $ 62,617 $ 64,767
Hungary........................... 12,711 11,324 23,009 19,351
-------- -------- -------- --------
Total.............................$ 22,532 $ 17,465 $ 85,626 $ 84,118
======== ======== ======== ========
<FN>
- -------------------------------------------------------------------------------
(1) Revenues are attributed to the entity recognizing the sale in the interim
statements, as it is not practical to accumulate every customer's country
of domicile on an interim basis.
(2) Property, plant and equipment and goodwill and intangibles, net
of accumulated depreciation and amortization based on country location.
10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
GENERAL
- -------
The Company is an applied technology and advanced materials company. The
manufacturing and marketing of carbon fibers is the Company's primary
objective. The most significant current application for carbon fibers
produced by the Company is for aircraft brake manufacturers who use the
Company's fibers as base materials for the carbon/carbon brake systems used
in most newly designed aircraft. While this market is stable, profitable and
growing (the Company estimates its growth at 15 to 25% per year), the
Company believes a much more significant market is the commercial use of
carbon fibers as reinforcement for composites. Zoltek believes it is a
leader in developing commercial markets for carbon fibers and carbon fiber
reinforced composites for a diverse range of applications based upon carbon
fibers' distinctive combination of physical and chemical properties,
principally corrosion and fatigue resistance, high-strength, low-weight and
stiffness.
In developing new commercial applications of reinforcement carbon fibers,
the Company's business strategy requires it to reduce production costs,
maintain price leadership, leverage production capacity and support new
commercial markets and application development. To accelerate the
commercialization of carbon fibers and carbon fiber composites across a
broad range of mass-market applications, the Company has pursued various
initiatives for the Company to act as a catalyst in the development of new
low-cost, high volume applications. In fiscal 2000, the Company completed a
series of downstream acquisitions as part of its strategy to accelerate the
introduction and development of carbon fibers and carbon fiber composites.
These acquisitions included: Cape Composites, Entec and Hardcore Composites.
In November 1999, the Company also acquired SP Systems, which designs
composite structures and manufactures composite intermediate materials, used
in manufacturing marine and wind energy composite products. SP Systems did
not meet its sales and profit forecasts and, as a result, was unable to
support the Company's carbon fiber commercialization objectives. Therefore,
in November 2000, the Company sold SP Systems to a group consisting of the
former Structural Polymer (Holdings) Limited shareholders and a merchant
banking firm. The cash proceeds from the sale of SP Systems were used to
repay bank debt. This transaction improved the Company's financial condition
and allowed the Company's management resources to be refocused on its carbon
fibers strategy. In connection with the sale of SP Systems, the Company
entered into agreements that provide for various continuing strategic
relationships with SP Systems. These agreements include a long-term carbon
fiber supply agreement, an agreement to utilize SP Systems' formulations for
prepreg and formulated products and a license agreement for the Company to
offer SP Systems' proprietary SPRINT composite process technology.
Accordingly, the Company's consolidated financial statements for the periods
ended December 31, 2000 and 1999 account for SP Systems as a discontinued
operation. Unless otherwise indicated, the following discussion relates to
the Company's continuing operations. Subsequent to the sale, SP System's
operations ceased to be part of the Company's operations and reported
results.
During all of fiscal 2000 and the first quarter of fiscal 2001, the Company
was not operating its carbon fiber production lines at full capacity. During
the first quarter of fiscal 2001, available unused capacity charges were
approximately $1.4 million. The Company currently anticipates that it will
not operate its lines at full capacity during fiscal 2001. While the Company
believes it is necessary to maintain available capacity to encourage
development of significant new applications for carbon fibers, costs related
to the unutilized capacity will adversely impact results of operations
during fiscal 2001. The Company does, however, anticipate increases in sales
from the carbon fiber lines at both the U.S. and Hungarian locations in
fiscal 2001.
