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 June 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 Capital
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 X NO
As of August 9, 1996, there were 8,076,837 shares of capital
stock outstanding.
Page 2
Part I - FINANCIAL INFORMATION
Item 1 - Financial Statements
ZEMEX CORPORATION
CONSOLIDATED BALANCE SHEETS
June 30, 1996 December 31, 1995
(unaudited)
ASSETS
Current assets
Cash and cash equivalents $ 1,216,000 $ 1,653,000
Accounts receivable 14,890,000 13,165,000
Inventories 21,854,000 20,176,000
Prepaid expenses 686,000 841,000
Total current assets 38,646,000 35,835,000
Property, plant and equipment 54,977,000 50,271,000
Other assets 10,561,000 10,575,000
Total assets $104,184,000 $ 96,681,000
LIABILITIES
Current liabilities
Bank indebtedness $ 5,449,000 $ 3,220,000
Accounts payable and accrued liabilities 11,067,000 10,259,000
Accrued income taxes 189,000 269,000
Current portion of long term debt 2,152,000 2,378,000
Total current liabilities 18,857,000 16,126,000
Long term debt 14,042,000 7,485,000
Other non-current liabilities 638,000 605,000
Deferred income taxes 1,616,000 1,565,000
Total liabilities 35,153,000 25,781,000
SHAREHOLDERS' EQUITY
Common stock 8,840,000 8,785,000
Paid-in capital 50,700,000 50,436,000
Retained earnings 19,508,000 18,683,000
Note receivable from shareholder (1,749,000) (1,749,000)
Cumulative translation adjustment (1,218,000) (1,218,000)
Treasury stock at cost (7,050,000) (4,037,000)
Total shareholders' equity 69,031,000 70,900,000
Total liabilities and shareholders' equity $104,184,000 $96,681,000
Page 3
ZEMEX CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended June 30 Six Months Ended June 30
1996 1995 1996 1995
(unaudited)
Net sales $21,356,000 $21,439,000 $43,761,000 $42,544,000
Costs and expenses
Cost of goods sold 15,960,000 15,982,000 32,978,000 32,135,000
Selling, general and
administrative 2,732,000 2,085,000 5,140,000 4,143,000
Depreciation, depletion
and amortization 1,152,000 907,000 2,209,000 1,678,000
19,844,000 18,974,000 40,327,000 37,956,000
Operating income before
reorganizaion costs 1,512,000 2,465,000 3,434,000 4,588,000
Reorganization costs _ _ 1,752,000 _
Operating income 1,512,000 2,465,000 1,682,000 4,588,000
Interest expense, net 206,000 125,000 400,000 154,000
Other, net 26,000 94,000 (8,000) (45,000)
232,000 219,000 392,000 109,000
Income before provision
for income taxes 1,280,000 2,246,000 1,290,000 4,479,000
Provision for income taxes 461,000 63,000 465,000 777,000
Net income $ 819,000 $ 2,183,000 $ 825,000 $ 3,702,000
Net income per share $ 0.10 $ 0.28 $ 0.10 $ 0.48
Average common shares
outstanding 7,997,064 7,965,434 8,107,326 7,747,786
Page 4
ZEMEX CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30,
1996 1995
(unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 825,000 $ 3,702,000
Adjustments to reconcile net income to net
cash flows
Depreciation, depletion and amortization 2,209,000 1,678,000
Increase (decrease) in deferred income taxes 50,000 (42,000)
Share of net income of investees _ (87,000)
Increase in other assets (168,000) _
Increase (decrease) in other non-current
liabilities 34,000 (3,000)
Changes in non-cash working capital items (2,519,000) (1,529,000)
Net cash provided by operating activities 431,000 3,719,000
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property, plant and equipment (6,724,000)(12,249,000)
Proceeds from sale of asset _ 134,000
Cash acquired in acquisition _ 688,000
Insurance recovery _ 450,000
Additions to other assets _ (800,000)
Net cash used in investing activities (6,724,000)(11,777,000)
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in long term debt 6,330,000 3,576,000
Net increase (decrease) in bank indebtedness 2,230,000 (180,000)
Issuance of common stock 314,000 727,000
Purchase of common stock (3,011,000) _
Net cash provided by financing activities 5,863,000 4,123,000
EFFECT OF EXCHANGE RATE CHANGES ON CASH (7,000) 11,000
NET DECREASE IN CASH (437,000) (3,924,000)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 1,653,000 8,343,000
CASH AND CASH EQUIVALENTS AT END OF PERIOD $1,216,000 $4,419,000
Page 5
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
June 30, 1996 and 1995 and the six months ended June 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 absorbed 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 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.
