<PAGE>
UNITED STATES
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 September 30, 1995
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
-----------------------------------------------------
(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 September 30, 1995: 15,838,408
<PAGE>
NORD RESOURCES CORPORATION
AND SUBSIDIARIES
INDEX
PAGE
NUMBER
------
PART I. FINANCIAL INFORMATION:
ITEM 1. Condensed Financial Statements:
Balance Sheets - September 30, 1995
and December 31, 1994 1
Statements of Operations - Quarter and Three
Quarters ended September 30, 1995 and 1994 2
Statements of Cash Flows -
Three Quarters ended
September 30, 1995 and 1994 3
Notes to Condensed Financial Statements 4-10
ITEM 2. Management's Discussion and Analysis
of Financial Condition and Results of
Operations 11-14
PART II. OTHER INFORMATION:
ITEM 1. Legal Proceedings 15
ITEM 2-5. Inapplicable 16
ITEM 6. Exhibits and Reports on Form 8-K 16
<PAGE>
NORD RESOURCES CORPORATION AND SUBSIDIARIES
CONDENSED BALANCE SHEETS
(In Thousands)
ASSETS
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1995 1994
---- ----
<S> <C> <C>
CURRENT ASSETS:
Cash and Cash Equivalents $ 5,718 $ 8,946
Restricted Cash and Investments:
Rutile 2,773 2,934
Domestic 300
Accounts Receivable 8,717 8,199
Accounts Receivable - related party 25 2,094
Inventories - at lower of cost (first-in, first-out) or market:
Finished and Semi-Finished 1,297 1,342
Supplies 1,644 1,736
----------- -----------
2,941 3,078
Prepaid Expenses 2,420 1,985
----------- -----------
TOTAL CURRENT ASSETS 22,894 27,236
RESTRICTED CASH AND INVESTMENTS 2,252 2,797
INVESTMENTS IN AND ADVANCES TO AFFILIATES 8,868 8,142
INVESTMENT IN AND ADVANCES TO RUTILE SEGMENT 61,629 64,353
PROPERTY, PLANT AND EQUIPMENT, net 34,993 36,804
OTHER ASSETS 7,922 6,783
----------- -----------
$ 138,558 $ 146,115
----------- -----------
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts Payable $ 3,304 $ 3,059
Accounts Payable - related party 4,461 4,310
Accrued Expenses 2,218 2,444
Obligations in Default:
Rutile 22,746 23,234
Domestic 3,062
Current Maturities of Long-Term Debt 190 644
----------- -----------
TOTAL CURRENT LIABILITIES 35,981 33,691
LONG-TERM DEBT 1,520 4,701
OTHER LONG-TERM LIABILITIES 6,451 5,732
MINORITY INTEREST 3,212 4,457
STOCKHOLDERS' EQUITY:
Common Stock 158 158
Additional Paid-in Capital 58,137 58,137
Retained Earnings 32,952 39,092
Cumulative Foreign Currency Translation Adjustment 282 282
Minimum Pension Liability (135) (135)
----------- -----------
91,394 97,534
----------- -----------
$ 138,558 $ 146,115
----------- -----------
----------- -----------
</TABLE>
See notes to condensed financial statements
1
<PAGE>
NORD RESOURCES CORPORATION AND SUBSIDIARIES
CONDENSED STATEMENTS OF OPERATIONS
(In Thousands, Except Per Share Amounts)
<TABLE>
<CAPTION>
QUARTER ENDED THREE QUARTERS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------ -------------------------
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
REVENUES:
Sales $ 8,557 $ 15,971 $ 28,691 $ 49,057
Other Revenues 276 28 285 264
--------- --------- --------- ----------
TOTAL REVENUES 8,833 15,999 28,976 49,321
COSTS AND EXPENSES:
Cost of Sales 8,933 14,296 28,790 43,974
Selling, General & Administrative Expenses 2,667 3,111 8,156 8,717
--------- --------- --------- ----------
TOTAL OPERATING COSTS & EXPENSES 11,600 17,407 36,946 52,691
--------- --------- --------- ----------
(LOSS) FROM OPERATIONS (2,767) (1,408) (7,970) (3,370)
OTHER INCOME (EXPENSE):
Interest Income 146 160 482 444
Interest Expense (139) (354) (485) (1,265)
Provision for Impairment of Investment in
Rutile Segment (3,000)
Litigation Recoveries 2,325 2,725 550
Equity in Net Earnings of Affiliate 617 149 862 1,087
Minority Interest 449 296 1,246 935
--------- --------- --------- ----------
TOTAL OTHER INCOME (EXPENSE) 3,398 251 1,830 1,751
