<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
Amendment No. 2
IMC GLOBAL INC.
(Exact name of registrant as specified in charter)
Delaware 1-9759 36-3492467
(State or other (Commission File Number) (IRS Employer
of incorporation) Identification No.)
2100 Sanders Road
Northbrook, Illinois 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 or HCA, 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 28, 1998 and March 29, 1997 and the related
consolidated statements of operations, cash flows and common
stockholders' equity for each of the three years in the period ended
March 28, 1998 are set forth in this Current Report on Form 8-K/A.
<PAGE>
<TABLE>
HARRIS CHEMICAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
as of March 29, 1997 and March 28, 1998
(in thousands)
<CAPTION>
March 29, March 28,
1997 1998
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
$ 20,735 $ 22,626
Cash and cash equivalents
Trade accounts receivable, less
allowance for doubtful accounts of
$2,336 at March 29, 1997 and $2,383
at March 28, 1998 155,291 136,006
Other receivables 14,013 18,158
Inventories 97,413 110,592
Deferred income taxes 6,019 4,092
Other 17,411 12,573
----------- ---------
Total current assets 310,882 304,047
Property, plant and equipment, net 461,324 448,185
Goodwill 38,038 36,435
Deferred financing costs, net 30,864 25,475
Other 22,725 22,771
----------- ---------
Total assets $ 863,833 $ 836,913
========== =========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Current portion of long-term debt $ 29,946 $ 43,572
Accounts payable 98,292 109,252
Accrued expenses 35,270 30,851
Accrued interest 23,902 24,171
Accrued salaries and wages 16,325 18,348
Income taxes payable 7,327 2,980
---------- ---------
Total current liabilities 211,062 229,174
Long-term debt, net of current portion 879,379 867,563
Deferred income taxes 33,800 30,625
Other noncurrent liabilities 44,953 35,334
Mandatorily redeemable preferred stock 35,166 38,682
Commitments and contingencies (Note 8)
Common stockholders' deficit:
Common stock, at par 13 13
Additional paid-in capital 82,334 82,334
Cumulative translation adjustment (1,194) (1,208)
Accumulated deficit (419,725) (443,649)
Treasury stock, at cost (1,955) (1,955)
---------- ---------
Total common stockholders' deficit
(340,527) (364,465)
---------- ---------
Total liabilities and stockholders' $ 863,833 $ 836,913
deficit
========== =========
</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 28, 1998
(in thousands)
<CAPTION>
FY 1996 FY 1997 FY 1998
---------- ---------- ----------
<S> <C> <C> <C>
Net sales $ 649,997 $ 705,578 $ 705,451
Cost of sales 480,570 528,299 533,207
-------- --------- ---------
Gross profit 169,427 177,279 172,244
Selling, general and
administrative expenses 84,918 80,752 77,152
Asset impairment charge 7,044 - -
-------- --------- ---------
Operating income 77,465 96,527 95,092
Other income (expense):
Interest expense
Foreign currency transaction (95,005) (107,626) (114,197)
losses, net (1,703) (2,278) (637)
Other, net 4,667 4,514 6,117
--------- --------- ---------
Loss before taxes, minority
interest, discontinued
operations and extraordinary
item (14,576) (8,863) (13,625)
Provision for income taxes 12,956 13,800 4,283
-------- -------- ---------
Loss before minority interest,
discontinued operations and
extraordinary item (27,532) (22,663) (17,908)
Minority interest in net income
and preferred dividends of
subsidiary 3,905 - -
-------- -------- ---------
Loss before discontinued
operations and extraordinary
item (31,437) (22,663) (17,908)
Loss from discontinued operations (2,224) - -
Loss on disposal of discontinued
operations (6,371) - -
-------- -------- ---------
Loss before extraordinary item (40,032) (22,663) (17,908)
Extraordinary item - loss on
early retirement of debt - - (2,500)
-------- -------- --------
Net loss (40,032) (22,663) (20,408)
Preferred stock dividend
requirements (1,035) (3,080) (3,516)
-------- --------- --------
Net loss attributable to common
stockholders (41,067) (25,743) (23,924)
======== ======== =========
</TABLE>
The accompanying notes are an integral part of the financial
statements.