RESULTS OF OPERATIONS
- ---------------------
THREE MONTHS ENDED DECEMBER 31, 2000 COMPARED TO THREE MONTHS ENDED
- -------------------------------------------------------------------
DECEMBER 31, 1999
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The Company's sales increased 29.0% to $22.5 million in the first quarter of
fiscal 2001 from $17.5 million in the first quarter of fiscal 2000. Carbon
fiber sales increased 33.8% ($1.9 million) to $7.4 million in the first
quarter of fiscal 2001 from $5.5 million in the first quarter of fiscal
2000. Sales of the composite intermediates business segment increased by
193.4% ($2.9 million) to $4.4 million in the first quarter of fiscal 2001
from $1.5 million in the first quarter of fiscal 2000. The increase resulted
from higher volume in the prepreg markets and a complete quarter of results
in fiscal 2001 from the Entec acquisition that occurred in mid-November 1999
and the Hardcore Composites acquisition in May 2000. Sales of the Specialty
Products business segment (acrylic and other products) produced at Zoltek
Rt. increased by 2.8% to $10.8 million in the first quarter of fiscal 2001
compared to $10.5 million in the first quarter of fiscal 2000.
11
Gross profit decreased 34.0% to $2.5 million in the first quarter of fiscal
2001 from $3.7 million in the same period of fiscal 2000. Gross profit
on carbon fibers increased by $0.1 million in the first quarter of fiscal
2001 compared to the first quarter in fiscal 2000. Gross margin on carbon
fibers decreased to 21.3% of sales for the first quarter of fiscal 2001
compared to 26.5% of sales for the first quarter of fiscal 2000, due
primarily to decreases in the selling prices and product mix changes.
Gross profit on the on composite intermediates was negative ($0.2 million)
in the first quarter of fiscal 2001 and break even in the same period of
fiscal 2000.
The composite intermediates businesses are involved with several development
projects that generate little gross margin at current volume levels. Gross
profit on specialty products decreased by $1.2 million in the first quarter
of fiscal 2001 compared to the gross margin for the corresponding quarter in
fiscal 2000. Gross margin on specialty products decreased to 10.0% of sales
for the first quarter of fiscal 2001 compared to 22.0% of sales for the
first quarter of fiscal 2000, due primarily to increases in raw material
costs that could not be passed on to customers.
The Company continued to incur costs related to the underutilized productive
capacity for carbon fibers at the Abilene, Texas facilities. These costs
include depreciation and other overhead associated with the unused capacity.
These costs, which were separately identified on the income statement, were
approximately $1.4 million during the first quarter of fiscal 2001 and $1.0
million in the first quarter of fiscal 2000. The Company believes it is
necessary to maintain available capacity to encourage development of
significant new large-scale applications and anticipates costs associated
with the available capacity will continue during fiscal 2001.
Selling, general and administrative expenses increased approximately 22.6%,
or $0.9 million, from $3.8 million in the first quarter of fiscal 2000 to
$4.7 million in the first quarter of fiscal 2001. The mid-November
acquisition of Entec and the May 2000 acquisition of Hardcore Composites
accounted for $1.3 million of selling, general and administrative expenses
in the first quarter of fiscal 2001 compared to $0.6 million in the first
quarter of fiscal 2000. The increase in expenses for the carbon fiber
business unit resulted from higher payroll, product development and
marketing costs. The decrease in expenses for the specialty products
business segments resulted from lower payroll and administrative costs.
Interest expense was approximately $0.8 million for the first quarter of
fiscal 2001 compared to $0.3 million in the same period of fiscal year 2000.
The increase in interest expense resulted from the debt incurred as a result
of the acquisitions and capital expenditures. Interest income was $0.3
million for the first quarter of fiscal 2001 compared to $0.2 million in the
first quarter of fiscal 2000. The increase in interest income was primarily
due to the interest-bearing note receivable of $5.0 million from the sale of
SP Systems in November 2000. During the first quarter of fiscal 2001 capital
expenditures totaled $1.7 million.
During the first quarter of fiscal 2001, the Company reported an income tax
benefit of $1.1 million compared to income tax benefit of $0.5 million in
the first quarter of fiscal 2000 due to greater pre-tax losses. The Company
recognizes income taxes in the United States and Hungary based on the income
before income taxes. Included in the provision for income taxes are gross
receipts taxes charged by the Hungarian local taxing authorities, which were
$0.1 million in the first quarters of fiscal year 2001 and 2000, as well as
the statutory income taxes. The statutory income tax rate for operations in
Hungary is 9%.
