1
CONFORMED
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT
PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000
Commission file number 1-228
ZEMEX CORPORATION
(Exact name of registrant as specified in its charter)
CANADA NONE
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification number)
CANADA TRUST TOWER, BCE PLACE, 161 BAY STREET, SUITE 3750
TORONTO, ONTARIO, CANADA M5J 2S1
(416) 365-8080
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT
Toronto Stock Exchange and New York Stock Exchange Common 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 [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ X ]
The aggregate market value of the registrant's voting stock (common shares, no
par value) held by non-affiliates as of March 27, 2001 (based on the closing
sale price of $6.00 on the New York Stock Exchange) was $27,642,588.
As of March 27, 2001, 8,622,904 shares of the registrant's common shares, no par
value, were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Definitive Proxy Statement filed with the Commission pursuant to Regulation 14A
with respect to the 2001 Annual Meeting of Shareholders
Part III
2
FORM 10-K
ANNUAL REPORT
TABLE OF CONTENTS
AND
CROSS-REFERENCE SHEET
PAGE
----
PART I
Item 1. Business......................................................... 1
Item 2. Properties....................................................... 7
Item 3. Legal Proceedings................................................ 8
Item 4. Submission of Matters to a Vote of Security Holders.............. 8
Item 10. Executive and Other Officers of the Registrant ..................(A)
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters.............................................. 9
Item 6. Selected Financial Data..........................................10
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations............................................11
Item 7A. Market Risk......................................................19
Item 8. Financial Statements and Supplementary Data......................19
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.............................................20
PART III
Item 10. Directors and Executive Officers of the Registrant...............(B)
Item 11. Executive Compensation...........................................(B)
Item 12. Security Ownership of Certain Beneficial Owners and Management...(B)
Item 13. Certain Relationships and Related Transactions...................(B)
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K...21
- ----------
(A) Included in Part I, Item 1, Page 6, pursuant to Instruction 3 of Item
401(b) of Regulation S-K.
(B) Information responsive to these Items is set forth in the registrant's
definitive proxy statement to be filed with the Commission pursuant to
Regulation 14A.
3
PART I
ITEM 1. BUSINESS
GENERAL
Zemex Corporation (the "Corporation" or "Zemex"), a company incorporated under
the Canada Business Corporations Act, is a producer of specialty materials and
products for use in a variety of industrial applications. Zemex operates through
two major divisions: industrial minerals and aluminum recycling. Its major
products include feldspar, feldspathic minerals, kaolin, sand, mica, talc, and
aluminum dross derivatives. As at December 31, 2000, Zemex operated twelve
plants throughout Canada and the United States.
On April 11, 2000, the Corporation announced that it had completed the sale of
the two subsidiaries comprising the metal powders division, Pyron Corporation
and Pyron Metal Powders, Inc., to a subsidiary of Hoganas AB for gross proceeds
of approximately $42 million in cash. As a result of the sale of the Pyron
companies, the results of the metal powders division have been reflected as
discontinued operations in the Corporation's consolidated statements of
operations.
Originally, Zemex was incorporated under the laws of the State of Maine in 1907
and was known as Yukon Gold Corporation. At its annual meeting of shareholders
on May 20, 1938, a resolution was passed to change its name to Yukon-Pacific
Mining Corporation. On November 8, 1939, Zemex reorganized, incorporated under
the laws of the State of Delaware, and changed its name to Pacific Tin
Consolidated Corporation. Also in 1939, Zemex listed on the New York Stock
Exchange. In 1985, Zemex changed its name to its current form and reincorporated
under the laws of the State of Delaware as the successor to Pacific Tin
Consolidated Corporation. Effective January 21, 1999 Zemex completed a
reorganization pursuant to which shareholders of the predecessor Delaware
corporation became shareholders of a corporation incorporated under the Canada
Business Corporations Act.
INDUSTRIAL MINERALS
The Corporation's industrial minerals division is comprised of The Feldspar
Corporation ("TFC"), Suzorite Mica Products Inc. ("Suzorite"), Suzorite Mineral
Products, Inc. ("SMP"), Zemex Fabi-Benwood, LLC, Zemex Industrial Minerals, Inc.
and Zemex Mica Corporation ("ZMC") (collectively, "Zemex Industrial Minerals" or
"ZIM"). Each of these companies is either directly or indirectly a wholly-owned
subsidiary of Zemex, except for Zemex Fabi-Benwood, LLC of which Zemex owned 60%
at year-end and which was sold in March 2001.
TFC has mining and processing facilities in Edgar, Florida; Monticello, Georgia;
and Spruce Pine, North Carolina. Using traditional methods, TFC mines sodium
feldspar from two different ore deposits in the Spruce Pine area. Potassium
feldspar is mined from two deposits close to the Monticello plant. TFC's kaolin
and sand products are recovered by dredging and wet separation at the Edgar
property. All mined and recovered products are subjected to standard and
proprietary milling and drying techniques.
TFC produces numerous products at its operating plants, including sodium and
potassium feldspar, silica, low iron sand, muscovite mica and kaolin clay.
Feldspathic materials are key ingredients for the ceramic industry, and are
incorporated into the production of ceramic floor and wall tiles, dinnerware,
plumbing fixtures, glazes and electrical insulators. TFC supplies its products
primarily to the glass and ceramics industries. Feldspar and certain grades of
industrial sand are also used to manufacture bottles, jars, and other glass
containers, fibreglass, paints and plastics, and television picture tubes.
Industrial sand is used
1
4
for filter, filler, beach sand, blasting and concrete applications. TFC also
produces a low iron sand product for use in highly specialized glass
applications.
Suzorite mines phlogopite mica in an open pit mining operation in Suzor
Township, Quebec, Canada, approximately 300 kilometres north of Montreal,
Quebec. The ore is mined by standard open pit methods and delivered to a siding
for transportation by rail to the processing plant, which is located in
Boucherville, Quebec, a suburb of Montreal. Because of its distinct thermal
stability advantage over competitive materials, phlogopite mica is used to
impart rigidity in technological and high temperature plastic applications.
Suzorite's phlogopite mica is used as a partial or complete substitute for
asbestos in fire retardation. It is also used in friction materials, oil well
drilling needs, caulking and molding compounds, coatings, plasters and plastics.
The principal markets served by Suzorite are the automobile, construction and
oil drilling industries. These products are marketed under the trade names
Suzorite Mica and Suzorex.
SMP produces talc and other minerals at Natural Bridge, New York; Murphy, North
Carolina; Van Horn, Texas; and Benwood, West Virginia. SMP purchases talc for
conversion and processing at its plant in Natural Bridge and processes products
directed primarily to the cosmetic and pharmaceutical industries. The production
facility in Van Horn processes talc mined in proximity to the plant for the
coatings, plastics and ceramics industries. The Benwood operation processes a
wide range of talc products from imported raw materials for ultimate use in the
plastics industry. The Murphy plant purchases raw materials and produces baryte
products, primarily for the oil drilling and coatings industries. In February
1998, Industria Mineraria Fabi S.r.l. ("Fabi"), a leading European talc
producer, became an investor in the Corporation's talc facility located in
Benwood, West Virginia by acquiring a 40% interest in a new limited liability
company, Zemex Fabi-Benwood, LLC. As part of the transaction, Fabi paid $3.4
million and provided access to its technology and to its premium talc deposit in
Australia. In March 2001, the Corporation sold its 60% interest in Zemex
Fabi-Benwood, LLC and its talc processing plant located at Natural Bridge, New
York to its former partner in the Zemex Fabi-Benwood, LLC. Fabi paid $7.5
million. This transaction will be recorded in the first quarter of 2001.
In January 1998, the Corporation acquired ZMC, formerly known as Aspect
Minerals, Inc., a muscovite mica producer in the Spruce Pine, North Carolina
area close to TFC's feldspar plant where by-product muscovite mica is produced.
A capital expenditure program to retrofit and expand these facilities was
completed at the end of 1999. Due to a shortage of appropriate feedstock, this
plant was placed on care and maintenance effective December 31, 2000. Goodwill
associated with the original purchase was written-off and a provision was made
for asset impairment.
Demand for Zemex's industrial minerals is related to the pace of the general
economy and, particularly, the residential and commercial construction, and
automotive industries.
The Corporation's industrial minerals sales were $51.4 million in 2000, compared
to $50.4 million in 1999 and $44.8 million in 1998. Income generated from
operating activities for this group was $5.7 million in 2000, versus $8.0
million in 1999 and $5.8 million in 1998.
Capital expenditures were $2.8 million in 2000 compared to $7.1 million in 1999
and $8.3 million in 1998. Capital spending in 1999 included the retrofitting of
the muscovite mica operation that was acquired in 1998.
2
5
ALUMINUM RECYCLING
Zemex's aluminum recycling group is composed of Alumitech, Inc., Alumitech of
Cleveland, Inc., Alumitech of Wabash, Inc., ETS Schaefer Corporation and AWT
Properties, Inc. (collectively, "Alumitech "), all of which are direct or
indirect wholly-owned subsidiaries. Alumitech has three facilities: aluminum
dross reprocessing plants in Cleveland, Ohio and Wabash, Indiana, and a heat
containment fabrication plant in Macedonia, Ohio. Alumitech's administrative
office is in Streetsboro, Ohio.
Alumitech is an aluminum dross processor. Aluminum dross is the waste by-product
produced by primary and secondary aluminum smelters. Secondary dross, which has
a high salt content, forms the primary feedstock for Alumitech's process. Dross
processors recover aluminum metal and some oxides from the dross and send the
residue to landfill. The primary focus of Alumitech has, for the past several
years, been the development of a "closed-loop" process that would eliminate the
necessity for land filling any dross materials. While the process has proven
itself technically, the combination of production difficulties and weak markets
for the final products has resulted in an inability to generate a profit from
the operation. Accordingly, the Corporation has ceased its efforts to operate
the closed-loop system and written-off its investment in the technology and
equipment.
In June 1998, Alumitech acquired 100% of the issued and outstanding shares of
Alumitech of Wabash, Inc. (previously known as S&R Enterprises, Inc.), a Wabash,
Indiana based aluminum dross processor. This acquisition provides Alumitech with
metal melting capacity.
Sales for the aluminum recycling group decreased to $25.1 million in 2000 from
$27.2 million in 1999 and however, were still ahead of the $23.5 million in
1998. The depressed secondary aluminum industry generated less dross and
saltcake. Accordingly, the price of the feedstock for Alumitech increased and
the quality decreased. Production was cut back which resulted in lower sales
volume. The sales revenue in 2000 was down by $2.1 million from 1999. The
increase from 1998 to 1999 was primarily due to increased sales from Alumitech
of Wabash, Inc., which was acquired in June 1998. The 1999 results include a
full year of operations. During 2000, the aluminum recycling group recorded a
loss from operations of $1.3 million, compared to income from operations of $2.8
million in 1999 and $2.9 million in 1998. The operation of the now closed
calcium aluminate plant in Cleveland generated a loss of $1.5 million and was
the major factor in Alumitech's 2000 loss.
Capital expenditures for the aluminum recycling group were $1.4 million in 2000
as compared to $5.0 million in 1999 and $10.1 million in 1998.
METAL POWDERS
The metal powders division consisted of two wholly-owned subsidiaries, Pyron
Corporation and Pyron Metal Powders, Inc. (together, "Pyron"). Pyron operates
plants located in Niagara Falls, New York; St. Marys, Pennsylvania; and
Greenback and Maryville, Tennessee. On April 11, 2000, the Corporation announced
the completion of the sale of its metal powders division for gross proceeds of
approximately $42 million. The sale resulted in a pre-tax gain of $15.7 million.
These subsidiaries have been reflected as discontinued operations on the
Corporation's statement of operations and prior years have been reclassified to
reflect this disclosure.
3
6
Sales for the metal powders division were $10.7 million in 2000 compared to
$39.0 million in 1999 and $35.6 million in 1998. During the same period, income
from operations for the group was $1.4 million as compared to $6.1 million in
1999 and $4.0 million in 1998. The 2000 figures contained three months
activities while the 1999 and 1998 numbers included a full year of operations.
For the three months' activities, the metal powders division spent $0.2 million
in capital expenditures. In 1999 and 1998, the metal powders division spent $1.6
million and $2.1 million, respectively, in capital expenditures.
RESEARCH AND DEVELOPMENT
The Corporation carries on an active program of product development and
improvement. Research and development expense was $0.5 million in 2000, $1.1
million in 1999 and $0.6 million in 1998.
Financial information about continuing operations by industry segment is set
forth on pages F-24 to F-26 of this report. Financial information pertaining to
the metal powders division, which has been disclosed as a discontinued
operation, is set forth on page F-22.
ENVIRONMENTAL CONSIDERATIONS
Laws and regulations currently in force which do or may affect the Corporation's
domestic operations include the Federal Clean Air Act of 1970, the National
Environmental Policy Act of 1969, the Solid Waste Disposal Act (including the
Resource Conservation and Recovery Act of 1976), the Toxic Substances Control
Act, CERCLA (superfund) and regulations under these Acts, the environmental
protection regulations of various governmental agencies (e.g. the Bureau of Land
Management Surface Management Regulations, Forest Service Regulations, and
Department of Transportation Regulations), laws and regulations with respect to
permitting of land use, various state and local laws and regulations concerned
with zoning, mining techniques, reclamation of mined lands, air and water
pollution and solid waste disposal. Each of the Corporation's operations strives
to be environmentally sensitive. Currently, the Corporation is not aware of any
materially adverse environmental problems or issues.
EMPLOYEES
The approximate number of employees in the Corporation as of December 31, 2000
is set forth below:
Industrial Minerals 314
Aluminum Recycling 127
Corporate 6
------
Total 447
======
Approximately 22 employees at Suzorite are covered by a three-year collective
bargaining agreement that expires December 12, 2002.
At Alumitech, approximately 50 employees are covered by two collective
bargaining agreements, one agreement expiring April 30, 2001 and one agreement
expiring December 31, 2001.
Approximately 49 hourly employees at TFC's sodium feldspar plant in Spruce Pine,
North Carolina are covered by a collective agreement, which expires January 31,
2003.
The Corporation considers its labour relations to be good.
4
7
EXPORT SALES
The Corporation's industrial minerals and aluminum recycling operations sell
their products internationally to a wide variety of customers including the
ceramics, glass and plastic industries. Export sales were 9.2% of total sales
for the year ended December 31, 2000.
RISK FACTORS
Raw Materials And Other Requirements
In past years, the Corporation has not experienced any substantial difficulty in
satisfying the raw materials requirements for its aluminum recycling operations,
which is the segment that consumes, rather than supplies, raw materials.
However, in 2000 a decline in the secondary aluminum industry and an
undisciplined market for dross and saltcake resulted in a shortage of acceptable
feedstock. There can be no assurance that this situation will correct itself in
the near term.
Seasonality
The efficiency and productivity of the Corporation's operations can be affected
by unusually severe weather conditions. During the winter of 2000 and 1999,
there were minor production outages at the Corporation's operating facilities in
North Carolina, New York and Quebec due to inclement weather, but they were not
significant enough to materially affect the 2000 and 1999 operating results.
Competition
All of the Corporation's products are sold in highly competitive markets, which
are influenced by price, performance, customer location, service, competition,
material substitution and general economic conditions. The Corporation competes
with other companies active in industrial minerals and aluminum recycling. No
material part of the Corporation's business is dependent upon any single
customer, or upon very few customers, the loss of any one of which could have a
material adverse impact on the Corporation.
