<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
F O R M 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1994
-------------
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 0-6202-2
NORD RESOURCES CORPORATION
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(Exact name of registrant as specified in its charter)
DELAWARE 85-0212139
--------------------- ---------------------
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
8150 Washington Village Drive, Dayton Ohio 45458
- - ------------------------------------------ -----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (513) 433-6307
--------------
NOT APPLICABLE
-----------------------------------------------
Former name, former address and former fiscal
year, if changed since last report
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
---- ----
Common shares outstanding as of June 30, 1994: 15,139,974
<PAGE>
NORD RESOURCES CORPORATION
AND SUBSIDIARIES
INDEX
PAGE
NUMBER
------
PART I. FINANCIAL INFORMATION:
ITEM 1. Financial Statements:
Condensed Balance Sheets - June 30,
1994 and December 31, 1993 1
Statements of Operations - Quarter and
Two Quarters Ended June 30, 1994 and 1993 2
Condensed Statements of Cash Flows -
Two Quarters Ended June 30, 1994
and 1993 3
Notes to Condensed Financial Statements 4-8
ITEM 2. Management's Discussion and Analysis
of Financial Condition and Results of
Operations 9-13
PART II. OTHER INFORMATION:
ITEM 1. Legal Proceedings 14
ITEM 2-5. Inapplicable 15
ITEM 6. Exhibits and Reports on Form 8-K 15
<PAGE>
NORD RESOURCES CORPORATION AND SUBSIDIARIES
CONDENSED BALANCE SHEETS
(In Thousands)
ASSETS
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1994 1993
--------- ------------
<S> <C> <C>
CURRENT ASSETS:
Cash and Cash Equivalents $ 12,749 $ 20,555
Accounts Receivable 11,169 9,442
Accounts Receivable - related party 2,525 1,376
Inventories - at lower of cost
(first-in, first-out) or market:
Finished and Semi-Finished 6,869 5,527
Supplies 2,722 2,354
--------- ---------
9,591 7,881
Prepaid Expenses 2,549 1,822
Income Tax Asset 2,105 2,105
--------- ---------
TOTAL CURRENT ASSETS 40,688 43,181
RESTRICTED CASH AND INVESTMENTS 4,841 5,380
INCOME TAX ASSET 11,460 11,527
INVESTMENTS IN AND ADVANCES TO AFFILIATES 7,494 6,552
PROPERTY, PLANT AND EQUIPMENT, net 87,746 86,250
OTHER ASSETS 8,962 9,868
--------- ---------
$ 161,191 $ 162,758
--------- ---------
--------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts Payable $ 4,911 $ 4,478
Accounts Payable - related party 3,224 1,454
Accrued Expenses 3,896 4,251
Current Maturities of Long-Term Debt 3,738 4,451
--------- ---------
TOTAL CURRENT LIABILITIES 15,769 14,634
LONG-TERM DEBT 18,684 19,738
IMPUTED INTEREST ON NON-INTEREST BEARING DEBT 2,351 2,653
OTHER LONG-TERM LIABILITIES 7,291 6,895
STOCKHOLDER LITIGATION SETTLEMENT 4,250 4,250
MINORITY INTEREST 5,139 5,779
STOCKHOLDERS' EQUITY:
Common Stock 151 151
Additional Paid-in Capital 53,856 53,856
Retained Earnings 53,698 54,703
Cumulative Foreign Currency
Translation Adjustment 282 379
Minimum Pension Liability (280) (280)
107,707 108,809
--------- ---------
$ 161,191 $ 162,758
--------- ---------
--------- ---------
</TABLE>
See notes to condensed financial statements.