<PAGE>
<TABLE>
HARRIS CHEMICAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMMON STOCKHOLDERS' EQUITY (DEFICIT)
for the three fiscal years ended March 28, 1998
(in thousands)
<CAPTION>
Comm Additi Cumula Treasu
on onal tive Accumu ry
Stoc Paid- Transl lated Stock, Total
k, in ation Defici at
at Capita Adjust t Cost
Par l ment
---- ------ ------ ------ ------ ------
---- ----- ----- ----- ----- -----
--
<S> <C> <C> <C>
<C> <C> <C>
Balance, March $ $ $ $ $ $
25, 1998 10 113,3 (3,398 (352,9 (1,115 (244,0
88 ) 15) ) 30)
Acquisition of - - - - (763) (763)
treasury stock
Transfer for
issuance of 3 (3) - - - -
capital stock
Issuance of - (31,05 - - - (31,05
preferred stock 1) 1)
Translation - - (648) - - (648)
adjustment
Net loss - - - (40,03 - (40,03
2) 2)
Dividends on
mandatorily - - - (1,035 - (1,035
redeemable ) )
preferred stock
---- ----- ----- ----- ----- -----
--- ----- ----- ---- ----- -----
Balance, March 13 82,33 (4,046 (393,9 (1,878 (317,5
30, 1996 4 ) 82) ) 59)
Acquisition of - - - - (77) (77)
treasury stock
Translation - - 2,852 - - 2,852
adjustment
Net loss - - - (22,66 - (22,66
3) 3)
Dividends on
mandatorily - - - (3,080 - (3,080
redeemable ) )
preferred stock
---- ----- ----- ----- ----- -----
--- ----- ----- ---- ----- -----
Balance, March 13 82,33 (1,194 (419,7 (1,955 (340,5
29, 1997 4 ) 25) ) 27)
Translatiojn - - (14) - - (14)
adjustment
Net loss - - - (20,40 - (20,40
8) 8)
Dividends on
mandatorily - - - (3,516 - (3,516
redeemable ) )
preferred stock
---- ----- ----- ----- ----- -----
--- ----- ----- ---- ----- -----
Balance, March $ $ $ $ $ $
28, 1998 13 82,33 (1,208 (443,6 (1,955 (364,4
4 ) 49) ) 65)
==== ===== ===== ====== ===== =====
=== ===== ===== ==== ===== =====
</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 28, 1998
(in thousands)
<CAPTION>
FY 1996 FY 1997 FY 1998
------- ------- -------
<S> <C> <C> <C>
Cash flows from operating activities:
Loss before extraordinary item $(40,032) $(22,663) $(17,908)
Adjustments to reconcile loss to net
cash flows from operating activities:
Depreciation 66,004 61,551 65,295
Finance fee amortization 6,191 7,510 5,889
Operating amortization 1,838 4,951 4,548
Accreted interest 19,362 1,280 4,052
Deferred income taxes 5,354 4,615 (1,810)
Unrealized foreign currency
transaction losses (gains) (3,028) (6,396) 180
Loss on disposal of discontinued
operations 6,371 - -
Loss (gain) on disposal of 218 1,218 (275)
property, plant and equipment
Asset impairment charge 7,044 - -
Minority interests 3,905 - -
Other 139 436 (106)
Changes in operating assets and
liabilities:
Receivables (13,062) (20,399) 17,917
Inventories (9,443) 15,517 (11,893)
Other assets (2,289) (8,908) 392
Accounts payable (21,025) 16,643 12,055
Accrued expenses and other
nonconcurrent liabilities 3,147 (8,590) (15,571)
-------- -------- --------
Net cash provided by operating
activities 30,694 46,765 62,765
-------- -------- --------
Cash flows from investing activities:
Capital expenditures (46,610) (42,109) (47,751)
Capitalized interest (4,230) (1,244) (243)
Proceeds from sales of property, plant
and equipment 554 867 896
Acquisition of minority interest (49,671) - -
Other (1,730) (881) 764
Acquisition of treasury stock (763) (77) -
-------- -------- --------
Net cash used in investing
activities (102,450) (43,444) (46,334)
-------- -------- --------
Cash flows from financing activities:
Revolver borrowings 159,204 212,620 164,170
Revolver payments (120,287) (285,745) (155,302)
Issuance of long-term debt 109,648 98,152 -
Principal payments on other long-term
debt, including capital leases (38,957) (23,435) (22,285)
Capitalized finance costs (6,608) (7,289) (232)
Redemption of preferred stock (19,110) - -
Dividends paid (1,940) - -
Other - - (704)
-------- -------- --------
Net cash provided by (used in)
financing activities 81,950 (5,697) (14,353)
-------- -------- --------
Effect of exchange rate changes on cash
and cash equivalents 445 91 (187)
-------- -------- --------
Net increase (decrease) in cash and
cash equivalents 10,639 (2,285) 1,891
Cash and cash equivalents, beginning of
period 12,381 23,020 20,735
-------- -------- --------
Cash and cash equivalents, end of
period $ 23,020 $ 0,735 $ 22,626
======== ======== ========
Supplemental cash flow Information:
Interest paid including capitalized
interest $72,088 $103,295 $107,571
Income taxes paid 5,599 11,737 9,561
Supplemental disclosure of noncash
activities:
Assets acquired under capital leases $ 6,316 $ 7,939 $ 6,474
Acquisition (Note 6) 9,008 - -
Dividends on mandatorily redeemable
preferred stock 1,035 3,080 3,516
</TABLE>
The accompanying notes are an integral part of the financial
statements.
<PAGE>
HARRIS CHEMICAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Organization:
Harris Chemical Group, Inc. ("HCG" or the "Company") is a producer
and marketer of inorganic chemical and extractive mineral products with
manufacturing sites in North America and 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.
On April 1, 1998, all of the outstanding Common Stock (including
stock options) and preferred stock of HCG was acquired by IMC Global
Inc., a Delaware Corporation ("IMC"). IMC paid cash and assumed all of
the outstanding debt of the Company, pursuant to an Agreement and Plan
of Merger dated December 11, 1997, by and among HCG, IMC and IMC Merger
Sub Inc., a Delaware corporation and a wholly-owned subsidiary of IMC.
On April 1, IMC Merger Sub Inc. was merged with and into HCG (the
"Merger") and as a result, HCG became a wholly-owned subsidiary of IMC.
Subsequent to the Merger, HCG changed its name to IMC Inorganic
Chemicals Inc. Additionally, certain subsidiaries of HCG have changed
their names, as noted below. The consolidated financial statements
include the consolidated accounts of: 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, IMC Chemicals Inc.
(formerly North American Chemical Company, "NACC"), NAMSCO Inc.
("NAMSCO") and its wholly owned subsidiaries, IMC Salt Inc. (formerly
North American Salt Company, "NASC") and Sifto Canada Inc. ("Sifto"),
and GSL Corporation ("GSL") and its wholly owned subsidiary IMC Kalium
Ogden Corp. (formerly 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").
Prior to the Consolidation, these companies were under common control.
