<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 June 30, 2000
Commission file number 1-228
ZEMEX CORPORATION
(Exact name of registrant as specified in its charter)
CANADA NONE
(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
TORONTO STOCK EXCHANGE/NEW YORK STOCK EXCHANGE CAPITAL STOCK, NO 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 June 30, 2000, there were 8,821,020 shares of capital stock outstanding.
<PAGE> 2
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
ZEMEX CORPORATION
CONSOLIDATED BALANCE SHEETS
(US$)
<TABLE>
<CAPTION>
JUNE 30, 2000 DECEMBER 31, 1999
------------- -----------------
ASSETS (unaudited)
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 861,000 $ 1,592,000
Accounts receivable 16,838,000 19,829,000
Inventories 15,528,000 19,482,000
Prepaid expenses and other current assets 1,832,000 2,457,000
Future income tax benefits 677,000 677,000
------------- -------------
35,736,000 44,037,000
Property, plant and equipment 81,968,000 96,779,000
Other assets 11,678,000 18,228,000
Future income tax benefits 521,000 484,000
------------- -------------
TOTAL ASSETS $ 129,903,000 $ 159,528,000
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Bank indebtedness $ 15,145,000 $ 5,500,000
Accounts payable 5,581,000 5,959,000
Accrued liabilities 2,508,000 3,398,000
Accrued income taxes 4,345,000 950,000
Current portion of long term debt 618,000 617,000
------------- -------------
28,197,000 16,424,000
LONG TERM DEBT 434,000 50,502,000
OTHER NON-CURRENT LIABILITIES 633,000 585,000
------------- -------------
29,264,000 67,511,000
------------- -------------
NON-CONTROLLING INTEREST 3,222,000 2,970,000
------------- -------------
SHAREHOLDERS' EQUITY
Common stock 58,173,000 58,560,000
Retained earnings 42,898,000 33,920,000
Note receivable from shareholder (1,749,000) (1,749,000)
Cumulative translation adjustment (1,905,000) (1,684,000)
------------- -------------
97,417,000 89,047,000
------------- -------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 129,903,000 $ 159,528,000
============= =============
</TABLE>
Prepared in accordance with Canadian GAAP
- 2 -
<PAGE> 3
ZEMEX CORPORATION
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
(US$)
<TABLE>
<CAPTION>
3 MONTHS ENDED JUNE 30 6 MONTHS ENDED JUNE 30
2000 1999 2000 1999
------------ ------------ ------------ ------------
(unaudited)
<S> <C> <C> <C> <C>
NET SALES $ 21,101,000 $ 19,752,000 $ 40,770,000 $ 38,338,000
------------ ------------ ------------ ------------
COSTS AND EXPENSES
Cost of goods sold 15,531,000 12,884,000 29,356,000 25,284,000
Selling, general and administrative 2,879,000 2,956,000 5,618,000 5,554,000
Depreciation, depletion and amortization 1,947,000 1,856,000 3,913,000 3,640,000
------------ ------------ ------------ ------------
20,357,000 17,696,000 38,887,000 34,478,000
------------ ------------ ------------ ------------
OPERATING INCOME 744,000 2,056,000 1,883,000 3,860,000
------------ ------------ ------------ ------------
Interest income 45,000 30,000 88,000 70,000
Interest expense (508,000) (1,053,000) (1,617,000) (1,928,000)
Other expenses, net 130,000 (2,000) (2,995,000) (22,000)
------------ ------------ ------------ ------------
(333,000) (1,025,000) (4,524,000) (1,880,000)
------------ ------------ ------------ ------------
INCOME (LOSS) BEFORE (RECOVERY OF) PROVISION FOR INCOME TAXES
AND NON-CONTROLLING INTEREST 411,000 1,031,000 (2,641,000) 1,980,000
(Recovery of) provision for income taxes (30,000) 240,000 (1,380,000) 455,000
Non-controlling interest in earnings (loss) of subsidiary 20,000 (3,000) 91,000 (17,000)
------------ ------------ ------------ ------------
INCOME (LOSS) FROM CONTINUING OPERATIONS 421,000 794,000 (1,352,000) 1,542,000
INCOME FROM DISCONTINUED OPERATIONS 9,418,000 820,000 10,330,000 1,461,000
------------ ------------ ------------ ------------
NET INCOME $ 9,839,000 $ 1,614,000 $ 8,978,000 $ 3,003,000
============ ============ ============ ============
NET INCOME (LOSS) PER SHARE
BASIC
Continuing operations $ 0.05 $ 0.09 $ (0.16) $ 0.18
