-----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, PcyCrDWxC4JfkTyW/55hgEfOwJjILQRKaA8YLgoiA1PwGE2m2xNN6Pu74K2zeIaB dWTA4BYVOt0lgvEzoXinXQ== 0001130319-02-000363.txt : 20020501 0001130319-02-000363.hdr.sgml : 20020501 ACCESSION NUMBER: 0001130319-02-000363 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20020331 FILED AS OF DATE: 20020501 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ZEMEX CORP CENTRAL INDEX KEY: 0000075644 STANDARD INDUSTRIAL CLASSIFICATION: MINING, QUARRYING OF NONMETALLIC MINERALS (NO FUELS) [1400] IRS NUMBER: 135496920 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-00228 FILM NUMBER: 02630624 BUSINESS ADDRESS: STREET 1: CT TOWER, BCE PLACE STREET 2: 161 BAY ST, STE 3750 P O BOX 703 CITY: TORONTO ONTARIO M5J STATE: A6 BUSINESS PHONE: 4163658080 MAIL ADDRESS: STREET 1: CANADA TRUST TOWER STREET 2: BCE PLACE 161 BAY ST,# 3750 PO BOX 703 CITY: TORONTO ONTARIO M5J STATE: A6 FORMER COMPANY: FORMER CONFORMED NAME: PACIFIC TIN CONSOLIDATED CORP DATE OF NAME CHANGE: 19860720 10-Q 1 t07041ore10-q.txt FORM 10-Q CONFORMED UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington D.C. 20549 FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2002 Commission file number 1-228 [ZEMEX LOGO] ZEMEX CORPORATION (Exact name of registrant as specified in its charter) CANADA NONE (State or other jurisdiction (I.R.S. Employer Identification Number) of incorporation or organization) CANADA TRUST TOWER, BCE PLACE 161 BAY STREET, SUITE 3750 TORONTO, ONTARIO, CANADA M5J 2S1 (Address of principal executive offices) (416) 365-8080 (Registrant's telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act TORONTO STOCK EXCHANGE/NEW YORK STOCK EXCHANGE CAPITAL STOCK, NO PAR VALUE Indicate by checkmark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ----------- --------- YES X NO ----------- --------- As of April 30, 2002, there were 8,195,437 shares of capital stock outstanding. PART I - FINANCIAL INFORMATION ITEM 1 - FINANCIAL STATEMENTS ZEMEX CORPORATION CONSOLIDATED BALANCE SHEETS (US$)
MARCH 31, 2002 December 31, 2001 -------------- ----------------- ASSETS (unaudited) CURRENT ASSETS Cash $ 381,000 $ 532,000 Accounts receivable 11,404,000 8,639,000 Inventories 16,699,000 16,417,000 Prepaid expenses and other current assets 712,000 380,000 Income taxes receivable 841,000 601,000 Future income tax benefits 384,000 384,000 -------------- ----------------- 30,421,000 26,953,000 PROPERTY, PLANT AND EQUIPMENT 71,858,000 56,962,000 OTHER ASSETS 6,461,000 6,206,000 FUTURE INCOME TAX BENEFITS (NON-CURRENT) 7,394,000 7,394,000 -------------- ----------------- TOTAL ASSETS $ 116,134,000 $ 97,515,000 ============== ================= LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Bank indebtedness $ 27,000,000 $ 11,000,000 Accounts payable 3,661,000 2,957,000 Accrued liabilities 3,853,000 2,578,000 Current portion of long term debt 438,000 284,000 -------------- ----------------- 34,952,000 16,819,000 LONG TERM DEBT 360,000 211,000 OTHER NON-CURRENT LIABILITIES 2,462,000 2,281,000 FUTURE INCOME TAX OBLIGATIONS 1,398,000 1,399,000 -------------- ----------------- 39,172,000 20,710,000 -------------- ----------------- SHAREHOLDERS' EQUITY Common stock 53,901,000 53,786,000 Retained earnings 26,870,000 26,820,000 Note receivable from shareholder (1,259,000) (1,259,000) Cumulative translation adjustment (2,550,000) (2,542,000) -------------- ----------------- 76,962,000 76,805,000 -------------- ----------------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 116,134,000 $ 97,515,000 ============== =================
Prepared in accordance with Canadian GAAP - 2 - ZEMEX CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31 (US$)
