-----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, Dy22i7wz3ZTzN4QFWLn+oOnd93MNGoXVjLJG0USwEd46mbXJzyB4mVgNdgZlJeKB CcgUXpmG7KkuYPKm5VsaHQ== 0001130319-02-000271.txt : 20020416 0001130319-02-000271.hdr.sgml : 20020416 ACCESSION NUMBER: 0001130319-02-000271 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20011231 FILED AS OF DATE: 20020410 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-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-00228 FILM NUMBER: 02607533 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-K 1 t06765ore10-k.txt FORM 10-K 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, 2001 Commission file number 1-228 [ZEMEX LOGO] 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 April 9, 2002 (based on the closing sale price of $6.89 on the New York Stock Exchange) was $28,729,750. As of April 9, 2002, 8,195,437 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 2002 Annual Meeting of Shareholders Part III FORM 10-K ANNUAL REPORT TABLE OF CONTENTS AND CROSS-REFERENCE SHEET
PART I PAGE ---- 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 the 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.......................................................................20 Item 8. Financial Statements and Supplementary Data.......................................20 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. 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, 2001, Zemex operated nine plants throughout Canada and the United States. 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. On April 11, 2000, the Corporation 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 $42.0 million in cash. As a result of the sale of the Pyron companies, the results of the metal powders division were reclassified as discontinued operations in the Corporation's consolidated statements of operations. 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 Industrial Minerals, Inc., Zemex Mica Corporation ("ZMC") and effective February 1, 2002, Zemex Attapulgite, LLC ("ZAL") (collectively, "Zemex Industrial Minerals" or "ZIM"). Each of these companies is either directly or indirectly a wholly-owned subsidiary of Zemex. 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 1 other glass containers, fibreglass, paints and plastics, and television picture tubes. Industrial sand is used 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 also used as a partial or complete substitute for asbestos in fire retardation, 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 barytes at Murphy, North Carolina and talc at Van Horn, Texas. The Murphy plant purchases raw materials and produces baryte products, primarily for the oil drilling and coatings industries. The production facility in Van Horn processes talc mined in proximity to the plant for the coatings, plastics and ceramics 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 remaining 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 approximately $7.5 million. This transaction was recorded in the first quarter of 2001. On February 1, 2002, the Corporation acquired, through Zemex Attapulgite, LLC, a newly incorporated Georgia limited liability company, the assets of an attapulgite clay producer from Milwhite, Inc. ZAL extracts clay from two current mining areas owned in fee and processes this material in the adjacent plant. ZAL's primary market focus is the production of joint compounds. It also serves the coatings, absorption, adhesives, fertilizer and fillers industries. The Corporation paid approximately $11.7 million to acquire the operation and funded the purchase from its existing credit facility. 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 in fiscal 2000. The Corporation's industrial mineral sales were $39.9 million in 2001, compared to $51.4 million in 2000 and $50.4 million in 1999. Income generated from operating activities for this group was $7.2 million in 2001, versus $5.7 million in 2000 and $8.0 million in 1999. Capital expenditures were $2.7 million in 2001 as compared to $2.8 million in 2000 and $7.1 million in 1999. Capital spending in 1999 included the retrofitting of the muscovite mica operation that was acquired in 1998. 2 ALUMINUM RECYCLING Zemex's aluminum recycling group as at December 31, 2001 was 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 had 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 relocated to Macedonia, Ohio in 2001. Alumitech is an aluminum dross processor. Aluminum dross is the waste by-product produced by primary and secondary aluminum smelters. Secondary dross, which generally 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 ceased its efforts to operate the closed-loop system and wrote-off its investment in the technology and equipment during the year ended December 31, 2000. Sales for the aluminum recycling group declined to $17.4 million in 2001 compared to $25.1 million in 2000 and $27.2 million in 1999. The depressed secondary aluminum industry generated less dross and saltcake. Accordingly, the price of the feedstock for Alumitech increased and the quality decreased. During 2001, production was cut back which resulted in lower sales volume. Revenue declined in the heat containment unit due to the poor condition of the steel and other metallurgical industries. During 2001 and 2000, the aluminum recycling group recorded an operating loss of $1.7 million and $1.3 million, accordingly, compared to income from operations of $2.8 million in 1999. On March 27, 2002, the Corporation purchased the assets of Resource Recovery Industries, LLC, an aluminum dross processor located in Friendly, West Virginia. The purchase price was approximately $3.2 million and was financed by a drawdown on the Corporation's existing credit facility. Capital expenditures for the aluminum recycling group were $0.8 million in 2001 as compared to $1.4 million in 2000 and $5.0 million in 1999. METAL POWDERS The metal powders division consisted of two wholly-owned subsidiaries, Pyron Corporation and Pyron Metal Powders, Inc. (together, "Pyron"). Pyron operated plants located in Niagara Falls, New York; St. Marys, Pennsylvania; and Greenback and Maryville, Tennessee. On April 11, 2000, the Corporation completed the sale of its metal powders division for gross proceeds of approximately $42.0 million. The sale resulted in a pre-tax gain of $15.7 million. These subsidiaries were reflected as discontinued operations on the Corporation's statement of operations for the year ended December 31, 2000 and December 31, 1999. 3 Sales for the metal powders division were $10.7 million in 2000 versus $39.0 million in 1999. During the same period, income from operations for the group was $1.4 million as compared to $6.1 million in 1999. The 2000 figures contained three months activities while the 1999 numbers included a full year of operations. The metal powders division spent $0.2 million in capital expenditures in the first three months in 2000, compared to $1.6 million spent in a full year of 1999. RESEARCH AND DEVELOPMENT The Corporation carries on an active program of product development and improvement. Research and development expense was $0.5 million in 2001, $0.5 million in 2000 and $1.1 million in 1999. Financial information about continuing operations by industry segment is set forth on pages F-22 to F-24 of this report. Financial information pertaining to the metal powders division, which was disclosed as a discontinued operation, is set forth on page F-20. 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, 2001 is set forth below: Industrial Minerals 237 Aluminum Recycling 80 Corporate 6 ------ Total 323 ======
Approximately 17 employees at Suzorite are covered by a three-year collective bargaining agreement that expires December 12, 2002. At Alumitech, approximately 21 employees are covered by two collective bargaining agreements, one agreement expiring April 30, 2004 and one agreement expiring December 31, 2004. Approximately 52 hourly employees at TFC's sodium feldspar plant in Spruce Pine, North Carolina are covered by a collective agreement, which expires January 31, 2003. 4 The Corporation considers its labour relations to be good. EXPORT SALES The Corporation's industrial minerals and aluminum recycling operations sell their products internationally to a wide variety of customers including those in the ceramics, glass and plastic industries. Export sales were 7.4% of the total for the year ended December 31, 2001. 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 2001 and 2000 a decline in the secondary aluminum industry and an undisciplined market for dross and saltcake resulted in an industry wide 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 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 conditions 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 FOREIGN OPERATIONS All 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 OFFICER POSITION AGE POSITION SINCE - ------- -------- --- -------------- Peter Lawson-Johnston Chairman of the Board of Directors 75 1975 Richard L. Lister President and Chief Executive Officer 63 1993 Allen J. Palmiere Vice President, Chief Financial Officer and Corporate 49 1993 Secretary Peter J. Goodwin President, Industrial Minerals 51 1994 Terrance J. Hogan President, Aluminum Recycling 46 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 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; Attapulgus, Georgia; Boucherville, Quebec; Suzor Township, Quebec; Murphy, North Carolina; Spruce Pine, North Carolina; and Van Horn, Texas. This group owns approximately 284,000 square feet of office and plant floor space. 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. The aluminum recycling group has operations in Cleveland, Ohio; Macedonia, Ohio; and Wabash, Indiana. The aluminum dross processing plant in Cleveland, Ohio is located on 6.1 acres of land and has buildings totaling 51,000 square feet. 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 operations are maintained in good operating condition. 7 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 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 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
=================================================================================================================== 2001 Q1 Q2 Q3 Q4 YEAR - ------------------------------------------------------------------------------------------------------------------- HIGH $ 6.65 $ 7.60 $ 7.30 $ 6.80 $ 7.60 LOW 5.19 6.05 6.01 5.76 5.19 CLOSE 6.25 6.10 6.27 6.45 6.45 - -------------------------------------------------------------------------------------------------------------------
=================================================================================================================== 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 - -------------------------------------------------------------------------------------------------------------------
As of April 9, 2002, there were approximately 1,416 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 ITEM 6. SELECTED FINANCIAL DATA
============================================================================================================================== 2001 2000 1999 1998 1997 - ------------------------------------------------------------------------------------------------------------------------------ SUMMARY OF OPERATIONS Net sales $ 57,336,000 $ 76,480,000 $ 77,530,000 $ 68,338,000 $ 63,296,000 Income before the undernoted 1,854,000 602,000 7,015,000 6,202,000 5,994,000 Provision for asset impairment -- 24,552,000 -- -- -- Other income (expense) 615,000 (3,017,000) (522,000) (840,000) 1,616,000 Income (loss) before discontinued operations 865,000 (19,356,000) 1,847,000 2,652,000 4,118,000 Income from discontinued operations -- 11,385,000 3,934,000 2,713,000 1,675,000 Net income (loss) 865,000 (7,971,000) 5,781,000 5,365,000 5,793,000 FINANCIAL POSITION Working capital $ 10,134,000 $ 4,831,000 $ 27,613,000 $ 14,810,000 $ 18,975,000 Total assets 97,515,000 113,579,000 160,979,000 150,744,000 118,774,000 Long term debt (non-current portion) 211,000 261,000 50,502,000 39,354,000 20,527,000 COMMON SHARES Average common shares outstanding 8,190,194 8,466,988 8,425,561 8,286,178 8,267,630 Actual common shares issued and outstanding at year end 8,178,393 8,697,822 8,873,453 8,707,796 8,463,491 PER COMMON SHARE Basic - Continuing operations $0.11 $(2.29) $0.22 $0.32 $0.50 Basic - Discontinued operations -- $1.35 $0.47 $0.33 $0.20 Basic earnings (loss) per share $0.11 $(0.94) $0.69 $0.65 $0.70 Diluted - Continuing operations $0.10 $(2.29) $0.22 $0.31 $0.48 Diluted - Discontinued operations -- $1.35 $0.46 $0.32 $0.20 Diluted earnings (loss) per share $0.10 $(0.94) $0.68 $0.63 $0.68 U.S. GAAP Income (loss) before discontinued operations $ 897,000 $(18,479,000) $ 462,000 $ 1,595,000 $ 4,112,000 Income from discontinued operations -- 11,385,000 3,934,000 2,713,000 1,675,000 Net income (loss) 897,000 (7,094,000) 4,396,000 4,308,000 5,787,000 PER COMMON SHARE UNDER U.S. GAAP Basic - Continuing operations $0.11 $(2.18) $0.05 $0.19 $0.50 Basic - Discontinued operations -- $ 1.34 $0.47 $0.33 $0.20 Basic earnings (loss) per share $0.11 $(0.84) $0.52 $0.52 $0.70 Diluted - Continuing operations $0.11 $(2.18) $0.05 $0.19 $0.48 Diluted - Discontinued operations -- $ 1.34 $0.46 $0.32 $0.20 Diluted earnings (loss) per share $0.11 $(0.84) $0.51 $0.51 $0.68 COMMON STOCK PRICES High $7.60 $10.00 $9.75 $10.44 $10.94 Low 5.19 5.25 5.00 6.00 6.75 Year end 6.45 5.38 9.13 6.25 8.75 - ------------------------------------------------------------------------------------------------------------------------------