Industrial mineral prices generally are not subject to the price fluctuations
typical of commodity metals. Demand for industrial minerals is primarily related
to general economic conditions, particularly in the automotive, housing and
construction industries. Markets for industrial mineral products are sensitive
not only to service, product performance, and price, but also to competitive
pressures and transportation costs. In the United States, there are three major
feldspathic mineral producers, including the Corporation. The Corporation is the
only North American producer of phlogopite mica and one of many talc producers.
There are numerous aluminum dross processors in the United States. While the
Corporation competes for the supply of aluminum dross, the major factor
affecting the supply of dross is the level of activity of the secondary aluminum
smelting industry. In addition, as aluminum is one of the products of aluminum
dross reprocessing, commodity price fluctuations of aluminum will have an impact
on the earnings of the Corporation.
5
8
Foreign Operations
Most of the Corporation's operations are located in the United States and
Canada, countries whose institutions and governmental policies are generally
similar. Although there can be no assurance as to future conditions, the
Corporation has experienced no political activities, social upheavals, currency
restrictions or similar factors, which have had any material adverse effect to
date on the results of its operations or financial condition.
Market Demand
Demand for Zemex's industrial minerals is related to the pace of the general
economy and, particularly, the residential and commercial construction, and
automotive industries. There can be no assurance that the markets for Zemex's
products will remain strong in the face of an economic downturn.
EXECUTIVE AND OTHER OFFICERS OF THE REGISTRANT
SERVED IN
POSITION
OFFICER POSITION AGE SINCE
- ------- -------- --- ----------
Peter Lawson-Johnston Chairman of the Board of Directors 74 1975
Richard L. Lister President and Chief Executive Officer 62 1993
Allen J. Palmiere Vice President, Chief Financial 48 1993
Officer and Corporate Secretary
Peter J. Goodwin President, Industrial Minerals 50 1994
Terrance J. Hogan President, Aluminum Recycling 45 1995
There are no family relationships between the officers listed above. The term of
office of each executive officer is until his respective successor is elected
and has qualified, or until his death, resignation or removal. Officers are
elected or appointed by the board of directors annually at its first meeting
following the annual meeting of shareholders. All of the current officers of the
Corporation have been more than five years in their present position.
6
9
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.
ITEM 2. PROPERTIES
The industrial minerals group has operations and mines in Edgar, Florida;
Monticello, Georgia; Boucherville, Quebec; Suzor Township, Quebec; Natural
Bridge, New York; Murphy, North Carolina; Spruce Pine, North Carolina; Van Horn,
Texas; and Benwood, West Virginia. This group owns approximately 391,500 square
feet of office and plant floor space. As well, the 60% owned processing facility
in Benwood, West Virginia has approximately 12 acres of land. TFC also owns 703
acres of land which contain, at minimum, 50 years of additional ore resources
for its Spruce Pine, North Carolina facility. The mineral deposits currently
operated by the industrial minerals group are estimated by the Corporation to
contain from 4 years to in excess of 100 years of reserves at the current rates
of production. Subsequent to December 31, 2000, the Corporation sold its Natural
Bridge, New York facility which had approximately 58,400 square feet of office
and plant floor space as well as its' 60% interest in the Zemex Fabi-Benwood,
LLC which had approximately 30,100 square feet of office and floor space.
The aluminum recycling group has operations in Cleveland, Ohio; Macedonia, Ohio;
Streetsboro, Ohio and Wabash, Indiana. The aluminum dross processing plant in
Cleveland, Ohio owns 6.1 acres of land and has buildings totaling 51,000 square
feet. The Streetsboro, Ohio operation leases approximately 2,300 square feet of
a 36,000 square foot building, which it uses primarily for office space. The
Macedonia facility includes 72,210 square feet of plant of which 10,000 is
designated office space and is situated on 8 acres of land. The aluminum
recycling operation in Wabash, Indiana sits on approximately 25 acres of land
and has 73,300 square feet of plant and office space.
All facilities relating to the Corporation's continuing operations are
maintained in good operating condition.
7
10
ITEM 3. LEGAL PROCEEDINGS
On November 17, 2000, a subsidiary of the Corporation ("Zemex U.S.") entered
into a Stock Purchase Agreement with Hecla Mining Company ("Hecla") whereby
Zemex U.S. agreed to purchase, subject to certain conditions precedent, the
shares of two of Hecla's subsidiaries collectively known as K-T Clay. The
Corporation guaranteed the obligations of Zemex U.S. under the Stock Purchase
Agreement. As specifically permitted under the Stock Purchase Agreement, in
January 2001 Zemex U.S. notified Hecla that due to a material adverse change in
the business of K-T Clay, Zemex U.S. would not close the transaction
contemplated by the Stock Purchase Agreement in its then current form. On
January 22, 2001, Hecla filed suit in the United States District Court for the
Northern District of Illinois against the Corporation (but not Zemex U.S.)
alleging breach of the Corporation's guarantee and seeking specific performance
and an award of damages. (The claim for specific performance was subsequently
withdrawn.) The Corporation is of the opinion that Hecla's claims are totally
without merit and intends to defend the lawsuit aggressively. No provisions have
been made in the financial statements for this lawsuit.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
8
11
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS
Zemex Corporation's common shares are traded on the New York Stock Exchange and,
as of March 27, 1999, on the Toronto Stock Exchange, under the symbol ZMX. The
price range in which the shares have traded on the New York Stock Exchange for
the past two years is shown below:
COMMON SHARES
2000 Q1 Q2 Q3 Q4 YEAR
------- ------ ------ ------ -------
HIGH $ 10.00 $ 8.75 $ 7.75 $ 7.63 $ 10.00
LOW 8.38 7.13 7.19 5.25 5.25
CLOSE 8.38 7.50 7.50 5.38 5.38
------- ------ ------ ------ -------
1999 Q1 Q2 Q3 Q4 Year
------- ------ ------ ------ -------
High $ 6.88 $ 6.50 $ 7.63 $ 9.75 $ 9.75
Low 5.00 5.19 6.13 6.75 5.00
Close 5.44 6.31 7.06 9.13 9.13
------- ------ ------ ------ -------
As of March 27, 2001, there were approximately 1,661 holders of record of the
Corporation's capital stock. This number includes shares held in nominee name
and, thus, does not reflect the number of holders of a beneficial interest in
the shares.
9
12
ITEM 6. SELECTED FINANCIAL DATA
2000 1999 1998 1997 1996
------------ ------------ ------------ ------------ ------------
SUMMARY OF OPERATIONS
Net sales $ 76,480,000 $ 77,530,000 $ 68,338,000 $ 63,296,000 $ 54,695,000
Income before the undernoted 602,000 7,015,000 6,202,000 5,994,000 1,906,000
Provision for asset impairment 24,552,000 -- -- -- 1,216,000
Other income (expense) (3,017,000) (522,000) (840,000) 1,616,000 (510,000)
(Loss) income before discontinued
operations (19,356,000) 1,847,000 2,652,000 4,118,000 918,000
Income from discontinued operations 11,385,000 3,934,000 2,713,000 1,675,000 1,694,000
Net (loss) income (7,971,000) 5,781,000 5,365,000 5,793,000 2,612,000
FINANCIAL POSITION
Working capital $ 4,831,000 $ 27,613,000 $ 14,810,000 $ 18,975,000 $ 18,688,000
Total assets 113,579,000 160,979,000 150,744,000 118,774,000 109,376,000
Long term debt (non-current portion) 261,000 50,502,000 39,354,000 20,527,000 17,797,000
COMMON SHARES
Average common shares outstanding 8,466,988 8,425,561 8,286,178 8,267,630 8,272,904
Actual common shares issued and
outstanding at year end 8,697,822 8,873,453 8,707,796 8,463,491 8,269,099
PER COMMON SHARE
Basic - Continuing operations $(2.29) $ 0.22 $ 0.32 $ 0.50 $ 0.11
Basic - Discontinued operations $ 1.35 $ 0.47 $ 0.33 $ 0.20 $ 0.21
Basic (loss) earnings per share $(0.94) $ 0.69 $ 0.65 $ 0.70 $ 0.32
Fully Diluted - Continuing operations $(2.29) $ 0.20 $ 0.30 $ 0.46 $ 0.11
Fully Diluted - Discontinued operations $ 1.31 $ 0.43 $ 0.30 $ 0.18 $ 0.20
Fully diluted (loss) earnings per share $(0.98) $ 0.63 $ 0.60 $ 0.64 $ 0.31
U.S. GAAP
(Loss) income before discontinued
operations $(18,479,000) $ 462,000 $ 1,595,000 $ 4,112,000 $ 918,000
Income from discontinued operations 11,385,000 3,934,000 2,713,000 1,675,000 1,694,000
Net (loss) income (7,094,000) 4,396,000 4,308,000 5,787,000 2,612,000
PER COMMON SHARE UNDER U.S. GAAP
Basic - Continuing operations $(2.18) $ 0.05 $ 0.19 $ 0.50 $ 0.11
Basic - Discontinued operations $ 1.34 $ 0.47 $ 0.33 $ 0.20 $ 0.21
Basic (loss) earnings per share $(0.84) $ 0.52 $ 0.52 $ 0.70 $ 0.32
Diluted - Continuing operations $(2.18) $ 0.05 $ 0.19 $ 0.49 $ 0.11
Diluted - Discontinued operations $ 1.33 $ 0.46 $ 0.32 $ 0.20 $ 0.20
Diluted (loss) earnings per share $(0.85) $ 0.51 $ 0.51 $ 0.69 $ 0.31
COMMON STOCK PRICES
High $ 10.00 $ 9.75 $ 10.44 $ 10.94 $ 10.00
Low 5.25 5.00 6.00 6.75 6.88
Year end 5.38 9.13 6.25 8.75 7.00
------------ ------------ ------------ ------------ ------------
10
13
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following is a discussion and analysis of the results of operations and
financial condition of the Corporation for the years ended December 31, 2000,
1999 and 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
found on pages F-1 to F-31 of this Annual Report on Form 10-K.
OVERVIEW
The Corporation is a diversified producer of specialty materials and products
for use in a variety of industrial applications. The Corporation operates in two
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; and (ii) aluminum recycling, which includes Alumitech, Inc.,
Alumitech of Cleveland, Inc., Alumitech of Wabash, Inc., ETS Schaefer
Corporation and AWT Properties, Inc.
1. On April 11, 2000, the Corporation completed the sale of its metal
powders division, which included Pyron Corporation and Pyron Metal
Powders, Inc., for $42.0 million to North American Hoganas Holdings,
Inc., a subsidiary of Hoganas AB. The Corporation recognized a pre-tax
gain of $15.7 million in fiscal 2000; the after-tax gain from this sale
transaction was $10.5 million, or $1.24 per share. The sale proceeds
were applied to the Corporation's credit facilities. 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 pre-existing credit
facility, bearing interest at the same rate and was secured by the same
security package as the existing credit facility. The bridge facility
was fully repaid by October 31, 2000. The redemption necessitated a
make-whole payment to the noteholders of $1.2 million, which was
recorded as other expense in the first quarter of 2000. 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.
3. In January 1998, the Corporation, through its wholly-owned subsidiary,
Zemex Industrial Minerals, Inc., acquired a muscovite mica producer for
approximately $2.2 million, which included the assumption of debt. The
facilities acquired in the transaction are located in Bakersville,
North Carolina and are operating under the name Zemex Mica Corporation.
The acquisition was financed through borrowings on the Corporation's
credit facility. The acquisition was accounted for using the purchase
method of accounting and, accordingly, the purchase price was allocated
first to the assets purchased and liabilities assumed, and the excess
purchase price was allocated to intangible assets. The net purchase
price was allocated as follows:
Tangible assets acquired $ 614,000
Liabilities assumed (1,542,000)
Intangible assets acquired 2,934,000
-----------
Cash consideration $ 2,006,000
===========
11
14
The Plant was designed to use available by-product mica from the
surrounding area as feed augmented by mined material. Due to a
significant reduction of by-product feed availability, more mined
material had to be used. The mined material has not been of the quality
and consistency desired resulting in the inability to produce high
quality, consistent product and causing higher than acceptable costs.
Therefore, this plant was placed on care and maintenance effective
December 31, 2000 as management reassessed the process and markets. A
write-down of goodwill of $2.2 million, a provision for asset
impairment of $2.0 million and a provision for care and maintenance
costs were recorded as provision for asset impairment in 2000.
4. On February 24, 1998, Industria Mineraria Fabi S.r.l. ("Fabi") became a
partner in the Corporation's talc facility located in Benwood, West
Virginia by acquiring a 40% interest in a new limited liability
company, Zemex Fabi-Benwood, LLC. As part of the transaction, Fabi paid
$3.4 million and provided access to its technology. On March 20, 2001,
the Corporation sold its interest in the Zemex Fabi-Benwood, LLC and
its Natural Bridge, New York talc processing plant to Fabi for $7.5
million. A pre-tax gain of $0.5 million will be recognized in the first
quarter of 2001.
5. Effective June 1, 1998, Alumitech, Inc. ("Alumitech"), a wholly-owned
subsidiary of the Corporation, acquired all of the issued and
outstanding shares of S&R Enterprises, Inc. ("S&R"), an aluminum dross
processor located in Wabash, Indiana, for approximately $7.7 million,
which included the assumption of debt. At the beginning of 1999, this
entity was renamed Alumitech of Wabash, Inc. The Corporation used its
credit facility to finance the acquisition. The acquisition of S&R was
accounted for using the purchase method of accounting and, accordingly,
the purchase price was allocated first to the assets purchased and
liabilities assumed, and the excess purchase price was allocated to
intangible assets. The net purchase price was allocated as follows:
Tangible assets acquired $ 4,845,000
Liabilities assumed (2,849,000)
Intangible assets acquired 3,561,000
-----------
Cash consideration $ 5,557,000
===========
6. During the second quarter of 1998, the Corporation attempted to acquire
control of Inmet Mining Corporation ("Inmet"). Approximately 4.1
million shares of Inmet were purchased and financed by the
Corporation's credit facilities, as amended (see Liquidity and Capital
Resources). Subsequently, the acquisition was abandoned and the
Corporation sold approximately 2.6 million common shares of Inmet for
proceeds of approximately C$14.9 million. In 1998 the Corporation
recorded a foreign exchange loss of $0.7 million in other income
(expense) as a result of a decline in the value of its Canadian dollar
investment in Inmet. At December 31, 1999, the Corporation marked its
investment to market and recorded a loss of $0.5 million. In February
2000 the residual position was sold at book value.
12
15
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 2000 COMPARED TO YEAR ENDED DECEMBER 31, 1999
NET SALES
2000 1999 Change % Change
------------ ------------ ----------- --------
Industrial minerals $ 51,422,000 $ 50,373,000 $ 1,049,000 2.1%
Aluminum recycling 25,058,000 27,157,000 (2,099,000) (7.7%)
------------ ------------ ----------- ----
$ 76,480,000 $ 77,530,000 $(1,050,000) (1.4%)
============ ============ =========== ====
The Corporation's net sales from continuing operations for 2000 were $76.5
million, a decrease of $1.1 million, or 1.4%, from 1999. Sales in the industrial
minerals group increased $1.0 million, offset by a $2.1 million decrease
incurred by the aluminum recycling group.
