-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Vcs2YW4ssLCKoxjmQDJD/V5ijMyltXyxcXn4bCduQMtuna8eGDhm+EBMtoaicrHa AY2LaaCxgvQGZnzfcznXyg== 0000950135-99-002720.txt : 19990517 0000950135-99-002720.hdr.sgml : 19990517 ACCESSION NUMBER: 0000950135-99-002720 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990331 FILED AS OF DATE: 19990514 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ZEMEX CORP CENTRAL INDEX KEY: 0000075644 STANDARD INDUSTRIAL CLASSIFICATION: MINING, QUARRYING OF NONMETALLIC MINERALS (NO FUELS) [1400] IRS NUMBER: 135496920 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-00228 FILM NUMBER: 99623592 BUSINESS ADDRESS: STREET 1: CT TOWER, BCE PLACE STREET 2: 161 BAY ST, STE 3750 P O BOX 703 CITY: TORONTO ONTARIO M5J STATE: A6 BUSINESS PHONE: 4163658080 MAIL ADDRESS: STREET 1: CANADA TRUST TOWER STREET 2: BCE PLACE 161 BAY ST,# 3750 PO BOX 703 CITY: TORONTO ONTARIO M5J STATE: A6 FORMER COMPANY: FORMER CONFORMED NAME: PACIFIC TIN CONSOLIDATED CORP DATE OF NAME CHANGE: 19860720 10-Q 1 ZEMEX CORPORATION 1 CONFORMED UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington D.C. 20549 FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 1999 Commission file number 1-228 ZEMEX CORPORATION (Exact name of registrant as specified in its charter) CANADA NONE (State or other jurisdiction (I.R.S. Employer Identification Number) of incorporation or organization)
CANADA TRUST TOWER, BCE PLACE 161 BAY STREET, SUITE 3750 TORONTO, ONTARIO, CANADA, M5J 2S1 (Address of principal executive offices) (416) 365-8080 (Registrant's telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act TORONTO STOCK EXCHANGE/NEW YORK STOCK EXCHANGE CAPITAL STOCK, NO PAR VALUE Indicate by 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 March 31, 1999, there were 8,752,102 shares of capital stock outstanding. 2 PART I - FINANCIAL INFORMATION ITEM 1 - FINANCIAL STATEMENTS ZEMEX CORPORATION CONSOLIDATED BALANCE SHEETS (US$)
MARCH 31, 1999 DECEMBER 31, 1998 -------------- ----------------- ASSETS (unaudited) CURRENT ASSETS Cash and cash equivalents $ 688,000 $ 1,062,000 Accounts receivable 18,992,000 17,642,000 Inventories 18,292,000 18,036,000 Prepaid expenses and other 1,037,000 946,000 Future tax benefits 657,000 657,000 ------------ ------------ 39,666,000 38,343,000 Property, plant and equipment 90,855,000 89,058,000 Other assets 21,295,000 21,374,000 Future tax benefits (non-current) 119,000 91,000 ------------ ------------ TOTAL ASSETS $151,935,000 $148,866,000 ============ ============ LIABILITIES CURRENT LIABILITIES Bank indebtedness $ 10,000,000 $ 10,000,000 Accounts payable 7,353,000 6,324,000 Accrued liabilities 4,646,000 4,433,000 Accrued income taxes 605,000 644,000 Current portion of long term debt 2,578,000 2,132,000 ------------ ------------ 25,182,000 23,533,000 LONG TERM DEBT 38,948,000 39,354,000 OTHER NON-CURRENT LIABILITIES 1,058,000 1,006,000 ------------ ------------ 65,188,000 63,893,000 ------------ ------------ NON-CONTROLLING INTEREST 3,062,000 3,075,000 ------------ ------------ SHAREHOLDERS' EQUITY Common stock 8,752,000 8,708,000 Paid-in capital 48,905,000 48,691,000 Retained earnings 29,806,000 28,418,000 Note receivable from shareholder (1,749,000) (1,749,000) Cumulative translation adjustment (2,029,000) (2,170,000) ------------ ------------ 83,685,000 81,898,000 ------------ ------------ TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $151,935,000 $148,866,000 ============ ============
-2- 3 ZEMEX CORPORATION CONSOLIDATED STATEMENTS OF INCOME FOR THE THREE MONTHS ENDED MARCH 31 (US$)
1999 1998 ---- ---- (unaudited) NET SALES $ 27,910,000 $ 26,446,000 ------------ ------------ COSTS AND EXPENSES Cost of goods sold 19,583,000 19,148,000 Selling, general and administrative 3,386,000 3,333,000 Depreciation, depletion and amortization 2,111,000 1,592,000 ------------ ------------ 25,080,000 24,073,000 ------------ ------------ OPERATING INCOME 2,830,000 2,373,000 ------------ ------------ Interest income 51,000 34,000 Interest expense (921,000) (550,000) Other, net expense (50,000) (82,000) ------------ ------------ (920,000) (598,000) ------------ ------------ INCOME BEFORE PROVISION FOR INCOME TAXES AND NON-CONTROLLING INTEREST 1,910,000 1,775,000 Provision for income taxes 535,000 533,000 Non-controlling interest in (loss) earnings of subsidiary (13,000) 14,000 ------------ ------------ NET INCOME $ 1,388,000 $ 1,228,000 ============ ============ NET INCOME PER SHARE - basic $ 0.17 $ 0.15 - fully diluted $ 0.15 $ 0.14 ============ ============ WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 8,350,590 8,264,627 ============ ============
