10-Q 1 e10-q.txt 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 June 30, 2000 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 June 30, 2000, there were 8,821,020 shares of capital stock outstanding. 2 PART I - FINANCIAL INFORMATION ITEM 1 - FINANCIAL STATEMENTS ZEMEX CORPORATION CONSOLIDATED BALANCE SHEETS (US$)
JUNE 30, 2000 DECEMBER 31, 1999 ------------- ----------------- ASSETS (unaudited) CURRENT ASSETS Cash and cash equivalents $ 861,000 $ 1,592,000 Accounts receivable 16,838,000 19,829,000 Inventories 15,528,000 19,482,000 Prepaid expenses and other current assets 1,832,000 2,457,000 Future income tax benefits 677,000 677,000 ------------- ------------- 35,736,000 44,037,000 Property, plant and equipment 81,968,000 96,779,000 Other assets 11,678,000 18,228,000 Future income tax benefits 521,000 484,000 ------------- ------------- TOTAL ASSETS $ 129,903,000 $ 159,528,000 ============= ============= LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Bank indebtedness $ 15,145,000 $ 5,500,000 Accounts payable 5,581,000 5,959,000 Accrued liabilities 2,508,000 3,398,000 Accrued income taxes 4,345,000 950,000 Current portion of long term debt 618,000 617,000 ------------- ------------- 28,197,000 16,424,000 LONG TERM DEBT 434,000 50,502,000 OTHER NON-CURRENT LIABILITIES 633,000 585,000 ------------- ------------- 29,264,000 67,511,000 ------------- ------------- NON-CONTROLLING INTEREST 3,222,000 2,970,000 ------------- ------------- SHAREHOLDERS' EQUITY Common stock 58,173,000 58,560,000 Retained earnings 42,898,000 33,920,000 Note receivable from shareholder (1,749,000) (1,749,000) Cumulative translation adjustment (1,905,000) (1,684,000) ------------- ------------- 97,417,000 89,047,000 ------------- ------------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 129,903,000 $ 159,528,000 ============= =============
Prepared in accordance with Canadian GAAP - 2 - 3 ZEMEX CORPORATION CONSOLIDATED STATEMENTS OF INCOME (LOSS) (US$)
3 MONTHS ENDED JUNE 30 6 MONTHS ENDED JUNE 30 2000 1999 2000 1999 ------------ ------------ ------------ ------------ (unaudited) NET SALES $ 21,101,000 $ 19,752,000 $ 40,770,000 $ 38,338,000 ------------ ------------ ------------ ------------ COSTS AND EXPENSES Cost of goods sold 15,531,000 12,884,000 29,356,000 25,284,000 Selling, general and administrative 2,879,000 2,956,000 5,618,000 5,554,000 Depreciation, depletion and amortization 1,947,000 1,856,000 3,913,000 3,640,000 ------------ ------------ ------------ ------------ 20,357,000 17,696,000 38,887,000 34,478,000 ------------ ------------ ------------ ------------ OPERATING INCOME 744,000 2,056,000 1,883,000 3,860,000 ------------ ------------ ------------ ------------ Interest income 45,000 30,000 88,000 70,000 Interest expense (508,000) (1,053,000) (1,617,000) (1,928,000) Other expenses, net 130,000 (2,000) (2,995,000) (22,000) ------------ ------------ ------------ ------------ (333,000) (1,025,000) (4,524,000) (1,880,000) ------------ ------------ ------------ ------------ INCOME (LOSS) BEFORE (RECOVERY OF) PROVISION FOR INCOME TAXES AND NON-CONTROLLING INTEREST 411,000 1,031,000 (2,641,000) 1,980,000 (Recovery of) provision for income taxes (30,000) 240,000 (1,380,000) 455,000 Non-controlling interest in earnings (loss) of subsidiary 20,000 (3,000) 91,000 (17,000) ------------ ------------ ------------ ------------ INCOME (LOSS) FROM CONTINUING OPERATIONS 421,000 794,000 (1,352,000) 1,542,000 INCOME FROM DISCONTINUED OPERATIONS 9,418,000 820,000 10,330,000 1,461,000 ------------ ------------ ------------ ------------ NET INCOME $ 9,839,000 $ 1,614,000 $ 8,978,000 $ 3,003,000 ============ ============ ============ ============ NET INCOME (LOSS) PER SHARE BASIC Continuing operations $ 0.05 $ 0.09 $ (0.16) $ 0.18 Discontinued operations $ 1.11 $ 0.10 $ 1.21 $ 0.18 ------------ ------------ ------------ ------------ $ 1.16 $ 0.19 $ 1.05 $ 0.36 ------------ ------------ ------------ ------------ FULLY DILUTED Continuing operations $ 0.04 $ 0.08 $ (0.14) $ 0.16 Discontinued operations $ 0.95 $ 0.09 $ 1.05 $ 0.16 ------------ ------------ ------------ ------------ $ 0.99 $ 0.17 $ 0.91 $ 0.32 ------------ ------------ ------------ ------------ WEIGHTED AVERAGE COMMON SHARES OUTSTANDING BASIC 8,498,861 8,403,728 8,507,594 8,377,306 FULLY DILUTED 10,001,011 9,842,516 10,009,744 9,764,238
Prepared in accordance with Canadian GAAP - 3 - 4 ZEMEX CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOW FOR THE SIX MONTHS ENDED JUNE 30 (US$)
