<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
--------------------------
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
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For the quarter ended June 30, 1996 Commission File No. 0-20600
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ZOLTEK COMPANIES, INC.
----------------------
(Exact name of registrant as specified in its charter)
Missouri 43-1311101
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3101 McKelvey Road, St. Louis, Missouri 63044
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (314) 291-5110
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes x No
---- ----
Indicate the number of shares outstanding of each of the registrant's classes
of common stock as of the latest practicable date: As of August 1, 1996,
13,910,338 shares of Common Stock, $.01 par value, were outstanding.
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
ZOLTEK COMPANIES, INC.
CONSOLIDATED BALANCE SHEET
--------------------------
<CAPTION>
(UNAUDITED)
JUNE 30, SEPTEMBER 30,
1996 1995
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<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 8,492,458 $ 1,677,400
Accounts receivable, less allowance for doubtful accounts of $158,297 and
$28,038, respectively 9,823,646 3,066,427
Inventories 14,158,787 3,127,339
Prepaid expenses 78,272 27,144
Other receivable 2,128,102
Assets held for sale 581,472
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Total current assets 34,681,265 8,479,782
Property and equipment, net 32,887,238 9,355,773
Notes receivable 628,276 200,000
Loan origination and deferred costs 65,902 354,175
Intangible assets, net 121,829
Other assets 13,914 500
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Total assets $ 68,398,424 $ 18,390,230
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term notes payable $ 3,508,501
Current maturities of long-term debt 885,761 $ 744,542
Trade accounts payable 10,256,052 861,578
Other short-term liabilities 1,505,478 290,060
Reserve for reorganization of acquired operations 3,566,198
Income taxes payable 657,286 262,052
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Total current liabilities 20,379,276 2,158,232
Deferred income taxes 522,000 522,000
Long-term debt, less current maturities 5,395,910 6,191,157
Other long-term liabilities 2,447,370
Minority interest 142,146
Shareholders' equity:
Preferred stock, $.01 par value, 1,000,000 shares authorized,
no shares issued or outstanding
Common stock, $.01 par value, 20,000,000 and 8,000,000 shares authorized,
13,910,338 and 4,813,203 shares issued and outstanding, respectively 139,103 48,132
Additional paid-in capital 30,557,008 4,208,336
Cumulative translation adjustment (169,389)
Retained earnings 8,985,000 5,262,373
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39,511,722 9,518,841
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Total liabilities and shareholders' equity $ 68,398,424 $ 18,390,230
============ ============
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
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<TABLE>
ZOLTEK COMPANIES, INC.
CONSOLIDATED STATEMENT OF INCOME
--------------------------------
<CAPTION>
(UNAUDITED) (UNAUDITED)
THREE MONTHS ENDED JUNE 30, NINE MONTHS ENDED JUNE 30,
--------------------------- --------------------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales $18,999,243 $2,970,171 $47,213,494 $8,674,542
Cost of sales 13,901,827 1,738,518 35,067,297 5,117,932
----------- ---------- ----------- ----------
Gross profit 5,097,416 1,231,653 12,146,197 3,556,610
Selling, general and administrative
expenses 2,669,996 458,728 6,558,684 1,332,425
----------- ---------- ----------- ----------
Income from operations 2,427,420 772,925 5,587,513 2,224,185
Other income (expense):
Interest expense (261,092) (186,610) (695,942) (561,784)
Interest income 124,807 11,644 386,993 11,644
Other, net (193,514) 784 (56,941) 2,108
----------- ---------- ----------- ----------
Income from continuing operations before
income taxes 2,097,621 598,743 5,221,623 1,676,153
Provision for income taxes 506,784 223,206 1,440,073 626,948
----------- ---------- ----------- ----------
Net income from continuing operations 1,590,837 375,537 3,781,550 1,049,205
Income from discontinued operations,
net of income taxes 16,157 72,349 38,584 209,713
----------- ---------- ----------- ----------
Net income before minority interest 1,606,994 447,886 3,820,134 1,258,918
Less: interest of minority shareholder
in income of consolidated subsidiary 6,110 27,957
----------- ---------- ----------- ----------
Net income $ 1,600,884 $ 447,886 $ 3,792,177 $1,258,918
=========== ========== =========== ==========
Net income per share:
Income from continuing
operations $ .12 $ .04 $ .29 $ .11
Discontinued operations .00 .01 .00 .02
----------- ---------- ----------- ----------