The industrial minerals group recorded a 2.1% increase in sales from $50.4
million in 1999 to $51.4 million in 2000. The increase was primarily due to an
increase of $1.5 million in revenue generated from talc sales offset by a
decrease of $0.7 million from the feldspar operation.
Net sales of the aluminum recycling group decreased 7.7%, or $2.1 million, from
$27.2 million in 1999 to $25.1 million in 2000. The decrease was mainly due to
lower sales revenues generated from metal sales and tolling services in 2000.
The decline in sales was mainly attributable to lower levels of production owing
to a shortage of feedstock. The depressed nature of the secondary aluminum
industry resulted in lower levels of production and a decrease in the generation
of dross and saltcake.
COST OF GOODS SOLD
Compared to 1999, costs of goods sold increased by 9.7%, or $4.9 million, to
$55.7 million in 2000. Of the $4.9 million increase, the industrial minerals
group and the aluminum recycling group accounted for $3.1 million and $1.8
million, respectively. The increase in the industrial minerals group was mainly
due to the change in mining program between years. Industrial minerals group
recognized a $2.6 million benefit in fiscal 1999 when the feedstock for low iron
sand was produced and inventoried. In 2000 due to the operation of a different
quarry no such material was produced which had the effect of increasing the cost
of the other products produced. In 2001, the Corporation will again produce low
iron sand feedstock for inventory and enjoy a corresponding benefit. During
2000, the Corporation's muscovite mica operation in Bakersville, North Carolina
generated an operating loss of $1.5 million. This facility has been placed on
care and maintenance.
Cost of goods sold in the aluminum recycling group increased notwithstanding a
decrease in the sales level. The decrease in the volume of dross and saltcake
produced by the secondary aluminum industry resulted in higher prices for
feedstock and lower amounts of contained metal. Additionally, the calcium
aluminate operation generated losses of $1.5 million in 2000. This operation has
been terminated and the related assets written down to salvage value.
As for the reasons noted above, the corresponding gross margins were down from
34.5% in 1999 to 27.2% in 2000.
13
16
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative ("SG&A") expenses for 2000 were $12.4
million, effectively unchanged from 1999. As a percentage of sales, SG&A expense
increased from 15.9% in 1999 to 16.2% in 2000.
DEPRECIATION, DEPLETION AND AMORTIZATION
Depreciation, depletion and amortization increased by $0.4 million, or 5.4%,
from $7.4 million in 1999 to $7.8 million in 2000. This increase resulted from
the capital expenditures made by the Corporation over the past several years.
INCOME BEFORE THE UNDERNOTED
For the reasons discussed above, income before the undernoted decreased to $0.6
million for fiscal 2000 from $7.0 million in fiscal 1999. Prospectively, the
year 2000 losses of $1.5 million generated by each of Zemex Mica Corporation and
the calcium aluminate operation will not be repeated as both facilities have
been closed. Additionally the Spruce Pine, North Carolina operation is
producing, for inventory, low iron sand feedstock. This will also have a
positive impact on earnings.
PROVISION FOR ASSET IMPAIRMENT
For several years the aluminum recycling group has focused on developing and
implementing a "closed-loop" process for reprocessing aluminum dross and
saltcake. While the ability to produce commercial quantities of various products
was achieved, the combination of production difficulties, a depressed steel
industry and lower prices for competitive products resulted in an inability to
operate the closed-loop process economically. In 2000, this operation generated
a loss of $1.5 million. In 1999, most of the operating losses were deferred as
start-up costs for the Canadian GAAP purposes. In late 2000 management decided
to permanently close the non-metallic product ("NMP") facility and accordingly
recognized a write-down of approximately $17.6 million representing the related
patent costs, plant and equipment and an accrual for site restoration expenses.
Zemex Mica Corporation's ("ZMC") muscovite mica processing facility located in
Bakersville, North Carolina was placed on care and maintenance effective
December 31, 2000. When this facility was acquired and retrofitted, the intent
was to process by-product mica, in part produced by a local operation. While ZMC
was in the start-up phase, the local operation closed down thus depriving ZMC of
the necessary feedstock. In 2000, this business generated a loss of $1.5 million
(1999 -- $2.1 million). As the Corporation has been unable, in the short term,
to replace the feedstock, management decided to place the facility on care and
maintenance and curtail operations. Accordingly $5.2 million was written-off
representing goodwill, a provision for asset impairment of plant and equipment
and miscellaneous other expenses.
During 2000 the Corporation attempted to purchase certain assets of Hecla Mining
Company known as K-T Clay. Due to the inability of Hecla to satisfy conditions
precedent to closing the agreement was terminated. Approximately $1.5 million in
expenses for banking, legal and due diligence were written-off.
14
17
INTEREST INCOME
Interest income for the year ended December 31, 2000 was $0.2 million, virtually
unchanged from the corresponding period in 1999.
INTEREST EXPENSE
Interest expense for the year ended December 31, 2000 was $2.4 million, $1.9
million, or 44.8%, lower than the same period in 1999. The decrease was
primarily due to the sale of metal powders division in April 2000, the proceeds
from which were applied to pay down the Corporation's credit facilities. Total
indebtedness was $17.9 million as of December 31, 2000, compared to $56.6
million as of December 31, 1999.
OTHER EXPENSE
In 2000, the Corporation recognized other expense of $3.0 million compared to
$0.5 million in 1999. The increase was mainly due to the redemption of Senior
Secured Notes in the first quarter of 2000. The redemption was necessitated by
the sale of the metal powders group in April 2000. The expenses incurred
included $1.2 million in make-whole payments to the noteholders, $0.3 million in
expenses and $1.7 million in deferred financing expenses written-off.
(RECOVERY OF) PROVISION FOR INCOME TAXES
The Corporation recognized an income tax benefit of $10.0 million from
continuing operations in fiscal 2000 as compared to $0.6 million tax provision
recorded in fiscal 1999.
DISCONTINUED OPERATIONS
Income from discontinued operations was $11.4 million in 2000 compared to $3.9
million in 1999. In fiscal 2000, the Corporation recorded a $10.5 million
after-tax gain from the sale of the metal powders division. The discontinued
operation generated after-tax income of $0.9 million from operations prior the
sale and from a curtailment gain arising from the pension plan. The 1999 figures
included a full year of operations.
NET (LOSS) INCOME AND (LOSS) EARNINGS PER SHARE BEFORE DISCONTINUED OPERATIONS
As a result of the factors discussed above, the Corporation recorded a net loss
from continuing operations for the year ended December 31, 2000 of $19.4
million, compared to net income of $1.8 million in 1999.
2000 1999
------------ -----------
Net (loss) income before discontinued operations $(19,356,000) $ 1,847,000
(Loss) earnings per share - basic $(2.29) $0.22
- fully diluted $(2.29) $0.20
15
18
YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31, 1998
NET SALES
1999 1998 Change % Change
------------ ------------ ----------- --------
Industrial minerals $ 50,373,000 $ 44,835,000 $ 5,538,000 12.4%
Aluminum recycling 27,157,000 23,503,000 3,654,000 15.6%
------------ ------------ ----------- ----
$ 77,530,000 $ 68,338,000 $ 9,192,000 13.5%
============ ============ =========== ====
The Corporation's net sales from continuing operations for 1999 were $77.5
million, an increase of $9.2 million, or 13.5%, from 1998. Sales in the
industrial minerals group and the aluminum recycling group increased $5.5
million and $3.7 million, respectively.
The industrial minerals group recorded a 12.4% increase in sales from $44.8
million in 1998 to $50.4 million in 1999. The increase was primarily due to a
$3.3 million increase from the mica group generated by an increase in sales
volume of 55.6%. Approximately two-thirds of this increase came from the
recently retrofitted muscovite mica operations in Bakersville, North Carolina.
Talc sales rose by 12.8% and feldspar sales increased by 2.9% during 1999.
Net sales of the aluminum recycling group increased 15.6%, or $3.6 million, from
$23.5 million in 1998 to $27.2 million in 1999. Of the increase, approximately
$3.9 million was due to increased sales from Alumitech of Wabash, Inc. This
operation was acquired in June 1998 and the 1999 numbers included a full year of
operations.
COST OF GOODS SOLD
Costs of goods sold were $46.8 million in 1998 compared to $50.8 million in
1999. The corresponding gross margins were 31.5% for 1998 and 34.5% for 1999.
The largest component of the increase came from the industrial minerals group
where the gross margin increased from 32.1% to 36.1% as a result of the
utilization of a specific feldspar quarry.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative ("SG&A") expenses increased 24.1% from $9.9
million in 1998 to $12.3 million in 1999. As a percentage of sales, SG&A expense
was 15.9% in 1999 as compared to 14.6% in 1998. The increase was partially due
to the relocation of the industrial minerals group's administration function
from Spruce Pine, North Carolina to Atlanta, Georgia, increased SG&A for the new
mica operation, higher staffing levels in the management of the aluminum
recycling group and a significant increase in the cost of the defined benefit
pension plans. During 1999 the Corporation recognized pension expense of $0.7
million while the surplus, defined as the excess of the fair value of the plan
assets over the benefit obligation, contained within the plans increased by $2.1
million.
DEPRECIATION, DEPLETION AND AMORTIZATION
Depreciation, depletion and amortization increased by $2.0 million, or 38.3%,
from $5.4 million in 1998 to $7.4 million in 1999. This increase was driven by
the capital expenditures and acquisitions made by the Corporation over the past
several years.
16
19
INCOME BEFORE THE UNDERNOTED
For the reasons discussed above, income before the undernoted increased from
$6.2 million for fiscal 1998 to $7.0 million in fiscal 1999, representing a
13.1% increase.
INTEREST INCOME
Interest income for the year ended December 31, 1999 was $0.2 million, a slight
decrease from the same period in 1998.
INTEREST EXPENSE
Interest expense for the year ended December 31, 1999 was $4.3 million, an
increase of $1.9 million over 1998. Total indebtedness increased by $25.9
million in 1998 and by a further $5.1 million in 1999.
OTHER EXPENSE
In 1999, the Corporation recognized other expense of $0.5 million compared to
$0.8 million in 1998.
PROVISION FOR INCOME TAXES
The provision for income taxes for each of the 1999 and 1998 fiscal years was
$0.6 million.
DISCONTINUED OPERATIONS
Income from discontinued operations increased from $2.7 million for fiscal 1998
to $3.9 million in fiscal 1999.
NET INCOME AND EARNINGS PER SHARE BEFORE DISCONTINUED OPERATIONS
As a result of the factors discussed above and given that all interest expense
is reflected at the corporate level, net income from continuing operations for
the year ended December 31, 1999 was $1.8 million, a decrease of $0.8 million
from 1998.
1999 1998
----------- -----------
Net income before discontinued operations $ 1,847,000 $ 2,652,000
Earnings per share - basic $0.22 $0.32
- fully diluted $0.20 $0.30
17
20
LIQUIDITY AND CAPITAL RESOURCES
The Corporation has historically funded its extraction and processing activities
through cash flow from operations, bank debt and sales of capital stock and
warrants. During the most recent three-year period ended December 31, 2000, the
Corporation funded all capital expenditures, acquisitions and debt reduction
from a combination of additional debt, cash flow from operations and sale of
operations. Should it be necessary, the Corporation will have increased
borrowing ability to fund capital expenditures and acquisitions going forward.
Cash Flow From Operations
The Corporation had $4.8 million of working capital at December 31, 2000,
compared to $27.6 million at December 31, 1999. The decrease in working capital
was primarily due to the increase in bank indebtedness of $11.6 million, and a
combined decrease in accounts receivable and inventory of $9.6 million. The bank
indebtedness increased when the $50.0 million in Secured Notes were redeemed.
The total debt obligations decreased from $56.6 million as at December 31, 1999
to $17.9 million as at December 31, 2000. The decrease in accounts receivable
and inventories was due to the sale of the metal powders business.
During 2000, the Corporation used cash flow from operations of $0.3 million as
compared to $8.5 million cash that was generated in 1999. This change was mainly
due to a decline in operating cash flow for the reasons discussed earlier. In
2000, non-cash working capital items generated $1.1 million versus $5.5 million
of cash used in 1999.
Financing Agreements
In May 1999, the Corporation completed a private placement of two series of
notes: $35 million in 7.54% Senior Secured Notes, Series A, due May 15, 2009 and
$15 million in 7.76% Senior Secured Notes, Series B, due May 15, 2014. The
proceeds of the Senior Secured Notes were used to retire the Corporation's old
credit facilities. In conjunction with the Secured Notes, the Corporation
entered into a credit agreement with a bank that provided for a senior secured
revolving credit facility in the amount of $20 million (the "Credit Facility").
The noteholders and the bank were secured pari-passu by a pledge of shares of
the Corporation's subsidiaries and a floating charge on the assets of the
subsidiaries. The revolving credit facility bears interest at LIBOR plus 1.625%
to LIBOR plus 1.875% in the case of LIBOR loans or at base rate plus 0.625% to
0.875% in the case of prime and base rate loans. The actual margin is determined
by certain financial ratios. The term of the revolver, which was originally 364
days, was extended to May 18, 2001 subsequent to December 31, 1999.
In March 2000, in connection with the sale of the metal powders group, the
Corporation redeemed the Senior Secured Notes by drawing down on a $50 million
bridge facility (the "Bridge Facility"). The Bridge Facility bore interest at
the same rate as the Credit Facility and was secured by the same security
package. The Bridge Facility was fully repaid by October 31, 2000. The
make-whole fee associated with the redemption of the Senior Secured Notes
amounted to $1.2 million that was recorded in the first quarter of 2000. The
Corporation paid out an additional amount of $0.3 million in related expenses
and $1.7 million in deferred financing expenses related to the issuance of the
Senior Secured Notes that were written-off as other expense in the same period
of 2000.
18
21
Capital Expenditures
The Corporation's primary capital investment activities involve the acquisition
and development of industrial mineral and metal processing properties and
facilities, and capital investments to expand its facilities, increase operating
efficiencies, and meet environmental, health and safety standards at its
existing operations. During 2000, capital expenditures from continuing and
discontinued operations were $4.4 million compared to $13.8 million and $20.7
million for the years ended December 31, 1999 and 1998, respectively. The
capital expenditures were funded by cash flow from operations and indebtedness.
In aggregate, 2001 capital expenditures for continuing operations are
anticipated to be approximately $4.8 million. The Corporation plans on funding
these expenditures from cash flows from operations.
Although the Corporation's capital budgets provide for certain reclamation and
environmental compliance activities, management does not believe that the cost
of the Corporation's environmental compliance will have a material adverse
effect on the Corporation's results of operations or financial condition in
2001.
SEASONALITY AND INFLATION
Although the Corporation's results from continuing extraction and processing
operations are cyclical due to fluctuations in industrial minerals and aluminum
recycling demands, sales of the Corporation's products are generally not
seasonal. Inflation in recent years has not adversely affected the Corporation's
results of operations and is not expected to adversely affect the Corporation in
the future unless it grows substantially and the markets for industrial minerals
and aluminum recycling suffer from a negative impact on the economy in general.
ITEM 7A. 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. Prices and
interest rates are such that management believes 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.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Financial statements responsive to this Item are set forth on pages F-1 through
F-31 of this Annual Report on Form 10-K. The Supplementary Schedule required by
this Item is set forth on page S-1 of this Annual Report on Form 10-K. See Item
14.