2000 1999 ------------ ------------ (unaudited) CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 8,978,000 $ 3,003,000 Adjustments to reconcile net income to net cash flows from operating activities Depreciation, depletion and amortization 4,294,000 4,295,000 Amortization of deferred financing costs 29,000 97,000 Increase in future income tax benefits (37,000) (443,000) Non-controlling interest in subsidiary earnings (loss) 91,000 (17,000) (Gain) loss on sale of property, plant and equipment (267,000) 65,000 Gain on sale of discontinued operations (15,191,000) -- Increase in other assets (726,000) (1,762,000) Increase (decrease) in other non-current liabilities 48,000 (111,000) Changes in non-cash working capital items 2,850,000 (827,000) ------------ ------------ Net cash provided by operating activities 69,000 4,300,000 ------------ ------------ CASH FLOWS FROM INVESTING ACTIVITIES Additions to property, plant and equipment (3,814,000) (7,594,000) Proceeds from sale of discontinued operations 39,353,000 -- Proceeds of sales of securities 4,215,000 -- Proceeds from sale of assets 234,000 1,000 ------------ ------------ Net cash provided by (used in) investing activities 39,988,000 (7,593,000) ------------ ------------ CASH FLOWS FROM FINANCING ACTIVITIES Net increase (decrease) in bank indebtedness 9,645,000 (10,000,000) Net (decrease) increase in long term debt (50,007,000) 12,387,000 Issuance of common stock 225,000 521,000 Purchase of common stock and options (612,000) (35,000) ------------ ------------ Net cash (used in) provided by financing activities (40,749,000) 2,873,000 ------------ ------------ EFFECT OF EXCHANGE RATE CHANGES ON CASH (39,000) 93,000 ------------ ------------ NET DECREASE IN CASH (731,000) (327,000) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 1,592,000 1,062,000 ------------ ------------ CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 861,000 $ 735,000 ============ ============
Prepared in accordance with Canadian GAAP - 4 - 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 June 30, 2000 and 1999 and for the six months ended June 30, 2000 and 1999 are unaudited but, in the opinion of management, reflect all adjustments, considered necessary for a fair presentation of financial position and results of operations. The results of operations for the three-month and six month periods ended June 30, 2000 are not necessarily indicative of operations for the year. All material intercompany transactions have been eliminated. OVERVIEW The Corporation is a diversified producer of specialty materials and products for use in a variety of industrial applications. The Corporation has operated in three 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; (ii) aluminum recycling, which includes Alumitech, Inc., Alumitech of Cleveland, Inc., Alumitech of Wabash, Inc., ETS Schaefer Corporation and AWT Properties, Inc.; and (iii) metal powders, which includes Pyron Corporation and Pyron Metal Powders, Inc. (see note 1 below). 1. On April 11, 2000, the Corporation completed the sale of its metal powders division for $42.0 million to North American Hoganas Holdings, Inc., a subsidiary of Hoganas AB. The Corporation recognized a pre-tax gain of $15.2 million in the second quarter of 2000; the after-tax gain from this sale transaction was $9.4 million, or $1.11 per share. The sale proceeds were applied to the Corporation's credit facilities. The Corporation's total bank indebtedness was reduced to $15.1 million by the end of the second quarter of 2000. 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 existing credit facility, bears interest at the same rate and is secured by the same security package as the existing credit facility. The bridge facility matures October 31, 2000 and was to be partially repaid from the the sale proceeds from Pyron Corporation and Pyron Metal Powders, Inc. The redemption necessitated a make-whole payment to the noteholders of $1.2 million, which was recorded in the first quarter of 2000 and was included in other expenses. 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. - 5 - 6 SEGMENT INFORMATION The Corporation's continuing operations are now 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 continuing operations and assets by business segment appears below:
