<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------------
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): April 1, 1998
IMC GLOBAL INC.
(Exact name of registrant as specified in charter)
Delaware 1-9759 36-3492467
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
2100 Sanders Road, Northbrook, IL 60062
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (847) 272-9200
<PAGE>
Item 2. Acquisition or Disposition of Assets.
On April 1, 1998, IMC Global Inc. (IMC) acquired (i) Harris
Chemical Group, Inc. (HCG) pursuant to an Agreement and Plan of
Merger dated as of December 11, 1997 by and among IMC and IMC
Merger Sub Inc. (Merger Agreement) and (ii) all of the outstanding
shares of capital stock of Harris Chemical Australia Pty Ltd.
(Penrice, and together with HCG, Harris) pursuant to a Sale and
Purchase Agreement, Penrice Group of Companies dated as of December
11, 1997 among Prudential Asset Management Asia Limited, DGHA
Persons and Trust, Search Investment NV, Marsupial L.L.C.,
Marsupial - II L.L.C., Soda Ash (L) BHD, Manager Shareholders named
therein, HCA and IMC (Penrice Agreement and together with the
Merger Agreement, Acquisition Agreements) (collectively, Harris
Acquisition).
As contemplated by the Merger Agreement, IMC Merger Sub Inc., a
wholly-owned subsidiary of IMC, was merged with and into HCG with
HCG being the surviving corporation and continuing as a
wholly-owned subsidiary of IMC under the name IMC Inorganic
Chemicals Inc. Under the Penrice Agreement, IMC acquired, directly
or indirectly, all outstanding capital stock of HCA which will
continue under the name Penrice Holding.
Pursuant to the Acquisition Agreements, IMC acquired Harris for
an aggregate purchase price of $450 million in cash and the
assumption of approximately $950 million of Harris debt. IMC
funded the cash portion of the Harris Acquisition through its
borrowing capabilities.
Harris is a producer and marketer of inorganic chemical and
extractive mineral products with primary manufacturing sites in
North America, Europe and Australia. IMC intends to continue to
put the Harris assets it is acquiring to the same use. Its
principal products are salt, sodium-based chemicals, including soda
ash and sodium bicarbonate, sulfate of potash, boron chemicals and
other inorganic chemicals. Harris projects 1998 annual sales to be
approximately $850 million.
Item 7. Financial Statements, Pro Forma Financial Information and
Exhibits.
(a) The Harris Chemical Group, Inc. and Subsidiaries financial
statements as of March 29, 1997 and March 30, 1996 and the related
statements of operations and cash flows for each of the three years
in the period ended March 29, 1997 are set forth in this Current
Report on Form 8-K/A. Additionally, the Harris Chemical Group,
Inc. and Subsidiaries financial statements as of March 29, 1997 and
March 30, 1996 and the related statements of operations and cash
flows for each of the thirty-nine week periods ended March 29, 1997
and March 30, 1996 are set forth in this Current Report on Form
8-K/A.
The Penrice Australia Pty Ltd. & Its Controlled Entities
financial statements as of June 30, 1997 and 1996 and the related
statements of operations and cash flows for each of the three years
in the period ended June 30, 1997, stated in Australian dollars,
the reporting currency, are set forth in this Current Report on
Form 8-K/A. Additionally, the Penrice Australia Pty. Ltd. & Its
Controlled Entities financial statements as of March 31, 1998 and
1997 and the related statements of operations and cash flows for
each of the nine month periods ended March 31, 1998 and 1997,
stated in Australian dollars, the reporting currency, are set forth
in this Current Report on Form 8-K/A.
The Australian dollar exchange rates applicable to the
financial statements presented herein are provided in the table
below.
<PAGE>
Financial Statement Balance Sheet Rate Respective Average
Rate
- ------------------ ------------------ --------------------
- ---
June 30, 1996 .7880 .7916
June 30, 1997 .7539 .7830
March 31, 1997 .7856 .7875
March 31, 1998 .6623 .6983
<PAGE>
<TABLE>
HARRIS CHEMICAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands)
Unaudited
<CAPTION>
Thirty-nine Weeks Ended
December 27, December 28,
------------------------
1997 1996
---- ----
<S> <C> <C>
Net sales $496,640 $483,602
Cost of sales 380,186 371,036
-------- --------
Gross profit 116,454 112,566
Selling, general and administrative
expenses 58,952 56,792
-------- --------
Operating income 57,502 55,774
Other income (expense):
Interest expense (85,929) (78,406)
Foreign currency translation loss (862) (749)
Other, net 592 (620)
-------- --------
Income (loss) before taxes (28,697) (24,001)
Provision for income taxes 4,402 5,918
-------- --------
Net (loss) (33,099) (29,919)
Preferred stock dividend
requirements (2,574) (2,223)
-------- --------
Net (loss) attributable to
common stockholders $(35,673) $(32,142)
======== ========
</TABLE>
The accompanying notes are an integral part of the financial
statements.
<PAGE>
<TABLE>
HARRIS CHEMICAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the three fiscal years ended March 29, 1997
(in thousands)
<CAPTION>
FY 1995 FY 1996 FY 1997
-------- -------- --------
<S> <C> <C> <C>
Net sales $590,579 $649,997 $705,578
Cost of sales 449,444 480,570 528,299
-------- -------- --------
Gross profit 141,135 169,427 177,279
Selling, general and administrative
expenses 73,167 84,918 80,752
Asset impairment charge - 7,044 -
-------- -------- --------
Operating income 67,968 77,465 96,527
Other income (expense):
Interest expense (82,913) (95,005) (107,626)
Foreign currency translation loss(2,111) (1,703) (2,278)
Other, net 5,285 4,667 4,514
-------- -------- --------
Income (loss) before taxes,
minority interest and
discontinued operations (11,771) (14,576) (8,863)
Provision for income taxes 12,291 12,956 13,800
-------- -------- --------
Income (loss) before minority
interest and discontinued
operations (24,062) (27,532) (22,663)
Minority interest in net income
and preferred dividends of
subsidiary 6,906 3,905 -
-------- -------- --------
Income (loss) before discontinued
operations (30,968) (31,437) (22,663)
Loss from discontinued operations, net
of tax expense of $202 in 1995 (6,069) (2,224) -
Loss on disposal of discontinued
operations - (6,371) -
-------- -------- --------
Net (loss) (37,037) (40,032) (22,663)
Preferred stock dividend requirements - (1,035) (3,080)
-------- -------- --------
Net (loss) attributable to common
stockholders $(37,037) $(41,067) $(25,743)
======== ======== ========
</TABLE>
The accompanying notes are an integral part of the financial
statements.
<PAGE>
<TABLE>
HARRIS CHEMICAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(in thousands)
Unaudited
<CAPTION>
December 27,
ASSETS 1997
- -------------------------------------------------------------------
- --
<S> <C>
Current assets:
Cash and cash equivalents $ 6,500
Trade accounts receivable, less allowance for doubtful
accounts of $3,187 at December 31, 1997 158,718
Other receivables 18,236
Inventories 133,648
Deferred income taxes 7,116
Other 7,710
--------
Total current assets 331,928
Property, plant and equipment, net 438,312
Goodwill 39,900
Deferred financing costs, net 26,881
Other 21,121
--------
Total assets $858,142
========
LIABILITIES AND STOCKHOLDERS' DEFICIT
- -------------------------------------------------------------------
- ---
Current liabilities:
Current portion of long-term debt $ 38,874
Accounts payable 95,572
Accrued expenses 33,101
Accrued interest 26,589
Accrued salaries and wages 13,925
Income taxes payable 7,213
--------
Total current liabilities 215,274
Long-term debt, net of current portion 909,256
Deferred income taxes 34,472
Other noncurrent liabilities 35,936
Mandatory redeemable preferred stock 37,740
Commitments and contingencies
Common stockholder's deficit:
Common stock, at par 13
Additional paid-in capital 82,334
Cumulative translation adjustment 469
Accumulated deficit (455,397)
Treasury stock, at cost (1,955)
--------
Total common stockholders' deficit (374,536)
--------
Total liabilities and stockholders' deficit $858,142
========
</TABLE>
The accompanying notes are an integral part of the financial
statements.
<PAGE>
<TABLE>
HARRIS CHEMICAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
As of March 30, 1996 and March 29, 1997
(in thousands)
<CAPTION>
March 30, March 29,
ASSETS 1996 1997
- -------------------------------------------------------------------
- ----------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 23,020 $ 20,735
Trade accounts receivable, less
allowance for doubtful accounts of
$2,804 at March 30, 1996 and $2,336
at March 29, 1997 136,160 155,291
Other receivables 14,540 14,013
Inventories 114,826 97,413
Deferred income taxes 6,235 6,019
Other 7,866 17,411
-------- --------
Total current assets 302,647 310,882
Property, plant and equipment, net 474,384 461,324
Goodwill 38,304 38,038
Deferred financing costs, net 29,584 30,864
Other 20,473 22,725
-------- --------
Total assets $865,392 $863,833
======== ========
LIABILITIES AND STOCKHOLDERS' DEFICIT
- -------------------------------------------------------------------
- ----------
Current liabilities:
Current portion of long-term debt $ 21,273 $ 29,946
Accounts payable 88,111 98,292
Accrued expenses 37,352 35,270
Accrued interest 24,341 23,902
Accrued salaries and wages 14,207 16,325
Income taxes payable 9,606 7,327
-------- --------
Total current liabilities 194,890 211,062
Long-term debt, net of current portion 897,294 879,379
Deferred income taxes 28,974 33,800
Other noncurrent liabilities 29,707 44,953
Mandatory redeemable preferred stock 32,086 35,166
Commitments and contingencies
Common stockholder's deficit:
Common stock, at par 13 13
Additional paid-in capital 82,334 82,334
Cumulative translation adjustment (4,046) (1,194)
Accumulated deficit (393,982) (419,725)
Treasury stock, at cost (1,878) (1,955)
-------- --------
Total common stockholders' deficit(317,559) (340,527)
-------- --------
Total liabilities and stockholders'
deficit $865,392 $863,833
======== ========
</TABLE>
The accompanying notes are an integral part of the financial
statements.
<PAGE>
<TABLE>
HARRIS CHEMICAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Unaudited
<CAPTION>
Thirty-nine Weeks Ended
December 27, December 28,
---------------------
1997 1996
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net loss $(33,099) $(29,919)
Adjustments to reconcile net earnings
to net cash provided by operating
activities:
Depreciation and operating amortization 54,74460,954
Finance fee amortization 5,491 3,963
Deferred income taxes (343) 1,420
Other (15,388) 821
Changes in operating assets and
liabilities:
Receivables (2,820) (12,704)
Inventories (36,240) (21,222)
Other assets 5,059 (3,248)
Accounts payable and accrued expenses(5,062)(28,291)
-------- --------
Net cash used in operating activities(27,658)(28,227)
-------- --------
Cash flows from investing activities:
Capital expenditures (23,295) (29,402)
Capitalized interest (195) (86)
Proceeds from sales of property,
plant and equipment 839 362
Other - (1,320)
-------- --------
Net cash used in investing
activities (22,651) (30,446)
-------- --------
Cash flows from financing activities:
Revolver borrowings 105,435 190,186
Revolver payments (70,000) (233,291)
Issuance of long-term debt 1,883 64,397
Prepayment of deferred revenue - 23,152
Other 1,162 (7,227)
-------- --------
Net cash provided by financing
activities 36,156 37,217
-------- --------
Effect of exchange rate changes on cash(82) (132)
-------- --------
Net decrease in cash (14,235) (21,552)
Cash and cash equivalents,
beginning of period 20,735 23,020
-------- --------
Cash and cash equivalents,
end of period $ 6,500 $ 1,432
-------- --------
</TABLE>
The accompanying notes are an integral part of the financial
statements.
<PAGE>
<TABLE>
HARRIS CHEMICAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the three fiscal years ended March 29, 1997
(in thousands)
<CAPTION>
FY 1995 FY 1996 FY 1997
------- ------- -------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $(37,037)$ (40,032)$(22,663)
Adjustments to reconcile net loss
to net cash flows from operating
activities:
Depreciation 61,540 66,004 61,551
Finance fee amortization 5,163 6,191 7,510
Operating amortization 2,400 1,838 4,951
Accreted interest 21,882 19,362 1,280
Deferred income taxes 4,809 5,354 4,615
Unrealized foreign currency
transaction losses (gains) 2,611 (3,028) (6,396)
Loss on disposal of discontinued
operations - 6,371 -
Losses on disposal of property,
plant and equipment 106 218 1,218
Asset impairment charge - 7,044 -
Minority interests 6,906 3,905 -
Other (1,621) 139 436
Changes in operating assets and
liabilities:
Receivables 11,466 (13,062) (20,399)
Inventories (13,674) (9,443) 15,517
Other assets 243 (2,289) (8,908)
Accounts payable 12,481 (21,025) 16,643
Accrued expenses and other
noncurrent liabilities 2,857 3,147 (8,590)
-------- -------- --------
Net cash provided by operating
activities 80,132 30,694 46,765
-------- -------- --------
Cash flows from investing activities:
Capital expenditures (51,517) (46,610) (42,109)
Capitalized interest (3,037) (4,230) (1,244)
Proceeds from sales of property,
plant and equipment 1,408 554 867
Acquisition of minority interest - (49,671) -
Other 171 (1,730) (881)
Acquisition of treasury stock - (763) (77)
-------- -------- --------
Net cash used in investing
activities (52,975) (102,450) (43,444)
-------- -------- --------
Cash flows from financing activities:
Revolver borrowings 172,545 159,204 212,620
Revolved payments (190,980) (120,287) (285,745)
Issuance of long-term debt 6,377 109,648 98,152
Principal payments on other long-term
debt, including capital leases (17,839) (38,957) (23,435)
Capitalized finance costs (964) (6,608) (7,289)
Issuance of capital stock 3,354 - -
Redemption of preferred stock - (19,110) -
Dividends paid (1,895) (1,940) -
-------- -------- --------
Net cash provided by (used in)
financing activities (29,402) 81,950 (5,697)
-------- -------- --------
Effect of exchange rate changes
on cash 165 445 91
-------- -------- --------
Net increase (decrease) in cash (2,080) 10,639 (2,285)
Cash and cash equivalents,
beginning of period 14,461 12,381 23,020
-------- -------- --------
Cash and cash equivalents,
end of period $ 12,381 $ 23,020 $ 20,735
======== ======== ========
Supplemental cash flow information:
Interest paid including capitalized
interest $ 59,957 $ 72,088 $103,295
Income taxes paid 3,359 5,599 11,737
Supplemental disclosure of noncash
activities:
Assets acquired under capital leases$ 6,066$ 6,316 $ 7,939
Acquisition (Note 9) - 9,008 -
The accompanying notes are an integral part of the financial
statements.
