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 March 31, 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 checkmark 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 May 1, 1997, there were 8,291,971 shares of capital stock
outstanding.
Part I - FINANCIAL INFORMATION
Item 1 - Financial Statements
ZEMEX CORPORATION
CONSOLIDATED BALANCE SHEETS
March 31, 1997 December 31, 1996
(unaudited)
ASSETS
Current Assets
Cash and cash equivalents $ 2,250,000 $ 2,279,000
Accounts receivable 15,842,000 15,003,000
Inventories 17,338,000 18,171,000
Prepaid expenses 1,381,000 1,388,000
Deferred income taxes 1,013,000 1,013,000
Total Current Assets 37,824,000 37,854,000
Property, Plant and Equipment 63,782,000 62,084,000
Other Assets 9,668,000 9,438,000
Total Assets $111,274,000 $109,376,000
LIABILITIES
Current Liabilities
Bank indebtedness $4,000,000 $ 6,590,000
Accounts payable 6,667,000 7,091,000
Accrued liabilities 4,124,000 2,983,000
Accrued income taxes 146,000 301,000
Current portion of long term debt 1,818,000 2,201,000
Total Current Liabilities 16,755,000 19,166,000
Long Term Debt 20,851,000 17,797,000
Other Non-Current Liabilities 813,000 599,000
Deferred Income Taxes 784,000 817,000
Total Liabilities 39,203,000 38,379,000
SHAREHOLDERS' EQUITY
Common stock 8,975,000 8,950,000
Paid-in capital 51,457,000 51,304,000
Retained earnings 20,901,000 20,040,000
Note receivable from shareholder (1,749,000) (1,749,000)
Cumulative translation adjustment (1,140,000) (1,175,000)
Treasury stock at cost (6,373,000) (6,373,000)
Total Shareholders' Equity 72,071,000 70,997,000
Total Liabilities and
Shareholders' Equity $111,274,000 $109,376,000
ZEMEX CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE-MONTH PERIODS ENDED MARCH 31,
1997 1996
(unaudited)
NET SALES $23,700,000 $22,405,000
COSTS AND EXPENSES
Cost of goods sold 17,486,000 17,018,000
Selling, general and administrative 3,001,000 2,408,000
Depreciation, depletion and amortization 1,447,000 1,057,000
21,934,000 20,483,000
OPERATING INCOME BEFORE
REORGANIZATION COSTS 1,766,000 1,922,000
Reorganization costs _ 1,752,000
OPERATING INCOME 1,766,000 170,000
Interest expense, net 447,000 194,000
Other, expense (income) (15,000) (34,000)
432,000 160,000
INCOME BEFORE
PROVISION FOR INCOME TAXES 1,334,000 10,000
Provision for income taxes 472,000 4,000
NET INCOME $ 862,000 $ 6,000
NET INCOME PER SHARE $ 0.11 _
AVERAGE COMMON SHARES AND
COMMON SHARE EQUIVALENTS OUTSTANDING 8,025,200 8,221,507
ZEMEX CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOW
FOR THE THREE MONTHS ENDED MARCH 31,
1997 1996
(unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 862,000 $ 6,000
Adjustments to reconcile income
from operations to net cash flows
from operating activities
Depreciation, depletion
and amortization 1,472,000 1,077,000
(Decrease) increase in deferred
income taxes (34,000) 39,000
Increase in other assets (321,000) (358,000)
Increase in non-current liabilities 214,000 2,000
Gain on sale of property, plant
and equipment (39,000) _
Changes in non-cash working
capital items 563,000 (1,584,000)
Net cash provided by (used in)
operating activities 2,717,000 (818,000)
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property, plant
and equipment (3,079,000) (2,521,000)
Proceeds from sale of assets 88,000 _
Net cash used in investing activities (2,991,000) (2,521,000)
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in long term debt 2,671,000 6,996,000
Net (decrease) increase in
bank indebtedness (2,590,000) 1,140,000
Issuance of common stock 158,000 209,000
Purchase of common stock _ (1,583,000)
Net cash provided by
financing activities 239,000 6,762,000
EFFECT OF EXCHANGE RATE CHANGES ON CASH 6,000 (9,000)
NET INCREASE (DECREASE) IN CASH (29,000) 3,414,000
CASH & CASH EQUIVALENTS AT
BEGINNING OF PERIOD 2,279,000 1,653,000
CASH & CASH EQUIVALENTS AT END
OF PERIOD $2,250,000 $5,067,000
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
March 31, 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 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 March 31, 1997 and the three months ended
March 31, 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 March 31, 1997 Compared to Three Months Ended
March 31, 1996
Net Sales
The Corporation's net sales for the three months ended March 31,
1997 were $23.7 million, an increase of $1.3 million, or 5.8%,
from the comparable period in 1996. The increase reflects an
8.2% increase in sales of the Corporation's industrial minerals
and a 3.9% increase in sales of its metal products.