10 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, 2001, 2000 and 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 found on pages F-1 to F-29 of this Annual Report on Form 10-K. CRITICAL ACCOUNTING POLICIES IMPAIRMENT OF LONG-LIVED ASSETS AND VALUATION OF DEFERRED TAX ASSETS The fair value of the long-lived assets is dependant on the performance of the operations which the Corporation owns. In assessing potential impairment for these assets the Corporation will consider this factor as well as the forecasted financial performance. If the forecast is not met and the outlook does not provide for sufficient cash flow to recoup the investments, the Corporation may have to record additional impairment charges not previously recognized. In assessing the recoverability of the Corporation's goodwill and other intangibles the Corporation must make assumptions regarding estimated future cash flows and other factors to determine the fair value of the respective assets. If these estimates or their related assumptions change in the future, the Corporation may be required to record impairment charges for these assets not previously recorded. Carrying value of the Corporation's net deferred tax assets assumes that the Corporation will be able to generate sufficient future taxable income in certain tax jurisdictions, based on estimates and assumptions. If these estimates and related assumptions change in the future, the Corporation may be required to record additional valuation allowance against its deferred tax assets resulting in additional income tax expense in the Corporation's consolidated statement of operations. Management evaluates the realizability of the deferred tax assets quarterly and assesses the need for additional valuation allowance quarterly. USE OF ESTIMATES The preparation of financial statements in conformity with Canadian generally accepted accounting principals 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. Examples include provisions for bad debts, inventory reserves, reclamation reserves and pension liabilities. Actual results could differ from those estimates. The Corporation considers certain accounting policies relating to impairment of long-lived assets and valuation of deferred tax assets to be critical policies due to the estimation processes involved in each. 11 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, subsequent to December 31, 2001, Zemex Attapulgite, LLC and (ii) aluminum recycling, which includes Alumitech, Inc., Alumitech of Cleveland, Inc., Alumitech of Wabash, Inc., ETS Schaefer Corporation, AWT Properties, Inc., and subsequent to March 27, 2002, Alumitech of West Virginia, Inc. 1. On March 20, 2001, the Corporation sold its 60% interest in the Zemex Fabi-Benwood, LLC, subsidiary of the industrial minerals group, and its Natural Bridge, New York talc processing plant to Industria Minearia Fabi S.r.l. ("Fabi"), a former partner of Zemex Fabi-Benwood, for $7.5 million. A pre-tax gain of $0.3 million was recognized in the first quarter of 2001. 2. 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 was disclosed as a discontinued operation and the prior period figures were reclassified accordingly. 3. 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. 4. Zemex Mica Corporation, a muscovite mica producer, was placed on care and maintenance effective December 31, 2000 as management reassessed the process and markets. Due to a significant reduction of by-product feed availability, more mined material had to be used. The mined material was not of the quality and consistency desired resulting in the inability to produce high quality, consistent product and causing higher than acceptable costs. 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 in 2000. 5. On February 1, 2002, the Corporation acquired the assets of an attapulgite clay operation from Milwhite, Inc. The Corporation paid approximately $11.7 million for the acquisition and funded it by a drawdown from its existing credit facility. 6. 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 $3.2 million and was financed by a drawdown on the Corporation's credit facility. 12 RESULTS OF OPERATIONS YEAR ENDED DECEMBER 31, 2001 COMPARED TO YEAR ENDED DECEMBER 31, 2000 NET SALES
================================================================================================================== 2001 2000 Change % Change - ------------------------------------------------------------------------------------------------------------------ Industrial minerals $ 39,942,000 $ 51,422,000 $(11,480,000) (22.3%) Aluminum recycling 17,394,000 25,058,000 (7,664,000) (30.6%) - ------------------------------------------------------------------------------------------------------------------ $ 57,336,000 $ 76,480,000 $(19,144,000) (25.0%) ==================================================================================================================
The Corporation's net sales from continuing operations for 2001 were $57.4 million, a decrease of $19.1 million, or 25.0%, from 2000. Sales in the industrial minerals group and the aluminum recycling group were down by $11.5 million and $7.6 million, respectively. The sales revenue from the industrial minerals group was $39.9 million in fiscal 2001 as compared to $51.4 million in fiscal 2000. The disposal of the Natural Bridge, New York facility and the 60% interest in Zemex Fabi-Benwood, LLC in the first quarter of 2001, the closure of the muscovite mica facility effective December 31, 2000 and the lower sales revenue generated from the mica operations were the primary factors that caused the decline in sales revenue in 2001. Net sales of the aluminum recycling group decreased 30.6%, or $7.6 million, to $17.4 million in 2001. The decrease was due to the closure of the calcium aluminate plant effective December 31, 2000, the ongoing depressed metal prices and lower process volumes. COST OF GOODS SOLD Compared to 2000, cost of goods sold declined by 32.0%, or $17.8 million, to $37.9 million in 2001. Of the $17.8 million decrease, the industrial minerals group and the aluminum recycling group accounted for $11.0 million and $6.8 million, respectively. As a result, the corresponding gross margins improved from 27.2% in 2000 to 33.9% in 2001. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES Selling, general and administrative ("SG&A") expenses for 2001 were $11.8 million, a $0.6 million decrease from 2000. The decrease was mainly due to closure of facilities in 2000 and sales of operations owned during fiscal 2001, offset by a $0.2 million increase in pension expense and a $0.4 million increase in professional fees due to costs of litigation. As a percentage of sales, SG&A expense increased from 16.2% in 2000 to 20.6% in 2001. DEPRECIATION, DEPLETION AND AMORTIZATION Depreciation, depletion and amortization decreased by $2.0 million, or 26.1%, from $7.8 million in 2000 to $5.8 million in 2001. The decrease was due to the closure and sales of facilities that occurred in the past twelve months. 13 INCOME BEFORE THE UNDERNOTED For the reasons discussed above, income before the undernoted improved to $1.9 million for fiscal 2001 from $0.6 million in fiscal 2000. The closure of the muscovite mica plant and the calcium aluminate operations at the end of fiscal 2000 has had a positive impact on the 2001 operating income. PROVISION FOR ASSET IMPAIRMENT The Corporation recorded a $24.6 million provision for asset impairment in fiscal 2000. The closure of the muscovite mica operation and non-metallic product facility accounted for $5.2 million and $17.6 million, accordingly, in the industrial minerals and aluminum recycling groups. The costs associated with the unsuccessful attempt to purchase certain assets of Hecla Mining Company accounted for another $1.5 million in 2000. INTEREST INCOME Interest income for the year ended December 31, 2001 was $0.1 million, compared to $0.2 million for the corresponding period in 2000. INTEREST EXPENSE Interest expense for the fiscal year ended December 31, 2001 was $0.9 million, $1.5 million, or 61.9%, lower than the same period in 2000. The decrease was due to lower levels of debt and lower interest rates. Total indebtedness was $11.5 million as of December 31, 2001 as compared to $17.9 million as of December 31, 2000. Subsequent to December 31, 2001, the Corporation acquired certain assets for $14.9 million which amount was funded from existing credit facilities. Interest expense will increase prospectively. OTHER (INCOME) EXPENSE In 2001, the Corporation recognized other income of $0.6 million versus $3.0 million of other expense recorded in 2000. Of the $0.6 million of other income, the gain on the disposition of the Natural Bridge, New York facility and its 60% interest in Zemex Fabi-Benwood, LLC in the first quarter of 2001 contributed $0.3 million. The settlement of a long outstanding business interruption insurance claim relating to the previously sold metal powders group contributed another $0.3 million. The $3.0 million of other expense recorded in 2000 was mainly due to the redemption of Senior Secured Notes necessitated by the sale of the metal powders group. PROVISION FOR (RECOVERY OF) INCOME TAXES The Corporation recorded an income tax expense of $0.8 million in fiscal 2001, compared to an income tax benefit of $10.0 million recognized in fiscal 2000. 14 NET INCOME (LOSS) AND EARNINGS (LOSS) PER SHARE BEFORE DISCONTINUED OPERATIONS As a result of the factors discussed above, the Corporation recorded net income from continuing operations for the year ended December 31, 2001 of $0.9 million, compared to a net loss of $19.4 million in 2000.
==================================================================================================================== 2001 2000 - -------------------------------------------------------------------------------------------------------------------- Net income (loss) before discontinued operations $ 865,000 $ (19,356,000) Earnings (loss) per share - basic $ 0.11 $ (2.29) - diluted $ 0.10 $ (2.29) ====================================================================================================================
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 the 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. During 2000, the Corporation's muscovite mica operation in Bakersville, North Carolina generated an operating loss of $1.5 million. This facility was placed on care and maintenance in fiscal 2000. 15 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 was closed and the related assets written down to salvage value in fiscal year ended December 31, 2000. Reflecting the reasons noted above, the corresponding gross margins were down from 34.5% in 1999 to 27.2% in 2000. 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. PROVISION FOR ASSET IMPAIRMENT For several years the aluminum recycling group had 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 as management reassessed the process and markets. Due to a significant reduction of by-product feed availability, more mined material had to be used. The mined material was not of the quality and consistency desired resulting in the inability to produce high quality, consistent product and causing higher than acceptable costs. This business generated a loss of $1.5 million and $2.1 million, respectively, in 2000 and 1999. 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 in 2000. 16 During 2000, the Corporation attempted to purchase certain assets of Hecla Mining Company ("Hecla") 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. 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 the 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 to the sale and from a curtailment gain arising from the pension plan. The 1999 figures included a full year of operations. 17 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 - diluted $ (2.29) $ 0.22 ===================================================================================================================
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, 2001, 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 has sufficient borrowing ability to fund capital expenditures and acquisitions going forward. On February 1, 2002, the Corporation purchased certain assets from Milwhite, Inc. for approximately $11.7 million. The purchase was funded by a drawdown on the Corporation's credit facility. On March 27, 2002, the Corporation purchased the assets of Resource Recovery Industries, LLC, an aluminum dross processor located in Friendly, West Virginia. The purchase price was approximately $3.2 million and was financed by a drawdown on the Corporation's credit facility. CASH FLOW FROM OPERATIONS The Corporation had $10.1 million of working capital at December 31, 2001, compared to $4.8 million at December 31, 2000. The increase in working capital was primarily due to the decrease of bank indebtedness of $6.2 million and accounts payable of $2.3 million, offset by a decrease of $2.5 million in accounts receivable. The total debt obligations decreased from $17.9 million as at December 31, 2000 to $11.5 million as at December 31, 2001. During 2001, the Corporation generated cash flow from operations of $4.6 million as compared to $0.3 million cash that was used in 2000. The non-cash working capital used $2.2 million in 2001 versus $1.1 million of cash generated from non-cash working capital in 2000. FINANCING AGREEMENTS The Corporation increased its 364-day, $20.0 million revolving credit facility to $30.0 million in 2001. 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, 2001 and 2000 were $11.0 million and $17.1 million, respectively. The revolving credit facility bears interest at LIBOR plus 1.25% to LIBOR plus 1.50% in the case of LIBOR loans or at base rate plus 0.25% to 0.50% in the case of prime and base rate loans. The actual margin is determined by certain financial ratios. The term of the revolver was extended to July 31, 2002. 18 In May 1999, the Corporation completed a private placement of two series of notes: $35.0 million in 7.54% Senior Secured Notes, Series A, due May 15, 2009 and $15.0 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 March 2000, in connection with the sale of the metal powders group, the Corporation redeemed the Senior Secured Notes by drawing down on a $50.0 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. 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 2001, capital expenditures for continuing operations were $3.6 million compared to $4.4 million and $13.8 million for continuing and discontinued operations for the years ended December 31, 2000 and 1999, respectively. The capital expenditures were funded by cash flow from operations and indebtedness. In aggregate, 2002 capital expenditures for continuing operations are anticipated to be approximately $6.7 million for the existing operations. 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 2002. During 2001, the Corporation purchased, pursuant to the stock repurchase program, 589,000 common shares for an aggregate cost of $3.8 million, compared to 242,000 common shares for $1.9 million in 2000 and 10,000 common shares for $0.1 million in 1999. EMPLOYEE COMPENSATION ARRANGEMENTS The Corporation has agreed to enter into discussions with certain senior executives to provide comprehensive employment agreements which will address, but not be limited to compensation, incentive compensation, benefits, postretirement benefits, protection in the case of a change of control, and where applicable, succession planning. These agreements, when finalized, will replace all existing employment related agreements and arrangements. The intent is to provide equitable employment contracts that provide the Corporation with the long-term commitment of the executives and the executives with comprehensive and competitive employment arrangements. 19 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-29 of this Annual Report on Form 10-K. The Supplementary Schedule required by this Item is set forth on page S-2 of this Annual Report on Form 10-K. See Item 14. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. 20 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 2002 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 2002 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 2002 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 2002 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 (a)1. Financial statements and independent auditors' report filed as part of this report: (a) Consolidated Balance Sheets at December 31, 2001 and 2000, which information is found on page F-4 of this report; (b) Consolidated Statements of Shareholders' Equity for the three years ended December 31, 2001, which information is found on page F-5 of this report; (c) Consolidated Statements of Operations for the three years ended December 31, 2001, which information is found on page F-3 of this report; - ---------- * References in this Annual Report on Form 10-K to material contained in the Corporation's proxy statement for the 2002 annual meeting to be filed within 120 days after the fiscal year incorporate such material into this report by reference. 