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 September 30, 2000
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 10,466,599 shares of common stock outstanding as of November 1, 2000.
<PAGE>
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
COORSTEK, INC.
CONSOLIDATED STATEMENT OF INCOME AND COMPREHENSIVE INCOME
(In thousands, except per share data)
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
2000 1999 2000 1999
--------- -------- --------- ---------
<S> <C> <C> <C> <C>
Net sales $ 136,547 $ 94,946 $ 384,737 $ 266,936
Cost of goods sold 102,420 70,504 293,378 200,455
--------- -------- --------- ---------
Gross profit 34,127 24,442 91,359 66,481
Selling, general and administrative 18,810 13,768 49,203 35,956
--------- -------- --------- ---------
Operating income 15,317 10,674 42,156 30,525
Interest expense, net 2,950 1,328 12,579 3,631
--------- -------- --------- ---------
Income before income taxes 12,367 9,346 29,577 26,894
Income tax expense 4,578 3,609 10,943 10,101
--------- -------- --------- ---------
Income before extraordinary item 7,789 5,737 18,634 16,793
Loss on debt extinguishment,
net of $520 tax benefit (886) - (886) -
--------- -------- --------- ---------
Net income 6,903 5,737 17,748 16,793
--------- -------- --------- ---------
Other comprehensive income (expense):
Foreign currency translation adjustments (77) 300 (1,092) (130)
--------- -------- --------- ---------
Comprehensive income $ 6,826 $ 6,037 $ 16,656 $ 16,663
========= ======== ========= =========
Net income per basic share of common stock:
Income before extraordinary item $ 0.80 $ 0.80 $ 2.33 $ 2.35
Loss on debt extinguishment (0.09) - (0.11) -
--------- -------- --------- ---------
Net income per basic share of common stock $ 0.71 $ 0.80 $ 2.22 $ 2.35
========= ======== ========= =========
Net income per diluted share of common stock
Income before extraordinary item $ 0.78 $ 0.80 $ 2.26 $ 2.35
Loss on debt extinguishment (0.09) - (0.11) -
--------- -------- --------- ---------
Net income per diluted share of common stock $ 0.69 $ 0.80 $ 2.15 $ 2.35
========= ======== ========= =========
Weighted average shares outstanding - basic 9,709 7,142 8,011 7,142
========= ======== ========= =========
Weighted average shares outstanding - diluted 10,037 7,142 8,238 7,142
========= ======== ========= =========
</TABLE>
See Notes to Consolidated Financial Statements
2
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COORSTEK, INC.
CONSOLIDATED BALANCE SHEET
(In thousands, except share data)
September 30, December 31,
2000 1999
------------- ------------
ASSETS
Current assets:
Cash and cash equivalents $ 3,177 $ -
Accounts receivable, less allowance for doubtful
accounts of $2,697 in 2000 and $2,765 in 1999 71,620 50,318
Inventories:
Raw materials 19,436 15,052
Work in process 35,613 27,107
Finished goods 33,811 30,856
--------- ---------
Total inventories 88,860 73,015
Other assets 18,610 15,601
--------- ---------
Total current assets 182,267 138,934
Properties, less accumulated depreciation of
$202,156 in 2000 and $187,598 in 1999 149,820 142,898
Goodwill, less accumulated amortization of
$7,666 in 2000 and $5,718 in 1999 41,515 39,601
Other noncurrent assets 5,432 6,057
--------- ---------
Total assets $ 379,034 $ 327,490
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current maturities of debt $ 900 $ 8,400
Accounts payable 21,461 15,846
Other current liabilities 39,948 31,014
--------- ---------
Total current liabilities 62,309 55,260
Long-term debt 97,680 191,600
Accrued postretirement benefits 15,594 15,489
Other long-term liabilities 4,637 5,753
--------- ---------
Total liabilities 180,220 268,102
--------- ---------
Shareholders' equity:
Common stock, $.01 par value, 100,000,000
shares authorized, 10,452,996 and
7,141,984 shares issued and outstanding
in 2000 and 1999, respectively 105 72
Paid-in capital 180,539 57,802
Paid-in capital - warrants 1,600 1,600
Retained earnings 17,748 -
Accumulated other comprehensive loss (1,178) (86)
--------- ---------
Total shareholders' equity 198,814 59,388
--------- ---------
Total liabilities and shareholders' equity $ 379,034 $ 327,490
========= =========
See Notes to Consolidated Financial Statements
3
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COORSTEK, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands)
