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 September 30, 1999
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 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 September 30, 1999, there were 8,847,105 shares of capital stock
outstanding.
2
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
ZEMEX CORPORATION
CONSOLIDATED BALANCE SHEETS
(US$)
- ---------------------------------------------------------------- -------------------------- --------------------------
SEPTEMBER 30, 1999 DECEMBER 31, 1998
- ---------------------------------------------------------------- -----------------------------------------------------
(unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 708,000 $ 1,062,000
Accounts receivable 21,344,000 17,642,000
Inventories 18,823,000 18,036,000
Prepaid expenses and other 1,505,000 946,000
Future tax benefits 657,000 657,000
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43,037,000 38,343,000
Property, plant and equipment 95,603,000 89,058,000
Other assets 20,377,000 21,374,000
Future tax benefits (non-current) 538,000 91,000
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TOTAL ASSETS $159,555,000 $148,866,000
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LIABILITIES
CURRENT LIABILITIES
Bank indebtedness $ 3,000,000 $10,000,000
Accounts payable 7,944,000 6,324,000
Accrued liabilities 5,067,000 4,433,000
Accrued income taxes 967,000 644,000
Current portion of long term debt 675,000 2,132,000
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17,653,000 23,533,000
LONG TERM DEBT 50,614,000 39,354,000
OTHER NON-CURRENT LIABILITIES 589,000 1,006,000
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68,856,000 63,893,000
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NON-CONTROLLING INTEREST 3,035,000 3,075,000
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SHAREHOLDERS' EQUITY
Common stock 8,847,000 8,708,000
Paid-in capital 49,234,000 48,691,000
Retained earnings 33,101,000 28,418,000
Note receivable from shareholder (1,749,000) (1,749,000)
Cumulative translation adjustment (1,769,000) (2,170,000)
- ----------------------------------------------------------------------------------------------------------------------
87,664,000 81,898,000
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TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $159,555,000 $148,866,000
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ZEMEX CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(US$)
- --------------------------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
1999 1998 1999 1998
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(unaudited)
NET SALES
Industrial minerals $12,824,000 $10,336,000 $38,116,000 $33,384,000
Metal powders 9,659,000 8,782,000 28,732,000 27,120,000
Aluminum recycling 7,291,000 6,559,000 20,337,000 17,552,000
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29,774,000 25,677,000 87,185,000 78,056,000
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COSTS AND EXPENSES
Cost of goods sold 20,474,000 18,130,000 60,115,000 55,594,000
Selling, general and administrative 3,566,000 2,881,000 10,877,000 9,742,000
Depreciation, depletion and amortization 2,226,000 1,562,000 6,521,000 4,824,000
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26,266,000 22,573,000 77,513,000 70,160,000
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OPERATING INCOME 3,508,000 3,104,000 9,672,000 7,896,000
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Interest income 32,000 65,000 122,000 147,000
Interest expense (1,187,000) (434,000) (3,209,000) (1,552,000)
Other expense (52,000) (852,000) (134,000) (979,000)
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(1,207,000) (1,221,000) (3,221,000) (2,384,000)
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INCOME BEFORE INCOME TAXES
AND NON-CONTROLLING INTEREST 2,301,000 1,883,000 6,451,000 5,512,000
PROVISION FOR INCOME TAXES 644,000 565,000 1,808,000 1,654,000
NON-CONTROLLING INTEREST IN LOSS OF
SUBSIDIARY (23,000) (40,000) (40,000) (1,000)
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NET INCOME $ 1,680,000 $ 1,358,000 $ 4,683,000 $ 3,859,000
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NET INCOME PER SHARE - basic $0.20 $0.16 $0.56 $0.47
