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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
__________________________________
FORM 8-K/A
(AMENDMENT NO. 1)
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): NOVEMBER 19, 1999
ZOLTEK COMPANIES, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 0-20600 43-1311101
(State or other (Commission File (I.R.S. Employer
jurisdiction of Number) Identification
organization) Number)
3101 MCKELVEY ROAD 63044
ST. LOUIS, MISSOURI (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code: (314) 291-5110
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Reference is made to the Current Report on Form 8-K, dated
November 19, 1999, filed by Zoltek Companies, Inc. ("Zoltek") on
November 24, 1999 announcing the consummation on November 19, 1999 of
the acquisition by Zoltek of Structural Polymer (Holdings) Limited, a
corporation organized under the laws of England and Wales ("SP
Holdings").
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
The following sets forth certain historical financial
statements of SP Holdings and unaudited pro forma combined financial
information of Zoltek, giving effect to the consummation of the
acquisition by Zoltek of all of the outstanding capital of SP Holdings.
The consummation of the acquisition was reported by Zoltek in its
Current Report on Form 8-K dated November 19, 1999.
(a) Financial Statements of Business Acquired. The following
-----------------------------------------
historical financial statements of SP Holdings are filed herewith:
Report of Independent Accountants
Consolidated Balance Sheets as of December 31, 1998 and 1997
Consolidated Statements of Income for the Years ended December
31, 1998, 1997 and 1996
Consolidated Statements of Shareholders' Equity for the Years
ended December 31, 1998 and 1997
Consolidated Statements of Cash Flows for the Years ended
December 31, 1998, 1997 and 1996
Notes to Consolidated Financial Statements
Consolidated Balance Sheets as of September 30, 1999 and 1998
(Unaudited)
Consolidated Statements of Income for the Nine Months ended
September 30, 1999 and 1998 (Unaudited)
Consolidated Statements of Shareholders' Equity for the Nine
Months ended September 30, 1999 and 1998 (Unaudited)
Consolidated Statements of Cash Flows for the Nine Months ended
September 30, 1999 and 1998 (Unaudited)
Notes to Consolidated Statements of Cash Flows (Unaudited)
(b) Pro Forma Financial Information. The following unaudited
-------------------------------
pro forma combined financial statements of Zoltek giving effect to the
acquisition of SP Holdings are filed herewith:
Pro Forma Combined Condensed Balance Sheet as of September 30,
1999 (Unaudited)
Notes to Pro Forma Combined Condensed Balance Sheet as of
September 30, 1999 (Unaudited)
Pro Forma Combined Condensed Statement of Operations for the
Twelve Months Ended September 30, 1999 (Unaudited)
Notes to Pro Forma Combined Condensed Statement of Operations
for the Twelve Months Ended September 30, 1999 (Unaudited)
(c) Exhibits. The following exhibits are filed herewith:
--------
23 Consent of Grant Thornton
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REPORT OF INDEPENDENT ACCOUNTANTS
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF STRUCTURAL POLYMER
- ----------------------------------------------------------------
(HOLDINGS) LIMITED
- ------------------
We have audited the accompanying consolidated balance sheets of
Structural Polymer (Holdings) Limited and subsidiaries as of December
31, 1997 and 1998 and the related consolidated statements of income,
shareholders' equity and cash flows for each of the three years ended
December 31, 1996, 1997 and 1998. These financial statements are the
responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with U.S. generally
accepted auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for
our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated financial
position of Structural Polymer (Holdings) Limited and subsidiaries at
December 31, 1997 and 1998, and the consolidated results of their
operations and their consolidated cash flows for each of the three years
ended December 31, 1996, 1997 and 1998, in conformity with U.S.
generally accepted accounting principles.
/s/ Grant Thornton
Grant Thornton
Registered Auditors
Chartered Accountants
Southampton, England
December 17, 1999
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<TABLE>
STRUCTURAL POLYMER (HOLDINGS) LIMITED
CONSOLIDATED BALANCE SHEETS
(British Pounds in thousands, except per share date)
<CAPTION>
ASSETS December 31,
- -----------------------------------------------------------------------------------------------------------------
1998 1997
--------------------- ---------------------
<S> <C> <C>
Current assets:
Cash and cash equivalents pound sterling 703 pound sterling 557
Accounts receivable, less allowance for doubtful accounts of
pound sterling 42 and pound sterling 81, respectively 4,149 2,621
Inventories 3,499 2,452
Prepaid expenses 124 93
Other receivables 463 296
--------------------- ---------------------
Total current assets 8,938 6,019
Property and equipment, net 2,572 2,115
--------------------- ---------------------
Total assets pound sterling 11,510 pound sterling 8,134
===================== =====================
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Current liabilities:
Short-term notes payable pound sterling - pound sterling 115
Operating lines of credit - 313
Current maturities of long-term debt 351 350
Current capital lease debt 193 132
Trade accounts payable 3,618 2,026
Accrued expenses 950 681
Other current liabilities 265 114
Income taxes payable 811 240
--------------------- ---------------------
Total current liabilities 6,188 3,971
Long-term liabilities:
Notes payable, less current maturities 677 975
Capital lease debt, less current maturities 329 242
Deferred income taxes 145 193
--------------------- ---------------------
Total liabilities 7,339 5,381
--------------------- ---------------------
Commitments and contingencies (Notes 7, 8, 9, 11)
Shareholders' equity:
Common shares 988 988
Additional paid-in capital 218 218
Accumulated other comprehensive income (loss) (120) (96)
Retained earnings 3,085 1,643
--------------------- ---------------------
Total shareholders' equity 4,171 2,753
--------------------- ---------------------
Total liabilities and shareholders' equity pound sterling 11,510 pound sterling 8,134
===================== =====================
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
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<TABLE>
STRUCTURAL POLYMER (HOLDINGS) LIMITED
CONSOLIDATED STATEMENTS OF INCOME
(British Pounds in thousands, except per share data)
<CAPTION>
Year Ended December 31,
-----------------------------------------------------------------------
1998 1997 1996
--------------------- --------------------- ---------------------
<S> <C> <C> <C>
Net sales pound sterling 21,290 pound sterling 15,060 pound sterling 14,713
Cost of sales 14,835 10,326 10,420
--------------------- --------------------- ---------------------
Gross profit 6,455 4,734 4,293
Selling, general and administrative expenses 4,487 3,239 3,195
--------------------- --------------------- ---------------------
Operating income 1,968 1,495 1,098
Other income (expense):
Interest expense (156) (159) (143)
Interest income 35 17 3
Other, net 568 (553) -
--------------------- --------------------- ---------------------
Income before income taxes 2,415 800 958
Provision for income taxes 780 275 216
--------------------- --------------------- ---------------------
Net income pound sterling 1,635 pound sterling 525 pound sterling 742
===================== ===================== =====================
Net income per share:
Basic and diluted net income per share pound sterling 19.12 pound sterling 5.92 pound sterling 7.60
Weighted average common shares outstanding 86 89 98
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
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<TABLE>
STRUCTURAL POLYMER (HOLDINGS) LIMITED
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(British Pounds in thousands)
<CAPTION>
Accumulated
Other
Comprehensive
Common Paid-in Income
Amount Capital (Loss)
--------------------- ------------------- -------------------
<S> <C> <C> <C>
Balance, December 31, 1995 pound sterling 1,199 pound sterling 507 pound sterling 26
Comprehensive income:
Foreign currency translation
adjustment - - (14)
Net income for the year ended
