CONFORMED
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-Q
QUARTERLY REPORT
PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2002
Commission file number 1-228
[ZEMEX LOGO]
ZEMEX CORPORATION
(Exact name of registrant as specified in its charter)
CANADA NONE
(State or other jurisdiction (I.R.S. Employer Identification Number)
of incorporation or organization)
CANADA TRUST TOWER, BCE PLACE
161 BAY STREET, SUITE 3750
TORONTO, ONTARIO, CANADA M5J 2S1
(Address of principal executive offices)
(416) 365-8080
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act
TORONTO STOCK EXCHANGE/NEW YORK STOCK EXCHANGE CAPITAL STOCK, NO PAR VALUE
Indicate by checkmark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding twelve months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
----------- ---------
YES X NO
----------- ---------
As of April 30, 2002, there were 8,195,437 shares of capital stock outstanding.
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
ZEMEX CORPORATION
CONSOLIDATED BALANCE SHEETS
(US$)
MARCH 31, 2002 December 31, 2001
-------------- -----------------
ASSETS (unaudited)
CURRENT ASSETS
Cash $ 381,000 $ 532,000
Accounts receivable 11,404,000 8,639,000
Inventories 16,699,000 16,417,000
Prepaid expenses and other current assets 712,000 380,000
Income taxes receivable 841,000 601,000
Future income tax benefits 384,000 384,000
-------------- -----------------
30,421,000 26,953,000
PROPERTY, PLANT AND EQUIPMENT 71,858,000 56,962,000
OTHER ASSETS 6,461,000 6,206,000
FUTURE INCOME TAX BENEFITS (NON-CURRENT) 7,394,000 7,394,000
-------------- -----------------
TOTAL ASSETS $ 116,134,000 $ 97,515,000
============== =================
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Bank indebtedness $ 27,000,000 $ 11,000,000
Accounts payable 3,661,000 2,957,000
Accrued liabilities 3,853,000 2,578,000
Current portion of long term debt 438,000 284,000
-------------- -----------------
34,952,000 16,819,000
LONG TERM DEBT 360,000 211,000
OTHER NON-CURRENT LIABILITIES 2,462,000 2,281,000
FUTURE INCOME TAX OBLIGATIONS 1,398,000 1,399,000
-------------- -----------------
39,172,000 20,710,000
-------------- -----------------
SHAREHOLDERS' EQUITY
Common stock 53,901,000 53,786,000
Retained earnings 26,870,000 26,820,000
Note receivable from shareholder (1,259,000) (1,259,000)
Cumulative translation adjustment (2,550,000) (2,542,000)
-------------- -----------------
76,962,000 76,805,000
-------------- -----------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 116,134,000 $ 97,515,000
============== =================
Prepared in accordance with Canadian GAAP
- 2 -
ZEMEX CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31
(US$)
2002 2001
------------ ------------
(unaudited)
NET SALES $ 14,973,000 $ 16,563,000
------------ ------------
COSTS AND EXPENSES
Cost of goods sold 10,606,000 11,406,000
Selling, general and administrative 2,728,000 2,763,000
Depreciation, depletion and amortization 1,511,000 1,619,000
------------ ------------
14,845,000 15,788,000
------------ ------------
OPERATING INCOME 128,000 775,000
------------ ------------
Interest income 31,000 50,000
Interest expense (214,000) (269,000)
Other income, net 4,000 303,000
------------ ------------
(179,000) 84,000
------------ ------------
(LOSS) INCOME BEFORE (RECOVERY OF) PROVISION FOR
INCOME TAXES AND NON-CONTROLLING INTEREST (51,000) 859,000
(Recovery of) provision for income taxes (101,000) 167,000
Non-controlling interest in subsidiary earnings -- 10,000
------------ ------------
NET INCOME $ 50,000 $ 682,000
============ ============
NET INCOME PER SHARE
BASIC $ 0.01 $ 0.08
DILUTED $ 0.01 $ 0.08
------------ ------------
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
BASIC 7,921,320 8,411,055
DILUTED 7,959,990 8,422,219
------------ ------------
Prepared in accordance with Canadian GAAP
- 3 -
ZEMEX CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(US$)
NOTE
RECEIVABLE CUMULATIVE
COMMON RETAINED FROM TRANSLATION
STOCK EARNINGS SHAREHOLDER ADJUSTMENT TOTAL
------------ ------------ ------------ ------------ ------------
Balance at December 31, 2000 $ 57,212,000 $ 25,958,000 $ (1,259,000) $ (2,008,000) $ 79,903,000
Stock issued under ESPP, net (a) 80,000 -- -- -- 80,000