</TABLE>
<PAGE>
HARRIS CHEMICAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Organization
------------
Harris Chemical Group, Inc. is a producer and marketer of
inorganic chemical and extractive mineral products with primary
manufacturing sites in North America and affiliated businesses in
Europe. Its principal products are salt, sodium-based chemicals
including soda ash and sodium bicarbonate, sulfate of potash, and
boron chemicals. Together, these businesses serve a variety of
markets, including agriculture, food processing, the chemical
process industry, glass manufacturing and highway de-icing.
The consolidated financial statements include the consolidated
accounts of: Harris Chemical Group, Inc. (HCG) and its
wholly-owned subsidiaries, Harris Chemical Group Europe, Inc.
(HCGE), Harris Chemical Europe, Limited (HCEL) and Harris
Chemical North America, Inc. (Harris) and its wholly-owned
subsidiaries, North American Chemical Company (NACC), NAMSCO Inc.
(NAMSCO) and its wholly owned-subsidiaries, North American Salt
Company (NASC) and Sifto Canada Inc. (Sifto), and GSL Corporation
(GSL) and its wholly-owned subsidiary Great Salt Lake Minerals
Corporation (GSLMC). HCG and its direct and indirect
subsidiaries are collectively referred to as the "Company."
In December 1995, the Board of Directors of HCG, NAMSCO (UK),
Ltd. (NUK), a company with salt operations in the United Kingdom
(Salt Union Limited or SUL), and Harris Inorganic Chemicals B.V.
(HIC), a private company in The Netherlands with soda ash
operations in Germany (Matthes + Weber GmbH or M&W) and boron
operations in Italy (Societa Chimica Larderello S.p.A. or SCL),
each approved a plan to consolidate the ownership of HCG, NUK and
HIC (the Consolidation). As a result of the Consolidation, NUK
and HIC became subsidiaries of HCEL, a newly formed entity, and
all of the exchanging NUK Shareholders and HIC Stockholders were
issued shares of HCG capital stock in exchange for their shares
of capital stock of NUK and HIC.
In connection with the Consolidation, (i) previously
outstanding NUK preferred stock was redeemed for $21,350,000,
including accumulated dividends, (ii) certain minority NUK
stockholders were paid approximately $48,500,000 for their NUK
shares, and (iii) HCG acquired all of the remaining issued and
outstanding shares of capital stock of NUK from NUK Stockholders
in exchange for the issuance by HCG of 31,051 shares of
Convertible Preferred Stock of HCG and 194,745 shares of HCG
Class C Common Stock (the HCG-NUK Share Exchange). The
Consolidation has been accounted for as a pooling of interests
with a purchase of minority interests. Minority interest in the
equity and earnings of NUK was recorded prior to the
Consolidation in December 1995. The excess of the purchase price
over the recorded value of minority interest of approximately
$39,000,000 was recorded as goodwill and is being amortized over
a 15 year period.
In addition, HCG acquired all of the issued and outstanding
shares of capital stock of HIC from HIC Shareholders in exchange
for the issuance by HCG of 42,424 shares of HCG Class C Common
Stock and 28,282 shares of HCG Class D Common Stock (the HCG-HIC
Stock exchange). The HCG-HIC Stock Exchange has been accounted
for as a pooling of interests.
Immediately after the consummation of the HCG-NUK and the
HCG-HIC Exchanges, HCG transferred and assigned to HCEL, as a
contribution to the capital of HCEL and in exchange for
additional shares of HCEL, all of the outstanding shares of
capital stock of NUK and HIC held by HCG.
2. Summary of Significant Accounting Policies
------------------------------------------
Management Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
Basis of Consolidation
The consolidated financial statements include the consolidated
accounts of HCG and its majority owned domestic and foreign
subsidiaries. All significant intercompany balances and
transactions have been eliminated in consolidation.
Foreign Currency Translation
Assets and liabilities are translated into U.S. dollars at
year-end exchange rates. Revenues and expenses are translated
using the average rates of exchange for the year. Adjustments
resulting from the translation of a foreign currency financial
statement into the reporting currency, U.S. dollars, are made
directly to a separate component of common stockholder's equity.
Exchange gains and losses from transactions denominated in a
currency other than a company's functional currency are included
in income.
Fiscal Year-End
The Company has adopted a 52-53 week fiscal year (FY) ending on
the last Saturday in March except for European corporations whose
fiscal years end on March 31. FY's 1997 and 1995 include 52
weeks and FY 1996 includes 53 weeks.
Cash and Cash Equivalents
The Company considers all investments with original maturities
of three months or less to be cash equivalents. The Company
maintains the majority of its cash in bank deposit accounts with
several commercial banks with high credit ratings in the U.S.,
Canada and Europe. The Company does not believe it is exposed to
any significant credit risk on cash and cash equivalents.
Inventories
Inventories are stated at the lower of cost or market. Raw
materials and supply costs are determined by either the first-in,
first-out (FIFO) or the average cost method. Finished goods
costs are determined by either the last-in, first-out (LIFO) or
average cost method.
Revenue Recognition
Revenue is recognized by the Company upon the transfer of title
to the customer, which is generally at the time product is
shipped.
Property, Plant and Equipment
Property, plant and equipment, including assets under capital
leases, are stated at cost and include interest on funds borrowed
to finance construction. The costs of replacement or renewals
which improve or extend the life of existing property are
capitalized. Maintenance and repairs are expensed as incurred.
The costs of certain major maintenance projects are accrued
ratably over the periods prior to the next scheduled maintenance
project. Depreciation and amortization are provided on the
straight-line method over the following estimated useful lives:
Land improvements 5 to 25 years
Buildings and improvements 10 to 40 years
Machinery and equipment 3 to 20 years
Solar ponds complex 10 to 20 years
Rolling stock and track 15 to 25 years
Furniture and fixtures 3 to 10 years
Deferred Financing Costs
Deferred financing costs are net of accumulated amortization of
$13,613,000 in FY 1996 and $20,303,000 in FY 1997. Deferred
financing costs are amortized using the effective interest rate
method over the term of the related debt.
Income Taxes
HCG files consolidated federal income tax returns with Harris
and its U.S. subsidiaries. Under the Tax Sharing Agreement,
Harris generally agrees to reimburse HCG in amounts designed to
approximate the amount of income taxes that Harris and its
wholly-owned subsidiaries (other than Sifto) would have paid had
they filed consolidated federal income tax returns (and analogous
state and local returns) separate from HCG. The foreign
subsidiaries file separate foreign income tax returns in their
respective countries of operation.
The Company accounts for income taxes using the liability
method in accordance with the provisions of Statement of
Financial Accounting Standards No. 109, "Accounting for Income
Taxes" (SFAS 109). Under the liability method, deferred taxes
are determined based on the differences between the financial
statement and the tax basis of assets and liabilities using
enacted tax rates in effect in the years in which the differences
are expected to reverse.
Environmental Costs
Environmental costs, other than those of a capital nature, are
accrued at the time the exposure becomes known and costs can
reasonably be estimated. Costs are accrued based upon
management's estimates of all direct costs, after taking into
account reimbursement by third parties (primarily the sellers of
acquired businesses), and are reviewed by outside consultants.
Environmental costs are charged to expense unless a settlement
with an indemnifying party has been reached. Reimbursement of
costs previously expensed is recorded as a reduction of operating
expense when settlement with the indemnifying party is reached.
The Company does not accrue liabilities for unasserted claims
that are not probable of assertion, nor does it provide for
environmental clean-up costs, if any, at the end of the useful
lives of its facilities because, given the long lives of its
mineral deposits, it is not practical to estimate such costs.
Reclassifications
Certain reclassifications have been made to the prior years'
financial statements to conform with the current year
presentation.
3. Inventories
-----------
Inventories are stated at the lower of cost or market, and
consist of the following (in thousands):
March 30, 1996 March 29, 1997
------------- --------------
Finished goods $ 74,793 $ 59,808
Raw materials and supplies 40,033 37,605
-------- --------
$114,826 $ 97,413
======== ========
As of March 30, 1996 and March 29, 1997, approximately 45
percent of finished goods inventories are valued at LIFO. The
excess of LIFO costs over the current cost of inventories based
upon the LIFO method (and after lower of cost or market
adjustments) was $2,819,000 at March 30, 1996 and $3,402,000 at
March 29, 1997.
4. Property, Plant & Equipment
---------------------------
Property, plant and equipment consists of the following (in
thousands):
March 30, 1996 March 29, 1997
------------- --------------
Land and buildings $ 89,761 $128,499
Machinery and equipment 537,717 601,410
Solar ponds complex 33,068 33,233
Rolling stock and track 7,332 7,464
Furniture and fixtures 10,557 9,248
Construction in progress 78,830 25,108
-------- --------
757,265 804,962
Less accumulated depreciation282,881 343,638
-------- --------
$474,384 $461,324
In April, 1996, the Company discontinued production at a
section of its facility located in Searles Valley, California.
The shutdown was an element of the Company's strategic capital
expenditure program to increase soda ash production and reduce
boron and soda ash production costs. The amount of the loss due
to the discontinued production was $7.0 million which is
reflected as a charge against operating income as of March 30,
1996. To the extent that assets were no longer of any use to
other production facilities at the Searles Valley location, they
were written off in their entirety as they represent no
additional value to the Company. For those assets which can be
used by other production facilities, the values were transferred
to those facilities at their net book value as of March 30, 1996.
In connection with Argus Utilities Financing (see Note 6), the
Company extended the useful lives of Argus Utilities plant and
equipment with a net book value of $28.2 million to 15 years to
match the terms of the lease. This revision in useful lives
reduced depreciation expense and the net loss by $6.5 million in
FY 1997.
5. Income Taxes
------------
The income tax provisions for FYs 1995, 1996 and 1997 consist
of the following (in thousands):
FY 1995 FY 1996 FY 1997
------- ------- -------
Current:
Federal $ - $ 50 $ 465
State - 150 760
Foreign income 5,439 6,618 4,425
Foreign mining 2,391 984 3,050
------- ------- -------
Total current 7,830 7,802 8,700
------- ------- -------
Deferred:
Federal (11,417) (14,362) (14,744)
State (2,635) (3,314) (3,420)
Foreign income 576 2,600 2,810
Foreign mining 767 1,032 535
Increase in unrecognized net
operating loss carryforward 17,170 19,198 19,919
------- ------- -------
Total deferred 4,461 5,154 5,100
------- ------- -------
Total provision for income taxes$12,291 $12,956 $13,800
======= ======= =======
The sources of income (loss) before taxes, minority interests
and discontinued operations are as follows (in thousands):
FY 1995 FY 1996 FY 1997
------- ------- -------
United States $(32,859) $(32,432) $(31,733)
Foreign 21,088 17,856 22,870
-------- -------- --------
Income (loss) before taxes $(11,771) $(14,576) $ (8,863)
======== ======== ========
The Company does not provide U.S. federal income taxes on
undistributed earnings of foreign subsidiaries that are not
currently taxable in the United States. No undistributed
earnings of foreign subsidiaries were subject to U.S. income tax
in FY 1995, FY 1996 or FY 1997. Total undistributed earnings on
which no U.S. federal income tax has been provided were $61.8
million at March 29, 1997. If these earnings are distributed,
foreign tax credits may become available under current law to
reduce or possibly eliminate the resulting U.S. income tax
liability.
The principal difference between the statutory U.S. federal
income tax rate and the effective income tax rate relates
principally to the tax effect of domestic and certain foreign
operating losses for which a tax benefit is not recoverable
(change in valuation allowance), and foreign mining taxes.
Reconciliation of the U.S. statutory federal income tax rate to
the effective income tax rate is as follows:
FY 1995 FY 1996 FY 1997
------- ------- -------
U.S. federal statutory tax rate 35.0% 35.0% 35.0%
U.S. statutory depletion 41.7 36.9 54.8
State income taxes, net of federal tax
benefit 14.6 14.1 19.5
Foreign income tax rate differential (20.1) (20.4) 8.7
Foreign mining taxes (26.8) (13.8) (40.4)
Increase in unrecognized net operating
loss carryforward (145.9) (131.7) (224.7)
Other, net (2.9) (9.0) (8.6)
------- ------- -------
Effective tax rate (104.4)% (88.9)%(155.7)%
====== ====== ======
Under SFAS 109, deferred tax assets and liabilities are
recognized for the estimated future tax effects, based on enacted
tax law, of temporary differences between the values of assets
and liabilities recorded for financial reporting and for tax
purposes and of net operating loss and other carryforwards. The
tax effects of the types of temporary differences and
carryforwards that give rise to deferred tax assets and
liabilities are as follows (in thousands):
March 30, March 29,
1996 1997
--------- ---------
Deferred tax liabilities:
Fixed assets and depreciation $ 59,134 $ 47,800
Inventories 598 525
Other 8,761 7,925
-------- --------
68,493 56,250
-------- --------
Deferred tax assets:
Inventories 202 200
Accrued reserves and liabilities 10,276 7,640
Interest on high yield debt 19,853 19,794
Prepaid income - 9,630
Net operating loss carryforwards 82,280 80,300
Alternative minimum tax credit
carryforwards 2,228 2,720
Other 8,711 5,900
-------- --------
123,550 126,184
Less valuation allowance 77,796 97,715
-------- --------
45,754 28,469
-------- --------
Net deferred tax liabilities 22,739 27,781
Less net current deferred tax assets 6,235 6,019
-------- --------
Net long-term deferred tax liabilities$ 28,974 $ 33,800
======== ========
SFAS 109 requires a valuation allowance against deferred tax
assets if, based on available evidence, it is more likely than
not that some or all of the deferred tax assets will not be
realized. Given the Company's history of operating losses,
management has concluded that a valuation allowance is necessary;
therefore, the Company carried a valuation allowance relating to
such items of $77.8 million and $97.7 million as of March 30,
1996 and March 29, 1997, respectively.
At March 29, 1997, net operating loss carryforwards for U.S.
federal income tax purposes available to offset future taxable
income for the Company are approximately $188.2 million. If not
utilized, these carryforwards expire in the FYs 2005 through
2012. As of March 29, 1997, Sifto has fully utilized its
Canadian federal and provincial net operating loss carryforwards.