-3- 4 ZEMEX CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOW FOR THE THREE MONTHS ENDED MARCH 31 (US$)
1999 1998 ---- ---- (unaudited) CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 1,388,000 $ 1,228,000 Adjustments to reconcile income from operations to net cash flows from operating activities Depreciation, depletion and amortization 2,111,000 1,592,000 Amortization of deferred financing costs 43,000 42,000 Decrease in future tax benefits (28,000) (19,000) Non-controlling interest in subsidiary (loss) earnings (13,000) 14,000 Loss (gain) on sale of property, plant and equipment 5,000 (2,000) (Decrease) increase in other assets (232,000) 365,000 Increase (decrease) in non-current liabilities 52,000 (69,000) Changes in non-cash working capital items (493,000) (2,975,000) ----------- ----------- Net cash provided by operating activities 2,833,000 176,000 ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES Additions to property, plant and equipment (3,531,000) (2,639,000) Assets acquired in connection with acquisitions, net of cash acquired -- (1,969,000) Acquisitions of securities -- (353,000) Proceeds from sale of assets -- 2,995,000 ----------- ----------- Net cash used in investing activities (3,531,000) (1,966,000) ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES Net increase in bank indebtedness -- 250,000 Net increase in long term debt 40,000 564,000 Issuance of common stock 258,000 289,000 Purchase of common stock for treasury -- (299,000) ----------- ----------- Net cash provided by financing activities 298,000 804,000 ----------- ----------- EFFECT OF EXCHANGE RATE CHANGES ON CASH 26,000 5,000 ----------- ----------- NET DECREASE IN CASH (374,000) (981,000) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 1,062,000 2,189,000 ----------- ----------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 688,000 $ 1,208,000 =========== ===========
-4- 5 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS The consolidated financial statements include the accounts of Zemex Corporation and its wholly-owned subsidiaries (the "Corporation"). The financial data for the three months ended March 31, 1999 and 1998 are unaudited but, in the opinion of the management of the Corporation, reflect all adjustments, consisting only of normal recurring adjustments, considered necessary for a fair presentation of financial position and results of operations. All material intercompany transactions have been eliminated. SEGMENT INFORMATION The Corporation has three principal lines of business and is organized into three operating units based on its product lines: (i) industrial minerals, (ii) metal powders, and (iii) aluminum recycling. Information pertaining to sales and earnings from operations and assets by business segment appears below:
Industrial Metal Aluminum Period Ended March 31, 1999 Consolidated Minerals Powders Recycling Corporate - --------------------------- ------------ -------- ------- --------- --------- Net sales $27,910,000 $12,577,000 $ 9,324,000 $ 6,009,000 $ -- Operating income (loss) 2,830,000 2,116,000 1,026,000 401,000 (713,000) Interest (expense) (921,000) (12,000) (46,000) (29,000) (834,000) Net income 1,388,000 -- -- -- --
Industrial Metal Aluminum Period Ended March 31, 1998 Consolidated Minerals Powders Recycling Corporate - --------------------------- ------------ -------- ------- --------- --------- Net sales $26,446,000 $11,290,000 $10,204,000 $ 4,952,000 $ -- Operating income (loss) 2,373,000 1,642,000 1,225,000 367,000 (861,000) Interest (expense) (550,000) (8,000) (51,000) (3,000) (489,000) Net income 1,228,000 -- -- -- --
Industrial Metal Aluminum March 31, 1999 Consolidated Minerals Powders Recycling Corporate - -------------- ------------ -------- ------- --------- --------- Current assets $39,666,000 $23,959,000 $11,011,000 $ 3,010,000 $ 1,686,000 Total assets 151,935,000 75,429,000 26,087,000 34,560,000 15,859,000 Total current liabilities 25,182,000 4,864,000 4,552,000 4,122,000 11,644,000 Total shareholders' equity 83,685,000 -- -- -- 83,685,000
Industrial Metals Aluminum March 31, 1998 Consolidated Minerals Powders Recycling Corporate - -------------- ------------ -------- ------- --------- --------- Current assets $38,786,000 $22,580,000 $11,202,000 $ 2,956,000 $ 2,048,000 Total assets 123,373,000 71,117,000 25,136,000 16,725,000 10,395,000 Total current liabilities 19,019,000 6,639,000 3,985,000 3,454,000 4,941,000 Total shareholders' equity 77,817,000 -- -- -- 77,817,000