--------- --------- --------- ----------
EARNINGS(LOSS) BEFORE INCOME
TAX (EXPENSE) 631 (1,157) (6,140) (1,619)
INCOME TAX BENEFIT (EXPENSE) 5 (538)
--------- --------- --------- ----------
NET EARNINGS (LOSS) $ 631 $ (1,152) $ (6,140) $ (2,157)
--------- --------- --------- ----------
--------- --------- --------- ----------
NET EARNINGS (LOSS) PER COMMON
AND COMMON EQUIVALENT SHARE $ .04 $ (.08) $ (.39) $ (.14)
--------- --------- --------- ----------
--------- --------- --------- ----------
AVERAGE SHARES 15,839 15,140 15,839 15,140
--------- --------- --------- ----------
--------- --------- --------- ----------
</TABLE>
See notes to condensed financial statements
2
<PAGE>
NORD RESOURCES CORPORATION AND SUBSIDIARIES
CONDENSED STATEMENTS OF
CASH FLOWS
(In Thousands)
<TABLE>
<CAPTION>
THREE QUARTERS ENDED
SEPTEMBER 30
--------------------
1995 1994
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Earnings (Loss)
Rutile $ $ 1,835
Domestic (6,140) (3,992)
Adjustments to reconcile Net Earnings (Loss) to
net cash provided by operating activities:
Changes in Assets and Liabilities:
Rutile 168
Domestic 2,176 722
Minority Interest - Domestic (1,246) (935)
Depreciation, depletion and amortization:
Rutile 4,888
Domestic 2,814 2,969
Provision for Impairment - Investment in SRL 3,000
Other Non-Cash Items:
Rutile (141)
Domestic (862) (1,087)
--------- ---------
Net Cash Provided By (Used In) Operating Activities (258) 4,427
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital Expenditures:
Rutile (10,203)
Domestic (476) (453)
(Increase) decrease in Other Assets:
Rutile 696
Domestic (1,666) (918)
(Increase) decrease in Investments in and Advances to Affiliates -
Domestic 137 (127)
Increase in Investment in and advances to Rutile Segment (603)
--------- ---------
Net Cash (Used In) Investing Activities (2,608) (11,005)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Additional Indebtedness - Rutile 3,001
Payment of Indebtedness:
Rutile (2,205)
Domestic (608) (379)
Restricted Cash and Investments:
Rutile (118)
Domestic 246 (185)
Stock Option Activity - Domestic 17
--------- ---------
Net Cash Provided By (Used In) Financing Activities (362) 131
--------- ---------
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS (3,228) (6,447)
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD 8,946 20,555
--------- ---------
CASH AND CASH EQUIVALENTS - END OF PERIOD $ 5,718 $14,108
--------- ---------
--------- ---------
</TABLE>
See notes to condensed financial statements
3
<PAGE>
NORD RESOURCES CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED FINANCIAL STATEMENTS
QUARTERS ENDED SEPTEMBER 30, 1995 AND 1994
1. FINANCIAL STATEMENTS
The balance sheet at December 31, 1994 is condensed financial information
taken from the financial statements, which are audited, but the independent
auditors' report included a disclaimer of opinion for an uncertainty
relating to the ability of the Company to continue as a going concern. The
interim financial statements are unaudited. In the opinion of management,
all adjustments, which consist of normal recurring adjustments except for
the $3 million provision for impairment recorded against the Company's
investment in SRL, 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 three quarters of 1995 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, 1994 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, its majority-owned subsidiaries and its 50% interest in a
rutile mining operation ("SRL")(the "Company"). As a result of the
situation described in Note 3, the Company's 50% investment in SRL is
carried at the cost basis of accounting (which includes original cost plus
undistributed earnings through December 31, 1994, except for certain SRL
indebtedness with effective recourse to the Company, which is reported as a
separate liability, and related restricted cash) in the balance sheets.
