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 September 30, 2002
Commission file number 1-228
ZEMEX CORPORATION
(Exact name of registrant as specified in its charter)
| CANADA (State or other jurisdiction of incorporation or organization) |
NONE (I.R.S. Employer Identification Number) |
95 Wellington Street West, Suite 2000
Toronto, Ontario, Canada M5J 2N7
(Address of principal executive offices)
(416) 365-8080
(Registrant’s telephone number, including area code)
www.zemex.com
(Registrant’s website address)
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 November 12, 2002, there were 7,872,489 shares of capital stock outstanding.
Part I – FINANCIAL INFORMATION
Item 1 – Financial Statements
ZEMEX CORPORATION
CONSOLIDATED BALANCE SHEETS
(US$)
| September 30, 2002 | December 31, 2001 | |||||||
| ASSETS | (unaudited) | |||||||
Current assets |
||||||||
Cash |
$ | 379,000 | $ | 532,000 | ||||
Accounts receivable |
12,010,000 | 8,639,000 | ||||||
Inventories |
17,095,000 | 16,417,000 | ||||||
Prepaid expenses and other current assets |
914,000 | 380,000 | ||||||
Income taxes receivable |
840,000 | 601,000 | ||||||
Future income tax benefits |
384,000 | 384,000 | ||||||
| 31,622,000 | 26,953,000 | |||||||
Property, plant and equipment |
68,207,000 | 56,962,000 | ||||||
Goodwill (notes 2 and 8) |
2,787,000 | 2,701,000 | ||||||
Other assets |
3,764,000 | 3,505,000 | ||||||
Future income tax benefits |
8,421,000 | 7,394,000 | ||||||
TOTAL ASSETS |
$ | 114,801,000 | $ | 97,515,000 | ||||
LIABILITIES AND SHAREHOLDERS’ EQUITY |
||||||||
Current liabilities
|
||||||||
Bank indebtedness |
$ | 6,000,000 | $ | 11,000,000 | ||||
Accounts payable |
3,736,000 | 2,957,000 | ||||||
Accrued liabilities (note 3) |
6,676,000 | 2,578,000 | ||||||
Current portion of long term debt |
300,000 | 284,000 | ||||||
| 16,712,000 | 16,819,000 | |||||||
Long term debt (note 4) |
20,274,000 | 211,000 | ||||||
Other non-current liabilities |
2,418,000 | 2,281,000 | ||||||
Future income tax obligations |
1,404,000 | 1,399,000 | ||||||
| 40,808,000 | 20,710,000 | |||||||
Shareholders’ equity |
||||||||
Common stock |
51,509,000 | 53,786,000 | ||||||
Retained earnings |
25,002,000 | 26,820,000 | ||||||
Note receivable from shareholder (note 9) |
— | (1,259,000 | ) | |||||
Cumulative translation adjustment |
(2,518,000 | ) | (2,542,000 | ) | ||||
| 73,993,000 | 76,805,000 | |||||||
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY |
$ | 114,801,000 | $ | 97,515,000 | ||||
Prepared in accordance with Canadian GAAP
- 2 -
ZEMEX CORPORATION
CONSOLIDATED STATEMENTS OF EARNINGS
(US$)
| Three Months Ended | Nine Months Ended | ||||||||||||||||
| September 30 | September 30 | ||||||||||||||||
| 2002 | 2001 | 2002 | 2001 | ||||||||||||||
| (unaudited) | |||||||||||||||||
NET SALES |
$ | 19,592,000 | $ | 14,125,000 | $ | 52,629,000 | $ | 45,181,000 | |||||||||
COSTS AND EXPENSES |
|||||||||||||||||
Cost of goods sold |
13,709,000 | 9,300,000 | 37,076,000 | 29,898,000 | |||||||||||||
Selling, general and administrative |
4,657,000 | 2,940,000 | 10,418,000 | 8,766,000 | |||||||||||||
Depreciation, depletion and amortization |
1,629,000 | 1,487,000 | 4,746,000 | 4,590,000 | |||||||||||||
| 19,995,000 | 13,727,000 | 52,240,000 | 43,254,000 | ||||||||||||||
OPERATING (LOSS) INCOME |
(403,000 | ) | 398,000 | 389,000 | 1,927,000 | ||||||||||||
Interest income |
14,000 | 10,000 | 48,000 | 77,000 | |||||||||||||
Interest expense |
(288,000 | ) | (170,000 | ) | (808,000 | ) | (744,000 | ) | |||||||||
Other income, net |
1,000 | 1,000 | 45,000 | 599,000 | |||||||||||||
| (273,000 | ) | (159,000 | ) | (715,000 | ) | (68,000 | ) | ||||||||||
(LOSS) INCOME BEFORE (RECOVERY OF)
PROVISION FOR INCOME TAXES AND
NON-CONTROLLING INTEREST |
(676,000 | ) | 239,000 | (326,000 | ) | 1,859,000 | |||||||||||
(Recovery of) provision for income taxes |
(352,000 | ) | 149,000 | (183,000 | ) | 532,000 | |||||||||||
Non-controlling interest in subsidiary earnings |
— | — | — | 10,000 | |||||||||||||
NET (LOSS) INCOME |
$ | (324,000 | ) | $ | 90,000 | $ | (143,000 | ) | $ | 1,317,000 | |||||||
NET (LOSS) INCOME PER SHARE |
|||||||||||||||||
BASIC |
$ | (0.04 | ) | $ | 0.01 | $ | (0.02 | ) | $ | 0.16 | |||||||
DILUTED |