As a result of the Consolidation, NUK and HIC became subsidiaries of
HCEL, a newly formed entity, and all of the exchanging NUK Stockholders
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"). This
consolidation has been accounted for similar to 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 Stockholders 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 similar to 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:
a. 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.
b. 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.
c. 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 stockholders' equity.
Exchange gains and losses from transactions denominated in a currency
other than the Company's functional currency are included in income.
d. 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. FYs 1998 and 1997
include 52 weeks and FY 1996 includes 53 weeks. On April 1, 1998, in
connection with the Merger, the Company changed its fiscal year end to
December 31.
e. 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.
f. 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.
g. 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.
h. 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
replacements 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
i. Deferred Financing Costs: Deferred financing costs are net of
accumulated amortization of $20,303,000 in FY 1997 and $26,151,000 in
FY 1998. Deferred financing costs are amortized using the effective
interest rate method over the term of the related debt.
j. Income Taxes: 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.
k. Research and Development Expenses: Research and development
expenditures are expensed as incurred and were approximately
$1,041,000, $1,010,000 and $1,147,000 in FYs 1996, 1997 and 1998,
respectively.
l. 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 manage
ment's estimates of all direct costs 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.
m. Reclassifications: Certain reclassifications have been made to the
prior years' financial statements to conform with the current year
presentation.
n. Recently Issued Accounting Standards: In June 1997, SFAS No. 130,
"Reporting Comprehensive Income" was issued. This statement
establishes standards of reporting and display of comprehensive income
and its components in a full set of general purpose financial
statements. Also in June 1997, SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information" was issued. This
statement establishes standards of reporting and displaying segments of
a business by requiring segments to be disclosed in accordance with
management's criteria for reviewing operating performance. In February
1998, SFAS No. 132, "Employers Disclosures about Pensions and Other
Post-retirement Benefits" was issued. This statement establishes
standards of reporting and displaying information about pension plans
and other benefit plans. These statements will be effective for the
Company's reporting period ending December 31, 1998 (see the discussion
regarding the change in the Company's fiscal year end in Note 2) and
require comparative prior period presentation. Adoption of these
statements is not expected to significantly alter the Company's
financial statement presentation. In June 1998, SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities" was
issued. This statement establishes accounting and reporting standards
for derivative instruments. This statement will be effective for the
Company's reporting period ending December 31, 2000; however, since the
Company does not have any derivative instruments, adoption of this
statement will not impact the Company's financial statement
presentation.
3. Inventories:
Inventories are stated at the lower of cost or market, and consist
of the following (in thousands):
<TABLE>
<CAPTION>
March 29, 1997 March 28, 1998
-------------- --------------
<S> <C> <C>
Finished goods $ 59,808 $ 71,028
Raw materials and
supplies 39,564 37,605
----------- -----------
$ 97,413 $ 110,592
=========== ===========
</TABLE>
<PAGE>
As of March 29, 1997 and March 28, 1998 approximately 45% and 40%,
respectively, 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
$3,402,000 at March 29, 1997 and $3,377,000 at March 28, 1998.
4. Property, Plant & Equipment:
Property, plant and equipment consists of the following (in
thousands):
<TABLE>
<CAPTION>
March 29, 1997 March 28, 1998
-------------- --------------
<S> <C> <C>
Land and buildings $ 128,499 $ 134,615
Machinery and equipment 601,410 638,899
Solar ponds complex 33,233 36,776
Rolling stock and track 7,464 8,737
Furniture and fixtures 9,248 9,543
Construction in progress 25,108 28,008
---------- ----------
804,962 856,578
Less accumulated
depreciation 343,638 408,393
---------- ----------
$ 461,324 $ 448,185
========== ==========
</TABLE>
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 the
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 1996, 1997 and 1998 consist of the
following (in thousands):
<TABLE>
<CAPTION>
FY 1996 FY 1997 FY 1998
--------- --------- ---------
<S> <C> <C> <C>
Current:
Federal $ 50 $ 465 $ -
State 150 760 711
Foreign income 6,618 4,425 1,964
Foreign mining 984 3,050 2,801
--------- --------- --------
Total current 7,802 8,700 5,476
Deferred:
Federal (14,362) (14,744) (8,989)
State (3,314) (3,420) (2,166)
Foreign income 2,600 2,810 (2,848)
Foreign mining 1,032 535 2
Change in valuation allowance 19,198 19,919 12,808
--------- --------- --------
Total deferred 5,154 5,100 (1,193)
--------- --------- --------
Total provision before extraordinary
item 12,956 13,800 4,283
Tax benefit of extraordinary item -
early extinguishment of debt - - (875)
Valuation allowance - - 875
--------- --------- --------
Total provision for income taxes $ 12,956 $ 13,800 $ 4,283
========= ========= ========
</TABLE>
The sources of income (loss) before taxes, minority interests,