December 31, 1996 - - -
Total comprehensive income
Dividends paid - - -
--------------------- ------------------- -------------------
Balance, December 31, 1996 1,199 507 (40)
Common stock repurchase and
retirement (211) (289) -
Comprehensive income:
Foreign currency translation
adjustment - - (56)
Net income for the year ended
December 31, 1997 - - -
--------------------- ------------------- -------------------
Total comprehensive income
Balance, December 31, 1997 988 218 (96)
Comprehensive income:
Foreign currency translation
adjustment - - (24)
Net income for the year ended
December 31, 1998 - - -
Total comprehensive income
Dividends paid - - -
--------------------- ------------------- -------------------
Balance, December 31, 1998 pound sterling 988 pound sterling 218 pound sterling (120)
===================== =================== ===================
<CAPTION>
Total
Retained Shareholders' Comprehensive
Earnings Equity Income
--------------------- --------------------- ---------------------
<S> <C> <C> <C>
Balance, December 31, 1995 pound sterling 401 pound sterling 2,081
Comprehensive income:
Foreign currency translation
adjustment - (14) pound sterling (14)
Net income for the year ended
December 31, 1996 742 742 742
---------------------
Total comprehensive income pound sterling 728
=====================
Dividends paid (25) (25)
--------------------- ---------------------
Balance, December 31, 1996 1,118 2,784
Common stock repurchase and
retirement - (500)
Comprehensive income:
Foreign currency translation
adjustment - (56) pound sterling (56)
Net income for the year ended
December 31, 1997 525 525 525
--------------------- --------------------- ---------------------
Total comprehensive income pound sterling 469
=====================
Balance, December 31, 1997 1,643 2,753
Comprehensive income:
Foreign currency translation
adjustment - (24) pound sterling (24)
Net income for the year ended
December 31, 1998 1,635 1,635 1,635
---------------------
Total comprehensive income pound sterling 1,611
=====================
Dividends paid (193) (193)
--------------------- ---------------------
Balance, December 31, 1998 pound sterling 3,085 pound sterling 4,171
===================== =====================
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
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<TABLE>
STRUCTURAL POLYMER (HOLDINGS) LIMITED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(British Pounds in thousands)
<CAPTION>
Year Ended December 31,
------------------------------------------------------------------------
1998 1997 1996
---------------------- --------------------- ---------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income pound sterling 1,635 pound sterling 525 pound sterling 742
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 524 373 259
(Gain) loss on sale of fixed assets 15 (18) (1)
Changes in assets and liabilities:
(Increase) decrease in accounts receivable (1,528) (345) 61
(Increase) decrease in other receivables (267) (21) 116
Increase in inventories (1,047) (110) (66)
(Increase) decrease in prepaid expenses
and other assets 69 (100) (6)
Increase (decrease) in trade accounts
payable 1,592 155 (96)
Increase in accrued expenses and other
liabilities 420 61 235
Increase in income taxes payable and
deferred taxes 523 155 216
---------------------- --------------------- ---------------------
Total adjustments 301 150 718
---------------------- --------------------- ---------------------
Net cash provided by operating activities 1,936 675 1,460
---------------------- --------------------- ---------------------
Cash flows from investing activities:
Payments for purchase of property and
equipment (1,052) (755) (515)
Proceeds from sale of property and
equipment and intangible assets 51 61 67
---------------------- --------------------- ---------------------
Net cash used by investing activities (1,001) (694) (448)
---------------------- --------------------- ---------------------
Cash flows from financing activities:
Increase (decrease) in borrowings under
revolving credit agreement (313) 242 (474)
Proceeds from issuance of notes payable 264 1,461 295
Repayment of notes payable (470) (1,050) (347)
Dividends paid (193) - (25)
Common stock repurchase and retirement - (500) -
---------------------- --------------------- ---------------------
Net cash provided (used) by financing activities (712) 153 (551)
---------------------- --------------------- ---------------------
Effect of exchange rate changes on cash (77) (58) (13)
---------------------- --------------------- ---------------------
Net increase in cash 146 76 448
Cash and cash equivalents at beginning of year 557 481 33
---------------------- --------------------- ---------------------
Cash and cash equivalents at end of year pound sterling 703 pound sterling 557 pound sterling 481
====================== ===================== =====================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest pound sterling 156 pound sterling 159 pound sterling 143
Income taxes 140 245 6
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
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STRUCTURAL POLYMER (HOLDINGS) LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. HISTORY OF OPERATIONS
- ----------------------------
Structural Polymer (Holdings) Limited (the "Company"), located
in Newport, Isle of Wight, England, is a privately held company
organized under the laws of the United Kingdom. The Company was
established in 1978 by its current Managing Director and is primarily
owned by a number of employees. The Company initially focused on the
manufacture and supply of epoxy matrix systems for high performance
sailing boats. During the 1980's the Company added a composite
engineering firm - Structural Polymer Technologies Limited. This
company specializes in engineering high performance large composite
structures. In the early 1990's the Company recognized the potential
for composite structures in wind energy. Since that time, the wind
energy market has grown rapidly and today the Company is one of the most
significant suppliers of composite material to the European wind energy
industry, while retaining its important market position in high
performance marine structures.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- -------------------------------------------------
PRINCIPLES OF CONSOLIDATION
Structural Polymer (Holdings) Limited (the "Company") is a
holding company which operates through wholly-owned subsidiaries,
Structural Polymer Systems Limited, Structural Polymer Technologies
Limited, SP Systems (Australia) Pty. Limited and the dormant SP Systems
(New Zealand) Limited. Structural Polymer Systems Limited ("SP
Systems") develops, manufactures and markets high performance composite
materials used in marine and wind energy markets and other composite
markets. Structural Polymer Technologies Limited ("SP Technologies")
provides structural composite engineering design services. SP Systems
(Australia) Pty Limited is the Company's sales office in Australia.
These financial statements have been prepared in accordance with
accounting principles generally accepted in the United States of
America. All significant intercompany transactions and balances have
been eliminated upon consolidation.
FOREIGN CURRENCY TRANSLATION
Structural Polymer (Holdings) Limited (the "Company") prepares
its financial statements in British Pounds. Assets and liabilities are
translated at year-end exchange rates and the income statement is
translated at the average exchange rate for the year. The related
translation adjustments are reported as part of the accumulated other
comprehensive income component of shareholders' equity. Gains and
losses arising from the settlement of foreign currency transactions are
charged to the related period's consolidated statement of income at
rates prevailing at the time of the transactions.
USE OF ESTIMATES
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of America
requires that management make estimates and assumptions that affect
amounts reported in the financial statements and accompanying notes.
Actual results may differ from those estimates and assumptions.
- 7 -
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STRUCTURAL POLYMER (HOLDINGS) LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
- -------------------------------------------------------------
REVENUE RECOGNITION
The Company recognizes revenue on the date the products are
shipped.