$ | (0.04 | ) | $ | 0.01 | $ | (0.02 | ) | $ | 0.16 | |||||||
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING |
|||||||||||||||||
BASIC |
7,899,992 | 8,147,376 | 7,919,854 | 8,279,589 | |||||||||||||
DILUTED |
7,922,194 | 8,227,101 | 8,002,722 | 8,362,750 | |||||||||||||
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) |
290,000 | — | — | — | 290,000 | |||||||||||||||
Stock purchased for treasury |
(2,842,000 | ) | — | — | — | (2,842,000 | ) | |||||||||||||
Stock options repurchased |
— | (3,000 | ) | — | — | (3,000 | ) | |||||||||||||
Net income for the period |
— | 1,317,000 | — | — | 1,317,000 | |||||||||||||||
Translation adjustment |
— | — | — | (461,000 | ) | (461,000 | ) | |||||||||||||
Balance at September 30, 2001
(unaudited) |
$ | 54,660,000 | $ | 27,272,000 | $ | (1,259,000 | ) | $ | (2,469,000 | ) | $ | 78,204,000 | ||||||||
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) |
214,000 | — | — | — | 214,000 | |||||||||||||||
Stock purchased for treasury |
(2,491,000 | ) | — | — | — | (2,491,000 | ) | |||||||||||||
Net loss for the period |
— | (143,000 | ) | — | — | (143,000 | ) | |||||||||||||
Goodwill impairment due to
change in accounting policy
(b) |
— | (1,675,000 | ) | — | — | (1,675,000 | ) | |||||||||||||
Shareholder loan repaid (c) |
— | — | 1,259,000 | — | 1,259,000 | |||||||||||||||
Translation adjustment |
— | — | — | 24,000 | 24,000 | |||||||||||||||
Balance at September 30, 2002
(unaudited) |
$ | 51,509,000 | $ | 25,002,000 | $ | — | $ | (2,518,000 | ) | $ | 73,993,000 | |||||||||
Prepared in accordance with Canadian GAAP
| (a) | Employee Stock Purchase Plan (“ESPP”) | |
| (b) | See note 8 | |
| (c) | See note 9 |
- 4 -
ZEMEX CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOW
(US$)
| Three Months Ended September 30 | Nine Months Ended September 30 | ||||||||||||||||||
| 2002 | 2001 | 2002 | 2001 | ||||||||||||||||
| (unaudited) | |||||||||||||||||||
CASH FLOWS FROM OPERATING ACTIVITIES |
|||||||||||||||||||
Net (loss) income |
$ | (324,000 | ) | $ | 90,000 | $ | (143,000 | ) | $ | 1,317,000 | |||||||||
Adjustments to reconcile net (loss) income to
net cash flows from operating activities |
|||||||||||||||||||
Depreciation, depletion and amortization |
1,629,000 | 1,487,000 | 4,746,000 | 4,590,000 | |||||||||||||||
(Decrease) increase in future income tax obligations |
(66,000 | ) | (67,000 | ) | 5,000 | (82,000 | ) | ||||||||||||
Non-controlling interest in subsidiary earnings |
— | — | — | 10,000 | |||||||||||||||
Loss (gain) on sale of assets |
1,000 | (4,000 | ) | 2,000 | (294,000 | ) | |||||||||||||
Increase in other assets |
(63,000 | ) | (24,000 | ) | (286,000 | ) | (192,000 | ) | |||||||||||
(Decrease) increase in other non-current liabilities |
(48,000 | ) | 33,000 | (43,000 | ) | 75,000 | |||||||||||||
Changes in non-cash working capital items |
56,000 | 172,000 | 117,000 | (2,817,000 | ) | ||||||||||||||
Net cash provided by operating activities |
1,185,000 | 1,687,000 | 4,398,000 | 2,607,000 | |||||||||||||||
CASH FLOWS FROM INVESTING ACTIVITIES |
|||||||||||||||||||
Additions to property, plant and equipment |
(1,004,000 | ) | (1,319,000 | ) | (3,511,000 | ) | (2,363,000 | ) | |||||||||||
Acquisitions, net of cash acquired |
— | — | (14,706,000 | ) | — | ||||||||||||||
Proceeds from sale of assets |
5,000 | 3,729,000 | 15,000 | 7,364,000 | |||||||||||||||
Net cash (used in) provided by investing activities |
(999,000 | ) | 2,410,000 | (18,202,000 | ) | 5,001,000 | |||||||||||||
CASH FLOWS FROM FINANCING ACTIVITIES |
|||||||||||||||||||
Net decrease in bank indebtedness |
(18,700,000 | ) | (2,645,000 | ) | (5,000,000 | ) | (5,645,000 | ) | |||||||||||
Net increase (decrease) in long term debt |
19,949,000 | (26,000 | ) | 19,670,000 | (333,000 | ) | |||||||||||||
Decrease in note from shareholder |
1,259,000 | — | 1,259,000 | — | |||||||||||||||
Issuance of common stock |
(26,000 | ) | 116,000 | 214,000 | 290,000 | ||||||||||||||
Purchase of common stock and options |
(2,491,000 | ) | (1,100,000 | ) | (2,491,000 | ) | (2,845,000 | ) | |||||||||||
Net cash (used in) provided by financing activities |
(9,000 | ) | (3,655,000 | ) | 13,652,000 | (8,533,000 | ) | ||||||||||||
EFFECT OF EXCHANGE RATE CHANGES ON CASH |
(99,000 | ) | (123,000 | ) | (1,000 | ) | (150,000 | ) | |||||||||||