21 (d) Consolidated Statements of Cash Flows for the three years ended December 31, 2001, which information is found on page F-6 of this report; and (e) Notes to the Consolidated Financial Statements, which information is found on pages F-7 to F-29 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-2) 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. (Incorporated by reference from Exhibit (4)(q) of the Corporation's Registration Statement on Form 10-Q filed August 9, 1999) (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, N.A. 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, N.A. et al. (Incorporated by reference from Exhibit (4)(s) of the Corporation's Annual Report on Form 10-K filed April 14, 2000) (4)(d) Amendment No. 3 dated May 18, 2001 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, N.A. et al. (4 pages) 22 (4)(e) Amendment No. 4 dated December 10, 2001 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, N.A., HSBC Bank US et al. (7 pages) (4)(f) Zemex U.S. Corporation, Note Purchase Agreement Dated as of May 21, 1999 (Incorporated by reference from Exhibit (4)(r) of the Corporation's 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) (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) 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)(e) 1999 Stock Option Plan, as amended (Incorporated by reference from Exhibit 99.1 to the Corporation's Registration Statement on Form S-8, Registration No. 333-70406, filed on September 28, 2001) (10)(f) 1999 Employee Stock Purchase Plan, as amended (Incorporated by reference from Exhibit 99.2 to the Corporation's Registration Statement on Form S-8, Registration No. 333-70406, filed on September 28, 2001) (10)(g) 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)(h)* Agreement between Zemex Corporation and Richard L. Lister dated as of the 1st day of October 1999 (Incorporated by reference from Exhibit (10)(l) of the Corporation's Annual Report on Form 10-K filed April 14, 2000) (10)(i)* Agreement between Zemex Corporation and Allen J. Palmiere dated as of the 1st day of October 1999 (Incorporated by reference from Exhibit (10)(m) of the Corporation's Annual Report on Form 10-K filed April 14, 2000) (10)(j)* Agreement between Zemex Corporation and Peter J. Goodwin dated as of the 1st day of October 1999 (Incorporated by reference from Exhibit (10)(o) of the Corporation's Annual Report on Form 10-K filed April 14, 2000) 23 (10)(k)* Agreement between Zemex Corporation and Terrance J. Hogan dated as of the 1st day of October 1999 (Incorporated by reference from Exhibit (10)(p) of the Corporation's Annual Report on Form 10-K filed April 14, 2000) (21) Subsidiaries of the Registrant (23) Consent of Deloitte & Touche LLP * Management contract or compensatory plan or arrangement. (b) Reports on Form 8-K There were no reports Form 8-K filed in the fourth quarter of 2001. The Corporation filed a Current Report on Form 8-K on February 12, 2002 with respect to the acquisition of the attapulgite clay assets of Milwhite Inc. 24 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: April 10, 2002 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 April 10, 2002 - --------------------------------------- and Director Peter Lawson-Johnston /s/ RICHARD L. LISTER President and Chief Executive April 10, 2002 - --------------------------------------- Officer and Director Richard L. Lister (Principal Executive Officer) /s/ PAUL A. CARROLL Director April 10, 2002 - --------------------------------------- Paul A. Carroll /s/ MORTON A. COHEN Director April 10, 2002 - --------------------------------------- Morton A. Cohen /s/ JOHN M. DONOVAN Director April 10, 2002 - --------------------------------------- John M. Donovan /s/ R. PETER GILLIN Director April 10, 2002 - --------------------------------------- R. Peter Gillin
25
SIGNATURE TITLE DATE - --------- ----- ---- /s/ GARTH A.C. MACRAE Director April 10, 2002 - ----------------------------------------- Garth A.C. MacRae /s/ WILLIAM J. VANDEN HEUVEL Director April 10, 2002 - ----------------------------------------- William J. vanden Heuvel /s/ ALLEN J. PALMIERE Vice President, Chief Financial April 10, 2002 - ----------------------------------------- Officer and Corporate Secretary Allen J. Palmiere (Principal Financial and Accounting Officer)
26 INDEPENDENT AUDITORS' REPORT To the Shareholders of Zemex Corporation We have audited the consolidated financial statements of Zemex Corporation as at December 31, 2001 and 2000, and for each of the three years in the period ended December 31, 2001, and have issued our report thereon dated February 4, 2002, except as to note 19 which is as of March 27, 2002; such financial statements and report are included elsewhere in this Form 10-K. Our audits also included the consolidated financial statement schedule of Zemex Corporation listed in Item 14. This financial statement schedule is the responsibility of Zemex Corporation 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 4, 2002 except as to Note 19, which is as of March 27, 2002 S-1 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 ADDITIONS BALANCE BEGINNING COSTS AND (DEDUCTIONS) AT END DESCRIPTION OF PERIOD EXPENSES DEDUCTIONS OF PERIOD - ------------------------------------------------------------------------------------------------------------------ 2001 ALLOWANCE FOR DOUBTFUL ACCOUNTS $ 166,000 $ 237,000 $ (1,000) $ 207,000 $ 195,000 - ------------------------------------------------------------------------------------------------------------------ 2000 ALLOWANCE FOR DOUBTFUL ACCOUNTS $ 349,000 $ 85,000 $(104,000) $ 164,000 $ 166,000 - ------------------------------------------------------------------------------------------------------------------ 1999 ALLOWANCE FOR DOUBTFUL ACCOUNTS $ 329,000 $ 42,000 $ 3,000 $ 25,000 $ 349,000 - ------------------------------------------------------------------------------------------------------------------
S-2 AUDITORS' REPORT To the Shareholders of Zemex Corporation We have audited the consolidated balance sheets of Zemex Corporation as at December 31, 2001 and 2000 and the consolidated statements of operations, shareholders' equity and cash flows for each of the years in the three year period ended December 31, 2001. 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 each of the years in the two year period ended December 31, 2001, we conducted our audits in accordance with Canadian generally accepted auditing standards and United States generally accepted auditing standards. With respect to the consolidated financial statements for the year ended December 31, 1999, we conducted our audit 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, 2001 and 2000 and the results of its operations and its cash flows for each of the years in the three year period ended December 31, 2001 in accordance with Canadian generally accepted accounting principles. /s/ Deloitte & Touche LLP Chartered Accountants Toronto, Ontario February 4, 2002 except as to Note 19, which is as of March 27, 2002 COMMENTS BY AUDITOR ON CANADA-UNITED STATES OF AMERICA REPORTING DIFFERENCE In the United States of America, reporting standards for auditors require the addition of an explanatory paragraph (following the opinion paragraph) when there are changes in accounting principles that have a material effect on the comparability of the Corporation's financial statements, such as the change for calculation of earnings per share described in note 1(j) to the financial statements. Our report to the shareholders, dated February 4, 2002 except as to Note 19, which is as of March 27, 2002, is expressed in accordance with Canadian reporting standards which do not require a reference to such changes in accounting principles in the auditors' report when the change is properly accounted for and adequately disclosed in the financial statements. /s/ Deloitte & Touche LLP Chartered Accountants Toronto, Ontario February 4, 2002 except as to Note 19, which is as of March 27, 2002 F-1 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 2001. 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 CONSOLIDATED STATEMENTS OF OPERATIONS (All amounts are in U.S. dollars)
================================================================================================= Years ended December 31 2001 2000 1999 - ------------------------------------------------------------------------------------------------- NET SALES $ 57,336,000 $ 76,480,000 $ 77,530,000 - ------------------------------------------------------------------------------------------------- COSTS AND EXPENSES Cost of goods sold 37,883,000 55,683,000 50,776,000 Selling, general and administrative 11,833,000 12,394,000 12,337,000 Depreciation, depletion and amortization 5,766,000 7,801,000 7,402,000 - ------------------------------------------------------------------------------------------------- 55,482,000 75,878,000 70,515,000 - ------------------------------------------------------------------------------------------------- INCOME BEFORE THE UNDERNOTED 1,854,000 602,000 7,015,000 Provision for asset impairment (note 6) -- (24,552,000) -- Interest income 119,000 155,000 151,000 Interest expense (910,000) (2,386,000) (4,325,000) Other, net 615,000 (3,017,000) (522,000) - ------------------------------------------------------------------------------------------------- INCOME (LOSS) BEFORE PROVISION FOR (RECOVERY OF) INCOME TAXES AND NON-CONTROLLING INTEREST 1,678,000 (29,198,000) 2,319,000 Provision for (recovery of) income taxes (note 7) 803,000 (9,961,000) 577,000 Non-controlling interest in earnings (loss) of subsidiary 10,000 119,000 (105,000) - ------------------------------------------------------------------------------------------------- INCOME (LOSS) BEFORE DISCONTINUED OPERATIONS 865,000 (19,356,000) 1,847,000 INCOME FROM DISCONTINUED OPERATIONS (note 11) -- 11,385,000 3,934,000 - ------------------------------------------------------------------------------------------------- NET INCOME (LOSS) $ 865,000 $ (7,971,000) $ 5,781,000 - ------------------------------------------------------------------------------------------------- NET INCOME (LOSS) PER SHARE BASIC Continuing operations $ 0.11 $ (2.29) $ 0.22 Discontinued operations -- $ 1.35 $ 0.47 - ------------------------------------------------------------------------------------------------- $ 0.11 $ (0.94) $ 0.69 - ------------------------------------------------------------------------------------------------- DILUTED Continuing operations $ 0.10 $ (2.29) $ 0.22 Discontinued operations -- $ 1.35 $ 0.46 - ------------------------------------------------------------------------------------------------- $ 0.10 $ (0.94) $ 0.68 - ------------------------------------------------------------------------------------------------- WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING Basic 8,190,194 8,466,988 8,425,561 Diluted 8,295,480 8,660,504 8,558,399 - -------------------------------------------------------------------------------------------------
Prepared in accordance with Canadian GAAP See notes to the consolidated financial statements F-3 CONSOLIDATED BALANCE SHEETS (All amounts are in U.S. dollars)
==================================================================================================== December 31 2001 2000 - ---------------------------------------------------------------------------------------------------- ASSETS CURRENT ASSETS Cash $ 532,000 $ 2,175,000 Accounts receivable (less allowance for doubtful accounts of $195,000 at December 31, 2001 and $166,000 at December 31, 2000) (note 15) 8,639,000 12,850,000 Inventories (note 3) 16,417,000 16,844,000 Prepaid expenses and other current assets 380,000 530,000 Income taxes receivable 601,000 120,000 Future income tax benefits (note 7) 384,000 21,000 - ---------------------------------------------------------------------------------------------------- 26,953,000 32,540,000 PROPERTY, PLANT AND EQUIPMENT (notes 4 and 9) 56,962,000 65,846,000 OTHER ASSETS (notes 5 and 17) 6,206,000 7,153,000 FUTURE INCOME TAX BENEFITS (NON-CURRENT) (note 7) 7,394,000 8,040,000 - ---------------------------------------------------------------------------------------------------- $ 97,515,000 $113,579,000 ==================================================================================================== LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Bank indebtedness (note 9) $ 11,000,000 $ 17,145,000 Accounts payable 2,957,000 5,618,000 Accrued liabilities 2,578,000 4,412,000 Current portion of long term debt (note 9) 284,000 534,000 - ---------------------------------------------------------------------------------------------------- 16,819,000 27,709,000 LONG TERM DEBT (note 9) 211,000 261,000 OTHER NON-CURRENT LIABILITIES 2,281,000 683,000 FUTURE INCOME TAX OBLIGATIONS (note 7) 1,399,000 1,656,000 - ---------------------------------------------------------------------------------------------------- 20,710,000 30,309,000 - ---------------------------------------------------------------------------------------------------- NON-CONTROLLING INTEREST (note 2) -- 3,367,000 - ---------------------------------------------------------------------------------------------------- SHAREHOLDERS' EQUITY Common stock (note 10) 53,786,000 57,212,000 Retained earnings 26,820,000 25,958,000 Note receivable from shareholder (note 10) (1,259,000) (1,259,000) Cumulative translation adjustment (2,542,000) (2,008,000) - ---------------------------------------------------------------------------------------------------- 76,805,000 79,903,000 - ---------------------------------------------------------------------------------------------------- $ 97,515,000 $113,579,000 ====================================================================================================
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 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (All amounts are in U.S. dollars)
==================================================================================================================================== Note Receivable Cumulative Common Paid-In Retained From Translation Treasury Stock Capital Earnings Shareholder Adjustment Stock Total - ------------------------------------------------------------------------------------------------------------------------------------ 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(a) 48,876,000 (48,876,000) -- -- -- -- -- Stock issued under ESPP, net(b)(c) 972,000 -- -- -- -- -- 972,000 Stock purchased for treasury(c) -- -- -- -- -- (73,000) (73,000) Stock options exercised 77,000 -- -- -- -- -- 77,000 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(b)(c) 514,000 -- -- -- -- -- 514,000 Stock purchased for treasury(c) -- -- -- -- -- (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 Stock issued under ESPP, net(b)(c) 419,000 -- -- -- -- -- 419,000 Stock purchased for treasury(c) -- -- -- -- -- (3,845,000) (3,845,000) Stock options repurchased -- -- (3,000) -- -- -- (3,000) Cancellation of treasury stock (3,845,000) -- -- -- -- 3,845,000 -- Net income for the year -- -- 865,000 -- -- -- 865,000 Translation adjustment -- -- -- -- (534,000) -- (534,000) - ------------------------------------------------------------------------------------------------------------------------------------ Balance at December 31, 2001 $ 53,786,000 $ -- $ 26,820,000 $ (1,259,000) $ (2,542,000) $ -- $ 76,805,000 ====================================================================================================================================