CONCENTRATION OF CREDIT RISK
SP Systems' composite products are primarily sold to customers
in the marine, wind energy and composite industries. Approximately 80%
of the Company's products are destined for export markets. During each
of the three years in the period ended December 31, 1998, approximately
pound sterling 6,960,000, pound sterling 3,827,000 and pound sterling
2,400,000 of sales were earned from two customers. The Company performs
ongoing credit evaluations and maintains export insurance to cover
significant export sales to customers. The Company maintains reserves
for potential credit losses and such losses have been within
management's expectations. As of December 31, 1998 the Company had no
significant concentrations of credit risk.
CASH AND CASH EQUIVALENTS
All highly liquid investments purchased with a maturity of
three months or less are considered to be cash equivalents. There were
no cash equivalent investments at December 31, 1998, 1997 and 1996,
respectively.
INVENTORIES
Inventories are valued at the lower of cost, determined on the
actual cost method or market. Cost includes material, labor and
overhead.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Cost includes
expenditures necessary to make the property and equipment ready for its
intended use. Expenditures, which improve the asset or extend the
useful life, are capitalized, including interest on funds borrowed to
finance the acquisition or construction of major capital additions. No
interest was capitalized for the years ended December 31, 1998, 1997 and
1996, due to the short period of construction. Maintenance and repairs
are expensed as incurred. When property is retired or otherwise
disposed of, the related cost and accumulated depreciation are removed
from the accounts and any profit or loss on disposition is credited or
charged to income.
The Company provides for depreciation by charging amounts
sufficient to amortize the cost of the properties over their estimated
useful lives using primarily straight-line methods. The range of
estimated useful lives used in computing depreciation is as follows:
Buildings and improvements 10 to 39.5 years
Automobiles 4 years
Machinery and equipment 5 to 10 years
Furniture and fixtures 4 years
- 8 -
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STRUCTURAL POLYMER (HOLDINGS) LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
- -------------------------------------------------------------
Long-lived assets are reviewed for impairment whenever events
or changes in circumstances indicate that the carrying amount may not be
recoverable. If the sum of the expected future undiscounted cash flows
is less than the carrying amount of the asset, a loss is recognized for
the difference between the fair value and the carrying value of the
asset. There were no impaired assets at December 31, 1998 and 1997.
FINANCIAL INSTRUMENTS
The Company enters into forward exchange contracts to hedge
foreign currency cash flows and not to engage in currency speculation.
The forward exchange contracts generally require the Company to exchange
German Marks for British Pounds at maturity, at rates agreed to at
inception of the contracts. Forward contracts generally have maturities
not exceeding 12 months. Gains and losses on these contracts that
qualify as hedges are deferred and recognized as an adjustment of the
subsequent transaction when it occurs. Gains and losses on contracts
that do not qualify as hedges are recognized currently in income. At
December 31, 1998 and 1997 the Company had outstanding contracts to sell
DM7,000,000 and DM4,325,000, respectively. The Company recorded a loss
of pound sterling 87,000 at December 31, 1998 and a gain of pound
sterling 100,000 at December 31, 1997 on contracts that were not
considered firm hedges. There were no open contracts at December 31,
1996.
The Company does not hold any financial instruments for trading
purposes. The carrying value of cash, accounts receivable and accounts
payable approximated fair value at December 31, 1998 and 1997. Long-
term debt bears current market rates of interest.
RESEARCH AND DEVELOPMENT EXPENSES
Expenditures for research, development and engineering of
products and manufacturing processes are expensed as incurred. Such
costs were approximately pound sterling 615,000, pound sterling 465,000
and pound sterling 375,000 in 1998, 1997, and 1996, respectively.
INCOME TAXES
The Company accounts for certain income and expense items
differently for financial reporting and income tax purposes. Deferred
tax assets and liabilities are determined based on the difference
between the financial statement and tax bases of assets and liabilities
applying enacted statutory tax rates in effect for the year in which the
differences are expected to reverse.
NET INCOME PER SHARE
SFAS No. 128, "Earnings Per Share", was adopted by the Company
and all prior years presented were adjusted to reflect the required
calculation. Accordingly, basic net income per share includes no
dilution and is calculated by dividing net income by the sum of the
weighted average number of common shares (classes include Common, Common
A and Common C) outstanding for each period. There were no potential
dilutive effects of stock options and incentive shares.
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STRUCTURAL POLYMER (HOLDINGS) LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. INVENTORIES
- --------------
<TABLE>
<CAPTION>
Inventories consist of the following December 31,
(amounts in thousands): ----------------------------------------------
1998 1997
--------------------- ---------------------
<S> <C> <C>
Raw materials pound sterling 1,117 pound sterling 931
Finished goods 2,382 1,521
--------------------- ---------------------
pound sterling 3,499 pound sterling 2,452
===================== =====================
</TABLE>
4. PROPERTY AND EQUIPMENT
- -------------------------
<TABLE>
<CAPTION>
Property and equipment consists of the December 31,
following (amounts in thousands): ----------------------------------------------
1998 1997
--------------------- ---------------------
<S> <C> <C>
Land, buildings and improvements pound sterling 656 pound sterling 371
Automobiles 443 371
Plant, machinery, equipment, furniture
and fixtures 3,170 2,662
--------------------- ---------------------
4,269 3,404
Less: Accumulated depreciation (1,697) (1,289)
--------------------- ---------------------
pound sterling 2,572 pound sterling 2,115
===================== =====================
</TABLE>
5. INCOME TAXES
- ---------------
The components of the provision for income taxes for the
years ended December 31, are as follows (amounts in thousands):
From continuing operations:
<TABLE>
<CAPTION>
1998 1997 1996
--------------------- -------------------- --------------------
<S> <C> <C> <C>
Current:
U.K. corporate taxation pound sterling 822 pound sterling 240 pound sterling 132
Non-U.K. taxation 6 (12) -
--------------------- -------------------- --------------------
Deferred:
U.K. corporate taxation (48) 47 84
Non-U.K. taxation - - -
--------------------- -------------------- --------------------
(48) 47 84
--------------------- -------------------- --------------------
Total tax expense pound sterling 780 pound sterling 275 pound sterling 216
===================== ==================== ====================
</TABLE>
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STRUCTURAL POLYMER (HOLDINGS) LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. INCOME TAXES (CONTINUED)
- ---------------------------
Deferred income taxes reflect the tax impact of temporary
differences between the amount of assets and liabilities for
financial reporting purposes and such amounts as measured by
tax laws and regulations. Amounts giving rise to the deferred
income tax liability at December 31 are as follows (amounts
in thousands):
<TABLE>
<CAPTION>
1998 1997
--------------------- ---------------------
<S> <C> <C>
Depreciation/capital allowances pound sterling 172 pound sterling 162
Unrealized (loss) gain on foreign
currency contracts (27) 31
--------------------- ---------------------
Total deferred tax liability pound sterling 145 pound sterling 193
===================== =====================
</TABLE>
The provision for income taxes at December 31 differs from the
amount using the statutory income tax rate (31% in 1998 and 1996, 31.5%
in 1997) as follows (amounts in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
--------------------- -------------------- --------------------
<S> <C> <C> <C>
At statutory rate:
Income taxes on income pound sterling 749 pound sterling 252 pound sterling 297
Increases (decreases):
Valuation allowance change (15) - (109)
Effect of non-U.K. operations 28 17 (29)
Other, net 18 6 57
--------------------- -------------------- --------------------
pound sterling 780 pound sterling 275 pound sterling 216
===================== ==================== ====================
</TABLE>
At December 31, 1995, the Company had deferred tax assets and a
related valuation allowance of pound sterling 124,000 related to net
operating loss carryforwards and tax positions subject to examination by
British tax authorities. During 1998, 1997 and 1996, the Company
recorded a reduction in the valuation allowance of pound sterling
15,000, pound sterling 0 and pound sterling 109,000, respectively,
related to utilization of net operating loss carryforwards in 1998, 1997
and 1996.