Net sales in the industrial minerals segment for the three month
period ended March 31, 1997 increased by $0.8 million, or 8.2%,
compared to the 1996 period. This increase was due to a 10.4%
increase in the volume of the Corporation's industrial mineral
products sold offset by a slightly unfavorable product mix.
Net sales in the metal products segment for the three months
ended March 31, 1997 were $13.0 million, an increase of $0.5
million, or 3.9%, from the comparable period in 1996. The
increase was due to an increase in sales of atomized products and
a marginal increase in aluminum prices offset slightly by lower
sales of sponge iron.
Cost of Goods Sold
Cost of goods sold for the three months ended March 31, 1997 was
$17.5 million, an increase of $0.5 million, or 2.8%, from the
comparable period in 1996. The corresponding gross margin
increased to 26.2% for the three months ended March 31, 1997 from
24.0% for the three months ended March 31, 1996 due to an
improved contribution by the feldspar group and a marginal
increase in the price of aluminum.
Selling, General and Administrative Expense
Selling, general, and administrative expense ("SG&A") for the
three months ended March 31, 1997 increased to $3.0 million, an
increase of 24.7% over the comparable 1996 period. As a
percentage of net sales, SG&A increased from 10.8% in the 1996
period to 12.7% in the 1997 period. The increase is attributable
primarily to increased staffing.
Depreciation, Depletion and Amortization
Depreciation, depletion and amortization for the three months
ended March 31, 1997 was $1.4 million, an increase of 36.9% over
the comparable period in 1996. This increase is primarily due to
depreciation of recent Spruce Pine expenditures which, prior to
its completion in 1996, were being capitalized.
Operating Income
Operating income for the three month period ended March 31, 1997
was $1.8 million, an increase of $1.6 million 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 three months ended March 31, 1997 was
$0.4 million, up from $0.2 for the comparable period in 1996, as
the result of slightly higher interest rates and the completion
of the Spruce Pine expansion. Interest expense related thereto
was capitalized during the construction period.
Provision for Income Taxes
The Corporation's provision for income taxes for the three months
ended March 31, 1997 increased to $0.5 million from $4,000 in the
comparable period in 1996, due to an increase in pre-tax income.
Net Income
As a result of the factors discussed above, net income for the
three months ended March 31, 1997 was $0.9 compared to $6,000 for
the three months ended March 31, 1996.
Liquidity and Capital Resources
Cash Flow from Operations
During the first quarter of 1997, the Corporation generated
positive cash flow from operations of $2.7 million as compared to
a negative cash flow of $0.8 million for the first quarter of
1996. In 1997, a decrease in non-cash working capital items
generated $0.6 million of the cash from operations whereas in the
corresponding period in 1996 non-cash working capital items used
$1.6 million of cash. The change is a result of increases in
accrued liabilities.
The Corporation had $21.1 million of working capital at March 31,
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.
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 5th day of May, 1997.
ZEMEX CORPORATION
(Registrant)
By: /s/ ALLEN J. PALMIERE
Allen J. Palmiere
Vice President and Chief
Financial Officer
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