Prepared in accordance with Canadian GAAP See notes to the consolidated financial statements (a) See basis of preparation (b) Employee stock purchase plan ("ESPP") (c) See note 10 F-5 CONSOLIDATED STATEMENTS OF CASH FLOWS (note 11) (All amounts are in U.S. dollars)
==================================================================================================================== Years ended December 31 2001 2000 1999 - -------------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss) $ 865,000 $ (7,971,000) $ 5,781,000 Adjustments to reconcile net income (loss) to net cash flows from operating activities Depreciation, depletion and amortization 5,766,000 8,181,000 8,860,000 Amortization of and write-off of deferred financing costs -- 1,759,000 249,000 Provision for asset impairment -- 24,246,000 -- Decrease (increase) in future income tax benefits 26,000 (5,244,000) (413,000) Non-controlling interest in subsidiary earnings (loss) 10,000 119,000 (105,000) (Gain) loss on sale of property, plant and equipment (301,000) (263,000) 358,000 Gain on sale of discontinued operations -- (15,718,000) -- Decrease (increase) in other assets 364,000 (6,560,000) (277,000) Increase (decrease) in other non-current liabilities 98,000 98,000 (421,000) Changes in non-cash working capital items(a) (2,245,000) 1,054,000 (5,517,000) - -------------------------------------------------------------------------------------------------------------------- Net cash provided by (used in) operating activities 4,583,000 (299,000) 8,515,000 - -------------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM INVESTING ACTIVITIES Additions to property, plant and equipment (3,551,000) (4,436,000) (13,803,000) Proceeds from sale of assets(b) 7,357,000 352,000 36,000 Proceeds from sale of discontinued operations -- 39,353,000 -- Proceeds from sale of securities -- 5,134,000 554,000 Acquisitions of securities -- -- (837,000) - -------------------------------------------------------------------------------------------------------------------- Net cash provided by (used in) investing activities 3,806,000 40,403,000 (14,050,000) - -------------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM FINANCING ACTIVITIES (Payments) proceeds net, on bank indebtedness (6,145,000) 11,645,000 (4,500,000) Proceeds from long term debt 288,000 519,000 50,733,000 Repayment of long term debt (575,000) (50,783,000) (41,100,000) Issuance of common stock(c) 419,000 514,000 1,049,000 Purchase of common stock and options(c) (3,848,000) (1,853,000) (167,000) Decrease in note receivable from shareholder -- 490,000 -- - -------------------------------------------------------------------------------------------------------------------- Net cash (used in) provided by financing activities (9,861,000) (39,468,000) 6,015,000 - -------------------------------------------------------------------------------------------------------------------- EFFECT OF EXCHANGE RATE CHANGES ON CASH (171,000) (53,000) 50,000 - -------------------------------------------------------------------------------------------------------------------- NET (DECREASE) INCREASE IN CASH (1,643,000) 583,000 530,000 CASH AT BEGINNING OF YEAR 2,175,000 1,592,000 1,062,000 - -------------------------------------------------------------------------------------------------------------------- CASH AT END OF YEAR $ 532,000 $ 2,175,000 $ 1,592,000 ==================================================================================================================== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Income taxes paid $ 1,244,000 $ 1,519,000 $ 3,369,000 Interest paid 928,000 2,705,000 3,969,000 - --------------------------------------------------------------------------------------------------------------------
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 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 were reflected as discontinued operations and prior years were 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. 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, specifically ore, raw materials, work in process and finished products, 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 F-7 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 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 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 including 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 Plan Generally, the funding policy of the Corporation with respect to the pension plan for U.S. employees is to contribute annually, to the extent necessary, 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 Pension The Corporation accounts for healthcare and other postretirement benefits other than pension by accruing for all such amounts during the years in which employees render the necessary services to be entitled to receive such benefits. The 2001, 2000 and 1999 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 and when all significant contractual obligations have been satisfied. Consignment sales are recognized when a customer draws the goods from inventory. F-8 G. RESEARCH AND DEVELOPMENT EXPENSES Research expenses are charged to earnings in the periods in which they are incurred. Development costs are also expensed unless they are significant and meet generally accepted criteria for deferral. Research and development expenses were $545,000, $470,000 and $1,060,000 for the years ended December 31, 2001, 2000 and 1999, respectively. Related investment tax credits, if any, reduce research and development expenses in the same period in which the related expenditures are charged to net income (loss). 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 accounts for income taxes in accordance with CICA Handbook Section 3465, "Income Taxes". Income taxes are 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. Future income taxes are adjusted to reflect the effect of enacted or substantively enacted changes in the tax laws and tax rates. J. EARNINGS PER SHARE The Corporation has retroactively adopted the new CICA Handbook Section 3500, "Earnings Per Share" which is the mirror image of the U.S. pronouncement, SFAS No. 128, "Earnings Per Share". Under these standards, earnings per share are calculated based upon the weighted average number of common shares outstanding. Diluted earnings per share are calculated in accordance with the treasury stock method. Prior years reported earnings per share amounts have been restated to comply with this pronouncement. K. OTHER ASSETS Other assets include patents, which are stated at cost and which are being amortized over their remaining lives on a straight-line basis. Such intangible assets are evaluated periodically and, if conditions warrant, an impairment charge is provided. L. 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 was amortized on a straight-line basis over its estimated useful lives, up to a period of 15 years. For any acquisition after July 1, 2001, goodwill is not amortized but rather assessed for impairment. The Corporation assesses goodwill for impairment whenever events or changes in circumstances indicate that the carrying value of goodwill may not be recoverable. If the carrying value is higher than the realizable value, goodwill will be written down to an appropriate F-9 carrying value. In accordance with CICA Handbook Section 3062, "Goodwill and Other Intangible Assets", beginning January 1, 2002, the Corporation will cease amortization of all goodwill. M. 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. DISPOSITIONS 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 was disclosed as a discontinued operation and the prior period figures were reclassified accordingly (see note 11). SALE OF NATURAL BRIDGE FACILITY AND INTEREST IN ZEMEX FABI-BENWOOD, LLC On March 27, 2001, effective February 28, 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. The Corporation recognized a pre-tax gain of $0.3 million from this transaction. 3. INVENTORIES
================================================================================================================ 2001 2000 - ---------------------------------------------------------------------------------------------------------------- ORE, RAW MATERIALS, WORK IN PROCESS AND FINISHED PRODUCTS Industrial minerals $ 12,378,000 $ 12,217,000 Aluminum recycling 494,000 533,000 - ---------------------------------------------------------------------------------------------------------------- 12,872,000 12,750,000 - ---------------------------------------------------------------------------------------------------------------- MATERIALS AND SUPPLIES Industrial minerals 3,545,000 4,094,000 - ---------------------------------------------------------------------------------------------------------------- $ 16,417,000 $ 16,844,000 ================================================================================================================
F-10 4. PROPERTY, PLANT AND EQUIPMENT
================================================================================================== Useful Life 2001 2000 - -------------------------------------------------------------------------------------------------- Land $ 6,810,000 $ 6,971,000 Mining properties and deferred costs 8,937,000 9,253,000 Buildings 30 - 40 years 15,509,000 18,857,000 Machinery and equipment 3 - 20 years 64,007,000 68,717,000 Construction in progress 2,805,000 876,000 - -------------------------------------------------------------------------------------------------- Total property, plant and equipment, at cost 98,068,000 104,674,000 Less: Accumulated depreciation and depletion (41,106,000) (38,828,000) - -------------------------------------------------------------------------------------------------- NET PROPERTY, PLANT AND EQUIPMENT $ 56,962,000 $ 65,846,000 ==================================================================================================
The major components of the net change in property, plant and equipment are as follows:
==================================================================================== 2001 2000 - ------------------------------------------------------------------------------------ Net property, plant and equipment, beginning of year $ 65,846,000 $ 96,779,000 Sale of industrial minerals' facilities (note 2) (6,559,000) -- Depreciation and depletion (5,468,000) (7,309,000) Capital asset additions 3,551,000 4,436,000 Capital asset dispositions (44,000) (68,000) Translation adjustment (364,000) (271,000) Sale of metal powders division (notes 2 and 11) -- (14,576,000) Aluminum recycling's asset impairment -- (11,445,000) Industrial minerals' asset impairment -- (1,700,000) - ------------------------------------------------------------------------------------ Net property, plant and equipment, end of year $ 56,962,000 $ 65,846,000 ====================================================================================
As at December 31, 2001, the Corporation estimates that approximately $678,000 will be expended to complete its construction in progress (December 31, 2000, $150,000). The Corporation did not capitalize any interest relating to capital projects during 2001 and 2000. F-11 5. OTHER ASSETS
======================================================================================= 2001 2000 - --------------------------------------------------------------------------------------- Goodwill, net (accumulated amortization of $860,000 at December 31, 2001 and $620,000 at December 31, 2000) $ 2,701,000 $ 2,941,000 Hecla escrow (note 17) 2,000,000 2,000,000 Long-term receivables 365,000 414,000 Prepaid pension cost (note 8) 726,000 1,162,000 Deferred reorganization 213,000 243,000 Patents, net 3,000 19,000 Other 198,000 374,000 - --------------------------------------------------------------------------------------- $ 6,206,000 $ 7,153,000 =======================================================================================
6. PROVISION FOR ASSET IMPAIRMENT The Corporation provided the following asset impairment in fiscal 2000: ====================================================================================================================== 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) In recent years, the Corporation's subsidiary Alumitech had invested significant time and capital in the development of a proprietary technology for the processing of aluminum dross and saltcake. While the technology was proven and a competitive product produced, a combination of a poor economic environment for secondary aluminum, a depressed steel industry and low landfill prices resulted in an inability to make the process economically viable. Accordingly, in fiscal 2000, the Corporation provided fully for a permanent asset impairment, wrote down the related assets to their estimated salvage value, and wrote off all costs associated with the process. (b) In 1998 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 had been unsuccessful in locating an alternate source of acceptable feedstock, and had to rely on higher quantities of F-12 mined material which were inconsistent in nature. Accordingly, in fiscal 2000, the Corporation placed the 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). These costs were written off in fiscal 2000. 7. INCOME TAXES The provision for (recovery of) income taxes consists of the following components:
====================================================================================================== 2001 2000 1999 - ------------------------------------------------------------------------------------------------------ Total pre-tax income (loss) from continuing operations $ 1,678,000 $(29,198,000) $ 2,319,000 - ------------------------------------------------------------------------------------------------------ Current tax provision Canadian $ 838,000 $ 744,000 $ 1,508,000 Federal U.S. (68,000) (4,868,000) (376,000) State and local U.S. 3,000 32,000 131,000 - ------------------------------------------------------------------------------------------------------ TOTAL 773,000 (4,092,000) 1,263,000 - ------------------------------------------------------------------------------------------------------ Future tax provision Canadian (257,000) 202,000 (428,000) Federal U.S. 292,000 (4,840,000) (68,000) State and local U.S. (5,000) (1,231,000) (190,000) - ------------------------------------------------------------------------------------------------------ TOTAL 30,000 (5,869,000) (686,000) - ------------------------------------------------------------------------------------------------------ PROVISION FOR (RECOVERY OF) INCOME TAXES $ 803,000 $ (9,961,000) $ 577,000 ======================================================================================================
The following tabulation reconciles the Canadian income tax rate to the effective income tax rate.
