Buried in the Holiday Filings: Zoltek Fires PWC

After a three day weekend, I like to do a quick scan of SEC filings to see if anybody tried to sneak in something when nobody is looking.

Along those lines: Zoltek's (ZOLT) 8-K, regarding a change in auditor, caught my eye. While auditor changes aren't as startling as they once were, they're still worth watching, especially at a fast-growing company that dumps its long-time auditor after the auditor raised numerous red flags -- and especially when the company waits five days to tell shareholders about the change. Such was the case with Zoltek, a maker of carbon fibers used in wind turbines, which last Monday fired its long-time auditor, PriceWaterhouseCoopers and hired Grant Thornton.

Both sides said there have been no disagreements in recent years, though like many company's post Sarbanes-Oxley, Zoltek had been dinged by PWC for having numerous "material weaknesses" in internal controls for a variety of things, including accounting for derivatives and "the completeness and accuracy of earnings per share and related disclosures." PWC also had cited Zoltek for other weaknesses, including the accounting and valuation for physical inventory -- a critical weakness, it would appear for a company supposedly as fast-growing as Zoltek.

In its letter to the SEC, PWC said it agreed with all statements made by Zoltek regarding its firing, with one notable exception: "We have no basis whatsoever to comment on the current status of the material weaknesses related to accounting for physical inventory quantities and the accuracy and valuation of inventory..." ("No basis whatsoever?!")

Zoltek is a classic bull/bear brouhaha. In short, the bulls say Zoltek and its carbon fiber is to wind turbine makers what MECM Electronic (WFR) and its silicon is to makers of solar panels. The bears say, among other things, carbon fiber is 10-times more expensive than the traditional glass fiber and, as a result, isn't used by most turbine makers, including General Electric (GE) and Siemens (SI).

The beat goes on...