19
22
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
20
23
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information about the directors of the Corporation required by this item is
located in the Corporation's Proxy Statement for the 2001 Annual Meeting to be
filed within 120 days after the end of the fiscal year*. Information about the
Executive Officers of the Corporation required by this item appears in Part I,
Item 1, Page 6, of this Annual Report on Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item appears in the Corporation's Proxy
Statement for the 2001 Annual Meeting to be filed within 120 days after the end
of the fiscal year.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The information required by this item appears in the Corporation's Proxy
Statement for the 2001 Annual Meeting to be filed within 120 days after the end
of the fiscal year.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item appears in the Corporation's Proxy
Statement for the 2001 Annual Meeting to be filed within 120 days after the end
of the fiscal year.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES,
AND REPORTS ON FORM 8-K
1. Financial statements and independent auditors' report filed as part of
this report:
(a) Consolidated Balance Sheets at December 31, 2000 and 1999,
which information is found on page F-4 of this report;
(b) Consolidated Statements of Shareholders' Equity for the three
years ended December 31, 2000, which information is found on
page F-5 of this report;
(c) Consolidated Statements of Operations for the three years
ended December 31, 2000, which information is found on page
F-3 of this report;
(d) Consolidated Statements of Cash Flows for the three years
ended December 31, 2000, which information is found on page
F-6 of this report; and
- ----------
* References in this Annual Report on Form 10-K to material contained in
the Corporation's proxy statement for the 2001 annual meeting to be
filed within 120 days after the fiscal year incorporate such material
into this report by reference.
21
24
(e) Notes to the Consolidated Financial Statements, which
information is found on pages F-7 to F-31 of this report.
2. Financial statement schedules and independent auditors' report filed as
part of this report:
SCHEDULE NUMBER DESCRIPTION
Schedule II Valuation and Qualifying Accounts and Reserves (page S-1)
All other financial statements and schedules not listed have been omitted since
the required information is included in the consolidated financial statements or
the related notes thereto, or is not applicable or required.
3. EXHIBITS
(3)(a) Articles of Continuance (Incorporated by reference from Exhibit 3.1 of
the Corporation's Registration Statement on Form S-4, Registration No.
333-65307, which was declared effective on December 10, 1998)
(3)(b) Articles of Amendment to the Articles of Continuance (Incorporated by
reference from Exhibit 3.2 of the Corporation's Registration Statement
on Form S-4, Registration No. 333-65307, which was declared effective
on December 10, 1998)
(3)(c) By-Law No. 1 (Incorporated by reference from Exhibit 3.3 of the
Corporation's Registration Statement on Form S-4, Registration No.
333-65307, which was declared effective on December 10, 1998)
(4)(a) Credit Agreement dated as of May 21, 1999 among Zemex Corporation and
Zemex U.S. Corporation, Bank of America Canada, Bank of America
National Trust and Savings Association et al.
(4)(b) Amendment No. 1 dated September 24, 1999 to the Credit Agreement dated
as of May 21, 1999 among Zemex Corporation and Zemex U.S. Corporation,
Bank of America Canada, Bank of America National Trust and Savings
Association et al.
(4)(c) Amendment No. 2 dated March 7, 2000 to the Credit Agreement dated as
of May 21, 1999 among Zemex Corporation and Zemex U.S. Corporation,
Bank of America Canada, Bank of America National Trust and Savings
Association et al.
(4)(d) Zemex U.S. Corporation, Note Purchase Agreement Dated as of May 21,
1999 (Incorporated by reference from Exhibit (4)(r) of the
Corporations Form 10-Q filed on August 9, 1999)
(10)(a)* Key Executive Common Stock Purchase Plan (Incorporated by reference
from Exhibit (10)(b) of the Corporation's Annual Report on Form 10-K
filed March 31, 1991)
(10)(b) Consent to Assignment of Lease and to Agreement Sublease, and
permission to Make Payments dated November 7, 1978 each from Joberta
Enterprises, Inc. to NL Industries, Inc. and The Feldspar Corporation
(Incorporated by reference from Exhibit 10(pp) to the Corporation's
Registration Statement on Form S-2, Registration No. 33-7774, filed on
August 5, 1986)
22
25
(10)(c)* Subscription Agreement with Richard L. Lister dated November 26, 1991
(Incorporated by reference from Exhibit (5)(a) of the Corporation's
Annual Report on Form 10-K filed March 31, 1992)
(10)(d) 1995 Stock Option Plan (Incorporated by reference from Exhibit B of
the Corporation's 1995 Definitive Proxy Statement, filed on March 29,
1995)
(10)(e) Suzorite Mica Product Inc.'s Mining Lease dated August 25, 1975
between the Province of Quebec and Marietta Resources International
Ltd. (Incorporated by reference from Exhibit 10(av) of the
Corporation's Annual Report on Form 10-K filed March 31, 1994)
(10)(f) Employee Stock Purchase Plan (Incorporated by reference as Exhibit A
to the Corporation's Proxy Statement filed May 6, 1994)
(10)(g) 1999 Stock Option Plan (Incorporated by reference from Exhibit A of
the Corporation's 1999 Definitive Proxy Statement, filed on March 25,
1999)
(10)(h) 1999 Employee Stock Purchase Plan (Incorporated by reference as
Exhibit B to the Corporation's Proxy Statement filed March 25, 1999)
(10)(i) Stock Purchase Agreement by and between North American Hoganas
Holdings, Inc. and Zemex U.S. Corporation, Pyron Corporation and Pyron
Metal Powders, Inc. dated as of March 6, 2000 (Incorporated by
reference from the Corporation's Current Report on Form 8-K dated
March 8, 2000 and filed on March 9, 2000)
(10)(j)* Agreement between Zemex Corporation and Richard L. Lister dated as of
the 1st day of October 1999.
(10)(k)* Agreement between Zemex Corporation and Allen J. Palmiere dated as of
the 1st day of October 1999.
(10)(l)* Agreement between Zemex Corporation and Peter J. Goodwin dated as of
the 1st day of October 1999.
(10)(m)* Agreement between Zemex Corporation and Terrance J. Hogan dated as of
the 1st day of October 1999.
(21) Subsidiaries of the Registrant
(23) Consent of Deloitte & Touche LLP
(27) Financial Data Schedule
* Management contract or compensatory plan or arrangement.
23
26
INDEPENDENT AUDITORS' REPORT
To the Shareholders of Zemex Corporation
We have audited the consolidated financial statements of Zemex Corporation as at
December 31, 2000 and 1999, and for each of the three years in the period ended
December 31, 2000, and have issued our report thereon dated February 2, 2001,
except as to note 19 which is as of March 20, 2001, included elsewhere in this
Annual Report on Form 10-K. Our audits also included the financial statement
schedule included on page S-1 of this Annual Report on Form 10-K. This financial
statement schedule is the responsibility of the Corporation's management. Our
responsibility is to express an opinion based on our audits. In our opinion,
such financial statement schedule, when considered in relation to the basic
financial statements taken as a whole, presents fairly in all material respects
the information set forth therein.
/s/ DELOITTE & TOUCHE LLP
Deloitte & Touche LLP
Chartered Accountants
Toronto, Canada
February 2, 2001 except as to note 19 which is as of March 20, 2001
24
27
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
ZEMEX CORPORATION
By:/s/ RICHARD L. LISTER
--------------------------------
Dated: March 27, 2001 Richard L. Lister
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
is signed below by the following persons on behalf of the registrant and in the
capacities and on the date indicated:
SIGNATURE TITLE DATE
- --------- ----- ----
/s/ PETER LAWSON-JOHNSTON Chairman of the Board March 27, 2001
- ------------------------- and Director
Peter Lawson-Johnston
/s/ RICHARD L. LISTER President and Chief Executive March 27, 2001
- ------------------------- Officer and Director
Richard L. Lister (Principal Executive Officer)
/s/ PAUL A. CARROLL Director March 27, 2001
- -------------------------
Paul A. Carroll
/s/ MORTON A. COHEN Director March 27, 2001
- -------------------------
Morton A. Cohen
/s/ JOHN M. DONOVAN Director March 27, 2001
- -------------------------
John M. Donovan
/s/ R. PETER GILLIN Director March 27, 2001
- -------------------------
R. Peter Gillin
25
28
SIGNATURE TITLE DATE
- --------- ----- ----
/s/ GARTH A.C. MACRAE Director March 27, 2001
- ----------------------------
Garth A.C. MacRae
/s/ WILLIAM J. VANDEN HEUVEL Director March 27, 2001
- ----------------------------
William J. vanden Heuvel
/s/ ALLEN J. PALMIERE Vice President, Chief Financial March 27, 2001
- ---------------------------- Officer and Corporate Secretary
Allen J. Palmiere (Principal Financial and
Accounting Officer)
26
29
LIST OF EXHIBITS
EXHIBIT 21 Subsidiaries of the Registrant
EXHIBIT 23 Consent of Deloitte & Touche LLP
27
30
AUDITORS' REPORT
To the Shareholders of Zemex Corporation
We have audited the consolidated balance sheets of Zemex Corporation as at
December 31, 2000 and 1999 and the consolidated statements of operations,
shareholders' equity and cash flows for each of the years in the three year
period ended December 31, 2000. These financial statements are the
responsibility of the Corporation's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
With respect to the consolidated financial statements for the year ended
December 31, 2000, we conducted our audit in accordance with Canadian generally
accepted auditing standards and United States generally accepted auditing
standards. With respect to the consolidated financial statements for each of the
years in the two year period ended December 31, 1999, we conducted our audits in
accordance with Canadian generally accepted auditing standards. Those standards
require that we plan and perform an audit to obtain reasonable assurance whether
the financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, these consolidated financial statements present fairly, in all
material respects, the financial position of the Corporation as at December 31,
2000 and 1999 and the results of its operations and its cash flows for each of
the years in the three year period ended December 31, 2000 in accordance with
Canadian generally accepted accounting principles.
/s/ DELOITTE & TOUCHE LLP
Deloitte & Touche LLP
Chartered Accountants
Toronto, Ontario
February 2, 2001 except as to note 19 which is as of March 20, 2001
F-1
31
MANAGEMENT'S REPORT
The management of Zemex Corporation and its subsidiaries has the responsibility
for preparing the consolidated financial statements presented in this annual
report and for their accuracy and integrity. The statements have been prepared
in conformity with generally accepted accounting principles in Canada, and
include informed judgments and estimates as required. Other financial
information in this annual report is consistent with the financial statements.
Zemex Corporation's system of internal controls is designed to provide
reasonable assurance, at a justifiable cost, as to the reliability of financial
records and reporting and the protection of assets. This system includes
organizational arrangements with clearly defined lines of responsibility.
Deloitte & Touche LLP, independent auditors, have audited the consolidated
financial statements of Zemex Corporation and their opinion is included on the
preceding page.
Zemex Corporation has formal standards of corporate conduct and policies
regarding high standards of ethics and financial integrity. These policies have
been disseminated to appropriate employees and internal control procedures
provide reasonable assurance that violations of these policies, if any, are
detected.
/s/ ALLEN J. PALMIERE /s/ RICHARD L. LISTER
Allen J. Palmiere Richard L. Lister
Vice President, Chief Financial Officer President and Chief Executive Officer
and Corporate Secretary
AUDIT COMMITTEE REPORT
The audit committee of the board of directors is currently composed of three
independent directors, John M. Donovan, Garth A.C. MacRae and William J. vanden
Heuvel. The audit committee held four meetings during 2000.
The audit committee oversees the financial reporting process of the Corporation
on behalf of the board of directors. In fulfilling its responsibility, the
committee recommended to the board of directors, subject to shareholder
approval, the selection of the Corporation's independent auditors. The audit
committee met with management and representatives of the auditors, Deloitte &
Touche LLP, to review accounting, auditing and financial reporting matters. The
committee met with Deloitte & Touche LLP representatives without management
present.