2002 2001 ------------ ------------ (unaudited) NET SALES $ 14,973,000 $ 16,563,000 ------------ ------------ COSTS AND EXPENSES Cost of goods sold 10,606,000 11,406,000 Selling, general and administrative 2,728,000 2,763,000 Depreciation, depletion and amortization 1,511,000 1,619,000 ------------ ------------ 14,845,000 15,788,000 ------------ ------------ OPERATING INCOME 128,000 775,000 ------------ ------------ Interest income 31,000 50,000 Interest expense (214,000) (269,000) Other income, net 4,000 303,000 ------------ ------------ (179,000) 84,000 ------------ ------------ (LOSS) INCOME BEFORE (RECOVERY OF) PROVISION FOR INCOME TAXES AND NON-CONTROLLING INTEREST (51,000) 859,000 (Recovery of) provision for income taxes (101,000) 167,000 Non-controlling interest in subsidiary earnings -- 10,000 ------------ ------------ NET INCOME $ 50,000 $ 682,000 ============ ============ NET INCOME PER SHARE BASIC $ 0.01 $ 0.08 DILUTED $ 0.01 $ 0.08 ------------ ------------ WEIGHTED AVERAGE COMMON SHARES OUTSTANDING BASIC 7,921,320 8,411,055 DILUTED 7,959,990 8,422,219 ------------ ------------
Prepared in accordance with Canadian GAAP - 3 - ZEMEX CORPORATION CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (US$)
NOTE RECEIVABLE CUMULATIVE COMMON RETAINED FROM TRANSLATION STOCK EARNINGS SHAREHOLDER ADJUSTMENT TOTAL ------------ ------------ ------------ ------------ ------------ Balance at December 31, 2000 $ 57,212,000 $ 25,958,000 $ (1,259,000) $ (2,008,000) $ 79,903,000 Stock issued under ESPP, net (a) 80,000 -- -- -- 80,000 Stock purchased for treasury (370,000) -- -- -- (370,000) Net income for the period -- 682,000 -- -- 682,000 Translation adjustment -- -- -- (453,000) (453,000) ------------ ------------ ------------ ------------ ------------- Balance at March 31, 2001 $ 56,922,000 $ 26,640,000 $ (1,259,000) $ (2,461,000) $ 79,842,000 ============ ============ ============ ============ ============= ------------ ------------ ------------ ------------ ------------- BALANCE AT DECEMBER 31, 2001 $ 53,786,000 $ 26,820,000 $ (1,259,000) $ (2,542,000) $ 76,805,000 STOCK ISSUED UNDER ESPP, NET (a) 115,000 -- -- -- 115,000 STOCK PURCHASED FOR TREASURY -- -- -- -- -- NET INCOME FOR THE PERIOD -- 50,000 -- -- 50,000 TRANSLATION ADJUSTMENT -- -- -- (8,000) (8,000) ------------ ------------ ------------ ------------ ------------ BALANCE AT MARCH 31, 2002 $ 53,901,000 $ 26,870,000 $ (1,259,000) $ (2,550,000) $ 76,962,000 ============ ============ ============ ============ ============
Prepared in accordance with Canadian GAAP (a) Employee Stock Purchase Plan ("ESPP") - 4 - ZEMEX CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOW FOR THE THREE MONTHS ENDED MARCH 31 (US$)
2002 2001 ------------ ------------ (unaudited) CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 50,000 $ 682,000 Adjustments to reconcile net income to net cash flows from operating activities Depreciation, depletion and amortization 1,511,000 1,619,000 Decrease in future income tax obligations (1,000) (80,000) Non-controlling interest in subsidiary earnings -- 10,000 Gain on sale of assets -- (301,000) Increase in other assets (266,000) (42,000) Increase in other non-current liabilities 1,000 17,000 Changes in non-cash working capital items (1,579,000) (1,904,000) ------------ ------------ Net cash (used in) provided by operating activities (284,000) 1,000 ------------ ------------ CASH FLOWS FROM INVESTING ACTIVITIES Additions to property, plant and equipment (1,172,000) (308,000) Acquisitions, net of cash acquired (14,706,000) -- Proceeds from sale of assets 4,000 3,632,000 ------------ ------------ Net cash (used in) provided by investing activities (15,874,000) 3,324,000 ------------ ------------ CASH FLOWS FROM FINANCING ACTIVITIES Net increase (decrease) in bank indebtedness 16,000,000 (3,500,000) Net decrease in long term debt (106,000) (164,000) Issuance of common stock 115,000 80,000 Purchase of common stock -- (370,000) ------------ ------------ Net cash provided by (used in) financing activities 16,009,000 (3,954,000) ------------ ------------ EFFECT OF EXCHANGE RATE CHANGES ON CASH (2,000) (143,000) ------------ ------------ NET DECREASE IN CASH (151,000) (772,000) CASH AT BEGINNING OF PERIOD 532,000 2,175,000 ------------ ------------ CASH AT END OF PERIOD $ 381,000 $ 1,403,000 ============ ============
