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, 1998
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
of incorporation or organization) Identification Number)
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, $1.00 PAR VALUE
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding twelve months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
------ ---- ----- ----
YES X NO
------ ---- ----- ----
As of July 31, 1998, there were 8,472,614 shares of capital stock outstanding.
<PAGE>
<TABLE>
<CAPTION>
ZEMEX CORPORATION
CONSOLIDATED BALANCE SHEETS
(US$)
- ----------------------------------------------------------------------------------------
June 30, 1998 December 31, 1997
- ----------------------------------------------------------------------------------------
ASSETS (unaudited)
CURRENT ASSETS
<S> <C> <C>
Cash and cash equivalents $ 2,014,000 $ 2,189,000
Accounts receivable 18,073,000 16,287,000
Inventories 16,554,000 17,595,000
Prepaid expenses 628,000 786,000
Deferred income taxes 1,328,000 1,328,000
- ----------------------------------------------------------------------------------------
38,597,000 38,185,000
PROPERTY, PLANT AND EQUIPMENT 78,650,000 70,812,000
OTHER ASSETS 28,385,000 9,777,000
- ----------------------------------------------------------------------------------------
TOTAL ASSETS $145,632,000 $118,774,000
- ----------------------------------------------------------------------------------------
LIABILITIES
CURRENT LIABILITIES
Bank indebtedness $ 5,000,000 $ 3,000,000
Accounts payable 8,465,000 9,805,000
Accrued liabilities 4,941,000 3,151,000
Accrued income taxes 642,000 1,235,000
Current portion of long term debt 2,050,000 2,019,000
- ----------------------------------------------------------------------------------------
21,098,000 19,210,000
LONG TERM DEBT 40,234,000 20,527,000
OTHER NON-CURRENT LIABILITIES 902,000 1,014,000
DEFERRED INCOME TAXES 1,369,000 1,488,000
MINORITY INTEREST 3,155,000 --
- ----------------------------------------------------------------------------------------
66,758,000 42,239,000
- ----------------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY
Common stock 9,262,000 9,204,000
Paid-in capital 53,696,000 53,298,000
Retained earnings 26,737,000 24,235,000
Note receivable from shareholder (1,749,000) (1,749,000)
Cumulative translation adjustment (1,808,000) (1,588,000)
Treasury stock at cost (7,264,000) (6,865,000)
- ----------------------------------------------------------------------------------------
78,874,000 76,535,000
- ----------------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $145,632,000 $118,774,000
- ----------------------------------------------------------------------------------------
</TABLE>
-2-
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<TABLE>
<CAPTION>
ZEMEX CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(US$)
- ------------------------------------------------------------------------------------------------------
3 MONTHS ENDED JUNE 30 6 MONTHS ENDED JUNE 30
1998 1997 1998 1997
- ------------------------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C> <C> <C>
NET SALES $25,933,000 $25,199,000 $52,380,000 $48,899,000
- ------------------------------------------------------------------------------------------------------
COSTS AND EXPENSES
Cost of goods sold 18,317,000 18,161,000 37,465,000 35,648,000
Selling, general and administrative 3,528,000 3,380,000 6,861,000 6,381,000
Depreciation, depletion and amortization 1,670,000 1,403,000 3,262,000 2,850,000
- ------------------------------------------------------------------------------------------------------
23,515,000 22,944,000 47,588,000 44,879,000
- ------------------------------------------------------------------------------------------------------
OPERATING INCOME 2,418,000 2,255,000 4,792,000 4,020,000
- ------------------------------------------------------------------------------------------------------
Interest expense, net 519,000 562,000 1,036,000 1,009,000
Other, net 45,000 39,000 127,000 24,000
- ------------------------------------------------------------------------------------------------------
564,000 601,000 1,163,000 1,033,000
- ------------------------------------------------------------------------------------------------------
INCOME BEFORE PROVISION
FOR INCOME TAXES AND
MINORITY INTEREST 1,854,000 1,654,000 3,629,000 2,987,000
Provision for income taxes 556,000 590,000 1,089,000 1,061,000
Minority interest 24,000 -- 38,000 --
- ------------------------------------------------------------------------------------------------------
NET INCOME $ 1,274,000 $ 1,064,000 $ 2,502,000 $ 1,926,000
- ------------------------------------------------------------------------------------------------------
NET INCOME PER SHARE - basic $0.16 $0.13 $0.31 $0.24
- diluted 0.15 0.13 0.29 0.24
- ------------------------------------------------------------------------------------------------------