Nine months ended
September 30,
2000 1999
--------- ---------
Cash flows from operating activities:
Net income $ 17,748 $ 16,793
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 18,076 17,587
Change in current assets and current
liabilities and other:
Accounts receivable (20,844) (6,171)
Inventories (15,842) (2,850)
Accounts payable 5,427 1,715
Other 4,604 7,599
--------- ---------
Net cash provided (used) by operating activities 9,169 34,673
--------- ---------
Cash flows from investing activities:
Additions to properties (23,207) (8,077)
Acquisitions, net of cash acquired (4,600) (52,841)
Other 465 1,033
--------- ---------
Net cash used in investing activities (27,342) (59,885)
--------- ---------
Net cash provided by financing activities:
Proceeds from issuance of debt 23,558 -
Payments on debt (124,978) -
Issuance of stock 122,770 -
Net capital contributions from Parent - 8,009
--------- ---------
Net cash provided by financing activities 21,350 8,009
--------- ---------
Cash and cash equivalents:
Net increase (decrease) in cash and cash equivalents 3,177 (17,203)
Balance at beginning of period - 17,203
--------- ---------
Balance at end of period $ 3,177 $ -
========= =========
See Notes to Consolidated Financial Statements
4
<PAGE>
COORSTEK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. EARNINGS PER SHARE
Prior to December 31, 1999, CoorsTek was a privately owned company and
its capital structure was not indicative of the current structure. As such,
earnings per share for the three months and nine months ended September 30, 1999
have been calculated using the actual number of shares distributed on December
31, 1999.
NOTE 2. BASIS OF PRESENTATION
The financial statements included herein have been prepared by the
Company pursuant to the rules and regulations of the Securities and Exchange
Commission. Certain information and footnote disclosure 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 the Company believes that the disclosures included herein
are adequate to make the information presented not misleading. A description of
the Company's accounting policies and other financial information is included in
the audited financial statements filed with the Securities and Exchange
Commission in the Company's Form 10-K for the year ended December 31, 1999 and
in the Company's Form S-1 which was filed on July 19, 2000.
In the opinion of management, the accompanying unaudited financial
statements contain all adjustments necessary to present fairly the financial
position of the Company as of September 30, 2000, and the results of operations
and cash flows for the periods presented. All such adjustments are of a normal
recurring nature. The results of operations for the three and nine months ended
September 30, 2000, are not necessarily indicative of the results that may be
achieved for the full fiscal year and cannot be used to indicate financial
performance for the entire year.
NOTE 3. ACQUISITIONS
On March 31, 2000, CoorsTek acquired certain assets and liabilities of
Liberty Machine, Inc. ("Liberty") for approximately $4.0 million. 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, located in Fremont, California,
manufactures metal parts and assemblies for the semiconductor, aerospace,
analytical, and medical industries.
NOTE 4. CAPITAL STOCK
On July 20, 2000, CoorsTek sold 3.0 million shares of common stock in
a follow-on public offering. The Company used the net proceeds of $113.3 million
to repay debt incurred in conjunction with the $270.0 million Credit Facility
established in December 1999. Net proceeds were used to repay $78.8 million of
the Senior Term A facility and $6.2 million of the Senior Term B facility, as
required by the Credit Facility agreement. Additionally, the outstanding balance
under the revolving Credit Facility was reduced $28.3 million. On August 23,
2000, the underwriters of the follow-on public offering purchased 250,000
additional shares of CoorsTek common stock from their 450,000 share over
allotment option. The Company used the net proceeds of $9.4 million to pay debt
outstanding under the Credit Facility. Net proceeds were used to repay $2.5
million of the Senior Term A facility and $4.6 million of the Senior Term B
facility. Additionally, the revolving Credit Facility was reduced $2.3 million.