====================================================================================================== 2001 2000 1999 - ------------------------------------------------------------------------------------------------------ % % % Statutory federal rate 37.2 (37.2) 38.2 Unrecognized benefit of losses 13.8 0.6 -- Mining taxes 14.0 1.0 23.7 Resource allowance (10.8) (1.1) (9.0) Difference in U.S. tax rates (1.7) 3.4 (30.5) Other (4.7) (0.8) 2.5 - ------------------------------------------------------------------------------------------------------ EFFECTIVE INCOME TAX RATE 47.8 (34.1) 24.9 ======================================================================================================
F-13 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, 2001 and 2000, the Corporation had unused tax benefits of $689,000 and $374,000, respectively, related to Canadian net operating losses. For the fiscal years ended December 31, 2001 and 2000, the Corporation had unused tax benefits of $10,274,000 and $9,502,000, 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):
============================================================================================================= 2001 2000 --------------------------------------------------------------------- CANADA U.S. TOTAL Canada U.S. Total - ------------------------------------------------------------------------------------------------------------- FUTURE TAX BENEFITS Net operating loss and tax credit carryforwards $ 689 $ 10,274 $ 10,963 $ 374 $ 9,502 $ 9,876 Accrued expenses and reserves -- 1,503 1,503 -- 1,829 1,829 Bad debt allowances -- 137 137 -- 54 54 Inventories -- 158 158 -- -- -- Other -- 264 264 -- 411 411 - ------------------------------------------------------------------------------------------------------------- GROSS FUTURE TAX BENEFITS $ 689 12,336 13,025 374 11,796 12,170 Valuation allowance (689) (1,207) (1,896) (374) (1,115) (1,489) - ------------------------------------------------------------------------------------------------------------- NET FUTURE TAX BENEFITS -- 11,129 11,129 -- 10,681 10,681 - ------------------------------------------------------------------------------------------------------------- FUTURE TAX OBLIGATIONS Property, plant and equipment 1,399 3,096 4,495 1,656 2,377 4,033 Inventories -- -- -- -- 35 35 Pension contributions -- 255 255 -- 208 208 - ------------------------------------------------------------------------------------------------------------- TOTAL FUTURE TAX OBLIGATIONS 1,399 3,351 4,750 1,656 2,620 4,276 - ------------------------------------------------------------------------------------------------------------- NET FUTURE TAX OBLIGATIONS (BENEFITS) $ 1,399 $ (7,778) $ (6,379) $ 1,656 $ (8,061) $ (6,405) =============================================================================================================
At December 31, 2001, the Corporation had approximately $1,853,000 of Canadian net operating loss carryforwards which expire between 2006 and 2008. 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, 2001, the Corporation had approximately $13,668,000 of U.S. net federal operating loss carryforwards available to reduce future taxable income, which will expire between 2002 and 2016. Additionally, the Corporation has unused general business tax credits, which expire between 2002 and 2012, and alternative minimum tax credits. The Corporation also has U.S. net state operating losses and investment credit carryforwards; however, a valuation allowance of $1,207,000 has been recognized to offset the related future tax benefit due to the uncertainty of realizing the full benefit of the tax attribute carryforward. F-14 8. PENSION PLAN AND OTHER POSTRETIREMENT BENEFITS PENSION PLAN The Corporation has a non-contributory defined benefit pension plan covering a number of U.S. resident employees. This plan provides pension benefits that are based on the length of service and the compensation of the employee. The following data is based upon reports from an independent consulting actuary as at December 31:
============================================================================================================== Change in benefit obligation 2001 2000 - -------------------------------------------------------------------------------------------------------------- Benefit obligation, beginning of year $ 14,247,000 $ 13,877,000 Service cost 451,000 409,000 Interest cost 1,030,000 961,000 Actuarial loss 1,084,000 269,000 Benefits paid (1,308,000) (708,000) Curtailment gain -- (561,000) - -------------------------------------------------------------------------------------------------------------- Benefit obligation, end of year $ 15,504,000 $ 14,247,000 ==============================================================================================================
============================================================================================================== Change in fair value of plan assets 2001 2000 - -------------------------------------------------------------------------------------------------------------- Fair value, beginning of year $ 15,704,000 $ 16,955,000 Actual return on plan assets (567,000) (543,000) Benefits paid (1,308,000) (708,000) - -------------------------------------------------------------------------------------------------------------- Fair value, end of year $ 13,829,000 $ 15,704,000 ==============================================================================================================
Net periodic pension expense included the following components:
========================================================================================== 2001 2000 1999 - ------------------------------------------------------------------------------------------ Current service cost $ 451,000 $ 409,000 $ 725,000 Interest cost on projected benefit obligation 1,030,000 961,000 1,104,000 Expected return on assets (1,058,000) (1,134,000) (1,166,000) Net amortization 14,000 (5,000) 41,000 - ------------------------------------------------------------------------------------------ Net pension expense $ 437,000 $ 231,000 $ 704,000 ==========================================================================================
F-15 Assumptions:
======================================================================================================================== 2001 2000 1999 - ------------------------------------------------------------------------------------------------------------------------ % % % Weighted average discount rate 6.85 7.25 7.75 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 7.0 7.5 8.0 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 - ------------------------------------------------------------------------------------------------------------------------
The status of the plan and the amounts recognized in the consolidated balance sheets of the Corporation for its pension plan as of December 31, 2001 and 2000 is tabulated below:
================================================================================================================= 2001 2000 - ----------------------------------------------------------------------------------------------------------------- Projected benefit obligation $(15,504,000) $(14,247,000) Plan assets at fair value 13,829,000 15,704,000 - ----------------------------------------------------------------------------------------------------------------- Projected benefit obligation in excess of plan assets (1,675,000) 1,457,000 Unrecognized net actuarial loss (gain) 2,293,000 (417,000) Prior service cost not yet recognized in net periodic pension expense 108,000 122,000 - ----------------------------------------------------------------------------------------------------------------- Prepaid pension cost included in consolidated balance sheets $ 726,000 $ 1,162,000 =================================================================================================================
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 $57,000 in 2001, $56,000 in 2000 and $52,000 in 1999. The accumulated postretirement benefit obligation as at December 31, 2001 was $354,000 (2000, $360,000). 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 $ 42,000 $(36,000) Effect on aggregate of the service and interest cost components 5,000 (4,000) ==================================================================================================================
F-16 9. LONG TERM DEBT AND BANK INDEBTEDNESS
======================================================================================================= 2001 2000 - ------------------------------------------------------------------------------------------------------- Capital leases (a) $ 450,000 $ 688,000 Other 45,000 107,000 - ------------------------------------------------------------------------------------------------------- TOTAL LONG TERM DEBT 495,000 795,000 Less: Current portion 284,000 534,000 - ------------------------------------------------------------------------------------------------------- LONG TERM DEBT $ 211,000 $ 261,000 =======================================================================================================
(a) The Corporation has long term capital lease agreements at various rates and for various terms with maturities ranging from 2002 to 2005 for equipment used in its operations. The carrying value of the leased equipment as of December 31, 2001 and 2000 was $756,000 and $967,000, respectively. The current obligation under the long term lease agreements is $274,000 (2000, $476,000). (b) In 2001, the Corporation increased its 364-day, $20,000,000 revolving credit facility to $30,000,000. 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, 2001 and 2000 were $11,000,000 and $17,145,000, respectively. The revolving credit facility bears interest at LIBOR plus 1.25% to LIBOR plus 1.50% in the case of LIBOR loans or at base rate plus 0.25% to 0.50% in the case of prime and base rate loans. The actual margin is determined by certain financial ratios. The term of the revolver was extended to July 31, 2002. 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 other expense in the first quarter of 2000. 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. F-17 Principal repayments required in respect of long term debt are as follows: ==================================================================================================== 2002 $ 284,000 2003 136,000 2004 65,000 2005 10,000 - ---------------------------------------------------------------------------------------------------- $ 495,000 ====================================================================================================
10. COMMON SHARES AND STOCK OPTIONS SHARES OUTSTANDING As at December 31, 2001 and 2000, 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 8,178,393 common shares issued and outstanding as of December 31, 2001 and 8,697,822 common shares issued and outstanding as of December 31, 2000. During 2001, 2000 and 1999, 98,000, 117,000 and 172,000 common shares, respectively, were issued pursuant to the Corporation's employee stock purchase plan for aggregate proceeds to the Corporation of $612,000, $906,000 and $1,145,000, respectively. As part of a stock repurchase program in 2001, the Corporation purchased 589,000 common shares for an aggregate cost of $3,845,000, 242,000 common shares in 2000 for an aggregate cost of $1,862,000 and 10,000 common shares in 1999 for an aggregate cost of $73,000. STOCK OPTIONS The Corporation provides stock option incentive plans and has, with shareholder approval, issued options to certain of the Corporation's 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-18 The following is a summary of option transactions under the Corporation's stock option plans:
========================================================================================================================= 2001 2000 1999 - ------------------------------------------------------------------------------------------------------------------------- WEIGHTED- Weighted- Weighted- AVERAGE average average EXERCISE exercise exercise OPTIONS PRICE Options price Options price - ------------------------------------------------------------------------------------------------------------------------- Options outstanding at beginning of year 1,177,150 $ 8.17 1,163,150 $ 8.11 1,247,650 $ 7.90 Options granted during year 315,000 5.41 85,000 8.06 295,650 6.31 Options exercised during the year (8,000) 6.50 (4,000) 7.25 (5,000) 7.00 Options cancelled during the year (413,500) 8.85 (67,000) 8.84 (375,150) 6.14 - ------------------------------------------------------------------------------------------------------------------------- Options outstanding at end of year 1,070,650 $ 7.36 1,177,150 $ 8.17 1,163,150 $ 8.11 - ------------------------------------------------------------------------------------------------------------------------- Options exercisable at end of year 713,150 $ 7.82 947,200 $ 8.46 695,250 $ 8.70 - ------------------------------------------------------------------------------------------------------------------------- Price range of options granted during the year $ 5.21 - 7.25 $ 7.56 - 8.19 $ 6.26 - 7.50 =========================================================================================================================
The options expire from 2002 to 2010. The following table summarizes information about the stock options outstanding at December 31, 2001:
====================================================================================================================== OPTIONS OUTSTANDING OPTIONS EXERCISABLE - ---------------------------------------------------------------------------------------------------------------------- WEIGHTED- WEIGHTED- WEIGHTED- RANGE OF NUMBER AVERAGE AVERAGE NUMBER AVERAGE EXERCISE OUTSTANDING AT REMAINING EXERCISE EXERCISABLE AT EXERCISE PRICES DECEMBER 31, 2001 CONTRACTUAL LIFE PRICE DECEMBER 31, 2001 PRICE - ---------------------------------------------------------------------------------------------------------------------- $ 5.00 TO $ 5.99 241,500 5.13 YEARS $ 5.21 -- $ -- $ 6.00 TO $ 6.99 348,150 6.65 YEARS 6.32 296,650 6.30 $ 7.00 TO $ 7.99 192,000 3.02 YEARS 7.31 157,500 7.30 $ 8.00 TO $ 8.99 64,000 7.94 YEARS 8.21 34,000 8.24 $ 9.00 TO $ 9.99 17,500 1.74 YEARS 9.28 17,500 9.28 $ 10.00 TO $ 10.99 207,500 2.37 YEARS 10.19 207,500 10.19 - ---------------------------------------------------------------------------------------------------------------------- $ 5.00 TO $ 10.99 1,070,650 713,150 ======================================================================================================================
NOTE RECEIVABLE FROM SHAREHOLDER The note receivable from shareholder of $1,259,000 (2000, $1,259,000) represents an amount 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 176,000 shares of the Corporation. The terms were amended in 2001 and the note is now due on the earlier of December 31, 2003 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-19 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 was as follows:
=============================================================================================================== Year ended December 31 2000 1999 - --------------------------------------------------------------------------------------------------------------- Net sales $ 10,733,000 $ 38,980,000 Income before income taxes 1,470,000 5,974,000 Provision for income taxes 565,000 2,040,000 Gain on sale of discontinued operations 10,480,000 -- Income from discontinued operations 11,385,000 3,934,000 ===============================================================================================================