Industrial Aluminum Three Months Ended June 30, 2000 Consolidated Minerals Recycling Corporate -------------------------------- ------------ ------------ ---------- ----------- Net sales $ 21,101,000 $ 13,917,000 $7,184,000 $ -- Operating income (loss) 744,000 1,438,000 35,000 (729,000) Interest expense (508,000) (24,000) (6,000) (478,000) Income (loss) from continuing operations 421,000 1,025,000 40,000 (644,000) Income from discontinued operations 9,418,000 -- -- 9,418,000 Net income 9,839,000 1,025,000 40,000 8,774,000 ============ ============ ========== ===========
Industrial Aluminum Three Months Ended June 30, 1999 Consolidated Minerals Recycling Corporate -------------------------------- ------------ ------------ ---------- ----------- Net sales $ 19,752,000 $ 12,716,000 $7,036,000 $ -- Operating income (loss) 2,056,000 1,986,000 883,000 (813,000) Interest expense (1,053,000) (68,000) (17,000) (968,000) Income (loss) from continuing operations 794,000 1,662,000 879,000 (1,747,000) Income from discontinued operations 820,000 -- -- -- Net income (loss) 1,614,000 1,662,000 879,000 (1,747,000) ============ ============ ========== ===========
Industrial Aluminum Six Months Ended June 30, 2000 Consolidated Minerals Recycling Corporate -------------------------------- ------------ ------------ ---------- ----------- Net sales $ 40,770,000 $ 26,812,000 $ 13,958,000 $ -- Operating income (loss) 1,883,000 3,000,000 274,000 (1,391,000) Interest expense (1,617,000) (8,000) (12,000) (1,597,000) (Loss) income from continuing operations (1,352,000) 2,274,000 293,000 (3,919,000) Income from discontinued operations 10,330,000 -- -- 9,418,000 Net income 8,978,000 2,274,000 293,000 5,499,000 ============ ============ ============ ===========
Industrial Aluminum Six Months Ended June 30, 1999 Consolidated Minerals Recycling Corporate -------------------------------- ------------ ------------ ---------- ----------- Net sales $ 38,338,000 $ 25,293,000 $ 13,045,000 $ -- Operating income (loss) 3,860,000 4,102,000 1,284,000 (1,526,000) Interest expense (1,928,000) (79,000) (46,000) (1,803,000) Income (loss) from continuing operations 1,542,000 3,397,000 1,276,000 (3,131,000) Income from discontinued operations 1,461,000 -- -- -- Net income (loss) 3,003,000 3,397,000 1,276,000 (3,131,000) ============ ============ ============ ===========
- 6 - 7
Industrial Aluminum Discontinued June 30, 2000 Consolidated Minerals Recycling Corporate Operations ------------- ------------ ------------ ----------- ----------- ------------ Current assets $ 35,736,000 $ 27,222,000 $ 6,018,000 $ 2,496,000 $ -- Total assets 129,903,000 81,388,000 37,837,000 10,678,000 -- Total current liabilities 28,197,000 4,454,000 3,809,000 19,934,000 -- Total shareholders' equity 97,417,000 -- -- 97,417,000 -- ============ ============ =========== =========== ============
Industrial Aluminum Discontinued June 30, 1999 Consolidated Minerals Recycling Corporate Operations ------------- ------------ ------------ ----------- ----------- ------------ Current assets $ 40,150,000 $ 24,425,000 $ 3,903,000 $ 1,384,000 $ 10,438,000 Total assets 156,405,000 77,607,000 35,933,000 16,971,000 25,894,000 Total current liabilities 13,725,000 5,448,000 3,401,000 537,000 4,339,000 Total shareholders' equity 85,814,000 -- -- 85,814,000 -- ============ ============ =========== =========== ============
COMMON SHARES AND STOCK OPTIONS Shares Outstanding As at June 30, 2000, 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 8,814,131 common shares issued and outstanding as of July 31, 2000. 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 1,145,150 options outstanding as of July 31, 2000 of which 944,700 are exercisable as of July 31, 2000. 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 (loss) 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. For purposes of reporting in accordance with U.S. GAAP, certain equity securities that are not held principally for the purpose of sale in the near term are classified as available-for-sale securities, are reported at fair value, and are translated at the current exchange rate, which can give rise to an exchange gain or loss. For Canadian GAAP purposes, such securities are to be reported at cost unless their market value has declined below cost, and are translated at the historical exchange rate. - 7 - 8 The following summarizes the income statement amounts in accordance with U.S. GAAP where different from the amounts reported under Canadian GAAP.
