<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
[X]Quarterly report pursuant to
section 13 or 15(d) of the
Securities Exchange Act of 1934
for the quarterly period ended
DECEMBER 31, 1994
[ ]Transition report pursuant to
section 13 or 15(d) of the
Securities Exchange Act of 1934
for the transition period from
_____to_____
Commission file number 0-17399
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NU-WEST INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
a Delaware corporation 82-0415557
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
8400 East Prentice Avenue, Suite 1320
Englewood, Colorado 80111
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (303) 721-1396
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
As of January 27, 1995, there were approximately 8,086,280 shares of the
registrant's common stock outstanding.
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PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
--------------------
NU-WEST INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
(in thousands)
December 31, 1994 June 30,
ASSETS (Unaudited) 1994
------------------ ----------
<S> <C> <C>
CURRENT ASSETS
Cash $ 345 $ 1,137
Receivables, net of allowance for doubtful
accounts of $255,000 and $311,000 13,988 9,543
Inventories 20,097 18,888
Deferred turnaround costs 2,414 1,397
Prepaid expenses and other current assets 849 990
-------- --------
Total current assets 37,693 31,955
PROPERTY, PLANT AND EQUIPMENT, less
accumulated depreciation and amortization 38,930 38,793
DEFERRED FINANCING FEES 8,633 9,717
DEFERRED COSTS AND OTHER ASSETS 3,613 3,720
-------- --------
Total assets $ 88,869 $ 84,185
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current portion of long-term debt $ 5,037 $ 5,262
Accounts payable 3,006 1,456
Accrued liabilities 6,252 8,506
-------- --------
Total current liabilities 14,295 15,224
LONG-TERM DEBT 63,086 60,589
OTHER LIABILITIES 201 141
DEFERRED INCOME TAXES 848 924
-------- --------
Total liabilities 78,430 76,878
STOCKHOLDERS' EQUITY
Preferred stock, Class A, $100 par value,
290,000 shares authorized and outstanding 29,000 29,000
Preferred stock, Class B, $100 par value,
20,000 shares authorized, 344 and 362 shares
outstanding, respectively 34 36
Common stock, $.01 par value, 16,666,667
shares authorized, 8,086,280 shares outstanding 81 485
Additional paid-in capital 46,972 46,566
Accumulated deficit (65,648) (68,780)
-------- --------
Total stockholders' equity 10,439 7,307
-------- --------
Total liabilities and
stockholders' equity $ 88,869 $ 84,185
======== ========
</TABLE>
The accompanying notes to financial statements
are an integral part of this statement.
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NU-WEST INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATION
(in thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months For the Six Months
Ended December 31, Ended December 31,
1994 1993 1994 1993
---------- ---------- --------- ----------
<S> <C> <C> <C> <C>
Net sales $27,942 $ 23,420 $ 49,758 $ 41,602
Cost of sales 21,606 20,007 39,603 37,080
------- -------- -------- --------
Gross margin 6,336 3,413 10,155 4,522
Selling, general and
administrative expense 1,173 1,105 2,176 2,085
------- -------- -------- --------
Income from operation 5,163 2,308 7,979 2,437
Interest expense 2,431 2,189 4,734 4,307
Other (income) expense, net 49 ( 17) 113 ( 33)
------- -------- -------- --------
Income (loss) before extra-
ordinary item, minority
interest and income taxes 2,683 136 3,132 (1,837)
Minority interest - - - 56
Income taxes - - - -
------- -------- -------- --------
Net income (loss) before extra-
ordinary item 2,683 136 3,132 ( 1,781)
Extraordinary loss from early
extinguishment of debt - ( 1,660) - ( 1,660)
------- -------- -------- --------
Net income (loss) 2,683 ( 1,524) 3,132 ( 3,441)
Preferred dividend
requirements ( 799) ( 798) ( 1,598) ( 1,595)
------- -------- -------- --------
Net income (loss) applicable to
common shareholders $ 1,884 $( 2,322) $ 1,534 $( 5,036)
======= ======== ======== ========
Net income (loss) before extra-
ordinary item per common share $.21 $ ( .12) $.17 $ ( .86)
Extraordinary item - ( .31) - ( .42)
------- -------- -------- --------
Net income (loss) per common
share $.21 $ ( .43) $.17 $ ( 1.28)
======= ======== ======== ========
Weighted average common stock
and equivalents outstanding 8,955 5,343 8,960 3,934
======= ======== ======== ========
</TABLE>
The accompanying notes to financial statements are an integral part of this
statement.