All significant intercompany transactions and balances are eliminated.
4
<PAGE>
The accompanying condensed financial statements have been prepared on a
going concern basis, which contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business. The
financial statements do not contain any adjustments that might be necessary
should the Company be unable to continue as a going concern.
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.
3. INVESTMENT IN RUTILE SEGMENT
Prior to December 31, 1994, the Company proportionately consolidated its
share of the assets, liabilities and operations of SRL. As of December 31,
1994, the Company adopted the cost basis of accounting because SRL no
longer controlled its operations in Sierra Leone, Africa following an
attack by non-government forces and the subsequent suspension of mining
operations in January 1995. The statements of operations and cash flows
include the Company's proportionate share of operations of SRL for the
first three quarters of 1994. The Company intends to resume proportional
consolidation when it regains control of the mine. During the third
quarter of 1995, the Company provided $600,000 to the rutile segment which
was used to pay current administrative costs and amounts owing to vendors.
There continues to be considerable uncertainty surrounding the future of
SRL in Sierra Leone, given continuing civil unrest and an uncertain
political environment. At the present time, it is not possible to estimate
when resumption of operations might be achieved or the extent of damage and
deterioration to SRL's facilities which has occurred since the suspension
of operations. In October 1995, SRL personnel had a limited, on-site
review of a portion of the mine facilities, which confirmed that a loss in
asset value has occurred. Because of the ongoing security situation in the
area, this review was only superficial in nature, but revealed that the
principal mining, processing and associated assets, have apparently not
suffered serious damage. However, looting has been significant and much of
the housing, small vehicles and office facilities have been destroyed,
stolen or suffered significant damage and costs would be incurred to
rehabilitate the idle principal mine processing and associated assets.
Reports since that visit indicate that there has been further military
activity in the area, but there is no information available on the extent
to which this may have affected the mine assets. Accordingly the security
situation in the area continues to be unstable and re-occupation of the
site by SRL personnel is still not yet possible. The Company has evaluated
available information provided by SRL management regarding assets at the
mine facilities and recorded an impairment of $3 million on its investment
in SRL. The impairment recorded by the Company is based on information
currently available; however, the
5
<PAGE>
actual amount of impairment could exceed this amount once a detailed
on-site inspection is performed or if SRL is further delayed in its
efforts to regain control of the minesite. The impairment does not
include any accrual for start-up costs which SRL would incur to
reestablish its operations in Sierra Leone. Until the above costs are
known, the Company cannot determine if it will be able to recover its
investment in the rutile segment or the extent of the write-down in its
investments which may ultimately be required. The Company has an
insurance policy to cover risk of loss due to physical damage to SRL's
property resulting from political violence, with a policy limit of $15.7
million. The Company has provided the required notice to the insurance
carrier and has filed an initial claim for recovery under this policy.
The Company intends to revise the amount of the claim as additional
information concerning damage to mine assets becomes available. The
Company cannot estimate the amount or timing of recoveries which may
ultimately be available from this policy nor if the amount of
recoveries, if received, would be sufficient to fund all of the
Company's portion of cash required by SRL.