Stock purchased for treasury (370,000) -- -- -- (370,000)
Net income for the period -- 682,000 -- -- 682,000
Translation adjustment -- -- -- (453,000) (453,000)
------------ ------------ ------------ ------------ -------------
Balance at March 31, 2001 $ 56,922,000 $ 26,640,000 $ (1,259,000) $ (2,461,000) $ 79,842,000
============ ============ ============ ============ =============
------------ ------------ ------------ ------------ -------------
BALANCE AT DECEMBER 31, 2001 $ 53,786,000 $ 26,820,000 $ (1,259,000) $ (2,542,000) $ 76,805,000
STOCK ISSUED UNDER ESPP, NET (a) 115,000 -- -- -- 115,000
STOCK PURCHASED FOR TREASURY -- -- -- -- --
NET INCOME FOR THE PERIOD -- 50,000 -- -- 50,000
TRANSLATION ADJUSTMENT -- -- -- (8,000) (8,000)
------------ ------------ ------------ ------------ ------------
BALANCE AT MARCH 31, 2002 $ 53,901,000 $ 26,870,000 $ (1,259,000) $ (2,550,000) $ 76,962,000
============ ============ ============ ============ ============
Prepared in accordance with Canadian GAAP
(a) Employee Stock Purchase Plan ("ESPP")
- 4 -
ZEMEX CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOW
FOR THE THREE MONTHS ENDED MARCH 31
(US$)
2002 2001
------------ ------------
(unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 50,000 $ 682,000
Adjustments to reconcile net income
to net cash flows from operating activities
Depreciation, depletion and amortization 1,511,000 1,619,000
Decrease in future income tax obligations (1,000) (80,000)
Non-controlling interest in subsidiary earnings -- 10,000
Gain on sale of assets -- (301,000)
Increase in other assets (266,000) (42,000)
Increase in other non-current liabilities 1,000 17,000
Changes in non-cash working capital items (1,579,000) (1,904,000)
------------ ------------
Net cash (used in) provided by operating activities (284,000) 1,000
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property, plant and equipment (1,172,000) (308,000)
Acquisitions, net of cash acquired (14,706,000) --
Proceeds from sale of assets 4,000 3,632,000
------------ ------------
Net cash (used in) provided by investing activities (15,874,000) 3,324,000
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in bank indebtedness 16,000,000 (3,500,000)
Net decrease in long term debt (106,000) (164,000)
Issuance of common stock 115,000 80,000
Purchase of common stock -- (370,000)
------------ ------------
Net cash provided by (used in) financing activities 16,009,000 (3,954,000)
------------ ------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH (2,000) (143,000)
------------ ------------
NET DECREASE IN CASH (151,000) (772,000)
CASH AT BEGINNING OF PERIOD 532,000 2,175,000
------------ ------------
CASH AT END OF PERIOD $ 381,000 $ 1,403,000
============ ============
Prepared in accordance with Canadian GAAP
- 5 -
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
The consolidated financial statements include the accounts of Zemex Corporation
and its subsidiaries (the "Corporation"). The financial data for the three
months ended March 31, 2002 and 2001 are unaudited but, in the opinion of the
management, reflect all adjustments, considered necessary for a fair
presentation of financial position, results of operations and cash flows. The
results of operations and cash flows for the three-month period ended March 31,
2002 are not necessarily indicative of operations for the entire year. All
material intercompany transactions have been eliminated. The following should be
read in conjunction with the audited Consolidated Financial Statements and
related notes thereto for the year ended December 31, 2001.
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 Industrial Minerals, Inc., Zemex Mica Corporation and Zemex
Attapulgite, LLC; and (ii) aluminum recycling, which includes Alumitech, Inc.,
Alumitech of Cleveland, Inc., Alumitech of Wabash, Inc., Alumitech of West
Virginia, Inc., ETS Schaefer Corporation and AWT Properties, Inc.
1. On March 27, 2002, the Corporation purchased through a newly formed
subsidiary, Alumitech of West Virginia, Inc., the assets of Resource
Recovery Industries, LLC, an aluminum dross processor located in Friendly,
West Virginia. The purchase price was approximately $3.1 million and was
financed by a drawdown on the Corporation's credit facility.