Net income per share $ .12 $ .05 $ .29 $ .13
=========== ========== =========== ==========
Weighted average common shares
outstanding 13,900,685 9,625,086 13,068,325 9,568,287
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
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<PAGE> 4
<TABLE>
ZOLTEK COMPANIES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
------------------------------------
<CAPTION>
(UNAUDITED)
Nine months ended June 30,
--------------------------
1996 1995
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<S> <C> <C>
Cash flows from operating activities:
Net income $ 3,792,177 $ 1,258,918
Adjustments to reconcile net income to net cash
provided (used) by operating activities:
Depreciation and amortization 1,955,935 790,361
Gain on sale of fixed assets (39,612)
Unrealized foreign exchange gain (121,881)
Minority interest 27,957
Changes in assets and liabilities, net of effects from purchase of Viscosa:
(Increase) decrease in accounts receivable (1,455,087) 424,521
Decrease in refundable income taxes 199,002
Increase in other receivables (1,332,692)
Increase in inventories (4,167,317) (1,554,816)
Increase in prepaid expenses (51,128) (67,397)
Decrease in inventories held for sale 452,529
Increase in notes receivable (173,830)
Increase in intangible assets (21,925)
Increase (decrease) in trade accounts payable 858,824 (192,551)
Increase (decrease) in other short-term liabilities 63,387 (42,574)
Decrease in reserve for reorganization of acquired operations (383,802)
Increase in income taxes payable 395,234 102,028
Decrease in other long-term liabilities (1,406,729)
Decrease in minority interest (228,887)
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Total adjustments 5,629,024 (341,426)
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Net cash provided (used) by operating activities (1,836,847) 917,492
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Cash flows from investing activities:
Payments for purchase of Viscosa, net of cash acquired (17,555,091)
Payments for purchase of property and equipment, net (2,961,550) (590,977)
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Net cash used by investing activities (20,516,641) (590,977)
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Cash flows from financing activities:
Net decrease in borrowing under credit facilities (1,027,969)
Net proceeds from exercise of stock options and warrants 78,771 279,797
Proceeds from secondary stock offering 26,291,321
Proceeds from issuance of notes payable 9,124,022 5,650,000
Repayment of notes payable (6,609,341) (5,148,268)
(Increase) decrease in loan origination and deferred costs 283,773 (34,921)
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Net cash provided (used) by financing activities 29,168,546 (281,361)
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Net increase in cash 6,815,058 45,154
Cash and cash equivalents at beginning of period 1,677,400 156,496
------------ -----------
Cash and cash equivalents at end of period $ 8,492,458 $ 201,650
============ ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 704,495 $ 598,199
Income taxes $ 1,068,000 $ 458,970
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
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ZOLTEK COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
1. UNAUDITED FINANCIAL STATEMENTS
In the opinion of management, the accompanying unaudited consolidated
financial statements include all adjustments of a normal and recurring
nature necessary for a fair presentation of the financial position and
results of operations as of the dates and for the periods presented.
These financial statements should be read in conjunction with the
Company's 1995 Annual Report which includes consolidated financial
statements and notes thereto for the fiscal year ended September 30,
1995. The results for the quarter and nine-month period ended June 30,
1996 are not necessarily indicative of the results which may be expected
for the fiscal year ending September 30, 1996.
2. PRINCIPLES OF CONSOLIDATION
Zoltek Companies, Inc. (the Company) is a holding company, having no
operations of its own. Zoltek Corporation (Zoltek) develops,
manufactures and markets carbon fibers for selected markets, including
uses in aircraft brakes and other composite materials. In August 1995,
the Company disposed of its former equipment and services business unit,
which supplied industrial process equipment, aftermarket components and
repair services, and has been reclassified as a discontinued operation
(Note 7). Zoltek Magyar Viscosa Rt (Viscosa) manufactures and markets
to the textile industry acrylic and nylon fibers and yarns. Other
Viscosa products include nylon granules, plastic grids and nets, and
carboxyl-methyl cellulose. In addition, Viscosa provides public works
services for plant use and to the town of Nyergesujfalu, Hungary.
