Wall Street Journal allegations about Zoltek denied

By DOUG WILLIAMSON / Business Editor

An Abilene economic development official is pleased with the progress Zoltek Cos. Inc. is making, despite questions raised by a newspaper article Wednesday.

A story in the Texas Journal section of the Wall Street Journal raised questions about the firm's ability to keep its promises.

"We are totally satisfied with what Zoltek has done," said John Breier, the city's economic development director. "Zoltek has fulfilled what it promised in the city's contract. In fact, it has exceeded it."

Zsolt Rumy, founder and CEO of the carbon-fiber manufacturing company, described the Journal article with a phrase best described as cattle excrement.

"This guy (Journal reporter Jonathan Weil) has been a menace for three months," said Rumy, who was in Abilene Wednesday to see the construction of the first wall of a 40,000-square-foot addition to his factory. "He has caused us a lot of problems. He wanted to make the story, rather than report it ... He was trying to imply we were misleading people. He was out here bothering people, calling our customers."

The article cited three issues Zoltek's critics say are concerns.

-- Why weren't the production lines up when promised?

Rumy told analysts that Abilene production lines would be up and running strong before Sept. 30, the article stated. It quoted a former employee, who is now suing the company over severance pay, as saying the company will not achieve its 250-worker promise by the end of next year.

-- Who are Zoltek's customers?

The article quoted Rumy in a Merrill Lynch document as saying the company had established strategic partnerships with nine companies. The reporter found that six of the firms deny being partners and two others said are not customers of Zoltek.

-- Where will Zoltek find the raw materials?

To meet Zoltek's goal of lowering the price for carbon fiber, the company must find its own sources of "precursor," the raw material it uses to produce the fiber. Rumy has said a recent acquisition in Hungary should take care of the supply, the article stated. However, Rumy also said more tests are needed.

Rumy says many of the statements in the article are incorrect or taken out of context. He argues that:

-- Production lines are in operation in both Abilene and Hungary.

"Things haven't gone as smoothly as you would like," he admitted, but in Abilene, "we have three lines running, two at full speed and one at 70 percent.

-- Rumy said some sales to existing customers have increased. The industry is changing from a small, exclusionary aerospace industry to a commercial industry.

"Two years ago, my thought was it would take a lot of product development efforts to get the market going. A year and a half ago, we were at (a carbon fiber trade show), and there were plenty of products. Price and availability were not there. Now (we are) switching back to emphasis on marketing and product development," he said.

-- The company has an adequate supply of raw materials.

"To make our strategy (of being the low-cost provider), we will use as our precursor a textile-type of acrylic fiber at textile type pricing. We can make carbon fiber of our own precursor," he said. Rumy denies the implication that he promises more than his company can deliver.

"I am an optimist in the sense I look for positive things in most situations," he said. "I am also an educated optimist. We do our homework."

In the last two to three years Rumy has had some doubts about the direction the company was going, he said. At those times, he re-evaluated.

"Each time, it has come up that we are on the right track," he said.

reier said the city did extensive investigation on Zoltek before entering any agreements. "We certainly looked at the company and its books, but we also went to its customers to learn about them and how they use carbon fiber," he said. "Even last Friday, we were at one of those customers, reaffirming its need for Zoltek products."

Breier, who helped recruit Zoltek while he was vice president of the Abilene Industrial Foundation, said the move to economically assist Zoltek was no harder of a decision than it is with any prospective firm.

"We do a good business analysis, physically visit the company and develop a relationship. Zoltek is a strongly-managed company," he said.

The company plans to complete its milling and processing building in the next few months.

By mid-1998, it should have a 10,000-square-foot plant producing its own liquid nitrogen, Breier said. The city is not participating financially in that project.

The original contract with the Development Corporation of Abilene called for the company to hire 65 workers and have two lines up and working by Dec. 31. Eight-six workers are now employed with three lines producing.

More than 20 of the current workers live in local enterprise zones where the unemployment rate runs 9-10 percent and the residents are considered to be financial disadvantaged.

As incentives, the DCOA offered:

-- $3.2 million in loans to purchase and build on the 50 acres.

-- $1.1 million in grants to improve the site.

- $500,000 in training assistance.

-- 100-percent abatement from city and county taxes for a decade. The DCOA will reimburse the governments 50 percent of that abatement.

Eight more manufacturing lines are contracted to come onboard at the Fulwiler Road and Interstate 20 site in the Greater Abilene Industrial District. Two of those lines will be in the current building, and the rest will be in a yet-to-be planned additional facility, Breier said.

Rumy told a local civic club in November that by the year 2000, there will be 30 production lines here, making Abilene the "carbon fiber manufacturing capital of the world."

Before additional funding (which Zoltek has not yet sought) will be approved, Breier said the same process of investigation and assuredness will be followed.

"Today, our investment is secure, via real property out there," he said. "We are looking at long-term markets, long-term growth, not the short-term volatility of a stock."

The story apparently did not concern investors Wednesday. The stock rose 1-1/8, or 3.8 percent, to 30-7/8 on a volume of 616,400 shares traded. The stock, however, is down from a 52-week high close of 65 3/4 at the end of September.

"We will get over this," Rumy said.