- diluted 0.18 0.15 0.50 0.43
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WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 8,456,727 8,287,262 8,404,070 8,275,858
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ZEMEX CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOW
FOR THE NINE MONTHS ENDED SEPTEMBER 30
(US$)
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1999 1998
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(unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 4,683,000 $ 3,859,000
Adjustments to reconcile income from operations
to net cash flows from operating activities
Depreciation, depletion and amortization 6,521,000 4,824,000
Amortization of deferred financing costs 173,000 125,000
Increase in future tax benefits (447,000) (234,000)
Non-controlling interest in subsidiary earnings (40,000) (1,000)
Loss (gain) on sale of property, plant and equipment 96,000 3,000
Decrease (increase) in other assets 13,000 (611,000)
(Decrease) increase in other non-current liabilities (417,000) 92,000
Changes in non-cash working capital items (2,545,000) (2,286,000)
- ----------------------------------------------------------------------------------------------------------- ----------------
Net cash provided by operating activities 8,037,000 5,771,000
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CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property, plant and equipment (11,965,000) (13,979,000)
Acquisitions, net of cash acquired -- (7,440,000)
Acquisitions of securities -- (14,175,000)
Proceeds from sale of assets 1,000 3,120,000
Proceeds from sale of securities -- 9,772,000
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Net cash used in investing activities (11,964,000) (22,702,000)
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CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in long term debt 9,803,000 17,119,000
Net (decrease) increase bank indebtedness (7,000,000) 7,000,000
Issuance of common stock 789,000 765,000
Purchase of common stock and options for treasury (107,000) (417,000)
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Net cash provided by financing activities 3,485,000 24,467,000
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EFFECT OF EXCHANGE RATE CHANGES ON CASH 88,000 (67,000)
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NET (DECREASE) INCREASE IN CASH (354,000) 7,469,000
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 1,062,000 2,189,000
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CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 708,000 $ 9,658,000
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NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The condensed consolidated financial statements include the accounts of Zemex
Corporation and its wholly-owned subsidiaries (the "Corporation"). The financial
data for the three months ended September 30, 1999 and 1998 and for the nine
months ended September 30, 1999 and 1998 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. See the Corporation's Annual Report on Form
10-K for the year ended December 31, 1998 for a complete list of accounting
policies. All dollar amounts shown herein are in U.S. dollars unless noted
otherwise.
1. LONG TERM DEBT
In May 1999, the Corporation entered into note purchase agreements with private
investors whereby the Corporation issued $35 million, 7.54% Senior Secured
Notes, Series A, due May 21, 2009 and $15 million, 7.76% Senior Secured Notes,
Series B, due May 21, 2014. The proceeds of the note issues were used to retire
the Corporation's existing bank debt. The Corporation also entered into a credit
agreement, which provides a 364-day $20 million operating line of credit. The
notes and the credit facility rank pari passu with respect to security. The
obligations are secured by a pledge of subsidiary shares, a general security
interest and a negative pledge. The Corporation drew down $3 million on its
credit facility and retired its outstanding industrial development revenue bond
as of September 1, 1999.
2. SEGMENT INFORMATION
The Corporation has three principal lines of business and is organized into
three operating units based on its product lines: (i) industrial minerals, (ii)
metal powders, and (iii) aluminum recycling.