Viscosa maintains its accounting records in accordance with Hungarian
law. The accompanying financial statements have been prepared in
accordance with U.S. generally accepted accounting principles.
Viscosa's consolidated balance sheet was translated from Hungarian
Forints to U.S. Dollars at the exchange rate in effect at the balance
sheet date, while its consolidated statements of operations were
translated using the average exchange rates in effect during the period.
The consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiaries, Zoltek and Viscosa. All
significant intercompany transactions and balances have been eliminated.
3. ACQUISITION
On December 8, 1995, the Company completed the acquisition of Viscosa.
Pursuant to agreements with the Hungarian State Property Agency and
other shareholders and lenders, the Company acquired approximately 95%
of the equity ownership and retired substantially all the debt of
Viscosa for an aggregate amount of approximately $18 million.
Substantially all the remaining equity was owned by Viscosa's employees.
In the second quarter of fiscal year 1996, the Company made $3 million
available to fund Viscosa's working capital requirements. Subsequent to
June 30, 1996, the Company made an additional $1 million available to fund
Viscosa's cash requirements and the Company believes that Viscosa's
operations may require up to an additional $1 million to supplement
Viscosa's internally generated funds and short-term credit facilities
through the end of fiscal 1996. The Viscosa acquisition is reported under
the purchase method of accounting and is included in the Company's
consolidated financial statements from the date of acquisition. The
preliminary purchase price allocation includes assets and liabilities
acquired at their estimated fair values. The excess of the fair market
value of the assets acquired over the purchase price was allocated to
reduce property and equipment.
Set forth below are pro forma combined results of operations of Zoltek
and Viscosa for the nine months ended June 30, 1996 as if the Viscosa
acquisition had been completed as of October 1, 1995 and for the nine
months ended June 30, 1995 as if the Viscosa acquisition had been
completed as of October 1, 1994:
<TABLE>
<CAPTION>
NINE MONTHS ENDED JUNE 30,
--------------------------
1996 1995
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<S> <C> <C>
Net sales $ 58,579 $ 47,290
Income (loss) before extraordinary items 3,605 (1,926)
Net income 3,577 8,701<F*>
Net income per share $ 0.26 $ 0.69
<FN>
- ---------------------------
<F*> The period ended June 30, 1995 includes extraordinary items related to
the sale of certain assets and the forgiveness of certain debt in
December 1994 for a net gain of $10.6 million.
</TABLE>
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<PAGE> 6
The pro forma combined financial information set forth above is not
necessarily indicative of future results of operations or results of
operations that would have been reported for the periods indicated had
the acquisition been completed as of the first day of each period
presented.
4. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
JUNE 30, SEPTEMBER 30,
1996 1995
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<S> <C> <C>
Raw materials $ 5,563,050 $1,091,113
Work-in-process 1,454,508 106,343
Finished goods 7,141,229 1,929,883
----------- ----------
$14,158,787 $3,127,339
=========== ==========
</TABLE>
5. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
JUNE 30, SEPTEMBER 30,
1996 1995
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<S> <C> <C>
Land $ 1,040,904 $ 314,009
Buildings and improvements 14,723,332 5,290,932
Machinery and equipment 20,440,503 7,272,943
Furniture and fixtures 2,115,771 718,687
Construction in progress 647,308
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38,967,818 13,596,571
Less: accumulated depreciation (6,080,580) (4,240,798)
----------- ----------
$32,887,238 $9,355,773
=========== ==========
</TABLE>
6. SECONDARY STOCK OFFERING
Pursuant to a secondary public offering in November 1995, the Company sold
2,085,000 shares of common stock and received net proceeds of $26.3 million.
The Company used approximately $18 million to fund the purchase of Viscosa
and the remaining proceeds will be utilized for Viscosa's working capital
needs, and general corporate purposes, including capital expenditures.