For the years ended December 31, 1998, 1997 and 1996, the
consolidated income (loss) before income taxes by domestic and foreign
sources was pound sterling 2,504,000, pound sterling 884,000 and pound
sterling 866,000 and pound sterling (89,000), pound sterling (84,000)
and pound sterling 92,000, respectively.
6. FINANCING
- ------------
SHORT-TERM DEBT AND CREDIT AGREEMENTS
The Company had a short-term non-interest bearing note of pound
sterling 115,000 at December 31, 1997 that was unsecured. This note was
paid in full in October 1998.
The Company has a revolving credit agreement with Bank of
Scotland, which bears interest at 1.5% above U.K. base rate (U.K. base
rate at December 31, 1998 was 6.5%) with a maximum available of pound
sterling 1,200,000. There were pound sterling 0 and pound sterling
313,000 of borrowings under the revolving credit agreement at
December 31, 1998 and 1997, respectively.
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<PAGE>
STRUCTURAL POLYMER (HOLDINGS) LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
LONG-TERM DEBT
<TABLE>
<CAPTION>
Long-term debt consists of the following (amounts in thousands): December 31,
---------------------------------------------
1998 1997
-------------------- --------------------
<S> <C> <C>
Note payable with interest at 1.75% above U.K. base rate. Interest
payable quarterly. Principal repayable in annual installments
of pound sterling 70,000 to maturity in September 2001 pound sterling 220 pound sterling 290
Note payable with interest at 1.75% above U.K. base rate. Interest
payable quarterly. Principal repayable in three quarterly
installments of pound sterling 83,000 and one quarterly installment of
pound sterling 12,000 per annum to maturity in September 2001 742 955
Note payable with interest at 2.75% above the Australian base rate
(4.60%), payable in monthly installments of principal and
interest of pound sterling 2,430 to maturity in July 2001 66 80
-------------------- --------------------
1,028 1,325
Less: amounts payable within one year 351 350
-------------------- --------------------
pound sterling 677 pound sterling 975
==================== ====================
</TABLE>
Following is a schedule of required principal payments of
long-term debt (amounts in thousands):
<TABLE>
<CAPTION>
Year ending
December 31, Total
------------ ---------------------
<S> <C>
1999 pound sterling 351
2000 353
2001 324
---------------------
pound sterling 1,028
=====================
</TABLE>
The notes payable, aggregating pound sterling 962,000 at
December 31, 1998, are secured by a fixed and floating charge over the
assets of the Company. The remaining note payable is secured by a
parental guarantee and a fixed and floating charge over the assets of SP
Systems (Australia) Pty. Ltd.
7. LEASE COMMITMENTS
- --------------------
LEASE
Assets held under finance leases and hire purchase contracts are
capitalized in the balance sheet and depreciated over their expected
useful lives. The interest element of leasing payments represents a
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<PAGE>
STRUCTURAL POLYMER (HOLDINGS) LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
constant proportion of the capital balance outstanding and is charged to
the profit and loss account over the period of the lease.
Following is a schedule of required principal payments of
capital leases (amounts in thousands):
<TABLE>
<CAPTION>
Year ending
December 31, Total
------------ ---------------------
<S> <C>
1999 pound sterling 193
2000 181
2001 96
2002 41
2003 11
Thereafter -
---------------------
pound sterling 522
=====================
</TABLE>
Rentals paid under operating leases are charged to income on a
straight-line basis over the lease term. Operating lease commitments
amount to pound sterling 10,791,000 as of December 31, 1998. Following
is a schedule of required rental payments on operating leases (amounts
in thousands):
<TABLE>
<CAPTION>
Year ending
December 31, Total
------------ ---------------------
<S> <C>
1999 pound sterling 545
2000 526
2001 505
2002 504
2003 486
Thereafter 8,225
---------------------
pound sterling 10,791
=====================
</TABLE>
The Company entered into a long-term operating lease for its
principal offices and manufacturing operations in July 1998. The lease
term is 25 years and calls for annual rental payments of pound sterling
383,000. In September 1999 the Company entered into a commitment for a
long-term operating lease for its principal warehousing operations.
Construction of the warehouse is expected to be completed in the first
calendar quarter of 2000. The lease term is 25 years (upon completion
of construction) and calls for annual rental payments of pound sterling
250,000.
8. LEGAL
- -----------
The Company is a party to various claims and legal proceedings
arising out of the normal course of its business. In the opinion of
management, the ultimate outcome of these claims and lawsuits will not
have a material adverse effect upon the financial condition or results
of operations of the Company.
- 13 -
<PAGE>
<PAGE>
STRUCTURAL POLYMER (HOLDINGS) LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. GROUP RETIREMENT PLAN
- ---------------------------
The Company maintains a money purchase retirement plan (defined
contribution) for the benefit of employees who have completed 3 months
of service. The Company's contribution to the plan is approximately 3
to 6% of an individual employee's basic wage. Contributions of pound
sterling 115,000, pound sterling 109,000 and pound sterling 95,000 were
made for the years ended December 31, 1998, 1997 and 1996,
respectively.
10. COMMON STOCK
- ------------------
<TABLE>
<CAPTION>
pound sterling 0.10 pound sterling 0.10 pound sterling 1.00 pound sterling 0.10 Total
Common Common A Common B Common C Common
Shares Shares Shares Shares Shares
------------------- ------------------- ------------------- ------------------- ---------
<S> <C> <C> <C> <C> <C>
Number of Shares
Balance, December 31, 1995 and 1996 68,311 29,276 1,189,493 - 1,287,080
Common stock repurchased and
retired, April 7, 1997 (12,074) - (210,302) - (222,376)
------- ------- --------- ----- ---------
Balance, December 31, 1997 56,237 29,276 979,191 - 1,064,704
Common C Share conversion,
February 12, 1998 (657) (343) - 1,000 -
Common Share conversion,
November 27, 1998 12,498 (12,498) - - -
------- ------- --------- ----- ---------
Balance, December 31, 1998 68,078 16,435 979,191 1,000 1,064,704
======= ======= ========= ===== =========
Par Value Amounts in
pound sterling 000's
Balance, December 31, 1995 and 1996 7 3 1,189 - 1,199
Common stock repurchased and
retired, April 7, 1997 (1) - (210) - (211)
------- ------- --------- ----- ---------
Balance, December 31, 1997 6 3 979 - 988
Common C Share conversion,
February 12, 1998 - (1) - 1 -
Common Share conversion,
November 27, 1998 1 (1) - - -
------- ------- --------- ----- ---------
Balance, December 31, 1998 7 1 979 1 988
======= ======= ========= ===== =========
</TABLE>
The Common and Common A shares are equity shares carrying equal
rights as regards dividends, repayment of capital and voting. The
Common B shares are non-equity shares and carry no rights to receive
dividends or to participate in a surplus on the winding up of the
Company, nor any voting rights. In the opinion of management the whole
of the interest in shareholders' equity is, therefore, attributable to
the equity shares (Common, Common A and Common C).