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<PAGE>
NU-WEST INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
For the Six Months Ended December 31, 1994
(in thousands, except share amounts)
(Unaudited)
<TABLE>
<CAPTION>
ADDITIONAL
PREFERRED STOCK PREFERRED STOCK PAID-IN ACCUMULATED
CLASS A CLASS B COMMON STOCK CAPITAL DEFICIT
---------------- ----------------- ---------------------- ---------- ------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
------- ------- -------- ------- ------------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, 290,000 $29,000 362 $36 48,517,677 $ 485 $46,566 $(68,780)
June 30, 1994
Preferred stock
surrendered (18) (2) 2
Reverse stock
split (40,431,397) (404) 404
Net income 3,132
------- ------- ------- ------- ------------- ------- ---------- ------------
Balance,
December 31, 1994 290,000 $29,000 344 $ 34 8,086,280 $81 $46,972 $(65,648)
======= ======= ======= ======= ============= ======= ========== ============
</TABLE>
The accompanying notes to financial statements
are an integral part of this statement.
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NU-WEST INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
(in thousands)
For the Six For the Six
Months Ended Months Ended
December 31, 1994 December 31, 1993
(Unaudited) (Unaudited)
------------------ ------------------
<S> <C> <C>
CASH FLOWS PROVIDED BY (USED FOR)
OPERATING ACTIVITIES
Net income (loss) $ 3,132 $ (3,441)
Depreciation, depletion and
amortization 2,718 2,790
Interest paid in kind 1,373 401
Amortization of discounts and loan
fees 752 945
Write off of loan fees and
discounts - 1,560
Other (30) (9)
Changes in operating assets and
liabilities ( 7,392) (14,103)
-------- --------
Net cash provided by (used for)
operating activities 553 (11,857)
CASH FLOWS PROVIDED BY (USED FOR)
INVESTING ACTIVITIES
Capital expenditures ( 2,682) ( 863)
-------- --------
Net cash provided by (used for)
investing activities ( 2,682) ( 863)
CASH FLOWS PROVIDED BY FINANCING
ACTIVITIES
Proceeds from revolving lines of
credit 5,595 46,949
Principal payments on revolving
lines of credit ( 1,500) (40,689)
Proceeds from long-term debt - 43,250
Principal payments on long-term
debt ( 2,758) (35,059)
-------- --------
Net cash provided by financing
activities 1,337 14,451
-------- --------
NET INCREASE (DECREASE) IN CASH ( 792) 1,731
CASH AT BEGINNING OF PERIOD 1,137 92
-------- --------
CASH AT END OF PERIOD $ 345 $ 1,823
======== ========
SUPPLEMENTAL DISCLOSURES
OF CASH FLOW INFORMATION
Cash paid for interest $ 2,667 $ 4,150
Cash paid for income taxes 76 -
</TABLE>
The accompanying notes to financial statements
are an integral part of this statement.
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NU-WEST INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(1) BASIS OF PRESENTATION
The financial statements included herein have been prepared by the Company,
without audit, pursuant to the rules and regulations of the Securities and
Exchange Commission, and reflect all adjustments which are, in the opinion of
management, necessary to present fairly the results for the interim periods, on
a basis consistent with the annual audited statements. The adjustments made
were of a normal recurring nature except as otherwise disclosed herein. Certain
information, accounting policies, and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been omitted pursuant to such rules and regulations. These
financial statements should be read in connection with the financial statements
and the summary of significant accounting policies and notes thereto included in
the Form 10-K filed by the Company for the year ended June 30, 1994.
(2) REVERSE STOCK SPLIT
On November 15, 1994 the stockholders of the Company authorized a reverse stock
split of one share of newly issued Common Stock for five, six, or eight shares
of existing Common Stock. On that same date, the Board of Directors approved a
one-for-six reverse stock split to be effective at the close of business on
December 9, 1994. Accordingly, the Restated Certificate of Incorporation was
amended to reduce the number of authorized shares of common stock to 16,666,667.
Every six shares of common stock outstanding on the effective date were
reclassified into one share of common stock. All per share amounts in this
report reflect the effect of this reverse stock split.