NET INCREASE (DECREASE) IN CASH |
78,000 | 319,000 | (153,000 | ) | (1,075,000 | ) | |||||||||||||
CASH AT BEGINNING OF PERIOD |
301,000 | 781,000 | 532,000 | 2,175,000 | |||||||||||||||
CASH AT END OF PERIOD |
$ | 379,000 | $ | 1,100,000 | $ | 379,000 | $ | 1,100,000 | |||||||||||
Prepared in accordance with Canadian GAAP
- 5 -
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Preparation
The consolidated financial statements prepared in accordance with Canadian GAAP, include the accounts of Zemex Corporation and its subsidiaries (the “Corporation”). The financial data for the three months ended September 30, 2002 and 2001 and for the nine months ended September 30, 2002 and 2001 is unaudited but, in the opinion of management, reflects all adjustments, considered necessary for a fair presentation of the financial position, results of operations and cash flows. The results of operations and cash flows for the three-month and nine-month periods ended September 30, 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.
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. and ETS Schaefer Corporation.
2. Acquisitions and Dispositions
| a. | 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, Inc., or into shares of the Corporation if Alumitech, Inc. 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. | ||
| b. | 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 assets and funded the acquisition through the drawdown from its credit facility. | |
| The following table summarizes the estimated fair value of the assets acquired and liabilities assumed at the date of the acquisition. As a result of third party valuation reports completed in the second quarter, the Corporation revised its initial allocation of the purchase price, reclassifying $2.8 million from capital assets to goodwill. |
- 6 -
Current assets |
$ | 1,123,000 | ||
Capital assets |
8,840,000 | |||
Goodwill |
2,787,000 | |||
Total assets |
12,750,000 | |||
Current liabilities |
991,000 | |||
Other non-current liabilities |
180,000 | |||
Net assets acquired |
$ | 11,579,000 | ||
| c. | 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 facility. The balance, which was originally included in accounts receivable, was received in September 2001. |
3. Deferred Revenue
Included in accrued liabilities at September 30, 2002 is deferred revenue of $1.5 million related to a “take-or-pay” arrangement with a customer. The customer is obligated to take the related material by year end. The Corporation recognizes revenue when goods are delivered to customers and when all significant contractual obligations have been satisfied.
4. Long Term Debt
On August 15, 2002, the Corporation entered into an amended and restated credit facility with its bankers. Pursuant to the amendment the existing $30.0 million 364 day facility was divided into a $10.0 million 364 day facility and a $20.0 million 2 year facility. The security and pricing grid remained unchanged.
5. Segmented Information
The Corporation carries on its commercial activities in 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 (loss) income from operations and assets by business segment appears below:
| Industrial | Aluminum | |||||||||||||||
| Three Months Ended September 30, 2002 | Consolidated | Minerals | Recycling | Corporate | ||||||||||||
Net sales |
$ | 19,592,000 | $ | 12,296,000 | $ | 7,296,000 | $ | — | ||||||||
Operating (loss) income |
(403,000 | ) | 1,689,000 | 272,000 | (2,364,000 | ) | ||||||||||
Interest (expense) |
(288,000 | ) | 44,000 | (8,000 | ) | (324,000 | ) | |||||||||
Net (loss) income |
(324,000 | ) | 1,468,000 | 273,000 | (2,065,000 | ) | ||||||||||
- 7 -
| Industrial | Aluminum | |||||||||||||||
| Three Months Ended September 30, 2001 | Consolidated | Minerals | Recycling | Corporate | ||||||||||||
Net sales |
$ | 14,125,000 | $ | 10,059,000 | $ | 4,066,000 | $ | — | ||||||||
Operating income (loss) |
398,000 | 1,779,000 | (461,000 | ) | (920,000 | ) | ||||||||||
Interest (expense) |
(170,000 | ) | 26,000 | (5,000 | ) | (191,000 | ) | |||||||||
Net income (loss) |
90,000 | 1,625,000 | (469,000 | ) | (1,066,000 | ) | ||||||||||
| Industrial | Aluminum | |||||||||||||||