Prepared in accordance with Canadian GAAP - 5 - NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS The consolidated financial statements include the accounts of Zemex Corporation and its subsidiaries (the "Corporation"). The financial data for the three months ended March 31, 2002 and 2001 are unaudited but, in the opinion of the management, reflect all adjustments, considered necessary for a fair presentation of financial position, results of operations and cash flows. The results of operations and cash flows for the three-month period ended March 31, 2002 are not necessarily indicative of operations for the entire year. All material intercompany transactions have been eliminated. The following should be read in conjunction with the audited Consolidated Financial Statements and related notes thereto for the year ended December 31, 2001. OVERVIEW The Corporation is a diversified producer of specialty materials and products for use in a variety of industrial applications. The Corporation operates in two principal business segments: (i) industrial minerals, which includes The Feldspar Corporation, Suzorite Mica Products Inc., Suzorite Mineral Products, Inc., Zemex Industrial Minerals, Inc., Zemex Mica Corporation and Zemex Attapulgite, LLC; and (ii) aluminum recycling, which includes Alumitech, Inc., Alumitech of Cleveland, Inc., Alumitech of Wabash, Inc., Alumitech of West Virginia, Inc., ETS Schaefer Corporation and AWT Properties, Inc. 1. On March 27, 2002, the Corporation purchased through a newly formed subsidiary, Alumitech of West Virginia, Inc., the assets of Resource Recovery Industries, LLC, an aluminum dross processor located in Friendly, West Virginia. The purchase price was approximately $3.1 million and was financed by a drawdown on the Corporation's credit facility. As contingent consideration for the purchase, the Corporation issued Series A and Series B warrants which are exercisable for cash consideration into shares of Alumitech, or into shares of the Corporation if Alumitech is not publicly listed by December 31, 2006. The warrants, which vest in 2005 and 2006 respectively, will terminate if certain earnings targets are not met by the aluminum operations of Alumitech by the beginning of these fiscal years. 2. On February 1, 2002, the Corporation acquired, through Zemex Attapulgite, LLC, a newly incorporated subsidiary under the industrial minerals group, the assets of an attapulgite clay operation from Milwhite, Inc. The Corporation paid approximately $11.6 million for the acquisition and funded it by a drawdown from its existing credit facility. The following table summarizes the estimated fair value of the assets acquired and liabilities assumed at the date of the acquisition. The allocation of the purchase price could be subject to adjustment due to an ongoing review of the valuation of certain non-current assets. Current assets $ 1,123,000 Capital assets 11,627,000 ------------ Total assets 12,750,000 Current liabilities 991,000 Other non-current liabilities 180,000 ------------ Net assets acquired $ 11,579,000 ============
- 6 - 3. On March 20, 2001, the Corporation completed the sale of its Natural Bridge, New York talc facility and its 60% interest in Zemex Fabi-Benwood, LLC for approximately $7.5 million to IMI Fabi S.p.A. ("IMI Fabi"). The Corporation recognized a pre-tax gain of $0.3 million from this transaction which was recorded as other income in the first quarter of 2001. Of the sale proceeds, $3.7 million was received in March 2001 and applied to reduce the Corporation's outstanding borrowings under its credit facilities. The balance, which was originally included in accounts receivable, was received in September 2001. SEGMENTED INFORMATION The Corporation is composed of two principal lines of business and is organized into two distinct operating units based on product lines: (i) industrial minerals; and (ii) aluminum recycling. Information pertaining to sales and earnings (loss) from operations and assets by business segment appears below:
INDUSTRIAL ALUMINUM PERIOD ENDED MARCH 31, 2002 CONSOLIDATED MINERALS RECYCLING CORPORATE - --------------------------- ------------- ------------ ------------ ------------ NET SALES $ 14,973,000 $ 10,494,000 $ 4,479,000 $ -- OPERATING INCOME (LOSS) 128,000 1,343,000 (320,000) (895,000) INTEREST EXPENSE (214,000) (12,000) (5,000) (197,000) NET INCOME (LOSS) 50,000 1,145,000 (306,000) (789,000) ------------ ------------ ------------ ------------
Industrial Aluminum Period Ended March 31, 2001 Consolidated Minerals Recycling Corporate - --------------------------- ------------ ------------ ------------ ------------ Net sales $ 16,563,000 $ 11,748,000 $ 4,815,000 $ -- Operating income (loss) 775,000 1,747,000 (226,000) (746,000) Interest (expense) income (269,000) 55,000 (8,000) (316,000) Net income (loss) 682,000 2,046,000 (236,000) (1,128,000) ------------ ------------ ------------ ------------
INDUSTRIAL ALUMINUM MARCH 31, 2002 CONSOLIDATED MINERALS RECYCLING CORPORATE - -------------- ------------ ------------ ------------ ------------ CURRENT ASSETS $ 30,421,000 $ 24,139,000 $ 3,697,000 $ 2,585,000 TOTAL ASSETS 116,134,000 78,496,000 24,625,000 13,013,000 TOTAL CURRENT LIABILITIES 34,952,000 4,544,000 2,907,000 27,501,000 TOTAL SHAREHOLDERS' EQUITY 76,962,000 -- -- 76,962,000 ------------ ------------ ------------ ------------
Industrial Aluminum March 31, 2001 Consolidated Minerals Recycling Corporate - -------------- ------------ ------------ ------------ ------------ Current assets $ 32,209,000 $ 26,114,000 $ 4,142,000 $ 1,953,000 Total assets 104,823,000 68,373,000 22,874,000 13,576,000 Total current liabilities 21,058,000 3,673,000 2,966,000 14,419,000 Total shareholders' equity 79,842,000 -- -- 79,842,000 ------------ ------------ ------------ ------------
- 7 - COMMON SHARES AND STOCK OPTIONS The Corporation has adopted the disclosure requirements of the new CICA Handbook Section 3870 as follows: Shares Outstanding As at March 31, 2002, the Corporation's authorized capital stock consists of an unlimited number of first preference shares without par value and an unlimited number of common shares without par value. There were no preference shares and 8,195,437 common shares issued and outstanding as of April 30, 2002. The Corporation did not purchase any common shares in the first quarter of 2002, compared to 65,400 common shares repurchased in the same quarter of 2001. Stock Options Outstanding The Corporation provides stock option incentive plans, which are intended to provide long term incentives and rewards to executive officers, directors and other key employees contingent upon an increase in the market value of the Corporation's common shares. The options vest and are exercisable from the beginning of the second year subsequent to the date of issuance. There were 1,065,150 options outstanding as of April 30, 2002 of which 832,900 are exercisable as of April 30, 2002. The following is a summary of option transactions under the Corporation's stock option plans:
------------------------------ ------------------------------- 2002 2001 ------------------------------ ------------------------------- WEIGHTED-AVERAGE Weighted-average OPTIONS EXERCISE PRICE Options exercise price --------- ---------------- ---------- ---------------- Options outstanding at beginning of period 1,070,650 $ 7.16 1,177,150 $ 8.17 Options granted during period -- -- 250,500 5.22 Options exercised during the period -- -- -- -- Options cancelled during the period (5,500) 9.75 (211,500) 9.05 --------- ---------------- ---------- ---------------- Options outstanding at end of period 1,065,150 $ 7.15 1,216,150 $ 7.76 --------- ---------------- ---------- ---------------- Options exercisable at end of period 832,900 743,200 --------- ---------- Price range of options granted during the period -- $5.21-6.10 --------- ----------
The options expire from 2002 to 2010. - 8 - The following table summarizes information about the stock options outstanding at March 31, 2002:
---------------- ------------------------------------------------------ --------------------------------- OPTIONS OUTSTANDING OPTIONS EXERCISABLE ------------------------------------------------------ --------------------------------- RANGE OF NUMBER WEIGHTED-AVERAGE WEIGHTED- NUMBER WEIGHTED- EXERCISE OUTSTANDING AT REMAINING AVERAGE EXERCISABLE AT AVERAGE PRICES MARCH 31, 2002 CONTRACTUAL LIFE EXERCISE PRICE MARCH 31, 2002 EXERCISE PRICE ---------------- -------------- ------------------- -------------- -------------- -------------- $ 5.00 TO $ 5.99 241,500 4.88 YEARS $ 5.21 120,750 $ 5.21 $ 6.00 TO $ 6.99 348,150 6.41 YEARS 6.32 301,150 6.29 $ 7.00 TO $ 7.99 192,000 2.77 YEARS 7.31 157,500 7.30 $ 8.00 TO $ 8.99 64,000 7.69 YEARS 8.21 34,000 8.24 $ 9.00 TO $ 9.99 12,000 2.23 YEARS 9.06 12,000 9.06 $10.00 TO $10.99 207,500 2.13 YEARS 10.19 207,500 10.19 ---------------- -------------- ---------------- -------------- -------------- -------------- $ 5.00 TO $10.99 1,065,150 832,900 ============== ==============
Stock Based Compensation The Corporation does not recognize compensation expense for its stock-based compensation plans. Had compensation cost for the stock option plans been determined based upon fair value at the grant date for awards under these plans, the Corporation's net income and earnings per share would have been reduced by approximately $460,000 or $0.05 per share in the first quarter of 2001. The fair value of the options granted during 2001 is estimated to be $460,000. The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions used for grants in 2001: dividend yield of 0%; expected volatility of 29%; risk-free interest rates varying from 5.04% to 4.59%; and an expected life of 5 years. The Corporation granted no options in the first quarter of 2002. Recent Accounting Pronouncements In 2001, the CICA issued Section 3062 "Goodwill and Other Intangible Assets". This standard was effective January 1, 2002 and requires, among other things, the discontinuance of goodwill amortization. The Corporation's net income for the three-month period ended March 31, 2001 would have increased by $51,000. In addition, the standard includes provisions for the reclassification of certain existing recognized intangibles as goodwill, reassessment of the useful lives of existing recognized intangibles, reclassification of certain intangibles out of previously reported goodwill and the identification of reporting units for purposes of assessing potential future impairments of goodwill. It also requires the Corporation to complete a transitional goodwill impairment test six months from the date of adoption. The Corporation is currently assessing but has not yet determined the impact, if any, of the transitional impairment test on its financial position and results of operations. DIFFERENCES FROM UNITED STATES ACCOUNTING PRINCIPLES These consolidated financial statements have been prepared in accordance with accounting principles generally accepted in Canada ("Canadian GAAP"). The differences between Canadian and U.S. generally accepted accounting principles ("U.S. GAAP") do not have a material effect on the Corporation's reported financial position or net income or cash flows except as follows: - 9 - a. Statements of Operations The implementation of the American Institute of Certified Public Accountants Statement of Position 98-5 ("SOP 98-5") requires costs of start-up activities and organization costs to be expensed as incurred. Canadian GAAP permits the deferral and amortization of such costs.
---------------------------- PERIOD ENDED MARCH 31 2002 2001 -------- --------- Net income, as reported $ 50,000 $ 682,000 Add: Amortization of start-up activities and organization costs 8,000 40,000 Tax effect related thereto (2,000) (6,000) -------- --------- Net income, under U.S. GAAP $ 56,000 $ 716,000 ======== ========= Net income per share, under U.S. GAAP - basic $ 0.01 $ 0.09 - diluted $ 0.01 $ 0.08 -------- ---------
b. Balance Sheets The following summarizes the balance sheet amounts in accordance with U.S. GAAP where amounts differ from the amounts reported under Canadian GAAP. U.S. GAAP, SOP 98-5, requires that the costs of start-up activities and organization costs be expensed in the period incurred rather than be deferred.