1
<PAGE>
NORD RESOURCES CORPORATION AND SUBSIDIARIES
STATEMENTS OF OPERATIONS
(In Thousands, Except Per Share Amount)
<TABLE>
<CAPTION>
TWO QUARTERS
QUARTER ENDED ENDED
JUNE 30 JUNE 30
-------------- --------------
1994 1993 1994 1993
---- ---- ---- ----
<S> <C> <C> <C> <C>
REVENUES:
Sales $ 15,770 $ 24,875 $ 33,086 $ 45,876
Interest and other revenues 255 158 519 232
Litigation recoveries 500 550 500
--------- -------- -------- --------
TOTAL REVENUES 16,525 25,033 34,155 46,608
COSTS AND EXPENSES:
Cost of sales 14,271 22,251 29,679 41,300
Selling, general & administrative
expenses 2,762 3,198 5,605 6,105
Shareholder litigation settlement 4,750
Interest 435 1,647 911 3,352
--------- -------- -------- --------
TOTAL COSTS & EXPENSES 17,468 27,096 36,195 55,507
--------- -------- -------- --------
(LOSS) BEFORE EQUITY IN NET EARNINGS
(LOSS) OF AFFILIATE, MINORITY INTEREST
AND INCOME TAXES (943) (2,063) (2,040) (8,899)
EQUITY IN NET EARNINGS (LOSS) OF AFFILIATE 523 (1,050) 938 (1,108)
MINORITY INTEREST 301 527 640 628
--------- -------- -------- --------
(LOSS) BEFORE INCOME TAXES (119) (2,586) (462) (9,379)
INCOME TAXES 203 343 543 762
--------- -------- -------- --------
NET (LOSS) $ (322) $ (2,929) $ (1,005) $(10,141)
--------- -------- -------- --------
--------- -------- -------- --------
(LOSS) PER COMMON AND COMMON EQUIVALENT SHARE:
Net (loss) $ (.02) $ (.19) $ (.07) $ (.67)
--------- -------- -------- --------
--------- -------- -------- --------
Average shares 15,140 15,132 15,140 15,131
--------- -------- -------- --------
--------- -------- -------- --------
</TABLE>
See notes to condensed financial statements.
2
<PAGE>
NORD RESOURCES CORPORATION AND SUBSIDIARIES
CONDENSED STATEMENTS OF
CASH FLOWS
(In Thousands)
<TABLE>
<CAPTION>
TWO QUARTERS ENDED
JUNE 30
----------------
1994 1993
------ ------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Earnings (Loss) $ (1,005) $ (10,141)
Adjusted for:
Changes in Assets and Liabilities (3,068) (3,756)
Minority Interest (640) (628)
Depreciation, Depletion & Amortization 5,346 8,489
Shareholder Litigation Settlement 4,250
Other Non-Cash Items (842) 1,881
-------- ---------
Net cash provided by (used in) operating Activities (209) 95
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital Expenditures (6,226) (6,604)
(Increase) Decrease in Other Assets 289 (1,545)
Proceeds from Sale of a Minority
Interest in a Subsidiary 4,950
Decrease (Increase) in Investment
in and Advances to Affiliates (101) (1,155)
-------- ---------
Net Cash (Used In) Investing Activities (6,038) (4,354)
CASH FLOWS FROM FINANCING ACTIVITIES:
Additional Borrowings 2,000
Payments of Indebtedness (2,098) (8,089)
Restricted Cash 539 (1,160)
Stock Option Activity 13
-------- ---------
Net Cash (Used In) Provided by Financing Activities (1,559) (7,236)
-------- ---------
(DECREASE) IN CASH AND CASH
EQUIVALENTS (7,806) (11,495)
CASH AND CASH EQUIVALENTS -
BEGINNING OF PERIOD 20,555 15,800
-------- ---------
CASH AND CASH EQUIVALENTS -
END OF PERIOD $ 12,749 $ 4,305
-------- ---------
-------- ---------
</TABLE>
See notes to condensed financial statements.
3
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NORD RESOURCES CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED FINANCIAL STATEMENTS
QUARTERS ENDED JUNE 30, 1994 AND 1993
1. FINANCIAL STATEMENTS
The balance sheet at December 31, 1993 is condensed financial information
taken from the audited financial statements. The interim financial
statements are unaudited. In the opinion of management, all adjustments,
which consist of normal recurring adjustments, necessary to present fairly
the financial position and results of operations for the interim periods
presented have been made. The results shown for the first two quarters of
1994 are not necessarily indicative of the results that may be expected for
the entire year.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. It is suggested that these
financial statements be read in conjunction with the financial statements
and notes thereto included in the Company's December 31, 1993 annual report
to shareholders.