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 - ------------------------------------------------------------------------------------------------- Operating activities $ 2,546,000 $ 5,778,000 Investing activities (161,000) (1,626,000) Financing activities (10,000) (4,489,000) - ------------------------------------------------------------------------------------------------- Cash provided by (used in) discontinued operations $ 2,375,000 $ (337,000) =================================================================================================
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. One of the operating leases 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 to meet obligations that have initial or remaining non-cancellable lease terms in excess of one year as of December 31, 2001 are as follows: F-20
========================================================================================= Years Minimum Lease Payments - ----------------------------------------------------------------------------------------- 2002 $ 765,000 2003 528,000 2004 370,000 2005 195,000 2006 44,000 Thereafter 460,000 - ----------------------------------------------------------------------------------------- Total minimum lease payments $2,362,000 =========================================================================================
Rent expense was $1,028,000, $1,186,000 and $1,183,000 in 2001, 2000 and 1999, 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's exposure 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. 14. CHANGES IN NON-CASH WORKING CAPITAL The changes in non-cash working capital items are as follows:
=============================================================================================================== 2001 2000 1999 - --------------------------------------------------------------------------------------------------------------- Decrease (increase) in accounts receivable $ 2,542,000 $ 673,000 $(2,187,000) Increase in inventories (2,031,000) (1,300,000) (1,446,000) Decrease (increase) in prepaid expenses and other current assets 102,000 897,000 (483,000) (Decrease) increase in accounts payable and accrued liabilities (2,377,000) 1,820,000 (1,707,000) (Increase) decrease in income taxes receivable (481,000) (1,036,000) 306,000 - --------------------------------------------------------------------------------------------------------------- $(2,245,000) $ 1,054,000 $(5,517,000) ===============================================================================================================
F-21 15. RELATED PARTY TRANSACTIONS As at December 31, 2001 and 2000, accounts receivable included amounts due from one director and one officer totaling $50,000. These amounts are non-interest bearing, with no fixed terms of repayment and are secured by common shares of the Corporation. At December 31, 2001, accounts receivable included an interest bearing receivable from the Corporation's President and Chief Executive Officer of $500,000. The interest rate is based on the Corporation's cost of borrowing plus 25 basis points (3.4% at December 31, 2001). There are no fixed terms of repayment and the receivable is jointly secured by the 176,000 shares securing the note receivable from shareholder (see note 10). The Corporation has provided a guarantee to a financial institution in respect of a loan made to the Corporation's President and Chief Executive Officer. The loan proceeds were used to purchase shares of the Corporation. The shares purchased have been pledged as security for the guarantee. During 1998, a director became indebted to the Corporation in the amount of $124,000. At December 31, 2001, $111,000 remained outstanding and is included in accounts receivable (2000, $118,000). This obligation is secured by common shares of the Corporation and bears interest at the Corporation's cost of borrowing (3.2% at December 31, 2001, 8.0% at December 31, 2000). The Corporation provides management services to a company owned by its largest shareholder, Dundee Bancorp, Inc. ("Dundee"). The Corporation charged $69,000, $67,000 and $67,000 in 2001, 2000 and 1999, respectively. The fee has been established based upon fees charged for comparable services provided by a consultant operating on an arms length basis. During the year the Corporation paid $74,000 (2000, $87,000 and 1999, $88,000) to a subsidiary of Dundee for services provided as a financial advisor for the management of the Corporation's pension plan. 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; Van Horn, Texas; 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 earnings (loss) from continuing operations and assets by business segment appears below: F-22
========================================================================================================================= INDUSTRIAL ALUMINUM YEAR ENDED DECEMBER 31, 2001 CONSOLIDATED MINERALS RECYCLING CORPORATE - ------------------------------------------------------------------------------------------------------------------------- NET SALES $ 57,336,000 $ 39,942,000 $ 17,394,000 $ -- DEPRECIATION, DEPLETION AND AMORTIZATION 5,766,000 3,305,000 2,366,000 95,000 INCOME (LOSS) BEFORE THE UNDERNOTED 1,854,000 7,234,000 (1,670,000) (3,710,000) INTEREST INCOME 119,000 65,000 -- 54,000 INTEREST EXPENSE (910,000) (17,000) (20,000) (873,000) OTHER INCOME 615,000 295,000 37,000 283,000 INCOME (LOSS) BEFORE PROVISION FOR (RECOVERY OF) INCOME TAXES AND NON-CONTROLLING INTEREST 1,678,000 7,577,000 (1,653,000) (4,246,000) PROVISION FOR (RECOVERY OF) INCOME TAXES 803,000 580,000 10,000 213,000 NON-CONTROLLING INTEREST IN SUBSIDIARY EARNINGS 10,000 10,000 -- -- NET INCOME (LOSS) 865,000 6,987,000 (1,663,000) (4,459,000) =========================================================================================================================
========================================================================================================================= 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 51,000 29,000 75,000 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) =========================================================================================================================
F-23
========================================================================================================================= INDUSTRIAL ALUMINUM DISCONTINUED DECEMBER 31, 2001 CONSOLIDATED MINERALS RECYCLING CORPORATE OPERATIONS - ------------------------------------------------------------------------------------------------------------------------- TOTAL ASSETS $ 97,515,000 $ 64,490,000 $ 20,306,000 $ 12,719,000 $ -- TOTAL CURRENT LIABILITIES 16,819,000 3,501,000 1,911,000 11,407,000 -- TOTAL LONG TERM LIABILITIES 3,891,000 1,859,000 1,663,000 369,000 -- TOTAL SHAREHOLDERS' EQUITY 76,805,000 -- -- 76,805,000 -- =========================================================================================================================
========================================================================================================================= 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 CONSOLIDATED MINERALS RECYCLING CORPORATE OPERATIONS - ------------------------------------------------------------------------------------------------------------------------- 2001 CAPITAL EXPENDITURES $ 3,551,000 $ 2,719,000 $ 831,000 $ 1,000 $ -- - ------------------------------------------------------------------------------------------------------------------------- 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 =========================================================================================================================
========================================================================================================================= CANADA U.S. --------------------------------------------------------------------------------- 2001 2000 1999 2001 2000 1999 - ------------------------------------------------------------------------------------------------------------------------- Capital expenditures $ 147,000 $ 233,000 $ 619,000 $ 3,404,000 $ 4,203,000 $13,184,000 =========================================================================================================================
The Corporation bases its geographic allocation upon the location of its sales offices which are all domiciled in the United States. F-24 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 claim for specific performance was subsequently withdrawn.) 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 represents a deposit held in an escrow account made by the Corporation in anticipation of the consummation of the transaction. 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 income (loss) 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. Also 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 and amortization 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 had an impact on reported results of operations of $1,439,000 in the year in which the impairment was recognized. F-25 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 in fiscal 2000.
=================================================================================================================== 2001 2000 1999 - ------------------------------------------------------------------------------------------------------------------- Income (loss) before discontinued operations, as reported $ 865,000 $ (19,356,000) $ 1,847,000 Less: Start-up activities and organization costs 62,000 2,784,000 (1,845,000) Provision for asset impairment -- (1,439,000) -- Tax effect related thereto (30,000) (468,000) 460,000 - ------------------------------------------------------------------------------------------------------------------- Income (loss) before discontinued operations (U.S. GAAP) $ 897,000 $ (18,479,000) $ 462,000 Income (loss) before discontinued operations per share (U.S. GAAP) Basic $ 0.11 $ (2.18) $ 0.05 Diluted $ 0.11 $ (2.18) $ 0.05 ===================================================================================================================
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. As discussed above, Canadian and U.S. GAAP differs as to the methodology applied to determine the quantum of the asset impairment provision necessary.
======================================================================================================== 2001 2000 ---------------------------- ---------------------------- CANADIAN UNITED STATES Canadian United States GAAP GAAP GAAP GAAP - -------------------------------------------------------------------------------------------------------- Property, plant and equipment $ 56,962,000 $ 55,523,000 $ 65,846,000 $ 64,407,000 Other assets 6,206,000 5,993,000 7,153,000 6,878,000 Future income tax benefits (non-current) 7,394,000 7,554,000 8,040,000 8,230,000 Accumulated other comprehensive loss -- (534,000) -- (211,000) Retained earnings 26,820,000 25,328,000 25,958,000 24,434,000 ========================================================================================================
F-26 c. STATEMENTS OF COMPREHENSIVE INCOME (LOSS) U.S. GAAP requires a statement of comprehensive income (loss) as follows:
======================================================================================================= 2001 2000 1999 - ------------------------------------------------------------------------------------------------------- Income (loss) before discontinued operations $ 897,000 $(18,479,000) $ 462,000 Change in foreign currency translation adjustment (534,000) (211,000) 365,000 Change in unrealized holding gains on available-for-sale securities -- -- 934,000 - ------------------------------------------------------------------------------------------------------- Comprehensive income (loss) $ 363,000 $(18,690,000) $ 1,761,000 =======================================================================================================
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 income (loss) and earnings (loss) per share would have been reduced (increased) by approximately $600,000 or $0.07 per share in 2001, $257,000 or $0.03 per share in 2000 and $681,000 or $0.08 per share in 1999. The fair value of the options granted during 2001, 2000 and 1999 is estimated to be $600,000, $257,000 and $681,000, 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 2001, 2000 and 1999: dividend yield of 0%; expected volatility of 28%, 28% and 29%, respectively; risk-free interest rates varying from 4.26% to 6.73%; and an expected life of 5 years. e. RECENT ACCOUNTING PRONOUNCEMENTS In July 2001, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 141 ("SFAS 141"), "Business Combinations" and the Canadian Institute of Chartered Accountants ("CICA") issued Section 1581 "Business Combinations". Both of these standards require the purchase method of accounting for business combinations initiated after June 30, 2001 and eliminates the pooling-of-interests method. The Corporation does not believe that the adoption of SFAS 141 will have a significant impact on its financial statements. In July 2001, the FASB issued Statement of Financial Accounting Standards No. 142 ("SFAS 142"), "Goodwill and Other Intangible Assets" and the CICA issued Section 3062 "Goodwill and Other Intangible Assets", these standards are both effective January 1, 2002 and require, among other things, the discontinuance of goodwill amortization. In addition, the standards include 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. They also require 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 of those standards on its financial position and results of operations. F-27 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. In August 2001, the FASB issued Statement of Financial Accounting Standards No. 144 ("SFAS 144"), "Accounting for the Impairment or Disposal of Long-Lived Assets", which addresses financial accounting and reporting for the impairment or disposal of long-lived assets. This Statement supercedes SFAS 121, and the accounting and reporting provisions of APB No. 30, "Reporting the Results of Operations - Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions" ("APB 30"), for the disposal of a segment of a business. The provisions of SFAS 144 are required to be adopted by the Corporation effective January 1, 2002. The Corporation has not yet determined the effect that the adoption of SFAS 144 will have on the business, results of operations and financial condition. 19. SUBSEQUENT EVENTS On February 1, 2002, the Corporation purchased the assets and assumed certain liabilities of the attapulgite clay operation from Milwhite, Inc. The clay mines and processing plants are located in Attapulgus, Georgia. The purchase price was $11.7 million and was financed by a drawdown on the Corporation's existing credit facility. On March 27, 2002, the Corporation purchased the assets of Resource Recovery Industries, LLC, an aluminum dross processor located in Friendly, West Virginia. The purchase price was approximately $3.2 million and was financed by a drawdown on the Corporation's credit facility. 20. COMPARATIVE FIGURES Certain of the comparative figures have been reclassified to comply with the current year's presentation. F-28 FINANCIAL DATA (UNAUDITED) The following is a summary of certain unaudited quarterly financial data.