---------------------------- ------------------------------ MARCH 31, 2002 December 31, 2001 ---------------------------- ------------------------------ CANADIAN GAAP U.S. GAAP Canadian GAAP U.S. GAAP ------------- ------------ ------------- ------------ Property, plant and equipment $ 71,858,000 $ 70,419,000 $ 56,962,000 $ 55,523,000 Other assets 6,461,000 6,256,000 6,206,000 5,993,000 Future income tax benefits (non-current) 7,394,000 7,552,000 7,394,000 7,554,000 Accumulated other comprehensive loss -- (8,000) -- (534,000) Retained earnings 26,870,000 25,384,000 26,820,000 25,328,000 ------------- ------------ ------------- ------------
c. Statements of Comprehensive Income U.S. GAAP requires a statement of comprehensive income as follows:
---------------------------- PERIOD ENDED MARCH 31 2002 2001 -------- --------- Net income, under U.S. GAAP $ 56,000 $ 716,000 Change in foreign currency translation adjustment (8,000) (385,000) -------- --------- Comprehensive income $ 48,000 $ 331,000 ======== =========
- 10 - d. Recent Accounting Pronouncements In August 2001, the FASB issued Statement of Financial Accounting Standards No. 143 ("SFAS 143"), "Accounting for Asset Retirement Obligations", which is effective for financial statements issued for fiscal years beginning after June 15, 2002. SFAS 143 addresses the recognition and remeasurement of obligations associated with the retirement of tangible long-lived assets. The Corporation has not yet determined the effect that the adoption of SFAS 143 will have on the business, results of operations and financial condition. ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following is a discussion and analysis of the financial condition and results of operations of the Corporation for the three months ended March 31, 2002 and the three months ended March 31, 2001, and certain factors that may affect the Corporation's prospective financial condition and results of operations. The following should be read in conjunction with the audited Consolidated Financial Statements and related notes thereto for the year ended December 31, 2001. RESULTS OF OPERATIONS THREE MONTHS ENDED MARCH 31, 2002 COMPARED TO THREE MONTHS ENDED MARCH 31, 2001 Net Sales The Corporation's net sales from operations for the quarter ended March 31, 2002 were $15.0 million, 9.6% or $1.6 million, lower than the same period of 2001. Net sales in the industrial minerals group for the three months ended March 31, 2002 were $10.5 million, versus $11.8 million for the corresponding period in 2001, a decrease of $1.3 million or 10.7%. The decline in the revenue generated from the industrial minerals group was primarily due to a decrease in revenue generated from low iron sand sales. The impact of the disposition of the Natural Bridge, New York talc facility and the Benwood, West Virginia talc joint venture at the end of the first quarter of 2001 was offset by the revenue generated from the newly acquired attapulgite clay operation. Net sales from the aluminum recycling group were $4.5 million in the first quarter of 2002 as compared to $4.8 million generated in the same period of 2001. The decline was mainly due to a decline in revenue earned from sales of heat containment systems. Cost of Goods Sold Cost of goods sold for the first quarter of 2002 was $10.6 million, $0.8 million or 7.0% lower than the same quarter of 2001. Of the $0.8 million decrease, the industrial minerals group and aluminum recycling group contributed $0.6 million and $0.2 million, respectively. The decrease in the industrial minerals group was lower than would be anticipated due to the impact of low iron sand. In 2001, the Corporation produced, for inventory, low iron sand feedstock. This resulted in a lower cost of goods sold since, due to a change in the quarry being utilized, only industrial sand is currently being produced. Gross margin slightly decreased from 31.1% in the first quarter of 2001 to 29.2% in 2002. - 11 - Selling, General and Administrative Selling, general and administrative expense ("SG&A") for the three months ended March 31, 2002 was $2.7 million, virtually unchanged from the same period of 2001 despite the additional professional fees arising from litigation expenses. Depreciation, Depletion and Amortization Depreciation, depletion and amortization for the quarter ended March 31, 2002 was $1.5 million, down by $0.1 million, or 6.6%, from the same quarter in 2001. The decrease was mainly due to the sale of two talc plants in 2001 and cessation of goodwill amortization in 2002, partially offset by the depreciation arising from the acquisition of the attapulgite clay operation in 2002. Operating Income For the reasons discussed above, operating income for the three month period ended March 31, 2002 was $0.1 million, a decrease of $0.6 million from the comparable period in 2001. Interest Income Interest income for the three months ended March 31, 2002 was $31,000, versus $50,000 from the same period in 2001. Interest Expense Interest expense for the three months ended March 31, 2002 was $0.2 million, a decrease of $0.1 