Information pertaining to sales and earnings from operations and assets by
business segment appears below:
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Three Months Ended Industrial Metal Aluminum
September 30, 1999 Consolidated Minerals Powders Recycling Corporate
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Net sales $29,774,000 $12,824,000 $ 9,659,000 $ 7,291,000 $ --
Operating income (loss) 3,508,000 1,921,000 1,609,000 807,000 (829,000)
Interest expense (1,187,000) (58,000) (40,000) (8,000) (1,081,000)
Net income 1,680,000 -- -- -- --
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Three Months Ended Industrial Metal Aluminum
September 30, 1998 Consolidated Minerals Powders Recycling Corporate
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Net sales $25,677,000 $10,336,000 $ 8,782,000 $ 6,559,000 $ --
Operating income (loss) 3,104,000 1,951,000 1,040,000 555,000 (442,000)
Interest (expense) income (434,000) 48,000 (37,000) (13,000) (432,000)
Net income 1,358,000 -- -- -- --
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Nine Months Ended Industrial Metal Aluminum
September 30, 1999 Consolidated Minerals Powders Recycling Corporate
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Net sales $87,185,000 $38,116,000 $28,732,000 $20,337,000 $ --
Operating income (loss) 9,672,000 6,023,000 3,913,000 2,091,000 (2,355,000)
Interest expense (3,209,000) (138,000) (134,000) (54,000) (2,883,000)
Net income 4,683,000 -- -- -- --
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Nine Months Ended Industrial Metal Aluminum
September 30, 1998 Consolidated Minerals Powders Recycling Corporate
- -------------------------------------------------------------------------------------------------------------------
Net sales $78,056,000 $33,384,000 $27,120,000 $17,552,000 $ --
Operating income (loss) 7,896,000 5,146,000 3,118,000 1,574,000 (1,942,000)
Interest (expense) income (1,552,000) 83,000 (147,000) (24,000) (1,464,000)
Net income 3,859,000 -- -- -- --
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Industrial Metal Aluminum
September 30, 1999 Consolidated Minerals Powders Recycling Corporate
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Current assets $43,037,000 $26,402,000 $ 9,998,000 $ 5,341,000 $ 1,296,000
Total assets 159,555,000 79,993,000 25,601,000 37,168,000 16,793,000
Total current liabilities 17,653,000 5,850,000 3,792,000 3,289,000 4,722,000
Total shareholders' equity 87,664,000 -- -- -- 87,664,000
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Industrial Metal Aluminum
December 31, 1998 Consolidated Minerals Powders Recycling Corporate
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Current assets $ 38,343,000 $22,770,000 $10,035,000 $ 3,513,000 $ 2,025,000
Total assets 148,866,000 74,104,000 24,969,000 33,464,000 16,329,000
Total current liabilities 23,533,000 5,029,000 3,210,000 3,777,000 11,517,000
Total shareholders' equity 81,898,000 -- -- -- 81,898,000
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3. 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, net income or cash flows except as follows:
a. Statements of Income
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 and at the historical exchange rate.
----------------------------------------------------------------------------------------------------------------
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------------------------------------------------------------------------------------------------
1999 1998 1999 1998
Net income, as reported $1,680,000 $1,358,000 $4,683,000 $3,859,000
Less: Start-up activities (552,000) (1,363,000) (1,844,000) (1,363,000)
Add: Exchange (loss) gain
on available-for-sale
securities (13,000) -- 115,000 --
Tax effect related thereto 158,000 409,000 484,000 409,000
----------------------------------------------------------------------------------------------------------------
Net income (U.S. GAAP) $1,273,000 $404,000 $3,438,000 $2,905,000
----------------------------------------------------------------------------------------------------------------
Net income per share
(U.S. GAAP)
- basic $0.15 $0.05 $0.41 $0.35
- fully diluted $0.15 $0.05 $0.41 $0.34
----------------------------------------------------------------------------------------------------------------
b. Balance Sheets
The following summarizes the balance sheet amounts in accordance with U.S.
GAAP where different from the amounts reported under Canadian GAAP.
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 and are reported
at fair value, with unrealized gains and losses excluded from earnings and
reported in a separate component of shareholders' equity. For Canadian GAAP
purposes, such securities are to be reported at cost and included in other
assets unless there is deemed to have been a permanent impairment in their
value.
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.
