FORM 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from to .
------------------- --------------------------
Commission file number: 0-20704
CoorsTek, Inc.
(Exact name of registrant as specified in its charter)
DELAWARE 84-0178380
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
16000 TABLE MOUNTAIN PARKWAY, GOLDEN, COLORADO 80403
(Address of principal executive offices) (Zip Code)
(303) 277-4000
(Registrant's telephone number, including area code)
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 [ ]
There were 7,178,027 shares of common stock outstanding as of May 1, 2000.
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Part I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
COORSTEK, INC.
CONSOLIDATED STATEMENT OF INCOME AND COMPREHENSIVE INCOME
(In thousands, except per share data)
THREE MONTHS ENDED
MARCH 31,
2000 1999
-------- --------
NET SALES $120,819 $ 76,579
Cost of goods sold 93,400 58,305
-------- --------
GROSS PROFIT 27,419 18,274
Selling, general and administrative 14,449 9,008
-------- --------
OPERATING INCOME 12,970 9,266
Interest expense, net 4,713 701
-------- --------
INCOME BEFORE INCOME TAXES 8,257 8,565
Income tax expense 3,055 3,355
-------- --------
NET INCOME $ 5,202 $ 5,210
======== ========
OTHER COMPREHENSIVE EXPENSE:
Foreign currency translation
adjustments 239 235
-------- --------
COMPREHENSIVE INCOME $ 4,963 $ 4,975
======== ========
NET INCOME PER BASIC SHARE OF COMMON STOCK $ .73 $ .73
======== ========
NET INCOME PER DILUTED SHARE OF COMMON STOCK $ .72 $ .72
======== ========
WEIGHTED AVERAGE SHARES OUTSTANDING - BASIC 7,143 7,143
======== ========
WEIGHTED AVERAGE SHARES OUTSTANDING - DILUTED 7,220 7,220
======== ========
See Notes to Consolidated Financial Statements
2
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COORSTEK, INC.
CONSOLIDATED BALANCE SHEET
(In thousands, except share data)
MARCH 31, DECEMBER 31,
2000 1999
-------- ------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 4,645 $ --
Accounts receivable, less allowance
for doubtful accounts of $2,817 in
2000 and $2,765 in 1999 66,705 50,318
Inventories:
Raw materials 15,160 15,052
Work in process 29,670 27,107
Finished goods 33,283 30,856
--------- ---------
Total inventories 78,113 73,015
Other assets 18,526 15,601
--------- ---------
TOTAL CURRENT ASSETS 167,989 138,934
Properties, less accumulated depreciation
of $192,666 in 2000 and $187,598 in 1999 144,892 142,898
Goodwill, less accumulated amortization
of $6,322 in 2000 and $5,718 in 1999 42,687 39,601
Other noncurrent assets 8,489 6,057
--------- ---------
TOTAL ASSETS $ 364,057 $ 327,490
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of debt $ 9,025 $ 8,400
Accounts payable 18,918 15,846
Other current liabilities 35,424 31,014
--------- ---------
TOTAL CURRENT LIABILITIES 63,367 55,260
Long-term debt 217,267 191,600
Accrued postretirement benefits 15,548 15,489
Other long-term liabilities 3,464 5,753
--------- ---------
TOTAL LIABILITIES 299,646 268,102
--------- ---------
SHAREHOLDERS' EQUITY:
Common stock, $.01 par value, 100,000,000
shares authorized and 7,146,284 and
7,141,984 shares issued and outstanding
at March 31, 2000 and at December 31, 1999 72 72
Paid-in capital 57,862 57,802
Paid-in capital - warrants 1,600 1,600
Retained earnings 5,202 --
Accumulated other comprehensive loss (325) (86)
--------- ---------
TOTAL SHAREHOLDERS' EQUITY 64,411 59,388
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 364,057 $ 327,490
========= =========
See Notes to Consolidated Financial Statements
3
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COORSTEK, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands)
Three months ended
March 31,
2000 1999
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 5,202 $ 5,210
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 6,004 5,388
Change in current assets and current
liabilities and other:
Accounts receivable (15,928) (5,767)
