CONFORMED
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-Q
QUARTERLY REPORT
PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
Commission file number 1-228
ZEMEX CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 13-5496920
(State or other jurisdiction (I.R.S. Employer Identification Number)
of incorporation or organization)
Canada Trust Tower, BCE Place
161 Bay Street, Suite 3750
Toronto, Ontario, Canada, M5J 2S1
(Address of principal executive offices)
(416) 365-8080
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act
New York Stock Exchange Common Stock, $1.00 par value
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 twelve
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 NO
X
As of November 11, 1996, there was 8,098,864 shares of capital
stock outstanding.
<Page 2>
ZEMEX CORPORATION
CONSOLIDATED BALANCE SHEETS
September 30, 1996 December 31, 1995
(unaudited)
ASSETS
Current assets
Cash and cash equivalents $ 1,490,000 $ 1,653,000
Accounts receivable 15,696,000 13,165,000
Inventories 20,091,000 20,176,000
Prepaid expenses 1,368,000 841,000
Total current assets 38,645,000 35,835,000
Property, plant and equipment 58,869,000 50,271,000
Other assets 10,498,000 10,575,000
Total assets $108,012,000 $96,681,000
LIABILITIES
Current liabilities
Bank indebtedness $ 6,274,000 $ 3,220,000
Accounts payable and accrued liabilities 10,861,000 10,259,000
Accrued income taxes 528,000 269,000
Current portion of long term debt 1,828,000 2,378,000
Total current liabilities 19,491,000 16,126,000
Long term debt 16,492,000 7,485,000
Other non-current liabilities 647,000 605,000
Deferred income taxes 1,502,000 1,565,000
Total liabilities 38,132,000 25,781,000
SHAREHOLDERS' EQUITY
Common stock 8,860,000 8,785,000
Paid-in capital 50,836,000 50,436,000
Retained earnings 20,287,000 18,683,000
Note receivable from shareholder (1,749,000) (1,749,000)
Cumulative translation adjustment (1,239,000) (1,218,000)
Treasury stock at cost (7,115,000) (4,037,000)
Total shareholders' equity 69,880,000 70,900,000
Total liabilities and shareholders' equity $108,012,000 $96,681,000
<Page 3>
ZEMEX CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
3 Months Ended September 30, 9 Months Ended September 30,
1996 1995 1996 1995
(unaudited)
Net sales $21,601,000 $21,748,000 $65,362,000 $64,292,000
Costs and expenses
Cost of goods sold 16,250,000 16,183,000 49,228,000 48,319,000
Selling, general and
administrative 2,746,000 2,719,000 7,886,000 6,861,000
Depreciation, depletion
and amortization 1,161,000 1,024,000 3,370,000 2,702,000
20,157,000 19,926,000 60,484,000 57,882,000
Operating income before
reorganizations costs 1,444,000 1,822,000 4,878,000 6,410,000
Reorganization costs 1,752,000
Operating income 1,444,000 1,822,000 3,126,000 6,410,000
Interest expense, net 239,000 137,000 639,000 290,000
Other, net (6,000) 78,000 (14,000) 33,000
233,000 215,000 625,000 323,000
Income before provision
for income taxes 1,211,000 1,607,000 2,501,000 6,087,000
Provision for income taxes 432,000 45,000 897,000 823,000
Net income $ 779,000 $ 1,562,000 $ 1,604,000 $ 5,264,000
Net income per share $0.10 $0.18 $0.20 $0.67
Average common shares
outstanding 7,860,429 8,460,576 7,966,422 7,886,071
<Page 4>
ZEMEX CORPORATION
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
FOR THE NINE MONTHS ENDED SEPTEMBER 30,
1996 1995
(unaudited)
Retained earnings, beginning of period $18,683,000 $11,668,000
Net income for the period 1,604,000 5,264,000
RETAINED EARNINGS, END OF PERIOD $20,287,000 $16,932,000
<Page 5>
ZEMEX CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30,
1996 1995
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 1,604,000 $ 5,264,000
Adjustments to reconcile net income to
net cash flows
Depreciation, depletion and amortization 3,370,000 2,702,000
Decrease in deferred income taxes (63,000) (67,000)
Share of net income of investees _ (87,000)
Increase in other assets excluding assets
held for sale 105,000 _
Increase in non-current liabilities 42,000 40,000
Changes in non-cash working capital items (2,111,000) (3,628,000)
Employer's portion of employee stock
purchase plan _ 177,000
Net cash provided by operating activities 2,947,000 4,401,000
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property, plant and equipment (11,953,000) (15,528,000)
Disposals of property, plant and equipment _ 2,000
Proceeds from sale of assets _ 134,000
Cash acquired in acquisition _ 688,000
Insurance recovery _ 450,000
Additions to other assets _ (1,232,000)
Net cash used in investing activities (11,953,000) (15,486,000)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from long term debt 8,456,000 1,223,000
Proceeds (payments), net, on bank
indebtedness 3,054,000 (180,000)
Issuance of common stock 598,000 4,460,000
Purchased of common stock for treasury (3,076,000) _
Purchase of options (98,000) _
Tax payments for exercised stock options _ 22,000
Withholding tax on employee stock purchase plan (35,000) _
Net cash provided by financing activities 8,899,000 5,525,000
EFFECT OF EXCHANGE RATE CHANGES ON CASH (56,000) 38,000
NET DECREASE IN CASH (163,000) (5,522,000)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 1,653,000 8,343,000
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 1,490,000 $ 2,821,000
<Page 6>
Notes to the Consolidated Financial Statements
The consolidated financial statements include the accounts of
Zemex Corporation and its wholly owned subsidiaries (the
"Corporation"). The financial data for the three months ended
September 30, 1996 and 1995 and the nine months ended September
30, 1996 and 1995 are unaudited but, in the opinion of the
management of the Corporation, reflect all adjustments,
consisting only of normal recurring adjustments, considered
necessary for a fair presentation of financial position and
results of operations. All material intercompany transactions
have been eliminated.
