<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 June 30, 1996
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 June 30, 1996: 19,838,408
<PAGE>
NORD RESOURCES CORPORATION
AND SUBSIDIARIES
INDEX
PAGE
NUMBER
------
PART I. FINANCIAL INFORMATION:
ITEM 1. Condensed Financial Statements:
Balance Sheets - June 30, 1996
and December 31, 1995 1
Statements of Operations - Quarter and Two
Quarters ended June 30, 1996 and 1995 2
Statements of Cash Flows -
Quarter and Two Quarters ended
June 30, 1996 and 1995 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, 3, 5. Inapplicable 15
ITEM 4. Submission of Matters to a Vote of
Security Holders 15
ITEM 6. Exhibits and Reports on Form 8-K 16
<PAGE>
NORD RESOURCES CORPORATION AND SUBSIDIARIES
CONDENSED BALANCE SHEETS
(In Thousands)
<TABLE>
<CAPTION>
ASSETS
------
JUNE 30, DECEMBER 31,
1996 1995
---------- ------------
<S> <C> <C>
CURRENT ASSETS:
Cash and Cash Equivalents $ 3,533 $ 6,054
Short Term Investments 6,820
Restricted Cash SRL 2,431
Accounts Receivable 6,391 5,541
Accounts Receivable - related party 12 9
Inventories - at lower of cost
(first-in, first-out) or market:
Finished and Semi-Finished 1,224 1,271
Supplies 2,108 1,725
-------- --------
3,332 2,996
Prepaid Expenses 930 459
-------- --------
TOTAL CURRENT ASSETS 21,018 17,490
RESTRICTED CASH AND INVESTMENTS 2,611 2,607
INVESTMENTS IN AND ADVANCES TO AFFILIATES 8,484 8,338
INVESTMENT IN SRL 65,292 63,517
PROPERTY, PLANT AND EQUIPMENT, net 33,194 34,374
OTHER ASSETS 9,976 9,584
-------- --------
$140,575 $135,910
-------- --------
-------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Accounts Payable $ 3,002 $ 2,705
Accounts Payable - related party 5,161 4,065
Accrued Expenses 2,095 2,132
Obligations to Lenders - SRL 21,916 23,458
Obligations in Default 2,759 2,991
Current Maturities of Long-Term Debt 232 190
-------- --------
TOTAL CURRENT LIABILITIES 35,165 35,541
LONG-TERM DEBT 1,520 1,520
OTHER LONG-TERM LIABILITIES 7,324 6,863
MINORITY INTEREST 2,067 3,023
STOCKHOLDERS' EQUITY:
Common Stock 198 158
Additional Paid-in Capital 68,097 58,137
Retained Earnings 26,369 30,833
Cumulative Foreign Currency Translation
Adjustment 282 282
Minimum Pension Liability (447) (447)
-------- --------
94,499 88,963
-------- --------
$140,575 $ 135,910
-------- --------
-------- --------
</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 TWO QUARTERS ENDED
JUNE 30 JUNE 30
-------------------- ---------------------
1996 1995 1996 1995
-------- -------- --------- ---------
<S> <C> <C> <C> <C>
REVENUES:
Sales $ 8,454 $ 9,857 $ 16,842 $ 20,134
Other Revenues 12 237 9
-------- -------- --------- ---------
TOTAL REVENUES 8,466 9,857 17,079 20,143
COSTS AND EXPENSES:
Cost of Sales 8,984 9,841 18,043 19,857
Selling, General &
Administrative Expenses 2,471 2,780 4,772 5,490
-------- -------- --------- ---------
TOTAL OPERATING COSTS &
EXPENSES 11,455 12,621 22,815 25,347
-------- -------- --------- ---------
(LOSS) FROM OPERATIONS (2,989) (2,764) (5,736) (5,204)
OTHER INCOME (EXPENSE):
Interest Income 240 205 385 336
Interest Expense (163) (198) (308) (345)
Provision for Impairment of
Investment in Rutile Segment (3,000)
Litigation Recoveries 400 150 400
Equity in Net Earnings of
Affiliate 85 454 88 245
Minority Interest 481 437 957 797
-------- -------- --------- ---------
TOTAL OTHER INCOME (EXPENSE) 643 1,298 1,272 (1,567)
-------- -------- --------- ---------
NET (LOSS) (2,346) (1,466) (4,464) (6,771)
NET (LOSS) PER COMMON AND
COMMON EQUIVALENT SHARE $ (.13) $ (.09) $ (.26) $ (.43)
-------- -------- --------- ---------
-------- -------- --------- ---------
AVERAGE SHARES 18,718 15,838 17,278 15,838
-------- -------- --------- ---------
-------- -------- --------- ---------
</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
-----------------------
1996 1995
