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, 1995
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
Securities registered pursuant to Section 12(g) of the Act
NASDAQ Warrants to purchase capital stock
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 May 5, 1995, there were 7,918,819 shares of capital stock
outstanding.
Part I - FINANCIAL INFORMATION
Item 1 - Financial Statements
ZEMEX CORPORATION
CONSOLIDATED BALANCE SHEETS
March 31, 1995 December 31, 1994
ASSETS (unaudited)
Current Assets
Cash and cash equivalents $ 7,396,000 $ 8,343,000
Accounts receivable 13,861,000 10,678,000
Inventories 16,038,000 16,490,000
Prepaid Expenses 615,000 660,000
Total Current Assets 37,910,000 36,171,000
Investments 2,286,000
Property, Plant and Equipment 37,916,000 29,020,000
Other Assets 7,406,000 3,387,000
Total Assets $83,232,000 $70,864,000
LIABILITIES
Current Liabilities
Bank Indebtedness $ _ $ 180,000
Accounts Payable and Accrued Liabilities 12,516,000 8,474,000
Accrued Income Taxes 967,000 397,000
Current Portion of Long Term Debt 1,226,000 1,074,000
Total Current Liabilities 14,709,000 10,125,000
Long Term Debt 7,157,000 5,461,000
Other Non-Current Liabilities 522,000 549,000
Deferred Income Taxes 575,000 677,000
Minority Interest 958,000 _
Total Liabilities 23,921,000 16,812,000
SHAREHOLDERS' EQUITY
Common Stock 7,583,000 7,168,000
Paid-In Capital 41,655,000 38,291,000
Retained Earnings 13,127,000 11,668,000
Note Receivable from Shareholder (1,749,000) (1,749,000)
Cumulative Translation Adjustment (1,305,000) (1,326,000)
Total Shareholders' Equity 59,311,000 54,052,000
Total Liabilities and Shareholders' Equity $83,232,000 $70,864,000
ZEMEX CORPORATION
CONSOLIDATED STATEMENT OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31,
1995 1994
(unaudited)
NET SALES $21,105,000 $12,399,000
COSTS AND EXPENSES
Cost of goods sold 16,153,000 9,284,000
Selling, general and administrative 2,058,000 1,477,000
Depreciation, depletion and amortization 771,000 573,000
18,982,000 11,334,000
OPERATING INCOME 2,123,000 1,065,000
Interest expense, net 29,000 150,000
Other, expense (income) (139,000) (76,000)
(110,000) 74,000
INCOME (LOSS) BEFORE
PROVISION FOR INCOME TAXES 2,233,000 991,000
Provision for Income Taxes 714,000 227,000
Minority Interest 60,000 _
NET INCOME $ 1,459,000 $ 764,000
NET INCOME PER SHARE $0.19 $0.17
AVERAGE COMMON
SHARES OUTSTANDING 7,526,759 4,535,283
ZEMEX CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31,
1995 1994
CASH FLOWS FROM OPERATING ACTIVITIES
Income from operations $1,459,000 $764,000
Adjustments to reconcile income
to net cash flows from operating activities
Depreciation, depletion and amortization 771,000 573,000
Increase (decrease) in deferred income taxes (102,000) 151,000
Share of net income of investees (87,000) _
Minority interest in subsidiary earnings 60,000 _
Increase (decrease) in non-current
liabilities (26,000) 158,000
Changes in non-cash working capital items 1,263,000 (819,000)
Net cash provided by (used in) operating
activities 3,338,000 827,000
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property, plant and
equipment (4,122,000) (330,000)
Proceeds from sale of assets 133,000 -
Cash acquired in acquisition 688,000 _
Additions to other assets (218,000) (274,000)
Net cash used in investing activities (3,519,000) (604,000)
CASH FLOWS FROM FINANCING ACTIVITIES
Net decrease in long term debt (604,000) (687,000)
Net decrease in bank indebtedness (180,000) (117,000)
Issuance of common stock 15,000 _
Net cash used in financing activities (769,000) (804,000)
EFFECT OF EXCHANGE RATE CHANGES ON CASH 3,000 (35,000)
NET DECREASE IN CASH 947,000 (616,000)
CASH & CASH EQUIVALENTS AT BEGINNING OF PERIOD 8,343,000 3,796,000
CASH & CASH EQUIVALENTS AT END OF PERIOD $7,396,000 $3,180,000
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, 1995 and 1994 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.