1. The Corporation recognized reorganization costs of $1.8
million in the first quarter of 1996 in connection with the
writedown of its inventory in Brazil and the reorganization of
its industrial minerals segment.
2. Effective February 15, 1995, the operations of Alumitech,
Inc. ("Alumitech") were consolidated with the accounts of the
Corporation. Prior to February 15, 1995, the Corporation's
investment in Alumitech was accounted for under the equity method
and contributed $87,000 in equity income.
3. On May 15, 1995, the Corporation, through its wholly owned
subsidiary, Suzorite Mineral Products, Inc., purchased the fixed
assets and inventory of Benwood Limestone Company, Inc.
("Benwood") for approximately $3.5 million.
<Page 7>
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations
The following is a discussion and analysis of the financial
condition and results of operations of the Corporation for the
three months ended September 30, 1996 and September 30, 1995, and
for the nine months ended September 30, 1996 and September 30,
1995, and certain factors that may affect the Corporation's
prospective financial condition and results of operations. The
following should be read in conjunction with the Consolidated
Financial Statements and related notes thereto included elsewhere
herein.
Results of Operations
Three Months Ended September 30, 1996 Compared to Three Months
Ended September 30, 1995
Net Sales
The Corporation's net sales for the three months ended September
30, 1996 were $21.6 million, a decrease of $0.1 million, or 0.7%,
from the comparable period in 1995.
Net sales in the industrial minerals segment for the three month
period ended September 30, 1996 increased to $10.5 million, an
increase of $0.8 million, or 8.2%, compared to the 1995 period.
The increase was due mainly to increased sales of sodium feldspar
and phlogopite mica and the incremental sales associated with a
new low iron sand product.
Net sales in the metal products segment for the three months
ended September 30, 1996 were $11.1 million, a decrease of 7.8%
from the comparable period in 1995. The $0.9 million decrease
was primarily due to both a decline in the aluminum price
realized of approximately $0.15 per pound in 1996 as compared to
1995 and a significant decline in the price of copper which
impacted the revenues of the copper powder operation in
Tennessee.
Cost of Goods Sold
Cost of goods sold for the three months ended September 30, 1996
was $16.3 million, an increase of $0.1 million, or 0.4%, from the
comparable period in 1995. As a percentage of net sales, cost of
goods sold increased to 75.2% for the three months ended
September 30, 1996 from 74.4% for the same period in 1995.
Selling, General and Administrative Expense
Selling, general, and administrative expense ("SG&A expense") for
the three months ended September 30, 1996 increased by $27,000,
virtually unchanged from the comparable period of 1995.
Depreciation, Depletion and Amortization
Depreciation, depletion and amortization for the three months
ended September 30, 1996 was $1.2 million, an increase of 13.4%
over the comparable period in 1995. The increase was due to an
increase in assets during the last quarter of 1995 and the first
nine months of 1996, namely those purchased in connection with
the expansion and modernization of the Corporation's sodium
feldspar facility in Spruce Pine, North Carolina.
<Page 8>
Operating Income
Operating income for the three month period ended September 30,
1996 was $1.4 million, a decrease of $0.4 million, or 20.7%,
from the comparable period in 1995. The decrease was due in part
to the reasons discussed above.
Interest Expense, Net
Interest expense for the three months ended September 30, 1996
was $0.2 million, an increase of $0.1 million from the comparable
period in 1995, as the result of an $11.5 million increase in
total bank indebtedness.
Provision for Income Taxes
The Corporation's provision for income taxes for the three months
ended September 30, 1996 increased to $0.4 million from $45,000
in the comparable period in 1995. The increase is partially due
to an increase in the provision for foreign taxes and partially
due to the Corporation's tax loss carryforwards. In 1995, the
Corporation had sufficient loss carryforwards to shelter its
income and, therefore, the amount included in income taxes was
for foreign taxes only. As most of the Corporation's
unrestricted loss carryforwards have been utilized, the effective
income tax rate going forward is 35%.