-------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (Loss) $ (4,464) $ (6,771)
Adjustments to reconcile net (loss) to
net cash provided by operating activities:
Changes in Assets and Liabilities 158 3,649
Minority Interest (957) (797)
Depreciation, Depletion and Amortization 1,884 1,866
Provision for Impairment - Investment in SRL 3,000
Equity in Net (Earnings) loss of affiliate (88) (238)
-------- ---------
Net Cash Provided By (Used In) Operating Activities (3,467) 709
-------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital Expenditures (357) (357)
Additions to Other Assets (737) (565)
Purchase of Short-Term Investments (6,820)
Increase in Investments in and Advances
to Affiliates (58) (4)
Increase in Investment in SRL (887)
-------- ---------
Net Cash (Used In) Investing Activities (8,859) (926)
-------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Additional Indebtedness 50
Payment of Indebtedness (241) (262)
Restricted Cash and Investments (4) (7)
Issuance of Common Stock 10,000
-------- ---------
Net Cash Provided by (Used In) Financing Activities 9,805 (269)
-------- ---------
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS (2,521) (486)
CASH AND CASH EQUIVALENTS -
BEGINNING OF PERIOD 6,054 8,946
-------- ---------
CASH AND CASH EQUIVALENTS -
END OF PERIOD $ 3,533 $ 8,460
-------- ---------
-------- ---------
</TABLE>
See notes to condensed financial statements
3
<PAGE>
NORD RESOURCES CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED FINANCIAL STATEMENTS
QUARTERS ENDED JUNE 30, 1996 AND 1995
1. FINANCIAL STATEMENTS
--------------------
The balance sheet at December 31, 1995 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 recorded at
March 31, 1995 for impairment in 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 two quarters of 1996 are not necessarily
indicative of the results that may be expected for the entire year.
In October 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting
for Stock-Based Compensation," which was effective for the Company
beginning January 1, 1996. SFAS No. 123 requires expanded disclosures
of stock-based compensation arrangements with employees and encourages
(but does not require) compensation cost to be measured based on the
fair value of the equity instrument awarded. Companies are permitted,
however, to continue to apply APB Opinion No. 25, which recognizes
compensation cost based on the intrinsic value of the equity instrument
awarded. The Company will continue to apply APB Opinion No. 25 to its
stock based compensation awards to employees and will disclose the
required pro forma effect on net income and earnings per share in its
year end financial statements.
The Company has adopted Statement of Financial Accounting Standards
("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets To Be Disposed Of," which requires review for
impairment of long-lived assets whenever changes in circumstances
indicate that the carrying amount of the asset may not be recoverable.
The adoption of SFAS No. 121 has had no effect on the financial
statements at June 30, 1996.
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, 1995 annual report to shareholders.
4
<PAGE>
2. BASIS OF PRESENTATION
---------------------
The consolidated financial statements include the accounts of Nord
Resources Corporation, its majority-owned subsidiaries and its 50%
interest in a rutile mining operation ("SRL") (collectively the
"Company"). All significant intercompany transactions and balances are
eliminated.
SRL as used in these financial statements includes Sierra Rutile
Holdings, Sierra Rutile Limited (the mining operation) and other
subsidiaries of both the Company and Sierra Rutile Holdings that are
economically dependent on the mining operation. 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 in the consolidated balance
sheets.