Three Months Ended June 30, Six Months Ended June 30, 2000 1999 2000 1999 --------- --------- ----------- ----------- Income (loss) from continuing operations, as reported $ 421,000 $ 794,000 $(1,352,000) $ 1,542,000 Less: Start-up activities -- (749,000) -- (1,291,000) Add: Exchange gain on available-for-sale securities -- 127,000 -- 127,000 Tax effect related thereto -- 174,000 -- 326,000 --------- --------- ----------- ----------- Income (loss) from continuing operations (U.S. GAAP) $ 421,000 $ 346,000 $(1,352,000) $ 704,000 --------- --------- ----------- ----------- Income (loss) from continuing operations per share (U.S. GAAP) - basic $ 0.05 $ 0.04 $ (0.16) $ 0.08 - diluted $ 0.05 $ 0.04 $ (0.16) $ 0.08 ========= ========= =========== ===========
b. Balance Sheets 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. The following summarizes the balance sheet amounts in accordance with U.S. GAAP where different from the amounts reported under Canadian GAAP.
June 30, 2000 December 31, 1999 ---------------------------- ----------------------------- Canadian GAAP U.S. GAAP Canadian GAAP U.S. GAAP ------------ ------------ ------------ ------------ Property, plant and equipment $ 81,968,000 $ 79,230,000 $ 96,779,000 $ 94,042,000 Other assets 11,678,000 11,381,000 18,228,000 17,907,000 Accrued income taxes 4,345,000 4,345,000 950,000 491,000 Retained earnings 42,898,000 39,863,000 33,920,000 31,321,000 ============ ============ ============ ============
- 8 - 9 c. Statements of Comprehensive Income U.S. GAAP requires a statement of comprehensive income as follows:
Three Months Ended June 30, Six Months Ended June 30, 2000 1999 2000 1999 --------- ---------- ------------ ---------- Net income (loss) (U.S. GAAP) $ 421,000 $ 346,000 $ (1,352,000) $ 704,000 Change in foreign currency translation adjustment, net of tax (2000, $(90,000), $(108,000); 1999, $80,000, $119,000) (93,000) 205,000 (113,000) 307,000 Change in unrealized holding gains (losses) on available-for-sale securities -- (402,000) -- (775,000) --------- ---------- ------------ ---------- Comprehensive income (loss) $ 328,000 $ 149,000 $ (1,465,000) $ 236,000 ========= ========== ============ ==========
Recent Accounting Pronouncements In June 1998, the Financial Accounting Standards Board 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 2001. 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 June 30, 2000 and the three months ended June 30, 1999, and for the six months ended June 30, 2000 and six months ended June 30, 1999, 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 JUNE 30, 2000 COMPARED TO THREE MONTHS ENDED JUNE 30, 1999 Net Sales The Corporation's net sales from continuing operations for the three months ended June 30, 2000 were $21.1 million compared to $19.8 million for the three months ended June 30, 1999, an increase of $1.3 million, or 6.8%. Net sales of $13.9 million in the industrial minerals segment for the three month period ended June 30, 2000 represented an increase of $1.2 million, or 9.4%, over the same period in 1999. Sales revenue from talc, mica and feldspar products increased by $0.6 million, $0.4 million and $0.2 million, respectively, compared with the corresponding quarter in 1999. - 9 - 10 Net sales for the aluminum recycling segment for the three months ended June 30, 2000 were $7.2 million, an increase of $0.1 million, or 2.1%, from the second quarter of 1999. The increase is attributable to growth in sales of the Corporation's heat containment products partially offset by the start-up costs relating to calcium aluminate. Cost of Goods Sold Cost of goods sold for the three months ended June 30, 2000 was $15.5 million, an increase of $2.6 million, or 20.6%, from the comparable period in 1999. The increase is in part due to the start-up of the Corporation's calcium aluminate facility. Also in the second quarter of 2000 the Corporation did not produce for inventory any feedstock used in the production of low iron sand. For these reasons the Corporation's gross margin as a percentage of sales decreased to 26.4% for the three months ended June 30, 2000 from 34.8% during the second quarter of 1999. Selling, General and Administrative Expense Selling, general, and