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September 30, 1999 December 31, 1998
Canadian GAAP U.S. GAAP Canadian GAAP U.S. GAAP
---------------------------------------------------------------------------------------------------------------
Property, plant and equipment $95,603,000 $92,866,000 $89,058,000 $89,058,000
Other assets 20,377,000 18,501,000 21,374,000 20,440,000
Accrued income taxes 967,000 483,000 644,000 644,000
Retained earnings 33,101,000 30,679,000 28,418,000 28,418,000
Unrealized loss on available-for-sale securities -- (1,707,000) -- (934,000)
---------------------------------------------------------------------------------------------------------------
c. Statements of Comprehensive Income
U.S. GAAP requires a statement of comprehensive income as follows:
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Three Months Ended Nine Months Ended
September 30, September 30,
- ----------------------------------------------------------------------------------------------------------------------
1999 1998 1999 1998
Net income (U.S. GAAP) $1,273,000 $404,000 $3,438,000 $2,905,000
Change in foreign currency translation
adjustment, net of tax (1999, ($7,000);
$112,000; 1998, ($106,000); ($172,000)) (18,000) (248,000) 289,000 (402,000)
Change in unrealized holding gains (losses)
on available-for-sale securities 3,000 (413,000) (772,000) (413,000)
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Comprehensive income $1,258,000 $(257,000) $2,955,000 $2,090,000
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Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board ("FASB") 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 for years ending on or after
June 15, 2000, for U.S. GAAP purposes.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE FINANCIAL CONDITION AND
RESULTS OF OPERATIONS OF THE CORPORATION
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, 1999 and the three months ended September 30, 1998, and for the nine months
ended September 30, 1999 and the nine months ended September 30, 1998, 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.
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RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO THREE MONTHS ENDED
SEPTEMBER 30, 1998
Net Sales
The Corporation's net sales for the three months ended September 30, 1999 rose
16.0% to $29.8 million from $25.7 million for the three months ended September
30, 1998 as a result of increased sales in each of the Corporation's three
business segments.
The Corporation's industrial minerals segment reported sales of $12.8 million
for the three month period ended September 30, 1999, an increase of $2.5
million, or 24.1%, from the third quarter of 1998, reflecting increased sales
volume of feldspar, mica, talc and clay.
In the metal powders division, an increase in sales of both sponge iron and
atomized products contributed to a $0.9 million increase in total net sales to
$9.7 million for the three months ended September 30, 1999. The increased sales
is mainly due to the success the Corporation has had in focusing on being a
supplier of specialty atomized products.
Higher aluminum prices, an increase in tolling and tipping revenues and an
increase in sales of flameshield products helped improve net sales in the
aluminum recycling segment to $7.3 million for the three month period ended
September 30, 1999, an increase of $0.7 million, or 11.2%, over the same period
in 1998. This increase was partially offset by a decrease in the number of
pounds of aluminum sold due to tight capacity in the world aluminum market and
the resultant lower grade of available feedstock.
Cost of Goods Sold
Cost of goods sold for the three months ended September 30, 1999 was $20.5
million compared to $18.1 million for the third quarter of 1998. As a percentage
of net sales, gross margin increased from 29.4% for the three months ended
September 30, 1998 to 31.2% for the corresponding period in 1999. The increase
in gross margin is attributable to higher volumes and a focus on cost control
and improved operating efficiencies.
Selling, General and Administrative Expense
Selling, general, and administrative ("SG&A") expense for the three months ended
September 30, 1999 increased by 23.8% to $3.6 million from $2.9 million in the
comparable period of 1998; however, as a percentage of net sales, SG&A expense
was 12.0% in the third quarter of 1999, virtually unchanged from the same period
in 1998.
Depreciation, Depletion and Amortization
Depreciation, depletion and amortization ("DD&A") for the three months ended
September 30, 1999 was $2.2 million, an increase of $0.7 million, or 42.5%, over
the corresponding period in 1998. This increase is due to capital expenditures
made and placed in service during the last twelve months.
Operating Income
As a result of the foregoing, operating income for the three month period ended
September 30, 1999 was $3.5 million, an increase of $0.4 million, or 13.0%, from
the comparable period in 1998.
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Interest Income
Interest income for the three months ended September 30, 1999 was slightly lower
than the $0.1 million recognized in the same quarter of 1998.
Interest Expense
Interest expense for the three months ended September 30, 1999 was $1.2 million,
compared to $0.4 million in the corresponding period in 1998. Part of the
increase is due to a $2.4 million increase in total indebtedness to $54.3
million at September 30, 1999 from $51.9 million at September 30, 1998. The
balance is due to the interest expense associated with certain capital projects
and investments that was previously being capitalized and is now being expensed.