Investments 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.
On an interim basis, all costs subject to recurring year-end
adjustments have been estimated and allocated ratably to the quarters.
Income taxes, if necessary, 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 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.
Certain reclassifications have been made to the June 30, 1995 financial
statements to conform to the classifications used in 1996. These
reclassifications had no effect on results of operations or
stockholders' equity as previously reported.
3. INVESTMENT IN SRL
-----------------
In January 1995, the Company's 50% owned rutile mining operation in
Sierra Leone was attacked by non-government forces. As a result, SRL
was forced to suspend mining operations and subsequently terminated all
nonessential personnel. The resumption of operations is dependent upon
many factors including existence of adequate security for SRL's
employees and the availability of adequate financing to pay for the
cost of resuming operations. Cost of resuming operations includes
5
<PAGE>
repair or replacement of assets which have incurred damage and
deterioration during the period of suspension of operations and costs
to reestablish and train a workforce, replenish supplies and restore
and recommission facilities. Until SRL personnel can perform a
detailed assessment of the condition of SRL's assets, it is not
possible to accurately estimate these costs. In addition, SRL will
likely continue to require funds to satisfy its obligations incurred
while mining is suspended. There is no certainty that adequate
financing would be available to fund the above noted costs, although
management of the Company, SRL and the other 50% owner of SRL are
engaged in discussions with potential financing sources. As a result
of the above, management of SRL cannot estimate when operations will
resume at the Sierra Leone mine.
Prior to December 31, 1994, the Company proportionately consolidated
its share in each of the assets, liabilities and operations of SRL. As
of December 31, 1994, the Company adopted the cost basis of accounting
for its investment in SRL because the mine was no longer controlled by
SRL. The Company's investment includes original cost plus
undistributed earnings through December 31, 1994 plus SRL obligations
to lenders, payment of which is guaranteed by the Company, less any
related restricted cash.
During the two quarters ended June 30, 1996 the Company contributed
$887,000 as its 50% share of funding for SRL's cash needs, primarily to
satisfy vendor payments and the limited ongoing operational needs of
SRL.
Summarized financial data for the Company's 50% share of SRL's
operations are as follows:
<TABLE>
<CAPTION>
Two Quarters Ended
June 30,
-------------------
1996 1995
------- -------
(in thousands)
<S> <C> <C>
Revenues $ 1,052 $ 1,939
Less Costs and Expenses:
Cost of Sales 255 1,527
Selling, General and Administrative 1,777 2,427
Costs Related to Mine Shutdown 2,348
Provision for Impairment 3,000
Other Expense 1,000 751
Income Tax Expense 24 78
------- -------
Net Income (Loss) $(2,004) $(8,192)
------- -------
------- -------
</TABLE>
Included in revenues for 1996 is $409,000 received in an insurance
settlement from claims made for costs related to the evacuation of the
SRL operations in Sierra
6
<PAGE>
Leone. Based on assessments of SRL's assets, an impairment reserve of
$3,000,000 was recorded in the first quarter of 1995 as the Company's
50% share of damage to assets. The Company will likely record an
additional impairment reserve when a more extensive damage assessment
can be performed. Although SRL will incur costs to restart the
operations, the amount of an additional impairment and costs to
restart the operations, cannot be estimated currently. If adequate
security in and around SRL's operations is not attainable or the
estimated costs of resuming SRL's operations in Sierra Leone are
prohibitive, the Company may have to record an impairment reserve
against a portion or possibly all of its investment in SRL.
4. MINORITY INTEREST
-----------------
The minority investor in Norplex, Inc. ("Norplex"), which owns 100% of
NKC, has an option to purchase an additional 31% interest in Norplex
from the Company for $36,000,000 through June 30, 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 $5,900,000 at December
31, 1995, if the investor had exercised the 31% option at that date.
Transactions with the minority investor in Norplex include raw material
purchases of $4,556,000 and $5,936,000 during the two quarters ended
June 30, 1996 and 1995, respectively.