Inventories (5,120) 1,259
Accounts payable 2,884 6,524
Other (6,958) (1,289)
-------- --------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES (13,916) 11,325
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to properties (6,907) (1,548)
Acquisitions, net of cash acquired (830) (51,342)
Other (54) (247)
-------- --------
NET CASH USED IN INVESTING ACTIVITIES (7,791) (53,137)
-------- --------
NET CASH PROVIDED BY FINANCING ACTIVITIES:
Proceeds from issuance of debt 26,292 --
Issuance of stock 60 --
Net capital contributions from Parent -- 27,589
-------- --------
NET CASH PROVIDED BY FINANCING ACTIVITIES 26,352 27,589
-------- --------
CASH AND CASH EQUIVALENTS:
Net increase (decrease) in cash and cash
equivalents 4,645 (14,223)
Balance at beginning of period -- 17,203
-------- --------
Balance at end of period $ 4,645 $ 2,980
======== ========
See Notes to Consolidated Financial Statements
4
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COORSTEK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. EARNINGS PER SHARE
Prior to December 31, 1999, CoorsTek was not a public company and the
capital structure was not indicative of the current structure. As such, earnings
per share for the first quarter of 1999 has been calculated using the weighted
average shares outstanding for the first quarter of 2000.
Note 2. ACQUISITIONS
On March 31, 2000, CoorsTek acquired certain assets and liabilities of
Liberty Machine, Inc. ("Liberty") for approximately $4.0 million, payable on
April 3, 2000. In conjunction with the transaction, CoorsTek entered into
seven-year operating leases for the manufacturing equipment of Liberty. The
acquisition was accounted for under the purchase method of accounting and
goodwill of approximately $2.9 million is being amortized over 20 years. Liberty
Machine, Inc., located in Fremont, California, manufactures metal parts and
assemblies for the semiconductor, aerospace, analytical, and medical industries.
Note 3. INDEBTEDNESS
In December 1999, CoorsTek established a $270 million Credit Facility,
which consists of a $95 million revolver and an $85 million Senior Term A
facility, both maturing in five years, and a $90 million Senior Term B facility
maturing in seven years (the "Credit Facility"). The Credit Facility is
collaterallized by the accounts receivable and inventory of the Company.
Currently, the interest rate on the revolver and Senior Term A is LIBOR plus 2%
and the interest rate on the Senior Term B is LIBOR plus 2.75%. The interest
rate spreads on the Credit Facility vary based upon the financial performance of
the Company.
The amount due under the Credit Facility was $226.3 million as of
March 31, 1999. The required principal payments of the Term A and Term B of the
Credit Facility are as follows:
YEAR TERM A TERM B TOTAL
---- ------ ------ -----
2000 $7,500 $900 $8,400
2001 10,000 900 10,900
2002 15,000 900 15,900
2003 25,000 900 25,900
2004 27,500 900 28,400
2005 -- 900 900
2006 -- 84,600 84,600
------- ------- --------
Total $85,000 $90,000 $175,000
======= ======= ========
Note 4. SEGMENT INFORMATION
CoorsTek is comprised of two reportable segments: Semiconductor and
Advanced Materials. In the Semiconductor segment, the Company manufactures,
assembles and integrates ceramic, plastic and metal components for use in
semiconductor manufacturing equipment. In the Advanced Materials segment, the
Company manufactures and assembles engineered ceramic, plastic and metal
products that provide customers with performance solutions that allow components
to function in adverse environments, such as heat or pressure. The Advanced
Materials' products are used in a wide range of industries such as
telecommunications, aerospace, automotive, computer, and medical.
The Company evaluates the performance of its segments and allocates
resources to them based primarily on gross profit. Generally, there are no
intersegment transactions.