| Nine Months Ended September 30, 2002 | Consolidated | Minerals | Recycling | Corporate | ||||||||||||
Net sales |
$ | 52,629,000 | $ | 35,292,000 | $ | 17,337,000 | $ | — | ||||||||
Operating income (loss) |
389,000 | 4,819,000 | (239,000 | ) | (4,191,000 | ) | ||||||||||
Interest expense |
(808,000 | ) | (4,000 | ) | (19,000 | ) | (785,000 | ) | ||||||||
Net (loss) income |
(143,000 | ) | 4,122,000 | (192,000 | ) | (4,073,000 | ) | |||||||||
| Industrial | Aluminum | |||||||||||||||
| Nine Months Ended September 30, 2001 | Consolidated | Minerals | Recycling | Corporate | ||||||||||||
Net sales |
$ | 45,181,000 | $ | 31,621,000 | $ | 13,560,000 | $ | — | ||||||||
Operating income (loss) |
1,927,000 | 5,351,000 | (801,000 | ) | (2,623,000 | ) | ||||||||||
Interest (expense) |
(744,000 | ) | 11,000 | (15,000 | ) | (740,000 | ) | |||||||||
Net income (loss) |
1,317,000 | 5,328,000 | (831,000 | ) | (3,180,000 | ) | ||||||||||
| Industrial | Aluminum | |||||||||||||||
| September 30, 2002 | Consolidated | Minerals | Recycling | Corporate | ||||||||||||
Current assets |
$ | 31,622,000 | $ | 24,064,000 | $ | 5,210,000 | $ | 2,348,000 | ||||||||
Total assets |
114,801,000 | 77,877,000 | 24,106,000 | 12,818,000 | ||||||||||||
Total current liabilities |
16,712,000 | 6,174,000 | 3,231,000 | 7,307,000 | ||||||||||||
Total shareholders’ equity |
73,993,000 | — | — | 73,993,000 | ||||||||||||
| Industrial | Aluminum | |||||||||||||||
| December 31, 2001 | Consolidated | Minerals | Recycling | Corporate | ||||||||||||
Current assets |
$ | 26,953,000 | $ | 22,151,000 | $ | 2,602,000 | $ | 2,200,000 | ||||||||
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 shareholders’ equity |
76,805,000 | — | — | 76,805,000 | ||||||||||||
6. Common Shares and Stock Options
Shares Outstanding
As at September 30, 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 7,872,489 common shares issued and outstanding as of November 12,
2002.
The Corporation repurchased 360,800 common shares in the third quarter of 2002 at an average price of $6.90 per share, compared to 166,300 common shares repurchased in the same quarter of 2001 at an
- 8 -
average price of $6.61 per share (see note 9). The Corporation repurchased 360,800 common shares at an average price of $6.90 per share during the nine months ended September 30, 2002, compared to 427,300 common shares repurchased at an average price of $6.65 per share for the same period in 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 usually vest and are exercisable from
the beginning of the second year subsequent to the date of issuance. There were
1,047,150 options outstanding as of November 12, 2002 of which 867,900 are
exercisable as of November 12, 2002.
The following is a summary of option transactions under the Corporation’s stock option plans for the three months and nine months ended September 30, as follows:
| Three Months Ended September 30 | 2002 | 2001 | ||||||||||||||
| Weighted-average | Weighted-average | |||||||||||||||
| Options | exercise price | Options | exercise price | |||||||||||||
Options outstanding at beginning of
period |
1,122,650 | $ | 7.13 | 1,063,650 | $ | 7.23 | ||||||||||
Options granted during period |
166,500 | 6.95 | 17,000 | 6.96 | ||||||||||||
Options exercised during the period |
(220,000 | ) | 5.78 | — | — | |||||||||||
Options cancelled during the period |
(2,000 | ) | 7.25 | (31,500 | ) | 8.94 | ||||||||||
Options outstanding at end of period |
1,067,150 | $ | 7.38 | 1,049,150 | $ | 7.18 | ||||||||||
Options exercisable at end of period |
887,900 | 712,150 | ||||||||||||||
Price range of options granted during
the period |
$6.45~$6.96 | $6.96 | ||||||||||||||
| Nine Months Ended September 30 | 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 |
224,000 | 6.90 | 289,500 | 5.36 | ||||||||||||
Options exercised during the period |
(220,000 | ) | 5.78 | (8,000 | ) | 6.50 | ||||||||||
Options cancelled during the period |
(7,500 | ) | 9.44 | (409,500 | ) | 8.86 | ||||||||||
Options outstanding at end of period |
1,067,150 | $ | 7.38 | 1,049,150 | $ | 7.18 | ||||||||||
Options exercisable at end of period |
887,900 | 712,150 | ||||||||||||||
Price range of options granted during the period |
$6.45~$6.96 | $5.21~$6.96 | ||||||||||||||
The options expire from 2002 to 2010.
