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 June 30, 1997
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 1, 1997, there were 8,304,252 shares of capital
stock outstanding.
<Page 2>
Part I - FINANCIAL INFORMATION
Item 1 - Financial Statements
ZEMEX CORPORATION
CONSOLIDATED BALANCE SHEETS
- -----------------------------------------------------------------------------
June 30, 1997 December 31, 1996
- -----------------------------------------------------------------------------
ASSETS (unaudited)
Current Assets
Cash and cash equivalents $ 2,439,000 $ 2,279,000
Accounts receivable 15,570,000 15,003,000
Inventories 17,291,000 18,171,000
Prepaid expenses 1,138,000 1,388,000
Deferred income taxes 1,025,000 1,013,000
- -----------------------------------------------------------------------------
37,463,000 37,854,000
- -----------------------------------------------------------------------------
Property, Plant and Equipment 65,417,000 62,084,000
Other Assets 9,249,000 9,438,000
- -----------------------------------------------------------------------------
Total Assets $112,129,000 $109,376,000
- ---------------------------------------------------------------------------
LIABILITIES
Current Liabilities
Bank indebtedness $ 3,000,000 $ 6,590,000
Accounts payable 6,525,000 7,091,000
Accrued liabilities 4,531,000 2,983,000
Accrued income taxes 598,000 301,000
Current portion of long term debt 1,810,000 2,201,000
- -----------------------------------------------------------------------------
16,464,000 19,166,000
Long Term Debt 21,133,000 17,797,000
Other Non-Current Liabilities 785,000 599,000
Deferred Income Taxes 750,000 817,000
- -----------------------------------------------------------------------------
39,132,000 38,379,000
- -----------------------------------------------------------------------------
SHAREHOLDERS' EQUITY
Common stock 8,995,000 8,950,000
Paid-in capital 51,416,000 51,304,000
Retained earnings 21,966,000 20,040,000
Note receivable from shareholder (1,749,000) (1,749,000)
Cumulative translation adjustment (1,151,000) (1,175,000)
Treasury stock at cost (6,480,000) (6,373,000)
- ----------------------------------------------------------------------------
72,997,000 70,997,000
- ----------------------------------------------------------------------------
Total Liabilities and
Shareholders' Equity $112,129,000 $109,376,000
- ----------------------------------------------------------------------------
<Page 3>
ZEMEX CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
- ----------------------------------------------------------------------------
Three Months Ended June 30 Six Months Ended June 30
1997 1996 1997 1996
- ----------------------------------------------------------------------------
(unaudited)
NET SALES $25,199,000 $21,356,000 $48,899,000 $43,761,000
- ----------------------------------------------------------------------------
COSTS AND EXPENSES
Cost of goods sold 18,161,000 15,960,000 35,648,000 32,978,000
Selling, general and
administrative 3,380,000 2,732,000 6,381,000 5,140,000
Depreciation, depletion
and amortization 1,403,000 1,152,000 2,850,000 2,209,000
- -----------------------------------------------------------------------------
22,944,000 19,844,000 44,879,000 40,327,000
- -----------------------------------------------------------------------------
OPERATING INCOME BEFORE
REORGANIZATION COSTS 2,255,000 1,512,000 4,020,000 3,434,000
Reorganization costs _ _ _ 1,752,000
- -----------------------------------------------------------------------------
OPERATING INCOME 2,255,000 1,512,000 4,020,000 1,682,000
- -----------------------------------------------------------------------------
Interest expense, net 562,000 206,000 1,009,000 400,000
Other, net 39,000 26,000 24,000 (8,000)
- -----------------------------------------------------------------------------
601,000 232,000 1,033,000 392,000
- -----------------------------------------------------------------------------
INCOME BEFORE PROVISION
FOR INCOME TAXES 1,654,000 1,280,000 2,987,000 1,290,000
Provision for income taxes 590,000 461,000 1,061,000 465,000
- -----------------------------------------------------------------------------
NET INCOME $ 1,064,000 $ 819,000 $1,926,000 $ 825,000
- -----------------------------------------------------------------------------
NET INCOME PER SHARE $0.13 $0.10 $0.24 $0.10
- -----------------------------------------------------------------------------
AVERAGE COMMON SHARES
AND COMMON SHARE
EQUIVALENTS OUTSTANDING 8,063,034 7,997,064 8,038,448 8,107,326
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<Page 4>
ZEMEX CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30,
- -----------------------------------------------------------------------------
1997 1996
- -----------------------------------------------------------------------------
(unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 1,926,000 $ 825,000
Adjustments to reconcile net income to net cash flows
Depreciation, depletion and amortization 2,850,000 2,209,000
Amortization of deferred financing costs 65,000 _
(Decrease) increase in deferred income taxes (80,000) 50,000
Increase in other assets (59,000) (168,000)
Increase in other non-current liabilities 186,000 34,000
Changes in non-cash working capital items 1,843,000 (2,519,000)
Gain on sale of property, plant and equipment (70,000) _
- -----------------------------------------------------------------------------
Net cash provided by operating activities 6,661,000 431,000
- -----------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property, plant and equipment (6,081,000) (6,724,000)
Proceeds from sale of assets 151,000 _
- -----------------------------------------------------------------------------
Net cash used in investing activities (5,930,000) (6,724,000)
- -----------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in long term debt 2,945,000 6,330,000
Net (decrease) increase in bank indebtedness (3,589,000) 2,230,000
Issuance of common stock 323,000 314,000
Purchase of common stock (274,000) (3,011,000)
- -----------------------------------------------------------------------------
Net cash (used in) provided by financing activities (595,000) 5,863,000
- -----------------------------------------------------------------------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH 24,000 (7,000)
- -----------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH 160,000 (437,000)
CASH AND CASH EQUIVALENTS
AT BEGINNING OF PERIOD 2,279,000 1,653,000
- -----------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $2,439,000 $1,216,000
- -----------------------------------------------------------------------------
<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, 1997 and 1996 and for the six months ended June 30, 1997
and 1996 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.