As contingent consideration for the purchase, the Corporation issued Series
A and Series B warrants which are exercisable for cash consideration into
shares of Alumitech, or into shares of the Corporation if Alumitech is not
publicly listed by December 31, 2006. The warrants, which vest in 2005 and
2006 respectively, will terminate if certain earnings targets are not met
by the aluminum operations of Alumitech by the beginning of these fiscal
years.
2. On February 1, 2002, the Corporation acquired, through Zemex Attapulgite,
LLC, a newly incorporated subsidiary under the industrial minerals group,
the assets of an attapulgite clay operation from Milwhite, Inc. The
Corporation paid approximately $11.6 million for the acquisition and funded
it by a drawdown from its existing credit facility.
The following table summarizes the estimated fair value of the assets
acquired and liabilities assumed at the date of the acquisition. The
allocation of the purchase price could be subject to adjustment due to an
ongoing review of the valuation of certain non-current assets.
Current assets $ 1,123,000
Capital assets 11,627,000
------------
Total assets 12,750,000
Current liabilities 991,000
Other non-current liabilities 180,000
------------
Net assets acquired $ 11,579,000
============
- 6 -
3. On March 20, 2001, the Corporation completed the sale of its Natural
Bridge, New York talc facility and its 60% interest in Zemex Fabi-Benwood,
LLC for approximately $7.5 million to IMI Fabi S.p.A. ("IMI Fabi"). The
Corporation recognized a pre-tax gain of $0.3 million from this transaction
which was recorded as other income in the first quarter of 2001. Of the
sale proceeds, $3.7 million was received in March 2001 and applied to
reduce the Corporation's outstanding borrowings under its credit
facilities. The balance, which was originally included in accounts
receivable, was received in September 2001.
SEGMENTED INFORMATION
The Corporation is composed of two principal lines of business and is organized
into two distinct operating units based on product lines: (i) industrial
minerals; and (ii) aluminum recycling.
Information pertaining to sales and earnings (loss) from operations and assets
by business segment appears below:
INDUSTRIAL ALUMINUM
PERIOD ENDED MARCH 31, 2002 CONSOLIDATED MINERALS RECYCLING CORPORATE
- --------------------------- ------------- ------------ ------------ ------------
NET SALES $ 14,973,000 $ 10,494,000 $ 4,479,000 $ --
OPERATING INCOME (LOSS) 128,000 1,343,000 (320,000) (895,000)
INTEREST EXPENSE (214,000) (12,000) (5,000) (197,000)
NET INCOME (LOSS) 50,000 1,145,000 (306,000) (789,000)
------------ ------------ ------------ ------------
Industrial Aluminum
Period Ended March 31, 2001 Consolidated Minerals Recycling Corporate
- --------------------------- ------------ ------------ ------------ ------------
Net sales $ 16,563,000 $ 11,748,000 $ 4,815,000 $ --
Operating income (loss) 775,000 1,747,000 (226,000) (746,000)
Interest (expense) income (269,000) 55,000 (8,000) (316,000)
Net income (loss) 682,000 2,046,000 (236,000) (1,128,000)
------------ ------------ ------------ ------------
INDUSTRIAL ALUMINUM
MARCH 31, 2002 CONSOLIDATED MINERALS RECYCLING CORPORATE
- -------------- ------------ ------------ ------------ ------------
CURRENT ASSETS $ 30,421,000 $ 24,139,000 $ 3,697,000 $ 2,585,000
TOTAL ASSETS 116,134,000 78,496,000 24,625,000 13,013,000
TOTAL CURRENT LIABILITIES 34,952,000 4,544,000 2,907,000 27,501,000
TOTAL SHAREHOLDERS' EQUITY 76,962,000 -- -- 76,962,000
------------ ------------ ------------ ------------
Industrial Aluminum
March 31, 2001 Consolidated Minerals Recycling Corporate
- -------------- ------------ ------------ ------------ ------------
Current assets $ 32,209,000 $ 26,114,000 $ 4,142,000 $ 1,953,000
Total assets 104,823,000 68,373,000 22,874,000 13,576,000
Total current liabilities 21,058,000 3,673,000 2,966,000 14,419,000
Total shareholders' equity 79,842,000 -- -- 79,842,000
------------ ------------ ------------ ------------
- 7 -
COMMON SHARES AND STOCK OPTIONS
The Corporation has adopted the disclosure requirements of the new CICA Handbook
Section 3870 as follows:
Shares Outstanding
As at March 31, 2002, the Corporation's authorized capital stock consists of an
unlimited number of first preference shares without par value and an unlimited
number of common shares without par value. There were no preference shares and
8,195,437 common shares issued and outstanding as of April 30, 2002.