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 have agreed to forebear from accelerating the
maturities of the loans or enforcing their rights against any
collateral until January 1, 1997 to allow SRL time to determine the
damage to the mining operations, assess the political situation in
Sierra Leone and develop and present a plan for refinancing,
rehabilitating and reopening the mining operation. The forebearance
agreement would terminate if there is a material change in
circumstances, including if certain actions are taken by the Company's
lessors as a result of current covenant violations under the leasing
agreements. As of June 30, 1996 and December 31, 1995, amounts due the
lenders by SRL have been classified in the balance sheet as a current
liability.
The financing agreements contain restrictive covenants relating to SRL
including
7
<PAGE>
requirements to maintain minimum current and debt coverage ratios and
a limit on indebtedness compared to net worth and a limit on the
amount of dividends. Additional covenants under these agreements
include restrictions on change of control of SRL and limitations on
additional indebtedness at SRL.
Separately, as part of the forebearance, and as security for its
guarantee, the Company has pledged proceeds it may receive from claims
made under a political risk insurance policy issued by an agency of the
United States government. The Company will be able to retain the first
$2.7 million of the proceeds. Any additional proceeds will be held in
trust and funds shall be released from the trust when the Company's 50%
share of the deferred principal payments have been made and no events
of default exist under the financing agreements.
6. LEASES
------
NKC entered into lease agreements under which $21.7 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 in the event of a covenant violation. 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 June 30, 1996. Although all the lessors
have not waived or modified the covenant the Company continues to
engage in ongoing discussions with the lessors and one lessor has
waived compliance with this covenant and the Company has received an
indication that certain of the remaining lessors may be willing to
waive the covenant violations and amend or modify the covenant. The
lessors have the ability to require liquidated damages ($13.3 million
at June 30, 1996 including the $3.2 million noted below) and could also
elect to retain ownership of the leased equipment. The Company cannot
predict that the lessors would agree to any modifications on terms
which would be acceptable to the Company nor their willingness to
continue to refrain from taking any action to enforce their rights
under the lease agreement in the event that a waiver or modification of
the covenant was not obtained.
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 June
30, 1996 the net book value of equipment leased under these capital
leases was $2.4 million, while $2.8 million of indebtedness was
outstanding. As a result of the lease covenant violation at June 30,
1996, the indebtedness outstanding under the capital leases has been
classified
8
<PAGE>
as an Obligation in Default and a current liability in the Condensed
Balance Sheet at June 30, 1996. The liquidated damages associated
with these capital leases was $3.2 million at June 30, 1996.
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. NET (LOSS) PER COMMON AND COMMON EQUIVALENT SHARE
-------------------------------------------------
Net (loss) per common share and common equivalent share is computed by
dividing net (loss) 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,
1996. Summary financial data for the operations of Nord Pacific
Limited for the periods are as follows:
TWO QUARTERS ENDED JUNE 30
--------------------------
1996 1995
--------- ---------
(in thousands)
Sales $ 7,079 $ 7,576
Less costs and expenses 6,135 5,609
Foreign currency transaction gain (loss) (22) (486)
Forward currency exchange contracts
gain (loss) 379 (888)
Copper contracts gain (loss) (265)
Other income (expense) (146) (93)
Provision for taxes (835) (94)
--------- ---------
Net earnings $ 55 $ 406
--------- ---------
--------- ---------
The Company's share of the net earnings for the two quarters ended June
30, 1996 and 1995 was $19,000 and $143,000, respectively.
9
<PAGE>
9. LITIGATION
----------
The Company has reached settlements with all defendants in SRL's action
against those allegedly responsible for certain allegedly improper and
fraudulent transactions against SRL which occurred prior to 1991. The
financial statements of the Company for the two quarters ended June 30,
1996 include a final payment of $150,000 in other income in connection
with these settlements.
10. STOCKHOLDERS' EQUITY
--------------------
On April 15, 1996 the Company sold 3,160,000 shares of Common Stock for
$7,900,000, or $2.50 per share to a private investor. Also on April
15, 1996 the Company entered into a loan agreement with the same
investor whereby $2,100,000 was loaned to the Company. The loan was
converted into 840,000 shares of the Company's Common Stock in June
1996.