/s/ JOHN M. DONOVAN
John M. Donovan
Chairman, Audit Committee
F-2
32
CONSOLIDATED STATEMENTS OF OPERATIONS
(All amounts are in U.S. dollars)
Years ended December 31 2000 1999 1998
- ----------------------- ------------ ------------ ------------
NET SALES $ 76,480,000 $ 77,530,000 $ 68,338,000
------------ ------------ ------------
COSTS AND EXPENSES
Cost of goods sold 55,683,000 50,776,000 46,842,000
Selling, general and administrative 12,394,000 12,337,000 9,941,000
Depreciation, depletion and amortization 7,801,000 7,402,000 5,353,000
------------ ------------ ------------
75,878,000 70,515,000 62,136,000
------------ ------------ ------------
INCOME BEFORE THE UNDERNOTED 602,000 7,015,000 6,202,000
Provision for asset impairment (note 6) (24,552,000) -- --
Interest income 155,000 151,000 202,000
Interest expense (note 4) (2,386,000) (4,325,000) (2,384,000)
Other, net (note 9) (3,017,000) (522,000) (840,000)
------------ ------------ ------------
(LOSS) INCOME BEFORE (RECOVERY OF) PROVISION FOR
INCOME TAXES AND NON-CONTROLLING INTEREST (29,198,000) 2,319,000 3,180,000
(Recovery of) provision for income taxes (note 7) (9,961,000) 577,000 569,000
Non-controlling interest in earnings (loss)
of subsidiary (note 2) 119,000 (105,000) (41,000)
------------ ------------ ------------
(LOSS) INCOME BEFORE DISCONTINUED OPERATIONS (19,356,000) 1,847,000 2,652,000
INCOME FROM DISCONTINUED OPERATIONS (note 11) 11,385,000 3,934,000 2,713,000
------------ ------------ ------------
NET (LOSS) INCOME $ (7,971,000) $ 5,781,000 $ 5,365,000
------------ ------------ ------------
NET (LOSS) INCOME PER SHARE
BASIC
Continuing operations $ (2.29) $ 0.22 $ 0.32
Discontinued operations $ 1.35 0.47 0.33
------- ------ ------
$ (0.94) $ 0.69 $ 0.65
------- ------ ------
FULLY DILUTED
Continuing operations $ (2.29) $ 0.20 $ 0.30
Discontinued operations $ 1.31 $ 0.43 $ 0.30
------- ------ ------
$ (0.98) $ 0.63 $ 0.60
------- ------ ------
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING
Basic 8,466,988 8,425,561 8,286,178
Fully diluted 8,723,988 9,827,201 9,757,727
------------ ------------ ------------
Prepared in accordance with Canadian GAAP
See notes to the consolidated financial statements
F-3
33
CONSOLIDATED BALANCE SHEETS (note 11)
(All amounts are in U.S. dollars)
December 31 2000 1999
- ----------- ------------- -------------
ASSETS
CURRENT ASSETS
Cash $ 2,175,000 $ 1,592,000
Accounts receivable
(less allowance for doubtful accounts
of $166,000 at December 31, 2000 and
$349,000 at December 31, 1999)
(note 15) 12,850,000 19,829,000
Inventories (note 3) 16,844,000 19,482,000
Prepaid expenses and other current assets 530,000 2,457,000
Income taxes receivable 120,000 --
Future income tax benefits (note 7) 21,000 677,000
------------- -------------
32,540,000 44,037,000
PROPERTY, PLANT AND EQUIPMENT
(notes 4 and 9) 65,846,000 96,779,000
OTHER ASSETS (notes 5 and 17) 7,153,000 18,228,000
FUTURE INCOME TAX BENEFITS (NON-CURRENT)
(note 7) 8,040,000 1,935,000
------------- -------------
$ 113,579,000 $ 160,979,000
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Bank indebtedness (note 9) $ 17,145,000 $ 5,500,000
Accounts payable 5,618,000 5,959,000
Accrued liabilities 4,412,000 3,398,000
Income taxes payable -- 950,000
Current portion of long term debt (note 9) 534,000 617,000
------------- -------------
27,709,000 16,424,000
LONG TERM DEBT (note 9) 261,000 50,502,000
OTHER NON-CURRENT LIABILITIES 683,000 585,000
FUTURE INCOME TAX OBLIGATIONS (note 7) 1,656,000 1,451,000
------------- -------------
30,309,000 68,962,000
------------- -------------
NON-CONTROLLING INTEREST 3,367,000 2,970,000
------------- -------------
SHAREHOLDERS' EQUITY
Common stock (note 10) 57,212,000 58,560,000
Retained earnings 25,958,000 33,920,000
Note receivable from shareholder (note 10) (1,259,000) (1,749,000)
Cumulative translation adjustment (2,008,000) (1,684,000)
------------- -------------
79,903,000 89,047,000
------------- -------------
$ 113,579,000 $ 160,979,000
============= =============
Prepared in accordance with Canadian GAAP
See notes to the consolidated financial statements
Approved by the Board of Directors
/s/ JOHN M. DONOVAN /s/ GARTH A.C. MACRAE
-------------------------- --------------------------
Director Director
F-4
34
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(All amounts are in U.S. dollars)
Note
Receivable Cumulative
Paid-In Retained From Translation Treasury
Common Stock Capital Earnings Shareholder Adjustment Stock Total
------------ ------------ ------------ ----------- ----------- ----------- ------------
Balance at December 31, 1997 .. $ 9,204,000 $ 53,465,000 $ 24,068,000 $(1,749,000) $(1,588,000) $(6,865,000) $ 76,535,000
Stock issued under ESPP,
net(a)(b) .................. 112,000 776,000 -- -- -- -- 888,000
Stock dividend(a) ............. 170,000 1,008,000 (1,182,000) -- -- -- (4,000)
Stock options exercised(a) .... 27,000 186,000 -- -- -- -- 213,000
Stock purchased for treasury(a) -- -- -- -- -- (499,000) (499,000)
Stock options repurchased ..... -- -- (18,000) -- -- -- (18,000)
Cancellation of treasury stock (805,000) (6,559,000) -- -- -- 7,364,000 --
Net income for the year ....... -- -- 5,365,000 -- -- -- 5,365,000
Translation adjustment ........ -- -- -- -- (582,000) -- (582,000)
------------ ------------ ------------ ----------- ----------- ----------- ------------
Balance at December 31, 1998 .. 8,708,000 48,876,000 28,233,000 (1,749,000) (2,170,000) -- 81,898,000
Reclassification of paid-in
capital to stated capital
on reincorporation(c) ...... 48,876,000 (48,876,000) -- -- -- -- --
Stock issued under ESPP,
net(a)(b)................... 972,000 -- -- -- -- -- 972,000
Stock options exercised(a) .... 77,000 -- -- -- -- -- 77,000
Stock purchased for treasury(a) -- -- -- -- -- (73,000) (73,000)
Stock options repurchased ..... -- -- (94,000) -- -- -- (94,000)
Cancellation of treasury stock (73,000) -- -- -- -- 73,000 --
Net income for the year ....... -- -- 5,781,000 -- -- -- 5,781,000
Translation adjustment ........ -- -- -- -- 486,000 -- 486,000
------------ ------------ ------------ ----------- ----------- ----------- ------------
Balance at December 31, 1999 .. 58,560,000 -- 33,920,000 (1,749,000) (1,684,000) -- 89,047,000
Stock issued under ESPP,
net(a)(b) .................. 514,000 -- -- -- -- -- 514,000
Stock purchased for treasury(a) -- -- -- -- -- (1,862,000) (1,862,000)
Stock options repurchased ..... -- -- 9,000 -- -- -- 9,000
Cancellation of treasury stock (1,862,000) -- -- -- -- 1,862,000 --
Net (loss) for the year ....... -- -- (7,971,000) -- -- -- (7,971,000)
Translation adjustment ........ -- -- -- -- (324,000) -- (324,000)
Repayment made by shareholder . -- -- -- 490,000 -- -- 490,000
------------ ------------ ------------ ----------- ----------- ----------- ------------
Balance at December 31, 2000 .. $ 57,212,000 $ -- $ 25,958,000 $(1,259,000) $(2,008,000) $ -- $ 79,903,000
============ ============ ============ =========== =========== =========== ============
Prepared in accordance with Canadian GAAP
See notes to the consolidated financial statements
(a) See note 10
(b) Employee stock purchase plan ("ESPP")
(c) See basis of preparation
F-5
35
CONSOLIDATED STATEMENTS OF CASH FLOWS (note 11)
(All amounts are in U.S. dollars)
Years ended December 31 2000 1999 1998
- ----------------------- ------------ ------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) income $ (7,971,000) $ 5,781,000 $ 5,365,000
Adjustments to reconcile net (loss) income to net cash flows
from operating activities
Depreciation, depletion and amortization 8,181,000 8,860,000 6,561,000
Amortization of and write-off of deferred financing costs 1,759,000 249,000 168,000
Provision for asset impairment 24,246,000 -- --
Increase in future income tax benefits (5,244,000) (413,000) (909,000)
Non-controlling interest in subsidiary earnings (loss) 119,000 (105,000) (41,000)
(Gain) loss on sale of property, plant and equipment (263,000) 358,000 19,000
Gain on sale of discontinued operations (15,718,000) -- --
Increase in other assets (6,560,000) (277,000) (795,000)
Increase (decrease) in other non-current liabilities 98,000 (421,000) (191,000)
Changes in non-cash working capital items(a) 1,054,000 (5,517,000) (5,536,000)
------------ ------------ ------------
Net cash (used in) provided by operating activities (299,000) 8,515,000 4,641,000
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property, plant and equipment (4,436,000) (13,803,000) (20,728,000)
Proceeds from sale of discontinued operations 39,353,000 -- --
Proceeds from sale of securities(b) 5,134,000 554,000 9,696,000
Proceeds from sale of assets(b) 352,000 36,000 3,126,000
Acquisitions of securities(b) -- (837,000) (14,566,000)
Assets acquired in connection with acquisitions, net of
cash acquired(b) -- -- (7,468,000)
------------ ------------ ------------
Net cash provided by (used in) investing activities 40,403,000 (14,050,000) (29,940,000)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds (payments) net, on bank indebtedness 11,645,000 (4,500,000) 7,000,000
Proceeds from long term debt 519,000 50,733,000 21,572,000
Repayment of long term debt (50,783,000) (41,100,000) (4,921,000)
Issuance of common stock(c) 514,000 1,049,000 1,101,000
Purchase of common stock and options(c) (1,853,000) (167,000) (516,000)
Decrease in note receivable from shareholder 490,000 -- --
Cash paid in lieu of fractional shares -- -- (4,000)
------------ ------------ ------------
Net cash (used in) provided by financing activities (39,468,000) 6,015,000 24,232,000
------------ ------------ ------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH (53,000) 50,000 (60,000)
------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH 583,000 530,000 (1,127,000)
CASH AT BEGINNING OF YEAR 1,592,000 1,062,000 2,189,000
------------ ------------ ------------
CASH AT END OF YEAR $ 2,175,000 $ 1,592,000 $ 1,062,000
============ ============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Income taxes paid $ 1,519,000 $ 3,369,000 $ 2,658,000
Interest paid 2,705,000 3,969,000 2,957,000
------------ ------------ ------------
Prepared in accordance with Canadian GAAP
See notes to the consolidated financial statements
(a) See note 14
(b) See note 2
(c) See note 10
F-6
36
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
BASIS OF PREPARATION
On January 21, 1999, a reincorporation merger was completed, the effect of which
was to migrate Zemex Corporation from the United States to Canada. The
predecessor Zemex Corporation became a wholly-owned subsidiary of Zemex Canada
Corporation. Zemex Canada Corporation subsequently changed its name to Zemex
Corporation (the "Corporation"). As the Canadian parent had as its sole asset
the shares of the U.S. subsidiary, and this change in structure had no effect on
the ultimate ownership of the Corporation, these financial statements reflect
the results of operations, financial position and changes in cash flows of the
consolidated entities as though the new structure had been in place for all
periods presented.
On March 6, 2000, a wholly-owned subsidiary of Zemex Corporation entered into a
stock purchase agreement whereby a wholly-owned subsidiary of Hoganas AB agreed
to purchase 100% of the issued and outstanding shares of two of the
Corporation's subsidiaries, Pyron Corporation and Pyron Metal Powders, Inc. The
transaction was completed on April 11, 2000. Accordingly, these subsidiaries
have been reflected as discontinued operations and prior years have been
reclassified to reflect this disclosure (see note 11).
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The preparation of financial statements in conformity with Canadian generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates (see note
17). The significant accounting policies of Zemex Corporation and its
subsidiaries are as follows:
a. PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Zemex Corporation
and its subsidiaries. All intercompany transactions have been eliminated.
b. INVENTORIES
Inventories are stated at the lower of cost or net realizable value and are
computed using the average cost method. Materials and supplies are stated at
cost using the first-in, first-out or average cost method.
c. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are recorded at cost. Repairs and maintenance are
charged to expense as incurred. Expenditures for major renewals and improvements
are capitalized. When assets are sold or otherwise retired, the cost and
accumulated depreciation or depletion are removed from the accounts and any gain
or loss is included in results of operations. Provisions for depreciation are
based upon estimated useful lives, using the straight-line method. Depreciation
on newly constructed or purchased assets begins when the asset is placed into
production. Depletion of mining properties and depreciation of other mining
assets are computed using the unit-of-production method, except in the case of
the
F-7
37
Corporation's Canadian mica operation where the estimated reserves exceed the
expected production during the term of the mining lease. The mica mining lease
rights and deferred costs, including all preproduction and set-up costs, are
amortized using the straight-line method over the term of the mining lease.
The Corporation evaluates its long-lived assets for impairment whenever events
or changes in circumstances indicate that the carrying amount of such assets or
intangibles may not be recoverable. Recoverability of assets to be held and used
is measured by a comparison of the carrying amount of an asset to future
undiscounted net cash flows expected to be generated by the asset. If such
assets are considered to be impaired, the impairment to be recognized is
measured as the amount by which the carrying amount of the assets exceeds the
realizable value of the assets. Assets to be disposed of are reported at the
lower of the carrying amount or fair value less costs to sell.
d. POSTRETIREMENT BENEFITS
Pension Plans
Generally, the funding policy of the Corporation is to contribute annually at a
rate that is intended to provide for the cost of benefits earned during the year
and which will amortize prior service costs and experience gains and losses over
the average remaining service lives of the employee group.
Healthcare and Other Postretirement Benefits Other Than Pensions
The Corporation accounts for healthcare and other postretirement benefits other
than pensions by accruing for all such amounts during the years in which
employees render the necessary services to be entitled to receive such benefits.
The 2000, 1999 and 1998 amounts include the current year expense and the impact
of the transition liability, which is being amortized over a twenty year period
that began in 1993.
e. FOREIGN CURRENCY TRANSLATION
The functional currency for the Corporation's operations is the U.S. dollar.
Foreign currency assets and liabilities are translated using the exchange rates
in effect at the balance sheet date. The effect of exchange rate fluctuations on
translating foreign currency assets and liabilities into U.S. dollars is
accumulated as part of the cumulative translation adjustment component of
shareholders' equity. Results of operations and cash flows are translated using
the average exchange rates during the year. Gains and losses from foreign
currency transactions are included in net income (loss) for the year.
f. REVENUE RECOGNITION
Revenue is recognized when goods are shipped to customers. Consignment sales are
recognized when a customer draws the goods from inventory.
F-8
38
g. RESEARCH AND DEVELOPMENT EXPENSES
Research and development expenses are charged to earnings in the periods in
which they are incurred. Research and development expenses were $470,000,
$1,060,000 and $636,000 for the years ended December 31, 2000, 1999 and 1998,
respectively.
h. PROVISION FOR FUTURE RECLAMATION COSTS
Provisions for future reclamation costs have been established based upon
estimated future reclamation costs allocated over the expected productive lives
of the Corporation's quarries and mines.
i. INCOME TAXES
The Corporation early adopted CICA Handbook Section 3465, "Income Taxes" in
fiscal 1998. Section 3465 substantially mirrors the U.S. pronouncement, SFAS No.
109, "Accounting for Income Taxes". These pronouncements require income taxes to
be recognized during the year in which transactions enter into the determination
of financial statement income, with future income taxes being provided for
temporary differences between amounts of assets and liabilities for financial
reporting purposes and such amounts as measured by tax laws.
j. EARNINGS PER SHARE
The Corporation calculates basic earnings per share in accordance with Canadian
accounting principles, which are substantially in accordance with the U.S.
pronouncement, SFAS No. 128, "Earnings Per Share" (see note 18). Under these
standards, earnings per share are calculated based upon the weighted average
number of common shares outstanding. For the purpose of calculating earnings per
share, stock dividends are considered to be issued at the beginning of all
periods presented.
k. DEFERRED FINANCING COSTS
Costs associated with the issuance of long term debt are deferred, and are
amortized over the term of the debt on a straight-line basis which approximates
the effective interest rate yield method. The unamortized balance was included
in other assets (see note 9).
l. OTHER ASSETS
Other assets include patents, which are stated at cost and which are being
amortized over their remaining life on a straight-line basis. Intangible assets
are evaluated periodically and, if conditions warrant, an impairment charge is
provided.
F-9
39
m. GOODWILL
Goodwill represents the excess at the dates of acquisition of the costs over the
fair values of the net identifiable assets of subsidiaries, and is amortized on
a straight-line basis over its estimated useful life, up to a period of 15
years. The Corporation assesses the recoverability of goodwill at each balance
sheet date by determining whether the amortization of the balance over its
remaining useful life can be recovered through projected undiscounted future
operating cash flows.
n. STOCK-BASED COMPENSATION PLANS
The Corporation does not recognize compensation expense for its stock-based
compensation plans. Any consideration paid by employees on exercise of stock
options or purchase of stock is recorded as share capital. If stock is
repurchased from employees, the excess of the consideration paid over the stated
capital of the stock cancelled is charged to retained earnings.
2. ACQUISITIONS AND DISPOSITIONS
ACQUISITIONS
ACQUISITION OF ASPECT MINERALS, INC.
In January 1998, the Corporation, through its wholly-owned subsidiary, Zemex
Industrial Minerals, Inc., acquired all of the issued and outstanding shares of
Aspect Minerals, Inc., a muscovite mica processor, for approximately $2.2
million, which included the assumption of debt. The two facilities acquired in
the transaction are located in the Spruce Pine, North Carolina area and are
operating under the name Zemex Mica Corporation ("ZMC"). The acquisition was
financed through borrowings on the Corporation's credit facility. The
acquisition of ZMC was accounted for using the purchase method of accounting
and, accordingly, the purchase price was allocated first to the tangible assets
purchased and liabilities assumed and the excess purchase price was allocated to
goodwill. The net purchase price was allocated as follows:
Tangible assets acquired $ 614,000
Liabilities assumed (1,542,000)
Goodwill 2,934,000
-----------
Cash consideration $ 2,006,000
===========
As at December 31, 2000, this facility was placed on care and maintenance (see
note 6).