5
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The table below summarizes information about reportable segments, in
thousands, for the quarters ended March 31:
Net Gross
Sales Profit
-------- -------
2000
Semiconductor $53,576 $13,680
Advanced Materials 67,243 13,739
-------- -------
Consolidated total $120,819 $27,419
======== =======
1999
Semiconductor $13,188 $ 3,840
Advanced Materials 63,391 14,434
------- -------
Consolidated total $76,579 $18,274
======= =======
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL OVERVIEW
CoorsTek, Inc. ("CoorsTek") develops, manufactures and sells engineered
solutions for a multitude of industrial and commercial applications that
incorporate advanced materials such as technical ceramics, engineered plastics
and precision machined metals into components, assemblies and systems. CoorsTek
is comprised of two reportable segments: Semiconductor and Advanced Materials.
In the Semiconductor segment, the Company manufactures, assembles and
integrates ceramic, plastic and metal components for use in semiconductor
manufacturing equipment. In the Advanced Materials segment, the Company utilizes
engineered ceramics, plastics and metals to provide customers with performance
solutions that allow components to function in adverse environments, such as
heat or pressure. The Advanced Materials' products are used in a wide range of
industries such as telecommunications, aerospace, automotive, computer and
medical.
On March 31, 2000, CoorsTek acquired certain assets and liabilities of
Liberty Machine, Inc. ("Liberty") for approximately $4.0 million, payable on
April 3, 2000. In conjunction with the acquisition, CoorsTek executed seven-year
operating leases for substantially all of the manufacturing equipment of
Liberty. Liberty, located in Fremont, California, manufactures parts and
assemblies with complex geometry and dimensional tolerances for the
semiconductor, aerospace, analytical and medical industries.
During 1999, CoorsTek was a wholly owned subsidiary of ACX Technologies,
Inc. ("ACX"), now known as Graphic Packaging International Corporation. At the
close of business on December 31, 1999, ACX distributed 100% of the shares of
CoorsTek to ACX shareholders ("spin-off"). For 1999, ACX provided general
management, legal, treasury, tax, internal audit, financial reporting and
environmental services to CoorsTek. These ACX costs were allocated to CoorsTek
in the form of an annual management fee. ACX also provided centralized cash
management and allocated interest income or interest expense to CoorsTek based
on cash balances.
RESULTS OF OPERATIONS
Net sales for the three months ended March 31, 2000 were $120.8 million, an
increase of $44.2 million or 57.8% from 1999. This increase in sales was
primarily attributable to the Semiconductor segment. Specifically, the
acquisition of Edwards Enterprises and Precision Technologies in March of 1999,
the start of the Company's clean room assembly business in January 2000, and
strong demand in the semiconductor equipment industry contributed to this
6
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growth. In addition, the Advanced Materials business grew approximately 6.0% in
the first quarter of 2000 following stronger demand and pricing in certain
product lines compared with the first quarter of 1999.
Gross profit increased $9.1 million or 50.0% to $27.4 million for the first
quarter of 2000 from $18.3 million for the first quarter of 1999. The
acquisition of Edwards and Precision and strong demand in the semiconductor
equipment industry fueled the growth. This increase in gross profit was
partially offset by a slight decrease in gross profit in the Advanced Materials
segment as a result of an unfavorable product mix, costs associated with new
product development, and production inefficiencies experienced at certain
facilities.
Gross margin decreased to 22.7% for the first quarter of 2000 from
23.9% for the first quarter of 1999, in part because of the decrease in the
gross profit of the Advanced Materials segment described above. The operating
margin for the first quarter of 2000 decreased to 10.7% from 12.1% for the 1999
first quarter for the same reasons. The dilution of gross and operating margin
is also attributable to the clean room assembly business started in January
2000, which has a lower margin than the historical Semiconductor segment
business.
Operating income for the first quarter of 2000 increased $3.7 million or
40.0% to $13.0 million compared with $9.3 million for the 1999 first quarter.