7. DISCONTINUED OPERATIONS
On August 31, 1995, the Company sold the valves, pumps and repair and fluid-
sealing product lines for aggregate consideration of approximately $2.5
million (consisting of $1.7 million cash, $586,000 of debt assumption and a
note receivable for $200,000). The sale resulted in an after-tax gain of
$230,000 for financial statement purposes which was recorded in the fourth
quarter of fiscal 1995. The Company sold the unit's remaining product line,
flexible graphite products, for $206,000 on June 30, 1996 which approximates
the net book value of such assets.
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<PAGE> 7
8. REGISTRATION STATEMENT
On July 3, 1996, the Company filed a registration statement with the Securities
and Exchange Commission with respect to the proposed public offering of 2
million shares of Common Stock (plus up to an additional 300,000 shares of
Common Stock to cover over-allotments). This registration statement has not
yet become effective.
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<PAGE> 8
ZOLTEK COMPANIES, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
GENERAL
- -------
During the nine months ended June 30, 1996, the Company achieved significant
sales growth in its carbon fibers business by continuing to execute its
strategy to expand the market for its low-cost carbon fibers. Demand for
carbon fibers continues to outpace the Company's production capacity. To
meet this demand, the Company completed the construction of two batch
processing furnaces at its St. Charles, Missouri facility during the third
quarter of fiscal 1996 and plans to add two more furnaces by the end of the
first quarter of fiscal 1997. In addition, the Company is constructing a
facility to house initially two continuous carbonization lines in Hungary and
is seeking a suitable site for an additional carbon fibers production
facility in the United States.
An integral part of the Company's strategy is to secure reliable low-cost
sources of raw materials used in the production of carbon fibers. Pursuant
to this strategy, on December 8, 1995, the Company completed the acquisition
of Viscosa. Pursuant to agreements with the Hungarian State Property Agency
and other shareholders and lenders, the Company acquired approximately 95% of
the equity ownership and retired substantially all the debt of Viscosa for an
aggregate amount of $18 million. Substantially all the remaining equity was
owned by Viscosa's employees. The Company is in the process of purchasing
the Viscosa shares owned by the Viscosa employees in exchange for shares of
Zoltek Common Stock or cash.
Pursuant to a secondary public offering in November 1995, the Company sold
2,085,000 shares of common stock and received net proceeds of approximately
$26.3 million. The Company used $18 million to fund the purchase of Zoltek
Magyar Viscosa Rt ("Viscosa") and the remaining proceeds will be utilized for
Viscosa's working capital needs and general corporate purposes, including
capital expenditures. In the second fiscal quarter, the Company made $3
million available to fund Viscosa's working capital requirements. Subsequent
to June 30, 1996, the Company made available an additional $1 million to fund
Viscosa's cash requirements. The Company believes that Viscosa's operations
may require up to an additional $1 million to supplement Viscosa's internally
generated funds and short-term borrowing facilities. The Viscosa acquisition
is reported under the purchase method of accounting and is included in the
Company's consolidated financial statements from the date of acquisition.
On May 20, 1996, the Company announced a two-for-one stock split, payable in
the form of a 100% stock dividend. The stock dividend was paid on June 17,
1996 to shareholders of record on June 3, 1996.
On July 3, 1996, the Company filed a registration statement with the
Securities and Exchange Commission covering 2 million shares of Common Stock
(plus up to an additional 300,000 shares of Common Stock to cover over-
allotments). The Company will use the net proceeds from the sale of shares
for capital expenditures to expand its carbon fibers manufacturing capacity
and for related corporate purposes. This registration statement has not yet
become effective. These securities may not be sold nor may offers to buy be
accepted prior to the time the registration statement becomes effective.
This quarterly report shall not constitute an offer to sell or a solicitation
of an offer to buy nor shall there be any sale of these securities in any
State in which such offer, solicitation or sale would be unlawful prior to
registration and qualification under the securities law of any such State.