administrative expense ("SG&A") for the three months ended June 30, 2000 decreased to $2.9 million, a decline of $0.1 million, or 2.6%, from the same period in 1999. As a percentage of sales, SG&A decreased to 13.6% in the second quarter of 2000 from 15.0% in the corresponding period in 1999. Depreciation, Depletion and Amortization Depreciation, depletion and amortization for the three months ended June 30, 2000 was $1.9 million, an increase of 4.9% over the comparable period in 1999 as a result of assets being acquired and placed into service over the last twelve months. Operating Income Operating income for the three month period ended June 30, 2000 was $0.7 million, a decrease of $1.3 million from the comparable period in 1999. Interest Income Interest income for the three months ended June 30, 2000 was $0.5 million, virtually unchanged from the same period in 1999. Interest Expense Interest expense for the three months ended June 30, 2000 was $0.5 million, down from $1.1 million for the comparable period in 1999. The decrease is primarily due to the sale of the metal powders division, the proceeds from which were applied to pay down the Corporation's credit facilities. Total bank indebtedness was $15.1 million as of June 30, 2000 compared to $55.5 million as of December 31, 1999. - 10 - 11 (Recovery of) Provision for Income Taxes For the three months ended June 30, 2000, the Corporation recognized a marginal income tax benefit of $30,000 from continuing operations as a result of both an increase in the applicable tax rate and a decrease of income earned from its U.S. continuing operations. During the second quarter of 1999, the Corporation's provision for income taxes was $0.2 million. Net Income As a result of the factors discussed above, the Corporation recorded net income from continuing operations for the three months ended June 30, 2000 of $0.4 million compared to $0.8 million for the three months ended June 30, 1999. SIX MONTHS ENDED JUNE 30, 2000 COMPARED TO SIX MONTHS ENDED JUNE 30, 1999 Net Sales The Corporation's net sales for the six months ended June 30, 2000 were $40.8 million, an increase of $2.4 million, or 6.3%, from the same period in 1999. The increase is due to a 6.0% increase in sales of industrial mineral products and a 7.0% increase in sales from the aluminum recycling segment. Net sales in the industrial minerals segment for the six month period ended June 30, 2000 increased by $1.5 million to $26.8 million from $25.3 million in the corresponding period of 1999. Of the increase, $1.2 million is due to an increase in talc sales and $0.9 million is due to an increase in sales of mica, offset by a $0.6 million decrease in feldspar revenue. Sales from the Corporation's aluminum recycling segment for the six months ended June 30, 2000 were $14.0 million, $0.9 million, or 7.0%, higher than in the same period of 1999. Cost of Goods Sold Cost of goods sold for the six months ended June 30, 2000 was $29.4 million, an increase of $4.1 million, or 16.1%, from the comparable period in 1999. As a percentage of net sales, gross margin decreased to 28.0% for the six months ended June 30, 2000 from 34.1% for the same period in 1999. Selling, General and Administrative Expense SG&A expense for both the six month period ended June 30, 2000 and the corresponding period ended June 30, 1999 was $5.6 million. As a percentage of net sales, SG&A expense decreased to 13.8% in the first half of 2000 from 14.5% in the same period in 1999. Depreciation, Depletion and Amortization DD&A for the six months ended June 30, 2000 was $3.9 million, an increase of $0.3 million, or 7.5%, over the comparable period in 1999. Operating Income Operating income for the six month period ended June 30, 2000 was $1.9 million, a decrease of $2.0 million, or 51.2%, from the comparable period in 1999. - 11 - 12 Interest Income Interest income for the six months ended June 30, 2000 was $0.1 million, marginally higher than for the same period in 1999. Interest Expense Interest expense for the six months ended June 30, 2000 was $1.6 million, $0.3 million, or 16.1%, lower than in the same period in 1999 as a result of decreased indebtedness. Other Expense, Net The Corporation