1. On February 15, 1995 the Corporation increased its investment in
Alumitech, Inc. ("Alumitech") from 42% to 73% by issuing 412,500 common
shares of Zemex Corporation. Subsequent to February 15, 1995, the
accounts of Alumitech have been consolidated with those of the
Corporation. Prior to February 15, 1995 the investment in Alumitech was
accounted for under the equity method and the equity income recognized
during this period was $87,000.
2. On May 1, 1995, at its Annual Meeting of Shareholders, the
Corporation received approval to increase its authorized share
capital to 25,000,000 shares, consisting of 20,000,000 common shares
and 5,000,000 preferred shares.
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, 1995 and the three months ended
March 31, 1994, 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
included elsewhere herein.
Results of Operations
Three Months Ended March 31, 1995 Compared to Three Months Ended
March 31, 1994
Net Sales
The Corporation's net sales for the three months ended March 31,
1995 were $21.1 million, an increase of $8.7 million or 70.2%
from the comparable period in 1994. Sales increased by $6.5
million as a result of the acquisitions of a metal powders
producer in September 1994, a talc operation in December 1994 and
an aluminum dross reprocessor by way of a step purchase on February
15, 1995. The increase in sales was also attributable to higher
sales volumes of the Corporation's feldspar and metal powders.
(See Notes to the Consolidated Financial Statements).
Net sales in the industrial minerals segment for the three month
period ended March 31, 1995 increased by $1.7 million, or 22.9%,
compared to the 1994 period. This increase was primarily due to
increased demand for the Corporation's sodium feldspar, products
fueled by growth both in the housing and construction sectors of
the economy and to the acquisition of a talc operation in
December 1994.
Net sales in the metal powders segment for the three months ended
March 31, 1995 were $10.1 million, an increase of $5.1 million, or
100.1%, from the comparable period in 1994. The increase was
attributable primarily to significantly higher sales volumes,
increased sales for atomized powder products and the September 1994
acquisition of a copper powder producer in Greenback, Tennesse.
The steep rate of growth, however, was curbed somewhat in the latter
part of the quarter after an explosion occurred on March 8, 1995 in
the powdered steel atomizing furnace at the Niagara Falls, New York
facility. The plant resumed full operation on April 14, 1995.
Alumitech contributed $2.0 million in sales in the period from
February 15, 1995 to March 31, 1995.
Cost of Goods Sold
Cost of goods sold for the three months ended March 31, 1995 was
$16.2 million, an increase of $6.9 million, or 74%, from the
comparable period in 1994. As a percent of net sales, cost of
goods sold increased to 76.5% for the three months ended March
31, 1995 from 74.9% for the same period 1994. The increase in
cost of goods sold was primarily due to lower margins on incremental
revenue from recently acquired companies.
Selling, General and Administrative Expense
Selling, general, and administrative expense ("SG&A expense") for
the three months ended March 31, 1995 increased by 39.3% from the
comparable 1994 period to $2.1 million. Of the increase $247,000
or 47% was due to operations acquired subsequent to the 1994 period.
As a percentage of net sales, SG&A expense decreased from 11.9% in
the 1994 period to 9.7% in the 1995 period, reflecting the
benefit derived from higher volumes resulting in lower unit cost
absorption.
Depreciation, Depletion and Amortization
Depreciation, depletion and amortization for the three months
ended March 31, 1995 was $0.8 million, an increase of 34% over the
comparable period in 1994. The increase was due to assets acquired
during 1994 and the first quarter of 1995.
Operating Income
Operating income for the three month period ended March 31, 1995
was $2.1 million, an increase of $1.1 million or 99.4% from the
comparable period in 1994. The increase was due in part to the reasons
discussed above.