Discontinued operations $ 1.11 $ 0.10 $ 1.21 $ 0.18
------------ ------------ ------------ ------------
$ 1.16 $ 0.19 $ 1.05 $ 0.36
------------ ------------ ------------ ------------
FULLY DILUTED
Continuing operations $ 0.04 $ 0.08 $ (0.14) $ 0.16
Discontinued operations $ 0.95 $ 0.09 $ 1.05 $ 0.16
------------ ------------ ------------ ------------
$ 0.99 $ 0.17 $ 0.91 $ 0.32
------------ ------------ ------------ ------------
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
BASIC 8,498,861 8,403,728 8,507,594 8,377,306
FULLY DILUTED 10,001,011 9,842,516 10,009,744 9,764,238
</TABLE>
Prepared in accordance with Canadian GAAP
- 3 -
<PAGE> 4
ZEMEX CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOW
FOR THE SIX MONTHS ENDED JUNE 30
(US$)
<TABLE>
<CAPTION>
2000 1999
------------ ------------
(unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 8,978,000 $ 3,003,000
Adjustments to reconcile net income to
net cash flows from operating activities
Depreciation, depletion and amortization 4,294,000 4,295,000
Amortization of deferred financing costs 29,000 97,000
Increase in future income tax benefits (37,000) (443,000)
Non-controlling interest in subsidiary earnings (loss) 91,000 (17,000)
(Gain) loss on sale of property, plant and equipment (267,000) 65,000
Gain on sale of discontinued operations (15,191,000) --
Increase in other assets (726,000) (1,762,000)
Increase (decrease) in other non-current liabilities 48,000 (111,000)
Changes in non-cash working capital items 2,850,000 (827,000)
------------ ------------
Net cash provided by operating activities 69,000 4,300,000
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property, plant and equipment (3,814,000) (7,594,000)
Proceeds from sale of discontinued operations 39,353,000 --
Proceeds of sales of securities 4,215,000 --
Proceeds from sale of assets 234,000 1,000
------------ ------------
Net cash provided by (used in) investing activities 39,988,000 (7,593,000)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in bank indebtedness 9,645,000 (10,000,000)
Net (decrease) increase in long term debt (50,007,000) 12,387,000
Issuance of common stock 225,000 521,000
Purchase of common stock and options (612,000) (35,000)
------------ ------------
Net cash (used in) provided by financing activities (40,749,000) 2,873,000
------------ ------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH (39,000) 93,000
------------ ------------
NET DECREASE IN CASH (731,000) (327,000)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 1,592,000 1,062,000
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 861,000 $ 735,000
============ ============
</TABLE>
Prepared in accordance with Canadian GAAP
- 4 -
<PAGE> 5
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
The consolidated financial statements include the accounts of Zemex Corporation
and its subsidiaries (the "Corporation"). The financial data for the three
months ended June 30, 2000 and 1999 and for the six months ended June 30, 2000
and 1999 are unaudited but, in the opinion of management, reflect all
adjustments, considered necessary for a fair presentation of financial position
and results of operations. The results of operations for the three-month and six
month periods ended June 30, 2000 are not necessarily indicative of operations
for the year. All material intercompany transactions have been eliminated.
OVERVIEW
The Corporation is a diversified producer of specialty materials and products
for use in a variety of industrial applications. The Corporation has operated in
three principal business segments: (i) industrial minerals, which includes The
Feldspar Corporation, Suzorite Mica Products Inc., Suzorite Mineral Products,
Inc., Zemex Fabi-Benwood, LLC, Zemex Industrial Minerals, Inc. and Zemex Mica
Corporation; (ii) aluminum recycling, which includes Alumitech, Inc., Alumitech
of Cleveland, Inc., Alumitech of Wabash, Inc., ETS Schaefer Corporation and AWT
Properties, Inc.; and (iii) metal powders, which includes Pyron Corporation and
Pyron Metal Powders, Inc. (see note 1 below).