- 9 -
The following table summarizes information about the stock options outstanding at September 30, 2002:
| Options Outstanding | Options Exercisable | ||||||||||||||||||||||
| Range of | Number | Weighted-average | Number | ||||||||||||||||||||
| exercise | Outstanding at | remaining | Weighted-average | Exercisable at | Weighted-average | ||||||||||||||||||
| prices | Sept. 30, 2002 | contractual life | exercise price | Sept. 30, 2002 | Exercise price | ||||||||||||||||||
$5.00 to $5.99 |
141,500 | 4.38 | $ | 5.21 | 70,750 | $ | 5.21 | ||||||||||||||||
$6.00 to $6.99 |
452,150 | 4.35 | 6.63 | 354,650 | 6.63 | ||||||||||||||||||
$7.00 to $7.99 |
190,000 | 2.29 | 7.31 | 179,000 | 7.31 | ||||||||||||||||||
$8.00 to $8.99 |
64,000 | 7.19 | 8.21 | 64,000 | 8.21 | ||||||||||||||||||
$9.00 to $9.99 |
12,000 | 1.73 | 9.06 | 12,000 | 9.06 | ||||||||||||||||||
$10.00 to $10.99 |
207,500 | 1.87 | 10.19 | 207,500 | 10.19 | ||||||||||||||||||
$5.00 to $10.99 |
1,067,150 | 887,900 | |||||||||||||||||||||
7. 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 loss and loss per share would have been increased by approximately $38,000 or zero cent per share in the third quarter of 2002, and $70,000 or $0.01 per share for the nine months ended September 30, 2002. The fair value of the options granted during 2002 and 2001 is estimated to be $279,000 and $573,000, 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 2002 and 2001: dividend yield of 0%; expected volatility of 27% and 30%; risk-free interest rates varying from 2.18% to 5.17%; and an expected life varying between 28 months and 60 months.
8. Goodwill and Other Intangible Assets
In 2001, the Canadian Institute of Chartered Accountants 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 would have increased by $51,000 for the three-month period ended September 30, 2001 and $153,000 for the nine-month period ended September 30, 2001 had goodwill not been amortized during these periods. In addition, the standard includes provisions for the reclassification of certain existing recognized intangibles such as goodwill, the reassessment of the useful lives of existing recognized intangibles, the reclassification of certain intangibles out of previously reported goodwill and the identification of reporting units for purposes of assessing potential future impairments of goodwill.
Section 3062 also requires the Corporation to complete a transitional goodwill impairment test six months from the date of adoption. This implementation review was completed as at June 30, 2002 for the goodwill that had been recorded by the Corporation’s aluminum recycling group, the operations of which collectively comprise a reporting unit, on the acquisition of S&R Enterprises, Inc. The review indicated an impairment of goodwill. The impairment has arisen as a result of the fair market value of the reporting unit declining due to the depressed nature of the secondary aluminum industry. An amount of $1.7 million (net of tax of $1.0 million), representing the goodwill impairment, was charged to opening retained earnings effective January 1, 2002 in accordance with the transitional provisions of this standard.
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9. Employment Contracts
During the quarter, the Corporation and its President and Chief Executive Officer, in conjunction with his previously announced retirement, entered into an employment agreement. Under the terms of the agreement, the Corporation purchased 340,000 of its common shares at $6.96 per share and 220,000 previously issued stock options from the officer. The officer was issued new options on 165,000 common shares at $6.96 per share and received a one time bonus of $885,000. The financial statement impact was a one time expense of $1,142,000 reflected in selling, general and administrative expense, the repayment of the $1,259,000 note receivable from shareholder, the repayment of $500,000 advance to shareholder and an increase in the Corporation’s bank debt of $1,300,000.
During the quarter, the Corporation entered into employment contracts with two other executives. A one time charge of $150,000 resulted from these contracts.
10. Recent Accounting Pronouncements
In August 2001, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards No. 143, (“SFAS No. 143”), “Accounting for Asset Retirement Obligations”, which is effective for financial statements issued for fiscal years beginning after June 15, 2002. SFAS No. 143 addresses the recognition and remeasurement of obligations associated with the retirement of a tangible long lived asset.
In July 2002, the FASB issued Statement of Financial Accounting Standards No. 146, (“SFAS No. 146”), “Accounting for Costs Associated with Exit or Disposal Activities”, which is effective for exit or disposal activities initiated after December 31, 2002. SFAS No. 146 supercedes Emerging Issues Task Force (“EITF”) Issue No. 94-3, “Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in Restructuring)” (“EITF 94-3”). SFAS No. 146 requires that costs associated with an exit or disposal activity be recognized when the liability is incurred, whereas EITF 94-3 required recognition of a liability when an entity committed to an exit plan.
The Corporation has not yet determined the effect that the adoption of SFAS Nos. 143 and 146 will have on its business, results of operations and financial condition.