F-10
40
ACQUISITION OF S&R ENTERPRISES, INC.
Effective June 1, 1998, Alumitech, Inc., a wholly-owned subsidiary of the
Corporation, acquired all of the issued and outstanding shares of S&R
Enterprises, Inc. ("S&R") for approximately $7.7 million, which included the
assumption of debt. S&R which has been renamed to Alumitech of Wabash, Inc., is
an aluminum dross processor located in Wabash, Indiana. The Corporation used its
credit facility to finance the acquisition. The acquisition of S&R was accounted
for using the purchase method of accounting and, accordingly, the purchase price
was allocated first to the tangible assets purchased and liabilities assumed and
the excess purchase price was allocated to goodwill. The net purchase price was
allocated as follows:
Tangible assets acquired $ 4,845,000
Liabilities assumed (2,849,000)
Goodwill 3,561,000
-----------
Cash consideration $ 5,557,000
===========
INVESTMENT IN INMET MINING CORPORATION
During the second quarter of 1998, the Corporation initiated an attempted
acquisition of control of Inmet Mining Corporation ("Inmet"). Approximately 4.1
million shares of Inmet were acquired. The purchase was financed by the
Corporation's credit facilities, as amended. Subsequently, the acquisition was
abandoned and the Corporation sold, pursuant to an issuer bid, approximately 2.6
million common shares of Inmet for proceeds of approximately Cdn$14.9 million.
No gain or loss was recognized on the transaction. The Corporation recorded a
foreign exchange loss in 1998 of $0.7 million in other income (expense) as a
result of a decline in the value of the Canadian dollar. At December 31, 1999,
the investment was written down by $0.5 million to the amount realized when the
investment was sold in February 2000.
DISPOSITIONS
SALE OF INTEREST IN BENWOOD FACILITY
On February 24, 1998, Industria Mineraria Fabi S.r.1. ("Fabi") became an
investor in the Corporation's talc facility located in Benwood, West Virginia by
acquiring a 40% interest in a new limited liability company, Zemex Fabi-Benwood,
LLC. As part of the transaction, Fabi paid $3.4 million and provided access to
its technology. Suzorite Minerals Products, Inc., a wholly-owned subsidiary of
the Corporation, managed the entity pursuant to an operating agreement. There
was no gain or loss recognized on the transaction (see note 19).
F-11
41
SALE OF METAL POWDERS DIVISION
On April 11, 2000, the Corporation disposed of its interest in the metal powders
division, which consisted of Pyron Corporation and Pyron Metal Powders, Inc. by
way of a sale to North American Hoganas Holdings, Inc., a subsidiary of Hoganas
AB. The Corporation recognized a pre-tax gain of $15.7 million in fiscal 2000.
The after-tax gain was $10.5 million, or $1.24 per share. The metal powders
division has been disclosed as a discontinued operation and the prior period
figures have been reclassified accordingly (see note 11).
3. INVENTORIES
2000 1999
------------ ------------
ORE, RAW MATERIALS, WORK IN PROCESS AND FINISHED PRODUCTS
Industrial minerals $ 12,217,000 $ 11,080,000
Aluminum recycling 533,000 717,000
Metal powders -- 2,483,000
------------ ------------
12,750,000 14,280,000
------------ ------------
MATERIALS AND SUPPLIES
Industrial minerals 4,094,000 4,093,000
Metal powders -- 1,109,000
------------ ------------
4,094,000 5,202,000
------------ ------------
$ 16,844,000 $ 19,482,000
============ ============
4. PROPERTY, PLANT AND EQUIPMENT
Effective Life 2000 1999
-------------- ------------- -------------
Land $ 6,971,000 $ 7,336,000
Mining properties and deferred costs 9,253,000 11,845,000
Buildings 30 - 40 years 18,857,000 25,882,000
Machinery and equipment 3 - 20 years 68,717,000 86,475,000
Construction in progress 876,000 13,604,000
------------- -------------
Total property, plant and equipment, at cost 104,674,000 145,142,000
Less: Accumulated depreciation & amortization (38,828,000) (48,363,000)
------------- -------------
NET PROPERTY, PLANT AND EQUIPMENT $ 65,846,000 $ 96,779,000
============= =============
F-12
42
The major components of the net change in property, plant and equipment are as
follows:
Net property, plant and equipment at December 31, 1999 $ 96,779,000
Sale of metal powders division (note 11) (14,576,000)
Aluminum recycling asset impairment (11,445,000)
Industrial minerals' asset impairment (1,700,000)
Depreciation and depletion (7,309,000)
Capital additions 4,436,000
Capital dispositions (68,000)
Translation adjustment (271,000)
------------
Net property, plant and equipment at December 31, 2000 $ 65,846,000
============
As at December 31, 2000, the Corporation estimates that approximately $150,000
will be expended to complete its construction in progress (December 31, 1999,
$2,069,000). During 2000, the Corporation did not capitalize any interest
relating to capital projects (1999, $119,000).
5. OTHER ASSETS
2000 1999
----------- ------------
Goodwill, net
(accumulated amortization of $620,000 at
December 31, 2000 and $568,000 at
December 31, 1999) $ 2,941,000 $ 5,582,000
Prepaid pension cost (note 8) 1,162,000 890,000
Investments 414,000 4,085,000
Deferred reorganization 243,000 273,000
Patents, net 19,000 5,162,000
Other (note 17) 2,374,000 476,000
Deferred financing costs -- 1,760,000
----------- ------------
$ 7,153,000 $ 18,228,000
=========== ============
F-13
43
6. PROVISION FOR ASSET IMPAIRMENT
In 2000, the Corporation provided for the following:
Aluminum recycling (a)
Property, plant and equipment $ 11,445,000
Patents 4,640,000
Site restoration costs 1,500,000
Industrial minerals (b)
Goodwill 2,244,000
Property, plant and equipment 1,700,000
Other 1,258,000
Corporate (c)
Acquisition and disposition costs 1,765,000
------------
$ 24,552,000
============
(a) For the past several years, the Corporation's subsidiary Alumitech has
invested significant time and capital in the development of a proprietary
technology for the processing of aluminum dross and saltcake. While the
technology has been proven and a competitive product produced, a
combination of a poor economic environment for secondary aluminum, a
depressed steel industry and low land-fill prices has resulted in an
inability to make the process economically viable. Accordingly, the
Corporation has fully provided for a permanent asset impairment and written
off the assets to estimated salvage value, and written off all costs
associated with the process.
(b) In 1998 (see note 2), the Corporation purchased 100% of the shares of
Aspect Minerals, Inc. The plant was rebuilt and expanded and the product
line increased. Shortly before the commissioning phase a major source of
raw material feedstock closed down. The Corporation has been unsuccessful
in locating an alternate source of acceptable feedstock, and has had to
rely on higher quantities of mined material which has been inconsistent in
nature. Accordingly, the Corporation has placed this facility on care and
maintenance and based on estimated future cash flows established a
provision for permanent asset impairment.
(c) During 2000, the Corporation incurred significant costs in evaluating and
pursuing various alternatives to maximize shareholder value. In addition,
the Corporation incurred significant legal, banking, environmental and
other due diligence costs associated with the attempted purchase of K-T
Clay Company from Hecla Mining Company (see note 17).
F-14
44
7. INCOME TAXES
The (recovery of) provision for income taxes consists of the following
components:
2000 1999 1998
------------ ------------ ------------
Total pre-tax (loss) income from continuing operations $(29,198,000) $ 2,319,000 $ 3,180,000
------------ ------------ ------------
Current tax provision
Canadian $ 744,000 $ 1,508,000 $ 557,000
Federal U.S. (4,868,000) (376,000) 550,000
State and local U.S. 32,000 131,000 179,000
------------ ------------ ------------
TOTAL (4,092,000) 1,263,000 1,286,000
------------ ------------ ------------
Future tax provision
Canadian 202,000 (428,000) --
Federal U.S. (4,840,000) (68,000) (637,000)
State and local U.S. (1,231,000) (190,000) (80,000)
------------ ------------ ------------
TOTAL (5,869,000) (686,000) (717,000)
------------ ------------ ------------
(RECOVERY OF) PROVISION FOR INCOME TAXES $ (9,961,000) $ 577,000 $ 569,000
============ ============ ============
The following tabulation reconciles the Canadian income tax rate to the
effective income tax rate.
2000 1999 1998
----- ----- -----
% % %
Statutory federal rate (37.2) 38.2 38.2
Unrecognized benefit of losses 0.6 -- --
Mining taxes 1.0 23.7 5.3
Resource allowance (1.1) (9.0) (5.5)
Difference in U.S. tax rates 3.4 (30.5) (23.9)
Other (0.8) 2.5 1.7
------ ------ ------
EFFECTIVE INCOME TAX RATE (34.1) 24.9 15.8
====== ====== ======
Future income taxes reflect the net tax effects of temporary differences between
the carrying amounts of assets and liabilities for financial reporting purposes
and the amounts used for income tax purposes. As of December 31, 2000, the
Corporation had unused tax benefits of $374,000 related to Canadian net
operating losses. For the fiscal years ended December 31, 2000 and 1999, the
Corporation had unused tax benefits of $9,502,000 and $10,161,000, respectively,
related to U.S. federal and state net operating loss and tax credit
carryforwards. Significant components of the Corporation's future tax benefits
and obligations as of December 31 are as follows (dollars in thousands):
F-15
45
2000 1999
-------------------------------- -------------------------------
CANADA U.S. TOTAL Canada U.S. Total
-------- -------- -------- ------- -------- --------
FUTURE TAX BENEFITS
Net operating loss and tax
credit carryforwards $ 374 $ 9,502 $ 9,876 $ -- $ 10,161 $ 10,161
Accrued expenses and reserves -- 1,829 1,829 -- 895 895
Bad debt allowances -- 54 54 -- 113 113
Inventories -- -- -- -- 311 311
Other -- 411 411 -- 408 408
-------- -------- -------- -------- -------- --------
GROSS FUTURE TAX BENEFITS 374 11,796 12,170 -- 11,888 11,888
Valuation allowance (374) (1,115) (1,489) -- (1,129) (1,129)
-------- -------- -------- -------- -------- --------
NET FUTURE TAX BENEFITS -- 10,681 10,681 -- 10,759 10,759
-------- -------- -------- -------- -------- --------
FUTURE TAX OBLIGATIONS
Property, plant and equipment 1,656 2,377 4,033 1,451 5,249 6,700
Inventories -- 35 35 -- -- --
Patents -- -- -- -- 1,343 1,343
Pension contributions -- 208 208 -- 235 235
Development costs -- -- -- -- 1,017 1,017
Other -- -- -- -- 303 303
-------- -------- -------- -------- -------- --------
TOTAL 1,656 2,620 4,276 1,451 8,147 9,598
-------- -------- -------- -------- -------- --------
NET FUTURE TAX (BENEFITS) OBLIGATIONS $ 1,656 $ (8,061) $ (6,405) $ 1,451 $ (2,612) $ (1,161)
======== ======== ======== ======== ======== ========
At December 31, 2000, the Corporation had approximately $1,006,000 of Canadian
net operating loss carryforwards which expire between 2006 and 2007. These
losses are not within the Canadian operating subsidiary and are not available to
offset operating income in Canada. No benefit has been recognized in respect of
these losses. At December 31, 2000, the Corporation had approximately
$11,650,000 of U.S. net operating loss carryforwards available to reduce future
taxable income, which will expire between 2002 and 2015. Additionally, the
Corporation has unused general business tax credits, which expire between 2001
and 2011, and alternative minimum tax credits. The Corporation also has U.S. net
operating losses and investment credit carryforwards; however, a valuation
allowance of $1,115,000 has been recognized to offset the related future tax
benefit due to the uncertainty of realizing the full benefit of the tax
attribute carryforward.
8. PENSION PLANS AND OTHER POSTRETIREMENT BENEFITS
PENSION PLANS
The Corporation has one non-contributory defined benefit pension plan covering
the majority of all U.S. resident employees. This plan provides pension benefits
that are based on the length of service and the compensation of the employee. As
at December 31, 1999, the Corporation had an additional pension plan associated
with the hourly employees of Pyron Corporation. As Pyron Corporation was sold in
2000, the December 31, 2000 balances exclude this plan. Accordingly, the
December 31, 1999 and 2000 balances are not directly comparable.
F-16
46
The following data is based upon reports from independent consulting actuaries
as at December 31:
Change in benefit obligation 2000 1999
- ---------------------------- ------------ ------------
Benefit obligation, beginning of year $ 13,877,000 $ 16,876,000
Service cost 409,000 725,000
Interest cost 961,000 1,104,000
Plan amendments -- 139,000
Actuarial loss (gain) 269,000 (2,343,000)
Benefits paid (708,000) (758,000)
Curtailment gain (561,000) --
------------ ------------
Benefit obligation, end of year $ 14,247,000 $ 15,743,000
============ ============
Change in fair value of plan assets 2000 1999
- ----------------------------------- ------------ ------------
Fair value, beginning of year $ 16,955,000 $ 17,591,000
Actual return on plan assets (543,000) 1,447,000
Employer contribution -- 277,000
Benefits paid (708,000) (758,000)
------------ ------------
Fair value, end of year $ 15,704,000 $ 18,557,000
============ ============
Net periodic pension expense included the following components:
2000 1999 1998
----------- ----------- -----------
Current service cost $ 409,000 $ 725,000 $ 532,000
Interest cost on projected
benefit obligation 961,000 1,104,000 1,015,000
Expected return on assets (1,134,000) (1,166,000) (1,175,000)
Net amortization (5,000) 41,000 (93,000)
----------- ----------- -----------
Net pension expense $ 231,000 $ 704,000 $ 279,000
=========== =========== ===========
Assumptions:
2000 1999 1998
------ ------ ------
% % %
Weighted average discount rate 7.25 7.75 6.50
Expected long term rate of return 8.75 8.75 8.75
Increase in level of compensation 4.0 4.0 4.0
Weighted average health care cost trend rate 7.5 8.0 8.5
Weighted average ultimate health care
cost trend rate 5.0 5.0 5.0
------ ------ ------
Year in which ultimate health care cost trend
rate will be achieved 2005 2005 2005
------ ------ ------
F-17
47
The status of the plans and the amounts recognized in the consolidated balance
sheets of the Corporation for its pension plans as of December 31, 2000 and 1999
are tabulated below:
2000 1999
------------ ------------
Projected benefit obligation $(14,247,000) $(15,743,000)
Plan assets at fair value 15,704,000 18,557,000
------------ ------------
Plan assets in excess of projected benefit obligation 1,457,000 2,814,000
Unrecognized net (gain) (417,000) (2,304,000)
Prior service cost not yet recognized in net
periodic pension expense 122,000 380,000
------------ ------------
Prepaid pension cost included in consolidated balance sheets $ 1,162,000 $ 890,000
============ ============
OTHER POSTRETIREMENT BENEFITS
The Corporation provides healthcare and life insurance benefits for certain
retired employees, which are accrued as earned (see note 1). The cost of such
benefits was $56,000 in 2000, $52,000 in 1999 and $52,000 in 1998. The
accumulated postretirement benefit obligation as at December 31, 2000 was
$360,000 (1999, $405,000).