The increase in operating income is primarily due to the increase in sales in
the Semiconductor segment. Selling, general and administrative costs as a
percent of sales remained relatively consistent at 12.0% for the 2000 first
quarter compared with 11.8% for the 1999 first quarter. Selling, general and
administrative expenses for 1999 included $1.3 million in management fees paid
to ACX.
Interest expense for the first quarter of 2000 was $4.7 million
compared with $0.7 million for the first quarter of 1999. This increase resulted
from a $200 million payment to ACX for a one-time dividend and intercompany
obligations in conjunction with the spin-off and was funded under the Company's
$270 million Credit Facility. (See the "Liquidity and Capital Resources" section
for further discussion regarding the Company's Credit Facility.) In addition,
interest expense has increased due to borrowings to fund working capital and
capital expenditures, primarily in the Semiconductor segment, to support the
sales increase.
The consolidated effective tax rate was 37.0% for the first quarter 2000
compared with 39.2% for the first quarter of 1999. Foreign tax credit refunds
realized during the first quarter of 2000 resulted in the effective tax rate
change. CoorsTek expects the tax rate to approximate 37.5% for the remainder of
2000.
LIQUIDITY AND CAPITAL RESOURCES
CoorsTek's liquidity is comprised of both internally and externally
generated sources and is used to fund short-term working capital requirements,
capital expenditures, and acquisitions. At December 31, 1999, CoorsTek's working
capital was $104.6 million with a current ratio of 2.65 to 1.
In conjunction with the spin-off, CoorsTek negotiated a $270 million Credit
Facility, which consists of a $95 million revolver and an $85 million Senior
Term A facility, both maturing in five years, and a $90 million Senior Term B
facility, maturing in seven years (the "Credit Facility"). The Credit Facility
is secured by the accounts receivable and inventory of the Company. Currently,
the interest rate on the Revolver and Senior Term A is LIBOR plus 2% and the
interest rate on the Senior Term B is LIBOR plus 2.75%. The interest rate
spreads on the Credit Facility vary based upon the financial performance of the
Company.
At March 31, 2000, there was $226.3 million borrowed under the Credit
Facility. The majority of the borrowings were used to pay ACX, on January 4,
2000, for intercompany obligations and a one-time dividend. The remainder of the
borrowings was used to fund working capital and capital expenditures primarily
in the Semiconductor segment. The unused portion of the revolver is expected to
be used to fund working capital requirements, internal growth, acquisitions and
capital expenditures. CoorsTek currently anticipates that no cash dividends will
be paid on its common stock in the foreseeable future in order to conserve cash
for the repayment of debt, future acquisitions and capital expenditures. In
addition, such dividends are prohibited under the Credit Facility.
7
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Capital expenditures for the three months ended March 31, 2000 and 1999
were $6.9 million and $1.5 million, respectively. These capital expenditures
were primarily used for the addition of production capacity, computerized
manufacturing equipment, and enhancing existing computer systems. CoorsTek
expects capital expenditures of $25.0 million in 2000, of which $12.0 to $15.0
million is expected to be for capacity and/or capability additions. Operating
leases may also be used to finance additional capacity.
The impact of inflation on CoorsTek's financial position and results of
operations has been minimal and is not expected to adversely affect future
results.
FACTORS THAT MAY AFFECT FUTURE RESULTS
Certain statements in this document constitute "forward-looking
statements" within the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934. The projections and
statements contained in these forward-looking statements involve known or
unknown risks, uncertainties and other factors that may cause the actual
results, performance or achievements of CoorsTek to be materially different from
any future results, performance or achievements expressed or implied by the
forward-looking statements. CoorsTek's future results of operations and
performance are dependent upon numerous factors, including the continued
strength of the U.S. and key foreign economies, the relative position of the
U.S. dollar related to key European and Asian currencies, the actions of
competitors and customers, CoorsTek's ability to execute its marketing plans,
the ability of CoorsTek to maintain or increase sales to existing customers and
capture new business and CoorsTek's ability to successfully integrate and
operate businesses that may be acquired in the future. CoorsTek's ability to
achieve its business strategy is also dependent upon securing adequate
financing. CoorsTek's ability to increase revenues and operating income is
dependent upon continuing its track record for new product innovation, the
availability and pricing of substitute materials such as metals and plastics,
the performance of key industries such as semiconductor, automotive and
electronics and other factors. CoorsTek's ability to successfully execute its
assembly business initiative is dependent on its ability to continue to provide
quality and timely manufacturing, innovation and service to its customers.