================================================================================ 2001 2000 - -------------------------------------------------------------------------------- NET SALES FROM CONTINUING OPERATIONS First quarter $ 16,563,000 $ 19,669,000 Second quarter 14,493,000 21,101,000 Third quarter 14,125,000 18,447,000 Fourth quarter 12,155,000 17,263,000 - -------------------------------------------------------------------------------- $ 57,336,000 $ 76,480,000 - -------------------------------------------------------------------------------- INCOME (LOSS) BEFORE THE UNDERNOTED First quarter $ 775,000 $ 1,139,000 Second quarter 754,000 744,000 Third quarter 398,000 (630,000) Fourth quarter (73,000) (651,000) - -------------------------------------------------------------------------------- $ 1,854,000 $ 602,000 - -------------------------------------------------------------------------------- NET INCOME (LOSS) First quarter $ 683,000 $ (861,000) Second quarter 544,000 9,840,000 Third quarter 90,000 (406,000) Fourth quarter (452,000) (16,544,000) - -------------------------------------------------------------------------------- $ 865,000 $ (7,971,000) - -------------------------------------------------------------------------------- NET INCOME (LOSS) PER SHARE - BASIC First quarter $ 0.08 $ (0.10) Second quarter 0.07 1.16 Third quarter 0.01 (0.05) Fourth quarter (0.06) (1.97) ================================================================================
F-29 ZEMEX CORPORATION FORM 10-K EXHIBIT INDEX 4(d) Amendment No. 3 dated May 18, 2001 to the Credit Agreement 4(e) Amendment No. 4 dated December 10, 2001 to the Credit Agreement 21 Subsidiaries of the Registrant 23 Consent of Deloitte & Touche LLP EX-4.(D) 3 t06765orex4-d.txt AMENDMENT NO. 3 DATED MAY 18, 2001 Exhibit 4(d) THIRD AMENDMENT AGREEMENT THIS THIRD AMENDMENT AGREEMENT is entered into as of May 18, 2001 A M O N G: ZEMEX CORPORATION, a corporation established under the federal laws of Canada (the "Company"), ZEMEX U.S. CORPORATION, a corporation established under the laws of Delaware (the "U.S. Borrower") (the Company and the U.S. Borrower called the "Borrowers"), the several financial institutions from time to time parties to the Credit Agreement (collectively, the "Banks"; individually a "Bank"), Bank of America Canada as agent for the Canadian Banks, Bank of America, N.A. as agent for the U.S. Banks, and Bank of America Canada as Arranger. WHEREAS, the parties entered into a Credit Agreement dated as of May 21, 1999 (the "Credit Agreement") whereby the Banks provided certain credit facilities to the Company and the U.S. Borrower for working capital, short term liquidity and general corporate purposes, including permitted Acquisitions; AND WHEREAS, the parties entered into a First Amendment to the Credit Agreement dated as of September 24, 1999 and into a Second Amendment Agreement dated as of March 7, 2000; AND WHEREAS, the parties have agreed to make additional amendments to the Credit Agreement, specifically, to extend the term of the revolving loan facility, and the parties are entering into this Third Amendment Agreement to amend the Credit Agreement accordingly; NOW THEREFORE, in consideration of the mutual covenants, provisions and covenants contained herein, the parties agree as follows: 1. TERMS USED HEREIN AND NOT OTHERWISE DEFINED shall have the same meaning as those described thereto in the Credit Agreement (as amended by the First Amendment Agreement and the Second Amendment Agreement). 2. The Chase Manhattan Bank is deleted as a "Bank" and a "U.S. Bank" under the Credit Agreement. As of the date of this Third Amendment Agreement, The Chase Manhattan Bank shall have no obligation to make further Loans to the Borrowers. 2 3. The definition of "Credit" is deleted and substituted with the following: "CREDIT" MEANS THE REVOLVING CREDIT FACILITY OF UP TO $15 MILLION DOLLARS (OR THE CANADIAN DOLLAR EQUIVALENT) ESTABLISHED BY THE BANK'S IN FAVOUR OF THE BORROWERS. 4. The Bridge Loan Commitment, the Bridge Loan Facility and all corresponding or associated terms are deleted from the Credit Agreement. 5. The following definitions are added to the Credit Agreement: "TRANCHE A" SHALL MEAN LOANS NOT EXCEEDING US $10 MILLION DOLLARS OF ANY TYPE MADE TO THE COMPANY AND/OR THE U.S. BORROWER. "TRANCHE B" SHALL MEAN LOANS NOT EXCEEDING U.S. $5 MILLION DOLLARS OR ANY TYPE MADE TO THE U.S. BORROWER BY U.S. BANK AND REPAYABLE ON THE TRANCHE B PAYMENT DATE. "TRANCHE B PAYMENT DATE" MEANS THE EARLIER OF: (A) DECEMBER 18, 2001, AND (B) THE DATE ON WHICH THE CREDIT IS SYNDICATED TO A BANK WHOSE PRO RATA SHARE IS AT LEAST $10 MILLION. 6. The definition of "LOAN" includes a Tranche A or a Tranche B loan. 7. Section 2.05(c) of the Credit Agreement is deleted and substituted with the following: (c) THE TYPE OF LOANS COMPRISING THE U.S. LOAN, INCLUDING DESIGNATION AS A TRANCHE A OR TRANCHE B LOAN. 8. Section 2.08 is deleted and replaced with the following: 2.08 REPAYMENT AND TERMINATION DATE THE COMPANY SHALL REPAY TO THE CANADIAN BANKS THE AGGREGATE PRINCIPAL AMOUNT OF THE CANADIAN LOANS OUTSTANDING, AND THE U.S. BORROWER SHALL REPAY TO THE U.S. 3 BANKS THE AGGREGATE AMOUNTS OF THE U.S. LOANS OUTSTANDING ON THE DATE ON WHICH IS THE EARLIER OF (THE "TERMINATION DATE"): (A) THE DATE ON WHICH THE COMMITMENTS TERMINATE IN ACCORDANCE WITH THE PROVISIONS OF THIS AGREEMENT; AND (B) 364 DAYS FROM THE DATE OF THE THIRD AMENDMENT AGREEMENT. NOTWITHSTANDING THE FOREGOING, ALL TRANCHE B LOANS SHALL BE REPAID ON THE TRANCHE B PAYMENT DATE. 9. Section 2.09 of the Credit Agreement is deleted. 10. Schedule 2.01 is replaced with the following: 2.01 BANK COMMITMENTS AND PRO RATA SHARES -----------------------------------------
COMMITMENT PRO RATA SHARE ---------- -------------- CANADIAN BANKS BANK OF AMERICA CANADA $100,000 100% U.S. BANKS BANK OF AMERICA N.A. $14,900,000 100% ----------- TOTAL $15,000,000 -----------
11. The parties confirm the terms and conditions of the Credit Agreement as amended by the terms of the First Amendment Agreement, the Second Amendment Agreement and by this Third Amendment Agreement. 12. This Third Amendment Agreement may be referred to as being dated May 18, 2001, notwithstanding the actual date of execution. 13. This Third Amendment Agreement may be executed in any number of separate counterparts, each of which, once so executed shall be deemed an original and all said counterparts taken together shall be deemed constitute one in the same instrument. 14. The representations and warranties in Article VI of the Credit Agreement shall remain true and correct with the same affect as if made on and as of the date of this Third Amendment Agreement. 4 IN WITNESS WHEREOF the parties have executed this Agreement on May 18th, 2001. ZEMEX CORPORATION, as Company By: /s/ ALLEN J. PALMIERE ---------------------------------------------------- Title: VP, CFO & Corporate Secretary ------------------------------------------------ ZEMEX U.S. CORPORATION, as U.S. Borrower By: /s/ ALLEN J. PALMIERE ---------------------------------------------------- Title: VP, CFO & Corporate Secretary ------------------------------------------------- BANK OF AMERICA CANADA, as Canadian Agent and as a Bank By: /s/ MURRAY WILLIAMSON --------------------------------------------------- Title: Vice President ------------------------------------------------ BANK OF AMERICA, N.A., as U.S. Agent By: /s/ CHRISTINE CORDI --------------------------------------------------- Title: Vice President ------------------------------------------------ BANK OF AMERICA, N.A., as a Bank By: /s/ JACQUELINE W. HO --------------------------------------------------- Title: Vice President ------------------------------------------------ EX-4.(E) 4 t06765orex4-e.txt AMENDMENT NO. 4 DATED DECEMBER 10, 2001 Exhibit 4(e) FOURTH AMENDMENT AGREEMENT THIS FOURTH AMENDMENT AGREEMENT is entered into as of December 10, 2001 A M O N G: ZEMEX CORPORATION, a corporation established under the federal laws of Canada (the "Company"), ZEMEX U.S. CORPORATION, a corporation established under the laws of Delaware (the "U.S. Borrower") (the Company and the U.S. Borrower called the "Borrowers"), the several financial institutions from time to time parties to the Credit Agreement (collectively, the "Banks"; individually a "Bank"), Bank of America Canada as agent for the Canadian Banks, Bank of America, N.A. as agent for the U.S. Banks, and Bank of America Canada as Arranger. WHEREAS, the parties entered into a Credit Agreement dated as of May 21, 1999 (the "Credit Agreement") whereby the Banks provided certain credit facilities to the Company and the U.S. Borrower for working capital, short term liquidity and general corporate purposes, including permitted Acquisitions; AND WHEREAS, the parties entered into a First Amendment to the Credit Agreement dated as of September 24, 1999, a Second Amendment Agreement dated as of March 7, 2000 and a Third Amendment Agreement dated as of May 18, 2001; AND WHEREAS, the parties have agreed to make additional amendments to the Credit Agreement, and the parties are entering into this Fourth Amendment Agreement to amend the Credit Agreement accordingly; NOW THEREFORE, in consideration of the mutual covenants, provisions and covenants contained herein, the parties agree as follows: 1. TERMS USED HEREIN AND NOT OTHERWISE DEFINED shall have the same meaning as those described thereto in the Credit Agreement (as amended by the First Amendment Agreement, the Second Amendment Agreement and the Third Amendment Agreement). 2. HSBC Bank USA is added to the Credit Agreement as a "Bank" and a "US Bank". 2 3. The definition of "Applicable Margin" is deleted and replaced with the following: "APPLICABLE MARGIN" FOR LOANS (OTHER THAN LETTERS OF CREDIT) AND L/C FEE CALCULATION MEANS