1. On April 11, 2000, the Corporation completed the sale of its metal powders
division for $42.0 million to North American Hoganas Holdings, Inc., a
subsidiary of Hoganas AB. The Corporation recognized a pre-tax gain of $15.2
million in the second quarter of 2000; the after-tax gain from this sale
transaction was $9.4 million, or $1.11 per share. The sale proceeds were applied
to the Corporation's credit facilities. The Corporation's total bank
indebtedness was reduced to $15.1 million by the end of the second quarter of
2000. Because of the sale, the metal powders division has been disclosed as a
discontinued operation and the prior period figures have been reclassified
accordingly.
2. To effect the disposition of Pyron Corporation and Pyron Metal Powders, Inc.,
on March 8, 2000 the Corporation redeemed its outstanding Senior Secured Notes.
The redemption was financed by a bridge facility structured as an amendment to
the Corporation's existing credit facility, bears interest at the same rate
and is secured by the same security package as the existing credit facility. The
bridge facility matures October 31, 2000 and was to be partially repaid from the
the sale proceeds from Pyron Corporation and Pyron Metal Powders, Inc. The
redemption necessitated a make-whole payment to the noteholders of $1.2 million,
which was recorded in the first quarter of 2000 and was included in other
expenses. Additionally $0.3 million was paid out in related transaction expenses
and $1.7 million in deferred financing expenses related to the issuance of the
Senior Secured Notes was written off.
- 5 -
<PAGE> 6
SEGMENT INFORMATION
The Corporation's continuing operations are now organized into two distinct
operating units based on product lines: (i) industrial minerals; and (ii)
aluminum recycling.
Information pertaining to sales and earnings (loss) from continuing operations
and assets by business segment appears below:
<TABLE>
<CAPTION>
Industrial Aluminum
Three Months Ended June 30, 2000 Consolidated Minerals Recycling Corporate
-------------------------------- ------------ ------------ ---------- -----------
<S> <C> <C> <C> <C>
Net sales $ 21,101,000 $ 13,917,000 $7,184,000 $ --
Operating income (loss) 744,000 1,438,000 35,000 (729,000)
Interest expense (508,000) (24,000) (6,000) (478,000)
Income (loss) from continuing operations 421,000 1,025,000 40,000 (644,000)
Income from discontinued operations 9,418,000 -- -- 9,418,000
Net income 9,839,000 1,025,000 40,000 8,774,000
============ ============ ========== ===========
</TABLE>
<TABLE>
<CAPTION>
Industrial Aluminum
Three Months Ended June 30, 1999 Consolidated Minerals Recycling Corporate
-------------------------------- ------------ ------------ ---------- -----------
<S> <C> <C> <C> <C>
Net sales $ 19,752,000 $ 12,716,000 $7,036,000 $ --
Operating income (loss) 2,056,000 1,986,000 883,000 (813,000)
Interest expense (1,053,000) (68,000) (17,000) (968,000)
Income (loss) from continuing operations 794,000 1,662,000 879,000 (1,747,000)
Income from discontinued operations 820,000 -- -- --
Net income (loss) 1,614,000 1,662,000 879,000 (1,747,000)
============ ============ ========== ===========
</TABLE>
<TABLE>
<CAPTION>
Industrial Aluminum
Six Months Ended June 30, 2000 Consolidated Minerals Recycling Corporate
-------------------------------- ------------ ------------ ---------- -----------
<S> <C> <C> <C> <C>
Net sales $ 40,770,000 $ 26,812,000 $ 13,958,000 $ --
Operating income (loss) 1,883,000 3,000,000 274,000 (1,391,000)
Interest expense (1,617,000) (8,000) (12,000) (1,597,000)
(Loss) income from continuing operations (1,352,000) 2,274,000 293,000 (3,919,000)
Income from discontinued operations 10,330,000 -- -- 9,418,000
Net income 8,978,000 2,274,000 293,000 5,499,000
============ ============ ============ ===========
</TABLE>
<TABLE>
<CAPTION>
Industrial Aluminum
Six Months Ended June 30, 1999 Consolidated Minerals Recycling Corporate
-------------------------------- ------------ ------------ ---------- -----------
<S> <C> <C> <C> <C>
Net sales $ 38,338,000 $ 25,293,000 $ 13,045,000 $ --
Operating income (loss) 3,860,000 4,102,000 1,284,000 (1,526,000)
Interest expense (1,928,000) (79,000) (46,000) (1,803,000)
Income (loss) from continuing operations 1,542,000 3,397,000 1,276,000 (3,131,000)
Income from discontinued operations 1,461,000 -- -- --
Net income (loss) 3,003,000 3,397,000 1,276,000 (3,131,000)
============ ============ ============ ===========
</TABLE>
- 6 -