(3) INVENTORIES
Inventories are stated at the lower of first-in, first-out cost or market (net
realizable value) and include the cost of materials, labor and manufacturing
overhead. Inventories consisted of the following: (in thousands)
<TABLE>
<CAPTION>
December 31, June 30,
1994 1994
------------ --------
<S> <C> <C>
Finished goods $ 2,935 $ 3,705
Work in progress 2,743 2,885
Raw materials 11,025 8,894
Supplies 3,394 3,404
------- -------
$20,097 $18,888
======= =======
</TABLE>
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<PAGE>
(4) NET INCOME (LOSS) PER COMMON SHARE
Net income or loss per common share is computed by dividing earnings applicable
to common shareholders by the weighted average of common and common equivalent
shares outstanding during the period. The weighted average number of common
and common equivalent shares include shares issued and shares issuable under
dilutive stock options and warrants giving retro-active effect to the reverse
stock split which was effective on December 9, 1994 (See Note 2). The effect of
the Company's common stock equivalents was anti-dilutive at December 31, 1993.
(5) SEGMENT INFORMATION
Summarized financial information for the segment of the Company's business which
NuTec Mineral and Chemical Company represents is as follows (in thousands):
<TABLE>
<CAPTION>
For the Three Months For the Six Months
Ended December 31, Ended December 31,
1994 1993 1994 1993
--------- --------- -------- --------
<S> <C> <C> <C> <C>
Net sales to unaffiliated customers $ - $ 77 $ - $ 136
Net loss 154 483 294 913
Depreciation and amortization - 31 - 60
Capital expenditures - 5 - 27
Identifiable assets as of
December 31, - - 5,209 6,870
</TABLE>
(6) STOCK OPTION PLANS
On November 15, 1994, the stockholders of the Company approved the Nu-West
Industries, Inc. 1994 Employee Stock Incentive Plan and the Nu-West Industries,
Inc. Nonemployee Director Stock Option Plan. On November 22, 1994, the Board of
Directors granted incentive stock options for an aggregate of 260,833 shares of
Common Stock to 50 employees. The exercise price of the options is $6.375 per
share, which was the closing price of the common stock on the NASDAQ/National
Market on November 22, 1994 as adjusted for the reverse stock split which was
effective on December 9, 1994. Consequently, the options are noncompensatory.
Forty per cent of the options become exercisable on January 1, 1997 and twenty
per cent become exercisable on each of January 1, 1998, 1999 and 2000.
-7-
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(7) COMMITMENTS AND CONTINGENT LIABILITIES
Environmental: The Company is subject to federal, state and local environmental
laws and regulations. Significant costs could be incurred on account of these
environmental laws and regulations in the future. Most of the Company's
environmental expenditures and potential costs are or would be in response to
provisions of various federal environmental laws, particularly the Clean Air
Act, the Clean Water Act, the Resource Conservation and Recovery Act, and the
Comprehensive Environmental Response, Compensation and Liability Act (aka
"Superfund") and the land use, air, surface and ground water, and hazardous
waste regulations of the State of Idaho.
The phosphoric acid wastewater and calcium sulfate or "phosphogypsum" handled at
the Company's Conda Plant are currently exempt from regulation as a "hazardous
waste" under Subtitle C of the Resource Conservation and Recovery Act. However,
the EPA and an industry advisory committee are currently evaluating potential
improved processing, handling and storage measures for phosphogypsum, which
might eventually be required by rules under the Toxic Substances Control Act.
The exact requirements of those potential future rules cannot be predicted with
certainty at this time but will likely affect the Company's handling of these
materials.
These materials are also regulated under Section 112 of the federal Clean Air
Act, which contains closure requirements for gypsum stacks that are no longer
used for water management and otherwise become deactivated. The Company does
not currently plan to deactivate any of its gypsum stacks under these
provisions.
The Company has been subject to normal periodic review under Superfund, and an
Expanded Site Inspection was recently completed by an EPA contractor. This
inspection included an initial site visit in August 1993, followed by well water
sampling and testing in March 1994. Based on the contractor's report, the EPA
notified the Company in October 1994 that no further action under the Federal
Superfund Program is currently recommended at the Conda Plant.
The Company had not received any notices of violation relating to environmental
compliance at the Conda Plant prior to the summer of 1992. For several days in
August-September 1992, following the resumption of operations after the annual
maintenance turnaround, the two sulfuric acid plants together emitted up to 7%
more sulfur dioxide (SO\\2\\) than the daily limit set by a state consent order
that governs the Company's air emissions. The Company reported the excess
emissions to the State of Idaho and has received a Notice of Violation relating
to these excess emissions from the EPA.