Summarized financial data for the Company's 50% share of SRL's operations
are as follows:
<TABLE>
<CAPTION>
Three Quarters
Ended
September 30,
-------------
1995 1994
---- ----
(In Thousands)
<S> <C> <C>
Revenues $2,231 $18,796
Less Costs and Expenses:
Cost of Sales 1,271 14,773
Selling, General and Administrative 422 863
Costs Incurred Since Mine Shutdown 5,188
Provision for Impairment 3,000
Other Expense (Including Interest) 1,105 738
Income Tax Expense 89 587
--------- --------
Net Earnings (Loss) $(8,844) $ 1,835
--------- --------
--------- --------
</TABLE>
Since the Company began accounting for its investment in SRL on the cost
basis as of December 31, 1994, it will not recognize its share of SRL's
results in its statement of operations, beginning in 1995. However, during
the three quarters ended September 30, 1995, the Company recorded an
impairment of $3 million on its investment in SRL. Costs incurred since
mine shutdown are comprised of costs since evacuation of the mine including
the cost of security, evacuation of minesite personnel and subsequent
severance costs. When the Company is able to resume proportional
consolidation of the rutile segment, it is likely to record a provision to
adjust its investment to a current value, the amount of which is not
determinable at
6
<PAGE>
this time. The Company's statement of operations for 1994 includes
SRL's results as noted above.
4. MINORITY INTEREST
The minority investor in Norplex, Inc. ("Norplex"), which owns 100% of Nord
Kaolin Company ("NKC"), has an option to purchase an additional 31%
interest in Norplex from the Company at a price which increases from
$31,000,000 during 1995 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 $5,066,000 at December 31, 1994, if the investor
had exercised the 31% option at that date.
Related party transactions with the minority investor in Norplex include
the following
<TABLE>
<CAPTION>
Three Quarters
Ended
September 30,
------------------
1995 1994
---- ----
(In Thousands)
<S> <C> <C>
Sales $6,040
Raw material purchases $7,656 $9,008
</TABLE>
5. INDEBTEDNESS
As a result of the suspension of its mining operations resulting from
civil disturbances in January 1995, SRL is not in compliance with
certain financial and operational covenants under its financing
agreements. The lenders agreed through May 15, 1995 to forebear from
accelerating payment of the loans to permit SRL to assess the situation
in Sierra Leone. SRL, the Company, the other 50% owner of SRL, and the
lenders have held ongoing discussions regarding a further forebearance
period and other modifications to the existing loan agreements.
Although terms of an agreement have not been finalized, the Company
believes that the parties are likely to agree to a forebearance period
until January 1, 1997 and to other modifications of the existing loan
agreements. If a forebearance agreement is signed, payment of principal
due during the forebearance period
7
<PAGE>
would be deferred. As a condition of this forebearance agreement, SRL
would agree to prepay, on signing of the agreement, interest payments
coming due through December 1996. Notwithstanding the above, the Company
has no assurances that the forebearance agreement and loan modification
terms presently being discussed will be agreed to in their entirety. If
a further forebearance period is not obtained and the lenders request
acceleration of payment of the indebtedness by SRL, funds for which are
required to be provided by the Company and the other 50% owner of SRL,
the Company will likely have to seek additional funds, if available,
from as yet undetermined sources, as the Company does not presently have
funds necessary to repay its share of the SRL indebtedness. As of
September 30, 1995 and December 31, 1994, 50% of all SRL debt in default
has been classified as an Obligation in Default and a current liability
in the Condensed Balance Sheet.
The Company did not require any additional borrowings and repaid $608,000
of debt during the first three quarters of 1995.