AVERAGE COMMON SHARES
OUTSTANDING 8,105,448 8,089,296 8,100,073 8,083,671
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</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
ZEMEX CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30
(US$)
- -------------------------------------------------------------------------------------------------
1998 1997
- -------------------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 2,502,000 $ 1,926,000
Adjustments to reconcile net income to net cash flows
Depreciation, depletion and amortization 3,262,000 2,850,000
Amortization of deferred financing costs 83,000 65,000
Decrease in deferred income taxes (119,000) (80,000)
Minority interest in subsidiary earnings 38,000 --
Increase in other assets (16,839,000) (59,000)
(Decrease) increase in other non-current liabilities (112,000) 186,000
Loss (gain) on sale of property, plant and equipment 4,000 (70,000)
Changes in non-cash working capital items (1,245,000) 1,843,000
- -------------------------------------------------------------------------------------------------
Net cash (used in) provided by operating activities (12,426,000) 6,661,000
- -------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property, plant and equipment (6,513,000) (6,081,000)
Assets acquired in acquisitions (7,801,000) --
Proceeds from sale of assets 3,117,000 151,000
- -------------------------------------------------------------------------------------------------
Net cash used in investing activities (11,197,000) (5,930,000)
- -------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in long term debt 17,502,000 2,945,000
Net increase (decrease) in bank indebtedness 2,000,000 (3,589,000)
Liabilities assumed in acquisitions 3,914,000 --
Issuance of common stock 475,000 323,000
Purchase of common stock (418,000) (274,000)
- -------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities 23,473,000 (595,000)
- -------------------------------------------------------------------------------------------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH (25,000) 24,000
- -------------------------------------------------------------------------------------------------
NET (DECREASE) INCREASE IN CASH (175,000) 160,000
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 2,189,000 2,279,000
- -------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 2,014,000 $ 2,439,000
- -------------------------------------------------------------------------------------------------
</TABLE>
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<PAGE>
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, 1998 and 1997 and for the six months ended June
30, 1998 and 1997 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.
In January 1998, the Corporation, through its wholly-owned subsidiary, Zemex
Industrial Minerals, Inc., acquired a muscovite mica producer for approximately
$2.2 million, which includes the assumption of debt. The two facilities acquired
in the purchase are located in the Spruce Pine, North Carolina area and are
operating under the name Zemex Mica Corporation. The acquisition was financed
through borrowings on the Corporation's credit facility.
On February 24, 1998, Industria Mineraria Fabi S.r.l. ("Fabi") became a partner
in the Corporation's talc facility located in Benwood, West Virginia by
acquiring a 40% interest in a new limited liability company, Zemex Fabi-Benwood,
LLC. As part of the transaction, Fabi paid $3.4 million and is providing access
to its technology. Suzorite Mineral Products, Inc., a wholly-owned subsidiary of
the Corporation, will manage the new entity pursuant to an operating agreement.
Effective June 1, 1998, Alumitech, Inc., a 100% wholly-owned subsidiary of the
Corporation, acquired all of the issued and outstanding shares of S&R
Enterprises, Inc. ("S&R") for approximately $7.5 million which included the
assumption of debt. S&R is an aluminum dross processor located in Wabash,
Indiana. The Corporation used its credit facility to finance the acquisition.
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,
1998 and the three months ended June 30, 1997, and for the six months ended
June 30, 1998 and the six months ended June 30, 1997, 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, 1998 COMPARED TO THREE MONTHS ENDED JUNE 30, 1997
Net Sales
The Corporation's net sales for the three months ended June 30, 1998 were $25.9
million compared to $25.2 million for the three months ended June 30, 1997,
reflecting a 2.8% increase in sales of industrial minerals and a 3.0% increase
in the sales of metal products.
Net sales in the industrial minerals segment for the three month period ended
June 30, 1998 increased by $0.3 million to $11.7 million from $11.4 million in
the corresponding period of 1997. The increase is due to higher sales of
feldspar, talc and industrial sand products.