discontinued operations and extraordinary item s are as follow (in
thousands):
<TABLE>
<CAPTION>
FY 1996 FY 1997 FY 1998
--------- --------- --------
<S> <C> <C> <C>
United States $(32,432) $(31,733) $(12,195)
Foreign 17,856 22,870 (1,430)
-------- -------- --------
$(14,576) $ (8,863) $(13,625)
======== ======== ========
</TABLE>
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 1996, FY 1997 or FY
1998. Total undistributed earnings on which no U.S. federal income tax
has been provided were $66.0 million at March 28, 1998. 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:
<TABLE>
<CAPTION>
FY 1996 FY 1997 FY 1998
--------- --------- ---------
<S> <C> <C> <C>
U.S. federal statutory tax rate 35.0% 35.0% 35.0%
U.S. statutory depletion 36.9 54.8 40.6
State income taxes, net of
federal tax benefit 14.1 19.5 6.9
Foreign income tax rate
differential (20.4) 8.7 2.8
Foreign mining taxes (13.8) (40.4) (20.6)
Change in valuation allowance (131.7) (224.7) (103.3)
Other, net (9.0) (8.6) 7.1
-------- -------- --------
Effective tax rate (88.9)% (155.7)% (31.5)%
======== ======== ========
</TABLE>
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):
<TABLE>
<CAPTION>
March 29, March 28,
1997 1998
---------- ---------
<S> <C> <C>
Deferred tax liabilities: $ 47,800 $ 45,607
Fixed assets and depreciation 525 481
Inventories 7,925 6,999
Other ---------- ----------
56,250 53,087
---------- ----------
Deferred tax assets:
Inventories $ 200 202
Accrued reserves and liabilities 7,640 5,127
Interest on high yield debt 19,794 19,795
Prepaid income 9,630 8,878
Net operating loss carryforwards 80,300 97,121
Alternative minimum tax credit
carryforwards 2,720 2,274
Other 5,900 4,555
---------- ----------
126,184 137,952
Less valuation allowance 97,715 111,398
---------- ----------
28,469 26,554
---------- ----------
Net deferred tax liabilities 27,781 26,533
Less net current deferred tax
assets 6,019 4,092
---------- ----------
Net long-term deferred tax
liabilities $ 33,800 $ 30,625
========== ==========
</TABLE>
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. The Company
carried a valuation allowance relating to such items of $97.7 million
and $111.8 million as of March 29, 1997 and March 28, 1998,
respectively.
At March 28, 1998, net operating loss carryforwards for U.S. federal
income tax purposes available to offset future taxable income for the
Company are approximately $229 million. If not utilized, these
carryforwards expire in the FYs 2005 through 2013. Certain European
subsidiaries that file separate foreign tax returns have net operating
loss carryforwards for foreign tax purposes of $12.4 million.
In addition, the Company has a U.S. federal alternative minimum tax
credit carryforward at March 28, 1998 of approximately $2.3 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.
The Company has begun assessing the impact the Merger (see Note 1)
will have on the valuation allowance relating to the future utilization
of net operating loss carryforwards. The ultimate utilization of these
net operating loss carryforwards by the Company, as a subsidiary of
IMC, will be impacted by the future profitability of HCG and its
subsidiaries and will further be subject to annual limitations under
the change in control provisions of the IRS and foreign rules and
regulations.
6. Long-term Debt:
Long-term debt consists of the following (in thousands):
<TABLE>
<CAPTION>
March 29, March 28,
1997 1998
---------- ---------
<S> <C> <C>
Harris:
Senior debt: $ 100,000 $ 100,000
Notes payable, 8.5%, due July 15, 2000 250,000 250,000
Notes payable, 10.25%, due July 15, 2001
Senior subordinated debt:
Notes payable, 10.75%, due October 15, 2003 335,000 335,000
Revolving lines of credit - 3,000
Argus utilities notes payable, 12.3%, due
through 2011 73,517 71,502
Other, including capital lease obligations 25,258 17,833
HCEL:
Senior debt, LIBOR plus 2% (9.6% at
March 28, 1998), due through 2002 68,299 69,427
Subordinated debt, interest at LIBOR plus
9.4% (17.0% at March 28, 1998), due in 2003
and 2004 35,403 39,202
Revolving lines of credit 5,119 10,987
Other, including capital lease obligations 16,729 14,184
--------- ---------
909,325 911,135
Less current portion (29,946) (43,572)
--------- ---------
$ 879,379 $ 867,563
========= =========
</TABLE>
<PAGE>
Contractual maturities of long-term debt at March 28, 1998 are as
follows (in thousands):
<TABLE>
<CAPTION>
Fiscal Year
------------------------------
<S> <C>
1999 $ 43,572
2000 21,617
2001 124,276
2002 269,338
2003 15,760
Thereafter 436,572
------------
Total $ 911,125
============
</TABLE>
Harris - In FY 1994, Harris issued $250 million of 10.25% Senior
Secured Discount Notes due July 15, 2001 (the "Discount Notes"), $335
million of 10.75% Senior Subordinated Notes due October 15, 2003 (the
"Senior Subordinated Notes") and Sifto issued $100 million of 8.5%
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:
<TABLE>
<CAPTION>
Senior Subordinated
Discount Notes Notes
------------------ -------------------
<S> <C> <C>
1998 103.0% 104.05%
1999 101.5% 102.70%
2000 100.0% 101.35%
2001 and thereafter 100.0% 100.00%
</TABLE>
The Notes require that Harris or Sifto, as applicable, offer to
purchase all of the outstanding Notes for 101% of their principal
amount plus accrued interest ("Offer to Purchase") within 60 days
following a change of control of Harris or HCG. The consummation of
the Merger (see Note 1) on April 1, 1998, resulted in a change of
control transaction, as defined by the Indentures, pursuant to which
the Notes were issued. The Offer to Purchase was made and expired on
June 29, 1998. Approximately $3.2 million of the Notes were
repurchased.
On September 1, 1998, Sifto commenced a cash tender offer for the
Sifto Notes then outstanding. The tender offer is based on a
discounted cash flow calculation of the Sifto Notes' remaining
principal and interest payments through maturity. The amount redeemed
will be funded by IMC.