- 14 -
<PAGE>
<PAGE>
STRUCTURAL POLYMER (HOLDINGS) LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. COMMON STOCK (CONTINUED)
- ------------------------------
On February 12, 1998, 657 Common shares of pound sterling 0.10
each and 343 Common A shares of pound sterling 0.10 each were
redesignated as Common C shares. The Common C shares have the same
rights as the Common shares as regards dividends and repayment of
capital and are, therefore, equity shares, but have no voting rights.
On April 7, 1997 the Company repurchased 12,074 Common shares
and 210,302 Common B shares for total consideration of pound sterling
500,000. Shares repurchased were retired.
11. STOCK REPURCHASE AGREEMENT
- --------------------------------
On November 5, 1998, the Company entered into an option
agreement with Divinycell Polimex AB ("DPAB") whereby DPAB has the
option to sell and the Company has an option to purchase the entire
shareholding of DPAB in the Company for aggregate consideration of pound
sterling 1,270,000. On April 15, 1999 DPAB exercised its first option
to sell 3,756 Common A shares to the Company for aggregate consideration
of pound sterling 276,000. This transaction was completed on April 26,
1999. On November 5, 1999 DPAB exercised the remaining options to sell
16,435 Common A shares and 343 Common C shares to the Company for total
consideration of pound sterling 994,000.
12. DIVIDENDS PAID
- --------------------
On November 27, 1998 the Company declared dividends of pound
sterling 228.3105 per Common C share. Two shareholders representing 373
shares waived their right to receive dividends. The total amount of
dividends paid were pound sterling 143,000 on December 1, 1998.
On February 12, 1998 the Company declared and paid dividends of
pound sterling 50.00 per Common C share. The total amount of dividends
paid was pound sterling 50,000.
On August 1, 1996 the Company declared dividends of pound
sterling 25.618 per Common and Common A share. The total amount of
dividends paid were pound sterling 25,000 on August 12, 1996.
13. UNUSUAL ITEM
- ------------------
Included in other income for December 31, 1998 is an unusual
item of pound sterling 568,000 comprising the full recovery from
insurers of the costs relating to an out of court settlement of a legal
action brought in New Zealand. The original costs of the settlement
amounting to pound sterling 553,000 were charged as other expense for
the year ended December 31, 1997. SP Systems and SP Technologies made a
commercial decision, together with the other defending parties, to
settle the legal action in 1997 and successfully recovered the full
amount from insurers in 1998.
14. SUMMARY OF QUARTERLY SALES (UNAUDITED) (AMOUNTS IN THOUSANDS)
- --------------------------------------------
<TABLE>
<CAPTION>
Fiscal year 1998 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
- ---------------- -------------------- -------------------- -------------------- --------------------
<S> <C> <C> <C> <C>
Net sales pound sterling 4,472 pound sterling 4,868 pound sterling 5,424 pound sterling 6,526
<CAPTION>
Fiscal year 1997 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
- ---------------- -------------------- -------------------- -------------------- --------------------
<S> <C> <C> <C> <C>
Net sales pound sterling 3,804 pound sterling 3,547 pound sterling 3,593 pound sterling 4,116
</TABLE>
- 15 -
<PAGE>
<PAGE>
STRUCTURAL POLYMER (HOLDINGS) LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
15. SUBSEQUENT EVENT
- ----------------------
On November 19, 1999 the Company's shareholders entered into an
agreement with Zoltek Companies, Inc. to sell 100% of the outstanding
shares of the Company for U.S. $30,000,000 cash and 2,500,000 common
shares of Zoltek Companies, Inc. Zoltek Companies, Inc. is an U.S.
based publicly held company focused on the manufacture of low-cost
carbon fibers.
- 16 -
<PAGE>
<PAGE>
<TABLE>
STRUCTURAL POLYMER (HOLDINGS) LIMITED
CONSOLIDATED BALANCE SHEETS
(British Pounds in thousands, except per share data)
(Unaudited)
<CAPTION>
ASSETS September 30,
- ----------------------------------------------------------------------------------------------------------
1999 1998
---------------------- ----------------------
<S> <C> <C>
Current assets:
Cash and cash equivalents pound sterling - pound sterling 42
Accounts receivable, less allowance for doubtful
accounts of pound sterling 58 and pound sterling
64, respectively 6,139 3,745
Inventories 4,833 3,143
Prepaid expenses and other receivables 651 565
---------------------- ----------------------
Total current assets 11,623 7,495
Property and equipment, net 5,503 2,391
---------------------- ----------------------
Total assets pound sterling 17,126 pound sterling 9,886
====================== ======================
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Current liabilities:
Operating lines of credit pound sterling 328 pound sterling 178
Current maturities of long-term debt 351 351
Current capital lease debt 435 220
Trade accounts payable 4,996 2,840
Accrued expenses and other current liabilities 1,348 817
Income taxes payable 1,767 684
---------------------- ----------------------
Total current liabilities 9,225 5,090
Long-term liabilities:
Notes payable, less current maturities 633 724
Capital lease debt, less current maturities 785 306
Deferred income taxes 176 176
---------------------- ----------------------
Total liabilities 10,819 6,296
---------------------- ----------------------
Mandatorily redeemable common stock 994 -
Shareholders' equity:
Common shares 987 988
Additional paid-in capital - 218
Accumulated other comprehensive income (loss) 36 (154)
Retained earnings 4,290 2,538
---------------------- ----------------------
Total shareholders' equity 5,313 3,590
---------------------- ----------------------
Total liabilities and shareholders' equity pound sterling 17,126 pound sterling 9,886
====================== ======================
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
- 17 -
<PAGE>
<PAGE>
<TABLE>
STRUCTURAL POLYMER (HOLDINGS) LIMITED
CONSOLIDATED STATEMENTS OF INCOME
(British Pounds in thousands, except per share and share data)
(Unaudited)
<CAPTION>
Nine Months Ended September 30,
---------------------- ----------------------
1999 1998
---------------------- ----------------------
<S> <C> <C>
Net sales pound sterling 28,398 pound sterling 14,764
Cost of sales 19,412 10,139
Gross profit 8,986 4,625
Selling, general and administrative expenses 5,108 3,141
Operating income 3,878 1,484
Other income (expense):
Interest expense (157) (58)
Other, net (96) (27)
---------------------- ----------------------
Income before income taxes 3,625 1,399
Provision for income taxes 1,161 455
---------------------- ----------------------
Net income pound sterling 2,464 pound sterling 945
====================== ======================
Net income per share:
Basic and diluted net income per share pound sterling 29.58 pound sterling 11.05
Weighted average common shares outstanding 83,299 85,513
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
- 18 -
<PAGE>
<PAGE>
<TABLE>
STRUCTURAL POLYMER (HOLDINGS) LIMITED
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(British Pounds in thousands)
(Unaudited)
<CAPTION>
Accumulated
Other
Additional Comprehensive
Common Paid-in Income
Amount Capital (Loss)
-------------------- -------------------- ---------------------
<S> <C> <C> <C>
Balance, December 31, 1997 988 218 (96)
Comprehensive income:
Foreign currency translation adjustment - - (58)
Net income for the nine months
ended September 30, 1998 - - -
Total comprehensive income
Dividends paid - - -
-------------------- -------------------- ---------------------
Balance, September 30, 1998 pound sterling 988 pound sterling 218 pound sterling (154)
==================== ==================== =====================
Balance, December 31, 1998 988 218 (120)
Comprehensive income:
Foreign currency translation adjustment - - 156
Net income for the nine months