recorded other expense of $3.0 million for the six months ended June 30, 2000, compared to $20,000 for the same period in 1999. The increase is mainly due to the recognition of $3.2 million of expense in connection with the early redemption of its Senior Secured Notes in March 2000. (Recovery of) Provision for Income Taxes For the six months ended June 30, 2000, the Corporation recognized an income tax benefit of $1.4 million from the continuing operations. The Corporation recorded an income tax provision of $0.5 million from the continuing operations for the same period of 1999. Net (Loss) Income As a result of the factors discussed above, the Corporation recorded a net loss of $1.4 million from continuing operations for the six months ended June 30, 2000 compared to net income of $1.5 million from the same period ended June 30, 1999. LIQUIDITY AND CAPITAL RESOURCES Cash Flow from Operations During the first two quarters of 2000, the Corporation generated cash flow from operations of $0.1 million as compared to $4.3 million for the first six months of 1999. Non-cash working capital generated $2.9 million of cash for the first six months of 2000; in the corresponding period in 1999, non-cash working capital items used $0.8 million of cash from operations. The change is mainly due to an increase in accounts payable and income tax payable, offset by an increase in accounts receivable. The Corporation had working capital of $7.5 million at June 30, 2000 compared to $27.6 million at December 31, 1999. The decrease in working capital arose as a result of replacing the Corporation's $50 million Senior Secured Notes with a $50 million bridge facility in March 2000. As a result of applying proceeds from the sale of the metal powders division, the balance of credit facilities was reduced to $15.1 million as of June 30, 2000. It is the opinion of management that there are sufficient sources of funds available to meet its anticipated cash requirements. - 12 - 13 YEAR 2000 The Corporation operates in basic industries that do not rely heavily on computerized systems. Although the change in date has occurred and the Corporation has suffered no consequences, it is not possible to conclude that all aspects of the year 2000 issue affecting the Corporation have been fully resolved. ITEM 3 - MARKET RISK Market risk represents the risk of loss that may impact the consolidated financial statements of the Corporation due to adverse changes in financial market prices and rates. The Corporation's market risk is primarily the result of fluctuations in interest rates and aluminum prices. Management monitors the movements in interest rates and performs 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 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 10K for the year ended December 31, 1999. 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. - 13 - 14 ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS At the Corporation's 2000 Annual and Special Meeting of Shareholders held on June 29, 2000 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 6,757,319 11,314 Morton A. Cohen 6,757,319 11,314 John M. Donovan 6,757,319 11,314 R. Peter Gillin 6,757,319 11,314 Peter Lawson-Johnston 6,757,319 11,314 Richard L. Lister 6,757,319 11,314 Garth A.C. MacRae 6,757,319 11,314 William J. vanden Heuvel 6,757,319 11,314
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, 2000 was ratified.
ABSTENTIONS VOTES FOR VOTES AGAINST (INCLUDING BROKER NON-VOTES) --------- ------------- ---------------------------- 6,760,013 0 2,243
3. The proposal to increase the number of common shares reserved for issuance under the Corporation's 1999 Stock Option Plan was approved.
ABSTENTIONS VOTES FOR VOTES AGAINST (INCLUDING BROKER NON-VOTES) --------- ------------- ---------------------------- 5,495,528 101,767 2,643
- 14 - 15 ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K Exhibits None Reports on Form 8-K Form 8-K filed April 21, 2000 * * * * * 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 8th day of August, 2000. ZEMEX CORPORATION (Registrant) By: /s/ ALLEN J. PALMIERE ------------------------------------------- Allen J. Palmiere Vice President and Chief Financial Officer - 15 -