<PAGE>
CONFORMED
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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
SEPTEMBER 30, 1995
[_] 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 October 31, 1995, there were approximately 9,265,877 shares of the
registrant's common stock outstanding.
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<PAGE>
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
--------------------
NU-WEST INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
(in thousands)
September 30, 1995 June 30,
ASSETS (Unaudited) 1995
------------------- ---------
<S> <C> <C>
CURRENT ASSETS
Cash $ 225 $ 140
Receivables, net of allowance for doubtful
accounts of $299,000 and $264,000 20,523 11,207
Inventories 24,710 26,814
Deferred turnaround costs 2,252 840
Prepaid expenses and other current assets 334 904
-------- --------
Total current assets 48,044 39,905
PROPERTY, PLANT AND EQUIPMENT, less
accumulated depreciation and amortization 41,121 37,978
DEFERRED FINANCING FEES 1,173 9,038
DEFERRED COSTS AND OTHER ASSETS 4,526 4,708
-------- --------
Total assets $ 94,864 $ 91,629
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current portion of long-term debt $ 6,011 $ 5,019
Accounts payable 3,960 2,812
Accrued liabilities 9,558 7.241
-------- --------
Total current liabilities 19,529 15,072
LONG-TERM DEBT 67,763 58,692
OTHER LIABILITIES 256 230
DEFERRED INCOME TAXES 547 627
-------- --------
Total liabilities 88,095 74,621
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 shares outstanding 34 34
Common stock, $.01 par value, 16,666,667 shares
authorized of which 2,000,000 shares are non-
voting, 9,265,877 and 8,086,363 shares outstanding,
respectively, of which 633,106 shares are non-voting 93 81
Additional paid-in capital 49,539 46,972
Accumulated deficit (71,897) (59,079)
-------- --------
Total stockholders' equity 6,769 17,008
-------- --------
Total liabilities and
stockholders' equity $ 94,864 $ 91,629
======== ========
</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 STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
For the Three Months
Ended September 30,
1995 1994
(Unaudited) (Unaudited)
----------- -----------
<S> <C> <C>
Net sales $ 28,938 $21,816
Cost of sales 25,383 17,997
-------- -------
Gross margin 3,555 3,819
Selling, general and
administrative expenses 1,472 1,003
-------- -------
Income from operations 2,083 2,816
Interest expense 1,769 2,303
Investment banking fees 2,629 -
Other (income) expense, net 23 64
-------- -------
Income (loss) before income taxes
& extraordinary item (2,338) 449
Income taxes - -
-------- -------
Income (loss) before extraordinary
item (2,338) 499
Extraordinary loss on early extinguishment
of debt 10,480 -
-------- -------
Net income (loss) (12,818) 449
Preferred dividends (799) (799)
-------- -------
Net loss applicable to common
shareholders $(13,617) $ (350)
======== =======
Net loss before extraordinary item
per common share $ (.38) $ (.04)
Extraordinary item $ (1.28) $ -
-------- -------
Net loss per common
share $ (1.66) $ (.04)
======== =======
Weighted average shares
outstanding 8,224 8,086
======== =======
</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 Three Months Ended September 30, 1995
(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 $29,000 344 $34 8,086,363 $81 $46,972 $(59,079)
June 30, 1995
Options and warrants
exercised - - - - 1,179,514 12 2,367 -
Capital contribution - - - - - - 200 -
Net loss - - - - - - - (12,818)
------- ------- ------- ------ ------------ ------ ------- -----------
Balance,
September 30, 1995 290,000 $29,000 344 $34 9,265,877 $93 $49,539 $(71,897)
======= ======= ======= ====== ============ ====== ======= ===========
</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 CASH FLOWS
<TABLE>
<CAPTION>
(in thousands)
For the Three For the Three
Months Ended Months Ended
September 30, 1995 September 30, 1994
(Unaudited) (Unaudited)
------------------- -------------------
<S> <C> <C>
CASH FLOWS PROVIDED BY (USED FOR) OPERATING
ACTIVITIES
Net income (loss) $(12,818) $ 449
Depreciation, depletion and amortization 1,068 1,239
Interest paid in kind 304 663
Amortization of discounts and loan fees 308 388
Other 35 32
Write-off of deferred loan fees 9,480 -
Changes in operating assets and
liabilities ( 5,744) ( 4,472)
-------- --------
Net cash used for operating activities ( 7,367) ( 1,701)
CASH FLOWS PROVIDED BY (USED FOR) INVESTING
ACTIVITIES
Capital expenditures ( 4,111) ( 1,148)
Maturity of bonding deposit investment
securities 2 -
Note receivable 81 -
-------- --------
Net cash used for investing activities ( 4,028) ( 1,148)
CASH FLOWS PROVIDED BY FINANCING ACTIVITIES
Proceeds from revolving lines of credit 17,200 4,800
Principal payments on revolving
lines of credit (13,121) ( 1,000)
Proceeds from long-term debt 56,515 -
Principal payments on long-term debt (51,693) ( 1,501)
Exercise of options and warrants 2,379 -
Capital contribution 200 -
-------- --------
Net cash provided by financing activities 11,480 2,299
NET INCREASE (DECREASE) IN CASH 85 ( 550)
CASH AT BEGINNING OF PERIOD 140 1,137
-------- --------
CASH AT END OF PERIOD $ 225 $ 587
======== ========
SUPPLEMENTAL DISCLOSURES
OF CASH FLOW INFORMATION
Cash paid for interest $ 392 $ 1,276
Cash paid for income taxes 80 26
</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
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, 1995.