Item 2 - Management's Discussion and Analysis of the Financial
Condition and Results of Operations of the Corporation
The following is a discussion and analysis of the financial
condition and results of operations of the Corporation for the
three months ended June 30, 1996 and the three months ended June
30, 1995, and the six months ended June 30, 1996 and the six
months ended June 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.
Results of Operations
Three Months Ended June 30, 1996 Compared to Three Months Ended
June 30, 1995
Net Sales
The Corporation's net sales for the three months ended June 30,
1996 were $21.4 million, virtually unchanged from the comparable
period in 1995.
Net sales in the industrial minerals segment for the three month
period ended June 30, 1996 increased by $0.9 million, or 9.5 %,
over the 1995 period. The increase reflects the contribution
of Benwood (see Note 3) for the full quarter as well as increased
sales of a new low-iron sand product, partially offset by lower
sales of sodium feldspar into the sanitaryware industry sand
into the construction industry.
Net sales in the metal products segment for the three months
ended June 30, 1996 were $11.1 million, a decrease of $1.0
million, or 8.1%, from the comparable period in 1995. The
decrease is attributable to (i) decreased sales of atomized metal
products as the result of a 20% decrease in industry shipments of
Page 6
this product to the automotive industry; (ii) low aluminum prices
- - $0.20 per pound below last year at this time; and (iii) lower
metal content of aluminum dross feedstock than previously
experienced.
Cost of Goods Sold
Cost of goods sold for the three months ended June 30, 1996 was
$16.0 million, also virtually unchanged from the comparable
period in 1995. As a percent of net sales, cost of goods sold
increased slightly to 74.7% for the three months ended June 30,
1996 from 74.5% for the same period in 1995.
Selling, General and Administrative Expense
Selling, general, and administrative ("SG&A") expense for the
three months ended June 30, 1996 increased by 31.0% from the
comparable 1995 period to $2.7 million. The increase is due to
expenses arising as a result of the 1995 acquisitions of Alumitech
and Benwood. As a percentage of net sales, SG&A expense
increased from 9.7% in the 1995 period to 12.8% in the 1996
period.
Depreciation, Depletion and Amortization
Depreciation, depletion and amortization ("DD&A") for the three
months ended June 30, 1996 was $1.2 million, an increase of $0.2
million, or 27.0%, over the comparable period in 1995. The
increase was due to assets acquired during 1995 and the first
half of 1996.
Operating Income
Operating income for the three month period ended June 30, 1996
was $1.5 million, a decrease of $1.0 million, or 38.7%, from the
comparable period in 1995. The decrease was due to the reasons
discussed above.
Interest Expense, Net
Interest expense for the three months ended June 30, 1996 was
$0.2 million, up from $0.1 million for the comparable period in
1995 as the result of a $3.8 million increase in long term debt
and a $5.4 million increase in bank indebtedness.
Provision for Income Taxes
The Corporation's provision for income taxes for the three months
ended June 30, 1996 increased to $0.5 million from $63,000 in
the comparable period in 1995. The increase is partially due to
an increase in the provision for foreign taxes; however, the bulk
of the change relates to the Corporation's loss carryforwards.
In 1995, the Corporation had enough 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%.
Page 7
Net Income
As a result of the factors discussed above, net income for the
three months ended June 30, 1996 was $0.8 million, a decrease of
$1.4 million, or 62.5%, from the comparable period in 1995.
Six Months Ended June 30, 1996 Compared to Six Months Ended June
30, 1995
Net Sales
The Corporation's net sales for the six months ended June 30,
1996 were $43.8 million, an increase of $1.2 million, or 2.9%,
from the comparable period in 1995. Sales increased by $1.0
million as a result of the acquisition of Benwood in May 1995
(see Note 3).
Net sales in the industrial minerals segment for the six month
period ended June 30, 1996 increased by $1.8 million, or 9.6%,
compared to the 1995 period. As previously noted, the increase
reflects the contribution of Benwood (see Note 3) for the full
quarter as well as increased sales of a new low-iron sand
product, partially offset by lower sales of sodium feldspar into
the sanitaryware industry and sand into the construction
industry.