During the first quarter of 1996, the Corporation recognized
reorganization costs of $1.8 million in connection with the
reorganization of its industrial minerals division, a write-down
to market of inventory held in Brazil and the recognition of a
provision for anticipated costs associated with storing and
selling the material. The Brazilian enterprise was unsuccessful
primarily due to rapidly deteriorating market prices which made
market penetration extremely difficult.
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, 1997 and the three months ended June
30, 1996, and for the six months ended June 30, 1997 and the six
months ended June 30, 1996, 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, 1997 Compared to Three Months Ended
June 30, 1996
Net Sales
The Corporation's net sales for the three months ended June 30,
1997 were $25.2 million compared to $21.4 million for the three
months ended June 30, 1996, reflecting an 11.3% increase in sales
of industrial minerals and a 24.2% increase in the sales of metal
products.
Net sales in the industrial minerals segment for the three month
period ended June 30, 1997 increased by $1.2 million to $11.4
million from $10.3 million in the corresponding period of 1996.
The growth is a result of increased sales of feldspar, talc and
mica netted against a decrease in sales of low iron sand.
Net sales of the Corporation's metal products were $13.8 million
for the three months ended June 30, 1997, an increase of $2.7
million from the comparable period in 1996. The increase was due
primarily to an increase in the price of aluminum and to an
increase in sales of atomized products, partially offset by a
decrease in sales of sponge iron products.
Cost of Goods Sold
Cost of goods sold for the three months ended June 30, 1997 was
$18.2 million, compared to $16.0 million for the second quarter
of 1996. As a percentage of net sales, gross margin increased
<Page 6>
from 25.3% in 1996 to 27.9% for the three months ended June 30,
1997, reflecting improved cost efficiencies and an increase in
the price of aluminum.
Selling, General and Administrative Expense
Selling, general, and administrative ("SG&A") expense for the
three months ended June 30, 1997 increased by 23.7% to $3.4
million from $2.7 million in the like period of 1996. As a
percentage of net sales, SG&A expense increased to 13.4% in the
second quarter of 1997 from 12.8% in the same period in 1996.
The increase is attributable primarily to increased staffing.
Depreciation, Depletion and Amortization
Depreciation, depletion and amortization ("DD&A") for the three
months ended June 30, 1997 was $1.4 million, an increase of $0.2
million, or 21.8%, over the corresponding period in 1996. This
increase is primarily due to the depreciation of the recent
capital expenditures at the Corporation's sodium feldspar
facility in Spruce Pine, North Carolina which, prior to 1996,
were being capitalized.
Operating Income
Operating income for the three month period ended June 30, 1997
was $2.3 million, an increase of $0.8 million, or 49.2%, from the
comparable period in 1996. The increase was due to the reasons
discussed above.
Interest Expense, Net
Interest expense for the three months ended June 30, 1997 was
$0.6 million, up from $0.2 million for the three months ended
June 30, 1996 as the result of a $7.9 million increase in long
term debt partially offset by a $2.4 million decrease in bank
indebtedness. The increase is also attributable to the
completion of the Spruce Pine expansion and the interest expense
related thereto. Prior to 1997 during the period of construction
interest expense was being capitalized.
Provision for Income Taxes
The Corporation's provision for income taxes for the three months
ended June 30, 1997 increased to $0.6 million from $0.5 million
in the second quarter of 1996 due to a 29.2% increase in pre-tax
income.
Net Income
As a result of the factors discussed above, net income for the
three months ended June 30, 1997 was $1.1 million, an increase of
$0.3 million, or 30.0%, from the comparable period in 1996.
Six Months Ended June 30, 1997 Compared to Six Months Ended June
30, 1996
Net Sales
The Corporation's net sales for the six months ended June 30,
1997 were $48.9 million, an increase of $5.1 million, or 11.7%,
from 1996. The increase is due to an 11.2% volume increase in
sales of industrial minerals, an increase in the price of
aluminum, and a 16.9% increase in the sales volume of metal
products.