NOTE 5. EXTRAORDINARY ITEM
In connection with the $122.7 million debt repayment from the
follow-on proceeds, the Company recorded an extraordinary loss of $886,000, net
of taxes of $520,000, in the third quarter of 2000. The extraordinary loss
represents a partial write-off of unamortized loan origination costs due to the
mandatory repayment of debt under the terms of the Company's Credit Facility,
net of tax benefits. The after-tax loss was calculated using the estimated
effective tax rate for the Company. The loss per basic and diluted share on the
extraordinary loss was $0.09 for the three months ended September 30, 2000 and
$0.11 for the nine months ended September 30, 2000.
5
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NOTE 6. COMMITMENTS AND CONTINGENCIES
On August 12,1999, five current and former employees sued one of
CoorsTek's subsidiaries in the U.S. District Court for the Eastern District of
Arkansas claiming gender discrimination, sexual harassment and retaliation. The
plaintiffs are seeking class certification, which the Company is resisting based
on the distinctions among their respective claims. CoorsTek's preliminary
evaluation indicates the case is largely without merit, however, sufficient
information is not available to determine the ultimate outcome or any potential
liability related to these claims.
NOTE 7. 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, electronics, 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.
The table below summarizes information about reportable segments, in
thousands, for the three months ended September 30:
NET GROSS
SALES PROFIT
--------- --------
2000
Semiconductor $ 66,755 $ 16,121
Advanced Materials 69,792 18,006
--------- --------
Consolidated total $ 136,547 $ 34,127
========= ========
1999
Semiconductor $ 29,981 $ 8,088
Advanced Materials 64,965 16,354
-------- --------
Consolidated total $ 94,946 $ 24,442
======== ========
The table below summarizes information about reportable segments, in
thousands, for the nine months ended September 30:
NET GROSS
SALES PROFIT
--------- --------
2000
Semiconductor $ 178,153 $ 43,964
Advanced Materials 206,584 47,395
--------- --------
Consolidated total $ 384,737 $ 91,359
========= ========
1999
Semiconductor $ 73,986 $ 20,559
Advanced Materials 192,950 45,922
--------- --------
Consolidated total $ 266,936 $ 66,481
========= ========
6
<PAGE>
NOTE 8. RECENT ACCOUNTING PRONOUNCEMENT
In June 1998, the Financial Accounting Standards Board issued SFAS No.
133, "Accounting for Derivatives and Hedging Activities" (SFAS No. 133), which
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts
(collectively referred to derivatives), and for hedging activities. SFAS No. 133
is effective for all fiscal quarters of fiscal years beginning after June 15,
2000. CoorsTek does not expect the adoption of this statement to have a
significant impact on the Company's results of operations, financial position or
cash flows.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL OVERVIEW
CoorsTek, Inc. ("CoorsTek") is a leading designer and manufacturer of
components and integrated assemblies for semiconductor capital equipment and for
telecommunications, electronics, automotive, medical and other industrial
applications. The Company uses advanced materials such as precision-machined
metals, technical ceramics and engineered plastics to design solutions that
enable the customers' products to overcome technological barriers and enhance
performance.
In January of 2000, CoorsTek began to provide clean room assembly
services for a major semiconductor capital equipment customer to enhance the
Company's ability to provide integrated solutions from product design and
prototyping to manufacturing and assembly. These services include assembling
various components, some of which are manufactured by the Company, for inclusion
in the customer's highly sophisticated and complex machinery. Compared with the
Company's historical semiconductor business, the assembly services have lower
gross margins but significantly lower capital requirements.
CoorsTek recognizes revenue when products are shipped or services have
been rendered. The Company sells products primarily to OEMs for incorporation
into semiconductor capital equipment and other industrial applications. CoorsTek
generates sales through direct sales employees, manufacturers' representatives
and distributors located throughout the U.S., Asia and Europe.