At March 28, 1998, the Company had a $130 million revolving line of
credit ("US Credit Facility") with a group of lenders for three of its
U.S. subsidiaries (NACC, NAMSCO and GSL). At March 28, 1998, the
Company had $3 million outstanding under the US Credit Facility. The
US Credit Facility is guaranteed by the Company and each of the
Company's other U.S. subsidiaries, and is collateralized by the trade
accounts receivable (63% of consolidated trade accounts receivable at
March 28, 1998) and product inventories (77% of consolidated inventory
at March 28, 1998) of NACC, NAMSCO and GSL. The US Credit Facility
terminates on the earlier of February 28, 2002 or February 15, 2001 if
any Discount Notes are outstanding as of such date. The US Credit
Facility accrues interest, at Harris' option, at either a defined US
Base Rate plus 1.50% or LIBOR plus 2.75%. Commitment fees of 0.375%
per year of the unused portion of the US Credit Facility are payable
quarterly. Simultaneously with the consummation of the Merger (see
Note 1), the lenders under the US Credit Facility assigned all of their
rights and interest under the US Credit Facility to IMC. The Company
modified its US Credit Facility in May 1998 to delete or change certain
covenant requirements.
At March 28, 1998, Sifto had a $20 million revolving line of credit
("Sifto Credit Facility") with a group of Canadian banks which would
terminate on the earlier of February 28, 2002 or February 15, 2001 if
any Discount Notes are outstanding on such date. The Sifto Credit
Facility is collateralized by the trade accounts receivable (11% of
consolidated trade accounts receivable at March 28, 1998) and product
inventories (11% of consolidated inventory at March 28, 1998) of Sifto
and accrues interest, at Sifto's option, at either a defined Canadian
Base Rate plus 1.50%, or a defined Bankers Acceptance Loan Rate plus
2.75%. Commitment fees of 0.375% per year of the unused portion of the
Sifto Credit Facility are payable quarterly. Sifto terminated the
Sifto Credit Facility simultaneously with the consummation of the
Merger (see Note 1).
Harris has pledged the common stock of NACC, NAMSCO and GSL for the
benefit of the Discount Notes and the Sifto Notes. The Sifto Notes are
collateralized by all of the assets of Sifto, other than trade accounts
receivable and product inventories (10% of consolidated assets at March
28, 1998). Borrowing capacity under the US and Sifto credit facilities
is reduced by outstanding letters of credit, which totaled $25.9
million at March 28, 1998. The Company had $72.7 million of available
borrowing capacity under its revolving credit facilities at March 28,
1998. Prior to its assumption by IMC and amendment, the revolving
credit facilities required Harris to maintain certain minimum interest
coverage, fixed charge and net funded debt coverage ratios.
In August 1995, NACC and NaTec Resources, Inc. ("NRI") executed an
agreement regarding the acquisition by NACC of the remaining 50%
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 and has
been classified as Current portion of long-term debt in the
accompanying Consolidated Balance Sheet of March 28, 1998.
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 5 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%. 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%, payable semi annually, plus rolled up interest at a variable
rate 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 collateralized by
substantially all of the assets of NUK and Salt Union Limited (8% of
consolidated assets at March 28, 1998) and the stock of M&W and SCL.
Substantially all of 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. Subsequent to March 28,
1998 the Senior Debt, Senior Subordinated Debt and revolving credit
facility were repaid and replaced with interest bearing intercompany
loans from IMC.
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 $6,367,000, $6,396,000 and $5,842,000 in
FYs 1996, 1997, and 1998, respectively.
NAMSCO, SUL and M&W have defined benefit pension plans that cover
certain of their hourly employees. Benefits are based on years of
service and levels of compensation. NAMSCO and SUL fund an amount
equal to the maximum allowable deduction for tax purposes. Net
periodic pension cost for FYs 1996,1997, and 1998, was $1,930,000,
$1,715,000 and $1,878,000, respectively. At March 28, 1998, the NAMSCO
and SUL plans are fully funded with the fair value of plan assets
available totaling $35,983,000 and have net accrued pension assets of
$293,000. The defined benefit plan for M&W employees is unfunded and
has a liability of $5,555,000 at March 31, 1998. The Company
distributed the assets of a GSL defined benefit pension plan to the
vested participants in FY 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 cost basis and
accumulated depreciation of $31,887,000 and $11,059,000, respectively,
at March 29, 1997 and a cost basis and accumulated depreciation of
$34,856,000 and $14,042,000, respectively, at March 28, 1998. These
capital leases 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):
<TABLE>
<CAPTION>
Fiscal Capital Operating
Year Leases Leases
------------------------------ ------------- ------------
<S> <C> <C>
1999 $ 7,625 $ 21,237
2000 4,996 18,309
2001 2,848 15,130
2002 573 14,659
2003 109 14,253
Thereafter - 128,002
--------- ----------
Total 16,151 $ 211,590
==========
Less amounts representing
interest 1,801
---------
Present value of net minimum
lease payments $ 14,350
=========
</TABLE>
Rental expense, net of sublease income, for FYs 1996, 1997 and 1998
was $16.9 million, $19.5 million and $23.0 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% 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 $6,732,000, $4,675,000
and $3,274,000 in FYs 1996, 1997 and 1998, 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 $2,018,000,
$3,459,000 and $3,826,000 in FYs 1996, 1997 and 1998, 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 28, 1998, the Company has recorded
accruals of $10.7 million ($3.8 million classified in accrued expenses
and $6.9 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. The
Company has given notice of this potential liability to the former
owner and of its intention to seek indemnification for any resulting
liabilities. Any unresolved indemnification claim will be decided by
arbitration. The final outcome of this matter and range of loss
exposure is uncertain at this time.
