1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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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 March 31, 1996 Commission File No. 0-20600
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ZOLTEK COMPANIES, INC.
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(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 May 1, 1996,
6,939,695 shares of Common Stock, $.01 par value, were outstanding.
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ZOLTEK COMPANIES, INC.
CONSOLIDATED BALANCE SHEET
--------------------------
(UNAUDITED)
MARCH 31, SEPTEMBER 30,
ASSETS 1996 1995
------------ -------------
Current assets:
Cash and cash equivalents. . . . . . . . . . . . . $ 8,837,424 $ 1,677,400
Accounts receivable, less allowance for doubtful
accounts of $164,504 and $28,038, respectively. 7,981,517 3,066,427
Inventories. . . . . . . . . . . . . . . . . . . . 12,942,561 3,127,339
Prepaid expenses . . . . . . . . . . . . . . . . . 315,777 27,144
Other receivable . . . . . . . . . . . . . . . . . 2,038,842
Assets held for sale . . . . . . . . . . . . . . . 244,946 581,472
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Total current assets . . . . . . . . . . . . . 32,361,067 8,479,782
Property and equipment, net . . . . . . . . . . . . . . 31,802,903 9,355,773
Notes receivable . . . . . . . . . . . . . . . . . . . 374,353 200,000
Loan origination and deferred costs . . . . . . . . . . 64,919 354,175
Intangible assets, net. . . . . . . . . . . . . . . . . 151,312
Other assets . . . . . . . . . . . . . . . . . . . 14,925 500
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Total assets . . . . . . . . . . . . . . . . . $ 64,769,479 $ 18,390,230
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term notes payable . . . . . . . . . . . . . $ 1,959,844
Current maturities of long-term debt . . . . . . . 861,233 $ 744,542
Trade accounts payable . . . . . . . . . . . . . . 9,224,829 861,578
Other short-term liabilities . . . . . . . . . . . 1,690,265 290,060
Reserve for reorganization of acquired operations. 3,654,699
Income taxes payable . . . . . . . . . . . . . . . 263,486 262,052
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Total current liabilities. . . . . . . . . . . 17,654,356 2,158,232
Deferred income taxes . . . . . . . . . . . . . . . . . 522,000 522,000
Long-term debt, less current maturities . . . . . . . . 5,608,714 6,191,157
Other long-term liabilities . . . . . . . . . . . . . . 2,473,623
Minority interest . . . . . . . . . . . . . . . . . . . 591,977
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, 6,939,695 and
4,813,203 shares issued and outstanding,
respectively. . . . . . . . . . . . . . . . . . . 69,397 48,132
Additional paid-in capital . . . . . . . . . . . . 30,395,745 4,208,336
Retained earnings. . . . . . . . . . . . . . . . . 7,453,667 5,262,373
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37,918,809 9,518,841
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Total liabilities and shareholders' equity . . $ 64,769,479 $ 18,390,230
============ ============
The accompanying notes are an integral part of the unaudited consolidated financial statements.
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ZOLTEK COMPANIES, INC.
CONSOLIDATED STATEMENT OF INCOME
--------------------------------
(UNAUDITED) (UNAUDITED)
THREE MONTHS ENDED MARCH 31, SIX MONTHS ENDED MARCH 31,
---------------------------- --------------------------
1996 1995 1996 1995
---- ---- ---- ----
Net sales $18,862,542 $3,302,401 $28,214,251 $5,704,371
Cost of sales 14,465,937 2,056,444 21,165,470 3,379,414
----------- ---------- ----------- ----------
Gross profit 4,396,605 1,245,957 7,048,781 2,324,957
Selling, general and administrative
expenses 2,762,713 491,225 3,888,687 873,697
----------- ---------- ----------- ----------
Income from operations 1,633,892 754,732 3,160,094 1,451,260
Other income (expense):
Interest expense (252,443) (191,451) (434,850) (375,174)
Interest income 149,709 262,186
Other, net 166,976 724 136,573 1,324
----------- ---------- ----------- ----------
Income from continuing operations
before income taxes 1,698,134 564,005 3,124,003 1,077,410
Provision for income taxes 447,609 211,971 933,289 403,741
----------- ---------- ----------- ----------
Net income from continuing
operations 1,250,525 352,034 2,190,714 673,669
Income from discontinued operations,
net of income taxes 5,192 89,578 22,427 137,363
----------- ---------- ----------- ----------
Net income before minority
interest 1,255,717 441,612 2,213,141 811,032
Less: interest of minority
shareholders in income of
consolidated subsidiary 15,711 21,846
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Net income $ 1,240,006 $ 441,612 $ 2,191,295 $ 811,032
=========== ========== =========== ==========
Net income per share:
Income from continuing
operations $ .18 $ .07 $ .35 $ .14
Discontinued operations .00 .02 .00 .03
Minority interest .00 .00 .00 .00
----------- ---------- ----------- ----------
Net income per share $ .18 $ .09 $ .35 $ .17
=========== ========== =========== ==========
Weighted average common shares
outstanding 6,925,549 4,799,024 6,327,210 4,769,928
The accompanying notes are an integral part of the unaudited consolidated financial statements.