Following an extensive review of the Company's records, in March 1994 the EPA
issued another Notice of Violation pertaining to a number of excess SO\\2\\
emissions during the period from October 1989 to May 1993, which includes the
excess emissions from the previous Notice described above. Nearly all of these
excess emissions stem from periods of startup or malfunction which the Company
believes are excused under provisions in Idaho rules and/or a facility permit
contained in the State Implementation Plan. The Company has negotiated a
settlement with the EPA, which is now pending final federal approval, that
provides for the payment of a $150,000 fine and reduced SO\\2\\ emissions
limitations until November 1995, at
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<PAGE>
which time the Company will shut down the older of its two sulfuric acid plants.
The Company has entered into a five-year contract with Kennecott Utah Copper
Corporation to replace the production of this plant. (See Note 13 to the
Company's June 30, 1994 Consolidated Financial Statements for further
information.)
The Company has recently received a Notice of Violation from the EPA for alleged
violations under the Safe Drinking Water Act relating to testing and reporting
on the quality of water used for human consumption from a public water supply
system at the Conda Plant. The Company has initiated testing of water that
potentially could be used for human consumption and believes, based on
discussions with agency officials, that no or only minimal civil penalties will
be assessed in connection with this matter.
Mining Contract: On August 9, 1994, the Company entered into a Work Reduction
and Buy-Out Settlement Agreement with the third party general contractor who had
since 1972 performed the mining operations on the ore reserves owned by the
Conda Partnership. This amendment to the mining contract eliminates the
remaining minimum annual mining requirement and the required use of the general
contractor for ore handling functions at the Conda Plant, as well as certain
other modifications. The Company paid the general contractor $100,000 for the
modification of the contract and expects to save $1.0-1.5 million annually as a
result of these changes. The Company entered into a $1.2 million, five year
operating lease with Caterpillar Financial Services Corporation for equipment to
conduct the ore handling operations previously performed by the general
contractor. The annual minimum lease payments for this equipment are $213,000
for fiscal 1995, $273,000 for fiscal 1996, $249,000 for fiscal 1997 through 1999
and $83,000 for fiscal 2000.
-9-
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
GENERAL
This discussion should be read in conjunction with Management's Discussion and
Analysis included in the Annual Report on Form 10-K filed by Nu-West Industries,
Inc. ("the Company") for the fiscal year ended June 30, 1994.
The Company is engaged in the production and sale of concentrated phosphate
fertilizer products. Its production facilities are located near Soda Springs,
Idaho (the "Conda Plant"), and its primary marketing area is western North
America. The fertilizer industry is a commodity-oriented business, and has
historically experienced wide-ranging volatility in prices due to supply and
demand imbalances both domestically and overseas. Government farm policies,
weather and disposable farm income, in addition to international politics and
economics with their effect on export demand, are among the factors contributing
to price volatility.
Prices for phosphate fertilizer products dropped to record low levels industry-
wide during the Company's fiscal year 1993. Beginning in the Fall of 1993, a
steady recovery of product prices began as a result of reduced production by
certain U.S. Gulf Coast manufacturers and improved export demand. The average
prices received for the Company's dry granular products were 14-22% higher
during the quarter ended December 31, 1994 compared to the previous year's
quarter, and prices for its liquid products increased approximately 9%. The
combination of product price gains and ore cost reductions, which offset other
raw material cost increases, has enabled the Company to post substantially
improved operating earnings and positive net income for the quarter and six
month period ended December 31, 1994.
RESULTS OF OPERATIONS
QUARTER ENDED DECEMBER 31, 1994 VS. QUARTER ENDED DECEMBER 31, 1993
Consolidated net income for the quarter ended December 31, 1994 was $2.7
million, or $.21 per share after provision for preferred stock dividends.
This compares to a net income before an extraordinary loss from extinguishment
of debt for the three months ended December 31, 1993 of $136,000, or a loss of
$.12 per common share after preferred dividend requirements. The extraordinary
loss of $1.7 million during the quarter ended December 31, 1993 resulted from
the write-off of deferred loan fees and other items in November 1993. The
total consolidated net loss for the quarter ended December 31, 1993 was $1.5
million, or $.43 per common share. Included in the consolidated results for
each period are losses from NuTec Mineral and Chemical Company ("Nutec") (net of
minority interest and including amortization of goodwill) of $214,000 and
$483,000 for the quarters ended December 31, 1994 and 1993, respectively.