On March 31, 2000, CoorsTek acquired certain assets and liabilities of
Liberty Machine, Inc. ("Liberty") for approximately $4.0 million. 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 the third quarter of 2000, CoorsTek sold 3.25 million shares of
common stock in a follow-on public offering. The company used the net proceeds
of $122.7 million to repay debt related to the $270.0 million Credit Facility
established in December 1999.
During 1999, CoorsTek was a wholly owned subsidiary of ACX
Technologies, Inc., now known as Graphic Packaging International Corporation
("Graphic Packaging"). At the close of business on December 31, 1999, Graphic
Packaging distributed 100% of the shares of CoorsTek to Graphic Packaging
shareholders ("spin-off"). For 1999, Graphic Packaging provided general
management, legal, treasury, tax, internal audit, financial reporting and
environmental services to CoorsTek. These Graphic Packaging costs were allocated
to CoorsTek in the form of an annual management fee. Graphic Packaging also
provided centralized cash management and allocated interest income or interest
expense to CoorsTek based on cash balances.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2000 AND
SEPTEMBER 30, 1999
Net sales. Net sales consist of gross sales of components, assemblies
and services, less discounts, allowances and returns. Net sales for the three
months ended September 30, 2000 were $136.5 million, an increase of $41.6
million, or 43.8% from net sales of $94.9 million for the three months ended
September 30, 1999. This increase in sales was primarily attributable to strong
7
<PAGE>
growth in the semiconductor capital equipment market and the growth of the clean
room assembly business which commenced in January 2000. In addition, net sales
in the Advanced Materials segment grew approximately 7.4% in the three months
ended September 30, 2000 following stronger demand and pricing in nearly all
product lines, as compared with the three months ended September 30, 1999.
COST OF GOODS SOLD AND GROSS PROFIT. Cost of goods sold consists
primarily of expenses for manufacturing labor, raw materials and manufacturing
overhead. Gross profit for the three months ended September 30, 2000 was $34.1
million, an increase of $9.7 million, or 39.7%, from $24.4 million for the three
months ended September 30, 1999. The growth of the clean room assembly business
and strong demand in the semiconductor equipment industry fueled this growth. In
addition, gross profit in the Advanced Materials segment grew approximately
10.1% in the three months ended September 30, 2000 as a result of cost reduction
measures and stronger demand in nearly all product lines compared with the three
months ended September 30, 1999. Gross margin decreased to 25.0% for the three
months ended September 30, 2000 from 25.7% for the three months ended September
30, 1999. The decrease in the gross margin is primarily attributable to the
clean room assembly business which commenced in January 2000 to enhance the
Company's ability to provide integrated solutions to customers. The clean room
assembly business has a lower margin than the historical Semiconductor segment
business, but also significantly lower capital requirements.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses consist primarily of expenses for executive management
compensation, sales salaries and commissions, accounting, information
technology, legal, risk management, treasury, goodwill amortization and certain
other corporate overhead costs. Selling, general and administrative expenses for
the three months ended September 30, 2000 were $18.8 million, an increase of
$5.0 million, or 36.2%, from $13.8 million for the three months ended September
30, 1999. The increase in the selling, general and administrative expenses, in
dollars, is primarily attributable to increased sales volume and from the
building of infrastructure as a public company and to $800,000 in severance
costs related to executive organizational changes. Selling, general and
administrative expenses as a percent of sales declined to 13.8% for the three
months ended September 30, 2000 from 14.5% for the three months ended September
30, 1999.
OPERATING INCOME. Operating income for the three months ended
September 30, 2000 was $15.3 million, an increase of $4.6 million, or 43.0%,
from $10.7 million for the three months ended September 30, 1999. The increase
in operating income is primarily due to the increase in net sales in the
Semiconductor segment. Operating margin for the three months ended September 30,
2000 and for the three months ended September 30, 1999 was 11.2%.