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ZOLTEK COMPANIES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
------------------------------------
(UNAUDITED)
SIX MONTHS ENDED MARCH 31,
--------------------------
1996 1995
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Cash flows from operating activities:
Net income . . . . . . . . . . . . . . . . . . . . . . . $ 2,191,295 $ 811,032
Adjustments to reconcile net income to net cash provided
(used) by operating activities:
Depreciation and amortization. . . . . . . . . . . . 1,160,779 530,127
Unrealized foreign exchange loss . . . . . . . . . . 11,481
Minority interest. . . . . . . . . . . . . . . . . . 21,846
Changes in assets and liabilities, net of effects
from purchase of Viscosa:
(Increase) decrease in accounts receivable. . . . . 238,395 (140,421)
Decrease in refundable income taxes . . . . . . . . 194,918
Increase in other receivables . . . . . . . . . . . (1,243,434)
Increase in inventories . . . . . . . . . . . . . . (2,952,103) (1,484,619)
Increase in prepaid expenses. . . . . . . . . . . . (288,633) (141,513)
Decrease in inventories held for sale . . . . . . . 284,822
Decrease in notes receivable. . . . . . . . . . . . 80,093
Increase in intangible assets . . . . . . . . . . . (21,925)
Increase in trade accounts payable. . . . . . . . . 14,310 646,608
Increase (decrease) in other short-term liabilities 248,174 (80,441)
Decrease in reserve for reorganization. . . . . . . (295,301)
Increase in income taxes payable. . . . . . . . . . 1,434 81,028
Decrease in other long-term liabilities . . . . . . (1,380,476)
Decrease in minority interest . . . . . . . . . . . (18,148)
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Total adjustments. . . . . . . . . . . . . . . . . . . (4,138,686) (394,313)
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Net cash provided (used) by operating activities. . . . . (1,947,391) 416,719
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Cash flows from investing activities:
Payments for purchase of Viscosa, net of cash
acquired . . . . . . . . . . . . . . . . . . . . . .(17,309,887)
Payments for purchase of property and equipment. . . . (1,229,891) (290,865)
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Net cash used by investing activities . . . . . . . . . .(18,539,778) (290,865)
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Cash flows from financing activities:
Net increase (decrease) in borrowing under credit
facilities . . . . . . . . . . . . . . . . . . . . . (1,027,969)
Net proceeds from exercise of stock options and
warrants . . . . . . . . . . . . . . . . . . . . . . (84,684) 268,797
Proceeds from secondary stock offering . . . . . . . . 26,291,321
Increase in loan origination costs . . . . . . . . . . (6,824)
Decrease in deferred costs . . . . . . . . . . . . . . 286,256
Proceeds from issuance of notes payable. . . . . . . . 4,983,772 5,650,000
Repayment of notes payable . . . . . . . . . . . . . . (3,829,472) (4,968,791)
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Net cash provided (used) by financing activities. . . . . 27,647,193 (84,787)
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Net increase in cash. . . . . . . . . . . . . . . . . . . 7,160,024 41,067
Cash and cash equivalents at beginning of period. . . . . 1,677,400 156,496
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Cash and cash equivalents at end of period. . . . . . . .$ 8,837,424 $ 197,563
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SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest . . . . . . . . . . . . . . . . . . . . . . .$ 415,683 $ 405,940
Income taxes . . . . . . . . . . . . . . . . . . . . .$ 931,855 $ 213,054
The accompanying notes are an integral part of the unaudited consolidated financial statements.
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ZOLTEK COMPANIES, INC.