<Page 7>
Net sales in the industrial minerals segment for the six month
period ended June 30, 1997 increased by $2.0 million, or 9.8%,
compared to the 1996 period. The increase is due to higher sales
volume of feldspar and talc, offset in part by decreased sales of
low iron sand.
Net sales in the metal products segment for the six months ended
June 30, 1997 were $26.7 million, an increase of $3.1 million, or
13.4%, from the comparable period in 1996. Sales increased due
to a recovery in aluminum prices and increased throughput.
Cost of Goods Sold
Cost of goods sold for the six months ended June 30, 1997 was
$35.6 million, an increase of $2.6 million, or 8.1%, from the
comparable period in 1996. As a percent of net sales, gross
margin increased to 27.1% for the six months ended June 30, 1997
from 24.6% for the same period in 1996. The increase is
primarily due to improved operating efficiencies and higher
aluminum prices.
Selling, General and Administrative Expense
SG&A expense for the six months ended June 30, 1997 increased to
$6.4 million from $5.1 million in 1996, an increase of $1.3
million, or 24.1%. As a percentage of net sales, SG&A expense
increased from 11.7% in the 1996 period to 13.0% in the 1997
period, reflecting an increase in staffing and the purchase of
certain of the assets and liabilities of a small manufacturer of
heat containment systems utilizing ceramic fiber.
Depreciation, Depletion and Amortization
DD&A for the six months ended June 30, 1997 was $2.8 million, an
increase of $0.6 million, or 29.0%, over the comparable period
in 1996. The increase is attributable to the depreciation
expense associated with the Spruce Pine expansion; prior to
1997, the project was not complete and therefore was not being
depreciated.
Operating Income
Operating income for the six month period ended June 30, 1997 was
$4.0 million, an increase of $2.3 million, or 139.0%, from the
comparable period in 1996. In the first quarter of 1996, the
Corporation recognized a $1.8 million charge in connection with
the reorganization of its industrial minerals segment, a write-
down to market of its Brazilian inventory, and the recognition of
a provision for storage costs and selling expenses in connection
thereto.
Interest Expense, Net
Interest expense for the six months ended June 30, 1997 was $1.0
million, up from $0.4 million for the comparable period in 1996
as the result of an increase in long term debt, slightly higher
interest rates and the completion of the Spruce Pine expansion.
Interest expense related thereto was capitalized during the
construction period.
<Page 8>
Provision for Income Taxes
The Corporation's provision for income taxes for the six months
ended June 30, 1997 increased to $1.1 million from $0.5 million
in the comparable period in 1996. The increase is due to higher
pre-tax income in the first six months of 1997.
Net Income
As a result of the factors discussed above, net income for the
six months ended June 30, 1997 was $1.9 million, an increase of
$1.1 million, or 133.5%, from the comparable period in 1996.
Liquidity and Capital Resources
Cash Flow from Operations
During first half of 1997, the Corporation generated cash flow
from operations of $6.7 million as compared to $0.4 million for
the first six months of 1996. The increase of $6.3 million is
primarily due to higher net income in the 1997 period. In 1997,
non-cash working capital items generated $1.8 million of the cash
otherwise generated from operations as compared to a use of $2.5
million for the corresponding period of 1996 as a result of a
decrease in inventories and an increase in accrued liabilities.
The Corporation had $21.0 million of working capital at June 30,
1997, compared to $18.7 million at December 31, 1996.
It is the opinion of management that there are sufficient sources
of funds available to meet its anticipated cash requirements.
PART II - OTHER INFORMATION
Item 4 - Submission of Matters To A Vote of Security Holders
At the Corporation's 1997 Annual Meeting of Shareholders held on
May 12, 1997, 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 7,322,028 10,954
Morton A. Cohen 7,322,028 10,954
John M. Donovan 7,322,028 10,954
Thomas B.Evans, Jr. 7,322,028 10,954
Ned Goodman 7,322,027 10,955
Peter Lawson-Johnston 7,322,026 10,956
Richard L. Lister 7,322,027 10,955
Patrick H. O'Neill 7,322,026 10,956
William J. vanden Heuvel 7,322,028 10,954
<Page 9>
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, 1997 was ratified.
Abstentions
Votes For Votes Against (Including Broker
Non-Votes)
--------- ------------- -----------------
7,301,833 19,896 11,253
3. The proposal to increase the number of authorized shares
available to be purchased pursuant to the Corporation's Employee
Stock Purchase Plan from 250,000 shares to 500,000 shares was
approved.
Abstentions
Votes For Votes Against (Including Broker
Non-Votes)
--------- ------------- -----------------
7,164,579 157,585 10,818
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, 1997.
ZEMEX CORPORATION
(Registrant)
By: /s/ Allen J. Palmiere
-------------------------------
Allen J. Palmiere
Vice President and Chief
Financial Officer
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<COMMON> 8,995,000
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