Certain European subsidiaries that file separate foreign tax
returns have net operating loss carryforwards for foreign tax
purposes of $10.9 million.
In addition, the Company has a U.S. federal alternative minimum
tax credit carryforward at March 29, 1997 of approximately $2.7
million. This credit carryforward may be carried forward
indefinitely to offset any excess of regular tax liability over
alternative minimum tax liability subject to certain separate
company limitations. To the extent not offset by a valuation
allowance, these net operating loss and alternative minimum tax
credit carryforwards have been reflected as a reduction of
noncurrent deferred income tax liabilities for financial
reporting purposes.
6. Long-Term Debt
--------------
Long-term debt consists of the following (in thousands):
March 30, March 29,
1996 1997
Harris:
Senior debt:
Notes payable, 8.5%, due July 15, 2000 $100,000 $100,000
Notes payable, 10.25%, due July 15, 2001250,000 250,000
Senior subordinated debt:
Notes payable, 10.75%, due October 15, 2003335,000 335,000
Revolving lines of credit 79,000 -
Argus utilities notes payable, 12.3%, due
through 2011 - 71,502
Other, including capital lease obligations 28,258 27,273
HCEL:
Senior debt, LIBOR plus 2% (8.69% at March 29,
1997), due through 2002 76,325 68,299
Subordinated debt, interest at LIBOR plus
10.75% (17.5% at March 29, 1997), due in
2003 and 2004 31,138 35,403
Revolving lines of credit 9,154 13,939
Other, including capital lease obligations 9,692 7,909
-------- --------
918,567 909,325
Less current portion (21,273) (29,946)
-------- --------
$897,294 $879,379
======== ========
Contractual maturities of long-term debt are as follows (in
thousands): $29,946 in FY 1998; $20,760 in FY 1999; $19,547 in
FY 2000; $119,638 in FY 2001; $269,058 in FY 2002 and $450,376
thereafter.
Harris
In FY 1994, Harris issued $250 million of 10.25 percent Senior
Secured Discount Notes due July 15, 2001 (the Discount Notes),
$335 million of 10.75 percent Senior Subordinated Notes due
October 15, 2003 (the Senior Subordinated Notes) and Sifto issued
$100 million of 8.5 percent Senior Secured Notes due July 15,
2000 (the Sifto Notes). The Discount Notes, the Senior
Subordinated Notes and the Sifto Notes are collectively referred
to herein as the "Notes." The Sifto Notes require interest
payments each January 15 and July 15. The Discount Notes began
accruing cash interest January 15, 1996 with interest payable
each January 15 and July 15 starting July 15, 1996. The Senior
Subordinated Notes require interest payments each April 15 and
October 15.
The Discount Notes and Senior Subordinated Notes are redeemable
at any time on or after October 15, 1998 and prior to maturity at
the option of Harris, in whole or in part, at the following
redemption prices (expressed as percentages of principal amount)
plus accrued interest if redeemed during the 12-month periods
beginning October 15 of the years indicated:
Senior Subordinated
Senior Notes Notes
------------ -------------
1998 103.0% 104.05%
1999 101.5% 102.70%
2000 100.0% 101.35%
2001 and thereafter 100.0% 100.00%
Harris has pledged the common stock of NACC, NAMSCO and GSL for
the benefit of the Discount Notes and the Sifto Notes. The stock
of Sifto has not been pledged. All trade accounts receivable and
product inventories have been pledged under the revolving lines
of credit. All other assets of Sifto are pledged for the benefit
of the Sifto Notes.
At March 29, 1997, the Company had revolving lines of credit
totaling $150 million, including a commitment of $130 million for
its U.S. entities (NACC, NAMSCO and GSL) and a Canadian
commitment of $20 million for Sifto. These Bank Agreements
terminate the earlier of February 28, 2002 or February 15, 2001,
if any Discount Notes are outstanding on such date. These lines
of credit bear interest, at Harris' option, at either a defined
U.S. Base Rate (or in the case of Sifto's Canadian Dollar
borrowings, a defined Canadian Prime Rate) plus 1.50 percent or
the London Interbank Offered Rate (LIBOR) (or in the case of
Sifto's Canadian Dollar borrowings, a defined BA Loan Rate) plus
2.75 percent. Commitment fees of 0.375 percent per year of the
unused portion of the lines are payable quarterly. Borrowing
capacity under these lines of credit is reduced by outstanding
letters of credit, which were $29.0 million at March 29,1997 for
NACC, NAMSCO and GSL. The Company had $78.9 million of available
borrowing capacity under its revolving credit agreements at March
29, 1997.
The Notes and Bank Agreements described above contain various
restrictive covenants which limit among other things,
indebtedness, dividends and stock repurchases, transactions with
affiliates and related persons, liens, sale and leaseback
transactions, mergers and consolidations, dividend and other
payment restrictions affecting restricted subsidiaries,
disposition of proceeds of asset sales and capital expenditures.
In addition, the Bank Agreements require Harris to maintain
certain minimum interest coverage, fixed charge and net funded
debt coverage ratios, all of which were met for fiscal year 1997.
In July 1996, NACC entered into an agreement for the sale and
leaseback of an electric and steam generating facility associated
with its Searles Valley soda ash facilities (the Argus
Utilities). Under the terms of the agreement the Argus Utilities
were sold to two institutional investors for $75 million,
approximately $70.0 million in cash, net of related expenses and
taxes. The initial term of the lease is 13 years with a
two-to-fifteen year reduced rate renewal option. After
expiration of the reduced rate renewal period there are three
fair market renewal options of up to five years each. The
Company has provided a guarantee for the performance of NACC's
obligations under the lease and related agreements. In addition,
during the initial term of the lease, NACC is required to provide
letters of credit of approximately $15 million as additional
credit support. The Company has also agreed to certain
covenants, including maintaining access to adequate working
capital, meeting fixed charge and interest coverage ratios, and
restrictions on assets dispositions and mergers. The transaction
is being accounted for as a financing transaction during the
initial and reduced rate rental periods. Proceeds from this
transaction were used to reduce the outstanding revolving credit
balance.
HCEL
The HCEL Senior Debt is provided by a group of banks and
consists of term debt of $77 million, due in varying annual
payments through July 2003, and a revolving credit facility of
$32 million. Interest accrues at LIBOR plus 2 percent. Interest
on $9 million of debt can be deferred based upon the impact of
weather conditions on the Company's cash flow.
In addition to the Senior Debt, HCEL has a $32 million
Subordinated Credit Agreement with a syndicate of banks.
Interest accrues at LIBOR plus 4 percent, payable semi annually,
plus 6.75 percent per annum of rolled up interest which is due
upon repayment of the facility. The facility is due in two
installments, $7.5 million plus rolled up accrued interest
thereon due in December 2003 and $21.0 million plus rolled up
accrued interest thereon due in December 2004.
The Senior and Subordinated Credit Agreements are secured by
substantially all of the assets of NUK and Salt Union Limited and
the stock of Matthes + Weber GmbH and Societa Chimica Larderello
SpA.
The Agreements described above contain various restrictive
covenants which limit, among other things, additional
indebtedness, dividends and stock repurchases, transactions with
affiliates and related persons, liens, the sale of assets,
mergers and consolidations, and capital expenditures. The
financial covenants, as defined in the Agreements, include
interest coverage, debt service, tangible net worth and capital
expenditures. HCEL met its financial covenants for fiscal year
1997.
7. Employee Benefit Plans
----------------------
The Company has a 401(k) retirement savings and investment plan
covering substantially all employees. Contributions are made to
this plan by participants through voluntary salary deferral and
by the Company in accordance with the terms of the plan. Company
contributions to the plan were approximately $4,224,000,
$6,367,000 and $6,396,000 in FYs 1995, 1996 and 1997,
respectively.
NAMSCO, GSL, SUL and M&W have defined benefit pension plans
that cover certain of its hourly employees. Benefits are based
on years of service and levels of compensation. NAMSCO, GSL and
SUL fund an amount equal to the maximum allowable deduction for
tax purposes. Net periodic pension cost for FYs 1995, 1996 and
1997 was $1,378,000, $1,930,000 and $1,715,000, respectively.
The Company froze the benefits and future participation of the
GSL plan in FY 1995 and recognized a curtailment gain of
approximately $577,000. The Company distributed the assets of
this plan to the vested participants in FY 1997. At March 29,
1997, the NAMSCO and SUL plans are fully funded with the fair
value of plan assets available totaling $27,844,000 and have net
accrued pension assets of $342,000. The defined benefit plan for
M&W employees is unfunded and has a liability of $6,116,000 at
March 31, 1997.
The Company offers a variety of health and welfare benefit
plans to active employees. No Company-sponsored health and
welfare benefit plans are offered to retirees.
8. Commitments and Contingencies
-----------------------------
The Company is involved in legal and administrative proceedings
and claims of various types from normal business activities.
While any litigation contains an element of uncertainty,
management, based upon the opinion of the Company's counsel,
presently believes that the outcome of each such proceeding or
claim which is pending or known to be threatened, or all of them
combined, will not have a material adverse effect on the
Company's results of operations or financial position.
Leases
The Company leases certain property and equipment under
non-cancelable operating leases for varying periods. The Company
also leases various equipment under capital leases with a net
book value of $18.8 million and $20.8 million at March 30, 1996
and March 29, 1997, respectively, that are included in property,
plant and equipment in the accompanying consolidated balance
sheet.
The aggregate minimum annual rentals under lease arrangements
are as follows (in thousands):
Fiscal Capital Operating
Year Leases Leases
1998 $ 10,214 $ 18,812
1999 7,454 20,298
2000 4,746 19,243
2001 2,542 16,871
2002 1,812 13,716
Thereafter 45,475 138,311
-------- --------
Total 72,243 $227,251
========
Less amounts representing interest(50,503)
--------
Present value of net minimum
lease payments $ 21,740
========
Rental expense, net of sublease income, for FYs 1995, 1996 and
1997 was $16.5 million, $16.9 million and $19.5 million,
respectively.
Royalties
A substantial portion of the land used in the Company's
operations at the Searles Valley facility is owned by the U.S.
government. The Company pays a royalty to the U.S. Government of
5 percent on the sales value of the minerals extracted from
government land. The leases generally have a term of 10 years
with preferential renewal options. Total royalty expense was
approximately $5,623,000, $6,732,000 and $4,675,000 in FYs 1995,
1996 and 1997, respectively. In addition, the Company has
various private, state and Canadian provincial leases associated
with the salt and specialty potash businesses. Total royalty
expense related to these leases was approximately $3,403,000,
$2,018,000 and $3,459,000 in FYs 1995, 1996 and 1997,
respectively.
Purchase Commitments
NACC is committed under a contract to purchase a percentage of
tons of coal based on total coal purchases per year, at agreed
upon prices, for operations at its Searles Valley facility in
California. The contract continues through December 1999, with
an option to extend the agreement an additional five years.
Environmental Matters
At March 29, 1997, the Company has recorded accruals of $15.1
million ($3.8 million classified in accrued expenses and $11.3
million classified in other noncurrent liabilities) for future
costs associated with existing environmental exposures at certain
of its facilities. The Company estimates that a significant
portion of these accruals will be used over the next five years.
In 1994, the Company discovered contamination in the salt mine
at SCL and discontinued the extraction of salt at that facility.
The mineral deposit is held under government franchise from
Italy. No formal directives have been issued by any
environmental agencies; however, the Company has initiated legal
action against the former owner for failure to disclose this
pre-existing condition. The final outcome of this matter and
range of loss exposure is uncertain at this time.
It is the opinion of management that the outcome of known
environmental contingencies will not have a material adverse
effect on the operations, financial position or liquidity of the
Company.
Acquisition Commitment
On November 4, 1996, HCG entered into a commitment to purchase
100 percent of the outstanding shares of Novacarb S.A. , a French
company that produces soda ash and sodium bicarbonate, for 400
million French francs (approximately U.S. $73 million), subject
to certain adjustments. The agreement provides that the closing
will take place within 30 days of the completion of the
conditions precedent to closing including the seller obtaining
certain operating permits. The closing must take place within 36
months from November 4, 1996. During FY 1997, HCG paid 5 million
francs (U.S. $881,000) against the purchase liability as its
investment in Novacarb. In addition, HCG must make certain
interest payments at the rate of the Paris Interbank Offered Rate
plus 1 percent to Novacarb's parent on the purchase price of 400
million French francs less the initial investment.
In connection with the acquisition agreement, HCG entered into
an Operating agreement, a Sales agreement, a Supply agreement and
a Lease agreement whereby HCG and Novacarb's parent will each
have two representatives on an operating committee to oversee the
operations of Novacarb, HCG will lease Novacarb's sales and
marketing business for an upfront fee of 20 million French francs
plus 5 million francs per calendar quarter through the term of
the agreement (three years), HCG will purchase 100 percent of
Novacarb's production at total cost plus 2 percent, and
Novacarb's parent company will commit to purchasing 100 percent
of its soda ash and sodium bicarbonate needs from HCG. The
upfront fee and quarterly fees are being charged to income over
the term of the lease agreement. These fees paid may reduce the
final purchase price at the date the acquisition is consummated.
If the acquisition of Novacarb is not completed because of the
actions of Novacarb's parent, HCG will be refunded all lease
payments previously made and its initial investment. Conversely,
HCG will forfeit all lease payment if the acquisition is not
consummated due to the actions of HCG.
9. Acquisition
-----------
On August 24, 1995, NACC and NaTec Resources, Inc. (NRI)
executed an agreement regarding the acquisition by NACC of the
remaining 50 percent interest in White River Nahcolite Limited
Liability Co. (White River) owned by NRI. Pursuant to that
agreement, the consideration paid to NRI totaled $9,508,000
consisting of (i) $500,000 in cash paid by NACC to NRI, (ii) a
$4.0 million non-interest bearing promissory note of NACC payable
in installments through the third anniversary of the closing date
(discounted balance $3,236,000) and (iii) a $6.0 million
non-interest bearing promissory note of White River which was
paid on January 12, 1996 (discounted balance $5,772,000). The
remaining note is collateralized by substantially all of White
River's assets. As a result of the acquisition, NACC owns 100
percent of White River. The Company accounted for the
acquisition as a purchase and, beginning August 24, 1995, the
accounts of White River were consolidated in the accompanying
financial statements. If the acquisition had occurred at the
beginning of FY 1995, the Company's results of operations would
not be materially different than those reflected in the
accompanying financial statements.