On April 19, 1998, a spill of monoethanolamine ("MEA") occurred at
the NACC's Searles Valley, California, facility. Subsequent to the
spill, the California Regional Water Quality Board ("CRWQB") performed
an inspection of the site and sampled various effluent sites at the
facility. On September 1, 1998, the CRWQB served a Notice of Violation
("NOV") on NACC alleging that NACC has violated Waste Water Discharge
Requirements and the California Water Code and ordering NACC to cease
the discharge of MEA and certain other materials not allowed by the
Waste Discharge Requirements. The NOV also requested that NACC provide
by September 30, 1998, a workplan to perform a systematic audit of the
facility to determine if other non-native materials have been or are
being discharged. The NOV further requests that NACC implement the
workplan by October 30, 1998, and that NACC submit by December 31,
1998, a complete technical report, including data and information
gathered, conclusions based on collected data and proposals for any
additional site investigation necessary. The report is to include a
full description of the process and waste streams at the facility.
NACC has responded by letter to the NOV and continues to gather data.
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% 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. $65 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 initial investment in Novacarb. In addition, HCG must
make certain interest payments at the rate of the Paris Interbank
Offered Rate plus 1% 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
up-front 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% of Novacarb's production at total cost (including
depreciation) plus 2%, and Novacarb's parent company will commit to
purchasing 100% of its soda ash and sodium bicarbonate needs from HCG.
The up-front 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 payments if the acquisition is not consummated due to the actions
of HCG.
Year 2000: As the millennium approaches, the Company is in the process
of addressing the Year 2000 issue and the effect it will have on its
information systems, environmental and safety issues, product
production, shipping and overall operations. This effort consists of a
five step program: 1) Awareness sessions with each business unit and
each facility, 2) Taking inventory of all known potential points of
failure, 3) Performing a Risk Assessment of all inventory items, 4)
Remediation of all known High Risk items, and 5) Contingency planning
for delayed fixes and surprise failures. Additionally, a concurrent
effort is in process to identify all key vendors and service providers
to assess their readiness for Year 2000. Form letters requesting
information regarding the Year 2000 readiness are being mailed to all
key vendors and suppliers and responses will be reviewed.
The Awareness and Inventory phases of the Company Year 2000
compliance program have been completed and the Risk Assessment phase
will be substantially completed by the fourth quarter of 1998. The
cost of this five step program is expected to be approximately $1
million.
The Company expects to have all High Risk issues identified and be
in the process of remediation by the end of 1998. The goal is to be
compliant by June 1999 and well into the Contingency planning phase by
that time. However, there can be no assurance that all Year 2000
issues of the Company or of the companies on which the Company=s
systems rely will also be converted or that any such failure to convert
by another company would not have adverse effects on the Company=s
systems. In summary, the Company has a plan to achieve compliance by
Year 2000 and the plan is on schedule, with few exceptions, and is
being tracked and monitored.
9. Related Party Transactions:
Certain stockholders of HCG have minority ownership interests in
Penrice Soda Products Pty Ltd. ("Penrice"), U.S. Silica 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 $458,000 and $210,000 at March
29, 1997 and March 28, 1998, respectively. During FY 1997 and FY 1998,
NACC sold products to Penrice valued at $118,000 and $43,000,
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 was a shareholder in HCG. Annual rentals
under the agreement were $1.7 million per year payable quarterly for
the initial four-year period. Additional rents were due at $3 per ton
for shipments in excess of 850,000 tons per year. The Company had 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. This transaction was
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. During fiscal year
1998, the Company exercised its option to repurchase the port
facilities. On December 31, 1997, the Company reached an agreement as
to the fair market value of the facilities, $9.5 million, and paid that
amount to SDT in satisfaction of its obligations under the lease
agreement. As a result, the Company has recorded an extraordinary
loss, net of income taxes, of $2.5 million in fiscal 1998 for the early
extinguishment of debt.
10. Fair Value of Financial Instruments:
The carrying amounts and estimated fair values of the Company's
financial instruments at March 28, 1998 are as follows (in thousands):
<TABLE>
<CAPTION>
Carrying Estimated
Value Fair Value
-------------- -------------
<S> <C> <C>
Harris:
Senior debt:
Notes payable, 8.5% $ 100,000 $104,250
Notes payable, 10.25% 250,000 261,875
Subordinated debt:
Notes payable, 10.75% 335,000 355,938
Revolving lines of credit 3,000 3,000
Argus Utilities notes payable,
12.3% 71,502 71,502
Other, including capital lease
obligations 17,833 17,833
HCEL:
Senior debt 69,427 69,427
Subordinated debt 39,202 39,202
Revolving lines of credit 10,987 10,987
Other, including capital lease
obligations 14,184 14,184
</TABLE>
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,
Argus Utilities and Other, including Capital Lease Obligations: The
interest rate on this debt is, generally, variable. The Company
believes that the interest rate, including the applicable margin
percentage, was reflective of interest rates which were available
to the Company at year end for obligations with similar terms and
maturities. Therefore, 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 27,
1998.
11. 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 28, 1998.