At the Annual Meeting of Stockholders of the Company held in June 1996,
the number of authorized shares of Common Stock of the Company was
increased to 40,000,000 shares.
11. SUBSEQUENT EVENT
----------------
On July 10, 1996 NKC obtained a revolving line of credit from a
financial institution. The line is for a three year period with one
year renewal options and amounts borrowed under the line bear interest
at 2% above prime rate. The amount available under the line is equal
to 85% of eligible accounts receivable, as defined in the agreement, up
to $6,000,000. On July 10, 1996 NKC borrowed $3,000,000 under this
line. The line of credit is secured by accounts receivable, inventory
and equipment of NKC and contains an early termination fee.
10
<PAGE>
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
Cash decreased from $6.1 million at December 31, 1995 to $3.5 million at June
30, 1996. The Company's operating activities used $3.5 million in cash during
the first two quarters of 1996. The Company received $10 million from the
sale of securities to an investor and invested $6.8 million of the cash in
short-term investments. Cash of $737,000 was used for additions to other
assets, $357,000 was used for capital expenditures and $887,000 was advanced
to SRL during the first two quarters of 1996. The Company also paid $241,000
of indebtedness during the first two quarters of 1996. The Company's cash
flow from operating activities for the first two quarters of 1996 benefitted
from the receipt of $150,000 as payment relating to the settlement of
litigation.
The Company anticipates that its domestic (non-SRL) operations will have
sufficient cash to fund its activities during 1996. On July 10, 1996 NKC
obtained a $6,000,000 line of credit and borrowed $3,000,000 under this line.
In addition, the operations at NKC are projected to improve so that NKC could
generate cash to repay a portion of the advances previously made by the
Company. However, repayment of such advances would be prohibited under the
NKC lease agreements in the event that covenant violations continue. The NKC
line of credit also limits repayment of advances to the Company unless certain
financial conditions are met. This improvement in cash flow of the kaolin
segment is expected to result from increasing levels of sales of its Norplex-
Registered Trademark- line of products, the amount and timing of which cannot
be projected with any certainty. The Company also expects to be required to
fund SRL's operating cash needs as further described below.
On April 15, 1996 the Company sold 3,160,000 shares of Common Stock for
$7,900,000, or $2.50 per share to a private investor. Also on April 15, 1996
the Company entered into a loan agreement with the same investor whereby
$2,100,000 was loaned to the Company. The loan was converted into 840,000
shares of the Company's Common Stock in June 1996.
The Company expects that the $10 million received from this sale of securities
will provide sufficient cash for the Company's working capital needs
throughout 1996 to allow NKC to continue to establish a market for its
Norplex-Registered Trademark- products and to fund its share of the ongoing
costs of maintaining SRL until a plan is commenced for resuming its
operations. However, SRL's cash needs relating to a refurbishing of capital
equipment and a restart of operations is likely to cause the Company to seek
additional sources of funds during 1996. These sources could include proceeds
from claims filed under the Company's political risk insurance policies
(currently limited to $2.7 million available to the Company under the bank
financing agreements) or obtaining external funding at SRL to reduce demands
on the
11
<PAGE>
Company's cash balances. However, the Company cannot determine if any
financing sources would be available at terms acceptable to the Company and
SRL. Unless the Company is successful in obtaining additional funding, its
cash reserves would be inadequate for it to fund the costs for SRL to resume
its operations or to satisfy any demands for payment from the NKC's lessors
or from SRL's lenders as described below.
The Company has filed an initial claim for damage due to political violence at
SRL under one of its political risk insurance policies. Additional claims are
likely to be filed as more information becomes available as to damage at the
SRL mine and the cost to repair equipment. The Company continues to discuss
the propriety of receiving advance payments with the insurer; however, it is
not able to estimate the amount or timing of payments which may be received
due to claims under this policy. The Company has pledged any proceeds in
excess of $2.7 million it may receive under this policy as security under the
bank financing agreements.