10. Related Party Transactions
-------------------------
Certain stockholders of HCG have minority ownership interests
in Penrice Soda Products Pty Ltd. (Penrice), U.S. Silican Company
and Harris Specialty Chemicals, Inc. (collectively referred to as
HCG affiliates). The Company has administrative and other
transactions with HCG affiliates in the ordinary course of
business. Net receivables from HCG affiliates totaled $740,000
and $458,000 at March 30, 1996 and March 29, 1997, respectively.
In FY 1996, certain stockholders of HCG purchased a minority
interest in Penrice, an Australian enterprise engaged in the
production and distribution of soda ash products. In connection
therewith, HCG obtained an option agreement that permits HCG to
purchase Penrice at fair market value under certain
circumstances. HCG transferred this option to Harris. In
addition, HCG permitted Harris to enter into a services agreement
with Penrice. The agreement provides that Penrice will pay
Harris 200,000 Australian dollars per year beginning in FY 1997
for management consulting and operating support services.
Management believes this agreement will also open up new markets
for certain of Harris' products.
In 1993, NACC entered into an agreement to sell its port
facilities in San Diego to SDT Capital, Inc. (SDT) for $5.5
million, and lease such facilities back from SDT. SDT's
president is a relative of a former officer of Harris who is a
shareholder in HCG. Annual rentals under the agreement are $1.7
million per year payable quarterly for the initial four-year
period and the
first and second five-year option periods. The annual rentals
for the first and second option periods will be increased for any
increases in the seven-year U.S. Treasury note rate. Additional
rents are due at $3 per ton for shipments in excess of 850,000
tons per year through the end of the second option period. Three
additional five-year option periods and a final six-year option
period will have rents based on fair market value rents as agreed
to by SDT and NACC. NACC has the option to repurchase the
facilities at the end of either the initial lease period
(December 31, 1997) or any renewal option period for the greater
of $7.0 million or fair market value. However, NACC must
purchase the facility for the greater of $7.0 million or fair
market value at the end of any lease period in which the lease is
not extended. This transaction is being accounted for as a
financing with the difference between the initial stated value of
$5.5 million and the minimum repurchase value of $7.0 million
being accrued through the term of lease (December 31, 1997).
NACC has exercised its option to repurchase its port facilities
from SDT for the greater of $7.0 million or fair market value.
NACC and SDT have been unable to agree on the fair market value
of the port facility, therefore, fair market value will be
determined through an appraisal process as provided for in the
Agreement. An extraordinary loss will be recorded for the
difference between the accreted value of $7.0 million and fair
market value, if the appraised fair market value is determined to
be greater than $7.0 million.
11. Fair Value of Financial Instruments
-----------------------------------
The carrying amounts and estimated fair values of the
Company's financial instruments at March 29, 1997 are as follows
(in thousands):
Carrying Estimated
Value Fair Value
---------- ----------
Harris:
Senior debt:
Notes payable, 8.5% $100,000 $ 99,875
Notes payable, 10.25% 250,000 255,000
Subordinated debt:
Notes payable, 10.75% 335,000 337,513
Revolving lines of credit - -
Argus utilities notes payable, 12.3% 71,502 71,502
Other, including capital leases 27,273 27,273
HCEL:
Senior debt 68,299 68,299
Subordinated debt 35,403 35,403
Revolving lines of credit 13,939 13,939
Other, including capital lease obligation7,909 7,909
The following methods and assumptions were used to estimate the
fair value of the financial instruments:
Revolving Lines of Credit, HCEL, Senior Debt and Subordinated
Debt
The interest rate is variable, based on either the bank's base
rate or the London Interbank Offered Rate (LIBOR) (per Barclays
Bank PLC), plus a margin percentage ranging from 1.50 percent to
4.00 percent. Under the assumption that the interest rate,
including the applicable margin percentage, is reflective of
current interest rates available to the Company for obligations
with similar terms and maturities, the fair value approximates
carrying value.
Harris Senior Debt and Subordinated Debt
The fair value is based on the quoted market price at the close
of trading on March 28, 1997.
Argus Utilities and Other, including Capital Leases
Under the assumption that the interest rate, including the
applicable margin percentage, is reflective of current interest
rates available to the Company for obligations with similar terms
and maturities, the fair value approximates carrying value.
12. Capital Stock
-------------
The total number of shares of capital stock which HCG has
authority to issue is 4,800,000 shares consisting of: 2,500,000
shares of Class A Common Stock, par value $0.01 per share (HCG
Class A Common Stock); 550,000 shares of Class B Common Stock,
par value $0.01 per share (HCG Class B Common Stock); 450,000
shares of Class C Common Stock, par value $0.01 per share (HCG
Class C Common Stock); 300,000 shares of Class D Common Stock,
par value $0.01 per share (HCG Class D Common Stock) and
1,000,000 shares of Preferred Stock, par value $0.01 per share
(HCG Preferred Stock). Holders of HCG Class A Common Stock are
entitled to one vote on all matters to be voted on by HCG's
stockholders and holders of other classes of HCG Common Stock
have no voting rights except under certain circumstances as
specified in HCG's Certificate of Incorporation.
The following is a rollforward of Common Stock activity from
March 25, 1995 to March 29, 1997:
<TABLE>
<CAPTION>
Total
Outstanding
Class A Class B Class C Class D Treasury Common
------- ------- ------- ------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Number of issued and
treasury shares at
March 25, 1995 626,304 268,828 106,904 - (5,899) 996,137
HCG-NUK share exchange- - 194,745 - - 194,745
HCG-HIC share exchange- - 42,424 28,282 - 70,706
Other stock
repurchases and
sales (28,502) - (28,913) 57,415 - -
Treasury stock
purchases - - - - (9,494) (9,494)
-------- -------- -------- ------- ------- ---------
Number of issued and
treasury shares at
March 30, 1996 597,802 268,828 315,160 85,697 (15,393) 1,252,094
-------- -------- -------- ------- ------- ---------
Treasury stock purchases - - - - (488)
(488)
-------- -------- -------- ------- ------- ---------
Number of issued and
treasury shares at
March 29, 1997 597,802 268,828 315,160 85,697 (15,881) 1,251,606
======== ======== ======== ======= ======= =========
Total outstanding
common shares at
March 29, 1997 583,992 268,828 313,089 85,697
======== ======== ======== =======
The HCG Certificate of Incorporation expressly authorizes the
HCG board of directors to issue up to 1,000,000 shares of
Preferred Stock, from time to time, with the terms, conditions,
rights, limitations and privileges to be determined by the HCG
board of directors.
In connection with the HCG-NUK Exchange, the HCG board of
directors authorized 32,000 shares of Convertible Preferred Stock
which pay dividends at 10 percent per annum, have a liquidation
value of $1,000 per share plus any unpaid dividends, have
priority over all shares of HCG's Common Stock on liquidation,
are convertible into shares of HCG's Class A Common Stock at a
price of $100.415 per share (subject to adjustment) and have
voting rights similar to the underlying common stock. At March
29, 1997, there were 31,051.1 shares of HCG Convertible Preferred
Stock issued and outstanding with a liquidation value of
$31,827,000, including accrued but unpaid dividends of $776,000.
The HCG Convertible Preferred Stock may be converted to HCG Class
A Common Stock at any time based upon the aggregate liquidation
value divided by the conversion price. The HCG Convertible
Preferred Stock is mandatorily redeemable on December 31, 2003.
The HCG board of directors also authorized 50,000 shares of
Non-Convertible Preferred Stock with terms that are substantially
the same as the terms of the HCG Convertible Preferred Stock,
except that the Non-Convertible Preferred Stock is not
convertible into HCG's Common Stock and the holders of
Non-Convertible Preferred Stock have no voting rights with
respect to such stock. The Non-Convertible Preferred Stock may
be issued as dividends on the Convertible Preferred Stock in lieu
of cash. During FY 1997, HCG issued 3,257 shares of
Non-Convertible Preferred Stock as payment of dividends on the
Convertible Preferred Stock. These shares have a liquidation
value of $3,339,000, including accrued but unpaid dividends of
$82,000.
In 1995, the board of directors established a stock option plan
for the issuance of qualified and non-qualified stock options to
officers and key employees for the purchase of HCG Common Stock.
Options to purchase up to 26,210 shares of Class A Common Stock
may be issued under the plan. Options vest at 20 percent per
year over a five year period and no option may be exercised after
ten years from the date of grant. The Company has granted stock
options for which the exercise price approximates the market
price of common stock on the grant date. The options are not
transferable. The Company has not recognized any expense
associated with the options; if the Company accounted for this
plan using the optional, fair-value method of FASB Statement No.
123, "Accounting for Stock Based Compensation," the fair value of
the options granted and related expense recorded for these plans
would not be material. At March 29, 1997, 9,300 options were
outstanding with an exercise price of $100 and 1,860 were vested.
13. Discontinued Operations
-----------------------
As a part of the overall consolidation of the Company described
in Note 1, the Company disposed of its non-strategic chlor alkali
operations in Italy just prior to the December, 1995
consolidation. The operations and loss on disposal of this
business segment have been accounted for as discontinued
operations. Sales related to discontinued operations were
approximately $7,000,000 in FY 1996 and $4,000,000 in FY 1995.
14. Geographic Areas
----------------
The Company operates in one principal industry segment. Export
sales are reported in the geographic area where the final sale is
made. Operating income and identifiable assets are based on each
subsidiary's country of domicile.
Asia/
North Pacific Latin
America Rim America Europe Other Total
------- ------- ------- ------ ----- -----
Net sales to customers:
1997 $406.2 $58.8 $25.9 $202.4 $12.3 $705.6
1996 407.8 46.4 16.7 172.6 6.5 650.0
1995 360.5 60.0 17.3 146.5 6.3 590.6
Operating income:
1997 75.9 - - 20.6 - 96.5
1996 50.6 - - 26.9 - 77.5
1995 46.5 - - 21.5 - 68.0
Identifiable assets:
1997 664.2 - - 199.6 - 863.8
1996 676.2 - - 189.2 - 865.4
1995 649.6 - - 160.7 - 810.3
<PAGE>
</TABLE>
<TABLE>
HARRIS CHEMICAL AUSTRALIA PTY LTD. & ITS CONTROLLED ENTITIES
CONSOLIDATED STATEMENT OF OPERATIONS
(Australian $ in thousands)
Unaudited
<CAPTION>
Nine Months Ended
March 31,
--------------------
1998 1997
---- ----
<S> <C> <C>
Operating profit/(loss) before income tax and
abnormal items $ (160) $3,841
Abnormal items before income tax (223) (894)
------ ------
Operating profit/(loss) after abnormal items
and before income tax (383) 2,947
Income tax expense attributable to operating
profit and abnormal items (79) (1,149)
------ ------
Operating profit/(loss) after income tax (462) 1,798
Retained profits at the beginning of
the financial year 2,114 1,517
------ ------
Retained profits at the end of the financial year $1,652
$3,315
====== ======
The accompanying notes form an integral part of this profit and
loss account.
</TABLE>
<PAGE>
<TABLE>
HARRIS CHEMICAL AUSTRALIA PTY LTD. & ITS CONTROLLED ENTITIES
CONSOLIDATED STATEMENT OF OPERATIONS
(Australian $ in thousands)
<CAPTION>
Consolidated Parent Entity
3 months ended 3 months ended
June 1997 June 1996 June 1997 June 1996
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Operating profit/(loss)
before income tax
and abnormal items $ 4,785 $2,045 $ (825) $(383)
Abnormal items before
income tax (3,091) (107) - -
------- ------ ------- -----
Operating profit/(loss)
after abnormal items and
before income tax 1,694 1,938 (825) (383)
Income tax expense
attributable to
operating profit and
abnormal items (1,097) (421) - -
------- ------ ------- -----
Operating profit/(loss)
after income tax 597 1,517 (825) (383)
Retained profits/
(accumulated losses) at
the beginning of the
financial year 1,517 - (383) -
------- ------ ------- -----
Retained profits/
(accumulated losses) at
the end of the financial
year $2,114 $1,517 $(1,208) $(383)
======= ====== ======= =====
</TABLE>
Comparative Information
The parent entity was incorporated on 30 January 1996. The
parent entity remained dormant from incorporation to 29 March
1996 when the parent entity acquired the business of Penrice.
Accordingly, the parent entity accounts for 1996 reflect the
trading result and cash flows for the financial period from the
date of incorporation to 30 June 1996 and the consolidated
financial statements reflect the inclusion of results of the
Penrice business from 29 March 1996.
The accompanying notes form an integral part of this profit and
loss account.
<PAGE>
<TABLE>
HARRIS CHEMICAL AUSTRALIA PTY LTD. & ITS CONTROLLED ENTITIES
CONSOLIDATED BALANCE SHEET
(Australian $ in thousands)
Unaudited
<CAPTION>
March 31, 1998
--------------
<S> <C>
Current assets:
Cash $ 894
Receivables 10,571
Inventories 15,482
Other 1,388
--------
Total current assets 28,335
Non-current assets:
Property, plant & equipment 58,558
Investments 100
Intangibles 30,443
Other 4,899
--------
Total non-current assets 94,000
--------
Total assets 122,335
Current liabilities:
Creditors and borrowings $ 15,169
Provisions 5,768
--------
Total current liabilities 20,937
Non-current liabilities:
Creditors and borrowings 62,159
Provisions 3,672
--------
Total non-current liabilities 65,831
--------
Total liabilities 86,768
--------
Net assets $ 35,567
========
Shareholders' equity:
Share capital 45
Reserves 33,870
Retained profits 1,652
--------
Total shareholders' equity $ 35,567
========
</TABLE>
The accompanying notes form an integral part of this balance
sheet.