-5- 6 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: a. Income Statements The implementation of the American Institute of Certified Public Accountants Statement of Position 98-5 ("SOP 98-5") requires costs of start-up activities and organization costs to be expensed as incurred. Canadian GAAP permits the deferral of such costs.
March 31, 1999 March 31, 1998 -------------- -------------- Net income, as reported $ 1,388,000 $ 1,228,000 Less: Start-up activities (541,000) -- Tax effect related thereto 151,000 -- ----------- ----------- Net income (U.S. GAAP) $ 998,000 $ 1,228,000 ----------- ----------- Net income per share (U.S. GAAP) - basic $ 0.12 $ 0.15 - fully diluted $ 0.12 $ 0.14 =========== ===========
b. Balance Sheets The following summarizes the balance sheet amounts in accordance with U.S. GAAP where different from the amounts reported under Canadian GAAP. For purposes of reporting in accordance with U.S. GAAP, certain equity securities that are not held principally for the purpose of sale in the near term are classified as available-for-sale securities and are reported at fair value, with unrealized gains and losses excluded from earnings and reported in a separate component of shareholders' equity. For Canadian GAAP purposes, such securities are to be reported at cost and included in other assets unless there is deemed to have been a permanent impairment in their value. U.S. GAAP, SOP 98-5, requires that the costs of start-up activities be expensed in the period incurred rather than be deferred. SOP 98-5 is effective for periods beginning after December 15, 1998. Initial implementation is reported as a cumulative effect of a change in accounting principle without retroactive application.
March 31, 1999 December 31, 1998 Canadian GAAP U.S. GAAP Canadian GAAP U.S. GAAP ------------- --------- ------------- --------- Other assets $21,295,000 $18,658,000 $21,374,000 $20,440,000 Retained earnings 29,806,000 28,086,000 -- -- Unrealized loss on available-for-sale securities -- (1,307,000) -- (934,000)
-6- 7 c. Statements of Comprehensive Income U.S. GAAP requires a statement of comprehensive income as follows:
March 31 1999 1998 -------- ---- ---- Net income (U.S. GAAP) $ 998,000 $1,228,000 Change in foreign currency translation adjustment, net of tax (1999, $39,000; 1998, $19,000) 102,000 45,000 Change in unrealized holding losses on available-for-sale securities (373,000) -- --------- ---------- Comprehensive income $ 727,000 $1,273,000 ========= ==========
Recent Accounting Pronouncements In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" (SFAS No. 133), which established accounting and reporting standards for derivative instruments and hedging activities. It requires an entity to measure all derivatives at fair value and to recognize them in the balance sheet as an asset or liability, depending on the entity's rights or obligations under the applicable derivative contract. Management has not yet evaluated the effects of this statement on its results of operations. As required, the Corporation will adopt SFAS No. 133 in the first quarter of 2000. 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, 1999 and the three months ended March 31, 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. RESULTS OF OPERATIONS THREE MONTHS ENDED MARCH 31, 1999 COMPARED TO THREE MONTHS ENDED MARCH 31, 1998 Net Sales The Corporation's net sales for the three months ended March 31, 1999 were $27.9 million, an increase of $1.5 million, or 5.5%, from the comparable period in 1998. Net sales of $12.6 million in the industrial minerals segment for the three month period ended March 31, 1999 represented an increase of $1.3 million, or 11.4%, over the 1998 period. Of the increase, $1 million is due to an increase in the volume of sales of sodium feldspar. The higher level of activity is expected to continue for at least the second quarter of 1999. -7- 8 The metal powders segment had sales of $9.3 million for the three months ended March 31, 1999, down $0.9 million, or 8.6%, from the first quarter of 1998. The total decrease is due to a 20% decline in copper powder sales volume. The market for powdered copper is expected to remain soft in the foreseable future. Net sales for the aluminum recycling segment for the three months ended March 