2. ACCOUNTING POLICIES
On an interim basis, all costs subject to recurring year-end adjustments
have been estimated and allocated ratably to the quarters. Income taxes
have been provided based on the estimated tax rate for the respective years
after excluding infrequently occurring items whose specific tax effect is
reported during the same interim period as the related transaction.
The financial statements include the accounts of Nord Resources Corporation
("Parent") and its wholly-owned subsidiaries and partnerships (the
"Company") and its 50% interest in Sierra Rutile Limited ("SRL").
Financial statements amounts relating to SRL represent the Company's
proportionate share in each of the assets, liabilities and operations of
SRL, which are 100% owned by the Company through November 17, 1993 and 50%
owned thereafter. All significant intercompany transactions and balances
are eliminated. Investment in 20% to 40%-owned affiliates and joint
ventures and in affiliates or joint ventures in which the Company's
investment may temporarily be in excess of 40% are carried using the equity
method.
4
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3. MINORITY INTEREST
In March 1993, the Company and a subsidiary entered into a Stock Purchase
Agreement ("Agreement") under which a 20% interest in Norplex, Inc.
("Norplex"), which owns 100% of NKC, was sold to an investor. The investor
also received an option to purchase an additional 31% interest in Norplex
from the Company at a price which increases from $27,000,000 during 1994 to
$36,000,000 during 1997, after which it expires if unexercised. Under this
option, the price received by the Company would be reduced by an amount,
determined at exercise date, equal to the cumulative amount of temporary
tax differences of Norplex plus operating losses used by the Company
multiplied by Norplex's marginal tax rate and the percentage of Norplex
owned by the investor after exercise. This amount is estimated to be
$5,811,000 at June 30, 1994, if the investor had exercised the 31% option
at that date.
The Agreement provides both the Company and the investor with the right of
first refusal if either party elects to sell any of its interest in Norplex
and requires the Company, if necessary, to fund up to $5,000,000 of cash
requirements of NKC in 1994 if the investor elects not to contribute its
20% portion of such cash requirement. Through June 30, 1994 the Company
has funded 100% of the $2,041,000 in cash required by NKC. The Agreement
also requires NKC to purchase a portion of its raw material requirements
from the investor at market prices.
Related party transactions with the minority investor in Norplex include
the following:
<TABLE>
<CAPTION>
Two Quarters Ended
June 30
------------------
1994 1993
---- ----
(In Thousands)
<S> <C> <C>
Sales $3,381 $3,141
Purchases $5,880
</TABLE>
4. DISPOSITION OF 50% OF RUTILE OPERATIONS
The Company sold 50% of its equity interest in rutile operations ("SRL") in
November 1993 for initial proceeds of $54,800,000. The total amount of
cash to be received and any gain or loss on the transaction will be based
on the audited book
5
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value of SRL at the date of the sale, such amount is expected to be
determined during 1994. The Company's balance sheet at June 30, 1994
includes net assets of $473,000 in excess of the initial proceeds
received from this transaction.
5. INDEBTEDNESS
The Company did not require any additional borrowings and repaid $2,098,000
of debt during the first two quarters of 1994.
The Company incurred $1,123,000 of interest cost in the first two quarters
of 1994, of which $212,000 was capitalized in connection with capital
expenditure programs at SRL. No interest was capitalized in 1993.
6. INCOME TAXES
Income taxes consist of the following:
<TABLE>
<CAPTION>
Two Quarters Ended
June 30,
------------
1994 1993
---- ----
(In Thousands)
Foreign:
<S> <C> <C>
Currently payable $ 476 $1,034
Long-term deferred (benefit) 67 (272)
----- ------
Total $ 543 $ 762
----- ------
----- ------
</TABLE>
Domestic income taxes have not been provided on undistributed earnings of
the foreign subsidiaries aggregating $56,900,000 at June 30, 1994 which the
Company intends to reinvest in the foreign operations. The unrecognized
domestic deferred tax liability for the temporary differences related to
the Company's investment in its foreign subsidiaries was estimated to be
$16,500,000 at June 30, 1994.
6
<PAGE>
7. NET (LOSS) PER COMMON AND COMMON EQUIVALENT SHARE
Net (loss) per common and common equivalent share is computed by dividing
net earnings by the weighted average number of common shares outstanding
during the period adjusted for the dilutive effect of common share
equivalents when applicable.