11. 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 (loss) income or cash flows except as follows:
| a. | Income Statements | |
| The implementation of the American Institute of Certified Public Accountants Statement of Position 98-5 (“SOP 98-5”) requires costs of start-up activities and organization costs to be expensed as incurred. Canadian GAAP permits the deferral and amortization of such costs. |
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| The implementation of Section 3062 of the CICA Handbook, “Goodwill and Other Intangible Assets”, and Financial Accounting Standards Board (“FASB”) Statement of Financial Accounting Standards (“SFAS”) No. 142, “Goodwill and Other Intangible Assets”, requires the assessment of potential impairments of goodwill and where an impairment exists, the elimination of the goodwill. For the purpose of CICA Section 3062 the goodwill impairment is charged against opening retained earnings; however, for the purpose of SFAS No. 142 the charge is recognized in the income statement as a cumulative change in accounting policy. | ||
| The following summarizes the income statement amounts in accordance with U.S. GAAP where different from the amounts reported under Canadian GAAP, as described above. |
| Three Months Ended | Nine Months Ended | ||||||||||||||||
| September 30 | September 30 | ||||||||||||||||
| 2002 | 2001 | 2002 | 2001 | ||||||||||||||
Net (loss) income as reported |
$ | (324,000 | ) | $ | 90,000 | $ | (143,000 | ) | $ | 1,317,000 | |||||||
Add: Amortization of start-up activities
and organization costs |
8,000 | 8,000 | 23,000 | 54,000 | |||||||||||||
Tax effect related thereto |
(2,000 | ) | (1,000 | ) | (6,000 | ) | (8,000 | ) | |||||||||
Net (loss) income before cumulative change
in accounting policy |
(318,000 | ) | 97,000 | (126,000 | ) | 1,363,000 | |||||||||||
Less: Goodwill impairment |
— | –– | (2,701,000 | ) | –– | ||||||||||||
Tax effect related thereto |
— | –– | 1,026,000 | –– | |||||||||||||
Net (loss) income under U.S. GAAP |
$ | (318,000 | ) | $ | 97,000 | $ | (1,801,000 | ) | $ | 1,363,000 | |||||||
Net (loss) income per share before cumulative
change in accounting policy, under U.S. GAAP |
|||||||||||||||||
- basic |
$ | (0.04 | ) | $ | 0.01 | $ | (0.02 | ) | $ | 0.16 | |||||||
- diluted |
$ | (0.04 | ) | $ | 0.01 | $ | (0.02 | ) | $ | 0.16 | |||||||
Net (loss) income per share, under U.S. GAAP |
|||||||||||||||||
- basic |
$ | (0.04 | ) | $ | 0.01 | $ | (0.23 | ) | $ | 0.16 | |||||||
- diluted |
$ | (0.04 | ) | $ | 0.01 | $ | (0.23 | ) | $ | 0.16 | |||||||
| b. | Balance Sheets | |
| Under 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. | ||
| 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 in measuring for impairment. 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 in 2000. | ||
| The following summarizes the balance sheet amounts in accordance with U.S. GAAP where different from the amounts reported under Canadian GAAP. | ||
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| September 30, 2002 | December 31, 2001 | |||||||||||||||
| Canadian GAAP | U.S. GAAP | Canadian GAAP | U.S. GAAP | |||||||||||||
Property, plant and
equipment |
$ | 68,207,000 | $ | 66,768,000 | $ | 56,962,000 | $ | 55,523,000 | ||||||||
Other assets |
3,764,000 | 3,574,000 | 3,505,000 | 3,292,000 | ||||||||||||
Future income tax benefits
(non-current) |
8,421,000 | 8,575,000 | 7,394,000 | 7,554,000 | ||||||||||||
Accumulated other
comprehensive loss |
— | (2,518,000 | ) | — | (2,542,000 | ) | ||||||||||
Retained earnings |
25,002,000 | 23,527,000 | 26,820,000 | 25,328,000 | ||||||||||||
| c. | Statements of Comprehensive (Loss) Income | |
| U.S. GAAP requires a statement of comprehensive (loss) income as follows: |
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30 | September 30 | |||||||||||||||
| 2002 | 2001 | 2002 | 2001 | |||||||||||||
Net (loss) income under U.S. GAAP |
$ | (318,000 | ) | $ | 97,000 | $ | (1,801,000 | ) | $ | 1,363,000 | ||||||
Change in foreign currency
translation
adjustment |
(349,000 | ) | (312,000 | ) | 24,000 | (392,000 | ) | |||||||||
Comprehensive (loss) income |
$ | (667,000 | ) | $ | (215,000 | ) | $ | (1,777,000 | ) | $ | 971,000 | |||||
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 September 30, 2002 and the three months ended September 30, 2001, and for the nine months ended September 30, 2002 and the nine months ended September 30, 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 Consolidated Financial Statements and related notes thereto for the year ended December 31, 2001.
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 past as well as future 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.
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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 allowances 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 and assesses the need for additional valuation allowances 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.
Results of Operations
There are three main factors that have impacted the results of operations in 2002:
| • | Effective February 28, 2001, the Corporation sold its Natural Bridge, New York talc facility and 60% interest in the Fabi-Benwood, LLC. | |
| • | On February 1, 2002, the Corporation acquired certain assets of an attapulgite clay operation located in Attapulgus, Georgia. | |
| • | In 2001, the Corporation produced, as a co-product of its sodium feldspar operation, feedstock for its low iron sand operation. In 2002, due to a change in mining plan, the Corporation is producing a low value industrial sand as a by-product. This has had an adverse impact on cost of goods sold of approximately $1.4 million. Additionally, sales of low iron sand are currently well behind contractual commitment. As this material is the subject of a “take-or-pay” contract, management anticipates that revenue will be in accordance with the contract by year end. |
Three Months Ended September 30, 2002 Compared to Three Months Ended September 30, 2001
Net Sales
The Corporation’s net sales from operations for the three months ended September 30, 2002 were $19.6 million compared to $14.1 million for the three months ended September 30, 2001, an increase of $5.5 million, or 38.7%.