ended September 30, 1999 - - -
Total comprehensive income
Stock repurchase and cancellation - (218)
Dividends paid - - -
Put options unexercised at September 30, 1999,
transferred to mandatorily redeemable
common stock (1) - -
-------------------- -------------------- ---------------------
Balance, September 30, 1999 pound sterling 987 pound sterling - pound sterling 36
==================== ==================== =====================
<CAPTION>
Total Total
Retained Shareholders' Comprehensive
Earnings Equity Income
-------------------- -------------------- ---------------------
<S> <C> <C> <C>
Balance, December 31, 1997 1,643 2,753
Comprehensive income:
Foreign currency translation adjustment - (58) pound sterling (58)
Net income for the nine months
ended September 30, 1998 945 945 945
---------------------
Total comprehensive income pound sterling 887
=====================
Dividends paid (50) (50)
-------------------- --------------------
Balance, September 30, 1998 pound sterling 2,538 pound sterling 3,590
==================== ====================
Balance, December 31, 1998 3,085 4,171
Comprehensive income:
Foreign currency translation adjustment - 156 pound sterling 156
Net income for the nine months
ended September 30, 1999 2,464 2,464 2,464
---------------------
Total comprehensive income pound sterling 2,620
=====================
Stock repurchase and cancellation (116) (334)
Dividends paid (150) (150)
Put options unexercised at September 30, 1999,
transferred to mandatorily redeemable
common stock (993) (994)
-------------------- --------------------
Balance, September 30, 1999 pound sterling 4,290 pound sterling 5,313
==================== ====================
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
- 19 -
<PAGE>
<PAGE>
<TABLE>
STRUCTURAL POLYMER (HOLDINGS) LIMITED
CONSOLIDATED STATEMENT OF CASH FLOWS
(British Pounds in thousands)
(Unaudited)
<CAPTION>
Nine Months Ended September 30,
--------------------------------------------------
1999 1998
---------------------- ----------------------
<S> <C> <C>
Cash flows from operating activities:
Net income pound sterling 2,464 pound sterling 945
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 843 399
Unrealized foreign exchange loss 88 -
Changes in assets and liabilities:
Increase in accounts receivable (1,990) (1,124)
Increase in other receivables (188) (369)
Increase in inventories (1,334) (691)
Decrease in prepaid expenses and other assets 124 193
Increase in trade accounts payable 1,378 814
Increase in accrued expenses and other liabilities 133 22
Increase in income taxes payable and deferred taxes 987 427
---------------------- ----------------------
Total adjustments 41 (329)
---------------------- ----------------------
Net cash provided by operating activities 2,505 616
---------------------- ----------------------
Cash flows from investing activities:
Payments for purchase of property and equipment (3,834) (755)
---------------------- ----------------------
Net cash used by investing activities (3,834) (755)
---------------------- ----------------------
Cash flows from financing activities:
Increase (decrease) in borrowings under revolving credit
agreement 328 (135)
Proceeds from issuance of notes payable 1,170 251
Repayment of notes payable (405) (419)
Dividends paid (150) (50)
Common stock repurchase and retirement (276) -
---------------------- ----------------------
Net cash provided (used) by financing activities 667 (353)
---------------------- ----------------------
Effect of exchange rate changes on cash (41) (23)
---------------------- ----------------------
Net decrease in cash (703) (515)
Cash and cash equivalents at beginning of period 703 557
---------------------- ----------------------
Cash and cash equivalents at end of period pound sterling 0 pound sterling 42
====================== ======================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest pound sterling 117 pound sterling 97
Income taxes 227 17
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
- 20 -
<PAGE>
<PAGE>
STRUCTURAL POLYMER (HOLDINGS) LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
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 the results of operations as of the dates of the periods
presented. These financial statements should be read in conjunction
with the Structural Polymer (Holdings) Limited's (the "Company") audited
consolidated financial statements and notes thereto for the fiscal year
ended December 31, 1998. Certain reclassifications have been made to
conform prior year's data to the current presentation. The results for
the nine months ended September 30, 1999 are not necessarily indicative
of the results which may be expected for the fiscal year ending December
31, 1999.
2. HISTORY OF OPERATIONS
- ----------------------------
The Company, located in Newport, Isle of Wight, England, is a
privately held company organized under the laws of the United Kingdom.
The Company was established in 1978 by its current Managing Director and
is wholly owned by a number of employees. The Company initially focused
on the manufacture and supply of epoxy matrix systems for high
performance sailing boats. During the 1980's the Company added a
composite engineering firm - Structural Polymer Technologies Limited.
This company specializes in engineering high-performance large composite
structures. In the early 1990's the Company recognized the potential
for composite structures in wind energy. Since that time, the wind
energy market has grown rapidly and today the Company is one of the most
significant suppliers of composite material to the European wind energy
industry, while retaining its important market position in high-
performance marine structures.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- -------------------------------------------------
PRINCIPLES OF CONSOLIDATION
The Company is a holding company which operates through wholly-
owned subsidiaries, Structural Polymer Systems Limited, Structural
Polymer Technologies Limited, SP Systems (Australia) Pty. Limited and
the dormant SP Systems (New Zealand) Limited. Structural Polymer
Systems Limited ("SP Systems") develops, manufactures and markets high
performance composite materials used in marine and wind energy markets
and other composite markets. Structural Polymer Technologies Limited
("SP Technologies") provides structural composite engineering design
services. SP Systems (Australia) Pty Limited is the Company's sales
office in Australia. These financial statements have been prepared in
accordance with accounting principles generally accepted in the United
States of America. All significant intercompany transactions and
balances have been eliminated upon consolidation.
FOREIGN CURRENCY TRANSLATION
The Company prepares its financial statements in British
Pounds. Assets and liabilities are translated at period-end exchange
rates and the income statement is translated at the average exchange
rate for the period. The related translation adjustments are reported
as part of the accumulated other comprehensive income component of
shareholders' equity. Gains and losses arising from the settlement
of foreign currency transactions are charged to the related period's
consolidated statement of income at rates prevailing at the time of the
transactions.
- 21 -
<PAGE>
<PAGE>
STRUCTURAL POLYMER (HOLDINGS) LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
- -------------------------------------------------------------
USE OF ESTIMATES
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of America
requires that management make estimates and assumptions that affect
amounts reported in the financial statements and accompanying notes.
Actual results may differ from those estimates and assumptions.
REVENUE RECOGNITION
The Company recognizes revenue on the date the products are
shipped.
CONCENTRATION OF CREDIT RISK
The Company's composite products are primarily sold to
customers in the marine, wind energy and composite industries.