RESULTS OF OPERATIONS
- ---------------------
THREE MONTHS ENDED JUNE 30, 1996 COMPARED TO THREE MONTHS ENDED JUNE 30, 1995
- -----------------------------------------------------------------------------
Net sales for the Company increased 540% to $19.0 million for the third
quarter of fiscal 1996. The higher net sales resulted from an increase in
Zoltek's carbon fibers business and the inclusion of Viscosa's sales revenue
of $14.1 million. Net sales from Zoltek's carbon fibers business totaled
$4.9 million in the third quarter of fiscal 1996, an increase of 64% compared
to the third quarter of fiscal 1995. Higher sales revenues were recorded
across carbon fiber product categories. Growth in sales was constrained by
production capacity. Although actual carbon fibers capacity varies with
production mix, during the quarter ended June 30, 1996, the Company's sales
represented manufacturing levels at substantially full capacity utilization.
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<PAGE> 9
Gross profit increased 314% to $5.0 million for the third quarter of fiscal
1996. Increased gross profit resulted from a 64% increase in gross profit
from Zoltek's carbon fibers business to $2.0 million compared to $1.2 million
in the corresponding quarter in the prior year and the operation of Viscosa
after its acquisition by the Company. As a percentage of net sales, the
Company's gross profit decreased to 27% for the three months ended June 30,
1996 from 41% for the three months ended June 30, 1995 due to the inclusion
of lower margin sales at Viscosa. Excluding Viscosa, Zoltek's gross margin
from the carbon fibers business was 41% for the third quarter of both 1996
and 1995.
Selling, general and administrative expenses were $2.7 million in the third
quarter of the current fiscal year. Excluding the effects of the Viscosa
acquisition, selling, general and administrative expenses increased to
$701,000 from $459,000 in the third quarter of fiscal 1995. This increase
was due to the addition of engineering, development and administrative staff
during the nine months ended June 30, 1996, as well as costs related to the
increased sales level. However, as a percentage of net sales, selling,
general and administrative expenses for the carbon fibers business improved
to 14% in the third quarter of fiscal 1996 from 15% in the corresponding
quarter of the previous fiscal year.
Income from continuing operations totaled $2.4 million for the third quarter
of fiscal 1996, an increase of 214% compared to the third quarter of fiscal
1995. Income from continuing operations (after deducting general corporate
expenses) from Zoltek's carbon fibers business increased 71%, to $1.3 million
for the third quarter of fiscal 1996 from the third quarter of fiscal 1995.
For the third quarter of fiscal 1996, Viscosa reported income from operations
of $1.1 million. Subsequent to its acquisition, Viscosa's operations
benefited from Zoltek's involvement by improved raw material procurement
(through better costs and more consistent availability), elimination of debt
and lease obligations, and higher production rates. The impact of Viscosa's
results on the Company's results of operations for the interim period of
fiscal 1996 is not necessarily indicative of future financial performance.
Interest expense was $261,000 for the three months ended June 30, 1996.
Interest income for the period was $125,000. Net interest expense declined
22% for the third quarter of 1996 compared to the third quarter of 1995
largely due to interest generated on increased cash balances in the current
year.
During the third quarter of fiscal 1996, the Company reported income tax
expense of $507,000 compared to $223,000 for the third quarter of fiscal
1995. The effective tax rate remained relatively constant between years,
excluding the effects of the Viscosa acquisition. The statutory tax rate for
the Viscosa operation in Hungary is 18%. At present, Viscosa has net
operating loss carryforwards arising from losses incurred prior to the
Company's acquisition. These net operating loss carryforwards result in a
reduced income tax liability. Due to the substantial uncertainty of the
availability of these net operating loss carryforwards to reduce Viscosa's
future income tax liability, the Company has recognized a full valuation
allowance against these net operating loss carryforwards.
In connection with the Company's determination in August 1995, to dispose of
its equipment and services business unit, the Company put the unit's business
and related assets up for sale. The valves, pumps and repair and fluid
sealing product lines were sold in August 1995. The Company sold the unit's
remaining product line, flexible graphite products, in consideration of a
note receivable for $206,000 on June 30, 1996, which approximated the net
book value of such assets.
As a result of the foregoing, net income increased 257% to $1.6 million in
the third quarter of fiscal 1996 from $448,000 reported for the third quarter
of fiscal 1995. Similarly, the Company reported net income per share of $.12
in the third quarter of fiscal 1996 compared to net income per share of $.05
in last year's corresponding period. Weighted average common shares
increased to 13.9 million from 9.6 million due primarily to the secondary
offering in November 1995.