8. EQUITY IN NET EARNINGS (LOSS) OF AFFILIATE
The Company has a 35% interest in Nord Pacific Limited at June 30, 1994
(47% until February 15, 1994). Summary financial data for the operations
of Nord Pacific Limited for the periods are as follows:
<TABLE>
<CAPTION>
Two Quarters Ended
June 30,
------------------
(In Thousands)
1994 1993
---- ----
<S> <C> <C>
Revenues $8,240 $ 643
Costs and expenses 5,852 3,009
------ -------
Net earnings (loss) $2,388 $(2,366)
------ -------
------ -------
</TABLE>
The above revenues include a $1,364,000 gain on foreign currency contracts
for the two quarters ended June 30, 1994 and a $460,000 loss for the two
quarters ended June 30, 1993. The Company's share of the net earnings
(loss) for the two quarters ended June 30, 1994 and 1993 was $853,000 and
$(1,116,000), respectively.
9. DISCONTINUED OPERATIONS
In August 1993 the Company disposed of the perlite operations for
$1,270,000 in cash, for a gain of $106,000. During the first two quarters
of 1993 the Company charged $549,000, for operating losses of the perlite
operation to the provision for operating losses.
7
<PAGE>
10. LITIGATION
The Company has reached settlements with all principal defendants in SRL's
action against those allegedly responsible for certain allegedly improper
and fraudulent transactions against SRL, except for one remaining defendant
and certain related parties thereto. The settling defendants have agreed
to pay $7.85 million to the Company, of which $6.2 million has already been
collected and recognized as revenue. The remainder of the settlements will
be included in earnings upon assurance of collectibility.
In May 1993, an agreement in principle was reached for settlement of a
class action complaint filed by stockholders in October 1990 against the
Company and certain of its officers and directors. The terms of the
settlement agreement were approved by the Board of Directors of the Company
and in April 1994 by the United States District Court after which the case
was dismissed subject to the Company's compliance with the terms of the
settlement agreement. The settlement agreement requires the Company to pay
a total of $4,750,000, consisting of $500,000 in cash, which was paid in
April 1994, and $4,250,000 in Common Stock of the Company. In addition, the
Company will pay up to $100,000 for costs of notice and administration.
Since all costs of the settlement will be borne by the Company, the entire
amount of the settlement was recorded in the quarter ended March 31, 1993.
8
<PAGE>
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
Cash decreased from $20,555,000 at December 31, 1993 to $12,749,000 at June 30,
1994. The Company's operating activities required $209,000 in cash during the
first two quarters of 1994. Cash of $6.2 million was used for additions to
property, plant and equipment and $2.1 million was used to repay indebtedness.
In February 1994, the Company converted $2.9 million of its advances to Pacific
to shares of Pacific's common stock, in connection with Pacific successfully
completing a public offering of its shares in Australia. The Company does not
project receiving dividends in 1994 on its investment in Pacific but expects to
be repaid costs incurred by it on behalf of Pacific, which are estimated at
$200,000 in 1994.
The Company experienced a cash outflow from operating activities during the
first two quarters of 1994, as cash was provided by rutile operating activities
and cash was used in the other operating activities of the Company. Due to
certain lender imposed limitations on dividend payments by Sierra Rutile Limited
("SRL"), the cash generated by SRL is not available for general corporate use.
At June 30, 1994, $794,000 of the Company's cash balance is at SRL and is
restricted as to dividend payment. The remainder of the Company's operations
experienced a cash shortfall of $2.2 million during the first two quarters of
1994, which required the use of a portion of the Company's available cash
balances. This trend is expected to continue until such time as the Company's
kaolin operation is able to generate operating cash flow to fund its operations,
to repay the Company funds previously advanced and to pay a dividend to the
Company.