NOTES TO UNAUDITED 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 six-month period
ended March 31, 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 it 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 is 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.
The Company believes that Viscosa's operations may require up to an
additional $2 million to supplement Viscosa's internally generated funds
and short-term credit 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. 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 six months ended March 31, 1996 as if the
Viscosa acquisition had been completed as of October 1, 1995 and for the
six months ended March 31, 1995 as if the Viscosa acquisition had been
completed as of October 1, 1994:
Six months ended March 31,
--------------------------
1996 1995
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Net sales . . . . . . . . . . . . . . . . $39,580,721 $32,367,952
Income (loss) before extraordinary items. 2,149,557 (2,057,034)
Net income. . . . . . . . . . . . . . . . 2,129,809 9,019,633<F*>
Net income per share. . . . . . . . . . . $ .31 $ 1.30
<FN>
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<F*> The period ended March 31, 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 $11.3 million.
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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:
MARCH 31, SEPTEMBER 30,
1996 1995
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Raw materials . . . . . . . . . . . . . . . . . . $ 4,641,777 $ 1,091,113
Work-in-process . . . . . . . . . . . . . . . . . 1,665,622 106,343
Finished goods. . . . . . . . . . . . . . . . . . 6,635,162 1,929,883
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$12,942,561 $ 3,127,339
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5. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
MARCH 31, SEPTEMBER 30,
1996 1995
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Land. . . . . . . . . . . . . . . . . . . . . . . $ 1,040,904 $ 314,009
Buildings and improvements. . . . . . . . . . . . 14,725,584 5,290,932
Machinery and equipment . . . . . . . . . . . . . 19,208,048 7,272,943
Furniture and fixtures. . . . . . . . . . . . . . 2,047,682 718,687
Construction in progress. . . . . . . . . . . . . 107,094
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37,129,312 13,596,571
Less: accumulated depreciation . . . . . . . . . (5,326,409) (4,240,798)
----------- -----------
$31,802,903 $ 9,355,773
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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.
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7. DISCONTINUED OPERATIONS
In view of the equipment and services business unit's operating
performance, demands of the unit on the Company's finite managerial
resources and the perceived opportunities in the carbon fibers
operations, the Company's Board of Directors authorized in August 1995
the disposition of the Company's equipment and services business unit.
Revenues from the equipment and services business unit were $566,000 and
$3.3 million for the six months ended March 31, 1996 and 1995,
respectively.
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 approximately $230,000 for financial statement
reporting purposes which was recorded in the fourth quarter of fiscal
1995. The Company is holding for sale the equipment and services
business unit's remaining product line, flexible graphite products,
which the Company expects to dispose of by the end of the third quarter
of fiscal 1996.
The assets of the flexible graphite products unit are presented as
Assets held for sale in the consolidated balance sheet at March 31, 1996
at their net book value which is their estimated net realizable value.
No loss on the discontinuance of the business unit is anticipated. The
components of Assets held for sale at March 31, 1996 consist of the
following:
Inventories . . . . . . . . $167,707
Property and equipment, net 77,239
--------
$244,946
========
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ZOLTEK COMPANIES, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
GENERAL
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During the second quarter of fiscal 1996, the Company achieved significant
sales growth in its carbon fiber business, while it continued to execute its
strategy of expanding the market and its production capacity for low cost
carbon fibers. The Company began construction of continuous carbon fiber
line facilities at its plant in Hungary, and is seeking to locate a suitable
site for an additional 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 is
owned by Viscosa's employees. The Company plans to purchase the Viscosa
shares owned by the Viscosa employees in exchange for shares of Zoltek 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. The
Company believes that Viscosa's operations may require up to an additional $2
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
RESULTS OF OPERATIONS
- - ---------------------
THREE MONTHS ENDED MARCH 31, 1996 COMPARED TO THREE MONTHS ENDED MARCH 31, 1995
- - -------------------------------------------------------------------------------
The Company's net sales for the second quarter increased 471% to $18.9
million. The increase was due to the inclusion of Viscosa sales revenue of
$14.4 million and an increase in sales of carbon fibers. Revenue from the
carbon fiber business grew 34% to $4.4 million compared to $3.3 million in
the second quarter of fiscal 1995. Revenue from both carbon fiber product
groups (the low cost, high strength carbon fibers and the specialty
application carbon fibers) showed increases from the prior year quarter.