-10-
<PAGE>
Net sales increased 19% to $27.9 million for the current quarter compared to
$23.4 million for the corresponding quarter in the previous fiscal year.
Improved product prices provided 13% of the increase in sales revenue, while
increased sales volume contributed 7% of the increase. The increase in sales
volume resulted from a 9% increase in sales tons on a phosphoric acid
("P\\2\\O\\5\\") basis of liquid fertilizer products, which was partially offset
by a 2.4% decrease in sales tons of dry granular products. Sales of liquid
products accounted for 56% of net product sales in both of the quarters
presented and contributed a substantial portion of gross margins in both
periods.
The gross operating margin of $6.3 million for the quarter ended December 31,
1994 compares to a gross margin of $3.4 million for the comparable prior year
quarter. This increase in margin is due to the improved product sales prices
and volumes discussed above and a reduction in production costs. Production
costs were approximately 3% lower on a per ton basis for the quarter ended
December 31, 1994 compared to the quarter ended December 31, 1993. This
reduction resulted from a 14% decrease in the cost of the Company's primary raw
material, phosphate ore, which was partially offset by 67%, 82%, and 8%
increases in the cost of sulfur, sulfuric acid and ammonia, respectively, which
are also significant raw materials of the Company's products. The decrease in
the cost of phosphate ore is due to the purchase of ore from Rhone-Poulenc Basic
Chemicals Company ("RP") under a seven year purchase contract. (See Note 13 to
the Company's Consolidated Financial Statements for the year ended June 30, 1994
for further information.) Also contributing to the decreased per ton costs was
a 4% increase in production volumes on a P\\2\\0\\5\\ basis during the quarter
ended December 31, 1994 as compared to those of the quarter ended December 31,
1993.
Selling, general and administrative ("SGA") expense increased $68,000 from the
prior fiscal year's quarter, but decreased as a percentage of sales from 4.7% to
4.2% as a result of the increase in sales revenue. Interest expense increased
by $242,000 largely as a result of the change to variable debt instruments as
part of the Recapitalization Plan in November 1993 and the increase in the prime
lending rate during fiscal 1995. (See Note 4 to the Company's Consolidated
Financial Statements for the year ended June 30, 1994 for further information.)
SIX MONTHS ENDED DECEMBER 31, 1994 VS. SIX MONTHS ENDED DECEMBER 31, 1993
Consolidated net income for the six months ended December 31, 1994 was $3.1
million, or $.17 per share, as compared to a net loss of $1.8 million or $.86
per share, before the extraordinary loss from the write off of loan fees and
discounts for the six months ended December 31, 1993. The total consolidated
net loss for the six month period ended December 31, 1993 was $3.4 million, or
$1.28 per share. Included in the consolidated results are losses from NuTec (net
of minority interest and including amortization of goodwill) of $414,000 and
$857,000 for the six months ended December 31, 1994 and 1993, respectively.
Net sales were $49.8 million for the current period compared to $41.6 million
for the comparable prior year period, or a 20% increase. Improved product
prices caused 14% of the increase in sales revenue, while increased sales volume
contributed 6% of the increase. Per ton sales prices of liquid fertilizer
products increased approximately 9%, while the average prices
-11-
<PAGE>
for dry granular products improved 17-21% for the period ended December 31, 1994
as compared to the corresponding previous year's period. The increase in sales
volume resulted from an 8% increase in sales tons of liquid fertilizer products
and an 2% increase in sales tons of dry granular products. Sales of liquid
products accounted for 56% of net product sales in the current period and 57% in
the prior year period, and contributed a substantial portion of gross margins in
both periods.
The gross operating margin of $10.2 million for the six months ended December
31, 1994 compares to a gross margin of $4.5 million for the comparable prior
year period. This improvement is a result of the improved product prices and
volumes discussed above. The per ton production costs of liquid fertilizer
products was unchanged for the six months ended December 31, 1994 as compared to
the same period ended December 31, 1993 while the per ton cost of the Company's
dry granular products increased from 2% to 6%. Although the cost of phosphate
ore for the six months ended December 31, 1994 decreased by 12% as compared to
the six months ended December 31, 1993, the cost of sulfur, sulfuric acid and
ammonia increased 30%, 100% and 11%, respectively. Production volume increased
2% for the period ended December 31, 1994 as compared to the corresponding
period ended December 31, 1993.