NINE MONTHS ENDED JUNE 30, 1996 COMPARED TO NINE MONTHS ENDED JUNE 30, 1995
- ---------------------------------------------------------------------------
Net sales for the Company increased 444% to $47.2 million for the first nine
months of fiscal 1996. The higher net sales resulted from an increase in
Zoltek's carbon fibers business and the consolidation of Viscosa's activities
since its acquisition on December 8, 1995. For the period from December 8,
1995 to June 30, 1996, Viscosa reported net sales of $33.0 million. Net
sales from Zoltek's carbon fibers business totaled $14.2 million for the
first nine months of fiscal 1996, an increase of 64% compared to the first
nine months of fiscal 1995. Higher sales revenues were recorded across
carbon fiber product categories. Demand for the Company's carbon fibers
continues to outpace supply. Although actual carbon fibers capacity varies
with production mix, during the quarter ended June 30, 1996, the Company's
sales represented manufacturing levels at substantially full capacity
utilization.
Gross profit increased 242% to $12.1 million for the first nine months of
fiscal 1996. Increased gross profit resulted from a 60% increase in gross
profit from Zoltek's carbon fibers business to $5.7 million compared to $3.6
million in the corresponding period in the prior year and the operation of
Viscosa after its acquisition by the Company. As a percentage of net sales, the
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<PAGE> 10
Company's gross profit decreased to 26% for the nine months ended June
30, 1996 from 41% for the nine months ended June 30, 1995 due to the
consolidation of Viscosa. Excluding Viscosa, Zoltek's gross margin from the
carbon fibers business was 40% for the first nine months of fiscal 1996
compared to 41% for the corresponding period of 1995. This decrease was
attributable to a change in product mix and reduced selling prices as the
Company pursues its low-cost carbon fibers strategy of broadening
applications for carbon composites through enhanced affordability.
Selling, general and administrative expenses were $6.6 million in the first
nine months of the current fiscal year. Excluding the effects of the Viscosa
acquisition, selling, general and administrative expenses increased to $1.8
million from $1.3 million in the first nine months of fiscal 1995. This
increase was due to the addition of engineering, development and
administrative staff during the nine months ended June 30, 1996, as well as
costs related to the increased sales level. However, as a percentage of net
sales, selling, general and administrative expenses for the carbon fibers
business improved to 13% in the first nine months of fiscal 1996 from 15% in
the corresponding period of the previous fiscal year.
Income from continuing operations totaled $5.6 million for the first nine
months of fiscal 1996, an increase of 151% compared to the first nine months
of fiscal 1995. Income from continuing operations (after deducting general
corporate expenses) from Zoltek's carbon fibers business increased 74%, to
$3.9 million for the first nine months of fiscal 1996 from the first nine
months of fiscal 1995. For the period from December 8, 1995 to June 30,
1996, Viscosa reported income from operations of $1.7 million. Subsequent to
its acquisition, Viscosa's operations benefited from Zoltek's involvement by
improved raw material procurement (through better costs and more consistent
availability), elimination of debt and lease obligations, and higher
production rates. The impact of Viscosa's results on the Company's
operations for the interim period of fiscal 1996 is not necessarily
indicative of future financial performance.
Interest expense was $696,000 for the nine months ended June 30, 1996.
Interest income for the period was $387,000. Net interest expense declined
44% for the first nine months of 1996 compared to the first nine months of
1995 largely due to interest generated on increased cash balances in the
current year.
During the first nine months of fiscal 1996, the Company reported income tax
expense of $1.4 million compared to $627,000 for the first nine months of
fiscal 1995. The effective tax rate remained relatively constant between
years, excluding the effects of the Viscosa acquisition. The statutory tax
rate for the Viscosa operation in Hungary is 18%. At present, Viscosa has
net operating loss carryforwards arising from losses incurred prior to the
Company's acquisition. These net operating loss carryforwards result in a
reduced income tax liability. Due to the substantial uncertainty of the
availability of these net operating loss carryforwards to reduce Viscosa's
future income tax liability, the Company has recognized a full valuation
allowance against these net operating loss carryforwards.
