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 September 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 Common 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 NO
X
Indicate the number of shares of each of the issuer's classes of
common stock, as of the latest practicable date.
8,551,590 shares of capital stock outstanding as of November 8,
1995.
Part I - FINANCIAL INFORMATION
Item 1 - Financial Statements
ZEMEX CORPORATION
CONSOLIDATED BALANCE SHEETS
September 30, 1995December 31, 1994
(unaudited)
ASSETS
Current Assets
Cash and Cash Equivalents $2,821,000 $8,343,000
Accounts Receivable 13,925,000 10,678,000
Inventories 17,692,000 16,490,000
Prepaid Expenses 1,071,000 660,000
Total Current Assets 35,509,000 36,171,000
Investments _ 2,286,000
Property, Plant and Equipment 47,410,000 29,020,000
Other Assets 10,157,000 3,387,000
Total Assets $93,076,000 $70,864,000
LIABILITIES
Current Liabilities
Bank Indebtedness $ _ $ 180,000
Accounts Payable
and Accrued Liabilities 9,698,000 8,474,000
Accrued Income Taxes 792,000 397,000
Current Portion of Long Term Debt 2,710,000 1,074,000
Deferred Revenue 277,000 _
Total Current Liabilities 13,477,000 10,125,000
Long Term Debt 7,499,000 5,461,000
Other Non-Current Liabilities 588,000 549,000
Deferred Income Taxes 610,000 677,000
Total Liabilities 22,174,000 16,812,000
SHAREHOLDERS' EQUITY
Common Stock 8,494,000 7,168,000
Paid-In Capital 48,202,000 38,291,000
Retained Earnings 16,932,000 11,668,000
Note Receivable from Shareholder (1,749,000) (1,749,000)
Cumulative Translation Adjustment (977,000) (1,326,000)
Total Shareholders' Equity 70,902,000 54,052,000
Total Liabilities
and Shareholders' Equity $93,076,000 $70,864,000
ZEMEX CORPORATION
CONSOLIDATED STATEMENT OF INCOME
3 Months Ended September 30,9 Months Ended September 30,
1995 1994 1995 1994
(unaudited)
NET SALES $21,748,000$13,333,000$64,292,000$39,120,000
COSTS AND EXPENSES
Cost of Goods Sold 16,183,000 9,587,000 48,319,00028,610,000
Selling, General
and Administrative 2,719,000 1,477,000 6,861,000 4,516,000
Depreciation, Depletion
and Amortization 1,024,000 633,000 2,702,000 1,867,000
19,926,00011,697,000 57,882,00034,993,000
OPERATING INCOME 1,822,000 1,636,000 6,410,000 4,127,000
Interest Expense, net 137,000 129,000 290,000 457,000
Other, net 78,000 (8,000) 33,000 (163,000)
215,000 121,000 323,000 294,000
INCOME BEFORE
PROVISION FOR INCOME TAXES1,607,000 1,515,000 6,087,000 3,833,000
Provision for Income Taxes 45,000 201,000 823,000 627,000
NET INCOME $1,562,000$1,314,000 $5,264,000$3,206,000
NET INCOME PER SHARE $0.18 $0.24 $0.67 $0.67
ZEMEX CORPORATION
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
FOR THE NINE MONTHS ENDED SEPTEMBER 30,
1995 1994
(unaudited)
Retained Earnings, Beginning of Period$11,668,000$ 6,738,000
Net Income for the Period 5,264,000 3,206,000
16,932,000 9,944,000
Dividends Declared _ _
RETAINED EARNINGS, END OF PERIOD $16,932,000$9,944,000
ZEMEX CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30,
1995 1994
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $5,264,000$3,206,000
Adjustments to reconcile income to net cash flows from operating
Depreciation, depletion
and amortization 2,702,000 1,867,000
Increase (decrease) in deferred
income taxes (67,000) 152,000
Share of net income of investees (87,000) (114,000)
Increase (decrease) in
non-current liabilities 40,000 184,000
Changes in non-cash working
capital items (3,628,000)(3,744,000)
Employer's portion of employee
stock purchase plan 177,000 _
Gain on sale of property, plant
and equipment _ (74,000)
Increase in other assets including excluding assets
held for sale _ (74,000)
Net cash provided by operating activities4,401,000 1,403,000
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property, plant
and equipment (15,528,000)(1,861,000)
Disposals of property, plant and equipment 2,000 _