Net sales in the industrial minerals group for the three months ended September 30, 2002 were $12.3 million compared to $10.0 million in 2001. The increase of $2.3 million, or 22.2%, was mainly due to the revenue generated from the attapulgite clay operation which was acquired by the Corporation in February 2002. For the fourth quarter of 2002, the Corporation anticipates that the rate of sales of low iron sand will increase incrementally by approximately $1.0 million.
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Net sales for the aluminum recycling group were $7.3 million for the quarter ended September 30, 2002, compared to $4.1 million for the same period in 2001. Of the 79.4% increase, $2.0 million was due to the revenue generated from the West Virginia aluminum dross processor which was acquired in the first quarter of 2002. Sales from the Cleveland and Wabash locations increased by 74.6% and 36.4%, respectively, compared to the same period in 2001. The increase was due to efficiencies gained from the purchase of the West Virginia plant and an improvement in the secondary aluminum market.
Cost of Goods Sold
Cost of goods sold for the quarter ended September 30, 2002 was $13.7 million, an increase of 47.4%, from the comparable period in 2001. Of the $4.4 million increase, the industrial minerals group and the aluminum recycling group each accounted for $2.2 million. The increase from the industrial minerals group was due to the acquisition of the attapulgite clay operation in the first quarter of 2002 and the change in the quarry being utilized in feldspar operation. In 2002 the feldspar operation is generating low value industrial sand as a by-product rather than the high value low iron sand produced as a co-product last year. This has resulted in an adverse impact of $0.5 million in the quarter. The increase attributable to the aluminum recycling group was primarily due to the acquisition of the West Virginia aluminum dross processor in March 2002. As a result of reasons discussed above, the gross margin as a percentage of sales for the quarter ended September 30, 2002 decreased from 34.2% to 30.0%.
Selling, General and Administrative Expense
Selling, general and administrative expense (“SG&A”) for the three-month period ended September 30, 2002 was $4.7 million, an increase of $1.7 million from the corresponding period in 2001. The increase was mainly due to a one time expense of $1.3 million arising from the employment contracts discussed in note 9 to the consolidated financial statements and increased selling and administration costs associated with the two acquisitions completed in the first quarter of 2002. SG&A expense as percentage of revenue increased from 20.8% in 2001 to 23.8% in 2002.
Depreciation, Depletion and Amortization
Depreciation, depletion and amortization (“DD&A”) for the three months ended September 30, 2002 was $1.6 million, an increase of 9.5% over the comparable period in 2001 as a result of the acquisition of Zemex Attapulgite, LLC and Alumitech of West Virginia, Inc. in the first quarter of 2002.
Operating (Loss) Income
Operating loss for the three-month period ended September 30, 2002 was $0.4 million, compared to $0.4 million income generated from the operation for the comparable period in 2001.
Interest Income
Interest income for the three months ended September 30, 2002 was $14,000 as compared to $10,000 for the same period in 2001.
Interest Expense
Interest expense for the three months ended September 30, 2002 was $0.3 million, versus $0.2 million from the comparable period in 2001. Total bank indebtedness was $26.6 million as of September 30, 2002, as compared to $11.9 million as of September 30, 2001. The increase in indebtedness arose from the two acquisitions that occurred in the first quarter of 2002. Both acquisitions were funded from the Corporation’s credit facility. Interest expense increased accordingly. The increased level of indebtedness was partially offset by lower interest rates.
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(Recovery of) Provision for Income Taxes
The Corporation recognized an income tax benefit of $0.4 million for the three months ended September 30, 2002 as compared to $0.1 million tax provision recorded in the same period of 2001.
Net (Loss) Income
As a result of the factors discussed above, the Corporation recorded net loss for the three months ended September 30, 2002 of $0.3 million compared to $0.1 million net income for the three months ended September 30, 2001.
Nine Months Ended September 30, 2002 Compared to Nine Months Ended September 30, 2001
Net Sales
The Corporation’s net sales for the nine months ended September 30, 2002 increased to $52.6 million, or 16.5%, from $45.2 million in the corresponding period in 2001. Of the $7.4 million increase, the industrial minerals and aluminum recycling group both contributed $3.7 million.
Net sales in the industrial minerals group were $35.3 million for the nine-month period ended September 30, 2002, compared to $31.6 million in 2001. The increase arose from the acquisition of the attapulgite clay operation in the first quarter of 2002 and improved performance from the mica operation, partially offset by the sale of two facilities in 2001 and lower sales revenue for low iron sand.
Net sales in the aluminum recycling group was $17.3 million for the period ended September 30, 2002 versus $13.6 million for the same period in 2001. The increase was mainly due to revenue generated from the newly purchased West Virginia plant and the Wabash operation, and partially offset by the decrease in sales from the heat containment unit.
Cost of Goods Sold
Cost of goods sold for the nine months ended September 30, 2002 was $37.1 million, compared to $29.9 million in 2001. The increase was mainly due to the acquisitions that occurred in the first quarter of 2002 and the dispositions of the talc facilities in 2001. The change in low iron sand feedstock production has also adversely impacted cost of goods sold by $1.4 million. Gross margin as percentage of sales decreased from 33.8% in 2001 to 29.6% in 2002.