Other Expense
Other expense for the three months ended September 30, 1999 was $0.1 million,
compared to $0.9 million for the corresponding period of 1998. During the third
quarter of 1998, the Corporation recognized a one-time foreign exchange loss of
$0.7 million in connection with its investment in Inmet Mining Corporation
("Inmet"). During 1998, the Corporation initiated an attempted acquisition of
control of Inmet and approximately 4 million shares of Inmet were acquired and
financed by the Corporation's credit facilities as a result. Subsequently, the
acquisition was abandoned and the Corporation sold approximately 2.6 million
common shares of Inmet for proceeds of approximately C$14.7 million. As at
September 30, 1998, the Corporation booked a provision of $413,000 as a
reduction to shareholders' equity to mark to market the residual investment in
the available-for-sale securities. The Corporation also booked a foreign
exchange loss of $0.7 million in other income as a result of a decline in the
value of its Canadian dollar investment in Inmet.
Provision for Income Taxes
As a result of a 22.2% increase in pre-tax income, the Corporation's provision
for income taxes for the three months ended September 30, 1999 increased
slightly to $0.6 million compared to the same period in 1998.
Net Income
As a result of the factors discussed above, net income for the three months
ended September 30, 1999 was $1.7 million, an increase of $0.3 million, or
23.8%, from the comparable period in 1998.
NINE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO NINE MONTHS ENDED
SEPTEMBER 30, 1998
Net Sales
On a year-to-date basis, the Corporation's net sales for the nine months ended
September 30, 1999 rose $9.1 million, or 11.7%, to $87.2 million over the first
three quarters of 1998 as a result of increased sales in each of the
Corporation's three business segments.
Net sales in the industrial minerals segment for the nine month period ended
September 30, 1999 were up by $4.7 million to $38.1 million from $33.4 million
in 1998. The increase is due to higher sales volume of most of the Corporation's
major industrial mineral products.
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In the metal powders segment net sales for the nine months ended September 30,
1999 were $28.7 million, an increase of $1.6 million, or 5.9%, from the
comparable period in 1998. The increase is primarily the result of sales of
ferrous atomized products. The Corporation redirected its strategy to focus on
supplying specialty niche atomized products about two years ago and is
capitalizing on the success of this initiative.
Net sales in the aluminum recycling segment for the nine month period ended
September 30, 1999 rose $2.8 million or 15.9% to $20.3 million over the same
period in 1998. Most of the difference year over year is due to the
Corporation's acquisition of an aluminum dross processor in Wabash, Indiana, in
June 1998; the 1999 period includes a full nine months contribution from this
operation.
Cost of Goods Sold
Cost of goods sold for the nine months ended September 30, 1999 was $60.1
million, an increase of $4.5 million, or 8.1%, over the first three quarters of
1998. As a percentage of net sales, gross margin increased to 31.0% in 1999 from
28.8% in 1998. The increase is due to higher sales volumes and improved
operating efficiencies.
Selling, General and Administrative Expense
SG&A expense for the nine months ended September 30, 1999 rose to $10.9 million
from $9.7 million in 1998, an increase of $1.2 million, or 11.7% due to
increased staffing; however, as a percentage of net sales, SG&A expense remained
virtually unchanged at 12.5% from the corresponding period in 1998.
Depreciation, Depletion and Amortization
DD&A for the nine months ended September 30, 1999 was $6.5 million, an increase
of $1.7 million, or 35.2%, over the comparable period in 1998 as a result of
assets acquired and placed in service over the last twelve months. On a
year-to-date basis the Corporation has spent $12.0 million on capital
expenditures in 1999.
Operating Income
Operating income for the nine month period ended September 30, 1999 was $9.7
million, an increase of $1.8 million, or 22.5%, from the comparable period in
1998. As a percentage of sales, operating income increased to 11.1% in the first
three quarters of 1999 from 10.1% in the corresponding period of 1998.