Assumed health care cost trend rates have a significant effect on the amounts
reported for health care plans. A one-percentage point change in assumed health
care cost trend rates would have the following effects:
1% Increase 1% Decrease
----------- -----------
Effect on accumulated postretirement benefit obligation $ 40,285 $(35,037)
Effect on aggregate of the service and interest cost-components 4,402 (3,749)
-------- --------
9. LONG TERM DEBT AND BANK INDEBTEDNESS
2000 1999
----------- ------------
Capital leases (a) $ 688,000 $ 1,019,000
Other 107,000 100,000
Senior secured notes (b) -- 50,000,000
----------- ------------
TOTAL LONG TERM DEBT 795,000 51,119,000
Less: Current portion 534,000 617,000
----------- ------------
LONG TERM DEBT $ 261,000 $ 50,502,000
=========== ============
F-18
48
(a) The Corporation has long term capital lease agreements at various rates and
for various terms with maturities ranging from 2001 to 2005 for equipment
used in its operations. The carrying value of the leased equipment as of
December 31, 2000 and 1999 was $967,000 and $1,298,000, respectively. The
current obligation under the long term lease agreements is $476,000 (1999,
$569,000).
(b) In May 1999, the Corporation entered into note purchase agreements with
private investors whereby the Corporation issued $35,000,000, 7.54% Senior
Secured Notes, Series A, due May 15, 2009 and $15,000,000, 7.76% Senior
Secured Notes, Series B, due May 15, 2014. The Corporation redeemed its
outstanding Senior Secured Notes in March 2000 as a result of the
disposition of the metal powders division. The Corporation paid out
$1,485,000 related to this redemption transaction, of which $1,152,000 was
paid to the noteholders as a make-whole payment and $333,000 as related
transaction expenses. Also $1,730,000 in deferred financing expenses
related to the issuance of the Senior Secured Notes was written off in the
same period. The total $3,215,000 was recorded as an expense in other, net.
During 2000, the Corporation entered a U$50,000,000 bridge loan in order to
facilitate the redemption of the note. The bridge loan, which bore the same
interest rate and was secured by same security package as the existing
credit facility, was fully repaid by October 31, 2000.
(c) Additionally during 1999, the Corporation entered into a 364-day,
$20,000,000 revolving credit facility. The Senior Secured Notes and the
credit facility rank pari-passu with respect to security. The obligations
are secured by a pledge of subsidiary shares and a floating charge on the
assets of the subsidiaries. Advances under the revolving credit facility as
at December 31, 2000 and 1999 were $17,145,000 and $5,500,000,
respectively. The revolving credit facility bears interest at LIBOR plus
1.625% to LIBOR plus 1.875% in the case of LIBOR loans or at base rate plus
0.625% to 0.875% in the case of prime and base rate loans. The actual
margin is determined by certain financial ratios. The term of the revolver,
which was originally 364 days, was extended to May 18, 2001 subsequent to
December 31, 1999.
Principal repayments required in respect of long term debt are as follows:
2001 $ 534,000
2002 194,000
2003 44,000
2004 13,000
2005 10,000
Thereafter --
---------
$ 795,000
=========
F-19
49
10. COMMON SHARES AND STOCK OPTIONS
SHARES OUTSTANDING
As at December 31, 2000 and 1999, the authorized capital stock of the
Corporation consisted of an unlimited number of first preference shares without
par value and an unlimited number of common shares without par value. There were
8,697,822 common shares issued and outstanding as of December 31, 2000 and
8,873,453 common shares issued and outstanding as of December 31, 1999.
During 2000, 1999 and 1998, 117,000, 172,000 and 131,000 common shares,
respectively, were issued pursuant to the Corporation's employee stock purchase
plan for an aggregate cost of $906,000, $1,145,000 and $1,045,000, respectively.
As part of a stock repurchase program in 2000, the Corporation purchased 242,000
common shares for an aggregate cost of $1,862,000, 10,000 common shares in 1999
for an aggregate cost of $73,000, and 60,000 common shares in 1998 for an
aggregate cost of $499,000.
DIVIDENDS
On October 2, 1998, the Corporation declared a 2% stock dividend to shareholders
of record on October 19, 1998, which was paid November 2, 1998. Retained
earnings was charged $1,182,000 as a result of the issuance of 169,988 of the
Corporation's common shares, and cash payments of $4,000 in lieu of fractional
shares.
STOCK OPTIONS
The Corporation provides stock option incentive plans and has, with shareholder
approval, issued options to certain directors outside of the plans. The plans
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.
F-20
50
The following is a summary of option transactions under the Corporation's stock
option plans:
2000 1999 1998
---------------------------- -------------------------- ---------------------------
WEIGHTED-AVERAGE WEIGHTED-AVERAGE WEIGHTED-AVERAGE
EXERCISE EXERCISE EXERCISE
OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE
----------- ---------------- ---------- ---------------- --------- ----------------
Options outstanding at
beginning of year 1,163,150 $ 8.11 1,247,650 $ 7.90 942,750 $ 7.32
Options granted during year 85,000 8.06 295,650 6.31 357,000 9.41
Options exercised during the year (4,000) 7.25 (5,000) 7.00 (26,600) 5.42
Options cancelled during the year (67,000) 8.84 (375,150) 6.14 (25,500) 8.07
----------- ------ ----------- ------ ------------ ------
Options outstanding at end of year 1,177,150 $ 8.17 1,163,150 $ 8.11 1,247,650 $ 7.90
Options exercisable at end of year 947,200 695,250 746,650
----------- ------ ----------- ------ ------------ ------
Price range of options granted
during the year $ 7.56-8.19 $ 6.26-7.50 $ 6.50-10.19
----------- ----------- ------------
The options expire from 2001 to 2010.
The following table summarizes information about the stock options outstanding
at December 31, 2000:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
-------------------------------------------------------- --------------------------------------
RANGE OF NUMBER WEIGHTED-AVERAGE WEIGHTED-AVERAGE NUMBER WEIGHTED-AVERAGE
EXERCISE OUTSTANDING AT REMAINING EXERCISE EXERCISABLE AT EXERCISE
PRICES DECEMBER 31, 2000 CONTRACTUAL LIFE PRICE DECEMBER 31, 2000 PRICE
- ------ ----------------- ---------------- ---------------- ----------------- ----------------
$ 6.00 TO $ 6.99 312,650 7.55 YEARS $ 6.30 172,700 $ 6.32
$ 7.00 TO $ 7.99 266,500 2.76 YEARS 7.37 236,500 7.35
$ 8.00 TO $ 8.99 85,500 7.08 YEARS 8.32 25,500 8.63
$ 9.00 TO $ 9.99 263,000 0.33 YEARS 9.21 263,000 9.21
$ 10.00 TO $ 10.99 249,500 2.87 YEARS 10.17 249,500 10.17
--------- -------
$ 6.00 TO $ 10.99 1,177,150 947,200
========= =======
NOTE RECEIVABLE FROM SHAREHOLDER
The note receivable from shareholder of $1,259,000 (1999, $1,749,000) represents
amounts due from the Corporation's President and Chief Executive Officer
pursuant to the Key Executive Common Stock Purchase Plan. The note, which was
used to acquire shares of common stock of the Corporation, is non-interest
bearing and secured by a pledge of most of the shares acquired. The terms were
amended in 2000 and the note is now due on the earlier of December 31, 2001 or
30 days after the termination of employment. Since the note arose from the sale
of treasury stock, it is classified as a reduction of shareholders' equity.
F-21
51
11. DISCONTINUED OPERATIONS
On April 11, 2000, the Corporation completed the sale of its metal powders
division for gross proceeds of $42.0 million. The metal powders division
included the Corporation's wholly-owned subsidiaries, Pyron Corporation and
Pyron Metal Powders, Inc. The Corporation recognized a pre-tax gain of $15.7
million in fiscal 2000 (see note 2).
Income from discontinued operations included in the Corporation's consolidated
statements of operations were as follows:
Year ended December 31 2000 1999 1998
------------ ------------ ------------
Net sales $ 10,733,000 $ 38,980,000 $ 35,556,000
Income before income taxes 1,470,000 5,974,000 3,857,000
Provision for income taxes 565,000 2,040,000 1,144,000
Gain on sale of discontinued operations 10,480,000 -- --
Income from discontinued operations 11,385,000 3,934,000 2,713,000
------------ ------------ ------------
Cash provided by (used in) discontinued operations included in the Corporation's
consolidated statements of cash flows was as follows:
Year ended December 31 2000 1999 1998
----------- ----------- -----------
Operating activities $ 2,546,000 $ 5,778,000 $ 4,065,000
Investing activities (161,000) (1,626,000) (2,113,000)
Financing activities (10,000) (4,489,000) (1,747,000)
----------- ----------- -----------
Cash provided by (used in) discontinued operations $ 2,375,000 $ (337,000) $ 205,000
=========== =========== ===========
The assets and liabilities of discontinued operations included in the
Corporation's consolidated balance sheets were as follows:
December 31 2000 1999
------ ------------
Current assets $ -- $ 11,161,000
Property, plant and equipment -- 14,796,000
Other assets -- 32,000
Future income tax benefits (non-current) -- (1,486,000)
------ ------------
-- 24,503,000
Current liabilities -- 4,137,000
Other non-current liabilities -- 39,000
------ ------------
Net assets $ -- $ 20,327,000
====== ============
F-22
52
12. OPERATING LEASES AND OTHER COMMITMENTS
OPERATING LEASES
The Corporation has a number of operating lease agreements primarily involving
equipment, office space, warehouse facilities and rail sidings. The operating
leases for equipment provide that the Corporation may, after the initial lease
term, renew the lease for successive yearly periods or may purchase the
equipment at its fair market value. An operating lease for office facilities
contains escalation clauses for increases in operating costs and property taxes.
The majority of the leases are cancellable and are renewable on a yearly basis.
Future minimum lease payments required by operating leases that have initial or
remaining non-cancellable lease terms in excess of one year as of December 31,
2000 are as follows:
Years Minimum Lease Payments
- ----- ----------------------
2001 $ 883,000
2002 717,000
2003 511,000
2004 350,000
2005 178,000
Thereafter 1,146,000
-----------
Total minimum lease payments $ 3,785,000
===========
Rent expense was $1,186,000, $1,183,000 and $569,000 in 2000, 1999 and 1998,
respectively.
13. FINANCIAL INSTRUMENTS
Financial instruments, which potentially subject the Corporation to
concentrations of credit risk consist principally of trade receivables.
Concentrations of credit risk with respect to trade receivables are limited due
to the large number of customers comprising the Corporation's customer base and
their dispersion across a number of different industries, principally
construction, glass, electrical and automotive. The Corporation exposures to
interest rate risk is limited to interest on bank indebtedness and long term
debt.
Financial instruments comprise cash, accounts receivable, short term bank
borrowings, accounts payable, accrued liabilities, and long term debt. The fair
value of these financial instruments approximates their carrying value
reflecting: (i) the proximity to market rates of the interest obligations on the
debt instruments; and (ii) the limited durations of all of the other
instruments.
F-23
53
14. CHANGES IN NON-CASH WORKING CAPITAL
The changes in non-cash working capital items are as follows:
2000 1999 1998
----------- ------------- ------------
Decrease (increase) in
accounts receivable $ 673,000 $ (2,187,000) $ (476,000)
Increase in inventories (1,300,000) (1,446,000) (173,000)
Decrease (increase) in prepaid
expenses and other current
assets 897,000 (483,000) (120,000)
Increase (decrease) increase in
accounts payable and accrued
liabilities 1,820,000 (1,707,000) (4,177,000)
Decrease (increase) in income
taxes payable and receivable (1,036,000) 306,000 (590,000)
----------- ------------- ------------
$ 1,054,000 $ (5,517,000) $ (5,536,000)
=========== ============= ============
15. RELATED PARTY TRANSACTIONS
As at December 31, 2000 and 1999, accounts receivable included amounts due from
directors and one officer of $50,000 and $65,000, respectively. These amounts
are non-interest bearing, with no fixed terms of repayment and are secured by
common shares of the Corporation.
During 1998, a director became indebted to the Corporation in the amount of
$124,000. At December 31, 2000, $118,000 remained outstanding and is included in
accounts receivable (1999, $116,000). This obligation is secured by common
shares of the Corporation and bears interest at the Corporation's cost of
borrowing (8.0% at December 31, 2000, 7.6% at December 31, 1999).
16. SEGMENT INFORMATION
The Corporation's continuing operations now comprise two principal lines of
business and are organized into two operating units based on its product lines:
(i) industrial minerals, and (ii) aluminum recycling. Industrial mineral
products include feldspar, kaolin, mica, talc, baryte, feldspathic sand and
industrial sand. These products are marketed principally to the automotive,
housing, and ceramics industries in North America. They are produced from mines
and processing plants located near Edgar, Florida; Monticello, Georgia; Murphy,
North Carolina; Spruce Pine, North Carolina; Natural Bridge, New York; Van Horn,
Texas; Benwood, West Virginia; Boucherville, Quebec; and Suzor Township, Quebec.
Aluminum dross is recycled at plants in Cleveland, Ohio and Wabash, Indiana and
ceramic fiber products are fabricated at a plant in Macedonia, Ohio. Corporate
assets principally include cash, term deposits, and furniture and fixtures.