Selling, General and Administrative Expense
SG&A expense for the nine-month period ended September 30, 2002 was $10.4 million, as compared to $8.8 million from the same period in 2001. The increase was primarily due to the employment contracts discussed in note 9 and additional SG&A expenses incurred by newly acquired operations.
Depreciation, Depletion and Amortization
DD&A for the nine months ended September 30, 2002 was $4.7 million, a $0.2 million increase from the corresponding period in 2001 as a result of the acquisitions and disposition of operations in 2002 and 2001.
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Operating Income
Operating income for the nine-month period ended September 30, 2002 was $0.4 million, a decrease of $1.5 million, or 79.8%, from the comparable period in 2001. Had the one time costs of $1.3 million arising from the employment contracts not occurred, operating income would have been $1.7 million. The balance of the decrease was due to the shortfall of low iron sand.
Interest Income
Interest income for the nine months ended September 30, 2002 was $48,000 versus $77,000 for the same period in 2001.
Interest Expense
Interest expense for the nine months ended September 30, 2002 was $0.8 million, 8.6% higher than in the same period in 2001. Total indebtedness was $26.6 million as of September 30, 2002, versus $11.9 million as of September 30, 2001. The increase in indebtedness was mainly due to the drawdown of credit facilities to fund the two acquisitions in 2002, compared to the paydown of credit facilities in 2001 as a result of sale of talc facilities.
Other Income, Net
The Corporation recorded other income of $45,000 for the nine months ended September 30, 2002, compared to $0.6 million for the same period in 2001. The 2001 income arose from the sale of the talc plants in the first quarter and insurance proceeds received in the second quarter.
(Recovery of) Provision for Income Taxes
The Corporation recognized an income tax benefit of $0.2 million for the nine months ended September 30, 2002, as compared to $0.5 million tax provision recorded in the corresponding period in 2001.
Net (Loss) Income
As a result of the factors discussed above, the Corporation recorded a net loss of $0.1 million for the nine months ended September 30, 2002 compared to $1.3 million net income for the same period ended September 30, 2001.
Liquidity and Capital Resources
Cash Flow from Operations
During the first nine months of 2002, the Corporation generated cash flow from operations of $4.4 million as compared to $2.6 million for the first nine months of 2001. Non-cash working capital generated $0.1 million in the period ended September 30, 2002, versus $2.8 million consumed in the same period of 2001.
The Corporation had a working capital of $14.9 million at September 30, 2002 compared to $10.1 million at December 31, 2001. The increase was mainly due to the restructuring of the Corporation’s credit facility agreement signed on August 15, 2002. Under the amended credit facility, the $30.0 million facility was split into two tranches. The first $10.0 million tranche remains a 364 day facility. The second $20.0 million tranche has a two year term. Additionally the banks agreed to a short-term increase in the leverage covenant to provide the Corporation with additional flexibility.
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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 potential 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, 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 4 – Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Due to the size of the Corporation, the Corporation’s disclosure controls and procedures consist primarily of management oversight and review. Based on a review of these procedures and controls, the Chief Executive Officer and the Chief Financial Officer concluded that they are operating effectively.
Changes in Internal Controls
There have been no significant changes to the system of internal controls subsequent to the evaluation date.
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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
| 4.1 | Amended and Restated Credit Agreement dated as of August 15, 2002 among Zemex Corporation, Zemex U.S. Corporation and Bank of America N.A. et al. | |
| 10.2 | Agreement between Zemex Corporation and Allen J. Palmiere dated as of the 15th of October 2002. | |
| 10.3 | Agreement between Zemex Corporation and Peter J. Goodwin dated as of the 29th of October 2002. | |
| 10.4 | Agreement between Zemex Corporation and R. Peter Gillin dated the 11th of November 2002 and effective November 18, 2002. |
Reports on Form 8-K
Form 8-K filed August 22, 2002.
SIGNATURE
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 12th day of November, 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) |
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CERTIFICATION
I, Richard L. Lister, certify that:
| 1. | I have reviewed this quarterly report on Form 10-Q of Zemex Corporation; | |
| 2. | Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; | |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; | |
| 4. | The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: |
| a) | designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; | ||
| b) | evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and | ||
| c) | presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; |
| 5. | The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function): |
| a) | all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and | ||
| b) | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and |
| 6. | The registrant’s other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. |
Dated this 12th day of November, 2002.
| By: | /s/ RICHARD L. LISTER | |||
| Richard L. Lister President and Chief Executive Officer |
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CERTIFICATION
I, Allen J. Palmiere, certify that:
| 1. | I have reviewed this quarterly report on Form 10-Q of Zemex Corporation; | |
| 2. | Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; | |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; | |
| 4. | The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: |
| a) | designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; | ||
| b) | evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and | ||
| c) | presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; |
| 5. | The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function): |
| a) | all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and | ||
| b) | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and |
| 6. | The registrant’s other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. |
Dated this 12th day of November, 2002.
| By: | /s/ ALLEN J. PALMIERE | |||
| Allen J. Palmiere Vice President, Chief Financial Officer and Corporate Secretary |
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