<PAGE>
<TABLE>
HARRIS CHEMICAL AUSTRALIA PTY LTD. & ITS CONTROLLED ENTITIES
CONSOLIDATED BALANCE SHEET
(Australian $ in thousands)
<CAPTION>
Consolidated Parent Entity
June 1997 June 1996 June 1997
June 1996
--------- --------- ---------
- ---------
<S> <C> <C> <C> <C>
Current assets:
Cash $ 1,760 $ 6,607 $ 4 $ 2
Receivables 12,433 12,228 - 1
Inventories 12,156 10,417 - -
Other 2,064 1,317 10 -
-------- ------- ------- -------
Total current assets 28,413 30,569 14 3
Non-current assets:
Property, plant &
equipment 58,256 59,563 - -
Investments 100 100 50,779 48,259
Intangibles 31,920 31,425 - -
Other 5,119 5,333 867 568
-------- ------- ------- -------
Total non-current assets95,395 96,421 51,646 48,827
-------- ------- ------- -------
Total assets 123,808 126,990 51,660 48,830
Current liabilities:
Creditors and borrowings$ 17,45614,407 1,255 209
Provisions 5,361 8,113 - -
-------- ------- ------- -------
Total current
liabilities 22,817 22,520 1,255 209
Non-current liabilities:
Creditors and borrowings60,775 64,481 17,698 15,452
Provisions 4,187 4,920 - -
-------- ------- ------- -------
Total non-current
liabilities 64,962 69,401 17,698 15,452
-------- ------- ------- -------
Total liabilities 87,779 91,921 18,953 15,661
-------- ------- ------- -------
Net assets $ 36,029 $35,069 $32,707 $33,169
======== ======= ======= =======
Shareholders' equity:
Share capital 45 44 45 44
Reserves 33,870 33,508 33,870 33,508
Retained profits/
(accumulated losses) 2,114 1,517 (1,208) (383)
-------- ------- ------- -------
Total shareholders' equity$ 36,029$35,069 $32,707 $33,169
======== ======= ======= =======
</TABLE>
Comparative Information
The parent entity was incorporated on 30 January 1996. The
parent entity remained dormant from incorporation to 29 March
1996 when the parent entity acquired the business of Penrice.
Accordingly, the parent entity accounts for 1996 reflect the
trading result and cash flows for the financial period from the
date of incorporation to 30 June 1996 and the consolidated
financial statements reflect the inclusion of results of the
Penrice business from 29 March 1996.
The accompanying notes form an integral part of this balance
sheet.
<PAGE>
<TABLE>
HARRIS CHEMICAL AUSTRALIA PTY LTD. & ITS CONTROLLED ENTITIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(Australian $ in thousands)
Unaudited
<CAPTION>
Nine Months Ended
March 31,
----------------------
1998 1997
---- ----
<S> <C> <C>
Cash flows from operating activities:
Receipts from customers and others $ 74,813 $ 79,188
Payments to suppliers and employees (67,268) (67,401)
Interest received 68 222
Interest and other costs of finance paid(3,835) (3,697)
Income taxes paid (714) (4,263)
-------- --------
Net cash provided by operating activities 3,064 4,049
Cash flows from investing activities:
Payments for property, plant and equipment(4,901) (3,931)
Proceeds from sale of property, plant and
equipment 80 87
Payments for investments (967) (1,103)
-------- --------
Net cash used in investing activities (5,788) (4,947)
Cash flows from financing activities:
Proceeds from the issue of shares - 359
(Paydown)/Drawdown on bank loans 2,000 (1,500)
Repayments of finance leases (198) (91)
Borrowing costs - (45)
Loans from related parties - -
Loans from others - 97
-------- --------
Net cash provided by (used in) financing
activities 1,802 (1,180)
-------- --------
Net increase (decrease) in cash held (922) (2,078)
Cash at beginning of the period 1,760 6,607
Effects of exchange rate changes on cash held
in foreign currencies 56 (7)
-------- --------
Cash at the end of the financial year $ 894 $ 4,522
======== ========
The accompanying notes form an integral part of this statement of
cash flows.
</TABLE>
<PAGE>
<TABLE>
HARRIS CHEMICAL AUSTRALIA PTY LTD. & ITS CONTROLLED ENTITIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(Australian $ in thousands)
<CAPTION>
Consolidated Parent Entity
3 months ended 3 months
ended
June 1997 June 1996 June 1997 June 1996
Inflow Inflow Inflow Inflow
(Outflow) (Outflow) (Outflow) (Outflow)
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Cash flows from operating
activities:
Receipts from customers
and others $104,056 $ 29,251 $ 44 $ -
Payments to suppliers
and employees (89,625) (24,124) (12) (1)
Dividends received - - 177 -
Interest received 315 119 1 2
Interest and other costs
of finance paid (5,366) (1,853) (950) (356)
Income taxes paid (4,816) (613) 1 (1)
Net cash provided by (used
in) operating activities4,564 2,780 (739) (356)
Cash flows from investing
activities:
Payments for property,
plant and equipment (5,181) (2,277) - -
Proceeds from sale of
property, plant and
equipment 133 634 - -
Payments for investments(1,114)(39,673) (1,491) (48,259)
-------- -------- ------- --------
Net cash used in investing
activities (6,162) (41,316) (1,491) (48,259)
Cash flows from financing
activities:
Proceeds from the issue
of shares 362 33,552 362 33,552
(Paydown)/Drawdown on
bank loans (3,500) 14,050 - 14,650
Repayments of finance
leases (170) (26) - -
Borrowing costs (46) (2,705) (14) (584)
Loans from related parties 97 - 1,884 802
Loans from employees - 169 - -
Loans from others - 197 - 197
-------- -------- ------- --------
Net cash provided by
(used in) financing
activities (3,257) 45,237 2,232 48,617
Net increase (decrease)
in cash held (4,855) 6,701 2 2
Cash at beginning of
the period 6,607 - 2 -
Effects of exchange
rate changes on cash
held in foreign
currencies 8 (94) - -
-------- -------- ------- --------
Cash at the end of
the financial year $ 1,760 $ 6,607 $ 4 $ 2
======== ======== ======= ========
The accompanying notes form an integral part of this statement of
cash flows.
</TABLE>
<PAGE>
HARRIS CHEMICAL AUSTRALIA PTY LIMITED AND ITS CONTROLLED ENTITIES
NOTES TO THE FINANCIAL STATEMENTS
1. Statement of Significant Accounting Policies
--------------------------------------------
Basis of Accounting
- -------------------
The financial statements have been prepared as a general
purpose financial report in accordance with Australian Accounting
Standards except for the requirement to disclose directors
remuneration (AASB 1017.4.2 - 4.6). Directors are of the opinion
that this non disclosure will not affect the true and fair view
of the financial statements of the economic entity.
The accounting policies used are consistent with those adopted
in the previous year. The financial statements have also been
prepared in accordance with the historical cost convention and do
not take account of changes in either the general purchasing
power of the dollar or in the prices of specific assets.
Principles of Consolidation
The consolidated financial statements include the financial
statements of the parent entity, Harris Chemical Australia Pty
Ltd. and its controlled entities, referred to collectively
throughout these financial statements as the "Economic Entity."
All inter-entity balances and transactions have been eliminated.
Income Tax
The economic entity follows the policy of tax-effect
accounting. The income tax expense in the profit and loss
account represents the tax on the pre-tax accounting profit
adjusted for income and expenses never to be assessed or allowed
for taxation purposes. The provision for deferred income tax
liability and the future income tax benefit include the tax
effect of differences between income and expense items recognized
in different accounting periods for book and tax purposes,
calculated at the tax rates expected to apply when the
differences reverse.
Foreign Currency Transactions
Transactions in foreign currencies are converted at the
exchange rates in effect at the date of each transaction.
Amounts payable to or by the economic entity in foreign
currencies have been translated into Australian currency at the
exchange rates ruling on 30 June 1997, taking into account
foreign exchange hedging contracts in place as at that date.
Gains and losses arising from fluctuations in exchange rates are
included in profit from operations.
Inventories
All inventories are stated at the lower of cost and net
realizable value. Cost includes direct materials, direct labor
and an appropriate proportion of variable and fixed overhead
expenditure, the latter being allocated on the basis of normal
operating capacity. Included in inventories are certain
insurance spares that are purchased specifically for items of
plant.
Consumable stores are included in inventories and expensed on a
usage basis and are stated net of slow moving or obsolete items.
Property, Plant and Equipment
All land and buildings are carried at cost. The carrying
amounts of all non current assets are reviewed annually to
determine whether they exceed their recoverable amount. The
recoverable amount of all non-current assets is determined using
net cash flows which have not been discounted to their present
value.
Property, plant and equipment, including freehold land, are
depreciated or amortized at rates based upon their expected
useful lives using the straight line method. The cost of
acquisition of or improvements to leasehold properties is
amortized over the unexpired period of the lease or the estimated
useful life of the improvements, whichever is the shorter. Major
spares purchased specifically for particular plant are included
in the cost of plant except for those listed in inventories and
are depreciated accordingly.
Leased Assets
` Assets acquired under finance leases are capitalized. The
initial recorded amount of the leased asset and corresponding
lease liability is the present value of minimum lease payments.
Leased assets are amortized over the life of the relevant lease
or, where ownership is likely to be obtained on the expiration of
the lease, the expected useful life of the asset. Lease payments
are allocated between interest expense and reduction in the lease
liability. Operating leases are not capitalized and rental
payments are charged against operating profit in the period in
which they are incurred.
Non-Current Assets Constructed by the Economic Entity
The cost on non-current assets constructed by the economic
entity includes the cost of all materials used in the
construction, direct labor on the project and an appropriate
proportion of variable and fixed overhead.
Major Maintenance
The costs of major maintenance of manufacturing plant and
equipment are charged to the profit and loss account in the
period in which they are incurred.
Lime Kiln Relines
The costs of relining the economic entity's lime kilns are
capitalized as plant and equipment and depreciated over the
period until the next reline is estimated to occur.
Investments
Interests in unlisted securities are brought to account at cost
and dividend income is recognized in the profit and loss account
when the dividend is declared receivable.
Employee Entitlements
Provision has been made in the financial statements for
benefits accruing to employees in relation to such matters as
annual leave and long service leave, and has been determined in
accordance with the requirements of Accounting Standard AASB1028,
"Accounting For Employee Entitlements." All on-costs, including
payroll tax and workers' compensation premiums, are included in
the provision, and the non-current component of long service
leave has been determined based on the present value of estimated
future cash flows.
Borrowing Costs
Borrowing costs are being amortized over the term of the
borrowings.
Provision for Dredging
The economic entity has a responsibility under Environmental
Guidelines to dredge the Port River from time to time where the
river embankment forms part of the economic entity's wharf
facilities. The economic entity provides in its accounts for
these dredging costs over the period until the next dredge is
expected to occur.
Quarry Reserves
The economic entity has a marble quarry at Angaston consisting
of freehold land and leasehold land. The marble reserves are not
brought to account in the economic entity's financial statements.
Saltfields Reserves
The economic entity has solar evaporative saltfields at Dry
Creek near Adelaide consisting of freehold and leasehold land.
The economic entity has mining leases on all of this land and on
an annual basis salt is produced and harvested from these fields
predominantly for use in the soda ash business. This
regenerative asset is only brought to account in the economic
entity's financial statements at the time it is harvested.
Derivatives
The economic entity is a party to financial instruments taken
out in the normal course of business to hedge exposure to
fluctuations in interest and foreign exchange rates. The
instruments used are interest rate swap agreements and forward
foreign exchange contracts. Foreign exchange contracts are used
to hedge most known and expected export sales over a period of
one year from balance date. Gains and losses on forward exchange
contracts are included in the profit and loss account at the time
the contract is satisfied. Interest rate swap agreements are
taken out over the duration of borrowings. The agreements are
either matched or taken for a period less than the period
outstanding for the borrowing. Amounts payable and receivable
under interest rate swaps are accrued in accordance with the
terms of the swap agreements and are recognized as a component of
interest expense as they accrue.
Goodwill
Goodwill, representing the excess of the purchase consideration
plus incidental costs over the fair value of the identifiable net
assets acquired on the acquisition of a controlled entity is
amortized over the period of time during which benefits are
expected to arise. Goodwill is amortized on a straight line
basis over 20 years.
Crown Agreement Costs
Crown Agreement costs are brought to account at cost. At the
commencement of this Agreement these costs will be amortized on a
straight line basis over the term of the Agreement which is
expected to be 20 years.
Defined Benefit Superannuation
Contributions to defined benefit superannuation plans
maintained by the economic entity are expensed in the year they
are paid or become payable. No amount is recognized in respect
of the net surplus or deficiency of each plan.
Comparative Information
Certain prior year comparative figures have been restated to
conform with the current year presentation.