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 have
agreed to forebear from accelerating the maturities of the loans or enforcing
their rights against any collateral until January 1, 1997 to allow SRL time to
determine the damage to the mining operations, assess the political situation
in Sierra Leone and develop a plan for refinancing, rehabilitating and
reopening the mining operation. The forebearance agreement would terminate if
there is a material change in circumstances, including if certain actions are
taken by NKC's lessors as a result of current covenant violations under the
leasing agreements. As of June 30, 1996 and December 31, 1995, amounts due
the lenders by SRL have been classified in the balance sheet as a current
liability.
Due to the lengthy suspension of its production, SRL has been and will
continue to be relying on funds from the Company and its other 50% owner to
sustain operations. In addition, SRL will need to seek funds through
additional bank financing or from other undetermined sources when a decision
is made to resume operations in Sierra Leone. SRL is unable to determine the
amount of funds which will be required for this purpose or if adequate funds
would be available from undetermined sources on conditions acceptable to SRL
and the Company.
Payments under lease agreements at NKC are guaranteed by the Company. The
guarantee requires the Company to maintain minimum levels of tangible net
worth compared to total liabilities and of 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 its owners and limitations on the
repayment of advances previously made by the Company to NKC in the event of a
covenant violation. At June 30, 1996, the Company was in violation of the
cash flow covenant and has requested a waiver of the covenant from the NKC
lessors. Although the Company has not received a waiver of the covenant from
all the lessors, the Company is engaged in ongoing discussions with the
lessors and one lessor has waived compliance with this covenant and the
Company has received an
12
<PAGE>
indication that certain of the other lessors may be willing to waive the
covenant violations and amend or modify the covenant. The lessors have the
ability to require liquidated damages ($13.3 million at June 30, 1996) and
could also elect to retain ownership of the leased equipment. The Company
cannot predict whether or not lessors would agree to any modifications on
terms which would be acceptable to the Company or their willingness to
continue to refrain from taking any action to enforce their rights under the
lease agreement in the event that a waiver or modification of the covenant
was not obtained.
RESULTS OF OPERATIONS
- ---------------------
The Company incurred a net loss for the two quarters ended June 30, 1996 of
$4.5 million compared to $6.8 million in 1995. The net loss for the quarter
ended June 30, 1996 was $2.3 million compared to $1.5 million in 1995. Since
the Company has adopted the cost basis of accounting for its investment in the
rutile segment, the results for 1996 and 1995 do not include any amounts
relating to its operations; however, the Company recorded a $3.0 million
impairment against its investment in the rutile segment in the first quarter
of 1995. The kaolin segment reported an increase in operating loss in 1996
compared to 1995 as a result of a decrease in revenue and an increase in
certain raw material costs in 1996 compared to 1995. The Company recorded
$88,000 as its share of earnings from Nord Pacific for the two quarters of
1996 compared to $245,000 for the two quarters of 1995. Interest expense in
the first two quarters of 1996 was comparable to 1995. An analysis of the
changes in revenues, cost of sales and operating earnings (before interest and
income taxes) for the kaolin segment ("NKC") is contained below.
Revenues decreased to $16.8 million in the two quarters ended June 30, 1996
compared to $20.1 million during the same period of 1995. Revenues for the
quarter ended June 30, 1996 were $8.5 million compared to $9.9 million during
the same period in 1995. Revenues and tons sold for the Company's Norcal-
Registered Trademark- and Norplex-Registered Trademark- products decreased in
the 1996 periods compared to 1995. The Company's conventional products had
decreases in revenues and tons sold in the two quarters ended June 30, 1996
compared to 1995 although revenues and tons sold improved slightly in the
second quarter of 1996 compared to the same period in 1995. NKC has been
affected by weak demand for its products which began in the fourth quarter of
1995. The paper industry, which comprises the market for NKC's products, has
been particularly stagnant with lesser demand for paper products resulting in
mill down time and a weaker demand for NKC's products. Although the demand
for Norplex-Registered Trademark- products has been affected by these economic
conditions, the number of Norplex-Registered Trademark- customers remains
constant and the trialing activity of the Norplex-Registered Trademark-
products is continuing.