The Corporation did not purchase any common shares in the first quarter of 2002,
compared to 65,400 common shares repurchased in the same quarter of 2001.
Stock Options Outstanding
The Corporation provides stock option incentive plans, which 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. There were
1,065,150 options outstanding as of April 30, 2002 of which 832,900 are
exercisable as of April 30, 2002.
The following is a summary of option transactions under the Corporation's stock
option plans:
------------------------------ -------------------------------
2002 2001
------------------------------ -------------------------------
WEIGHTED-AVERAGE Weighted-average
OPTIONS EXERCISE PRICE Options exercise price
--------- ---------------- ---------- ----------------
Options outstanding at beginning of period 1,070,650 $ 7.16 1,177,150 $ 8.17
Options granted during period -- -- 250,500 5.22
Options exercised during the period -- -- -- --
Options cancelled during the period (5,500) 9.75 (211,500) 9.05
--------- ---------------- ---------- ----------------
Options outstanding at end of period 1,065,150 $ 7.15 1,216,150 $ 7.76
--------- ---------------- ---------- ----------------
Options exercisable at end of period 832,900 743,200
--------- ----------
Price range of options granted during the period -- $5.21-6.10
--------- ----------
The options expire from 2002 to 2010.
- 8 -
The following table summarizes information about the stock options outstanding
at March 31, 2002:
---------------- ------------------------------------------------------ ---------------------------------
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------------------ ---------------------------------
RANGE OF NUMBER WEIGHTED-AVERAGE WEIGHTED- NUMBER WEIGHTED-
EXERCISE OUTSTANDING AT REMAINING AVERAGE EXERCISABLE AT AVERAGE
PRICES MARCH 31, 2002 CONTRACTUAL LIFE EXERCISE PRICE MARCH 31, 2002 EXERCISE PRICE
---------------- -------------- ------------------- -------------- -------------- --------------
$ 5.00 TO $ 5.99 241,500 4.88 YEARS $ 5.21 120,750 $ 5.21
$ 6.00 TO $ 6.99 348,150 6.41 YEARS 6.32 301,150 6.29
$ 7.00 TO $ 7.99 192,000 2.77 YEARS 7.31 157,500 7.30
$ 8.00 TO $ 8.99 64,000 7.69 YEARS 8.21 34,000 8.24
$ 9.00 TO $ 9.99 12,000 2.23 YEARS 9.06 12,000 9.06
$10.00 TO $10.99 207,500 2.13 YEARS 10.19 207,500 10.19
---------------- -------------- ---------------- -------------- -------------- --------------
$ 5.00 TO $10.99 1,065,150 832,900
============== ==============
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,
the Corporation's net income and earnings per share would have been reduced by
approximately $460,000 or $0.05 per share in the first quarter of 2001. The fair
value of the options granted during 2001 is estimated to be $460,000. 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 2001: dividend yield of 0%; expected volatility
of 29%; risk-free interest rates varying from 5.04% to 4.59%; and an expected
life of 5 years. The Corporation granted no options in the first quarter of
2002.
Recent Accounting Pronouncements
In 2001, the CICA issued Section 3062 "Goodwill and Other Intangible Assets".
This standard was effective January 1, 2002 and requires, among other things,
the discontinuance of goodwill amortization. The Corporation's net income for
the three-month period ended March 31, 2001 would have increased by $51,000. In
addition, the standard includes provisions for the reclassification of certain
existing recognized intangibles as goodwill, reassessment of the useful lives of
existing recognized intangibles, reclassification of certain intangibles out of
previously reported goodwill and the identification of reporting units for
purposes of assessing potential future impairments of goodwill. It also requires
the Corporation to complete a transitional goodwill impairment test six months
from the date of adoption. The Corporation is currently assessing but has not
yet determined the impact, if any, of the transitional impairment test on its
financial position and results of operations.
DIFFERENCES FROM UNITED STATES ACCOUNTING PRINCIPLES
These consolidated financial statements have been prepared in accordance with
accounting principles generally accepted in Canada ("Canadian GAAP"). The
differences between Canadian and U.S. generally accepted accounting principles
("U.S. GAAP") do not have a material effect on the Corporation's reported
financial position or net income or cash flows except as follows:
- 9 -
a. Statements of Operations
The implementation of the American Institute of Certified Public
Accountants Statement of Position 98-5 ("SOP 98-5") requires costs of
start-up activities and organization costs to be expensed as incurred.