2. Operating Profit
----------------
(in thousands)
Consolidated Parent Entity
3 months ended 3 months ended
June 1997 June 1996 June 1997
June 1996
--------- --------- ---------
- ---------
Operating profit/(loss) is after crediting
the following revenues:
Sales revenues $102,816 $27,526 $ - $ -
======== ======= ======= =======
Other operating revenues:
Dividends from:
Related parties - wholly
owned entities - - 177 -
Interest from:
Other persons 315 118 1 2
Net foreign exchange gain from:
non-speculative trading 204 - - -
Gross proceeds from the sale
of non-current assets (a) 133 634 - -
Other revenue items in total1,241 908 44 -
-------- ------- ------- -------
Total other operating
revenues $1,893 $1,660 $222 $ 2
======== ======= ======= =======
(a) Profits from the sale
of non-current
assets were: $ 27 $ - $ - $ -
======== ======= ======= =======
Operating profit/(loss) is after charging
the following expenses:
Amortization of goodwill on
consolidation $1,648 $ 398 $ - $ -
Amortization of borrowing
costs 391 83 77 16
Depreciation and amortization
of property, plant and
equipment 6,280 1,592 - -
Interest paid or payable
to: Other persons 5,835 1,487 938 368
Loss from sale of non-
current assets 54 44 - -
Provision for dredging 480 120 - -
Provision for doubtful debts(18) (9) - -
Provision for employee
entitlements 1,405 365 - -
Finance charges relating
to finance leases 86 22 - -
Rental expense relating to
operating leases 44 12 - -
Net foreign exchange loss
from:
Non-speculative trading$ -$ 38 $ - $ -
======== ======= ======= =======
Abnormal items:
Redundancy payments
(tax effect - $394,200,
1996 - $38,000) $1,095 $ 107 $ - $ -
Industrial action costs
(tax effect - $719,000)$1,996$ - $ - $ -
======= ======= ======= =======
3. Income Tax
-----------
(in thousands)
Consolidated Parent Entity
3 months ended 3 months ended
June 1997 June 1996 June 1997
June 1996
--------- --------- ---------
- ---------
The difference between
income tax expense
provided in the financial
statements and the prima
facie income tax expense
is reconciled as follows:
Operating profit/(loss)
before income tax and
after abnormal items $1,694 $1,938 $(825) $(383)
====== ====== ===== =====
Prima facie tax thereon
at 36% 610 698 (297) (138)
Tax effect of permanent
and other differences:
Amortization of
borrowing costs 28 - 28 -
Depreciation of buildings132 33 - -
Indexation adjustment for
sale of assets - (43) - -
Non deductible expenses/
(other deductible expenses) (56) (37) -
- -
Amounts (over)/under
provided in prior years(280) (203) - -
Parent entity loss not
taken up - 161 - -
Amortization of goodwill
on consolidation 593 143 - -
Insurance recovery -
rollover election - (331) - -
FITB not brought to account 6 - 6
- -
Losses not brought to account - - -
138
Tax losses transferred to
controlled entity - - 263 -
Dividends received from
controlled entities 64 - - -
------ ------ ----- -----
Total income tax attributable
to operating profit/(loss)$1,097$ 421$ - $ -
====== ====== ===== =====
Total income tax expense
comprises movements in:
Provision for income tax$ 978 $ 912 $ - $ -
Provision for deferred
income tax 249 (564) - -
Future income tax
benefit (130) 73 - -
------ ------ ----- -----
$1,097 $ 421 $ - $ -
====== ====== ===== =====
4. Cash (Current)
--------------
(in thousands)
Consolidated Parent Entity
June 1997 June 1996 June 1997 June
1996
--------- --------- --------- -----
- ----
Cash at bank and on hand$1,760 $6,607 $4 $2
------ ------ -- --
$1,760 $6,607 $4 $2
====== ====== == ==
5. Receivables (Current)
---------------------
(in thousands)
Consolidated Parent Entity
June 1997 June 1996 June 1997 June
1996
--------- --------- --------- -----
- ----
Trade debtors $11,916 $11,328 $ - $ -
Less provision for
doubtful debts (206) (230) - -
------- ------- -- --
11,710 11,098 - -
Sundry debtors 723 1,130 - 1
------- ------- -- --
$12,433 $12,228 $- $1
======= ======= == ==
6. Inventories (Current)
---------------------
(in thousands)
Finished goods $ 5,908 $ 4,870 $- $-
Raw materials and stores 6,248 5,547 - -
------- ------- -- --
$12,156 $10,417 $- $-
======= ======= == ==
7. Other Assets (Current)
-----------------------
(in thousands)
Prepayments $2,064 $1,317 $10 $-
------ ------ -- --
$2,064 $,1317 $10 $-
------ ------ -- --
8. Property, Plant and Equipment (Non-current)
--------------------------------------------
(in thousands)
Consolidated Parent Entity
June 1997 June 1996 June 1997 June
1996
--------- --------- --------- -----
- ----
Lands and Buildings
Freehold land - at cost$19,655 $19,343 $- $-
------- ------- -- --
Buildings - at cost 14,322 13,749 - -
Less accumulated
depreciation (2,675) (2,317) - -
------- ------- -- --
11,647 11,432 - -
------- ------- -- --
Leasehold improvements
at cost 63 74 - -
Less accumulated
amortization (12) (21) - -
------- ------- -- --
51 53 - -
------- ------- -- --
Total land and
buildings, net 31,353 30,828 - -
------- ------- -- --
Valuations of Land and Buildings
The latest valuation was in May 1995, and was carried out by M.
Klenke (Licensed Valuer) of Edward Rushton Pty Ltd. The basis of
valuation of land and buildings was fair market value based on
existing use, and amounted to $36,595,000. Capital gains tax has
not been taken into account in the valuation amount of these
assets as they are integral to the economic entity's operations
and it has no intention to sell these assets.
Plant and Equipment
Plant under construction
at cost 4,169 5,148 - -
------- ------- -- --
Plant and equipment
at cost 55,369 51,082 - -
Less accumulated
depreciation (33,983) (28,896) - -
------- ------- -- --
21,386 22,186 - -
------- ------- -- --
Plant equipment and
vehicles under finance
lease 3,191 2,803 - -
Less accumulated
amortization (1,843) (1,402) - -
------- ------- -- --
1,348 1,401 - -
------- ------- -- --
Total plant and
equipment, net 26,903 28,735 - -
------- ------- -- --
Total property, plant
and equipment, net $58,256 $59,563 $- $-
======= ======= == ==
9. Investments (Non-current)
-------------------------
(in thousands)
Consolidated Parent Entity
June 1997 June 1996 June 1997 June
1996
--------- --------- --------- -----
- ----
Unlisted investments
at cost:
Shares in related bodies
corporate $ 100 $ 100 $50,779 $48,259
-------- -------- ------- -------
$ 100 $ 100 $50,779 $48,259
======== ======== ======= =======
10. Intangibles (Non-current
------------------------
(in thousands)
Consolidated Parent Entity
June 1997 June 1996 June 1997 June
1996
--------- --------- --------- -----
- ----
Goodwill on consolidation$33,966 $31,823 $ - $ -
Less accumulated
amortization (2,046) (398) - -
------- ------- ------- -------
$31,920 $31,425 $ - $ -
======= ======= ======= =======
11. Other Assets (Non-current)
--------------------------
(in thousands)
Consolidated Parent Entity
June 1997 June 1996 June 1997 June
1996
--------- --------- --------- -----
- ----
Future income tax benefit$2,399 $2,269 $ - $ -
------ ------ ------- -------
Borrowing costs 2,751 2,705 599 584
Less accumulated
amortization (475) (83) (94) (16)
------ ------ ------- -------
2,276 2,622 505 568
------ ------ ------- -------
Crown agreement costs 444 440 - -
Less accumulated
amortization - - - -
------ ------ ------- -------
444 440 - -
------ ------ ------- -------
Loan to wholly owned
controlled entity
(Note 21) - - 362 -
Other - 2 - -
------ ------ ------- -------
$5,119 $5,333 $867 $568
====== ====== ======= =======
12. Creditors and Borrowings (Current)
----------------------------------
(in thousands)
Consolidated Parent Entity
June 1997 June 1996 June 1997 June
1996
--------- --------- --------- -----
- ----
Secured:
Bank overdraft
(Notes 14(a),
26(a)) $ - $ 1 $ - $ -
------- ------- ------- ----
$ - $ 1 $ - -
======= ======= ======= ====
Unsecured:
Trade creditors 16,969 13,975 1,255 209
Finance lease
liabilities (Note 18) 390 431 - -
Loan from other party 97 - - -
------- ------- ------- ----
17,456 14,406 1,255 209
------- ------- ------- ----
$17,456 $14,407 $1,255 $209
======= ======= ====== ====
13. Provisions (Current)
--------------------
(in thousands)
Consolidated Parent Entity
June 1997 June 1996 June 1997 June
1996
--------- --------- --------- -----
- ----
Taxation $ 153 $3,992 $ - $ -
Employee entitlements 3,968 4,121 - -
Dredging 1,240 - - -
------ ------ --- ---
$5,361 $8,113 $ - $ -
====== ====== === ===
14. Creditors and Borrowings (Non-current)
--------------------------------------
(in thousands)
Consolidated Parent Entity
June 1997 June 1996 June 1997 June
1996
--------- --------- --------- -----
- ----
Secured:
Bank loans (a) $59,950 $63,450 $10,000 $14,650
Unsecured:
Loans from wholly owned
controlled entities
Note 21 (c)) - - 7,698 802
Finance lease
liabilities (Note 18) 825 1,031 - -
------- ------- ------- -------
$60,775 $64,481 $17,698 $15,452
======= ======= ======= =======
(a)The bank loans are secured by a first mortgage over the
economic entity's freehold land and buildings located in
South Australia together with equitable charges (fixed and
floating) over all assets of the economic entity.
15. Provisions (Non-current)
------------------------
(in thousands)
Consolidated Parent Entity
June 1997 June 1996 June 1997 June
1996
--------- --------- --------- -----
- ----
Employee entitlements $1,008 $1,230 $ - $ -
Dredging 0 760 - -
Deferred income tax 3,179 2,930 - -
------- ------- --- ---
$4,187 $4,920 $ - $ -
======= ======= === ===
16. Share Capital
-------------
(in thousands)
Consolidated Parent Entity
June 1997 June 1996 June 1997 June
1996
--------- --------- -----
- ---- ---------
(a) Authorized shares
of $1.00 each
2,000,000 Class A
Ordinary $2,000 $2,000 $2,000 $2,000
2,000,000 Class B
Ordinary 2,000 2,000 2,000 2,000
2,000,000 Class A
Preference 2,000 2,000 2,000 2,000
2,000,000 Class B
Preference 2,000 2,000 2,000 2,000
2,000,000 Unclassified 2,000 2,000 2,000
2,000
---------- ------ ------ ------ ------
10,000,000 Total authorized
capital 10,000 10,000 10,000 10,000
------ ------ ------ ------
(b) Issued shares of $1.00 each
fully and partly paid
1,000 Class A
Ordinary $ 1 $ 1 $ 1 $ 1
4,706 Class B
Ordinary 5 5 5 5
2,798 Class A
Preference
(partly paid) 3 2 3 2
36,000 Class B
Preference 36 36 36 36
---------- ------ ------ ------ ------
44,504 Total share
capital 45 44 45 44
---------- ------ ------ ------ ------
(c) Movement in share capital
798 Class A
Preference
(partly paid) 1 - 1 -
---------- ------ ------ ------ ------
798 Movement in
share capital 1 - 1 -
---------- ------ ------ ------ ------
Summary of share movements during the year:
During the year the company issued 798 Class A Preference shares.
The Class A Preference shares were issued at $453.335 per share,
which resulted in a premium of $452.335 per share.
17. Reserves
--------
(in thousands)
Consolidated Parent Entity
June 1997 June 1996 June 1997 June
1996
--------- --------- --------- -----
- ----
Share premium opening
balance $33,870 $33,508 $33,870 $33,508
======= ======= ======= =======
Transfers to or from
Reserves
Share premium opening
balance 33,508 - 33,508 -
Issue of Shares (Note 16) 362 - 362 -
------- ------- ------- -------
Closing balance $33,870 $33,508 $33,870 $33,508
======= ======= ======= =======
The amount of retained profits that could
be distributed as dividends and be franked
out of existing franking credits or out of
franking credits arising from the payment
of income tax in the year ended 30 June 1997
is as follows:
Class C $ 5,956 $ 1,169 $ - $ -
======= ======= ======= =======
18. Commitments for Expenditure
---------------------------
(in thousands)
Consolidated Parent Entity
June 1997 June 1996 June 1997 June
1996
--------- --------- --------- -----
- ----
(a) Capital expenditure contracted for
is payable as follows:
Not later than one year $1,680 $1,299 $ - $ -
====== ====== === ===
(b) Finance lease expenditure
contracted for is payable
as follows:
Not later than one year $ 481 $ 544 $ - $ -
Later than one year but not
later than two years 769 323 - -
Later than two years but not
later than five years 103 818 - -
------ ------ --- ---
1,353 1,685 - -
Less: Future finance charges(138) (223) - -
------ ------ --- ---
Net Finance lease liability$1,215 $1,462 $ - $ -
====== ====== === ===
Reconciled to:
Current liability
(Note 12) $ 390 $ 431 $ - $ -
Non-current liability
(Note 14) 825 1,031 - -
------ ------ --- ---
$1,215 $1,462 $ - $ -
====== ====== === ===
(c) Other commitments for expenditure
are payable as follows:
Not later than one year $4,397 $4,206 $ - $ -
Later than one year but
not later than two years2,204 4,206 - -
Later than two years but
not later than five years - 2,155 - -
------ ------ --- ---
$6,601 $10,567 $ - $ -
====== ======= === ===
19. Financial Reporting by Segments
-------------------------------
The company acts as a holding company. The major entity in the
group operates in the soda ash industry. Approximately 84
percent of its revenue is derived from the sale of products in
Australia and the balance in the Asia Pacific region.
20. Remuneration of Auditors
------------------------
(in thousands)
Consolidated Parent Entity
3 months ended 3 months
ended
June 1997 June 1996 June 1997 June 1996
--------- --------- --------- ----------
Remuneration received, or due
and receivable, by the auditor
of the parent entity and its
affiliates for:
Auditing the financial
statements $ 41 $ 43 $ 5 $ -
Other services $218 $722 $186 $676
==== ==== ==== ====
21. Related Party Disclosures
-------------------------
Directors
The following persons held the position of director of Harris
Chemical Australia Pty Limited during all of the past two
financial years, unless otherwise stated:
M. R. Boyce
T. F. Campion
R. J. Donahue - appointed 5 March 1997
D. G. Harris
C. R. Khanna
D. G. Kilpatrick - resigned 5 March 1997
R. C. Knutson - resigned 1 August 1996
M. Kwee
A. J. Petrocelli
D. A. Reid - appointed 5 March 1997
H.L.H. Tai - appointed 5 March 1997
W. F. Sum - appointed 5 March 1997 (alternate
to H.L.H. Tai)
Identities of Related Parties
Wholly Owned Group
- ------------------
The ultimate controlling entity of the economic entity in
Australia is Harris Chemical Australia Pty Ltd. The group
consists of Harris Chemical Australia Pty Limited and its wholly
owned controlled entities Skyblaze Holdings Pty Ltd., Latitude
Securities Pty Ltd. and Penrice Holdings Pty and its wholly owned
controlled entities, Penrice Soda Products Pty Ltd. and Penrice
Australia Pty Ltd. and its wholly owned (but not controlled)
entity Wingsoar Pty Ltd.
Other Related Parties During the Period
- ---------------------------------------
D. George Harris & Associates, Inc.
Harris Chemical Group, Inc.
Nortap, Inc.
Balances with Related Parties
(in thousands)
Consolidated Parent Entity
June 1997 June 1996 June 1997 June
1996
--------- ---------- --------- --------
- -
Receivable (Non-current)
Loan to wholly owned
controlled entity $ - $ - $ 362 $ -
Payable (Non-current)
Loan from wholly owned
controlled entities - - 7,698 802
The loans with the controlled
entity are interest free.
<TABLE>
Transactions with Related Parties
(in thousands)
<CAPTION>
Transaction Type Class of Terms and Related Party
Consolidated Parent Entity
3 months 3
months
Related Party Conditions ended ended
June June June June
1997 1996 1997 1996
- -------------------------------------------------------------------------------
- --------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Loan received from Controlled entityInterest freePenrice Soda Products
Pty Ltd. $ - $ - $6,896 $802
Loan advanced Controlled entityInterest freePenrice Soda Products
Pty Ltd. - - 362 -
Consultancy fees Director related Normal D. George Harris
&
entity commercial Associates, Inc.600 150 - -
terms Harris Chemical
Group, Inc. 300 75 - -
Nortap, Inc. 22 79 - -
Acquisition costs Director related NormalHarris Chemical
entity commercial Group, Inc. 20 533 20 533
terms
Dividends received Controlled entity -Skyblaze Holdings Pty
Ltd. - - 71 -
Latitude Securities Ltd. - - 106
- -
There exist contracts between a controlled entity and D. George Harris &
Associates, Inc. (of which M. R. Boyce, R. J. Donahue, D. G. Harris and A. J.