31, 1999 were $6.0 million, an increase of $1.1 million, or 21.3%, from the like period of 1998. The increase is primarily due to the acquisition of an aluminum dross processor in June 1998 offset by lower aluminum prices. Cost of Goods Sold Cost of goods sold for the three months ended March 31, 1999 was $19.6 million, an increase of $0.4 million, or 2.3%, from the comparable period in 1998. The Corporation's gross margin as a percentage of sales increased to 29.8% for the three months ended March 31, 1999 from 27.6% during the first quarter of 1998, reflecting increased volume in the mineral group, as well as improved cost and operating efficiencies throughout the organization. Selling, General and Administrative Expense Selling, general, and administrative expense ("SG&A") for the three months ended March 31, 1999 increased to $3.4 million, a slight increase from the same period of 1998. As a percentage of sales, SG&A decreased slightly from 12.6% in the 1998 period to 12.1% in the 1999 period. SG&A as a percentage of sales is expected to decline in the future. Depreciation, Depletion and Amortization Depreciation, depletion and amortization for the three months ended March 31, 1999 was $2.1 million, an increase of 32.6% over the comparable period in 1998, as a result of assets acquired and placed in service over the last three months. Operating Income Operating income for the three month period ended March 31, 1999 was $2.8 million, an increase of $0.5 million from the comparable period in 1998. Interest Income Interest income for the three months ended March 31, 1999 was $0.1 million, a marginal increase from the same period in 1998. Interest Expense Interest expense for the three months ended March 31, 1999 was $0.9 million, up from $0.6 million for the comparable period in 1998. Total indebtedness was $51.5 million at the end of the first quarter of 1999 compared to $26.4 million at the end of the first quarter of 1998. -8- 9 Provision for Income Taxes The Corporation's provision for income taxes for the three months ended March 31, 1999 was $0.5 million, virtually unchanged from the first quarter of 1998. The provision is constant in the face of an increase in income due to the use of a lower effective tax rate in 1999. The Corporation is enjoying the benefits of a higher level of earned depletion arising from its extractive businesses. Net Income As a result of the factors discussed above, net income for the three months ended March 31, 1999 was $1.4 million compared to $1.2 million for the three months ended March 31, 1998. LIQUIDITY AND CAPITAL RESOURCES Cash Flow from Operations During the first quarter of 1999, the Corporation generated cash flow from operations of $2.8 million as compared to $0.2 million for the first quarter of 1998. In 1999, non-cash working capital used $0.5 million cash otherwise generated from operations whereas in the corresponding period in 1998 non-cash working capital items used $3.0 million of cash. The Corporation has received from its bankers an agreement to extend the maturity date of its long term credit facilities to April 1, 2000. The Corporation expects to replace these facilities in the second quarter of 1999. The Corporation had $14.5 million of working capital at March 31, 1999 compared to $14.8 million at December 31, 1998. It is the opinion of management that there are sufficient sources of funds available to meet its anticipated cash requirements. YEAR 2000 The year 2000 issue arises because many computerized systems use two digits rather than four to identify a year. Date-sensitive systems may recognize the year 2000 as 1900 or some other date, resulting in errors when information using year 2000 dates is processed. In addition, similar problems may arise in some systems which use certain dates in 1999 to represent something other than a date. The effects of the year 2000 issue may be experienced before, on, or after January 1, 2000, and if not addressed, the impact on operations and financial reporting may range from minor errors to significant systems failure which could affect an entity's ability to conduct normal business operations. It is not possible to be certain that all aspects of the year 2000 issue affecting the entity, including those related to the efforts of customers, suppliers, or other third parties, will be fully resolved. The Corporation operates in basic industries that do not rely heavily on computerized systems. The major systems operated by