Retirement of property, plant and equipment _ 78,000
Proceeds from sale of asset 134,000
Cash acquired in acquisition 688,000
Insurance recovery 450,000 _
Additions to other assets (1,232,000)
Investments _(2,019,000)
Greenback net asset purchase _ (559,000)
Net cash provided by (used in)
investing activities (15,486,000)(4,361,000)
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in long term debt 1,223,000 _
Net decrease in bank indebtedness (180,000) (595,000)
Repayment of long term debt _ (159,000)
Issuance of common stock 4,460,000 20,963,000
Tax payments for exercised stock options 22,000 _
Net cash provided by (used in) financing
activities 5,525,000 20,209,000
EFFECT OF EXCHANGE RATE CHANGES ON CASH 38,000 (30,000)
NET INCREASE (DECREASE) IN CASH (5,522,000)17,221,000
CASH AND CASH EQUIVALENTS AT BEGINNING
OF PERIOD 8,343,000 3,796,000
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $2,821,000$21,017,000
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 nine months ended
September 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 September 30, 1995 and September 30, 1994,
and for the nine months ended September 30, 1995 and September
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 September 30, 1995 Compared to Three Months
Ended September 30, 1994
Net Sales
The Corporation's net sales for the three months ended September
30, 1995 were $21.7 million, an increase of $8.4 million, or
63.1%, from the comparable period in 1994. The increase in sales
was primarily the 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.
Net sales in the industrial minerals segment for the three month
period ended September 30, 1995 increased by $2.0 million, or
26.8 %, compared to the 1994 period. This increase was primarily
due to strong demand for the Corporation's sodium feldspar
products and to the acquisition of a talc operation in December
1994, offset in part by softer sales of high end mica products.
Net sales in the metal powders and recycling segment for the
three months ended September 30, 1995 were $12.1 million, an
increase of $6.4 million, or 111.6%, 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 both the long term effects of an explosion
at the Niagara atomized powder plant in March and weakness in the
market for atomized steel powders.
Cost of Goods Sold
Cost of goods sold for the three months ended September 30, 1995
was $16.2 million, an increase of $6.6 million, or 68.8%, from
the comparable period in 1994. As a percent of net sales, cost
of goods sold increased to 74.4% for the three months ended
September 30, 1995 from 71.9% for the same period in 1994 period.
The decrease in gross margin was primarily due to lower margins
on incremental revenue from recent acquisitions and reduced
contributions from the powdered metal operations.
Selling, General and Administrative Expense
Selling, general, and administrative expense ("SG&A expense") for
the three months ended September 30, 1995 increased by 84.1% from
the comparable 1994 period to $2.7 million. Of the increase $1.1
million or 90.1% was due to operations acquired subsequent to the
1994 period. As a percentage of net sales, SG&A expense
increased from 11.1% in the 1994 period to 12.5% in the 1995
period.
Depreciation, Depletion and Amortization
Depreciation, depletion and amortization for the three months
ended September 30, 1995 was $1.0 million, an increase of 61.8%
over the comparable period in 1994. The increase was due to
assets acquired during 1994 and the first nine months of 1995.
Operating Income
Operating income for the three month period ended September 30,
1995 was $1.8 million, an increase of $0.2 million, or 11.4%,
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 September 30, 1995
was $0.1 million, virtually unchanged from the comparable period
in 1994.