Petorcelli are directors of), Harris Chemical Group, Inc. (of which M. R.
Boyce, D. G. Harris and A. J. Petrocelli are directors of) and with Nortap,
Inc. (of which R. C. Knutson is a director). The contracts are for management
consulting services including debt, cash and other financial management,
marketing management, business strategy and technical expertise.
</TABLE>
22. Controlled Entities
-------------------
The consolidated financial statements at 30 June 1997 include
the following controlled entities. The financial years of all
controlled entities are the same as that of the parent entity.
Name of Controlled Place of % of % of
Entity Incorporation Shares held Shares
held
June 1997 June 1996
Harris Chemical
Australia Pty Limited Australia - -
Latitude Securities
Pty Ltd. Australia 100 100
Skyblaze Holdings
Pty Ltd. Australia 100 100
Penrice Holdings Pty Australia 100 100
Penrice Soda Products
Pty Ltd. Australia 100 100
Penrice Australia
Pty Ltd. Australia 100 100
Uncontrolled Majority Owned Entities
Penrice Holdings Pty (Harris Chemical Australia Pty Ltd.
indirectly) holds a 100 percent interest in the ordinary capital
of Wingsoar Pty Ltd., the corporate trustee of the Penrice
Employee Share Ownership Plan. The Company is not a controlled
entity as the company acts as a bare trustee and according to the
obligations imposed by the trust deed. Accordingly, Penrice
Holdings Pty (Harris Chemical Australia Pty Ltd. indirectly) does
not have the capacity to dominate decision making over operating
and financing activities of Wingsoar Pty Ltd.
Controlled Entities Acquired
The following controlled entities were acquired by the economic
entity at the dates stated and their operating results have been
included in the profit and loss account from the relevant date.
Entity and Date acquired Proportion
Consolidated Consolidated
consideration given of shares June 1997 June 1996
(in thousands)
Latitude Securities
Pty Ltd. 29 March 1996 100% $ - $ 4,603
2,140 ordinary shares
of $1.00 each
Skyblaze Holdings
Pty Ltd. 29 March 1996 100% - 16,808
4,254,053 ordinary
shares of $1.00 each
Penrice Holdings Pty 29 March 1996 100%
- - 21,759
4,691,091 ordinary
shares of $1.00 each
Costs associated
with acquisition - 5,089
--- -------
Total consideration $ - $48,259
=== =======
Consideration has been attributed to the
net assets of entities acquired as follows:
Fair value of net tangible assets:
Latitude Securities Pty Ltd. $ -
$ 1,177
Skyblaze Holdings Pty Ltd. -
4,325
Penrice Holdings Pty - 10,934
Goodwill - 31,823
--- -------
Total consideration $ - $48,259
=== =======
Consolidated
Consolidated
June 1997 June 1996
The amounts of assets and liabilities
acquired by major class are:
Cash -
$ 8,586
Receivables - 13,073
Inventories - 11,387
Prepayments - 1,516
Property, plant and equipment - 59,610
Investments - 100
Future income tax benefits - 2,342
Creditors - (66,729)
Provisions - (13,449)
Goodwill - 31,823
--- -------
$ - $48,259
=== =======
Outflow of cash to acquire the entities,
net of cash acquired:
Cash consideration $ - $48,259
Cash balance acquired - (8,586)
--- -------
Outflow of cash - $39,673
=== =======
23. Foreign Currency Exposure
-------------------------
The Australian dollar equivalents of foreign currency monetary
items included in the balance sheet headings to the extent that
they were not effectively hedged, are as follows:
Consolidated Parent Entity
(in thousands) June 1997 June 1996 June
1997 June 1996
Current Assets
Amounts receivable in foreign currency
which are not effectively hedged
United States dollars $ - $336 $ - $ -
=== ==== === ===
24. Superannuation Commitments
--------------------------
All employees of the economic entity are entitled, after
serving a qualifying period, to benefits on retirement,
disability or death from the Penrice Soda Product Superannuation
Fund. The Fund provides defined lump sum benefits based on years
of service and final average salary. Employees who have
qualified to join the Fund contribute to the Fund at the rate up
to 7% of their wages and salaries. The economic entity also
contributes to the Fund, generally at the rate of 12% of the
gross base salary bill. These economic entity contributions are
not legally required except for the amount required by the
Superannuation Guarantee levy. Economic entity contributions for
the year ended 30 June 1997 amounted to $1,620,000 (June 1996
$1,620,000).
The most recent actuarial valuations of the Fund on both a
discontinuance and a going concern basis by Mercer Campbell Cook
and Knight as at 30 June 1996 confirmed that the Fund had
sufficient funds to meet any benefits that would have been vested
under the Fund in the event of termination of the Fund or the
voluntary or compulsory termination of the employment of each
employee.
Defined Benefit Superannuation Plan
Penrice Soda
Products
Superannuation
Fund
At 30 June 1997
(in thousands)
Net market value of plan assets as at 30 June 1996 $16,257
Accrued benefits as at the date of last measurement 30 June 1995
13,011
-------
Excess of plan assets over accrued benefits $ 3,246
=======
Vested benefits as at 30 June 1996 $15,477
=======
At 30 June 1996
Net market value of plan assets as at 30 June 1995 $13,281
Accrued benefits as at the date of last measurement 30 June 1995
13,011
-------
Excess of plan assets over accrued benefits $ 270
=======
Vested benefits as at 30 June 1995 $13,080
=======
25. Retirement Benefits
-------------------
There were no prescribed benefits given to a person, or to a
prescribed superannuation fund, in connection with the retirement
of a person from a prescribed office in relation to a corporation
in the economic entity during the period.
26. Notes to the Statements of Cash Flows
-------------------------------------
Reconciliation of Cash
For the purposes of the statement of cash flows, cash includes
cash on hand and in banks and deposits at call, net of
outstanding bank overdrafts. Cash at the end of the period as
shown in the statement of cash flows is reconciled to the related
items in the balance sheet as follows:
(in thousands)
Consolidated Parent Entity
3 months ended 3 months
ended
June 1997 June 1996 June 1997 June 1996
--------- ---------- --------- ---------
Cash (Note 4) $1,760 $6,607 $4 $2
Bank overdraft (Note 12) - (1) - -
------ ------ -- --
1,760 6,606 4 2
------ ------ -- --
Reconciliation of net cash provided by operating
activities to operating profit/(loss) after tax
Operating profit/(loss) after
income tax 597 1,517 (825)
(383)
Add Goodwill on consolidation1,648 398 - -
Depreciation and amortization6,638 1,675 77 16
Provision for doubtful debts(18) (9) - -
Net (profit) loss on sale of
non-current assets 27 44 - -
Unrealized foreign exchange
(gains) loss (8) 99 - -
Change in operating assets
and liabilities:
(Increase)/Decrease in
receivables (182) 682 - (1)
(increase)/Decrease in
inventories (1,739) 970 - -
(Increase)/Decrease in
future income tax
benefits (130) 73 -
- -
(Increase)/Decrease in
other assets (750) (244) (10) -
Decrease)/Increase in
trade and other
creditors 1,965 (2,209) 18 12
(Decrease)/Increase in
provision for income
taxes payable (3,838) 298 1 -
Decrease)/Increase in
deferred income tax 249 (564) -
- -
(Decrease)/Increase in
other provisions 105 50 - -
------ ------ ----- -----
Net cash inflow/(outflow)
from operating
activities $4,564 $2,780 $(739) $(356)
------ ------ ----- -----
Non-Cash Financing and Investing Activities -
Property, plant and equipment
During the reporting period the economic entity acquired
property, plant and equipment with an aggregate fair value of
$208,733 by means of finance leases. These acquisitions are not
reflected in the statement of cash flows.
27. Financing Arrangements
----------------------
(in thousands)
Consolidated Parent Entity
June 1997 June 1996 June 1997 June 1996
--------- --------- --------- ---------
Banking Facilities
Total banking facilities$ 71,696$ 70,355 $ 10,000 $ 14,650
Less drawn down portion(61,861) (66,450) (10,000) (14,650)
-------- -------- -------- --------
Net unused facilities at
balance date $ 9,835 $ 3,905 $ - $ -
======== ======== ======== ========
28. Contingent Liabilities
----------------------
At year end, the economic entity had negotiated with its
bankers letters of credit amounting to $1,909,774.
(b) Set forth in this Current Report on Form 8-K/A are
Unaudited Pro Forma Condensed Consolidated Financial Statements
for IMC Global Inc. as of March 31, 1998 and for the year ended
December 31, 1997 and the three months ended March 31, 1998
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
The following Unaudited Pro Forma Condensed Consolidated
Balance Sheet as of March 31, 1998 and the Unaudited Pro Forma
Condensed Consolidated Statements of Operations for the three
months ended March 31, 1998 and the year ended December 31, 1997
have been prepared from the historical financial statements of
IMC and Harris.
The unaudited pro forma condensed financial information gives
effect to the Harris Acquisition as a purchase transaction in
accordance with Accounting Principles Board Opinion No. 16 (APB
No. 16). The Unaudited Pro Forma Condensed Consolidated
Statements of Operations presented herein have been prepared as
if the Harris Acquisition occurred on January 1, 1997. The
Unaudited Pro Forma Condensed Consolidated Balance Sheet as of
March 31, 1998 reflects the Harris Acquisition as if it had
occurred on March 31, 1998.
Additionally, the Unaudited Pro Forma Condensed Consolidated
Statement of Operations for the year ended December 31, 1997
gives effect to the merger with Freeport-McMoRan Inc. (FTX) which
was consummated on December 22, 1997 as a purchase transaction in
accordance with APB No. 16 as if it had occurred on January 1,
1997.
Penrice's most recent fiscal year ended June 30, 1997 differs
from IMC's most recent fiscal year end by more than 93 days.
Accordingly, the Unaudited Pro Forma Condensed Consolidated
Statement of Operations for the year ended December 31, 1997 has
been updated to include Penrice's results for the twelve-month
period January 1, 1997 through December 31, 1997.
HCG's most recent fiscal year ended March 29, 1997. Although
this year end does not differ from IMC's by more than 93 days,
unaudited Pro Forma Condensed Consolidated Statement of
Operations for the year ended December 31, 1997 has been updated
to include HCG's results for the twelve-month period January 1,
1997 through December 31, 1997.
The following unaudited pro forma condensed consolidated
financial information does not include pro forma financial
information for certain acquisition transactions consummated by
IMC or Harris that individually, or in the aggregate, are not
material in relation to IMC's or Harris's respective consolidated
financial position or results of operations. Certain amounts in
the historical financial statements of IMC and Harris have been
reclassified for the pro forma consolidated presentation.
The unaudited pro forma condensed consolidated financial
information includes estimates and information currently
available and is subject to change based upon final purchase
accounting of the Harris Acquisition. The unaudited pro forma
condensed consolidated financial information is not necessarily
indicative of the financial position or results which actually
would have been attained if the Harris Acquisition had been
consummated on the dates indicated above.
<TABLE>
IMC Global Inc.
Unaudited Pro Forma Condensed Consolidated Statement of Operations
For the year ended December 31, 1997
(In millions, except per share amounts)
<CAPTION>
Pro Forma IMC
Historical FTX Pro Forma Prior to Harris Historical
Harris Acquisition Pro Forma
IMC (a) Acquisition (a) Acquisition Harris
Adjustments (g) Consolidated
---------- -------------- ------------- ------- ----
- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Net sales $2,988.6 $ 0.3 $2,988.9 $802.5 $ (8.6) (b) $3,782.8
Cost of goods sold2,250.0 28.4 2,278.4 612.4 18.1 (b)(c) 2,908.9
-------- ------- -------- ------ --
- ---- --------
Gross margins 738.6 (28.1) 710.5 190.1 (26.7) 873.9
Selling, general
and administrative
expenses 251.9 35.8 287.7 89.5 - 377.2
Main Pass write-down183.7 - 183.7 - - 183.7
Exploration expenses - 15.8 15.8 - - 15.8
-------- ------- -------- ------ --
- ---- --------
Operating earnings 303.0 (79.7) 223.3 100.6 (26.7) 297.2
Other (income) and
expense, net (6.2) (1.9) (8.1) (3.9) - (12.0)
Interest expense 53.5 36.4 89.9 119.4 23.4 (d) 232.7
-------- ------- -------- ------ --
- ---- --------
Earnings (loss) before
minority interest 255.7 (114.2) 141.5 (14.9) (50.1) 76.5
Minority interest 124.4 (98.6) 25.8 3.5 (3.5) (e) 25.8
-------- ------- -------- ------ --
- ---- --------
Earnings (loss) before
taxes 131.3 (15.6) 115.7 (18.4) (46.6)
50.7
Provision for income
taxes 43.5 1.1 44.6 12.3 (14.1)
(f) 42.8
-------- ------- -------- ------ --
- ---- --------
Earnings (loss) before
extraordinary item$ 87.8 $ (16.7) $ 71.1 $(30.7) $(32.5) $ 7.9
======== ======= ======== ======
====== ========
Earnings per share -
diluted $ 0.93 $ 0.61 $ 0.07
Weighted average
number of shares
and equivalent shares
outstanding - diluted94.7 117.0 117.0
The accompanying notes are an integral part of these
unaudited pro forma condensed consolidated financial statements.
</TABLE>
<PAGE>
IMC Global Inc.
Notes to Unaudited Pro Forma Condensed Consolidated Statement of
Operations
For the year ended December 31, 1997
(In millions)
(a) In December 1997, IMC completed a merger with Freeport-
McMoRan Inc. (FTX). The combination was accounted for as a
purchase and resulted in the dissolution of FTX (FTX Merger).
The FTX Merger resulted in IMC relinquishing it 25 percent
interest in the Main Pass 299 (Main Pass) operations to Freeport-
McMoRan Sulphur Co., resulting in a charge of approximately $184
to write down the assets of Main Pass to their fair market value.
The amounts in the FTX Pro Forma Acquisition column represent pro
forma adjustments to give effect to the FTX Merger as if it had
occurred on January 1, 1997.
(b) Reflects the elimination of intercompany sales between IMC
and Harris. The impact of the related gross margin on
inventories purchased by Harris from IMC was not significant.
(See note (b) of Notes to Unaudited Pro Forma Condensed
Consolidated Balance Sheet.)