<PAGE> 7
<TABLE>
<CAPTION>
Industrial Aluminum Discontinued
June 30, 2000 Consolidated Minerals Recycling Corporate Operations
------------- ------------ ------------ ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Current assets $ 35,736,000 $ 27,222,000 $ 6,018,000 $ 2,496,000 $ --
Total assets 129,903,000 81,388,000 37,837,000 10,678,000 --
Total current liabilities 28,197,000 4,454,000 3,809,000 19,934,000 --
Total shareholders' equity 97,417,000 -- -- 97,417,000 --
============ ============ =========== =========== ============
</TABLE>
<TABLE>
<CAPTION>
Industrial Aluminum Discontinued
June 30, 1999 Consolidated Minerals Recycling Corporate Operations
------------- ------------ ------------ ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Current assets $ 40,150,000 $ 24,425,000 $ 3,903,000 $ 1,384,000 $ 10,438,000
Total assets 156,405,000 77,607,000 35,933,000 16,971,000 25,894,000
Total current liabilities 13,725,000 5,448,000 3,401,000 537,000 4,339,000
Total shareholders' equity 85,814,000 -- -- 85,814,000 --
============ ============ =========== =========== ============
</TABLE>
COMMON SHARES AND STOCK OPTIONS
Shares Outstanding
As at June 30, 2000, the Corporation's authorized capital stock consists of an
unlimited number of first preference shares without par value and an unlimited
number of common shares without par value. There were no preference shares and
8,814,131 common shares issued and outstanding as of July 31, 2000.
Stock Options Outstanding
The Corporation provides stock option incentive plans, which are intended to
provide long term incentives and rewards to executive officers, directors and
other key employees contingent upon an increase in the market value of the
Corporation's common shares. The options vest and are exercisable from the
beginning of the second year subsequent to the date of issuance. There were
1,145,150 options outstanding as of July 31, 2000 of which 944,700 are
exercisable as of July 31, 2000.
DIFFERENCES FROM UNITED STATES ACCOUNTING PRINCIPLES
These consolidated financial statements have been prepared in accordance with
accounting principles generally accepted in Canada ("Canadian GAAP"). The
differences between Canadian and U.S. generally accepted accounting principles
("U.S. GAAP") do not have a material effect on the Corporation's reported
financial position or net income (loss) or cash flows except as follows:
a. Income Statements
The implementation of the American Institute of Certified Public
Accountants Statement of Position 98-5 ("SOP 98-5") requires costs of
start-up activities and organization costs to be expensed as incurred.
Canadian GAAP permits the deferral of such costs.
For purposes of reporting in accordance with U.S. GAAP, certain equity
securities that are not held principally for the purpose of sale in the
near term are classified as available-for-sale securities, are reported at
fair value, and are translated at the current exchange rate, which can give
rise to an exchange gain or loss. For Canadian GAAP purposes, such
securities are to be reported at cost unless their market value has
declined below cost, and are translated at the historical exchange rate.
- 7 -
<PAGE> 8
The following summarizes the income statement amounts in accordance with
U.S. GAAP where different from the amounts reported under Canadian GAAP.
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
2000 1999 2000 1999
--------- --------- ----------- -----------
<S> <C> <C> <C> <C>
Income (loss) from continuing operations,
as reported $ 421,000 $ 794,000 $(1,352,000) $ 1,542,000
Less: Start-up activities -- (749,000) -- (1,291,000)
Add: Exchange gain on
available-for-sale securities -- 127,000 -- 127,000
Tax effect related thereto -- 174,000 -- 326,000
--------- --------- ----------- -----------
Income (loss) from continuing operations
(U.S. GAAP) $ 421,000 $ 346,000 $(1,352,000) $ 704,000
--------- --------- ----------- -----------
Income (loss) from continuing operations
per share (U.S. GAAP)
- basic $ 0.05 $ 0.04 $ (0.16) $ 0.08
- diluted $ 0.05 $ 0.04 $ (0.16) $ 0.08
========= ========= =========== ===========
</TABLE>
b. Balance Sheets
U.S. GAAP, SOP 98-5, requires that the costs of start-up activities be
expensed in the period incurred rather than be deferred. SOP 98-5 is
effective for periods beginning after December 15, 1998. Initial
implementation is reported as a cumulative effect of a change in accounting
principle without retroactive application.