Interest Income
Interest income for the nine months ended September 30, 1999 was $0.1 million,
slightly lower than the corresponding period in 1998.
Interest Expense
Interest expense for the nine months ended September 30, 1999 was $3.2 million,
106.9% or $1.7 million, higher than the same period in 1998. Part of the
increase is due to an increase in total indebtedness and the balance is due to
the interest expense associated with certain capital projects and investments
that was previously being capitalized and that is now being expensed.
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Other Expense
Other expense for the nine months ended September 30, 1999 was $0.1 million,
compared to $1.0 million in the same period in 1998. As outlined above, the
Corporation recognized a translation loss of $0.7 million in the third quarter
of 1998 in connection with its acquisition of approximately 4 million common
shares of Inmet.
Provision for Income Taxes
The Corporation's provision for income taxes for the nine month period September
30, 1999 increased to $1.8 million from $1.7 million in the comparable period of
1998.
Net Income
As a result of the factors discussed above, net income for the nine months ended
September 30, 1999 was $4.7 million, a increase of $0.8 million, or 21.3%, from
the comparable period in 1998.
LIQUIDITY AND CAPITAL RESOURCES
Cash Flow from Operations
During the first nine months of 1999, the Corporation generated $8.0 million of
cash from operations as compared to $5.8 million cash generated for the first
nine months of 1998.
The Corporation had $25.4 million of working capital at September 30, 1999,
compared to $14.8 million at December 31, 1998. The working capital increase is
mainly due to the new debt facilities entered into by the Corporation. On May
21, 1999 the Corporation issued $35 million of 7.54% Senior Secured Notes,
Series A, due May 21, 2009 and $15 million of 7.76% Senior Secured Notes, Series
B, due May 21, 2014. The proceeds were used to repay the Corporation's existing
credit facilities. Concurrent with the bond issue the Corporation entered into a
credit agreement, which provides a 364-day, $20 million revolving operating
facility. The Corporation drew down $3.0 million under the operating facility
and retired its outstanding industrial development revenue bond as of September
1, 1999.
It is the opinion of management that there are sufficient sources of funds
available to meet its anticipated cash requirements.
YEAR 2000
The Corporation operates in basic industries that do not rely heavily on
computerized systems. The major systems operated by the Corporation are those
for financial reporting, all of which are year 2000 compliant. As a result, it
is the opinion of management that any year 2000 issues that may arise will not
have a material adverse impact on the financial condition or performance of the
Corporation. The Corporation is continuing its review of key suppliers to
determine their exposure to problems arising from Year 2000. The review is being
conducted by management and additional resources are not believed to be
required. Given the current status of the Corporation's activities, no
contingency plans are currently in place.
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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 sensitivity analysis on aluminum prices
and, on that basis, decides on the appropriate measures to take. The Corporation
believes that aluminum prices and interest rates in the current environment 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 1998 Annual Report, which are incorporated by reference in the
Corporation's Form 10K for the year ended December 31, 1998.
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.
PART II
ITEM 5 - OTHER INFORMATION
In October 1999, the Corporation extended a loan to Richard L. Lister, President
and Chief Executive Officer, in the amount of $1,749,000, representing amounts
due from him pursuant to the Key Executive Common Stock Purchase Plan. The loan,
which was used to acquire 357,000 common shares of the Corporation, is
non-interest bearing and secured by a pledge of most of the shares acquired. The
loan is renewed annually and is now due on the earlier of August 12, 2000 or 30
days after the termination of employment. Since the loan arose from the sale of
treasury stock, it is classified as a reduction of shareholders' equity.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
Reports on Form 8-K
None.
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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 22nd day of October, 1999.
ZEMEX CORPORATION
(Registrant)
By: /s/ Allen J. Palmiere
---------------------------------------------
Allen J. Palmiere
Vice President and Chief Financial Officer
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