(c) Reflects: (i) amortization of approximately $10 of estimated
goodwill over 40 years; and (ii) additional depreciation and
depletion of approximately $17 resulting from the step-up of book
value to fair value of property, plant and equipment. (See notes
(d) and (e) of Notes to Unaudited Pro Forma Condensed
Consolidated Balance Sheet.)
(d) Reflects: (i) incremental interest expense of approximately
$31 incurred as a result of additional borrowings used to fund
the Harris Acquisition; (ii) interest savings of approximately $2
as a result of IMC's refinancing certain of Harris' revolver
borrowings; and (iii) the elimination of Harris' historical
deferred debt fee amortization of approximately $6. (See notes
(i), (l) and (m) of Notes to Unaudited Pro Forma Condensed
Consolidated Balance Sheet.)
(e) Reflects the elimination of a Harris preferred dividend due
to the cancellation of Harris preferred stock as a result of the
Harris Acquisition.
(f) Reflects the tax effect of Harris Acquisition adjustments,
excluding goodwill amortization, at an effective tax rate of 38
percent.
(g) As a result of the Harris Acquisition, IMC expects to
achieve cost savings through the consolidation and elimination of
certain duplicative functions, through operational and logistical
efficiencies along with interest savings associated with certain
debt restructurings. No adjustment has been included in the
Unaudited Pro Forma Condensed Consolidated Statement of
Operations for these anticipated cost savings.
As a result of the FTX Merger, IMC expects to achieve cost
savings through the consolidation of certain general and
administrative functions and other opportunities for cost
savings. No adjustments have been included in the Unaudited Pro
Forma Condensed Consolidated Statement of Operations for such
anticipated cost savings. IMC expects to realize at least $33 in
annual cost savings immediately, with an additional $8 in annual
savings expected in the seven years following the FTX Merger.
<PAGE>
<TABLE>
IMC Global Inc.
Unaudited Pro Forma Condensed Consolidated Statement of Operations
For the three months ended March 31, 1998
(In millions, except per share amounts)
<CAPTION>
Historical Historical Harris Acquisition Pro
Forma
IMC Harris Adjustments (f)
Consolidated
---------- ---------- ----------------- ------
- ------
<S> <C> <C> <C> <C>
Net sales $676.8 $231.7 $ (4.5) (a) $904.0
Cost of goods sold 503.6 164.8 2.2 (a)(b) 670.6
------ ------ ------ ------
Gross margins 173.2 66.9 (6.7) 233.4
Selling, general and
administrative expenses 64.3 20.8 - 85.1
Exploration expenses 9.5 - - 9.5
------ ------ ------ ------
Operating earnings 99.4 46.1 (6.7) 138.8
Other (income) and expense,
net (4.1) 1.7 - (2.4)
Interest expense 24.1 28.4 5.8 (c) 58.3
------ ------ ------ ------
Earnings before minority interest 79.4 16.0 (12.5)
82.9
Minority interest 5.4 0.9 (0.9) (d) 5.4
------ ------ ------ ------
Earnings before taxes 74.0 15.1 (11.6) 77.5
Provision for income taxes26.0 0.9 (3.5) (e) 23.4
------ ------ ------ ------
Earnings before extraordinary
item $ 48.0 $ 14.2 $ (8.1)
$ 54.1
====== ====== ====== ======
Earnings per share - diluted $ 0.42 $
0.47
Weighted average number of
shares and equivalent shares
outstanding - diluted 114.8 114.8
The accompanying notes are an integral part of these
unaudited pro forma condensed consolidated financial statements.
</TABLE>
<PAGE>
IMC Global Inc.
Notes to Unaudited Pro Forma Condensed Consolidated Statement of
Operations
For the three months ended March 31, 1998
(In millions)
(a) Reflects the elimination of intercompany sales between IMC
and Harris. The impact of the related gross margin on
inventories purchased by Harris from IMC was not significant.
(See note (b) of Notes to Unaudited Pro Forma Condensed
Consolidated Balance Sheet.)
(b) Reflects: (i) amortization of approximately $2 of estimated
goodwill over 40 years; and (ii) additional depreciation and
depletion of approximately $4 resulting from the step-up of book
value to fair value of property, plant and equipment. (See notes
(d) and (e) of Notes to Unaudited Pro Forma Condensed
Consolidated Balance Sheet.)
(c) Reflects: (i) incremental interest expense of approximately
$8 incurred as a result of additional borrowings used to fund the
Harris Acquisition; (ii) interest savings of approximately $1 as
a result of IMC's refinancing certain of Harris' revolver
borrowings; and (iii) the elimination of Harris' historical
deferred debt fee amortization of approximately $2. (See notes
(i), (l) and (m) of Notes to Unaudited Pro Forma Condensed
Consolidated Balance Sheet.)
(d) Reflects the elimination of a Harris preferred dividend due
to the cancellation of Harris preferred stock as a result of the
Harris Acquisition.
(e) Reflects the tax effect of Harris Acquisition adjustments,
excluding goodwill amortization, at an effective tax rate of 38
percent.
(f) As a result of the Harris Acquisition, IMC expects to
achieve cost savings through the consolidation and elimination of
certain duplicative functions, through operational and logistical
efficiencies along with interest savings associated with certain
debt restructurings. No adjustment has been included in the
Unaudited Pro Forma Condensed Consolidated Statement of
Operations for these anticipated cost savings.
<PAGE>
<TABLE>
IMC Global Inc.
Unaudited Pro Forma Condensed Consolidated Balance Sheet
As of March 31, 1998
(In millions)
<CAPTION>
Historical Historical Harris Acquisition Pro
Forma
IMC Harris Adjustments
Consolidated
---------- ---------- ----------------- ------
- ------
<S> <C> <C> <C> <C>
Assets
Cash and cash equivalents$ 123.8$ 23.2 $ 60.0 (a) $ 207.0
Accounts receivable, net 298.0 165.6 (1.3) (b) 462.3
Inventories, net 679.5 121.8 (3.4) (c) 797.9
Other assets 71.9 15.0 - 86.9
-------- -------- -------- --------
Total current assets 1,173.2 325.6 55.3 1,554.1
Property, plant and
equipment, net 2,544.5 487.0 584.1 (d) 3,615.6
Other assets 1,126.0 109.8 493.3(e)(g)(h)(i) 1,729.1
-------- -------- -------- --------
Total assets $4,843.7 $ 922.4 $1,132.7 $6,898.8
======== ======== ======== ========
Liabilities and Stockholders
Equity (Deficit)
Accounts payable $ 319.9 $ 112.0 $ (1.3) (b) $ 430.6
Accrued liabilities 200.5 89.0 42.5 (f)(j) 332.0
Current maturities and short-
term debt 106.9 41.5 591.4 (k)(l) 739.8
-------- -------- -------- --------
Total current maturities627.3 242.5 632.6 1,502.4
Long-term debt 1,393.2 911.6 (35.0) (l)(m) 2,269.8
Non-current liabilities 844.5 68.0 235.4 (n)(o)(p)1,147.9
Stockholders' equity
(deficit) 1,978.7 (299.7) 299.7 (q) 1,978.7
-------- -------- -------- --------
Total liabilities and
stockholders' equity
(deficit) $4,843.7 $ 922.4 $1,132.7 $6,898.8
======== ======== ======== ========
The accompanying notes are an integral part of these
unaudited pro forma condensed consolidated financial statements.
</TABLE>
<PAGE>
IMC Global Inc.
Notes to Unaudited Pro Forma Condensed Consolidated Balance Sheet
(In millions)
(a) Reflects the contribution of cash to Harris by IMC, the
proceeds of which were used to reduce certain indebtedness
immediately following the Harris Acquisition. (See note (m)
below.)
(b) Reflects the elimination of intercompany transactions
between IMC and Harris. (See notes (a) and (b) of Notes to
Unaudited Pro Forma Condensed Consolidated Statement of
Operations for the three months ended March 31, 1998 and the year
ended December 31, 1997, respectively.)
(c) Reflects adjustment required to record inventories at fair
value.
(d) Reflects step-up of property, plant and equipment, including
mineral reserves, from book value to fair value.
(e) Reflects estimated goodwill of approximately $400 recorded
as a result of the Harris Acquisition. (See notes (b) and (c) of
Notes to Unaudited Pro Forma Condensed Consolidated Statement of
Operations for the three months ended March 31, 1998 and the year
ended December 31, 1997, respectively.)
(f) Reflects estimated fees of approximately $20 related to the
Harris Acquisition.
(g) Reflects deferred tax assets of approximately $82 associated
with net operating loss carryforwards that are anticipated to be
realized in future years. The amount of net operating loss
carryforwards included herein is estimated using information
currently available and may change as additional information
becomes known.
(h) Reflects deferred tax assets of approximately $36
attributable to certain Harris Acquisition adjustments.
(i) Reflects the elimination of historical Harris deferred debt
fees of approximately $27. (See notes (c) and (d) of Notes to
Unaudited Pro Forma Condensed Consolidated Statement of
Operations for the three months ended March 31, 1998 and the year
ended December 31, 1997, respectively.)
(j) Reflects an accrual for severance charges of approximately
$23.
(k) Reflects adjustment of approximately $37 required to
increase debt to fair value.
(l) Reflects reclassification of approximately $554 of certain
debt which is assumed to be refinanced by IMC through the use of
short-term borrowings.
(m) Reflects incremental borrowings of approximately $519
incurred as a result of the Harris Acquisition, including
approximately $60 borrowed by Harris immediately prior to the
closing date. (See note (a) above.)
(n) Reflects deferred taxes of approximately $222 provided for
the step-up from book value to fair value on property, plant and
equipment. (See note (d) above.)
(o) Reflects deferred taxes of approximately $8 provided for
certain Harris Acquisition adjustments.
(p) Reflects purchase accounting adjustments of approximately $5
to certain liabilities assumed by IMC in the Harris Acquisition.
(q) Reflects the elimination of Harris' historical deficit.
(c) Exhibits.
No. Description
--------------------------------------------------------------
- ----------
13.1 Report of Coopers & Lybrand L.L.P.
13.2 Report of Arthur Andersen
23.1 Consent of Coopers & Lybrand L.L.P.
23.2 Consent of Arthur Andersen
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this amendment to be signed
on its behalf by the undersigned, thereunto duly authorized.
IMC Global Inc.
/s/ J. BRADFORD JAMES
J. Bradford James
Senior Vice President
and Chief Financial Officer
Date: June 15, 1998
REPORT OF COOPERS & LYBRAND L.L.P. INDEPENDENT CERTIFIED PUBLIC
ACCOUNTANTS
To the Board of Directors of Harris Chemical Group, Inc. and
Subsidiaries:
We have audited the accompanying consolidated balance sheets of
Harris Chemical Group, Inc. and Subsidiaries as of March 29, 1997
and March 30, 1996 and the related consolidated statements of
operations, cash flows and common stockholders' equity for each
of the three fiscal years in the period ended March 29, 1997.
These financial statements are the responsibility of the
Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of Harris Chemical Group, Inc. and
Subsidiaries as of March 29, 1997 and March 30, 1996 and the
consolidated results of their operations and their cash flows for
each of the three fiscal years in the period ended March 29,1997,
in conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Kansas City, Missouri
August 14, 1997
INDEPENDENT AUDIT REPORT
To the Members of Harris Chemical Australia Pty Ltd
SCOPE
We have audited the financial statements of Harris Chemical
Australia Pty Ltd for the year ended 30 June 1997, as set out on
pages 3 to 27. The financial statements include the consolidated
accounts of the economic entity comprising the company and the
entities it controlled at year's end or from time to time during
the financial year. The company's directors are responsible for
the financial statements. We have conducted an independent audit
of these financial statements in order to express an opinion on
them to the members of the company.
Our audit has been conducted in accordance with Australian
Auditing Standards to provide reasonable assurance whether the
financial statements are free of material misstatement. Our
procedures included examination, on a test basis, of evidence
supporting the amounts and other disclosures in the financial
statements and the evaluation of accounting policies and
significant accounting estimates. These procedures have been
undertaken to form an opinion as to whether, in all material
respects, the financial statements are presented fairly in
accordance with Australian Accounting Standards and other
mandatory professional reporting requirements (Urgent Issues
Group Consensus Views) and statutory requirements so as to
present a view which is consistent with our understanding of the
company's and the economic entity's financial position, the
results of their operations and their cash flows.
The audit opinion expressed in this report has been formed on the
above basis.
AUDIT OPINION
In our opinion, the financial statements of Harris Chemical
Australia Pty Ltd are properly drawn up:
(a) so as to give a true and fair view of:
(i) the state of affairs as at 30 June 1997 and of the
profit and cash flows for the financial year ended on
that date of the company and the economic entity; and
(ii) the other matters required by Division 4, 4A and 4B of
Part 3.6 of the Corporations Law to be dealt with in the
financial statements;
(b) in accordance with the provisions of the Corporations Law;
and
(c)in accordance with applicable Accounting Standards and other
mandatory professional reporting requirements as described in
Note 1 to the financial statements.
Arthur Andersen
Chartered Accountants
COLIN W DUNSFORD
Partner
Adelaide, South Australia
18 September 1997
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the prospectus
constituting part of the registration statement on Form S-3 (No.
333-27287) and in the registration statements on Form S-8 (Nos.
333-40377, 333-40781, 333-40783, 333-00439, 333-00189, 33-59687,
33-59685, 33-56911, 33-22079, 33-22080 and 33-42074) of IMC
Global Inc. of our report dated August 14, 1997, on our audits of
the consolidated financial statements of Harris Chemical Group,
Inc. as of March 29, 1997 and March 30, 1996, and for the years
ended March 29, 1997, March 30, 1996 and March 25, 1995 which
report is included in this Form 8-K/A.
COOPERS & LYBRAND L.L.P.
Kansas City, Missouri
June 15, 1998
CONSENT OF INDEPENDENT AUDITORS
As independent auditors and chartered accountants, we hereby
consent to the inclusion of our report dated 18 September 1997 in
this Current Report on Form 8-K/A with respect to our audit of
the financial statements of Harris Chemical Australia Pty Ltd
which are filed herewith as exhibit 23.2. We also hereby consent
to the inclusion of our aforementioned report in the registration
statements of IMC Global Inc. into which this Current Report on
Form 8-K/A is incorporated by reference and to all references to
our Firm included in this Current Report on Form 8-K/A.
ARTHUR ANDERSEN
Chartered Accountants
Adelaide, South Australia
15 June 1998