-5-
<PAGE>
Net sales of the Corporation's metal products were $14.2 million for the three
months ended June 30, 1998, an increase of $0.4 million from the comparable
period in 1997, as a result of higher sales of aluminum, atomized and ceramic
fiber products offset in part by lower aluminum prices.
Cost of Goods Sold
Cost of goods sold for the three months ended June 30, 1998 was $18.3 million,
compared to $18.2 million for the second quarter of 1997. As a percentage of net
sales, gross margin increased from 27.9% in 1997 to 29.4% for the three months
ended June 30, 1998, reflecting higher sales and improved cost efficiencies.
Selling, General and Administrative Expense
Selling, general, and administrative ("SG&A") expense for the three months ended
June 30, 1998 increased by 4.4% to $3.5 million from $3.4 million in the like
period of 1997. As a percentage of net sales, SG&A expense increased to 13.6% in
the second quarter of 1998 from 13.4% in the same period in 1997. 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, 1998 was $1.7 million, an increase of $0.3 million, or 19.1%, over the
corresponding period in 1997 as a result of capital expenditures coming on line.
Operating Income
Operating income for the three month period ended June 30, 1998 was $2.4
million, an increase of $0.2 million, or 7.2%, from the comparable period in
1997. The increase was due to the reasons discussed above.
Interest Expense, Net
Interest expense for the three months ended June 30, 1998 was $0.5 million,
virtually unchanged from the same period in 1997.
Provision for Income Taxes
The Corporation's provision for income taxes for the three months ended June 30,
1998 was $0.6 million slightly below the corresponding period in 1997 due to a
lower tax rate being applied.
Net Income
As a result of the factors discussed above, net income for the three months
ended June 30, 1998 was $1.3 million, an increase of $0.2 million, or 19.7%,
from the comparable period in 1997.
-6-
<PAGE>
SIX MONTHS ENDED JUNE 30, 1998 COMPARED TO SIX MONTHS ENDED JUNE 30, 1997
Net Sales
The Corporation's net sales for the six months ended June 30, 1998 were $52.4
million, an increase of $3.5 million, or 7.1%, from 1997. The increase is due to
a 4.1% increase in sales of industrial minerals and a 9.7% increase in sales of
metal products.
Net sales in the industrial minerals segment for the six month period ended June
30, 1998 increased by $0.9 million to $23.0 million from $22.1 million in the
corresponding period of 1997. The increase is due to higher sales volume of
feldspar, talc and industrial sand.
Net sales in the metal products segment for the six months ended June 30, 1998
were $29.3 million, an increase of $2.6 million, or 9.7%, from the comparable
period in 1997. The increase is due to stronger sales of aluminum, sponge,
atomized and ceramic fiber products, partially offset by a decline in aluminum
prices.
Cost of Goods Sold
Cost of goods sold for the six months ended June 30, 1998 was $37.5 million, an
increase of $1.8 million, or 5.1%, from the comparable period in 1997. As a
percent of net sales, gross margin increased to 28.5% for the six months ended
June 30, 1998 from 27.1% for the same period in 1997. The increase is due to
higher sales and improved operating efficiencies.
Selling, General and Administrative Expense
SG&A expense for the six months ended June 30, 1998 increased to $6.9 million
from $6.4 million in 1997, an increase of $0.5 million, or 7.5%. As a percentage
of net sales, SG&A expense remained virtually the same at 13.1%.
Depreciation, Depletion and Amortization
DD&A for the six months ended June 30, 1998 was $3.3 million, an increase of
$0.4 million, or 14.5%, over the comparable period in 1997 as a result of
capital expenditures coming on line.
Operating Income
Operating income for the six month period ended June 30, 1998 was $4.8 million,
an increase of $0.8 million, or 19.2%, from the comparable period in 1997.
Interest Expense, Net
Interest expense for the six months ended June 30, 1998 was $1.0 million,
virtually unchanged from the corresponding period in 1997.
Provision for Income Taxes
The Corporation's provision for income taxes for the six months ended June 30,
1998 was $1.1 million slightly higher than the comparable period in 1997. The
increase is due to higher pre-tax income in the first six months of 1998 and
also the application of a lower tax rate in 1998.
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<PAGE>
Net Income
As a result of the factors discussed above, net income for the six months ended
June 30, 1998 was $2.5 million, an increase of $0.6 million, or 29.9%, from the
comparable period in 1997.