In connection with the Company's determination in August 1995, to dispose of
its equipment and services business unit, the Company put the unit's business
and related assets up for sale. The valves, pumps and repair and fluid
sealing product lines were sold in August 1995. The Company sold the unit's
remaining product line, flexible graphite products, on June 30, 1996 in
consideration of a note receivable for $206,000, which approximates the net
book value of such assets.
As a result of the foregoing, net income increased 201% to $3.8 million in
the first nine months of fiscal 1996 from $1.3 million reported for the first
nine months of fiscal 1995. Similarly, the Company reported net income per
share of $.29 in the first nine months of fiscal 1996 compared to net income
per share of $.13 in last year's corresponding period. Weighted average
common shares increased to 13.1 million from 9.6 million due primarily to the
secondary offering in November 1995.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
At June 30, 1996, the Company reported working capital of $14.3 million
compared to working capital of $6.3 million at September 30, 1995. The
increase in working capital was due primarily to receipt of the net proceeds
of the secondary stock offering raised in excess of amounts used to finance
the acquisition of Viscosa, as well as increased inventory levels associated
with the acquisition and the repayment of long-term liabilities. Other
receivables of $2.1 million consisted primarily of VAT and import tax refunds
due to Viscosa from the Hungarian taxing authorities. Other short-term
liabilities of $1.5 million consisted primarily of taxes owed by Viscosa which
relate to payroll taxes, VAT and advances from customers. Other long-term
liabilities were related to various supply agreements between Viscosa and its
vendors.
During the first nine months of fiscal 1996, the Company incurred capital
expenditures of $3.1 million for various projects, primarily increasing
capacity and improving infrastructure. These expenditures were financed
principally with cash generated from operations.
- 10 -
<PAGE> 11
The Company currently is producing carbon fibers at its full operational
capacity and needs to expand its capacity to meet indicated and forecasted
demand for carbon fiber products. The Company is adding to its carbon fibers
batch process capacity at its St. Charles, Missouri, plant. The Company
expects to fund the capital expenditures associated with this project with
available cash and borrowings. In order to further increase its carbon
fibers production capacity, the Company is constructing a building at its
Viscosa facility in Hungary which initially will house two continuous
carbonization lines which the Company expects to be operational by the second
and third quarters of fiscal 1997, respectively. The Company also is in the
process of selecting a site in the United States at which it intends
initially to construct two additional lines planned to be operational by the
end of fiscal 1997. Moreover, the Company plans to establish up to 12
additional lines at its facilities in Hungary and the United States by the
end of fiscal 1998. The Company anticipates that the construction of these
continuous carbonization line facilities will be funded with the proceeds of
its proposed stock offering, together with internally generated funds and
borrowings under credit facilities.
The Company's Revolving Credit Agreement has a maximum borrowing capacity of
$3.5 million. At June 30, 1996, there were no outstanding borrowings under
this line of credit. The Company also has $1.0 million of unused borrowing
ability under a working capital credit facility. The Company has received a
commitment from its bank for a $5 million secured equipment loan to finance
planned U.S. capital expenditures. The Company currently has outstanding a
term loan with a principal balance of $2.0 million which matures in 1999.
The Company is currently reviewing financing options, including funding from
the International Finance Corporation and the European Bank of Reconstruction
and Development for non-recourse financing, for the addition of carbon fiber
manufacturing lines at Viscosa's facilities.
Since the beginning of fiscal 1994, the Company has obtained long-term
financing utilizing its equity in its real estate properties. The applicable
loan agreements prohibit the payment of dividends without the consent of the
lenders.
Pursuant to a secondary stock offering in November 1995, the Company sold 4.2
million shares of Common Stock and realized net proceeds of approximately
$26.3 million. The Company utilized approximately $18 million to fund the
purchase of Viscosa. In the second and fourth quarters of fiscal 1996, the
Company made available a total of $4 million to fund Viscosa's working
capital requirements. The remaining proceeds will be used for working
capital needs of Viscosa and general corporate purposes, including capital
expenditures. The Company believes that Viscosa's operations may require an
additional $1 million of working capital during the remainder of fiscal 1996
to supplement Viscosa's internally generated funds. Beginning in the second
quarter of fiscal 1996, Viscosa obtained short-term financing consisting of
working capital loans and commercial letters of credit of which $3.5 million
was outstanding as of June 30, 1996.