The foregoing resulted in a net loss from continuing operations of $2.5
million for the first quarter of fiscal 2001 compared to a net loss of $0.7
million for the first quarter of fiscal 2000. Similarly, the Company
reported net loss from continuing operations per share of $0.15 and $0.04 on
a basic and diluted basis for the first quarter of fiscal 2001 and fiscal
2000, respectively. The weighted average common shares outstanding decreased
to 17.2 million for the first quarter of fiscal 2001 compared from 17.3
million for the first quarter of fiscal year 2000 due to the issuance and
retirement of approximately 2.5 million common shares as partial
consideration for the purchase and sale of SP Systems.
The net loss from discontinued operations includes the results of operations
of SP Systems and interest costs related to borrowings used to finance the
acquisition. The net loss from the disposal of discontinued operations in
the first quarter of fiscal 2001 was $1.8 million and consisted of costs
associated with the early repayment of debt and other costs incurred to
dispose of SP Systems. During the first quarter of fiscal 2000, the net
operating loss from discontinued operations was $0.5 million. The foregoing
resulted in a net loss from discontinued operations of $1.8 million in the
first quarter of fiscal 2001, or $0.09 per share on a basic and diluted
basis, and $0.5 million in the first quarter of fiscal 2000, or $0.03 per
share on a basic and diluted basis.
The net loss for the first quarter of fiscal 2001 was $4.3 million, or $0.24
per share on a basic and diluted basis, compared to a net loss of $1.2
million, or $0.07 per share in the first quarter of fiscal 2000.
12
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
The Company reported working capital of $22.4 million at December 31, 2000
compared to working capital of $46.4 million at September 30, 2000. The
decrease in working capital from December 31, 2000 to September 30, 2000 was
primarily due to the sale of SP Systems and receipt of approximately $19.1
million in treasury stock and the repayment of approximately $35.4 million
of bank debt. Inventories increased from $31.9 million at September 30, 2000
to $34.4 million at December 31, 2000. Essentially all of the inventory
increases were raw materials, due to timing of deliveries. The Company's
objective is to significantly decrease carbon fiber inventories during fiscal
2001 as a result of an aggressive sales effort in existing markets.
Marketable securities at December 31, 2000 and September 30, 2000 amounted
to $1.3 million. The marketable securities primarily include preferred stock.
Other receivables of $0.7 million consisted primarily of VAT and import
refunds due Zoltek Rt. from the Hungarian taxing authority and accrued
interest on notes receivable at December 31, 2000 compared to $0.3 million
at September 30, 2000.
Income taxes receivable at December 31, 2000 and September 30, 2000 consist
of a tax refund claim for loss carrybacks related to alternative minimum tax.
Other assets include $5 million loan receivable, due November 6, 2002 at a
rate of 9.5% interest from SP Systems as a result of the divestiture.
Current maturities of long-term debt at December 31, 2000 include a $1.0
million note payable related to the Hardcore Composites acquisition and $9.0
million under the revolving credit agreement with Firstar Bank which has
been reclassified from long-term. The Company anticipates obtaining
long-term refinancing for these amounts in the third quarter of fiscal 2001.
Other long-term liabilities were related to various supply agreements
between Zoltek Rt. and its vendors and deferred income associated with
future tax abatements from Abilene, Texas.
In the first quarter of fiscal 2000 the Company acquired Cape Composites and
Entec for approximately $3.4 million cash and the assumption of
approximately $2.7 million in debt. In April 2000, the Company acquired a
45%-membership interest in Hardcore Composites Operations LLC ("Hardcore")
for $1.4 million cash and a note payable of $1.0 million. At the time of the
purchase of its membership interest in Hardcore Composites, the Company
guaranteed Hardcore Composite's obligation to purchase the land and
buildings that Hardcore Composites currently occupies. Hardcore is required
to purchase the facilities on or before April 28, 2001 for $3.7 million,
which approximates their market value. The Company expects that such
purchase will be financed through capital resources which the Company
expects to acquire.