SGA expense increased $91,000 for the period ended December 31, 1994 but
decreased as a percentage of sales from 5% to 4.4% as a result of the increase
in sales revenue. Interest expense increased $427,000 largely as a result of
the change to variable debt instruments as part of the Recapitalization Plan in
November 1993 and the increase in the prime lending rate during the six months
ended December 31, 1994.
BALANCE SHEET CHANGES - DECEMBER 31, 1994 VS. JUNE 30, 1994
Cash has decreased and receivables have increased due to normal seasonality.
Sales are typically low in June immediately following the conclusion of the
Spring planting season. Despite a decline in finished goods, inventories have
increased due to the build up of phosphate ore inventories to provide for
production during the winter months. Deferred turnaround costs have increased
due to the completion of the annual maintenance turnaround during the month of
July. All of these costs will be amortized into cost of sales during fiscal
1995. Property, plant and equipment has increased due to capital expenditures
of $2.7 million, including $1 million required by contracts with RP and
Kennecott Utah Copper Corporation ("Kennecott"), offset by depreciation of $2.6
million. The decrease in deferred financing fees is due to the scheduled
amortization of those fees.
Accounts payable and accrued liabilities have decreased due to payments of
accrued capital expenditures required by the RP Agreement. Long term debt
increased due to "net" draws on the Company's revolving line of credit during
the six months ended December 31, 1994 as a result of the normal seasonal build
up of receivables and inventories.
-12-
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
General: The Company's liquidity is directly related to borrowing capacity
under its revolving line of credit as is reflected in the Company's Consolidated
Statement of Cash Flows. As discussed earlier, the balances of accounts
receivable, inventories and prepaid turnaround were relatively high at December
31, 1994 due to improved product sales, build up of phosphate ore inventories
and completion of the annual maintenance turnaround. This combined for a
seasonally high demand for working capital in the first half of the fiscal year,
which typically declines throughout the Spring season fertilizer market.
The Company's revolving credit facility bears interest at prime plus 2% (10.5%
at December 31, 1994). Cash balances of $345,000 plus unused borrowing capacity
totalled approximately $3.2 million, and outstanding borrowings were $12.5
million at December 31, 1994. The Company had working capital of approximately
$23.4 million and a current ratio of 2.64:1 at December 31, 1994. Based on
current projections, the Company expects results of operations to generate
sufficient borrowing capacity under its revolving line of credit to continue to
meet its working capital needs.
Capital Requirements: Future capital expenditure requirements of the Company
include approximately $1.3 million relating to the RP Agreement and up to $4
million to complete construction of certain assets required by the sulfuric acid
purchase contract with Kennecott. (See Note 13 to the Company's June 30, 1994
Consolidated Financial Statements for further information.) The construction of
the assets required by the Kennecott contract will be financed by a five-year,
$4 million loan from Kennecott. The completion of a new double lined cooling
pond during the spring and summer of 1995 will require an expenditure of
approximately $1.5 million, which will be funded from results of operations.
Otherwise, the Company believes that approximately $1.5 million per year of
estimated capital expenditures, in addition to approximately $3-4 million per
year of annual maintenance turnaround expenditures (included in cost of sales),
will be sufficient to maintain production capacity of the Conda Plant for the
foreseeable future.
Other: The Company's liquidity is ultimately dependent on a combination of
phosphate fertilizer prices in western North America and raw material costs.
The Company's product prices were at extremely low levels in recent years,
although the cost of certain raw materials, sulfur and sulfuric acid, also
declined substantially and provided an offset to lower gross revenues.
Currently, the Company's sales volumes indicate good demand for phosphate
fertilizer products in its market area. Prices averaged 14% higher for dry and
liquid products, respectively, for the six months ended December 31, 1994 than
for the six months ended December 31, 1993. Sulfur prices compared over the
same periods are approximately 30% higher, a result primarily of increased
demand by the phosphate fertilizer industry. Ammonia prices have risen during
fiscal 1995 due to high demand for and reduced supply of nitrogen fertilizers,
and are expected to remain at relatively high levels in future months. The
Company expects further moderate increases in its cost of sulfur, ammonia, and
sulfuric acid through the remainder of fiscal 1995. Offsetting these raw
material cost increases, the Company expects to realize a full year of savings
during fiscal 1995 from purchasing ore under the RP Agreement. Shipments of
this ore
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<PAGE>
to the Conda Plant began in March 1994. Based on the current upward trend in
product prices and the future effects of cost reduction efforts, the Company
expects continued significant improvement in earnings during fiscal 1995.