Payments under lease agreements at Nord Kaolin Company ("NKC") are secured by a
guaranty by the Company. Under the terms of the guaranty, the Company is
required to maintain certain covenants, including minimum levels of tangible net
worth compared to total liabilities and cash flow relative to current maturities
of long-term debt. The lessors have agreed that a covenant violation by the
Company under the guaranty will not result in a default under the NKC lease
agreements through December 31, 1994. Any covenant violation by the Company
after December 31, 1994 would result in a default under the NKC lease
agreements. The Company, however, has the right to cure a covenant default
through September 1995 by securing a letter of credit in the name of the lessors
which currently would be in the amount of $25 million. The lease agreements
also place restrictions on the amount of cash which NKC may transfer to the
Company and its other owner and limitations on the repayment of advances
previously made by the Company to NKC. Financing agreements at SRL require SRL
to maintain various financial ratios while
9
<PAGE>
indebtedness is outstanding and additional financial ratios prior to declaring a
dividend and also place limitations on the amount of cash transfers from SRL to
its owners. Until SRL's capital expansion program attains "project completion",
as defined in the financing agreements, the Company has agreed to provide 100%
of any funds which may be required by SRL to fulfill its financial obligations,
of which 50% is to be reimbursed to the Company by its joint venture partner in
SRL. The Company and its subsidiaries are in compliance with all covenants at
June 30, 1994.
The Company's principal financial requirements, anticipated sources and uses of
funds for 1994 on a segment basis are described below.
RESULTS OF OPERATIONS
The loss from operations for the two quarters ended June 30, 1994 and 1993 was
$1,005,000 and $10,141,000, respectively. The loss for the quarter ended June
30, 1994 and 1993 was $322,000 and $2,929,000, respectively. The Company's
operations for 1994 include 50% of the results of the rutile segment due to the
sale of 50% of that operation in November 1993. The decline in loss from
operations was primarily due to improvement in sales volume and prices and in
cost of sales as a percent of sales in 1994 compared to 1993 at the kaolin
segment. However, the earnings contribution to the Company from the rutile
operation was lower in 1994 compared to 1993 due to the aforementioned sale of
50% of SRL. Operations were favorably impacted in the first two quarters of
1994 and 1993 by $550,000 and $500,000, respectively of revenue recognized in
connection with the settlement with a defendant of litigation instituted by SRL.
Decreases in selling, general and administrative expense and interest expense
primarily related to the sale of 50% of SRL also contributed to the decreased
loss in 1994 compared to 1993. Included in the 1993 loss was an expense of
$4,750,000 which was accrued for settlement of litigation against the Company
and certain of its officers and directors. Interest expense decreased in 1994
compared to 1993 as the Company paid off a substantial amount of debt in the
fourth quarter of 1993 and $212,000 of interest cost was capitalized in 1994
while no interest was capitalized in 1993. The amount of income taxes provided
on foreign earnings decreased in 1994 compared to 1993 due to a lower level of
taxable foreign earnings recognized by the Company during 1994 compared to 1993.
An analysis of the changes in revenues, cost of sales and operating earnings on
a segment basis is contained below.
RUTILE
During November 1993, the Company sold 50% of its interest in SRL. The amounts
disclosed for SRL include 100% of SRL's operations in 1993 and 50% in 1994.
10
<PAGE>
The Company's shares of revenues for the first two quarters ended June 30, 1994
and 1993 were $12,700,000 and $30,100,000 respectively, and were $5,000,000 and
$16,600,000 in the second quarter of 1994 and 1993, respectively. Revenues for
100% of SRL's operations decreased in 1994 compared to 1993, as the number of
metric tons ("tonnes") sold decreased by 8% for the first two quarters of 1994
compared to the same 1993 period and by 39% in the second quarter of 1994
compared to the second quarter of 1993. In addition, the average price per
tonne of rutile sold was 9% lower in 1994 compared to 1993 prices. The Company
anticipates that lower average prices received for rutile will continue
throughout 1994 compared to 1993 but that tonnes sold for the full year of 1994
will exceed tonnes sold in 1993 (100% of SRL's operations). Revenues at SRL
during the first two quarters of 1993 include $500,000 recognized from a partial
settlement of litigation instituted by SRL, as previously noted (1994
settlements were received by the corporate segment). Included in revenues are
sales to individual customers which exceeded 10% of the Company's revenues
during 1994 and 1993. Although there is no indication that current
relationships with SRL's customers in 1994 are likely to change, in the event
that any major customers were lost or if the customers significantly reduced
their orders, such loss or significant reduction could have a material adverse
effect upon the financial condition and operations of the Company. The
Company's share of SRL's revenues include sales to one customer of $3,400,000
during the first two quarters of 1994 and to one customer of $11,800,000 during
the first two quarters of 1993, each of which exceeded 10% of the Company's
revenues during the respective periods.