In November 1999, the Company acquired all of the outstanding stock of SP
Systems for approximately $30.0 million in cash and 2.5 million shares of
the Company's common stock. The Company also borrowed $5.0 million to
refinance certain existing bank debt of SP Systems and fund working capital
requirements. The Company financed the SP Systems acquisition through a
credit facility with Firstar Bank in the original aggregate amount of $71.0
million.
The Company amended and restated the credit agreement from Firstar Bank on
May 31, 2000 to reduce the amount of available borrowings and modify certain
covenants. The facility, as amended, contains financial covenants, including
financial covenants related to borrowings, future acquisitions, working
capital, net worth, cash flow and fixed charge coverage.
On November 6, 2000, the Company sold SP Systems to a group consisting of
the former shareholders from whom the Company acquired SP Systems and a
merchant-banking firm. Consideration for the November 6, 2000 sale consisted
of $30.0 million in cash, a note receivable in the principal amount of $5.0
million and the return of approximately 2.5 million shares of the Company's
common stock from the former SP Systems shareholders. In addition, the
Company was repaid approximately $7.3 million of intercompany loans and
accrued interest. Cash proceeds received from the sale and repayment of the
intercompany loans were used to retire $35.4 million of bank debt and accrued
interest of $0.8 million.
The Company's bank credit facility has not been amended to reflect the
November 2000 disposition of SP Systems and other recent business
developments. As a result, as of December 31, 2000, the Company was not
in compliance with the minimum EBITDA and EBITDA to Funded Debt and other
financial covenants, which assumed continuing ownership of SP Systems.
Accordingly, borrowings under this facility have been classified as current
as of December 31, 2000. The Company expects to receive a waiver of covenant
noncompliance at December 31, 2000 as future financing is being renegotiated.
The Company
13
has initiated negotiations with Firstar Bank and other financial institutions
to modify or refinance its credit facilities. The Company expects to enter into
a revised long-term credit facility during the third quarter of fiscal 2001.
The Company believes its financial position has been significantly improved
as a result of the sale of SP Systems subsidiary and remains adequate, with
the anticipated revised credit facilities, to support the execution of its
strategic expansion plans. Failure to conclude revised credit facilities on
a timely basis could have a material adverse effect on the Company's results
of operations and financial condition.
Historically, cash used in investing activities has been expended for
equipment additions and to support research and development of carbon fibers
applications and the expansion of the Company's carbon fibers production
capacity. In the first quarter of fiscal 2001, the Company made capital
expenditures of $1.7 million for various projects compared to $2.2 million
during the first quarter of fiscal 2000. These expenditures were financed
principally with cash from the sale of temporary investments and from cash
from borrowings.
Since the beginning of fiscal 1994, the Company has obtained long-term
financing utilizing its equity in its real estate properties. These loans
are non-recourse loans for the Company's headquarters, St. Charles
manufacturing facility and Salt Lake City facility. Based on the interest
rates and the nature of the loans, the Company plans to repay these loans in
accordance with their stated long-term amortization schedules.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to changes in interest rates primarily as a result of
borrowing activities under its credit facility. The nature and amount of the
Company's debt may vary as a result of future business requirements, market
conditions and other factors. The extent of the Company's interest rate risk
is not quantifiable or predictable because of the variability of future
interest rates and business financing requirements, but the Company does not
believe such risk is material. At December 31, 2000, the Company did not
have any interest rate swap agreements outstanding.
* * *
The forward-looking statements contained in this report are inherently
subject to risks and uncertainties. The Company's actual results could
differ materially from those in the forward-looking statements. Potential
risks and uncertainties consist of a number of factors, including the
Company's ability to amend or refinance its existing credit facility, manage
growth and increase its carbon fibers sales on a timely basis.
14
ZOLTEK COMPANIES, INC.
PART II. OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
(a) Exhibits:
None
(b) Reports on Form 8-K: On November 20, 2000, the
Registrant filed a current report on Form 8-K
reporting the sale of SP Systems.
SIGNATURE
---------
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.
Zoltek Companies, Inc.
(Registrant)
Date: February 14, 2001 By: /s/ DANIEL D. GREENWELL
----------------- ---------------------------
Daniel D. Greenwell
Chief Financial Officer
15