Total
Outstan
Class A Class B Class C Class D Treasu ding
ry Common
------- ------- ------- ------- ------ -------
--- --- --- --- --- ----
[S] [C] [C] [C] [C] [C] [C]
Number of issued
and
treasury shares 626,30 268,82 106,90 - (5,899 996,13
at 4 8 4 ) 7
March 25, 1995
HCG-NUK share - - 194,74 - - 194,74
exchange 5 5
HCG-HIC share - - 42,424 28,282 - 70,706
exchange
Other stock
repurchases (28,502 - (28,913 57,415 - -
and sales ) )
Treasury stock - - - - (9,494 (9,494)
purchases )
------ ------- ------- ------- ------ -------
--- -- -- -- --- --
Number of issued
and
treasury shares 597,80 268,82 315,16 85,697 (15,39 1,252,
at 2 8 0 3) 094
March 30, 1996
------ ------- ------- ------- ------ -------
--- -- -- -- --- --
Treasury stock - - - - (488) (488)
purchases
------ ------- ------- ------- ------ -------
--- -- -- -- --- --
Number of issued
and
treasury shares
at 597,80 268,82 315,16 85,697 (15,39 1,251,6
March 29, 1997 2 8 0 3) 06
and
March 28, 1998
====== ======= ======= ======= ====== =======
=== == == == === ==
Total outstanding
common
shares at March 583,99 268,82 315,08 85,697
29, 1997 2 8 9
and March 28,
1998
====== ======= ======= =======
=== == == ==
[/TABLE]
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% 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 and March 28, 1998, 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 anytime 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 and 1998, HCG issued 3,257 and 3,431 shares,
respectively, of Non-Convertible Preferred Stock as payment of
dividends on the Convertible Preferred Stock. These shares have a
liquidation value of $6,855,000, including accrued but unpaid dividends
of $167,000.
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 78,041 shares of Class A Common Stock may be issued
under the plan. Options vest at 20% per year over a five year period
and no option may be exercised after ten years from the date of grant.
The options are not transferrable. The Company accounts for this plan
under Accounting Principles Board Opinion No. 25 and the related
interpretations. There was no compensation expense recognized in FY=s
1996, 1997 or 1998 since the exercise prices approximated fair market
value on the grant date. Had the Company used Statement of Accounting
Standards No. 123 AAccounting for Stock-Based Compensation@ (SFAS 123),
pro-forma net loss attributable to common stockholders would have been
$41,121,000, $25,797,000 and $24,080,000 for FY=s 1996, 1997 and 1998,
respectively.
Stock Option Activity for FY's 1996, 1997 and 1998 is summarized as
follows:
<TABLE>
<CAPTION>
1996 1997 1998
------------ ------------ ------------
--- --- ---
Weigh Weigh Weigh
ted ted ted
Avera Avera Avera
Numbe ge Numbe ge Numbe ge
r Exerc r Exerc r Exerc
ise ise ise
Price Price Price
----- ----- ----- ----- ----- -----
--- --- --- --- --- ---
<S> <C> <C> <C> <C> <C> <C>
Outstanding, beginning of - - 9,600 100.0 9,300 100.0
year 0 0
Granted 9,600 100.0 - - 17,00 88.00
0 0
Exercised - - - - - -
Forfeited - - (300) 100.0 (850)100.0
0 0
Expired - - - - - -
Outstanding, end of year 9,600 100.0 9,300 100.0 25,45 91.98
0 0 0
Exercisable, end of year - - 1,860 100.0 3,380 100.0
0 0
Available for grant, end of
year 16,61 16,91 52,59
0 0 1
Weighted average fair value $31.12 - $30.
of 17
options granted during
year
</TABLE>
<PAGE>
The fair value of the options granted were estimated as of the date
of grant using the Black-Scholes option pricing model. The model
assumed:
<TABLE>
<CAPTION>
1996 1997 1998
--------- -------- --------
<S> <C> <C> <C>
Dividend rate per share - - -
Expected volatility 0.1% - 0.1%
Expected life (years) 7 - 7
Risk free interest rate 5.5% - 6.2%
</TABLE>
The options outstanding at March 28, 1998 have an exercise price
range of $88 to $100, with a weighted average contractual life of 8.8
years.
In connection with the Merger (see Note 1), each outstanding stock
option, whether or not then exercisable, was canceled and optionholders
received a cash payment for each option equal to the amount per share
IMC paid for each share of HCG stock, less the applicable exercise
price.
12. Other Income:
Other income, net consists of the following (in thousands):
<TABLE>
<CAPTION>
FY 1996 FY 1997 FY 1998
--------- --------- ---------
<S> <C> <C> <C>
Land lease and revenue sharing -
cogeneration facility $ 4,033 $ 4,774 $ 5,663
Interest income 581 633 698
Refinancing fees (1,477) - -
Other 1,530 (893) (244)
-------- -------- --------
Other income, net $ 4,667 $ 4,514 $ 6,117
======== ======== ========
</TABLE>
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 because the business
represented a separate facility and the Company=s only chlor alkali
operation. Sales related to discontinued operations were approximately
$7,000,000 in FY 1996.
<PAGE>
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.