Cost of sales as a percentage of sales in the first two quarters of 1994 was 78%
compared to 80% for the same period of 1993 and was 79% and 81% in the second
quarter of 1994 and 1993, respectively. The cost of sales percentage in 1994
was negatively impacted by the previously noted decline in average sales price.
However, a greater percentage decline in cost of sales was realized as
production efficiencies in 1994 resulted in higher levels of production and
lower average cost of production per tonne compared to 1993 amounts.
The Company's share of operating earnings from this segment in the first two
quarters of 1994 were $2,595,000 compared to $4,445,000 for the same period in
1993 and were $1,025,000 and $2,140,000 in the second quarter of 1994 and 1993,
respectively. After adjusting for the impact of the Company's sale of 50% of
SRL in 1993, operating earnings during the first two quarters of 1994 improved
over operating earnings during the same period of 1993, while operating earnings
were comparable for the second quarters of 1994 and 1993. The improvement in
operating earnings during the first two quarters of 1994 was due primarily to
lower segment selling, general and administrative costs. The effect of lower
number of tonnes sold and lower prices received in 1994 was generally offset by
lower production costs resulting in a slight improvement in 1994 cost of sales
percentage. Operating earnings during the second quarter of 1994 were
comparable to 1993 as lower operating earnings due to a decline in tonnes sold
and price were generally offset by the decline in selling, general and
administrative expenses. Operating earnings for the first
11
<PAGE>
two quarters of 1993 included the previously noted $500,000 recognized from a
litigation settlement. Selling, general and administrative costs decreased in
1994 compared to 1993 as a result of the elimination of legal costs associated
with the aforementioned litigation (now being paid entirely by the Corporate
segment) and a lower amount of corporate costs allocated to this segment in
1994.
KAOLIN
Revenues increased to $20,444,000 in the two quarters ended June 30, 1994
compared to $16,080,000 during the same period of 1993. Revenues for the second
quarter of 1994 increased to $10,816,000 compared to $8,121,000 for the same
period of 1993. Revenues have increased in the two quarters and quarter ended
June 30, 1994 compared to the same periods in 1993 as tons sold and average
sales prices increased for the Company's new Norplex-R- and Norcal-R- products.
The Company sold 7% more tons of Norplex-R- for the two quarters ended June 30,
1994 and 24% more tons of Norplex-R- in the second quarter of 1994 as compared
to the same periods in 1993. Revenues from Norplex-R- sales increased in the
1994 periods due to increases in selling prices and change in the mix of
products sold. The Company doubled the sales volume of Norcal-R- products for
the two quarters ended June 30, 1994 compared to the same period in 1993 and
sold 22% more tons of Norcal-R- products in the second quarter of 1994 compared
to the same period in 1993. Selling prices of Norcal-R- products averaged 4%
higher in the 1994 periods than in 1993. The Company also realized an increase
in tons sold and average sales prices for its conventional products for the two
quarters and quarter ended June 30, 1994 compared to the same periods in 1993.
Included in revenues are sales of $3,800,000 to one customer, which amount
exceeded 10% of the Company's revenues during 1994. Although there is no
indication that the current relationship with the customer in 1994 is likely to
change, in the event that the customer was lost or if the customer significantly
reduced its orders, such loss or significant reduction could have a material
adverse effect upon the financial condition and operations of the Company.
Cost of sales as a percentage of sales was 96% for the first two quarters of
1994 compared to 107% for the same period in 1993. Cost of sales as a
percentage of sales was 95% for the second quarter of 1994 compared to 105% for
the same period in 1993. These decreases in cost of sales percentages are due
primarily to the aforementioned increase in sales revenue, change in mix of
products sold and a decrease in production costs including the cost of certain
raw materials.
Operating loss was $2,262,000 for the first two quarters of 1994 compared to
$4,750,000 for the same period in 1993. Operating loss was $1,014,000 for the
second quarter of 1994 compared to $2,217,000 for the second quarter of 1993.
Although this segment has incurred operating losses during the past few years,
the Company anticipates that
12
<PAGE>
continued improvement in new product sales volume and product mix will have a
favorable impact on gross margin and operating results in future periods.