Although actual capacity of carbon fiber production varies with product mix,
the current quarter's level of sales represented manufacturing levels at
substantially full capacity utilization. The Company plans to increase its
capacity for specialty carbon fibers by the fiscal year-end 1996. This
increase in capacity is in response to identified customer demand.
Total Company gross profit increased 253% to $4.4 million. Gross profit
from Zoltek's carbon fiber business increased 51% to $1.9 million. As a
percentage of net sales, Zoltek's gross profit from carbon fiber operations
was 42% in the quarter ended March 31, 1996 compared to 38% in the prior year
quarter. This increase was attributable primarily to variations in the mix
of products sold.
Selling, general and administrative expenses were $2.8 million in the
second quarter of fiscal 1996. Excluding the effect of the Viscosa
acquisition, selling, general and administrative expenses increased 29% to
$635,000 in the second quarter of fiscal 1996 compared to the prior year
quarter. This increase was primarily due to the addition of marketing,
engineering and research and development personnel in the current year. As
a percentage of net sales, selling, general and administrative expenses for
the carbon fiber business decreased to 14.3% in the current year quarter
versus 14.9% in the prior year quarter, reflecting improved leveraging of
fixed costs.
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In response to identified customer demand, the Company plans to increase
its capacity for specialty carbon fibers by fiscal year-end 1996. As
referenced above, the Company has begun efforts to increase capacity of its
low cost, high strength carbon fibers at its Hungarian facility.
Total Company interest expense was $252,000 in the second quarter of fiscal
1996. Interest income for the second fiscal quarter was $150,000. Net
interest expense, net of interest income, declined 46% in the second quarter
of fiscal 1996 compared to the second quarter of fiscal 1995. This decrease
was attributable to increased cash balances and lower outstanding debt
balances in the current year. Debt was reduced through the use of proceeds
from the sale of the equipment and services business unit in the fourth
quarter of fiscal 1995 and the secondary public offering in November 1995.
During the recent three-month period, the Company reported income tax
expense of $448,000 compared to income tax expense of $212,000 in the second
quarter of fiscal 1995, while the effective tax rate remained relatively
constant excluding the effect of the Viscosa acquisition.
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 results of the unit's
operations have been reclassified to separately identify them as discontinued
operations. The valves, pumps and repair and fluid sealing product lines were
sold in August 1995. The Company is holding for sale the unit's remaining
product line, flexible graphite products, which the Company expects to
dispose of by the end of the third quarter of fiscal 1996. The unit reported
net sales of $278,000 in the second quarter of fiscal 1996 and $1.7 million
in the corresponding period of fiscal 1995. The unit reported income from
operations, net of income taxes, of $5,200 in the second quarter of 1996
versus $89,600 in the second quarter of 1995.
The Company completed the acquisition of Viscosa on December 8, 1995. The
transaction is being reported under the purchase method of accounting and is
included in the Company's consolidated financial statements from the date of
acquisition. For the quarter ended March 31, 1996, Viscosa reported net
sales of $14.4 million and income from operations of $388,000. After the
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 second quarter of fiscal 1996 is not necessarily
indicative of future financial performance due to the transition from
government to Company ownership.
As a result of the foregoing, net income increased to $1.2 million in the
second quarter of fiscal 1996 from $442,000 in the second quarter of fiscal
1995. Similarly, the Company reported net income per share of $.18 in the
1996 quarter and $.09 in the 1995 quarter. Weighted average common shares
increased to 6.9 million from 4.8 million due primarily to the secondary
offering in November 1995.
SIX MONTHS ENDED MARCH 31, 1996 COMPARED TO SIX MONTHS ENDED MARCH 31, 1995
- - ---------------------------------------------------------------------------
Net sales for the Company increased 395% to $28.2 million for the first six
months of fiscal year 1996. The higher sales revenue resulted from the
consolidation of Viscosa's activities since its date of acquisition and an
increase in Zoltek's carbon fiber business. Sales revenue from Zoltek's
carbon fiber business totalled $9.4 million in the first half of fiscal year
1996, an increase of 64% compared to the first half of fiscal year 1995.
Higher sales revenues were recorded in both the low cost, high strength
carbon fiber products and the specialty carbon fiber products. Sales revenue
continued to be constrained by production capacity.