<TABLE>
<CAPTION>
Asia/
North Pacific Latin
America Rim America Europe Other Total
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Net sales to
Customers:
1998 $ 379.0 $ 70.9 $ 26.4 $ 223.8 $ 5.4 $ 705.5
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
Operating
Income:
1998 88.0 - - 7.1 - 95.1
1997 75.9 - - 20.6 - 96.5
1996 50.6 - - 26.9 - 77.5
Identifiable
Assets:
1998 645.0 - - 191.9 - 836.9
1997 664.2 - - 199.6 - 863.8
1996 676.2 - - 189.2 - 865.4
</TABLE>
15. Valuation and Qualifying Accounts:
Activity in the valuation and qualifying accounts for the years ended
March 30, 1996, March 29, 1997 and March 28, 1998 is as follows:
<TABLE>
<CAPTION>
Additio
Balance ns Additio Balanc
at Charged ns e at
Beginni to Charged Deductio End of
ng of Costs to ns and Period
Period and Other Other (000's
(000's) Expense Account (000's) )
s s
(000's) (000's)
<S> <C> <C> <C> <C> <C>
Year ended March 30, 1996:
Allowance for doubtful $ $ $ $ $
accounts 1,568 1,605 (105) 264 2,804
Inventory obsolescence 3,104 2,014 201 1,403 3,916
reserves
Accumulated amortization:
Deferred financing costs 7,459 6,189 (28) 7 13,613
Deferred organization 770 553 406 - 1,729
costs
Goodwill - 666 - 17 649
Year ended March 29, 1997:
Allowance for doubtful $ $ $ $ $
accounts 2,804 3,080 392 3,904 2,336
Inventory obsolescence 3,916 2,088 1 1,615 4,390
reserves
Accumulated amortization:
Deferred financing costs 13,613 6,659 24 (7) 20,303
Deferred organization 1,729 545 - - 2,274
costs
Goodwill 649 2,684 - (124) 3,457
Year ended March 28, 1998:
Allowance for doubtful $ $ $ $ $
accounts 2,336 212 (233) (68) 2,383
Inventory obsolescence 4,390 1,148 (110) 754 4,674
reserves
Accumulated amortization:
Deferred financing costs 20,303 5,962 (85) 29 26,151
Deferred organization 2,274 543 - - 2,817
costs
Goodwill 3,457 2,802 - (132) 6,391
</TABLE>
(b) Set forth in this Current Report on Form 8-K/A are Unaudited Pro
Forma Condensed Consolidated Financial Statements for IMC Global Inc.
for the six months ended June 30, 1998.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
The following Unaudited Pro Forma Condensed Consolidated Statement
of Operations for the six months ended June 30, 1998 has 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 Statement of
Operations presented herein has been prepared as if the Harris
Acquisition occurred on January 1, 1998. The Condensed Consolidated
Balance Sheet included in the IMC quarterly report on Form 10-Q for the
period ended June 30, 1998, reflects the Harris Acquisition.
Accordingly, no unaudited pro forma condensed consolidated balance
sheet is presented herein.
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 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 for the
Harris Acquisition. The unaudited pro forma condensed consolidated
financial information is not necessarily indicative of the results
which actually would have been attained if the Harris Acquisition had
been consummated on the date indicated above.
<PAGE>
<TABLE>
IMC Global Inc.
Unaudited Pro Forma Condensed Consolidated Statement of Operations
For the six months ended June 30, 1998
(In millions, except per share amounts)
<CAPTION>
Harris
Historical Historica Acquisition ProForma
IMC l Harris Adjustments Consolidate
(f) d
---------- --------- -------------- -----------
-- - -- -
<S> <C> <C> <C> <C>
Net sales $ 1,898.6 $ 231.7 $ (4.5)(a) $ 2,125.8
Cost of goods sold 1,431.5 164.8 1,598.0
1.7(a)(b)
---------- -------- ------ ----------
Gross margins 467.1 66.9 (6.2) 527.8
Selling, general and
administrative
expenses 148.0 20.8 - 168.8
Exploration expenses 18.9 - - 18.9
---------- -------- ------ ----------
Operating earnings 300.2 46.1 (6.2) 340.1
Interest expense 83.7 28.4 5.8 (c) 117.9
Other (income) and
expense, net (8.9) 1.7 - (7.2)
---------- -------- ------ ----------
Earnings before
minority interest 225.4 16.0 (12.0) 229.4
Minority interest 17.2 0.9 (0.9)(d) 17.2
---------- -------- ------ ----------
Earnings before
taxes 208.2 15.1 (11.1) 212.2
Provision for income
taxes 73.2 0.9 (3.6)(e) 70.5
---------- -------- ------ ----------
Earnings before
extraordinary item $ 135.0 $ 14.2 $ (7.5) $ 141.7
========== ======== ====== ==========
Earnings per
share
before $ 1.18 $ 1.23
extraordinary
item - diluted
Weighted average
number of shares and
equivalent shares
outstanding -
diluted 114.8 114.8
</TABLE>
The accompanying notes are an integral part of this unaudited pro forma
condensed consolidated financial statement.
<PAGE>
IMC Global Inc.
Notes to Unaudited Pro Forma Condensed Consolidated Statement of
Operations
For the six months ended June 30, 1998
(In millions)
(a)Reflects the elimination of intercompany sales and cost of goods
sold of approximately $4 between IMC and Harris. The impact of the
related gross margin on inventories purchased by Harris from IMC
was not significant.
(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.
(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 $1.
(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.
(c) Exhibits
No Description
--------------------------------------------------------------------
13.1 Report
of PricewaterhouseCoopers LLP Independent Accountants
23.1
Consent of Independent Accountants
<PAGE>
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: September 15, 1998
Exhibit 13.1
Report of PricewaterhouseCoopers LLP Independent 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 28, 1998 and March
29, 1997 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 28, 1998. 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 28, 1998
and March 29, 1997 and the consolidated results of their operations and
their cash flows for each of the three fiscal years in the period ended
March 28, 1998, in conformity with generally accepted accounted
principles.
Kansas City, Missouri /s/ PricewaterhouseCoopers LLP
September 8, 1998 ------------------------------
PricewaterhouseCoopers LLP
Exhibit 23.1
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. 333-62693,
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 September 8, 1998, on our audits of the consolidated
financial statements of Harris Chemical Group, Inc. as of March 28,
1998 and March 29, 1997, and for the years ended March 28, 1998, March
29, 1997 and March 30, 1996 which report is included in this Form 8-
K/A.
Kansas City, Missouri /s/ PricewaterhouseCoopers LLP
September 14, 1998 ------------------------------
PricewaterhouseCoopers LLP