The following summarizes the balance sheet amounts in accordance with U.S.
GAAP where different from the amounts reported under Canadian GAAP.
<TABLE>
<CAPTION>
June 30, 2000 December 31, 1999
---------------------------- -----------------------------
Canadian GAAP U.S. GAAP Canadian GAAP U.S. GAAP
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Property, plant and equipment $ 81,968,000 $ 79,230,000 $ 96,779,000 $ 94,042,000
Other assets 11,678,000 11,381,000 18,228,000 17,907,000
Accrued income taxes 4,345,000 4,345,000 950,000 491,000
Retained earnings 42,898,000 39,863,000 33,920,000 31,321,000
============ ============ ============ ============
</TABLE>
- 8 -
<PAGE> 9
c. Statements of Comprehensive Income
U.S. GAAP requires a statement of comprehensive income as follows:
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
2000 1999 2000 1999
--------- ---------- ------------ ----------
<S> <C> <C> <C> <C>
Net income (loss) (U.S. GAAP) $ 421,000 $ 346,000 $ (1,352,000) $ 704,000
Change in foreign currency translation
adjustment, net of tax (2000,
$(90,000), $(108,000); 1999, $80,000,
$119,000) (93,000) 205,000 (113,000) 307,000
Change in unrealized holding gains
(losses) on available-for-sale securities -- (402,000) -- (775,000)
--------- ---------- ------------ ----------
Comprehensive income (loss) $ 328,000 $ 149,000 $ (1,465,000) $ 236,000
========= ========== ============ ==========
</TABLE>
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" (SFAS No. 133), which established accounting and
reporting standards for derivative instruments and hedging activities. It
requires an entity to measure all derivatives at fair value and to recognize
them in the balance sheet as an asset or liability, depending on the entity's
rights or obligations under the applicable derivative contract. Management has
not yet evaluated the effects of this statement on its results of operations. As
required, the Corporation will adopt SFAS No. 133 in the first quarter of 2001.
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 June 30,
2000 and the three months ended June 30, 1999, and for the six months ended June
30, 2000 and six months ended June 30, 1999, 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, 2000 COMPARED TO THREE MONTHS ENDED JUNE 30, 1999
Net Sales
The Corporation's net sales from continuing operations for the three months
ended June 30, 2000 were $21.1 million compared to $19.8 million for the three
months ended June 30, 1999, an increase of $1.3 million, or 6.8%.
Net sales of $13.9 million in the industrial minerals segment for the three
month period ended June 30, 2000 represented an increase of $1.2 million, or
9.4%, over the same period in 1999. Sales revenue from talc, mica and
feldspar products increased by $0.6 million, $0.4 million and $0.2 million,
respectively, compared with the corresponding quarter in 1999.
- 9 -
<PAGE> 10
Net sales for the aluminum recycling segment for the three months ended June 30,
2000 were $7.2 million, an increase of $0.1 million, or 2.1%, from the second
quarter of 1999. The increase is attributable to growth in sales of the
Corporation's heat containment products partially offset by the start-up costs
relating to calcium aluminate.
Cost of Goods Sold
Cost of goods sold for the three months ended June 30, 2000 was $15.5 million,
an increase of $2.6 million, or 20.6%, from the comparable period in 1999. The
increase is in part due to the start-up of the Corporation's calcium
aluminate facility. Also in the second quarter of 2000 the Corporation did
not produce for inventory any feedstock used in the production of low iron
sand. For these reasons the Corporation's gross margin as a percentage of
sales decreased to 26.4% for the three months ended June 30, 2000 from 34.8%
during the second quarter of 1999.
Selling, General and Administrative Expense
Selling, general, and administrative expense ("SG&A") for the three months ended
June 30, 2000 decreased to $2.9 million, a decline of $0.1 million, or 2.6%,
from the same period in 1999. As a percentage of sales, SG&A decreased to
13.6% in the second quarter of 2000 from 15.0% in the corresponding period
in 1999.
Depreciation, Depletion and Amortization
Depreciation, depletion and amortization for the three months ended June 30,
2000 was $1.9 million, an increase of 4.9% over the comparable period in 1999
as a result of assets being acquired and placed into service over the last
twelve months.