LIQUIDITY AND CAPITAL RESOURCES
Cash Flow from Operations
During the first half of 1998, operating activities used $12.4 million of cash
as compared to $6.7 million cash generated from operations for the first six
months of 1997. The change is primarily due to funds used to acquire 4,075,500
common shares of Inmet Mining Corporation (see Part II, Item 5 - Other
Business) in the second quarter of 1998. In 1998, non-cash working capital items
used $1.2 million of the cash otherwise generated from operations as compared to
a generation of $1.8 million for the corresponding period of 1997 as a result of
a decrease in inventories and an increase in accounts receivable and accrued
liabilities.
The Corporation had $17.5 million of working capital at June 30, 1998, compared
to $19.0 million at December 31, 1997.
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 1998 Annual Meeting of Shareholders held on June 30, 1998,
the following actions were taken and votes tabulated:
1. Eight directors were elected for the ensuing year.
<TABLE>
<CAPTION>
NAME VOTES FOR VOTES WITHHELD
- -------------------------------- ------------------------------ ---------------------------
<S> <C> <C> <C>
Paul A. Carroll 6,554,462 466,013
Morton A. Cohen 6,554,578 465,897
John M. Donovan 6,554,462 466,013
Thomas B. Evans, Jr. 6,554,578 465,897
Peter O. Lawson-Johnston 6,554,462 466,013
Richard L. Lister 6,554,578 465,897
Patrick H. O'Neill 6,554,462 466,013
William J. vanden Heuvel 6,554,462 466,013
</TABLE>
-8-
<PAGE>
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, 1998 was ratified.
<TABLE>
<CAPTION>
ABSTENTIONS
VOTES FOR VOTES AGAINST (INCLUDING BROKER NON-VOTES)
- ---------------------------- ---------------------------- ------------------------------
<S> <C> <C> <C>
7,012,158 6,582 1,735
</TABLE>
3. The proposal to amend the Corporation's Amended and Restated Articles
of Incorporation to provide for a new class of shares was approved.
<TABLE>
<CAPTION>
ABSTENTIONS
VOTES FOR VOTES AGAINST (INCLUDING BROKER NON-VOTES)
- ---------------------------- ---------------------------- ------------------------------
<S> <C> <C> <C>
5,314,882 928,011 28,143
</TABLE>
ITEM 5 - OTHER INFORMATION
On July 8, 1998, Zemex Corporation, together with one other shareholder,
requisitioned a special meeting of shareholders of Inmet Mining Corporation
("Inmet"), a Toronto Stock Exchange listed mining company (TSE-IMN). The purpose
of the meeting will be to consider a series of resolutions, including a change
of the board of directors, that will recapitalize Inmet and facilitate a
business combination with Zemex. Upon their appointment, the new board of
Inmet/Zemex Canada will consider the immediate merger of Zemex Corporation with
the recapitalized Inmet on a one-for-one basis.
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 6th day of August, 1998.
ZEMEX CORPORATION
(Registrant)
By: /s/ Allen J. Palmiere
------------------------------------------
Allen J. Palmiere
Vice President and Chief Financial Officer
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<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1998
<CASH> 2,014,000
<SECURITIES> 0
<RECEIVABLES> 18,423,000
<ALLOWANCES> (350,000)
<INVENTORY> 16,554,000
<CURRENT-ASSETS> 38,597,000
<PP&E> 116,754,000
<DEPRECIATION> (38,104,000)
<TOTAL-ASSETS> 145,632,000
<CURRENT-LIABILITIES> 21,098,000
<BONDS> 0
0
0
<COMMON> 9,262,000
<OTHER-SE> 69,612,000
<TOTAL-LIABILITY-AND-EQUITY> 145,632,000
<SALES> 52,380,000
<TOTAL-REVENUES> 52,380,000
<CGS> 37,465,000
<TOTAL-COSTS> 47,588,000
<OTHER-EXPENSES> 127,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,036,000
<INCOME-PRETAX> 3,629,000
<INCOME-TAX> 1,089,000
<INCOME-CONTINUING> 2,502,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,502,000
<EPS-PRIMARY> 0.31
<EPS-DILUTED> 0.29
</TABLE>