Total Company gross profit increased 203% to $7 million for the first half
of fiscal 1996. Increased gross profit resulted from the consolidation of
Viscosa after its acquisition by the Company and a 58% increase in gross
profit from Zoltek's carbon fiber business to $3.7 million as compared to the
same period in the prior year. As a percentage of net sales, Zoltek's gross
profit from the carbon fiber business was 39% and 41%, respectively, when
comparing the first six months of 1996 to 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 fiber strategy of
broadening applications for carbon composites through enhanced affordability.
Selling, general and administrative expenses were $3.9 million in the first
six months of the current fiscal year. Excluding the effects of the Viscosa
acquisition, selling, general and administrative expenses increased to $1.1
million from $874,000 in the first half of fiscal year 1995. This increase
was due to the addition of engineering, development and administrative staff
during the six months ended March 31, 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 fiber business declined to
12% in the recent period versus 15% in the corresponding period of the
previous year. This improvement was due to the rate of growth of the sales
base.
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Total Company interest expense was $435,000 for the six months ended March
31, 1996. Interest income for the period was $262,000. Interest expense,
net of interest income, declined 54% for the first half of 1996 compared to
the first half of 1995. This decrease was largely attributable to increased
cash balances and lower outstanding debt balances in the current year.
During the recent six-month period, the Company reported income tax expense
of $933,000 compared to $404,000 for the first half of 1995, while the
effective tax rate remained relatively constant between years, excluding the
effects of the Viscosa acquisition.
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 results of the unit's
operations have been reclassified to separately identify them as discontinued
operations. The valves, pumps and repair and fluid sealing product lines were
sold in August 1995. The Company is holding for sale the unit's remaining
product line, flexible graphite products, which had a book value of $245,946
at March 31, 1996 and which the Company expects to dispose of by the end of
the third quarter of fiscal 1996. The unit reported net sales of $566,000 in
the first half of fiscal 1996 and $3.3 million in the corresponding period of
fiscal 1995. The unit reported income from operations, net of income taxes,
of $22,400 in the first six months of 1996 versus $137,300 in the first six
months of 1995.
The Company completed the acquisition of Viscosa on December 8, 1995. The
transaction is being reported under the purchase method of accounting and is
included in the Company's consolidated financial statements from the date of
acquisition. For the period from December 8, 1995 to March 31, 1996, Viscosa
reported net sales of $18.9 million and income from operations of $616,000.
After the 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 due to the transition
from government to Company ownership.
As a result of the foregoing, net income increased to $2.2 million in the
first six months of fiscal 1996 from $811,000 reported for the first six
months of 1995. Similarly, the Company reported net income per share of $.35
in the recently completed period and net income per share of $.17 in last
year's period. Weighted average common shares outstanding increased to 6.3
million from 4.8 million due primarily to the secondary offering in November
1995.
LIQUIDITY AND CAPITAL RESOURCES
- - -------------------------------
At March 31, 1996, the Company reported working capital of $14.7 million
compared to working capital of $6.3 million at September 30, 1995. The
improvement in working capital was due primarily to the proceeds of the
secondary stock offering, partially offset by the effect of the acquisition
of Viscosa.
During the first six months of the fiscal year, the Company incurred
capital expenditures of $1.2 million on various projects, primarily
increasing capacity and improving infrastructure. These expenditures were
financed principally with cash generated from operations.
Pursuant to a secondary stock offering in November 1995, the Company sold
2,085,000 shares of Common Stock and realized net proceeds of approximately
$26.3 million. The Company utilized approximately $18 million to fund the
purchase of the Viscosa acquisition. In the second fiscal quarter, the
Company made available $3 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.
During the second quarter Viscosa obtained $5 million of short-term financing
consisting of working capital loans and commercial letters of credit.
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). Pursuant to the sale agreement, the purchaser
agreed to buy two facilities held subject to mortgages with a principal
balance of the debt to be assumed, once lender approval has been obtained
(which is expected to occur by June 30, 1996). Until such sale, the Company
continues to hold the properties subject to a lease to the purchaser, which
provides for rental in an amount equal to loan payments due on the mortgage
loans. The Company is holding for sale the unit's remaining product line,
flexible graphite products with an aggregate book value of $244,946 at March
31, 1996, and which the Company expects to dispose of by the end of the third
quarter of fiscal 1996. The Company believes the value of the buildings
significantly exceeds the amount of the mortgages.