Operating Income
Operating income for the three month period ended June 30, 2000 was $0.7
million, a decrease of $1.3 million from the comparable period in 1999.
Interest Income
Interest income for the three months ended June 30, 2000 was $0.5 million,
virtually unchanged from the same period in 1999.
Interest Expense
Interest expense for the three months ended June 30, 2000 was $0.5 million, down
from $1.1 million for the comparable period in 1999. The decrease is primarily
due to the sale of the metal powders division, the proceeds from which were
applied to pay down the Corporation's credit facilities. Total bank indebtedness
was $15.1 million as of June 30, 2000 compared to $55.5 million as of December
31, 1999.
- 10 -
<PAGE> 11
(Recovery of) Provision for Income Taxes
For the three months ended June 30, 2000, the Corporation recognized a marginal
income tax benefit of $30,000 from continuing operations as a result of both an
increase in the applicable tax rate and a decrease of income earned from its
U.S. continuing operations. During the second quarter of 1999, the Corporation's
provision for income taxes was $0.2 million.
Net Income
As a result of the factors discussed above, the Corporation recorded net income
from continuing operations for the three months ended June 30, 2000 of $0.4
million compared to $0.8 million for the three months ended June 30, 1999.
SIX MONTHS ENDED JUNE 30, 2000 COMPARED TO SIX MONTHS ENDED JUNE 30, 1999
Net Sales
The Corporation's net sales for the six months ended June 30, 2000 were $40.8
million, an increase of $2.4 million, or 6.3%, from the same period in 1999. The
increase is due to a 6.0% increase in sales of industrial mineral products and a
7.0% increase in sales from the aluminum recycling segment.
Net sales in the industrial minerals segment for the six month period ended June
30, 2000 increased by $1.5 million to $26.8 million from $25.3 million in the
corresponding period of 1999. Of the increase, $1.2 million is due to an
increase in talc sales and $0.9 million is due to an increase in sales of mica,
offset by a $0.6 million decrease in feldspar revenue.
Sales from the Corporation's aluminum recycling segment for the six months ended
June 30, 2000 were $14.0 million, $0.9 million, or 7.0%, higher than in the same
period of 1999.
Cost of Goods Sold
Cost of goods sold for the six months ended June 30, 2000 was $29.4 million, an
increase of $4.1 million, or 16.1%, from the comparable period in 1999. As a
percentage of net sales, gross margin decreased to 28.0% for the six months
ended June 30, 2000 from 34.1% for the same period in 1999.
Selling, General and Administrative Expense
SG&A expense for both the six month period ended June 30, 2000 and the
corresponding period ended June 30, 1999 was $5.6 million. As a percentage
of net sales, SG&A expense decreased to 13.8% in the first half of 2000 from
14.5% in the same period in 1999.
Depreciation, Depletion and Amortization
DD&A for the six months ended June 30, 2000 was $3.9 million, an increase of
$0.3 million, or 7.5%, over the comparable period in 1999.
Operating Income
Operating income for the six month period ended June 30, 2000 was $1.9 million,
a decrease of $2.0 million, or 51.2%, from the comparable period in 1999.
- 11 -
<PAGE> 12
Interest Income
Interest income for the six months ended June 30, 2000 was $0.1 million,
marginally higher than for the same period in 1999.
Interest Expense
Interest expense for the six months ended June 30, 2000 was $1.6 million, $0.3
million, or 16.1%, lower than in the same period in 1999 as a result of
decreased indebtedness.
Other Expense, Net
The Corporation recorded other expense of $3.0 million for the six months ended
June 30, 2000, compared to $20,000 for the same period in 1999. The increase is
mainly due to the recognition of $3.2 million of expense in connection with the
early redemption of its Senior Secured Notes in March 2000.
(Recovery of) Provision for Income Taxes
For the six months ended June 30, 2000, the Corporation recognized an income tax
benefit of $1.4 million from the continuing operations. The Corporation recorded
an income tax provision of $0.5 million from the continuing operations for the
same period of 1999.
Net (Loss) Income
As a result of the factors discussed above, the Corporation recorded a net loss
of $1.4 million from continuing operations for the six months ended June 30,
2000 compared to net income of $1.5 million from the same period ended June 30,
1999.