INTEREST EXPENSE, NET. For the three months ended September 30, 2000,
interest expense, net, consisted primarily of interest expense associated with
the Company's bank credit facilities. For 1999, interest expense, net, consisted
primarily of interest expense associated with intercompany borrowings with
Graphic Packaging. Interest expense for the three months ended September 30,
2000 was $2.9 million compared with $1.3 million for the three months ended
September 30, 1999. This increase resulted from a $200.0 million payment to
Graphic Packaging for a one-time dividend and intercompany obligations in
conjunction with the spin-off, which was funded under the Company's $270.0
million Credit Facility. Borrowings under the Credit Facility were reduced in
the three months ended September 30, 2000 by proceeds from the follow-on public
offering of capital stock.
INCOME TAX EXPENSE. Income tax expense for the three months ended
September 30, 2000 increased to $4.6 million from $3.6 million for the three
months ended September 30, 1999. The consolidated effective tax rate was 37.0%
for the three months ended September 30, 2000 and 38.6% for the three months
ended September 30, 1999.
EXTRAORDINARY LOSS. An extraordinary loss of $886,000, net of taxes of
$520,000, was recorded during the three months ended September 30, 2000. The
extraordinary loss represents a partial write-off of unamortized loan
origination costs related to the $122.7 million debt repayment, net of tax
benefits.
8
<PAGE>
RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 AND SEPTEMBER
30, 1999
NET SALES. Net sales for the nine months ended September 30, 2000 were
$384.7 million, an increase of $117.8 million, or 44.1%, from net sales of
$266.9 million for the nine months ended September 30, 1999. This increase in
sales was primarily attributable to the Semiconductor segment. The commencement
of the clean room assembly business in January 2000 and strong demand in the
semiconductor capital equipment market contributed to this growth. In addition,
net sales in the Advanced Materials segment grew approximately 7.1% for the nine
months ended September 30, 2000 following stronger demand and pricing in nearly
all product lines compared with the nine months ended September 30, 1999.
COST OF GOODS SOLD AND GROSS PROFIT. Cost of goods sold for the nine
months ended September 30, 2000 was $293.4 million, an increase of $92.9
million, or 46.3%, from $200.5 million for the nine months ended September 30,
1999. The start of the clean room assembly business and strong demand in the
semiconductor equipment industry fueled this growth. Gross margin decreased to
23.7% for the nine months ended September 30, 2000 from 24.9% for the nine
months ended September 30, 1999. This decrease was partially attributable to the
clean room assembly business which commenced in January 2000 to enhance the
Company's ability to provide integrated solutions to customers. The assembly
business has a lower margin than the historical Semiconductor segment business,
but also significantly lower capital requirements. In addition, the gross margin
was negatively impacted by costs associated with production inefficiencies
experienced at certain Advanced Materials facilities during the three months
ended March 31, 2000.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses for the nine months ended September 30, 2000 were $49.2
million, an increase of $13.2 million, or 36.7%, from $36.0 million for the nine
months ended September 30, 1999. The increase in selling, general and
administrative expenses, in dollars, is primarily attributable to increased
sales volume and from building infrastructure as a public company. Additionally,
severance costs of $800,000 related to executive organizational changes were
incurred within the three months ended September 30, 2000. Selling, general and
administrative expenses as a percent of sales declined to 12.8% for the nine
months ended September 30, 2000 from 13.5% for the nine months ended September
30, 1999.
OPERATING INCOME. Operating income for the nine months ended September
30, 2000 was $42.2 million, an increase of $11.7 million, or 38.4%, from $30.5
million for the nine months ended September 30, 1999. The increase in operating
income is primarily due to the increase in net sales in the Semiconductor
segment. Operating margin for the nine months ended September 30, 2000 was 11.0%
compared with 11.4% for the nine months ended September 30, 1999. The decrease
in the operating margin resulted from the decrease in the gross margin discussed
above.