Approximately 80% of the Company's products are destined for export
markets. The Company performs ongoing credit evaluations and maintains
export insurance to cover significant export sales to customers. The
Company maintains reserves for potential credit losses and such losses
have been within management's expectations. As of September 30, 1999
the Company had no significant concentrations of credit risk.
CASH AND CASH EQUIVALENTS
All highly liquid investments purchased with a maturity of
three months or less are considered to be cash equivalents. There were
no cash equivalent investments at September 30, 1999 and 1998,
respectively.
INVENTORIES
Inventories are valued at the lower of cost, determined on the
actual cost method or market. Cost includes material, labor and
overhead.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Cost includes
expenditures necessary to make the property and equipment ready for its
intended use. Expenditures, which improve the asset or extend the
useful life, are capitalized, including interest on funds borrowed to
finance the acquisition or construction of major capital additions. No
interest was capitalized for the nine month periods ended September 30,
1999 and 1998, due to the short period of construction. Maintenance and
repairs are expensed as incurred. When property is retired or otherwise
disposed of, the related cost and accumulated depreciation are removed
from the accounts and any profit or loss on disposition is credited or
charged to income.
- 22 -
<PAGE>
<PAGE>
STRUCTURAL POLYMER (HOLDINGS) LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
- -------------------------------------------------------------
The Company provides for depreciation by charging amounts
sufficient to amortize the cost of the properties over their estimated
useful lives using primarily straight-line methods. The range of
estimated useful lives used in computing depreciation is as follows:
Buildings and improvements 10 to 39.5 years
Automobiles 4 years
Machinery and equipment 5 to 10 years
Furniture and fixtures 4 years
Long-lived assets are reviewed for impairment whenever events
or changes in circumstances indicate that the carrying amount may not be
recoverable. If the sum of the expected future undiscounted cash flows
is less than the carrying amount of the asset, a loss is recognized for
the difference between the fair value and the carrying value of the
asset. There were no impaired assets at September 30, 1999 and 1998.
FINANCIAL INSTRUMENTS
The Company enters into forward exchange contracts to hedge
foreign currency cash flows and not to engage in currency speculation.
The forward exchange contracts generally require the Company to exchange
German Marks for British Pounds at maturity, at rates agreed to at
inception of the contracts. Forward contracts generally have maturities
not exceeding 12 months. Gains and losses on these contracts that
qualify as hedges are deferred and recognized as an adjustment of the
subsequent transaction when it occurs. Gains and losses on contracts
that do not qualify as hedges are recognized currently in income.
The Company does not hold any financial instruments for trading
purposes. The carrying value of cash, accounts receivable and accounts
payable approximated fair value at September 30, 1999 and 1998. Long-
term debt bears current market rates of interest.
RESEARCH AND DEVELOPMENT EXPENSES
Expenditures for research, development and engineering of
products and manufacturing processes are expensed as incurred.
INCOME TAXES
The Company accounts for certain income and expense items
differently for financial reporting and income tax purposes. Deferred
tax assets and liabilities are determined based on the difference
between the financial statement and tax bases of assets and liabilities
applying enacted statutory tax rates in effect for the year in which the
differences are expected to reverse.
- 23 -
<PAGE>
<PAGE>
STRUCTURAL POLYMER (HOLDINGS) LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
- -------------------------------------------------------------
NET INCOME PER SHARE
SFAS No. 128, "Earnings Per Share", was adopted by the Company
and all prior years presented were adjusted to reflect the required
calculation. Accordingly, basic net income per share includes no
dilution and is calculated by dividing net income by the sum of the
weighted average number of common shares outstanding for each period.
There were no potential dilutive stock options or incentive shares.
4. INVENTORIES
- -----------------
<TABLE>
<CAPTION>
Inventories consist of the following September 30,
(amounts in thousands): ------------------------------------------------
1999 1998
---------------------- ----------------------
<S> <C> <C>
Raw materials pound sterling 1,634 pound sterling 1,177
Finished goods 3,199 1,966
---------------------- ----------------------
pound sterling 4,833 pound sterling 3,143
====================== ======================
</TABLE>
5. PROPERTY AND EQUIPMENT
- ----------------------------
Property and equipment consists of the following
(amounts in thousands):
<TABLE>
<CAPTION>
September 30,
------------------------------------------------
1999 1998
---------------------- ----------------------
<S> <C> <C>
Land, buildings and improvements pound sterling 2,252 pound sterling 479
Automobiles 649 475
Plant, machinery, equipment, furniture and fixtures 5,142 3,125
---------------------- ----------------------
8,043 4,079
Less: Accumulated depreciation (2,540) (1,688)
---------------------- ----------------------
pound sterling 5,503 pound sterling 2,391
====================== ======================
</TABLE>
6. STOCK REPURCHASE AGREEMENT
- --------------------------------
On November 5, 1998, the Company entered into an option
agreement with Divinycell Polimex AB (DPAB) whereby DPAB has the option
to sell and the Company has an option to purchase the entire
shareholding of DPAB in the Company for aggregate consideration of pound
sterling 1,270,000. On April 15, 1999 DPAB exercised its first option
to sell 3,756 Common A shares to the Company for aggregate consideration
of pound sterling 276,000. This transaction was completed on April 26,
1999. On November 5, 1999 DPAB exercised the remaining options to sell
16,435 Common A shares and 343 Common C shares to the Company for total
consideration of pound sterling 994,000.
- 24 -
<PAGE>
<PAGE>
STRUCTURAL POLYMER (HOLDINGS) LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. SUMMARY OF QUARTERLY SALES (UNAUDITED) (amounts in thousands)
- -------------------------------------------------------------------
<TABLE>
<CAPTION>
Nine Months Ended September 30, 1999 1st Quarter 2nd Quarter 3rd Quarter
- ------------------------------------ --------------------- --------------------- ---------------------
<S> <C> <C> <C>
Net sales pound sterling 9,156 pound sterling 9,781 pound sterling 9,461
<CAPTION>
Nine Months Ended September 30, 1998 1st Quarter 2nd Quarter 3rd Quarter
- ------------------------------------ --------------------- --------------------- ---------------------
<S> <C> <C> <C>
Net sales pound sterling 4,472 pound sterling 4,868 pound sterling 5,424
</TABLE>
- 25 -
<PAGE>
<PAGE>
<TABLE>
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
AS OF SEPTEMBER 30, 1999
(Amounts in thousands of U.S. Dollars)
<CAPTION>
Pro Forma
Historical Historical Adjust- Pro Forma Combined
Zoltek SP Holdings ments Adjustments Zoltek
---------- ----------- ------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Cash and cash equivalents $ 11,367 $ - <F1> $ (850) $ 10,517
Trade accounts receivable 13,138 10,111 - 23,249
Inventories, net 28,490 7,960 - 36,450
Prepaid expenses and other current assets 648 1,073 - 1,720
Income taxes receivable 1,620 - - 1,620
-------- ------- ------- --------
Total current assets 55,263 19,144 (850) 73,557
Property and equipment, net 77,422 9,063 - 86,485
Deferred loan costs - - <F1> 850 850
Other long-term investment 4,071 - - 4,071
Goodwill - - <F2> 47,112 47,112
-------- ------- ------- --------
Total assets $136,756 $28,207 $47,112 $212,075
======== ======= ======= ========
Notes payable and
operating lines of credit $ 1,455 $ 626 $ - $ 2,081
Current long-term debt and
capital leases 630 329 - 959
Accounts payable - trade 6,650 8,228 - 14,878
Accrued expenses 2,582 2,221 - 4,803
Current income taxes payable - 2,910 2,910
-------- ------- ------- --------
Total current liabilities 11,317 14,314 - 25,631
Notes payable and capital leases 5,423 3,215 <F2> 30,000 38,638
Other long-term liabilities 815 - - 815
Deferred tax liability 3,367 290 - 3,657
-------- ------- ------- --------
Total liabilities 20,922 17,819 30,000 68,741
Mandatorily redeemable
common stock 1,200 - - 1,200
Common stock 160 1,626 <F2> (1,596) 185
Additional paid in capital 98,823 - <F2> 27,475 126,298
Retained earnings 31,185 7,065 <F2> (8,691) 31,185
Treasury common stock (118) - - (118)
Outstanding common
stock put warrants 181 - - 181
Accumulated other comprehensive
income (15,597) 60 <F2> (76) (15,527)
-------- ------- ------- --------
Total shareholders' equity 114,634 10,388 17,112 142,204
-------- ------- ------- --------
Total liabilities, redeemable common
stock, nonredeemable stock and
other shareholders' equity $136,756 $28,207 $47,112 $212,075
======== ======= ======= ========
</TABLE>
- 26 -
<PAGE>
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
AS OF SEPTEMBER 30, 1999
<F1> To record the acquisition loan origination costs.
