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, 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 August 11, 1995, there were 8,520,146 shares of capital
stock outstanding.
Part I - FINANCIAL INFORMATION
Item 1 - Financial Statements
ZEMEX CORPORATION
CONSOLIDATED BALANCE SHEETS
June 30, 1995December 31, 1994
ASSETS (unaudited)
Current Assets
Cash and cash equivalen ts $ 4,419,000 $ 8,343,000
Accounts receivable 13,029,000 10,678,000
Inventories 17,055,000 16,490,000
Prepaid Expenses 448,000 660,000
Total Current Assets 34,951,000 36,171,000
Investments _ 2,286,000
Property, Plant and Equipment 45,154,000 29,020,000
Other Assets 9,757,000 3,387,000
Total Assets $89,862,000 $70,864,000
LIABILITIES
Current Liabilities
Bank Indebtedness $ _ $ 180,000
Accounts Payable and
Accrued Liabilities 9,360,000 8,474,000
Accrued Income Taxes 721,000 397,000
Current Portion of Long Term Debt 2,374,000 1,074,000
Deferred Revenue 359,000 _
Total Current Liabilities 13,084,000 10,125,000
Long Term Debt 10,188,000 5,461,000
Other Non-Current Liabilities 546,000 549,000
Deferred Income Taxes 634,000 677,000
Total Liabilities 24,452,000 16,812,000
SHAREHOLDERS' EQUITY
Common Stock 8,017,000 7,168,000
Paid-In Capital 44,923,000 38,291,000
Retained Earnings 15,370,000 11,668,000
Note Receivable from Shareholder (1,749,000) (1,749,000)
Cumulative Translation Adjustment (1,151,000) (1,326,000)
Total Shareholders' Equity 65,410,000 54,052,000
Total Liabilities and
Shareholders' Equity $89,862,000 $70,864,000
ZEMEX CORPORATION
CONSOLIDATED STATEMENT OF INCOME
3 Months Ended June 30 6 Months Ended June 30
1995 1994 1995 1994
(unaudited)
NET SALES $21,439,000$13,388,000 $42,544,000 $25,787,000
COSTS AND EXPENSES
Cost of goods sold 15,982,000 9,739,000 32,135,000 19,023,000
Selling, general and
administrative 2,085,000 1,562,000 4,143,000 3,039,000
Depreciation, depletion
and amortization 907,000 661,000 1,678,000 1,234,000
18,974,000 11,962,000 37,956,000 23,296,000
OPERATING INCOME 2,465,000 1,426,000 4,588,000 2,491,000
Interest expense, net 125,000 178,000 154,000 328,000
Other, net 94,000 (79,000) (45,000) (155,000)
219,000 99,000 109,000 173,000
INCOME (LOSS) BEFORE
PROVISION FOR INCOME TAXES2,246,000 1,327,000 4,479,000 2,318,000
Provision for Income Taxes 63,000 199,000 777,000 426,000
NET INCOME $2,183,000 $1,128,000 $3,702,000 $1,892,000
NET INCOME PER SHARE $0.28 $0.24 $0.48 $0.41
AVERAGE COMMON SHARES
OUTSTANDING 7,965,434 4,804,818 7,747,786 4,601,094
ZEMEX CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30,
1995 1994
CASH FLOWS FROM OPERATING ACTIVITIES
Income from continuing operations $3,702,000 $1,892,000
Adjustments to reconcile income
from continuing operations to net cash flows
Depreciation, depletion and amortization 1,678,000 1,234,000
Increase (decrease) in deferred income taxes (42,000) 258,000
Share of net income (loss) of investees (87,000) (30,000)
Gain (loss) on sale of property,
plant & equipment - (74,000)
Increase)decrease in other assets
excluding assets held for sale - (308,000)
Increase (decrease) in non-current
liabilities (3,000) 168,000
Changes in non-cash working capital items (1,529,000) (1,695,000)
Net cash provided by operating activities 3,719,000 1,445,000
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property, plant and equipment (12,249,000) (854,000)
Proceeds from sale of asset 134,000 78,000
Cash acquired in acquisition 688,000 -
Insurance recovery 450,000 -
Additions to other assets (800,000) -
Investments - (2,000,000)
Net cash used in investing activities (11,777,000) (2,776,000)
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in long term debt 3,576,000 -
Net decrease in bank indebtedness (180,000) (237,000)
Repayment of long term debt - (1,224,000)
Issuance of common stock 727,000 2,165,000
Net cash provided by financing activities 4,123,000 704,000
EFFECT OF EXCHANGE RATE CHANGES ON CASH 11,000 (49,000)
NET DECREASE IN CASH (3,924,000) (676,000)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 8,343,000 3,796,000
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $4,419,000 $3,120,000
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
June 30, 1995 and 1994 and the six months ended June 30, 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 May 5, 1995, the Corporation increased its investment in
Alumitech, Inc. ("Alumitech") from 73% to 100% by issuing 343,126
common shares. The Corporation had previously increased its
investment in Alumitech from 42% to 73% on February 15, 1995 by
issuing 412,500 common shares of Zemex 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.