Interest Expense, Net
Interest expense for the three months ended March 31, 1995 was
$29,000, down from $150,000 for the comparable period in 1994. This
is attributable to the reduction of long term debt achieved by the
partial use of proceeds of the September 1994 secondary public
offering.
Provision for Income Taxes
The Corporation's provision for income taxes for the three months
ended March 31, 1995 increased to $0.7 million from $0.2 million
in the comparable period in 1994. The increase is partially due to
a change in the accounting treatment of net operating losses pursuant
to the implementation of FAS 109 and as a result of increased
profitability.
Net Income
As a result of the factors discussed above, net income for the
three months ended March 31, 1995 was $1.5 million, an increase
of 91.0% from the comparable period in 1994.
Liquidity and Capital Resources
Acquisitions
On February 15, 1995, the Corporation increased its ownership in
Alumitech from 42% to 73% (see Notes to the Consolidated Financial
Statements). The increase in ownership and the consolidation of the
accounts of Alumitech resulted increasing the Corporation's current
assets by $3.4 million, total assets by $12.7 million, current
liabilities by $3.6 million and long term liabilities of $5.8
million. See Notes to the Consolidated Financial Statements.
Cash Flow from Operations
Net cash provided by operating activities for the first quarter ended
March 31, 1995 was $3.3 million, up $2.5 million, or 303% relative to
the year ended December 31, 1995.
During the first quarter of 1995, the Corporation generated positive
cash flow from operations of $3,338,000 as compared to $827,000 for
the first quarter of 1994. In 1995, non-cash working capital items
used $263,000 of the cash otherwise generated from operations as
compared to $819,000 for the corresponding period of 1994, as a result
of increases in accounts receivable, accounts payable, accrued
liabilities and accrued income taxes and a decrease in inventories and
prepaid expenses.
The Corporation had $23.2 million of working capital at March 31, 1995,
compared to $26.0 million at December 31, 1994. The decrease of $2.8
million is attributable to an increase in capital expenditures of
$4.1 million funded by cash on hand and funds from operations,
partially offset by an increase in non-cash working capital items due to
the acquisition of Alumitech.
Financing Agreements
On March 15, 1995, the Corporation entered into a credit agreement with
NationsBank of Tennessee, N.A. and Chemical Bank. The agreement
provides $25 million in new credit available for acquisitions, capital
programs and general corporate purposes.
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 1995 Annual Meeting of Shareholders held on
May 1, 1995, 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 6,769,522 3,063
Morton A. Cohen 6,769,522 3,063
John M. Donovan 6,769,522 3,063
Thomas B. Evans, Jr. 6,769,306 3,063
Ned Goodman 6,769,522 3,279
Peter Lawson-Johnston 6,769,522 3,063
Richard L. Lister 6,769,522 3,063
Patrick H. O'Neill 6,769,522 3,063
William J. vanden Heuvel 6,769,306 3,279
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, 1995 was ratified.
Abstentions
Votes For Votes Against (Including Broker Non-
Votes)
6,758,371 6030 8,184
3. The proposal to increase the Capital Stock of the
Corporation was approved..
Abstentions
Votes For Votes Against (Including Broker Non-
Votes)
5,273,373 163,313 12,605
4. The proposal to indemnify the Corporation's directors and
officers pursuant to the Amended and Restated Certificate of
Incorporation was approved.
Abstentions
Votes For Votes Against (Including Broker Non-
Votes)
6,632,694 131,206 8,685
5. The proposal for the Corporation's 1995 Stock Option Plan
was approved.
Abstentions
Votes For Votes Against (Including Broker Non-
Votes)
5,118,008 300,125 31,158
6. The proposal to ratify the grant of stock options to certain directors.
Abstentions
Votes For Votes Against (Including Broker Non-
Votes)
5,111,788 306,340 31,163
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 12th day of May, 1995.
ZEMEX CORPORATION
(Registrant)
By:/s/ Allen J. Palmiere
__________________________________________
Allen J. Palmiere
Vice President and Chief Financial Officer