Deferred loan origination costs $ 850
Cash $ 850
<F2> To record the purchase of SP Holdings stock with $30,000 in new
debt and the issuance of 2,500,000 shares of Zoltek common stock and
elimination of SP Holding's shareholders' equity.
Mandatorily redeemable stock $ 1,637
Common stock 1,626
Retained earnings 7,065
Foreign currency translation adjustment 60
Goodwill 47,112
Notes payable $30,000
Common stock 25
Additional paid in capital 27,475
Zoltek common stock was valued at $11.00 per share at the close of
business on November 18, 1999. The total purchase price of SP Holdings
consisted of the following:
Cash $30,000
Zoltek common stock 27,500
-------
Total purchase price $57,500
=======
In determining the allocation of the purchase price, potential
intangible assets such as customer lists, workforce in place, favorable
purchase or lease contracts, patents, distributor agreements and other
items were considered. No intangibles or other assets and liabilities
were identified as having a value other than book value. Zoltek
determined that the excess of purchase price over the fair value of
assets and liabilities acquired would be allocated to goodwill and
amortized over 15 years.
Total purchase price $57,500
Fair value of assets and
liabilities acquired:
Current assets $ 19,144
Long-term assets 9,063
Liabilities (17,819)
--------
Net fair value 10,388
-------
Goodwill $47,112
=======
- 27 -
<PAGE>
<PAGE>
<TABLE>
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENTS OF OPERATIONS
FOR THE 12 MONTHS ENDED SEPTEMBER 30, 1999
(Amounts in thousands of U.S. Dollars, except per share data)
<CAPTION>
Pro Forma
Historical Historical Adjust- Pro Forma Combined
Zoltek SP Holdings ments Adjustments Zoltek
---------- ----------- ------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Net sales $68,525 $57,054 <F1> $ (200) $125,379
Cost of sales - products sold 53,375 38,457 <F1> (150) 91,682
------- ------- ------- --------
Gross profit 15,150 18,597 <F1> (50) 33,697
Available unused capacity costs 3,953 - - 3,953
Selling, general and administrative expenses 14,525 9,429 <F2> 3,141 27,095
------- ------- ------- --------
Operating income (loss) (3,328) 9,168 (3,191) 2,649
Other income (expense):
Interest income 1,163 - - 1,163
Interest expense (540) (359) <F3> (2,625) (3,524)
Other, net (119) 845 - (726)
------- ------- ------- --------
Income (loss) before income taxes (2,824) 9,654 (5,816) 1,014
(Provision) benefit for income taxes 182 (2,526) <F4> 481 (1,863)
------- ------- ------- --------
Net income (loss) $(2,642) $ 7,128 $(5,335) $ (849)
======= ======= ======= ========
Net loss per share:
Basic net loss per share $ (0.16) $ (0.05)
Diluted net loss per share $ (0.16) $ (0.05)
Weighted average common shares
outstanding - basic 16,209 18,709
Weighted average common and
common equivalent shares - diluted 16,209 18,709
</TABLE>
- 28 -
<PAGE>
<PAGE>
NOTES TO UNAUDITED PRO FORMA
COMBINED CONDENSED STATEMENT OF OPERATIONS
FOR THE 12 MONTHS ENDED SEPTEMBER 30, 1999
(Amount in thousands of U.S. Dollars)
<F1> To eliminate sales and cost of sales from Zoltek to SP Holdings.
<F2> To record goodwill amortization expense.
Goodwill $47,112
Amortization period (years) 15
-------
Goodwill amortization expense $ 3,141
=======
<F3> To record interest expense on acquisition debt.
Acquisition debt $30,000
Interest rate 8.75%
-------
Interest expense $ 2,625
=======
<F4> To record the additional net tax benefit of the additional interest
expense and the difference in rates on repatriated earnings from
SP Holdings.
- 29 -
<PAGE>
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned hereunto duly authorized.
Dated: January 28, 2000
ZOLTEK COMPANIES, INC.
By: /s/ Daniel Greenwell
-----------------------------------------
Daniel Greenwell, Chief Financial Officer
and Secretary
- 30 -
<PAGE>
<PAGE>
EXHIBIT INDEX
-------------
Exhibit No. Description
- ----------- -----------
2.1<F*> Stock Purchase Agreement, dated November 19, 1999, by and among
Zoltek Companies, Inc. and each of the holders of the outstanding
share capital of Structural Polymer (Holdings) Limited.
2.2<F*> Registration Rights Agreement, dated November 19, 1999, by and
among Zoltek Companies, Inc. and each of the holders of the
outstanding share capital of Structural Polymer (Holdings)
Limited.
2.3<F*> Credit Agreement, dated as of November 19, 1999, by and among
Zoltek Companies, Inc., Zoltek Corporation, Zoltek Intermediates
Corporation, Zoltek Properties, Inc., Cape Composites
Incorporated, Engineering Technology Corporation and Mercantile
Bank National Association.
23<F**> Consent of Grant Thornton
[FN]
- ------------
<F*> Previously filed as exhibits to the Registrant's Form 8-K filed on
November 24, 1999.
<F**> Filed herewith.
- 31 -
<PAGE>
Grant Thornton
INDEPENDENT AUDITORS' CONSENT
We issued our report dated 17 December 1999 on the consolidated financial
statements of Structural Polymer (Holdings) Limited for the three years
ended 31 December 1998 included in this current report on Form 8-K/A.
We hereby consent to the incorporation of said report by reference in the
Registration Statement of Zoltek Companies Inc on Form S-8 (No 33-83160),
the prospectus constituting part of the Registration Statement on Form S-3
(No 33-84070), the Registration Statement on Form S-8 (No 33-83160) and
the Registration Statement on Form S-8 (No 33-06565).
/s/ Grant Thornton
GRANT THORNTON
SOUTHAMPTON, ENGLAND
27 January 2000