million, or 20.4%, from the comparable period in 2001. Total indebtedness was $27.8 million at the end of the first quarter of 2002 compared to $14.3 million at the end of the first quarter of 2001. The increase in indebtedness was due to the two acquisitions that occurred during the first quarter of 2002. Both acquisitions were funded from the Corporation's existing credit facility. Interest expense will increase prospectively. Other Income, Net The Corporation reported $0.3 million as other income in the first quarter of 2001, compared to $4,000 reported for the same period in 2002. The $0.3 million was generated from the sale of talc facilities located in Natural Bridge, New York and the Corporation's 60% interest in the Benwood, West Virginia facility in March 2001. (Recovery of) Provision for Income Taxes The Corporation recognized an income tax benefit of $0.1 million in 2002 as a result of a tax loss generated from U.S. operations. The Corporation recorded a $0.2 million income tax provision for the same quarter of 2001. Net Income As a result of the factors discussed above, the Corporation recorded a net income from operations for the quarter ended March 31, 2002 of $50,000 compared to net income from operations of $0.7 million for the three months ended March 31, 2001. - 12 - LIQUIDITY AND CAPITAL RESOURCES Cash Flow from Operations The Corporation had a working capital deficit of $4.5 million at March 31, 2002, compared to $10.1 million working capital at December 31, 2001. The decrease was mainly due to the drawdown under the credit facilities to fund the acquisitions in 2002. Because the credit facility is a 364 day facility, all the bank debt is considered current. As the yield curve swings in our favor, the debt will be restructured. On April 1, 2002, the Corporation received $2.4 million from a major customer. The $2.4 million was used to pay down bank indebtedness. It has been recorded as deferred revenue effective April 1, 2002. This amount represents the shortfall of material taken by the customer in 2001 under the terms of the "take-or-pay" contract. The 2001 shortfall must be taken in 2002 or the residual amount will be forfeited. As a result the entire $2.4 million will be recognized as revenue by year end. It is the opinion of management that there are sufficient sources of funds available to meet its anticipated cash requirements. ITEM 3 - MARKET RISK Market risk represents the risk of loss that may impact the consolidated financial statements of the Corporation due to adverse changes in financial market prices and rates. The Corporation's market risk is primarily a function of the potential impact of fluctuations in interest rates and aluminum prices. Management monitors the movements in interest rates and performs a periodic sensitivity analysis on aluminum prices and, on that basis, decides on the appropriate measures to take. Current prices and interest rates are such that management believes that no measures need be taken at this time. The Corporation does not hold or issue financial instruments for trading purposes. A discussion of the Corporation's financial instruments is included in the financial instruments note to the Consolidated Financial Statements in the Corporation's Annual Report on Form 10-K for the year ended December 31, 2001. CAUTIONARY "SAFE HARBOR" STATEMENT UNDER THE UNITED STATES PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 With the exception of historical matters, the matters discussed in this report are forward looking statements that involve risks and uncertainties that could cause actual results to differ materially from targeted or projected results. Factors that could cause actual results to differ materially include, among others, fluctuations in aluminum prices, problems regarding unanticipated competition, processing, access and transportation of supplies, availability of materials and equipment, force majeure events, the failure of plant equipment or processes to operate in accordance with specifications or expectations, accidents, labor relations, environmental costs and risks, the outcome of acquisition negotiations and general domestic and international economic and political conditions, as well as other factors described herein or in the Corporation's filings with the Commission. Many of these factors are beyond the Corporation's ability to predict or control. Readers are cautioned not to put undue reliance on forward looking statements. - 13 - PART II - OTHER INFORMATION ITEM 1 - LEGAL PROCEEDINGS Refer to the 2001 Annual Report filed on Form 10-K. ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K Exhibits None Reports on Form 8-K Form 8-K filed February 12, 2002 * * * * * Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. Dated this 30th day of April 2002. ZEMEX CORPORATION (Registrant) By: /s/ ALLEN J. PALMIERE ------------------------------------------- Allen J. Palmiere Vice President, Chief Financial Officer and Corporate Secretary (Principal Financial and Accounting Officer and authorized signatory) - 14 - -----END PRIVACY-ENHANCED MESSAGE-----