Net Income
As a result of the factors discussed above, net income for the
three months ended September 30, 1996 was $0.8 million, a
decrease of 50.1% from the comparable period in 1995.
Nine Months Ended September 30, 1996 Compared to Nine Months
Ended September 30, 1995
Net Sales
The Corporation's net sales for the nine months ended September
30, 1996 were $65.4 million, an increase of $1.1 million, or
1.7%, from the comparable period in 1995.
Net sales in the industrial minerals segment for the period ended
September 30, 1996 were $30.6 million, an increase of $2.6
million, or 9.1%, compared to the 1995 period. The favourable
change was due to increased sales of sodium feldspar and mica and
the additional sales associated with a new low iron sand product.
Net sales in the metal products segment for the nine months ended
September 30, 1996 were $34.7 million, a decrease of $1.5
million, or 4.1%, from the comparable period in 1995. The reason
for the decrease is twofold: lower revenue from the copper
powder group and decreased sales of atomized ferrous powders. In
the case of copper powders, the dramatic decline in copper prices
has resulted in lower revenue since the product is priced off of
the COMEX spot price. In the case of atomized ferrous products,
recent plant expansions by competitors have resulted in a
significant level of excess capacity in the industry. As a
result, the market has become very price competitive.
Cost of Goods Sold
Cost of goods sold for the nine months ended September 30, 1996
was $49.2 million, an increase of $0.9 million, or 1.9%, from the
comparable period in 1995. As a percent of net sales, cost of
goods sold increased marginally to 75.3% for the nine months
ended September 30, 1996 from 75.2% for the same period in 1995.
<Page 9>
Selling, General and Administrative Expense
SG&A expense for the nine months ended September 30, 1996
increased by $1.0 million, or 14.9%, from the comparable 1995
period to $7.9 million. Of the increase, $0.6 million was due to
operations acquired subsequent to the 1995 period. As a
percentage of net sales, SG&A expense increased from 10.7% in the
1995 period to 12.1% in the 1996 period,.
Depreciation, Depletion and Amortization
Depreciation, depletion and amortization for the nine months
ended September 30, 1996 was $3.4 million, an increase of 24.7%
over the comparable period in 1995. The increase was due to
assets acquired during the last quarter of 1995 and the first
nine months of 1996, specifically those purchased in connection
with the expansion of the Corporation's sodium feldspar facility
in Spruce Pine, North Carolina.
Operating Income
Operating income for the nine month period ended September 30,
1996 was $3.1 million, a decrease of $3.3 million, or 51.2%, from
the comparable period in 1995. The decrease was due to the
reasons discussed above and to the $1.8 million reorganization
provision taken during the first quarter of 1996 (see Note 1 to
the Consolidated Financial Statements).
Interest Expense, Net
Interest expense for the nine months ended September 30, 1996 was
$0.6 million, up from $0.3 million for the comparable period in
1995 as the result of a $4.5 million increase in total bank
indebtedness.
Provision for Income Taxes
The Corporation's provision for income taxes for the nine months
ended September 30, 1996 increased to $0.9 million from $0.8
million in the comparable period in 1995. The increase is
partially due to an increase in the provision for foreign taxes
and partially related to the Corporation's tax loss
carryforwards. In 1995, the Corporation had sufficient loss
carryforwards to shelter its income and, therefore, the amount
included in income taxes was for foreign taxes only. As most of
the Corporation's unrestricted loss carryforwards have been
utilized, the effective income tax rate going forward is 35%.
Net Income
As a result of the factors discussed above, net income for the
nine months ended September 30, 1996 was $1.6 million, a decrease
of 69.5% from the comparable period in 1995.
<Page 10>
Liquidity and Capital Resources
Cash Flow from Operations
During first nine months of 1996, the Corporation generated cash
flow from operations of $2.9 million as compared to $4.4 million
for the first nine months of 1995. The decrease of $1.5 million
is primarily due to lower net income in the 1996 period. In
1996, non-cash working capital items used $2.1 million of the
cash otherwise generated from operations as compared to $3.6
million for the corresponding period of 1995, as a result of
increases in accounts receivable and inventories.
The Corporation had $19.2 million of working capital at September
30, 1996, compared to $19.7 million at December 31, 1995.
It is the opinion of management that there are sufficient sources
of funds available to meet its anticipated cash requirements.
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 this 13th day of November, 1996.
ZEMEX CORPORATION
(Registrant)
By: /s/Allen J. Palmiere
______________________________________________
Allen J. Palmiere
Vice President and Chief Financial Officer
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<CASH> 1,355,000
<SECURITIES> 135,000
<RECEIVABLES> 16,050,000
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<COMMON> 8,860,000
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