LIQUIDITY AND CAPITAL RESOURCES
Cash Flow from Operations
During the first two quarters of 2000, the Corporation generated cash flow from
operations of $0.1 million as compared to $4.3 million for the first six months
of 1999. Non-cash working capital generated $2.9 million of cash for the first
six months of 2000; in the corresponding period in 1999, non-cash working
capital items used $0.8 million of cash from operations. The change is mainly
due to an increase in accounts payable and income tax payable, offset by an
increase in accounts receivable.
The Corporation had working capital of $7.5 million at June 30, 2000 compared
to $27.6 million at December 31, 1999. The decrease in working capital arose
as a result of replacing the Corporation's $50 million Senior Secured Notes
with a $50 million bridge facility in March 2000. As a result of applying
proceeds from the sale of the metal powders division, the balance of credit
facilities was reduced to $15.1 million as of June 30, 2000.
It is the opinion of management that there are sufficient sources of funds
available to meet its anticipated cash requirements.
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<PAGE> 13
YEAR 2000
The Corporation operates in basic industries that do not rely heavily on
computerized systems. Although the change in date has occurred and the
Corporation has suffered no consequences, it is not possible to conclude that
all aspects of the year 2000 issue affecting the Corporation have been fully
resolved.
ITEM 3 - MARKET RISK
Market risk represents the risk of loss that may impact the consolidated
financial statements of the Corporation due to adverse changes in financial
market prices and rates. The Corporation's market risk is primarily the result
of fluctuations in interest rates and aluminum prices. Management monitors the
movements in interest rates and performs a periodic sensitivity analysis on
aluminum prices and, on that basis, decides on the appropriate measures to take.
Current prices and interest rates are such that no measures need be taken at
this time.
The Corporation does not hold or issue financial instruments for trading
purposes. A discussion of the Corporation's financial instruments is included in
the financial instruments note to the Consolidated Financial Statements in the
Corporation's Annual Report on Form 10K for the year ended December 31, 1999.
CAUTIONARY "SAFE HARBOR" STATEMENT UNDER THE UNITED STATES PRIVATE SECURITIES
LITIGATION REFORM ACT OF 1995
With the exception of historical matters, the matters discussed in this report
are forward looking statements that involve risks and uncertainties that could
cause actual results to differ materially from targeted or projected results.
Factors that could cause actual results to differ materially include, among
others, fluctuations in aluminum prices, problems regarding unanticipated
competition, processing, access and transportation of supplies, availability of
materials and equipment, force majeure events, the failure of plant equipment or
processes to operate in accordance with specifications or expectations,
accidents, labor relations, delays in start-up dates, environmental costs and
risks, the outcome of acquisition negotiations and general domestic and
international economic and political conditions, as well as other factors
described herein or in the Corporation's filings with the Commission. Many of
these factors are beyond the Corporation's ability to predict or control.
Readers are cautioned not to put undue reliance on forward looking statements.
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<PAGE> 14
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Corporation's 2000 Annual and Special Meeting of Shareholders held on
June 29, 2000 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>
Paul A. Carroll 6,757,319 11,314
Morton A. Cohen 6,757,319 11,314
John M. Donovan 6,757,319 11,314
R. Peter Gillin 6,757,319 11,314
Peter Lawson-Johnston 6,757,319 11,314
Richard L. Lister 6,757,319 11,314
Garth A.C. MacRae 6,757,319 11,314
William J. vanden Heuvel 6,757,319 11,314
</TABLE>
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, 2000 was ratified.
<TABLE>
<CAPTION>
ABSTENTIONS
VOTES FOR VOTES AGAINST (INCLUDING BROKER NON-VOTES)
--------- ------------- ----------------------------
<S> <C> <C>
6,760,013 0 2,243
</TABLE>
3. The proposal to increase the number of common shares reserved for issuance
under the Corporation's 1999 Stock Option Plan was approved.
<TABLE>
<CAPTION>
ABSTENTIONS
VOTES FOR VOTES AGAINST (INCLUDING BROKER NON-VOTES)
--------- ------------- ----------------------------
<S> <C> <C>
5,495,528 101,767 2,643
</TABLE>
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<PAGE> 15
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
Exhibits
None
Reports on Form 8-K
Form 8-K filed April 21, 2000
* * * * *
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 8th day of August, 2000.
ZEMEX CORPORATION
(Registrant)
By: /s/ ALLEN J. PALMIERE
-------------------------------------------
Allen J. Palmiere
Vice President and Chief Financial Officer
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