<PAGE> 1
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, 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 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, $1.00 PAR VALUE
Indicate by checkmark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding twelve months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES X NO
--- - --
As of April 22, 1998, there were 8,461,620 shares of capital stock outstanding.
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<PAGE> 2
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
ZEMEX CORPORATION
CONSOLIDATED BALANCE SHEETS
(US$)
<TABLE>
<CAPTION>
MARCH 31, 1998 DECEMBER 31, 1997
<S> <C> <C>
(unaudited)
_____________________________________________________________________________________
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 1,208,000 $ 2,189,000
Accounts receivable 17,587,000 16,287,000
Inventories 17,693,000 17,595,000
Prepaid expenses 971,000 786,000
Deferred income taxes 1,328,000 1,328,000
_____________________________________________________________________________________
38,787,000 38,185,000
PROPERTY, PLANT AND EQUIPMENT 72,833,000 70,812,000
INVESTMENTS 353,000 --
OTHER ASSETS 11,400,000 9,777,000
_____________________________________________________________________________________
TOTAL ASSETS $123,373,000 $118,774,000
_____________________________________________________________________________________
LIABILITIES
CURRENT LIABILITIES
Bank indebtedness $ 3,250,000 $ 3,000,000
Accounts payable 7,614,000 9,805,000
Accrued liabilities 5,611,000 3,151,000
Accrued income taxes 549,000 1,235,000
Current portion of long term debt 1,995,000 2,019,000
_____________________________________________________________________________________
19,019,000 19,210,000
LONG TERM DEBT 21,115,000 20,527,000
OTHER NON-CURRENT LIABILITIES 945,000 1,014,000
DEFERRED INCOME TAXES 1,470,000 1,488,000
MINORITY INTEREST 3,007,000 --
_____________________________________________________________________________________
45,556,000 42,239,000
_____________________________________________________________________________________
SHAREHOLDERS' EQUITY
Common stock 9,243,000 9,204,000
Paid-in capital 53,530,000 53,298,000
Retained earnings 25,462,000 24,235,000
Note receivable from shareholder (1,749,000) (1,749,000)
Cumulative translation adjustment (1,524,000) (1,588,000)
Treasury stock at cost (7,145,000) (6,865,000)
_____________________________________________________________________________________
77,817,000 76,535,000
_____________________________________________________________________________________
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $123,373,000 $118,774,000
_____________________________________________________________________________________
</TABLE>
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<PAGE> 3
ZEMEX CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31
(US$)
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
(unaudited)
________________________________________________________________________
NET SALES $26,446,000 $23,700,000
________________________________________________________________________
COSTS AND EXPENSES
Cost of goods sold 19,148,000 17,486,000
Selling, general and administrative 3,333,000 3,001,000
Depreciation, depletion and amortization 1,592,000 1,447,000
________________________________________________________________________
24,073,000 21,934,000
________________________________________________________________________
OPERATING INCOME 2,373,000 1,766,000
________________________________________________________________________
Interest expense, net 516,000 447,000
Other, expense (income) 82,000 (15,000)
________________________________________________________________________
598,000 432,000
________________________________________________________________________
INCOME BEFORE PROVISION FOR
INCOME TAXES AND MINORITY INTEREST 1,775,000 1,334,000
Provision for income taxes 533,000 472,000
Minority interest 14,000 --
________________________________________________________________________
NET INCOME $ 1,228,000 $ 862,000
________________________________________________________________________
NET INCOME PER SHARE
Basic $ 0.15 $ 0.11
Diluted $ 0.15 $ 0.11
________________________________________________________________________
AVERAGE COMMON SHARES OUTSTANDING 8,091,638 8,077,984
________________________________________________________________________
</TABLE>
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<PAGE> 4
ZEMEX CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOW
FOR THE THREE MONTHS ENDED MARCH 31
(US$)
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
(unaudited)
_____________________________________________________________________________
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 1,228,000 $ 862,000
Adjustments to reconcile income from operations
to net cash flows from operating activities
Depreciation, depletion and amortization 1,634,000 1,472,000
Decrease in deferred income taxes (19,000) (34,000)
Minority interest in subsidiary earnings 14,000 --
Gain on sale of property, plant and equipment (2,000) (39,000)
Decrease (increase) in other assets 365,000 (321,000)
(Decrease) increase in non-current liabilities (69,000) 214,000
Changes in non-cash working capital items (2,975,000) 563,000
_____________________________________________________________________________
NET CASH PROVIDED BY OPERATING ACTIVITIES 176,000 2,717,000
_____________________________________________________________________________
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property, plant and equipment (2,639,000) (3,079,000)
Assets acquired in acquisitions (1,969,000) --
Proceeds from sale of assets 2,995,000 88,000
Additions to investments (353,000) --
_____________________________________________________________________________
NET CASH USED IN INVESTING ACTIVITIES (1,966,000) (2,991,000)
_____________________________________________________________________________
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in bank indebtedness 250,000 (2,590,000)
Net increase in long term debt 564,000 2,671,000
Issuance of common stock 289,000 158,000
Purchase of common stock (299,000) --
_____________________________________________________________________________
NET CASH PROVIDED BY FINANCING ACTIVITIES 804,000 239,000
_____________________________________________________________________________
EFFECT OF EXCHANGE RATE CHANGES ON CASH 5,000 6,000
_____________________________________________________________________________
NET DECREASE IN CASH (981,000) (29,000)
_____________________________________________________________________________
CASH & CASH EQUIVALENTS AT BEGINNING OF PERIOD 2,189,000 2,279,000
_____________________________________________________________________________
CASH & CASH EQUIVALENTS AT END OF PERIOD $ 1,208,000 $ 2,250,000
_____________________________________________________________________________
</TABLE>
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<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 March 31, 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 will operate 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.