6. LEASES
NKC entered into lease agreements under which $22.6 million of equipment
has been provided to NKC. Payments under the leases are guaranteed by the
Company. Under the terms of the guaranty, the Company is required to
maintain minimum levels of (1) tangible net worth compared to total
liabilities and (2) cash flow relative to current maturities of long-term
debt. The lease agreements also place restrictions on the amount of cash
which NKC may transfer to the Company and limit repayment of advances
previously made by the Company to NKC. The Company's ability to comply
with the above covenants has been adversely impacted by the suspension of
SRL's operations and the Company is not in compliance with the cash flow
covenant at September 30, 1995. As a result of the covenant violation, the
lessors have certain rights under the lease including the ability to
require payment of liquidated damages of $15.1 million including the $3.6
million noted below, and could elect to terminate the leases and take
possession and retain ownership of the equipment. The Company has
requested a waiver of the covenant but has not been able to reach an
agreement with the lessors and cannot determine the willingness of the
lessors to agree to any waiver or modification of lease terms which would
be acceptable to the Company.
Certain of the leases have been considered capital leases under generally
accepted accounting principles and, accordingly, an asset has been
recognized by NKC, along with corresponding indebtedness. At September 30,
1995 the net book value of equipment leased under these capital leases was
$2.6 million, while $3.1 million of indebtedness was outstanding. As a
result of the lease covenant violation at September 30, 1995, the
indebtedness outstanding under the capital leases has
8
<PAGE>
been classified as an Obligation in Default and a current liability in the
Condensed Balance Sheet at September 30, 1995. The liquidated damages
associated with these leases was $3.6 million at September 30, 1995.
If the lessors request payment of liquidated damages, the Company does not
presently have the financial resources available to pay the entire amount
of the liquidated damages. Consequently, the Company would have to seek
additional funds, if available, from as yet undetermined sources, which may
or may not be available to the Company on conditions acceptable to the
Company. If the lessors terminate the leases and take possession of the
equipment, such an event would have a material adverse effect on NKC's
ability to operate its business.
7. INCOME TAX
Income tax expense consists of the following:
<TABLE>
<CAPTION>
Three Quarters Ended
September 30, 1994
--------------------
(In Thousands)
<S> <C>
Domestic - Currently (refundable) $ (49)
Foreign:
Currently payable 520
Long-term deferred (benefit) 67
-------
Total Foreign 587
-------
Total $ 538
-------
-------
</TABLE>
No tax benefit has been recorded for the operating losses in 1995.
8. NET EARNINGS (LOSS) PER COMMON AND COMMON EQUIVALENT SHARE
Net earnings (loss) per common share and common equivalent share is
computed by dividing net earnings (loss) by the weighted average number of
common shares outstanding during the period adjusted for the dilutive
effect of common share equivalents when applicable.
9
<PAGE>
9. EQUITY IN NET EARNINGS OF AFFILIATE
The Company has a 35% interest in Nord Pacific Limited at September 30,
1995 (47% prior to February 15, 1994). Summary financial data for the
operations of Nord Pacific Limited for the periods are as follows:
<TABLE>
<CAPTION>
Three Quarters Ended
September 30,
--------------------
(In Thousands)
1995 1994
---- ----
<S> <C> <C>
Revenues $10,911 $ 8,642
Costs and Expenses (8,554) (7,909)
Gain (Loss) on Foreign
Currency Contracts ( 203) 1,920
------- ------
Net Earnings $ 2,154 $2,653
------- ------
------- ------
</TABLE>
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. The settling defendants have
agreed to pay $10 million to the Company, of which $9.3 million has already
been collected and recognized as revenue. The financial statements of the
Company for the three quarters ended September 30, 1995 and 1994 include
$2,725,000 and $550,000, respectively, of other income in connection with
these settlements. The remainder of the settlements will be included in
earnings upon perfection of collateral or assurance of collectibility.
10
<PAGE>
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
Cash has decreased from $8.9 million at December 31, 1994 to $5.7 million at
September 30, 1995. The Company's operating activities used $258,000 in cash
during the first three quarters of 1995. Cash of $2.1 million was used for
additions to property, plant and equipment and other assets and $608,000 was
used to repay indebtedness. The Company provided $600,000 to the Rutile segment
which was used to pay administration costs and amounts owed to vendors.