Canadian GAAP permits the deferral and amortization of such costs.
----------------------------
PERIOD ENDED MARCH 31
2002 2001
-------- ---------
Net income, as reported $ 50,000 $ 682,000
Add: Amortization of start-up activities and organization costs 8,000 40,000
Tax effect related thereto (2,000) (6,000)
-------- ---------
Net income, under U.S. GAAP $ 56,000 $ 716,000
======== =========
Net income per share, under U.S. GAAP
- basic $ 0.01 $ 0.09
- diluted $ 0.01 $ 0.08
-------- ---------
b. Balance Sheets
The following summarizes the balance sheet amounts in accordance with U.S.
GAAP where amounts differ 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 in the period incurred rather than be
deferred.
---------------------------- ------------------------------
MARCH 31, 2002 December 31, 2001
---------------------------- ------------------------------
CANADIAN GAAP U.S. GAAP Canadian GAAP U.S. GAAP
------------- ------------ ------------- ------------
Property, plant and equipment $ 71,858,000 $ 70,419,000 $ 56,962,000 $ 55,523,000
Other assets 6,461,000 6,256,000 6,206,000 5,993,000
Future income tax benefits
(non-current) 7,394,000 7,552,000 7,394,000 7,554,000
Accumulated other
comprehensive loss -- (8,000) -- (534,000)
Retained earnings 26,870,000 25,384,000 26,820,000 25,328,000
------------- ------------ ------------- ------------
c. Statements of Comprehensive Income
U.S. GAAP requires a statement of comprehensive income as follows:
----------------------------
PERIOD ENDED MARCH 31
2002 2001
-------- ---------
Net income, under U.S. GAAP $ 56,000 $ 716,000
Change in foreign currency translation adjustment (8,000) (385,000)
-------- ---------
Comprehensive income $ 48,000 $ 331,000
======== =========
- 10 -
d. Recent Accounting Pronouncements
In August 2001, the FASB issued Statement of Financial Accounting Standards
No. 143 ("SFAS 143"), "Accounting for Asset Retirement Obligations", which
is effective for financial statements issued for fiscal years beginning
after June 15, 2002. SFAS 143 addresses the recognition and remeasurement
of obligations associated with the retirement of tangible long-lived
assets. The Corporation has not yet determined the effect that the adoption
of SFAS 143 will have on the business, results of operations and financial
condition.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following is a discussion and analysis of the financial condition and
results of operations of the Corporation for the three months ended March 31,
2002 and the three months ended March 31, 2001, 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 audited
Consolidated Financial Statements and related notes thereto for the year ended
December 31, 2001.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2002 COMPARED TO THREE MONTHS ENDED MARCH 31, 2001
Net Sales
The Corporation's net sales from operations for the quarter ended March 31, 2002
were $15.0 million, 9.6% or $1.6 million, lower than the same period of 2001.
Net sales in the industrial minerals group for the three months ended March 31,
2002 were $10.5 million, versus $11.8 million for the corresponding period in
2001, a decrease of $1.3 million or 10.7%. The decline in the revenue generated
from the industrial minerals group was primarily due to a decrease in revenue
generated from low iron sand sales. The impact of the disposition of the Natural
Bridge, New York talc facility and the Benwood, West Virginia talc joint venture
at the end of the first quarter of 2001 was offset by the revenue generated from
the newly acquired attapulgite clay operation.
Net sales from the aluminum recycling group were $4.5 million in the first
quarter of 2002 as compared to $4.8 million generated in the same period of
2001. The decline was mainly due to a decline in revenue earned from sales of
heat containment systems.
Cost of Goods Sold
Cost of goods sold for the first quarter of 2002 was $10.6 million, $0.8 million
or 7.0% lower than the same quarter of 2001. Of the $0.8 million decrease, the
industrial minerals group and aluminum recycling group contributed $0.6 million
and $0.2 million, respectively. The decrease in the industrial minerals group
was lower than would be anticipated due to the impact of low iron sand. In 2001,
the Corporation produced, for inventory, low iron sand feedstock. This resulted
in a lower cost of goods sold since, due to a change in the quarry being
utilized, only industrial sand is currently being produced. Gross margin
slightly decreased from 31.1% in the first quarter of 2001 to 29.2% in 2002.