Product price recovery during fiscal 1994 and the first half of fiscal 1995 is
believed to be due in part to an improved supply/demand balance. The sustained
downturn in 1992 and 1993 brought about consolidation and resulted in fewer
producers in the domestic industry. Approximately 50% of domestic production is
controlled by three companies, including a joint venture between two of those
producers which has recently varied production more in line with demand. The
result has been a better balancing of supply and demand.
Demand for phosphate fertilizer products in the Company's market area has been
strong and is expected to continue that way based on current domestic market
information. The outlook for product prices industry-wide remains positive
based on the need for phosphates in both the United States and in foreign
markets such as China, India and South America. The Company is unable to
forecast the market effects of world-wide economic and political changes in
places such as the former Soviet Union, Eastern Europe, China and India,
although such changes and the uncertainty surrounding them are generally
believed to be largely responsible for reduced export demand and the depressed
levels of domestic phosphate fertilizer prices in 1993. Consumption of
phosphate fertilizer in the former Soviet Union and Eastern Europe had declined
due to economic difficulties during conversion of those economies to free market
systems. China and India have historically accounted for the majority of U.S.
phosphate fertilizer exports; however, currency instability in China and
political uncertainty relating to phosphate fertilizer subsidies in India
resulted in substantial declines in demand by those countries in 1993. Recently
improved consumption in and imports to China and other areas of the world have
resulted in higher prices for dry phosphate fertilizer products for U.S. Gulf
Coast producers who are largely dependent on export sales. Factors such as
weather conditions, the timing and quantity of export demand, and other
unforeseeable market forces on a world-wide basis have frustrated previous
attempts to predict with accuracy a sustained recovery.
The production cutbacks by certain large producers and increased buying in the
international market have been key factors in the balancing of supply and demand
that has led to reduced inventories and product price recovery. It is
difficult, however, to forecast the future effects or duration of such
reductions in supply or the near term buying patterns of China and India. The
Company's product prices continue to be directly related to those received by
producers of phosphate fertilizers in the U.S. Gulf Coast region, and the
uncertainties associated with the export market serviced by those producers. In
spite of these uncertainties, the Company remains optimistic for continued price
stability in the months ahead based on recent price increases within its market
area and reported firming of near-term export demand.
The Company received notice in October 1994 of the completion of an Expanded
Site Investigation of the Conda Plant by the Environmental Protection Agency
under the Federal Superfund Program. The investigation included well water
sampling and testing to determine the potential impacts posed by the site to the
surrounding environment, specifically to ground water. The conclusion reached
by the EPA was that no further action under the Federal
-14-
<PAGE>
Superfund Program is currently recommended at the Conda Plant. (See Note 7 to
the Consolidated Financial Statements for further information on environmental
matters.)
PART II -- OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
See Note 7 to the Consolidated Financial Statements.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held its Annual Meeting of Stockholders on November 15, 1994
following solicitation of proxies for consideration of the following proposals:
(All share amounts are pre-split.)
1. To elect Craig D. Harlen as a Class I director for a three year term. Shares
voted for - 39,443,803; shares voted against - 68,330.
2. To approve the Nu-West Industries, Inc. 1994 Employee Stock Incentive Plan.
Shares voted for - 38,968,465; shares voted against - 485,559.
3. To approve the Nu-West Industries, Inc. Nonemployee Director Stock Option
Plan. Shares voted for - 38,902,375; shares voted against - 523,430.
4. To authorize a reverse stock split of one share of newly issued Common Stock
for five, six or eight shares of existing Common Stock, as thereafter
determined by the Board of Directors, pursuant to an Amendment to the
Company's Restated Certificate of Incorporation. Shares voted for -
39,239,498; shares voted against - 235,873.
Item 5. OTHER INFORMATION
On November 15, 1994, the Board of Directors approved a one-for-six reverse
stock split to be effective at the close of business on December 9, 1994.
Accordingly, the Restated Certificate of Incorporation was amended to reduce the
number of authorized shares of common stock to 16,666,667.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
3.(i) Amendment to the Restated Certificate of Incorporation dated December 9,
1994.
27 Financial Data Schedule.
-15-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
NU-WEST INDUSTRIES, INC.