Because CoorsTek has substantial borrowings with adjustable interest rates, its
net income is sensitive to fluctuation in short-term interest rates. In
addition, investors should note that CoorsTek's compliance with the revenue
ruling issued by the IRS in connection with the spin-off of CoorsTek by ACX and
its ability to attract and maintain employees at all levels of the organization
could materially impact the future results, performance or financial condition
of the Company.
These statements should be read in conjunction with the financial
statements and notes thereto included in the Company's Form 10-K for the year
ended December 31, 1999. The accompanying financial statements have not been
examined by independent accountants in accordance with generally accepted
auditing standards, but in the opinion of management of CoorsTek, such financial
statements include all adjustments necessary to summarize fairly the Company's
financial position and results of operations. Except for certain
reclassifications made to consistently report the information contained in the
financial statements, all adjustments made to the interim financial statements
presented are of a normal recurring nature. The results of operations for the
first quarter ended March 31, 2000, may not be indicative of results that may be
expected for the year ending December 31, 2000.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Changes in interest rates will impact the earnings of CoorsTek.
- ---------------------------------------------------------------
CoorsTek has approximately $226.3 million of floating interest rate
debt as of May 1, 2000. As interest rates fluctuate, CoorsTek may experience
interest increases, which may materially impact financial results. For example,
if interest rates were to increase or decrease 1%, the result would be an annual
increase or decrease of interest expense of $2.3 million dollars.
Changes in the relationship between the U.S. dollar and foreign currencies may
- --------------------------------------------------------------------------------
impact the earnings of CoorsTek.
- --------------------------------
For the quarters ended March 31, 2000 and 1999, approximately 3% of
CoorsTek's revenue was generated by its operations in Scotland and Korea.
CoorsTek sells products directly through its subsidiaries in Scotland and Korea
and through domestic channels that have end-user customers located outside the
United States. CoorsTek uses the U.S. dollar as its functional currency, except
8
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for the operations in Scotland and Korea. The assets and liabilities of these
two foreign operations are translated into U.S. dollars at an exchange rate in
effect at the period end date. Income and expense items are translated at the
year-to-date average rate. An increase in the exchange value of the United
States dollar reduces the value of revenue and profits generated by CoorsTek's
international operations in Scotland and Korea. Periodically, CoorsTek hedges
the dollar against foreign currencies used in certain markets in order to
mitigate the effects of adverse currency fluctuations when sales are made in the
foreign currency. The strength of the dollar relative to the currency of our
customers or competitors may have a material effect on CoorsTek's profit margins
or sales to international customers.
9
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Part II
(a) Exhibits:
EXHIBIT
NUMBER DOCUMENT DESCRIPTION
27 Financial Data Schedule
(b) Reports on Form 8-K
There were not reports filed on Form 8-K during the quarter ended
March 31, 2000.
10
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Signatures
Pursuant to the requirements of Section 13 or 15(d) 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.
CoorsTek, Inc.
Date: May 15, 2000 By: /s/ Joseph Coors, Jr.
----------------------------- ------------------------
Joseph Coors, Jr.
Chairman and Chief Executive
Officer
Date: May 15, 2000 By: /s/ Joseph G. Warren, Jr.
----------------------------- ----------------------------
Joseph G. Warren, Jr.
Chief Financial Officer and
Treasurer
11
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<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from the
consolidated balance sheets and consolidated statements of income and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
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<S> <C>
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<PERIOD-END> MAR-31-2000
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<PP&E> 144,892
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0
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<TOTAL-REVENUES> 120,819
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</TABLE>