The accounting policies of the segments are the same as those described in note
1. Information pertaining to sales and (losses) earnings from continuing
operations and assets by business segment appears below:
F-24
54
INDUSTRIAL ALUMINUM
YEAR ENDED DECEMBER 31, 2000 CONSOLIDATED MINERALS RECYCLING CORPORATE
------------ ------------ ------------ -----------
NET SALES $ 76,480,000 $ 51,422,000 $ 25,058,000 $ --
DEPRECIATION, DEPLETION AND AMORTIZATION 7,801,000 4,578,000 2,614,000 609,000
INCOME (LOSS) BEFORE THE UNDERNOTED 602,000 5,698,000 (1,265,000) (3,831,000)
PROVISION FOR ASSET IMPAIRMENT (24,552,000) (5,202,000) (13,047,000) (6,303,000)
INTEREST INCOME 155,000 50,000 29,000 76,000
INTEREST EXPENSE (2,386,000) (95,000) (28,000) (2,263,000)
OTHER (EXPENSE) INCOME (3,017,000) (56,000) 24,000 (2,985,000)
(LOSS) INCOME BEFORE (RECOVERY OF) PROVISION FOR
INCOME TAXES AND NON-CONTROLLING INTEREST (29,198,000) 396,000 (14,287,000) (15,307,000)
(RECOVERY OF) PROVISION FOR INCOME TAXES (9,961,000) 934,000 -- (10,895,000)
NON-CONTROLLING INTEREST IN SUBSIDIARY EARNINGS 119,000 119,000 -- --
LOSS BEFORE DISCONTINUED OPERATIONS (19,356,000) (657,000) (14,287,000) (4,412,000)
INCOME FROM DISCONTINUED OPERATIONS 11,385,000 -- -- 10,480,000
NET (LOSS) INCOME (7,971,000) (657,000) (14,287,000) 6,068,000
------------ ------------ ------------ -----------
Industrial Aluminum
YEAR ENDED DECEMBER 31, 1999 Consolidated Minerals Recycling Corporate
------------ ------------ ------------ -----------
Net sales $ 77,530,000 $ 50,373,000 $ 27,157,000 $ --
Depreciation, depletion and amortization 7,402,000 4,380,000 2,416,000 606,000
Income (loss) before the undernoted 7,015,000 7,988,000 2,833,000 (3,806,000)
Interest income 151,000 47,000 43,000 61,000
Interest expense (4,325,000) (279,000) (63,000) (3,983,000)
Other (expense) income (522,000) (148,000) 32,000 (406,000)
Income (loss) before provision for (recovery of)
income taxes and non-controlling interest 2,319,000 7,608,000 2,845,000 (8,134,000)
Provision for (recovery of) income taxes 577,000 1,079,000 -- (502,000)
Non-controlling interest in loss of subsidiary (105,000) (105,000) -- --
Income (loss) before discontinued operations 1,847,000 6,634,000 2,845,000 (7,632,000)
Income from discontinued operations 3,934,000 -- -- --
Net income (loss) 5,781,000 6,634,000 2,845,000 (7,632,000)
------------ ------------ ------------ -----------
Industrial Aluminum
YEAR ENDED DECEMBER 31, 1998 Consolidated Minerals Recycling Corporate
------------ ------------ ------------ -----------
Net sales $ 68,338,000 $ 44,835,000 $ 23,503,000 $ --
Depreciation, depletion and amortization 5,353,000 3,536,000 1,384,000 433,000
Income (loss) before the undernoted 6,202,000 5,840,000 2,881,000 (2,519,000)
Interest income 202,000 -- 49,000 153,000
Interest expense (2,384,000) (60,000) (34,000) (2,290,000)
Other (expense) income (840,000) (106,000) 37,000 (771,000)
Income (loss) before income taxes and
non-controlling interest 3,180,000 5,674,000 2,933,000 (5,427,000)
Provision for income taxes 569,000 556,000 -- 13,000
Non-controlling interest in loss of subsidiary (41,000) (41,000) -- --
Income (loss) before discontinued operations 2,652,000 5,159,000 2,933,000 (5,440,000)
Income from discontinued operations 2,713,000 -- -- --
Net income (loss) 5,365,000 5,159,000 2,933,000 (5,440,000)
------------ ------------ ------------ -----------
F-25
55
INDUSTRIAL ALUMINUM DISCONTINUED
DECEMBER 31, 2000 CONSOLIDATED MINERALS RECYCLING CORPORATE OPERATIONS
------------ ------------ ------------ ------------ -------------
TOTAL ASSETS $113,579,000 $ 76,931,000 $ 23,055,000 $ 13,593,000 $ --
TOTAL CURRENT LIABILITIES 27,709,000 4,761,000 4,367,000 18,581,000 --
TOTAL LONG TERM LIABILITIES 2,600,000 2,144,000 139,000 317,000 --
TOTAL SHAREHOLDERS' EQUITY 79,903,000 -- -- 79,903,000 --
------------ ------------ ------------ ------------ -------------
Industrial Aluminum Discontinued
December 31, 1999 Consolidated Minerals Recycling Corporate Operations
------------ ------------ ------------ ------------ -------------
Total assets $160,979,000 $ 81,984,000 $ 37,167,000 $ 17,325,000 $ 24,503,000
Total current liabilities 16,424,000 4,943,000 2,794,000 4,550,000 4,137,000
Total long term liabilities 52,538,000 1,992,000 243,000 50,264,000 39,000
Total shareholders' equity 89,047,000 -- -- 89,047,000 --
------------ ------------ ------------ ------------ -------------
Industrial Aluminum Discontinued
December 31, 1998 Consolidated Minerals Recycling Corporate Operations
------------ ------------ ------------ ------------ -------------
Total assets $150,744,000 $ 75,982,000 $ 33,464,000 $ 16,709,000 $ 24,589,000
Total current liabilities 23,533,000 5,029,000 3,777,000 10,615,000 4,112,000
Total long term liabilities 42,238,000 2,913,000 678,000 36,044,000 2,603,000
Total shareholders' equity 81,898,000 -- -- 81,898,000 --
------------ ------------ ------------ ------------ -------------
INDUSTRIAL ALUMINUM DISCONTINUED
CONSOLIDATED MINERALS RECYCLING CORPORATE OPERATIONS
------------ ------------ ------------ ------------ -------------
2000
CAPITAL EXPENDITURES $ 4,436,000 $ 2,830,000 $ 1,375,000 $ 70,000 $ 161,000
1999
Capital expenditures $ 13,803,000 $ 7,104,000 $ 5,014,000 $ 41,000 $ 1,644,000
1998
Capital expenditures $ 20,728,000 $ 8,283,000 $ 10,124,000 $ 208,000 $ 2,113,000
------------ ------------ ------------ ------------ -------------
CANADA U.S.
----------------------------------- ----------------------------------------
2000 1999 1998 2000 1999 1998
--------- --------- --------- ----------- ----------- -----------
Capital expenditures $ 233,000 $ 619,000 $ 605,000 $ 4,203,000 $13,184,000 $20,123,000
Goodwill acquired -- -- -- -- -- 6,495,000
--------- --------- --------- ----------- ----------- -----------
The Corporation bases its geographic allocation upon the location of its sales
offices which are all domiciled in the United States.
F-26
56
17. CONTINGENCIES
The Corporation is involved in various legal actions in the normal course of
business. In the opinion of management, the aggregate amount of any potential
liability, for which provision has not already been established, is not expected
to have a material adverse effect on the Corporation's financial position or its
results of operations and cash flows.
On November 17, 2000, a subsidiary of the Corporation entered into a Stock
Purchase Agreement with Hecla Mining Company ("Hecla") whereby the Corporation
agreed to purchase, subject to certain conditions precedent, the shares of two
of Hecla's subsidiaries collectively known as K-T Clay. As specifically
permitted by the Stock Purchase Agreement, on January 15, 2001 the Corporation
notified Hecla of a number of conditions which resulted in Hecla's
representations and warranties being untrue and that such conditions were
reasonably expected to prevent consummation of the transaction in accordance
with the Agreement, thus resulting in Hecla being in default of the Agreement.
The Corporation advised Hecla that, based on those conditions, it intended to
terminate the Agreement and it did so formally on February 16, 2001. Despite
this, on January 22, 2001, Hecla filed an action in the United States District
Court, Northern District of Illinois, alleging breach of contract and seeking to
enforce performance and an award of damages. The Corporation is of the opinion
that Hecla's allegations are totally without merit and intends to defend its
position aggressively. No provision has been made in the financial statements
for any losses related to this lawsuit. Included in other assets is $2,000,000
which is held in an escrow account.
18. DIFFERENCES FROM UNITED STATES ACCOUNTING PRINCIPLES
These consolidated financial statements have been prepared in accordance with
accounting principles generally accepted in Canada. The differences between
Canadian and U.S. GAAP do not have a material effect on the Corporation's
reported financial position or net (loss) income except as follows:
a. STATEMENTS OF OPERATIONS
Under U.S. GAAP, the measure "income before the undernoted" is not a recognized
term and would therefore not be presented. Under U.S. GAAP, provision for asset
impairment would appear as a component of operating income.
The implementation of the American Institute of Certified Public Accountants
Statement of Position ("SOP") 98-5 requires that the costs of start-up
activities and organization costs be expensed as incurred. Canadian GAAP permits
the deferral of such costs.
Under U.S. GAAP, the provision for asset impairment for property, plant and
equipment should be based on discounted future cash flows from impaired
properties. Under Canadian GAAP, future cash flows from impaired properties are
not discounted. This difference in methodology did not have a material impact on
reported results of operations in prior years.
Under U.S. GAAP, certain costs associated with the redemption of the Senior
Secured Notes would be considered to be an extraordinary item and require
separate disclosure. The extraordinary item, net of tax, would have been an
expense of $2,096,000, or $0.25 per share.
F-27
57
For the purposes of calculating diluted earnings per share, U.S. GAAP requires
the application of the treasury stock method.
2000 1999 1998
------------- ------------ -----------
(Loss) income before discontinued
operations, as reported $ (19,356,000) $ 1,847,000 $ 2,652,000
Less: Start-up activities and
organization costs 2,784,000 (1,845,000) (1,255,000)
Provision for asset
impairment (1,439,000) -- --
Tax effect related thereto (468,000) 460,000 198,000
------------- ------------ -----------
(Loss) income before discontinued
operations (U.S. GAAP) $ (18,479,000) $ 462,000 $ 1,595,000
(Loss) income before discontinued
operations per share (U.S. GAAP)
Basic $(2.18) $ 0.05 $ 0.19
Diluted $(2.18) $ 0.05 $ 0.19
------------- ------------ -----------
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.
U.S. GAAP, SOP 98-5, requires that the costs of start-up activities and
organization costs be expensed as incurred. 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.
As discussed above, Canadian and U.S. GAAP differs as to the methodology applied
to determine the quantum of the asset impairment provision necessary.
2000 1999
---------------------------- ----------------------------
CANADIAN UNITED STATES Canadian United States
GAAP GAAP GAAP GAAP
------------ ------------- ------------ -------------
Property, plant
and equipment $ 65,846,000 $ 64,407,000 $ 96,779,000 $ 94,042,000
Other assets 7,153,000 6,878,000 18,228,000 17,907,000
Future income
tax benefits
(non-current) 8,040,000 8,230,000 1,935,000 2,394,000
Retained earnings 25,958,000 24,434,000 33,920,000 31,321,000
------------ ------------- ------------ -------------
F-28
58
c. STATEMENTS OF COMPREHENSIVE (LOSS) INCOME
U.S. GAAP requires a statement of comprehensive (loss) income as follows:
2000 1999 1998
------------ ----------- -----------
(Loss) income before
discontinued operations $(18,479,000) $ 462,000 $ 1,595,000
Change in foreign currency
translation adjustment, net of
tax (2000, $(113,000); 1999,
$121,000; 1998, $(92,000)) (211,000) 365,000 (490,000)
Change in unrealized holding
gains (losses) on
available-for-sale securities -- 934,000 (934,000)
------------ ----------- -----------
Comprehensive (loss) income $(18,690,000) $ 1,761,000 $ 171,000
============ =========== ===========
d. STOCK BASED COMPENSATION
The Corporation does not recognize compensation expense for its stock-based
compensation plans. Had compensation cost for the stock option plans been
determined based upon fair value at the grant date for awards under these plans
consistent with the methodology prescribed under SFAS No. 123, "Accounting for
Stock-Based Compensation", the Corporation's net (loss) income and (loss)
earnings per share would have been (increased) reduced by approximately $257,000
or $0.03 per share in 2000, $681,000 or $0.08 per share in 1999, and $1,267,000
or $0.15 per share in 1998. The fair value of the options granted during 2000,
1999 and 1998 is estimated to be $257,000, $681,000 and $1,267,000,
respectively. The fair value of each option grant is estimated on the date of
grant using the Black-Scholes option-pricing model with the following
weighted-average assumptions used for grants in 2000, 1999 and 1998: dividend
yield of 0%; expected volatility of 28%, 29% and 32%, respectively; risk-free
interest rates varying from 4.26% to 6.73%; and an expected life of 5 years.
e. RECENT ACCOUNTING PRONOUNCEMENTS
Beginning January 1, 2001, the Corporation will be adopting FASB Statement No.
133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS
133"), and the corresponding amendments under FASB Statement No. 138 ("SFAS
138"). SFAS 133 requires that all derivative financial instruments, be
recognized in the financial statements and measured at fair value regardless of
the purpose or intent for holding them. Changes in the fair value of all
derivative financial instruments are either recognized periodically in income or
shareholders' equity (as a component of comprehensive income), depending on
whether the derivative is being used in a designated hedging relationship and
whether it is a hedge of changes in fair value or cash flows. SFAS 138 amends
certain provisions of SFAS 133 to clarify four areas causing difficulties in
implementation.
As of January 1, 2001, the cumulative effect of adopting SFAS 133, as amended by
SFAS 138, is expected to not have a material impact on the Corporation's
consolidated results of operations, financial position, or cash flows.
F-29
59
19. SUBSEQUENT EVENTS
On March 20, 2001, the Corporation sold its 60% interest in Zemex Fabi-Benwood,
LLC and its' Natural Bridge, New York, talc processing plant for aggregate gross
proceeds of $7,500,000 subject to working capital adjustments. A pre-tax gain of
$500,000 will be recognized in the first quarter of 2001.
20. COMPARATIVE FIGURES
Certain of the comparative figures have been restated to comply with the current
year's presentation.
F-30
60
FINANCIAL DATA (UNAUDITED)
The following is a summary of certain unaudited quarterly financial data.
2000 1999
------------ ------------
NET SALES FROM CONTINUING OPERATIONS
First quarter $ 19,669,000 $ 18,586,000
Second quarter 21,101,000 19,752,000
Third quarter 18,447,000 20,115,000
Fourth quarter 17,263,000 19,077,000
------------ ------------
$ 76,480,000 $ 77,530,000
------------ ------------
INCOME (LOSS) BEFORE THE UNDERNOTED
First quarter $ 1,139,000 $ 1,804,000
Second quarter 744,000 2,056,000
Third quarter (630,000) 1,899,000
Fourth quarter (651,000) 1,256,000
------------ ------------
$ 602,000 $ 7,015,000
------------ ------------
NET (LOSS) INCOME
First quarter $ (861,000) $ 1,389,000
Second quarter 9,840,000 1,614,000
Third quarter (406,000) 1,680,000
Fourth quarter (16,544,000) 1,098,000
------------ ------------
$ (7,971,000) $ 5,781,000
------------ ------------
NET (LOSS) INCOME PER SHARE -- BASIC
First quarter $ (0.10) $ 0.17
Second quarter 1.16 0.19
Third quarter (0.05) 0.20
Fourth quarter (1.97) 0.13
------- ------
F-31
61
ZEMEX CORPORATION
AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING
ACCOUNTS AND RESERVES
FOR THE YEAR ENDED DECEMBER 31,
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E COLUMN F
ADDITIONS
BALANCE AT CHARGED TO OTHER BALANCE
BEGINNING COSTS AND ADDITIONS AT END
DESCRIPTION OF PERIOD EXPENSES (DEDUCTIONS) DEDUCTIONS OF PERIOD
- ----------- ---------- ---------- ------------ ---------- ----------
2000
RESERVES - OTHER $ 585,000 $ 119,000 $ -- $ 21,000 $ 683,000
ALLOWANCE FOR
DOUBTFUL ACCOUNTS 349,000 85,000 (104,000) 164,000 166,000
---------- --------- --------- --------- ----------
1999
RESERVES - OTHER $1,006,000 $ 138,000 $ -- $ 559,000 $ 585,000
ALLOWANCE FOR
DOUBTFUL ACCOUNTS 329,000 42,000 3,000 25,000 349,000
---------- --------- --------- --------- ----------
1998
RESERVES - OTHER $1,014,000 $ 64,000 $ (72,000) $ -- $1,006,000
ALLOWANCE FOR
DOUBTFUL ACCOUNTS 328,000 5,000 -- 4,000 329,000
---------- --------- --------- --------- ----------
S-1