3. On May 15, 1995, the Corporation , through its wholly owned
subsidiary, Suzorite Mineral Products, Inc., purchased the fixed
assets and inventory of Benwood Limestone Company, Inc. for
approximately $3.5 million.
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, 1995 and the three months ended June
30, 1994, and the six months ended June 30, 1995 and the six
months ended June 30, 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 June 30, 1995 Compared to Three Months Ended
June 30, 1994
Net Sales
The Corporation's net sales for the three months ended June 30,
1995 were $21.4 million, an increase of $8.1 million, or 60.7%,
from the comparable period in 1994. Sales increased by $8.0
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 completed
May 5, 1995. The increase in sales was also attributable to
higher sales volumes of the Corporation feldspar and metal
powders.
Net sales in the industrial minerals segment for the three month
period ended June 30, 1995 increased by $1.5 million, or 18.9 %,
compared to the 1994 period. This increase was primarily due to
increased demand for the Corporation's sodium feldspar products
fueled by growth in both 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 and recycling segment for the
three months ended June 30, 1995 were $12.0 million, an increase
of $6.6 million, or 119.4%, from the comparable period in 1994.
The increase was attributable primarily to increased sales of
sponge products the September 1994 acquisition of a copper powder
producer in Greenback, Tennessee and the consolidation of
Alumitech. The rate of growth, however, was adversely affected
by an explosion in the first quarter and a disruption in
hydrogen supply that extended a regularly scheduled plant
maintenance shutdown well beyond expectations in the second
quarter.
Cost of Goods Sold
Cost of goods sold for the three months ended June 30, 1995 was
$16.0 million, an increase of $6.2 million, or 64.1%, from the
comparable period in 1994. As a percent of net sales, cost of
goods sold increased to 74.5% for the three months ended June 30,
1995 from 73.0% for the same period in 1994 period. 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 June 30, 1995 increased by 33.5% from the
comparable 1994 period to $2.1 million. Of the increase $0.6
million or 30.7% was due to operations acquired subsequent to the
1994 period. As a percentage of net sales, SG&A expense
decreased from 11.7% 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 June 30, 1995 was $0.9 million, an increase of 37.2% over
the comparable period in 1994. The increase was due to assets
acquired during 1994 and the first half 1995.
Operating Income
Operating income for the three month period ended June 30, 1995
was $2.5 million, an increase of $1.0 million, or 72.9%, 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 June 30, 1995 was
$0.13 million, down from $0.18 million 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 June 30, 1995 decreased to $63,000 from $.0.2 million in
the comparable period in 1994. The decrease is due to the fact
that the foreign tax provision has declined significantly.
Net Income
As a result of the factors discussed above, net income for the
three months ended June 30, 1995 was $2.2 million, an increase of
93.5% from the comparable period in 1994.
Six Months Ended June 30, 1995 Compared to Six Months Ended June
30, 1994
Net Sales
The Corporation's net sales for the six months ended June 30,
1995 were $42.5 million, an increase of $16.8 million, or 65%,
from the comparable period in 1994. Sales increased by $14.5
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 completed
on May 5, 1995. The increase in sales was also attributable to
higher sales volumes of the Corporation's feldspar and metal
powders.
Net sales in the industrial minerals segment for the six month
period ended June 30, 1995 increased by $3.2 million, or 20.8%,
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 and recycling segment for the six
months ended June 30, 1995 were $24.1 million, an increase of
$13.6 million, or 128.8%, 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, Tennessee. As mentioned above, this segment
also contains figures for Alumitech. 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. In addition, the Niagara Falls facility also
experienced a two week shutdown in June as the annual maintenance
shutdown was increased from one to two weeks because of a
disruption in the facility's supply of hydrogen.