INTEREST EXPENSE, NET. Interest expense for the nine months ended
September 30, 2000 was $12.6 million compared with $3.6 million for the nine
months ended September 30, 1999. This increase resulted from a $200.0 million
payment to Graphic Packaging for a one-time dividend and intercompany
obligations in conjunction with the spin-off, which was funded under the $270.0
million Credit Facility. Borrowings under the Credit Facility were reduced in
the three months ended September 30, 2000 by proceeds from the follow-on public
offering of capital stock.
INCOME TAX EXPENSE. Income tax expense for the nine months ended
September 30, 2000 increased to $10.9 million from $10.1 million for the nine
months ended September 30, 1999. The consolidated effective tax rate was 37.0%
for the nine months ended September 30, 2000 and 37.6% for the nine months ended
September 30, 1999.
EXTRAORDINARY LOSS. An extraordinary loss of $886,000, net of taxes of
$520,000, was recorded during the nine months ended September 30, 2000. The
extraordinary loss represents a partial write-off of unamortized loan
origination costs related to the $122.7 million debt repayment, net of tax
benefits.
9
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
CoorsTek's liquidity is generated by both internal and external
sources and is used to fund short-term working capital requirements, capital
expenditures and acquisitions. On July 20, 2000, CoorsTek sold 3.0 million
shares of common stock in a follow-on offering. The Company used the entire net
proceeds of $113.3 million from this offering to repay debt under the $270.0
million Credit Facility. On August 23, 2000, the underwriters of the follow-on
public offering purchased 250,000 additional shares of CoorsTek common stock.
The Company used the entire net proceeds of $9.4 million to repay debt under the
$270.0 million Credit Facility. The Credit Facility required that 75% of the net
proceeds be used to repay, ratably, the Senior Term A and Senior Term B
facilities. The Company voluntarily used the remaining proceeds to repay
borrowings under the revolving line of credit.
Under the terms of the Credit Facility, Senior Term B note holders had
the ability to reject any prepayment so long as there was a balance remaining on
the Senior Term A facility. Accordingly, most of the Senior Term B note holders
rejected the prepayment. Therefore, the net proceeds from the follow-on offering
reduced the revolving line of credit by $30.6 million, extinguished the $81.3
million remaining Term Loan A, and reduced Term Loan B by $10.8 million. There
are no prepayment penalties under the Credit Facility.
As a result of the repayment, CoorsTek's debt to capitalization ratio
was 33.1% at September 30, 2000 as compared to 77.1% at December 31, 1999. The
Company's current ratio was 2.93 at September 30, 2000 compared to 2.51 at
December 31, 1999.
As of September 30, 2000, CoorsTek had $86.4 million of borrowings
available under the Credit Facility. During the nine months ended September 30,
2000, the interest rate on the revolving line of credit and Senior Term A
facility was LIBOR plus 2% and the interest rate on the Senior Term B facility
was LIBOR plus 2.75%. The interest rate spreads on the Credit Facility vary
based on the Company's financial performance. Accordingly, due to the debt
repayment from the follow on offering and the performance of the Company, the
interest rate on the revolving line of credit is currently LIBOR plus 1.5% and
the interest rate on the Senior Term B facility is currently LIBOR plus 2.5%. As
of September 30, 2000, the interest rates on the credit facilities were as
follows:
* 8.66% for the revolving line of credit; and
* 9.40% for the Senior Term Loan B facility.
The Credit Facility contains customary covenants, including covenants
limiting indebtedness, dividends and distributions on, and redemptions and
repurchases of, capital stock and other similar payments, and the acquisition
and disposition of assets. The Credit Facility also requires that the Company
comply with specified financial covenants, including interest coverage ratios
and indebtedness to total capital ratios and other covenants. CoorsTek is
currently in compliance with all covenants under the Credit Facility.
As of September 30, 2000, there was $98.6 million outstanding under
the Credit Facility. The majority of the borrowings were used to pay Graphic
Packaging, on January 4, 2000, for intercompany obligations and a one-time
dividend. CoorsTek used the remainder of the borrowings to fund working capital
and capital expenditures primarily in the Semiconductor segment. The unused
portion of the revolving line of credit is expected to be used to fund working
capital requirements, acquisitions and capital expenditures. The payment of cash
dividends is prohibited under the Credit Facility.