The Company's cash flow from operating activities for the first three quarters
of 1995 benefitted from the receipt of $2.0 million as the final payment
relating to the sale of 50% of SRL. The Company anticipates that its operations
will utilize cash in 1995, which will require use of a portion of the Company's
available cash balances, until such time as the Company's kaolin operation is
able to generate operating cash flow to fund its operations and to repay funds
previously advanced by the Company. In October 1995, the Company received a
payment of $2.3 million as a partial settlement of litigation.
Due to civil disturbances in Sierra Leone, the Company's rutile mining operation
was suspended in January 1995 and as a result SRL is not in compliance with
certain financial and operational covenants under its financing agreements. The
lenders agreed through May 15, 1995 to forebear from accelerating payment of
the loans to permit SRL to assess the situation in Sierra Leone. SRL, the
Company, the other 50% owner of SRL, and the lenders have held ongoing
discussions regarding a further forebearance period and other modifications to
the existing loan agreements. Although terms of an agreement have not been
finalized, the Company believes that the parties are likely to agree to a
forebearance period until January 1, 1997 and to other modifications of the
existing loan agreements. If a forebearance agreement is signed, payment of
principal due during the forebearance period would be deferred. As a condition
of this forebearance agreement, SRL would agree to prepay, on signing of the
agreement, interest payments coming due through December 1996. Notwithstanding
the above, the Company has no assurances that the forebearance agreement and
loan modification terms presently being discussed will be agreed to in their
entirety. If a further forebearance period is not obtained and the lenders
request acceleration of payment of the indebtedness by SRL, funds for which are
required to be provided by the Company and the other 50% owner of SRL, the
Company will likely have to seek additional funds, if available, from as yet
undetermined sources, as the Company does not presently have funds necessary to
repay its share of the SRL indebtedness. At September 30, 1995, the Company's
share of SRL's debt outstanding is $22.7 million, which is partially secured by
the Company's share of restricted cash of $2.8 million.
11
<PAGE>
NKC entered into lease agreements under which $22.6 million of equipment has
been provided to NKC. Payments under the leases are guaranteed by the Company.
Under the terms of the guaranty, the Company is required to maintain minimum
levels of (1) tangible net worth compared to total liabilities and (2) cash flow
relative to current maturities of long term debt. The lease agreement also
places restrictions on the amount of cash which NKC may transfer to the Company
and limits repayment of advances previously made by the Company to NKC. The
Company's ability to comply with these covenants has been adversely impacted by
the suspension of SRL's operations and the Company is not in compliance with the
cash flow covenant at September 30, 1995. As a result of the covenant violation
the lessors have certain rights under the leases including the ability to
require payment of liquidated damages of $15.1 million and could elect to
terminate the leases and take possession and retain ownership of the equipment.
The Company has requested a waiver of the covenant but has not been able to
reach an agreement with the lessors and cannot determine the willingness of the
lessors to agree to any waiver or modification of lease terms which would be
acceptable to the Company. If the lessors terminate the leases and take
possession of the equipment, such an event would have a material adverse effect
on NKC's ability to operate its business.
Neither the SRL lenders nor the NKC lessors have indicated that they will
require acceleration of payments or liquidated damages, respectively. However,
the Company does not have an adequate amount of funds currently available to pay
liquidated damages to the NKC lessors, or to repay its share of SRL's debt or to
sustain SRL, including funds likely to be required to reestablish SRL's
operations. If funds are needed to provide for any of the above requirements,
the Company may need to seek funds through additional financing or from other
undetermined sources. One source of funds which may be available to the Company
is proceeds from foreign political risk insurance policies. One policy provides
up to $15.7 million of insurance to the Company for physical damage resulting
from political violence. However, the amount of recoveries, if any, is not yet
determinable and may not be sufficient to fund all of the Company's above noted
cash requirements. The Company is unable to determine the amount of funds
which may ultimately be required by the NKC lessors or by SRL and its lenders or
if adequate funds will be available from the above or other undetermined sources
on conditions acceptable to the Company.