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11
The Company's Revolving Credit Agreement has a maximum borrowing capacity
of $2.5 million. At March 31, 1996, there were no outstanding borrowings
under this line of credit. In addition, the Company has $1 million of unused
borrowing ability under a working capital credit facility as of March 31,
1996. The Company has received preliminary approval from its bank for a $5
million equipment loan to finance planned U.S. capital expenditures,
including an additional continuous carbonization line. 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.
The Company plans to install two continuous carbonization lines at
Viscosa's facility by the end of 1996. The Company also plans to establish
a new U.S. carbon fibers facility by the end of 1996. The Company expects to
fund the capital expenditures associated with this project with available
cash and borrowings.
The Company believes that its available working capital, internally
generated funds, together with the financing discussed above, will be
sufficient to fund the Company's currently planned business operations. In
the event that identified customer demand is forecasted to require
substantial increases in capacity, the Company would expect to finance
associated capital expenditures with the public or private sale of debt or
equity.
The increase in the Company's working capital, fixed assets and liabilities
were due primarily to the acquisition of Viscosa and its consolidation into
the Company's financial statements. Other receivable of $2 million consisted
primarily of VAT and import tax refunds due to Viscosa from the Hungarian
Taxing Authorities. Other short-term liabilities of $1.7 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.
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12
ZOLTEK COMPANIES, INC.
SEGMENT INFORMATION
(UNAUDITED)
SIX MONTHS ENDED MARCH 31,
--------------------------
1996<F*> 1995
---- ----
Net sales
Zoltek Corporation. . . . . . . . . . . . . . . . $ 9,355,728 $ 5,704,371
Zoltek Magyar Viscosa Rt. . . . . . . . . . . . . 18,858,523 -
----------- -----------
28,214,251 $ 5,704,371
=========== ===========
Income from operations
Zoltek Corporation. . . . . . . . . . . . . . . . $ 2,915,624 $ 1,451,260
Zoltek Magyar Viscosa Rt. . . . . . . . . . . . . 616,490 -
General corporate expenses. . . . . . . . . . . . (372,020)
----------- -----------
$ 3,160,094 $ 1,451,260
=========== ===========
Total assets
Zoltek Corporation. . . . . . . . . . . . . . . . $16,900,694 $13,133,281
Zoltek Magyar Viscosa Rt. . . . . . . . . . . . . 40,152,222 -
General corporate . . . . . . . . . . . . . . . . 7,716,563
----------- -----------
$64,769,479 $13,133,281
=========== ===========
Capital expenditures
Zoltek Corporation. . . . . . . . . . . . . . . . $ 1,150,863 $ 189,231
Zoltek Magyar Viscosa Rt. . . . . . . . . . . . . 79,028 -
----------- -----------
$ 1,229,891 $ 189,231
=========== ===========
Depreciation and amortization expense
Zoltek Corporation. . . . . . . . . . . . . . . . $ 528,301 $ 392,652
Zoltek Magyar Viscosa Rt. . . . . . . . . . . . . 632,478 -
----------- -----------
$ 1,160,779 $ 392,652
=========== ===========
<FN>
- - --------------------------
<F*> Information for Zoltek Magyar Viscosa Rt is from
the date of acquisition, December 8, 1995, to
March 31, 1996.
- 12 -
13
ZOLTEK COMPANIES, INC.
PART II. OTHER INFORMATION
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
---------------------------------------------------
The registrant's annual meeting of shareholders was held
February 15, 1996. At such meeting, the shareholders
considered and voted upon the following:
1. Zsolt Rumy and Charles Dill were
reelected as directors of the
registrant, with the results of the
voting as follows:
Votes For Votes Withheld
--------- --------------
Zsolt Rumy 6,423,651 21,334
Charles Dill 6,422,351 22,634
The terms of the following directors of the
registrant continued after the meeting: Linn
Bealke, James Betts, James Dorr, and John Kardos.
2. The registrant's Restated Articles
of Incorporation was amended to
increase the authorized number of
shares of common stock from
8,000,000 shares to 20,000,000
shares, with the results of the
voting as follows:
Votes For Votes Withheld
--------- --------------
6,218,799 226,186
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
(a) Exhibits:
27 Financial Data Schedules
(b) Reports on Form 8-K: No reports on Form 8-K were
filed during the three months ended March 31,
1996.
- 13 -
14
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: May 15, 1996 By: /s/William P. Downey
------------ ---------------------------------
William P. Downey
Chief Financial Officer
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