Dated: January 31, 1995 /s/ MARK R. SANDERS
-------------------------- -----------------------------
Senior Vice President and
Chief Financial Officer
-16-
<PAGE>
CERTIFICATE OF AMENDMENT
OF THE
RESTATED CERTIFICATE OF INCORPORATION
OF
NU-WEST INDUSTRIES, INC.
Nu-West Industries, Inc. (the "Corporation"), a corporation organized and
existing under and by virtue of the General Corporation Law of the State of
Delaware, DOES HEREBY CERTIFY:
FIRST: That the Board of Directors of the Corporation adopted resolutions
on September 14, 1994 proposing and declaring advisable the following amendments
to the Restated Certificate of Incorporation and directing that the amendments
proposed be considered by the stockholders of the Corporation:
RESOLVED, that Section 1 of Article IV of the Corporation's Restated
Certificate of Incorporation be amended to read in its entirety as follows:
Section 1. The total number of all classes of capital stock which the
Corporation is authorized to issue (hereinafter collectively referred to as
the "Capital Stock") is 17,476,667 shares, of which: (i) 290,000 shares
shall be Class A Preferred Stock, $100 par value per share (hereinafter
referred to as the "Class A Preferred Stock"); (ii) 20,000 shares shall be
Class B Preferred Stock, $100 par value per share (hereinafter referred to
as the "Class B Preferred Stock"); (iii) 500,000 shares shall be Serial
Preferred Stock, $1.00 par value per share (hereinafter referred to as the
"Serial Preferred Stock"); (iv) 14,666,667 shares shall be voting common
stock, $0.01 par value per share (hereinafter referred to as the "Voting
Common Stock"); and (v) 2,000,000 shares shall be non-voting common stock,
$0.01 par value per share (hereinafter referred to as the "Non-Voting
Common Stock," and together with the Voting Common Stock is referred to as
"Common Stock").
RESOLVED, that paragraph 4(A) of Section 2 of Article IV of the
Corporation's Restated Certificate of Incorporation be amended to read in its
entirety as follows:
(A) The authorized number of shares of all classes of Common Stock
shall be 16,666,667, of which 14,666,667 shares will be Voting Common Stock
and 2,000,000 shares will be Non-Voting Common Stock. On the effective date
of the Certificate of Amendment to the Restated Certificate of
Incorporation of the Corporation with respect hereto, every six shares of
the Corporation's Common Stock outstanding immediately prior to such time
shall, without any action on the part of the respective holders thereof, be
reclassified into one share of Common Stock.
SECOND: That the amendments referred to herein were duly authorized by the
vote of a majority of the outstanding stock entitled to vote thereon at the
meeting of the stockholders held on November 15, 1994.
-1-
<PAGE>
THIRD: That the aforesaid amendments have been duly adopted in accordance
with the applicable provisions of Section 242 of the Delaware General
Corporation Law.
FOURTH: That this Certificate of Amendment of the Restated Certificate of
Incorporation has been executed and acknowledged and shall be filed and recorded
in accordance with Section 103 of the General Corporation Law of the State of
Delaware, and shall be effective at the close of business on December 9, 1994.
IN WITNESS WHEREOF, Nu-West Industries, Inc. has caused this Certificate to
be signed by its Executive Vice President and attested by its Secretary, this
6th day of December, 1994.
NU-WEST INDUSTRIES, INC.
By: __________________________
H. Alan Dahlbach
Executive Vice President
ATTEST:
_____________________________________
Steven W. Gampp
Vice President, Secretary & Treasurer
-2-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from the Nu-West
Industries, Inc. and Subsidiaries December 31, 1994 financial statements and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1994
<PERIOD-END> DEC-31-1994
<CASH> 345
<SECURITIES> 0
<RECEIVABLES> 14,243
<ALLOWANCES> 255
<INVENTORY> 20,097
<CURRENT-ASSETS> 37,693
<PP&E> 69,663
<DEPRECIATION> 30,733
<TOTAL-ASSETS> 88,869
<CURRENT-LIABILITIES> 14,295
<BONDS> 63,086
<COMMON> 81
0
29,034
<OTHER-SE> (18,676)
<TOTAL-LIABILITY-AND-EQUITY> 88,869
<SALES> 49,758
<TOTAL-REVENUES> 49,758
<CGS> 39,603
<TOTAL-COSTS> 39,603
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,734
<INCOME-PRETAX> 3,132
<INCOME-TAX> 0
<INCOME-CONTINUING> 3,132
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,132
<EPS-PRIMARY> .17
<EPS-DILUTED> .17
</TABLE>