RESULTS OF OPERATIONS
Net loss for the three quarters ended September 30, 1995 was $6.1 million
compared to $2.2 million for the same period in 1994. Net earnings for the
third quarter of 1995 were $631,000 compared to a net loss of $1.2 million for
the same period in 1994. Since the Company has adopted the cost basis of
accounting for its investment in the rutile segment, the results for 1995 do not
include any amounts relating to its operations; however, in March 1995 the
Company recorded a $3.0 million impairment against its investment in the rutile
segment. The Company's share of earnings from the rutile segment was $2.4
million
12
<PAGE>
for the three quarters ended and $359,000 for the quarter ended September 30,
1994. A decrease in sales volume at the kaolin segment in 1995 compared to
1994 along with increases in certain raw material costs caused an increase in
the operating loss in 1995 compared to 1994. The Company recorded $760,000 as
its share of earnings from Nord Pacific for the first three quarters of 1995
compared to $946,000 for the first three quarters of 1994. Interest expense
decreased by $780,000 in the first three quarters of 1995 compared to the same
period in 1994 as no amounts relating to SRL operations are recorded in 1995.
The rutile segment reported $740,000 of interest expense in the first three
quarters of 1994. The Company recorded $2.3 million of income in the third
quarter of 1995 relating to settlement of litigation. The Company has no tax
provision in the first three quarters of 1995 while income taxes of $540,000
were provided on foreign earnings in 1994.
An analysis of the changes in revenues, cost of sales and operating earnings
(before interest and income taxes) on a segment basis is contained below.
RUTILE
At December 31, 1994 the Company began accounting for its investment in the
rutile segment on the cost basis due to the forced suspension of mining
operations in Sierra Leone. Therefore, there are no operating results to report
for this segment in 1995. The amounts disclosed below for the first three
quarters of 1994 reflect the Company's 50% ownership of the rutile segment.
Revenues during this period were $18.7 million and operating earnings from this
segment were $3.2 million.
KAOLIN
Revenues decreased to $28.9 million in the three quarters ended September 30,
1995 compared to $30.4 million during the same period of 1994. Revenues for the
third quarter of 1995 decreased to $8.8 million compared to $9.9 million for the
same period in 1994. Revenues for the three quarters and quarter ended
September 30, 1995 include $18.3 million and $5.5 million, respectively, from
sales of the Company's Norplex-Registered Trademark- products compared to $15.8
million and $5.6 million for the same periods in 1994. Sales of Norcal-
Registered Trademark- products decreased to 8,900 tons for the three quarters in
1995 and 2,200 tons for the quarter ended September 30, 1995 compared to 16,400
tons and 4,900 tons sold for the same periods in 1994 at average prices slightly
less than those received in 1994. Sales of conventional products decreased by
16% for the three quarters of 1995 and 13% for the quarter ended September 30,
1995 compared to the same periods in 1994, at average prices 2% - 4.5% lower
than those received in 1994. The decline in sales volume for Norcal-Registered
Trademark- and conventional products was primarily due to lower demand for these
type of products in the marketplace.
13
<PAGE>
Cost of sales as a percentage of sales was 100% and 104% for the three quarters
and quarter ended September 30, 1995 compared to 96% and 94% for the same
periods in 1994. This increase in the cost of sales percentage is the result of
the aforementioned lower volume and lower selling prices and increases in
certain raw material prices.
Operating loss from this segment in the first three quarters of 1995 was
$4,335,000 compared to $3,239,000 for the same period in 1994. Operating loss
for the third quarter of 1995 was $1,608,000 compared to $977,000 in the same
quarter of 1994. While revenues from the Company's Norplex-Registered
Trademark- line of products increased in the first three quarters of 1995
compared to 1994, lower sales volume of the Company's Norcal-Registered
Trademark- and conventional products, along with lower average selling prices of
these products and higher cost of certain raw materials resulted in the increase
in operating loss in 1995 compared to 1994.