Provision for Income Taxes
The Corporation's provision for income taxes for the three months
ended September 30, 1995 decreased to $45,000 from $0.2 million
in the comparable period in 1994. The decrease is partially 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 September 30, 1995 was $1.6 million, an
increase of 18.9% from the comparable period in 1994.
Nine Months Ended September 30, 1995 Compared to Nine Months
Ended September 30, 1994
Net Sales
The Corporation's net sales for the nine months ended September
30, 1995 were $64.3 million, an increase of $25.2 million, or
64.3%, from the comparable period in 1994. Sales increased by
$24.7 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.
Net sales in the industrial minerals segment for the nine month
period ended September 30, 1995 increased by $5.2 million, or
22.8%, compared to the 1994 period. This increase was primarily
due to strong demand for the Corporation's sodium feldspar
products and to the acquisition of a talc operation in December
1994 offset in part by lower mica sales.
Net sales in the metal powders and recycling segment for the nine
months ended September 30, 1995 were $36.2 million, an increase
of $20.0 million, or 122.7%, from the comparable period in 1994.
The increase was attributable primarily to the September 1994
acquisition of a copper powder producer in Greenback, Tennessee.
As mentioned above, this segment also contains figures for
Alumitech. The rate of growth for atomized powder products has
been curbed somewhat since an explosion occurred on March 8, 1995
in the powdered steel atomizing furnace at the Niagara Falls, New
York facility. Although the plant resumed full operation on April
14, 1995, an inventory adjustment by suppliers to the automotive
industry has hampered recovery. 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 nine months ended September 30, 1995
was $48.3 million, an increase of $19.7 million, or 68.9%, from
the comparable period in 1994. As a percent of net sales, cost
of goods sold increased to 75.2% for the nine months ended
September 30, 1995 from 73.1% for the same period in 1994
period. The decrease in margin was primarily due to lower
margins on incremental revenue from recent acquisitions and
reduced contributions from the powdered metal operations..
Selling, General and Administrative Expense
SG&A expense for the nine months ended September 30, 1995
increased by $2.3 million or 51.9% from the comparable 1994
period to $6.9 million. Of the increase $2.6 million was due to
operations acquired subsequent to the 1994 period. As a
percentage of net sales, SG&A expense decreased from 11.5% in the
1994 period to 10.7% 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 nine months
ended September 30, 1995 was $2.7 million, an increase of 44.7%
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 nine month period ended September 30,
1995 was $6.4 million, an increase of $2.3 million, or 55.3%,
from the comparable period in 1994. The increase was due in part
to the reasons discussed above.
Interest Expense, Net
Interest expense for the nine months ended September 30, 1995 was
$0.3 million, down from $0.5 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 nine months
ended September 30, 1995 increased to $0.8 million from $0.6
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. Accordingly, since the
Corporation has enough loss carryforwards to effectively shelter
income in 1995, 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
nine months ended September 30, 1995 was $5.3 million, an
increase of 64.2% 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 anticipates
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 nine months
ended September 30, 1995 was $4.4 million, up $3.0 million, or
157.4% relative to the nine months ended September 30, 1994. In
1995, non-cash working capital items used $3.3 million of the
cash otherwise generated from operations as compared to $3.7
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 $22.0 million of working capital at September
30, 1995, compared to $26.0 million at December 31, 1994. The
decrease of $4.0 million is attributable to capital expenditures
of $15.5 million funded by cash on hand, funds from operations,
issuance of capital stock and a slight increase in long term
debt.
Financing Agreements
In July 1995, the Corporation repaid the $3.5 million loan it
borrowed to finance the acquisition of an industrial mineral
processor. (See Notes to Consolidated Financial Statements).
The Corporation has borrowed $2.7 million to partially finance
the expansion project at its sodium feldspar operation at Spruce
Pine, North Carolina.
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 November, 1995.
ZEMEX CORPORATION
(Registrant)
By: /s/Allen J. Palmiere
Allen J. Palmiere
Vice President and Chief Financial Officer