In August 1995, the Company sold its valves, pumps and repair and fluid-
sealing product lines for an aggregate sale price of approximately $2.5
million (consisting of $1.7 million cash, $586,000 of debt assumption and a
note receivable for $200,000). The Company sold the unit's remaining product
line, flexible graphite products, on June 30, 1996 in consideration of a note
receivable for $206,000.
The Company believes that identified and forecasted customer demand for
carbon fibers likely will require substantial increases in capacity. The
Company's current plans call for capital expenditures of approximately $70
million through fiscal 1998 for this expansion. The Company anticipates that
it will use the proceeds of the proposed stock offering, together with
internally generated funds and borrowings under credit facilities, to fund
such capital expenditures.
- 11 -
<PAGE> 12
<TABLE>
ZOLTEK COMPANIES, INC.
SEGMENT INFORMATION
<CAPTION>
(UNAUDITED)
NINE MONTHS ENDED JUNE 30,
--------------------------
1996<F*> 1995
---- ----
<S> <C> <C>
Net sales
Zoltek Corporation $14,232,216 $ 8,674,542
Zoltek Magyar Viscosa Rt 32,981,278
----------- -----------
$47,213,494 $ 8,674,542
=========== ===========
Income from operations
Zoltek Corporation $ 4,681,036 $ 2,632,028
Zoltek Magyar Viscosa Rt 1,721,959
General corporate expenses (815,481) (407,843)
----------- -----------
$ 5,587,514 $ 2,224,185
=========== ===========
Total assets
Zoltek Corporation $20,209,054 $18,252,106
Zoltek Magyar Viscosa Rt 40,607,412
General corporate 7,581,958
----------- -----------
$68,398,424 $18,252,106
=========== ===========
Capital expenditures
Zoltek Corporation $ 2,404,148 $ 448,477
Zoltek Magyar Viscosa 718,324
----------- -----------
$ 3,122,472 $ 448,477
=========== ===========
Depreciation and amortization expense
Zoltek Corporation $ 818,709 $ 591,930
Zoltek Magyar Viscosa 1,137,226
----------- -----------
$ 1,955,935 $ 591,930
=========== ===========
<FN>
- ------------------------
<F*> Information for Zoltek Magyar Viscosa Rt
is from the date of acquisition,
December 8, 1995, to June 30, 1996
</TABLE>
- 12 -
<PAGE> 13
ZOLTEK COMPANIES, INC.
PART II. OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
(a) Exhibits:
27 Financial Data Schedule
(b) Reports on Form 8-K: No reports on Form 8-K were
filed during the three months ended June 30, 1996.
SIGNATURE
---------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Zoltek Companies, Inc.
(Registrant)
Date: August 14, 1996 By: /s/ WILLIAM P. DOWNEY
--------------- ------------------------------------
William P. Downey
Chief Financial Officer
- 13 -
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-START> APR-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 877,379
<SECURITIES> 7,615,079
<RECEIVABLES> 9,981,943
<ALLOWANCES> 158,297
<INVENTORY> 14,158,787
<CURRENT-ASSETS> 34,681,265
<PP&E> 38,967,818
<DEPRECIATION> 6,080,580
<TOTAL-ASSETS> 68,398,424
<CURRENT-LIABILITIES> 20,379,276
<BONDS> 5,395,910
<COMMON> 139,103
0
0
<OTHER-SE> 39,372,619
<TOTAL-LIABILITY-AND-EQUITY> 68,398,424
<SALES> 18,999,243
<TOTAL-REVENUES> 18,999,243
<CGS> 13,901,827
<TOTAL-COSTS> 13,901,827
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 261,092
<INCOME-PRETAX> 2,097,621
<INCOME-TAX> 506,784
<INCOME-CONTINUING> 1,590,837
<DISCONTINUED> 16,157
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,600,884
<EPS-PRIMARY> 0.12
<EPS-DILUTED> 0.12
</TABLE>