Cost of Goods Sold
Cost of goods sold for the six months ended June 30, 1995 was
$32.1 million, an increase of $13.1 million, or 68.9%, from the
comparable period in 1994. As a percent of net sales, cost of
goods sold increased to 75.5% for the six months ended June 30,
1995 from 73.8% for the same period in 1994 period. 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
SG&A expense for the six months ended June 30, 1995 increased by
36.3% from the comparable 1994 period to $4.1 million. Of the
$1.0 million or 24.3% was due to operations acquired subsquent to
the 1994 period. As a percentage of net sales, SG&A expense
decreased from 11.8% 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 six months ended
June 30, 1995 was $1.7 million, an increase of 36% over the
comparable period in 1994. The increase was due to assets
acquired during 1994 and the first half of 1995.
Operating Income
Operating income for the six month period ended June 30, 1995 was
$4.6 million, an increase of $2.1 million, or 84.2%, from the
comparable period in 1994. The increase was due in part to the
reasons discussed above.
Interest Expense, Net
Interest expense for the six months ended June 30, 1995 was $0.2,
down from $0.3 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 six months
ended June 30, 1995 increased to $0.7 million from $0.4 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. However, the Corporation has enough
loss carryforwards to effectively shelter income in 1995.
Accordingly, the provision for income taxes will be for foreign
taxes only.
Net Income
As a result of the factors discussed above, net income for the
six months ended June 30, 1995 was $3.7 million, an increase of
95.7% from the comparable period in 1994.
Liquidity and Capital Resources
Acquisitions
Benwood
On May 15, 1995, the Corporation acquired the assets of Benwood
Limestone Company, Inc. ("Benwood"), a division of James River
Limestone Company, Inc. ("James River") for approximately $3.5
million. Benwood was purchased through a 100% wholly owned
subsidiary of the Corporation, Suzorite Mineral Products, Inc.
("Suzorite"). The acquisition of Benwood offers Suzorite the
opportunity to expand its present talc and mineral processing
capability, and serves as a strategic shipping point for all the
Corporation's business units. Benwood will continue to process
consumer products for its former owner, James River, under a long
term contract.
Alumitech, Inc.
On May 5, 1995 the Corporation completed its step purchase of
100% (fully diluted) of Alumitech, Inc. ("Alumitech") by issuing
343,126 common shares. The Corporation had previously increased
its investment in Alumitech from 42% to 73% on February 15, 1995
by issuing 412,500 common shares of Zemex Corporation. The
Corporation had first acquired a minority interest in Alumitech
in May 1994.
Alumitech has developed proprietary and patented technology to
process chloride-based drosses and saltcake materials from waste
generated in recycling aluminum scrap and beverage cans into
usable and commercial products. This technology, in its newly
developed form, is capable of completely recycling dross and
saltcake thereby eliminating all landfill requirements.
Alumitech currently processes approximately 60,000 tons per year
and reclaims nearly 80% of the incoming feed but aniticipates
having the ability to reclaim 100% of this material by late 1995.
With this technology, Alumitech is considered an industry leader
in recycling of chloride base aluminum dross and saltcake
material. The materials produced from this proprietary process
include aluminum metal, salts, exothermic compounds, ceramic
fiber and abrasive materials.
Cash Flow from Operations
Net cash provided by operating activities for the six months
ended June 30, 1995 was $3.7 million, up $2.3 million, or 157.4%
relative to the year ended December 31, 1995. During the first
six months of 1995, the Corporation generated positive cash flow
from operations of $3.7 million as compared to $1.4 million for
the first six months of 1994. In 1995, non-cash working capital
items used $1.5 million of the cash otherwise generated from
operations as compared to $1.7 million for the corresponding
period of 1994, as a result of increases in accounts receivable,
accounts payable, accrued liabilities, accrued income taxes and
inventories and a decrease in prepaid expenses.
The Corporation had $21.9 million of working capital at June 30,
1995, compared to $26.0 million at December 31, 1994. The
decrease of $4.1 million is attributable to an increase in
capital expenditures of $12.2 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
In May 1995, the Corporation drew down $3.5 million of its $25
million loan facility with NationsBank of Tennessee to finance
the acquisition of an industrial mineral processor. (See Notes
to Consolidated Financial Statements).
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 14th day of August, 1995.
ZEMEX CORPORATION
(Registrant)
By
:
Allen J. Palmiere
Vice President and Chief
Financial Officer