Net sales in the metal products segment for the six months ended
June 30, 1996 were $23.6 million, a decrease of $0.5 million, or
2.3%, from the comparable period in 1995. Sales were basically
flat due to a sluggish powdered metals market and low aluminum
prices. Although Alumitech actually processed more
feedstock during the first six months of 1996, aluminum prices
are $0.20 per pound below last year at this time and the metal
content of the feedstock is lower than previously experienced.
Cost of Goods Sold
Cost of goods sold for the six months ended June 30, 1996 was
$33.0 million, an increase of $0.8 million, or 2.6%, from the
comparable period in 1995. As a percent of net sales, cost of
goods sold decreased to 75.4% for the six months ended June 30,
1996 from 75.5% for the same period in 1995.
Selling, General and Administrative Expense
SG&A expense for the six months ended June 30, 1996 increased by
$1.0 million, or 24.1%, from the comparable 1995 period to $5.1
million. The increase is due to expenses arising as a result of
the 1995 acquisitions of Alumitech and Benwood. As a percentage
of net sales, SG&A expense increased from 9.7% in the 1995 period
to 11.7% in the 1996 period.
Depreciation, Depletion and Amortization
Depreciation, depletion and amortization for the six months ended
June 30, 1996 was $2.2 million, an increase of 31.6% over the
comparable period in 1995. The increase was due to assets
acquired during 1995 and the first half of 1996.
Operating Income
Operating income for the six month period ended June 30, 1996 was
$1.6 million, a decrease of $2.9 million, or 63.3%, from the
comparable period in 1995. The decrease was due to the reasons
discussed above and to a $1.8 million writedown taken in the
first quarter of 1996 (see Note 1).
Page 8
Interest Expense, Net
Interest expense for the six months ended June 30, 1996 was $0.4
million, up from $0.2 million for the comparable period in 1995
as the result of the increased carrying costs associated with a
$3.8 million increase in long term debt and a $5.4 million
increase in bank indebtedness.
Provision for Income Taxes
The Corporation's provision for income taxes for the six months
ended June 30, 1996 decreased to $0.5 million from $0.7 million
in the comparable period in 1995. The decrease is due to lower
pre-tax income in the first six months of 1996.
Net Income
As a result of the factors discussed above, net income for the
six months ended June 30, 1996 was $0.8 million, a decrease of
$2.9 million, or 77.7% , from the comparable period in 1995.
Liquidity and Capital Resources
Cash Flow from Operations
During first half of 1996, the Corporation generated cash flow
from operations of $0.4 million as compared to $3.7 million for
the first six months of 1995. The decrease of $3.3 million is
primarily due to lower net income in the 1996 period. In 1996,
non-cash working capital items used $2.5 million of the cash
otherwise generated from operations as compared to $1.5 million
for the corresponding period of 1995, as a result of increases in
accounts receivable and inventories.
The Corporation had $19.8 million of working capital at June 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.
Page 9
PART II - OTHER INFORMATION
Item 4 - Submission of Matters To A Vote of Security Holders
At the Corporation's 1996 Annual Meeting of Shareholders held on
May 13, 1996, the following actions were taken and votes
tabulated:
1. Nine directors were elected for the ensuing year.
Name Votes For Votes Withheld
Paul A. Carroll 6,823,316 18,348
Morton A. Cohen 6,823,326 18,338
John M. Donovan 6,823,326 18,338
Thomas B. Evans, Jr. 6,823,326 18,338
Ned Goodman 6,823,316 18,348
Peter Lawson-Johnston 6,823,316 18,348
Richard L. Lister 6,823,326 18,338
Patrick H. O'Neill 6,822,306 19,358
William J. vanden Heuvel 6,823,010 18,654
2. The appointment of Deloitte & Touche as independent
auditors of the accounts of the Corporation and its subsidiaries
for the fiscal year ending December 31, 1996 was ratified.
Abstentions
Votes For Votes Against (Including Broker
Non-Votes)
6,776,119 62,586 12,959
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 14th day of August, 1996.
ZEMEX CORPORATION
(Registrant)
By: /s/ Allen J. Palmiere
_______________________________
Allen J. Palmiere
Vice President and Chief Financial Officer
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