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,
1998 and the three months ended March 31, 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 MARCH 31, 1998 COMPARED TO THREE MONTHS ENDED MARCH 31, 1997
Net Sales
The Corporation's net sales for the three months ended March 31, 1998 were
$26.4 million, an increase of $2.7 million, or 11.6%, from the comparable
period in 1997.
Net sales of $11.3 million in the industrial minerals segment for the three
month period ended March 31, 1998 represented an increase of $0.6 million, or
5.4%, compared to the 1997 period as a result of a favorable product mix and an
increase in sales of talc, industrial sand and low iron sand.
Net sales in the metal products segment for the three months ended March 31,
1998 were $15.1 million, an increase of $2.2 million, or 16.7%, from the
comparable period in 1997. The increase is due primarily to an increase in
sales of sponge iron, ferrous and non ferrous metal powder products and higher
aluminum prices.
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<PAGE> 6
Cost of Goods Sold
Cost of goods sold for the three months ended March 31, 1998 was $19.1 million,
an increase of $1.7 million, or 9.5%, from the comparable period in 1997. Gross
margin increased to 27.6% for the three months ended March 31, 1998 from 26.2%
in the first quarter of 1997, reflecting improved cost and operating
efficiencies.
Selling, General and Administrative Expense
Selling, general, and administrative expense ("SG&A") for the three months
ended March 31, 1998 increased to $3.3 million, an increase of $0.3 million
over the comparable 1997 period. Of the increase, $0.2 million was attributable
to a one-time charge for the settlement of a legal dispute. As a percentage of
sales, SG&A decreased slightly from 12.7% in the 1997 period to 12.6% in the
1998 period.
Depreciation, Depletion and Amortization
Depreciation, depletion and amortization for the three months ended March 31,
1998 was $1.6 million, an increase of 10.0% over the comparable period in 1997,
as a result of assets acquired and placed in service over the last twelve
months.
Operating Income
Operating income for the three month period ended March 31, 1998 was $2.4
million, an increase of $0.6 million from the comparable period in 1997.
Interest Expense, Net
Interest expense for the three months ended March 31, 1998 was $0.5 million, up
from $0.4 million for the comparable period in 1997.
Provision for Income Taxes
The Corporation's provision for income taxes for the three months ended March
31, 1998 was $0.5 million, virtually unchanged from the first quarter of 1997.
Net Income
As a result of the factors discussed above, net income for the three months
ended March 31, 1998 was $1.2 million compared to $0.9 million for the three
months ended March 31, 1997.
LIQUIDITY AND CAPITAL RESOURCES
Cash Flow from Operations
During the first quarter of 1998, the Corporation generated cash flow from
operations of $0.2 million as compared to a positive cash flow of $2.7 million
for the first quarter of 1997. In 1998, non-cash working capital items used
$3.0 million of the cash otherwise generated from operations whereas in the
corresponding period in 1997 non-cash working capital items generated $0.6
million of cash.
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<PAGE> 7
The Corporation had $19.8 million of working capital at March 31, 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.
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 24th day of April, 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> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 1,208,000
<SECURITIES> 0
<RECEIVABLES> 17,927,000
<ALLOWANCES> (340,000)
<INVENTORY> 17,693,000
<CURRENT-ASSETS> 38,787,000
<PP&E> 108,929,000
<DEPRECIATION> (36,096,000)
<TOTAL-ASSETS> 123,373,000
<CURRENT-LIABILITIES> 19,019,000
<BONDS> 0
<COMMON> 9,243,000
0
0
<OTHER-SE> 68,574,000
<TOTAL-LIABILITY-AND-EQUITY> 123,373,000
<SALES> 26,446,000
<TOTAL-REVENUES> 26,446,000
<CGS> 19,148,000
<TOTAL-COSTS> 24,073,000
<OTHER-EXPENSES> (82,000)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 516,000
<INCOME-PRETAX> 1,775,000
<INCOME-TAX> 533,000
<INCOME-CONTINUING> 1,228,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,228,000
<EPS-PRIMARY> 0.15
<EPS-DILUTED> 0.15
</TABLE>