Cost of sales as a percentage of sales was 107% and 106% for the first two
quarters and second quarter of 1996 compared to 98% and 100% for the same
periods in 1995, due primarily to the aforementioned decrease in sales revenue
and also increases in the cost of certain raw materials.
13
<PAGE>
As a result of the above, an operating loss of $3.4 million and $1.7 million
was incurred during the first two quarters and second quarter of 1996 compared
to $2.7 million and $1.5 million during the same periods of 1995.
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 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 and
continuing into the first half of 1996, lower sales volumes of Norplex-
Registered Trademark-, Norcal-Registered Trademark- and conventional products
and higher cost of production caused increased operating losses. This weak
demand for NKC's products is a direct result of high inventories and sluggish
demand in the paper industry. The Company expects the aforementioned weak
market for NKC's products to continue into the second half of 1996 with some
potential for improvement in the fourth quarter. NKC is attempting to
increase sales volume of Norcal until such time as the volume of Norplex-
Registered Trademark- products is at a level to generate adequate operating
earnings. However, until the level of Norplex-Registered Trademark- sales
volume and prices improve, NKC will 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. However,
NKC continues to anticipate additional conversions of customers to the
Norplex-Registered Trademark- products and future testing and conversion at a
number of different customer locations which, if successful, would likely
benefit future operating results.
14
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
-----------------
Reference is made to the Company's Form 10-K for the fiscal year ended
December 31, 1995 for a discussion of certain litigation, which has been
settled, involving the Company's 50% owned subsidiary, Sierra Rutile Limited.
ITEMS 2, 3, 5.
- --------------
Inapplicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
---------------------------------------------------
The Annual Meeting of Stockholders of the Company was held on June 4, 1996.
The following proposals were approved at the Annual Meeting:
1. To amend the Company's Certificate of Incorporation to increase
the authorized Common Stock of the Company from 25,000,000 shares
to 40,000,000 shares.
Votes For - 14,016,656
Votes Against - 2,136,117
Votes Withheld - 0
Abstentions - 63,155
Broker Non-Votes - 0
2. To convert a $2,100,000 loan into 840,000 shares of Common Stock.
(Only 15,838,408 shares were initially eligible to vote on this
proposal. In addition, broker non-votes were not included in the
number of shares eligible to vote on this proposal).
Votes For - 5,936,823
Votes Against - 1,108,960
Votes Withheld - 0
Abstentions - 59,926
Broker Non-Votes - 5,950,219
15
<PAGE>
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
The Financial Data Schedule is filed herewith as part of this report on
Form 10-Q.
(b) The Company filed a report on Form 8-K dated April 15, 1996 reporting
the sale of stock and execution of a loan agreement with a private
investor.
16
<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 12, 1996
17
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM NORD
RESOURCES CORPORATION FORM 10-Q FOR THE TWO QUARTERS ENDED JUNE 30, 1996 AND IS
QUALIFIED IN ITS ENTIRETY TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 3533
<SECURITIES> 6820
<RECEIVABLES> 6403
<ALLOWANCES> 0
<INVENTORY> 3332
<CURRENT-ASSETS> 21018
<PP&E> 64640
<DEPRECIATION> 31446
<TOTAL-ASSETS> 140,575
<CURRENT-LIABILITIES> 35,165
<BONDS> 1520
0
0
<COMMON> 198
<OTHER-SE> 94301
<TOTAL-LIABILITY-AND-EQUITY> 140575
<SALES> 16842
<TOTAL-REVENUES> 17079
<CGS> 18043
<TOTAL-COSTS> 22815
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 308
<INCOME-PRETAX> (4464)
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<INCOME-CONTINUING> (4464)
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<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4464)
<EPS-PRIMARY> (.26)
<EPS-DILUTED> 0
</TABLE>