the Corporation are those for financial reporting, all of which are year 2000 compliant. As a result, it is the opinion of management that any year 2000 issues that may arise will not have a material adverse impact on the financial condition or performance of the Corporation. The Corporation is continuing its review of key suppliers to determine their exposure to problems arising from Year 2000. The review is being conducted by management personnel and additional resources are not believed to be required. Given the current status of the Corporation's activities, no contingency plans are currently in place. -9- 10 ITEM 3 - MARKET RISK Market risk represents the risk of loss that may impact the consolidated financial statements of the Corporation due to adverse changes in financial market prices and rates. The Corporation's market risk is primarily the result of fluctuations in interest rates and aluminum prices. Management monitors the movements in interest rates in the current environment are such that no measures need be taken at this time. The Corporation does not hold or issue financial instruments for trading purposes. A discussion of the Corporation's financial instruments is included in the financial instruments note to the Consolidated Financial Statements in the Corporation's 1998 Annual Report, which are incorporated by reference in the Corporation's Form 10K for the year ended December 31, 1998. CAUTIONARY "SAFE HARBOR" STATEMENT UNDER THE UNITED STATES PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 With the exception of historical matters, the matters discussed in this report are forward looking statements that involve risks and uncertainties that could cause actual results to differ materially from targeted or projected results. Factors that could cause actual results to differ materially include, among others, fluctuations in aluminum prices, problems regarding unanticipated competition, processing, access and transportation of supplies, availability of materials and equipment, force majeure events, the failure of plant equipment or processes to operate in accordance with specifications or expectations, accidents, labor relations, delays in start-up dates, environmental costs and risks, the outcome of acquisitions 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 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS At the Corporation's 1999 Annual and Special Meeting of Shareholders held on May 10, 1999 the following actions were taken and votes tabulated: 1. Eight directors were elected for the ensuing year.
NAME VOTES FOR VOTES WITHHELD --------------------------- ----------------------- ---------------------------- Paul A. Carroll 7,200,134 11,131 Morton A. Cohen 7,200,134 11,131 John M. Donovan 7,200,134 11,131 R. Peter Gillin 7,200,134 11,131 Peter O. Lawson-Johnston 7,200,134 11,131 Richard L. Lister 7,200,134 11,131 Garth A.C. MacRae 7,200,134 11,131 William J. vanden Heuvel 7,200,134 11,131
-10- 11 2. The appointment of Deloitte & Touche as independent auditors of the accounts of the Corporation and its subsidiaries for the fiscal year ending December 31, 1999 was ratified.
ABSTENTIONS VOTES FOR VOTES AGAINST (INCLUDING BROKER NON-VOTES) --------------------------- ----------------------- ---------------------------- 7,197,794 5,252 6,460
3. The proposal for the Corporation's 1999 Stock Option Plan was approved.
ABSTENTIONS VOTES FOR VOTES AGAINST (INCLUDING BROKER NON-VOTES) --------------------------- ----------------------- ---------------------------- 5,492,788 60,687 40,626
4. The proposal for the Corporation's 1999 Employee Stock Purchase Plan was approved.
ABSTENTIONS VOTES FOR VOTES AGAINST (INCLUDING BROKER NON-VOTES) --------------------------- ----------------------- ---------------------------- 7,098,518 74,584 38,671
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. Dated this 14th day of May, 1999. ZEMEX CORPORATION (Registrant) By: /s/ ALLEN J. PALMIERE ----------------------------------- Allen J. Palmiere Vice President and Chief Financial Officer -11- EX-27 2 FINANCIAL DATA SCHEDULE
5 0000075644 ZEMEX CORPORATION U.S 3-MOS DEC-31-1999 JAN-01-1999 MAR-31-1999 1 688,000 0 19,295,000 (303,000) 18,292,000 39,666,000 133,797,000 (42,942,000) 151,935,000 25,182,000 0 8,752,000 0 0 74,933,000 151,935,000 27,910,000 27,910,000 19,583,000 25,080,000 50,000 0 (870,000) 1,910,000 535,000 1,388,000 0 0 0 1,388,000 0.17 0.15
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