NKC has incurred annual operating losses beginning in 1989 due primarily to the
costs associated with development and market introduction of its Norplex-
Registered Trademark- products and a longer than anticipated new product
introduction period. In addition, in the early 1990's lower demand and prices
for certain of its products as a result of the recession contributed to NKC's
operating losses. As a result of the above circumstances, NKC had not been able
to generate sufficient sales volume at adequate prices to recover its fixed and
variable costs of production during this period. This situation improved during
1994 compared to 1993 and prior years and the sales volume and prices of
Norplex-Registered Trademark- products had reached levels sufficient to recover
the fixed and variable production costs and to begin to fund the selling,
general and administrative costs of NKC. However, during 1995, lower sales
volumes of Norcal-Registered Trademark- and conventional products and higher
cost of production caused increased operating losses compared to 1994. NKC is
attempting to recover lost sales volumes in those two product-lines until such
time as the volume of Norplex-Registered Trademark- products are at a level to
generate adequate operating earnings. However, until the level of Norplex-
Registered Trademark- sales volume and prices improve, NKC expects to continue
to experience operating losses. The Company cannot precisely estimate when or
if adequate sales levels of Norplex-Registered Trademark- products will be
achieved or the level of operating losses which will be incurred during the
future periods. Based upon recent conversions of customers to the Norplex-
Registered Trademark- products and future testing and conversion at a number of
different customer locations, the Company believes that the above noted
improvement in Norplex-Registered Trademark- sales levels and operating results
is likely to occur.
14
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company's Form 10-K for the fiscal year ended December 31, 1994 ("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 of New York captioned SIERRA RUTILE LIMITED v. BOMAR
RESOURCES, INC., 90 Civ. 835 (JFK), in which arbitration of SRL's disputes with
Brinc was compelled and in which the arbitration award in favor of SRL was
confirmed and judgment entered in the amount of $56.7 million (trebled under the
Racketeer Influence and Corrupt Organization Act ("RICO") and (iii) an action
in the United States District Court for the Southern district of New York
captioned SIERRA RUTILE LIMITED V. KATZ. ET AL., 90 Civ. 4913 (JFK) in which
action claims were made against those who were alleged to have been participants
in and/or benefitted from and/or responsible for the acts of which SRL
complained and in which a non-settling affiliate of London based Berisford
International PLC had asserted counterclaims and/or third party claims against
SRL, the Company and others, which the Company regarded as being without merit
and as to which motions to dismiss were pending. On September 29, 1995 the
Company and SRL entered into a settlement agreement with Berisford International
PLC, its affiliated companies and individuals providing for the settlement of
all remaining disputes and claims and the exchange of reciprocal releases upon
the payment to the Company of $2.325 million. On October 16, 1995 the district
Court entered orders dismissing, with prejudice, all claims asserted by
Berisford International PLC's affiliates against the Company and SRL thereby
mooting the pending dismissal motions addressed to the pending counterclaims and
third party claims and dismissed, with prejudice, all claims asserted in SRL's
Third Amended Complaint against the Berisford defendants. Except for enforcing
settlement agreements with two settling defendants to collect the $650,000
required to be paid, each of the three above identified proceedings has been
resolved.
15
<PAGE>
ITEMS 2-5.
Inapplicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits required by Item 601 of Regulation S-K.
EXHIBIT NO. DESCRIPTION
----------- -----------
27 Financial Data Schedule
(b) No reports were filed on Form 8-K during the third quarter of 1995.
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: November 10, 1995
17
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<PAGE>
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<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM NORD
RESOURCES CORPORATION FORM 10-Q FOR THE THREE QUARTERS ENDED SEPTEMBER 30,
1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
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