NKC has incurred annual operating losses beginning in 1989 due primarily to the
costs associated with development and market introduction of its Norplex-R-
products and in part to lower demand and prices for certain of its products as a
result of the recession. As a result of the above circumstances, NKC had not
been able to generate sufficient sales volume at adequate prices to recover its
costs of production. This situation has improved during the first two quarters
of 1994, and NKC has realized a sufficient volume of sales to recover its costs
of production. The Company estimates that as sales volume increases, including
increased sales of Norplex-R- products which are being emphasized, NKC will
reduce the level of operating losses it has been incurring. However, the Company
cannot precisely estimate when or if adequate sales levels will be attained to
achieve an operating profit or the level of operating losses which may be
incurred during future periods. However, the Company believes that, based upon
recent conversions of customers to the Norplex-R- products and probable future
testing and conversion at a number of different customer locations, that the
above noted improvement in sales levels and operating results is more likely
than not to occur.
13
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company's Form 10-K for the fiscal year ended December 31, 1993 ("Form 10-
K") describes (i) an Arbitration award in favor of Sierra Rutile Limited
("SRL"), a 50% affiliate of the Company, against Brinc, Ltd., formerly known as
Bomar Resources, Inc., (ii) a proceeding in the United States District Court for
the Southern District Court of New York captioned SIERRA RUTILE LIMITED v. BOMAR
RESOURCES, INC., 90 Civ. 835, in which arbitration of SRL's, disputes with
Brinc were compelled, (iii) an action in the United States District Court for
the Southern District of New York captioned SIERRA RUTILE LIMITED v. SHIMON Y.
KATZ, ET AL., 90 Civ. 4913 (JFK) and (iv) a proceeding in the United States
District Court for the Southern District of Ohio captioned IN RE NORD RESOURCES
CORPORATION SECURITIES LITIGATION (Dayton) (Civil Action No. C-3-90-391). No
material changes have occurred with respect to the Arbitration award or any of
the proceedings disclosed in the Form 10-K, except that: (A) with respect to the
Sierra Rutile Limited ("SRL") litigation, permission had been granted to assert
additional claims against Tradeco Holdings Limited and Bomar International
Limited, Cayman Island entities alleged by SRL to be controlled by Berisford
International PLC on a guaranty and fraudulent conveyance claim. An answer
denying SRL's allegations was filed on behalf of those entities and twenty days
later, on August 4, 1994, an Amended Answer, including a counterclaim against
SRL, cross-claims and purported third party claims against other defendants was
filed. The counterclaim against SRL asserts, among other things, that the acts
complained of by SRL and upon which its judgment in arbitration was predicated,
was not only known to SRL but also participated in by the Company and others and
constituted a fraud on Tradeco for which SRL had a liability or responsibility.
The Third Party Complaint which was not timely served demanded relief from the
Company and others. In proceedings in the United States District Court for the
Southern District of New York, the Tradeco defendants were refused permission by
the Magistrate Judge to serve and file the Third Party Complaint and that matter
will be taken up with United States District Judge John F. Keenan. The Company
intends to vigorously oppose the counterclaims asserted against it which it
regards without merit, as well as any third party claims should they eventually
be permitted to be filed. The Company has been advised by its counsel that
based on the facts known to it Tradeco's asserted claims both by counterclaim
and/or by third party claim are without merit, (B) with respect to the lawsuit
in the United States District Court for Southern District of Ohio, the Court has
approved a settlement agreement reached by the parties involved and the case has
been dismissed subject to the Company's compliance with the terms of the
settlement agreement. Under the settlement terms, the Company will pay a total
of $4,750,000, which is comprised of $500,000 in cash and $4,250,000 in stock.
In addition, the Company will pay the costs of notice and administration up to
$100,000.
14
<PAGE>
ITEMS 2-5.
Inapplicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A. No reports were filed on Form 8-K during the second quarter of 1994.
15
<PAGE>
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 thereunto duly authorized.
NORD RESOURCES CORPORATION
(Registrant)
s/Terence H. Lang
------------------------
Terence H. Lang
Senior Vice President - Finance
(Principal Financial Officer and
Authorized Officer)
DATE: August 14, 1994
16