LEVERAGE LIBOR, B/A RATE PRIME AND BASE RATIO LOANS AND L/Cs RATE LOANS - -------- -------------- -------------- 2.25 OR LESS 1.250% .250% MORE THAN 2.25 AND LESS THAN 2.50 1.375% .375% 2.50 OR MORE 1.50% .50%
4. The definition of "Canadian Agent" is deleted and replaced with the following: "CANADIAN AGENT" MEANS BACAN AND ITS SUCCESSORS AS CANADIAN AGENT PURSUANT TO SECTION 10.09. 5. The definition of "Canadian Banks" is deleted and replaced with the following: "CANADIAN BANKS" MEANS THOSE SCHEDULE I OR SCHEDULE II BANKS TO WHICH THE BANK ACT (CANADA) APPLIES AND THOSE BANKS THAT ARE MENTIONED IN SCHEDULE III OF THE BANK ACT (CANADA) THAT ARE NOT SUBJECT TO THE RESTRICTIONS AND REQUIREMENTS REFERRED TO IN SUBSECTION S 524(2) OF THE BANK ACT (CANADA) AND WHICH AGREE TO MAKE LOANS TO THE COMPANY. 6. The following definition of "CANADIAN REFERENCE BANK" is added to the Credit Agreement: "CANADIAN REFERENCE BANK" MEANS BACAN OR ITS SUCCESSOR OR ASSIGN WHICH IS A CANADIAN BANK. 7. The definition of "Credit" is deleted and substituted with the following: 3 "CREDIT" MEANS THE REVOLVING CREDIT FACILITY OF UP TO $30,000,000 (OR THE CANADIAN DOLLAR EQUIVALENT) ESTABLISHED BY THE BANKS IN FAVOUR OF THE BORROWERS. 8. The following definitions and any reference thereto are deleted from the Credit Agreement: "TRANCHE A" SHALL MEAN LOANS NOT EXCEEDING US $10 MILLION DOLLARS OF ANY TYPE MADE TO THE COMPANY AND/OR THE U.S. BORROWER. "TRANCHE B" SHALL MEAN LOANS NOT EXCEEDING U.S. $5 MILLION DOLLARS OR ANY TYPE MADE TO THE U.S. BORROWER BY U.S. BANK AND REPAYABLE ON THE TRANCHE B PAYMENT DATE. "TRANCHE B PAYMENT DATE" MEANS THE EARLIER OF: (A) DECEMBER 18, 2001, AND (B) THE DATE ON WHICH THE CREDIT IS SYNDICATED TO A BANK WHOSE PRO RATA SHARE IS AT LEAST $10 MILLION. 9. The definition of "MAJORITY BANKS" is deleted and replaced with the following: "MAJORITY BANKS" MEANS AT ANY TIME BANKS THEN HOLDING AT LEAST 70% OF THE THEN AGGREGATE UNPAID PRINCIPAL AMOUNT OF THE LOANS, OR, IF NO SUCH PRINCIPAL AMOUNT IS THEN OUTSTANDING, AT LEAST TWO BANKS THEN HAVING AT LEAST 70% OF THE COMMITMENTS. 10. The definition of "PRIME RATE" is amended by deleting the reference therein to "BACAN" and substituting therefore "THE CANADIAN REFERENCE BANK". 11. Section 2.05(a)(c) of the Credit Agreement is deleted and substituted with the following: (C) THE TYPE OF LOANS COMPRISING THE U.S. LOANS. 12. Section 2.08 is deleted and replaced with the following: 2.08 REPAYMENT AND TERMINATION DATE. SUBJECT TO SECTION 2.09, THE COMPANY SHALL REPAY TO THE CANADIAN BANKS THE 4 AGGREGATE PRINCIPAL AMOUNT OF THE CANADIAN LOANS OUTSTANDING, AND THE U.S. BORROWER SHALL REPAY TO THE U.S. BANKS THE AGGREGATE AMOUNTS OF THE U.S. LOANS OUTSTANDING ON THE DATE ON WHICH IS THE EARLIER OF (THE "TERMINATION DATE"): (A) THE DATE ON WHICH THE COMMITMENTS TERMINATE IN ACCORDANCE WITH THE PROVISIONS OF THIS AGREEMENT; AND (B) JULY 31, 2002 OR, IF THE CREDIT IS EXTENDED IN ACCORDANCE WITH SECTION 2.09, THE EXTENSION DATE. 13. A new Section 2.09 of the Credit Agreement is added as follows: "2.09 EXTENSION DATE "EXTENSION DATE" SHALL MEAN THE DATE TO WHICH THE CREDIT IS EXTENDED WITH THE UNANIMOUS CONSENT OF THE BANKS, ANY SUCH EXTENSION TO BE MADE ONLY FOR 364 DAYS AT A TIME. THE COMPANY MAY ANNUALLY REQUEST AN EXTENSION OF THE EXPIRY OF THE CREDIT FOR AN ADDITIONAL 364 DAYS PERIOD BY DELIVERING A REQUEST FOR EXTENSION NO LATER THAN 90 DAYS PRIOR TO JULY 31, 2002 OR ANY SUBSEQUENT EXTENDED TERM. THE CANADIAN AGENT SHALL NOTIFY THE COMPANY NO LATER THAN 30 DAYS FOLLOWING THE RECEIPT OF A REQUEST FOR EXTENSION AS TO WHETHER OR NOT THE EXTENSION HAS BEEN GRANTED." 14. Section 8.13 is deleted and replaced with: 8.13 ASSET ACQUISITION. NEITHER THE COMPANY NOR ANY OF ITS SUBSIDIARIES SHALL ACQUIRE ASSETS OR SHARES OF ANY PERSON IN WHOLE OR IN PART (OTHER THAN AN EXCLUDED SUBSIDIARY), IN EXCESS OF $7.5 MILLION PER ACQUISITION AND THE AGGREGATE COST OF ALL ACQUISITIONS IN ANY FISCAL YEAR CANNOT BE IN EXCESS OF $15 MILLION, WITHOUT THE PRIOR APPROVAL OF THE MAJORITY BANKS. 15. Section 8.14 is deleted and replaced with: 5 8.14 CAPITAL EXPENDITURES. NEITHER THE COMPANY NOR ITS SUBSIDIARIES SHALL MAKE ANY CAPITAL EXPENDITURE IN EXCESS OF $10 MILLION PER YEAR WITHOUT THE PRIOR WRITTEN APPROVAL OF THE AGENTS AND THE MAJORITY BANKS. 16. Section 8.17 is deleted and replaced with: 8.17 MINIMUM NET WORTH. THE COMPANY SHALL NOT PERMIT ITS CONSOLIDATED TANGIBLE NET WORTH AT ANY TIME TO BE LESS THAN AN AMOUNT EQUAL TO AT LEAST (A) $60 MILLION PLUS (B) THE COMPANY'S NET INCOME, WITHOUT DECREASE FOR ANY FISCAL QUARTER IN WHICH A CONSOLIDATED NET LOSS OCCURS PLUS (C) 50 PER CENT OF ANY EQUITY ISSUANCE AT ANY TIME AFTER THE EFFECTIVE DATE OF THE FOURTH AMENDMENT AGREEMENT. 17. Section 8.18 is deleted and replaced with: 8.18 LEVERAGE RATIO. THE COMPANY SHALL NOT PERMIT FOR ANY FISCAL QUARTER (DETERMINED AS AT THE LAST DATE OF SUCH FISCAL QUARTER) ENDING IN ANY PERIOD ITS LEVERAGE RATIO TO BE GREATER THAN 3.00 TO 1.00. 18. Section 8.19 is deleted and replaced with: 8.19 INTEREST COVERAGE RATIO. THE COMPANY SHALL NOT PERMIT FOR ANY FISCAL QUARTER (DETERMINED AS OF THE LAST DATE OF SUCH FISCAL QUARTER) ENDING IN ANY PERIOD ITS INTEREST COVERAGE RATIO TO BE LESS THAN 3.00 TO 1.00. 19. Schedule 2.01 is replaced with the following:
CANADIAN BANKS COMMITMENT -------------- ---------- BANK OF AMERICA CANADA $100,000
6
U.S. BANKS ---------- BANK OF AMERICA N.A. $14,900,000 HSBC BANK USA $15,000,000 ----------- TOTAL $30,000,000 ----------- PRO RATA SHARE Bank of America and Bank of America Canada 50% HSBC Bank USA 50%
20. The parties confirm the terms and conditions of the Credit Agreement as amended by the terms of the First Amendment Agreement, the Second Amendment Agreement, the Third Amendment Agreement and by this Fourth Amendment Agreement. 21. This Fourth Amendment Agreement may be referred to as being dated December *, 2001 notwithstanding the actual date of execution. 22. This Fourth Amendment Agreement may be executed in any number of separate counterparts, each of which, once so executed shall be deemed an original and all said counterparts taken together shall be deemed constitute one in the same instrument. 23. The representations and warranties in Article VI of the Credit Agreement shall remain true and correct with the same effect as if made on and as of the date of this Fourth Amendment Agreement. 24. This Fourth Amendment Agreement shall be governed in all respects by the laws of the Province of Ontario and each of the undersigned hereby irrevocably attorns to and accepts the non-exclusive jurisdiction of the courts of the Province of Ontario. IN WITNESS WHEREOF the parties have executed this Agreement on December 10, 2001. ZEMEX CORPORATION, as Company By: /s/ ALLEN J. PALMIERE ------------------------------------ Title: VP, CFO & Corporate Secretary --------------------------------- 7 ZEMEX U.S. CORPORATION, as U.S. Borrower By: /s/ ALLEN J. PALMIERE ------------------------------------------ Title: VP, CFO & Corporate Secretary --------------------------------------- BANK OF AMERICA CANADA, as Canadian Agent and as a Bank By: /s/ MURRAY WILLIAMSON ------------------------------------------ Title: Vice President --------------------------------------- BANK OF AMERICA, N.A., as U.S. Agent By: /s/ CHRISTINE CORDI ------------------------------------------ Title: Vice President --------------------------------------- BANK OF AMERICA, N.A., as a Bank By: /s/ JACQUELINE W. HO ------------------------------------------ Title: Vice President --------------------------------------- HSBC BANK USA, as a Bank By: /s/ RICHARD J. WARD ------------------------------------------ Title: First Vice President --------------------------------------- EX-21 5 t06765orex21.txt SUBSIDIARIES OF THE REGISTRANT EXHIBIT 21 SUBSIDIARIES OF THE REGISTRANT Alumitech, Inc. Alumitech of Cleveland, Inc. Alumitech of Wabash, Inc. AWT Properties, Inc. Alumitech of West Virginia, Inc. ETS Schaefer Corporation Longhorn Holdings, Inc. Suzorite Mica Products Inc. Suzorite Mineral Products, Inc. The Feldspar Corporation Zemex Attapulgite, LLC. Zemex Industrial Minerals, Inc. Zemex Mica Corporation Zemex U.S. Corporation EX-23 6 t06765orex23.txt CONSENT OF DELOITTE & TOUCHE LLP EXHIBIT 23 INDEPENDENT AUDITORS' CONSENT We consent to the incorporation by reference in Registration Statements No 333-74803, 333-75371, 333-44950 and 333-70406 of Zemex Corporation on Form S-8 of our reports dated February 4, 2002, except as to Note 19 which is as of March 27, 2002, appearing in this Annual Report on Form 10-K for the year ended December 31, 2001. /s/Deloitte & Touche LLP Deloitte & Touche LLP Chartered Accountants Toronto, Canada April 10, 2002 -----END PRIVACY-ENHANCED MESSAGE-----