During the quarter, CoorsTek entered into a two year interest rate
swap agreement for a notional amount of $25.0 million to hedge a portion of the
exposure to interest rate fluctuations related to the Company's Credit Facility.
Capital expenditures for the nine months ended September 30, 2000 and
September 30, 1999 were $23.2 million and $8.1 million, respectively. These
capital expenditures were primarily used for the addition of production
capacity, computerized manufacturing equipment and enhancing existing computer
systems.
10
<PAGE>
RECENT ACCOUNTING PRONOUNCEMENT
In June 1998, the Financial Accounting Standards Board issued SFAS No.
133, "Accounting for Derivatives and Hedging Activities" (SFAS No. 133), which
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts
(collectively referred to derivatives), and for hedging activities. SFAS No. 133
is effective for all fiscal quarters of fiscal years beginning after June 15,
2000. CoorsTek does not expect the adoption of this statement to have a
significant impact on the Company's results of operations, financial position or
cash flows.
FACTORS THAT MAY AFFECT FUTURE RESULTS
Certain statements in this report 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 and
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 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, CoorsTek's ability to successfully integrate and operate
businesses that may be acquired in the future, continued strength of the U.S.
and key foreign economies and the relative position of the U.S. dollar related
to key European and Asian currencies. 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
success with 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 build its assembly business is dependent on its ability to
continue to provide quality and timely manufacturing, innovation and service to
its customers. Because CoorsTek has borrowings with adjustable interest rates,
its net income is sensitive to fluctuation in short-term interest rates.
CoorsTek's compliance with the revenue ruling issued by the IRS in connection
with the spin-off of CoorsTek by Graphic Packaging could materially impact the
future results, performance or financial condition of the Company. The Company's
ability to attract and maintain employees at all levels of the organization
could also materially impact the future results, performance or financial
condition of the Company. CoorsTek derives a significant percentage of its net
sales from a small number of large customers, and if the Company is not able to
retain these customers, or they reschedule, reduce or cancel orders, net sales
would be reduced and financial results would suffer. You are encouraged to read
the more detailed discussions of risks and uncertainties contained in CoorsTek's
recent registration statement on Form S-1 (No. 333-41802) and on the Company's
Form 10-K for the year ended December 31, 1999, both of which are available on
line, free of charge, at the Securities and Exchange Commission's EDGAR filing
database at www.sec.gov.
ITEM 3. QUANTITIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Changes in interest rates will impact the earnings of CoorsTek.
CoorsTek had approximately $98.6 million of floating interest rate
debt as of September 30, 2000. The Company also had one interest rate swap
contract for a notional amount of $25.0 million to hedge a portion of the
exposure to interest rate fluctuations related to the floating interest rate
debt. As interest rates fluctuate, CoorsTek may experience interest increases,
which may materially impact financial results. For example, if applicable
interest rates were to increase or decrease 1%, assuming a constant principal
amount of debt, the result would be an annual increase or decrease of interest
expense of $0.7 million dollars.
Changes in the relationship between the U.S. dollar and foreign currencies may
impact the earnings of CoorsTek.
For the nine months ended September 30, 2000, approximately 3.2% 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
for the operations in Scotland and Korea. The assets and liabilities of these
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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.
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Part II
(a) EXHIBITS:
EXHIBIT
NUMBER DOCUMENT DESCRIPTION
27 Financial Data Schedule
(b) REPORTS ON FORM 8-K
There were no reports filed on Form 8-K during the quarter ended
September 30, 2000.
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: November 13, 2000 By /s/ John K. Coors
----------------- --------------------
John K. Coors
Chairman and Chief Executive Officer
Date: November 13, 2000
-----------------
By /s/ Joseph G. Warren, Jr.
----------------------------
Joseph G. Warren, Jr.
Chief Financial Officer and Treasurer
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