- 11 -
Selling, General and Administrative
Selling, general and administrative expense ("SG&A") for the three months ended
March 31, 2002 was $2.7 million, virtually unchanged from the same period of
2001 despite the additional professional fees arising from litigation expenses.
Depreciation, Depletion and Amortization
Depreciation, depletion and amortization for the quarter ended March 31, 2002
was $1.5 million, down by $0.1 million, or 6.6%, from the same quarter in 2001.
The decrease was mainly due to the sale of two talc plants in 2001 and cessation
of goodwill amortization in 2002, partially offset by the depreciation arising
from the acquisition of the attapulgite clay operation in 2002.
Operating Income
For the reasons discussed above, operating income for the three month period
ended March 31, 2002 was $0.1 million, a decrease of $0.6 million from the
comparable period in 2001.
Interest Income
Interest income for the three months ended March 31, 2002 was $31,000, versus
$50,000 from the same period in 2001.
Interest Expense
Interest expense for the three months ended March 31, 2002 was $0.2 million, a
decrease of $0.1 million, or 20.4%, from the comparable period in 2001. Total
indebtedness was $27.8 million at the end of the first quarter of 2002 compared
to $14.3 million at the end of the first quarter of 2001. The increase in
indebtedness was due to the two acquisitions that occurred during the first
quarter of 2002. Both acquisitions were funded from the Corporation's existing
credit facility. Interest expense will increase prospectively.
Other Income, Net
The Corporation reported $0.3 million as other income in the first quarter of
2001, compared to $4,000 reported for the same period in 2002. The $0.3 million
was generated from the sale of talc facilities located in Natural Bridge, New
York and the Corporation's 60% interest in the Benwood, West Virginia facility
in March 2001.
(Recovery of) Provision for Income Taxes
The Corporation recognized an income tax benefit of $0.1 million in 2002 as a
result of a tax loss generated from U.S. operations. The Corporation recorded a
$0.2 million income tax provision for the same quarter of 2001.
Net Income
As a result of the factors discussed above, the Corporation recorded a net
income from operations for the quarter ended March 31, 2002 of $50,000 compared
to net income from operations of $0.7 million for the three months ended March
31, 2001.
- 12 -
LIQUIDITY AND CAPITAL RESOURCES
Cash Flow from Operations
The Corporation had a working capital deficit of $4.5 million at March 31, 2002,
compared to $10.1 million working capital at December 31, 2001. The decrease was
mainly due to the drawdown under the credit facilities to fund the acquisitions
in 2002. Because the credit facility is a 364 day facility, all the bank debt is
considered current. As the yield curve swings in our favor, the debt will be
restructured.
On April 1, 2002, the Corporation received $2.4 million from a major customer.
The $2.4 million was used to pay down bank indebtedness. It has been recorded as
deferred revenue effective April 1, 2002. This amount represents the shortfall
of material taken by the customer in 2001 under the terms of the "take-or-pay"
contract. The 2001 shortfall must be taken in 2002 or the residual amount will
be forfeited. As a result the entire $2.4 million will be recognized as revenue
by year end.
It is the opinion of management that there are sufficient sources of funds
available to meet its anticipated cash requirements.
ITEM 3 - MARKET RISK
Market risk represents the risk of loss that may impact the consolidated
financial statements of the Corporation due to adverse changes in financial
market prices and rates. The Corporation's market risk is primarily a function
of the potential impact of fluctuations in interest rates and aluminum prices.
Management monitors the movements in interest rates and performs a periodic
sensitivity analysis on aluminum prices and, on that basis, decides on the
appropriate measures to take. Current prices and interest rates are such that
management believes that no measures need be taken at this time.
The Corporation does not hold or issue financial instruments for trading
purposes. A discussion of the Corporation's financial instruments is included in
the financial instruments note to the Consolidated Financial Statements in the
Corporation's Annual Report on Form 10-K for the year ended December 31, 2001.
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, 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.
- 13 -
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
Refer to the 2001 Annual Report filed on Form 10-K.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
Exhibits
None
Reports on Form 8-K
Form 8-K filed February 12, 2002
* * * * *
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Dated this 30th day of April 2002.
ZEMEX CORPORATION
(Registrant)
By: /s/ ALLEN J. PALMIERE
-------------------------------------------
Allen J. Palmiere
Vice President, Chief Financial Officer
and Corporate Secretary
(Principal Financial and Accounting Officer
and authorized signatory)
- 14 -