(2) 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>
September 30, June 30,
1995 1995
------------- --------
<S> <C> <C>
Finished Goods $ 3,751 $ 8,811
Work in Progress 2,934 3,948
Raw Materials 14,538 10,364
Supplies 3,487 3,691
------- -------
$24,710 $26,814
======= =======
</TABLE>
(3) NET LOSS PER COMMON SHARE
Net loss per common share is computed by dividing loss applicable to common
shareholders by the weighted average number of shares outstanding during the
period. The effect of the Company's common stock equivalents was anti-dilutive
at September 30, 1995 and 1994.
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<PAGE>
(4) 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
Ended September 30,
1995 1994
--------- ---------
<S> <C> <C>
Net sales to unaffiliated customers $ - $ -
Net loss 257 140
Depreciation and amortization 98 -
Capital expenditures - -
Identifiable assets as of September 30, 5,090 5,221
</TABLE>
(5) REFINANCING
On August 3, 1995, the Company refinanced substantially all of its long-term
debt. The Company entered into a $75 million senior secured loan agreement with
Harris Trust and Savings Bank ("Harris") as agent providing for (i) a five-year
$15 million revolving credit facility, $5 million of which is available only
during the period July through February of each year, (ii) a $5 million letter
of credit facility which expires December 31, 1998, (iii) a five-year $25
million term loan with equal quarterly principal amortization, and (iv) a six-
year $30 million term loan with quarterly principal amortization in varying
amounts. The loans bear interest based, at the Company's option, on either (i)
LIBOR or (ii) the prime commercial rate announced from time to time by Harris,
plus a variable margin determined by the Company's fixed charge ratio. Based on
the initial margin at closing, the $25 million loan and revolving credit
facility bear interest at LIBOR plus 2.25% and the $30 million loan bears
interest at LIBOR plus 3.0%. The loan agreements require the Corporation to
maintain certain financial ratios and other covenants, and the notes are secured
by substantially all of the assets of the Company.
If the refinancing had occurred on July 1, 1994, net sales for the year ended
June 30, 1995 would not have changed and unaudited pro forma net income and net
income per common share before extraordinary items would have been approximately
$13.7 million and $1.17, respectively. Further, after provision for the
extraordinary loss for early extinguishment of debt of approximately $10.7
million, net income would have been approximately $3 million and a net loss per
common share of $.02 after preferred dividend requirements. If the refinancing
had occurred on July 1, 1995, net sales for the quarter ended September 30, 1995
would not have changed
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<PAGE>
and unaudited pro forma net income and net loss per common share before
extraordinary items would have been approximately $679,000 and $.01,
respectively. Net loss after the extraordinary loss for early extinguishment of
debt of approximately $10.6 million would have been $12.4 million or $1.60 per
common share. The extraordinary loss which was recorded at August 3, 1995 due
to write off of loan fees and prepayment penalties was $10.5 million, or $1.28
per common share of which $9.5 million had no cash effect.
The pro forma scheduled annual minimum maturities for long-term debt assuming
the refinancing completed in August 1995 had been completed at June 30,1995,
including capitalized lease obligations, are as follows (in thousands):
<TABLE>
<CAPTION>
Fiscal Year Amount
----------- --------
<S> <C>
1996 $ 6,019
1997 10,374
1998 9,383
1999 10,380
2000 17,897*
2001 and thereafter 13,124
-------
$67,177
=======
</TABLE>
*Includes $6,521,000 which was the balance of the Company's revolving line of
credit at June 30, 1995.
The foregoing unaudited proforma information does not purport to be indicative
of the financial position or results of operations which actually would have
occurred had the refinancing been completed on the dates indicated.
(6) TENDER OFFER AND MERGER
On August 10, 1995 the Company and Agrium Inc. announced that they had entered
into a merger agreement which provides for the acquisition of the Company in a
two-step transaction by Agrium Acquisition Corp. ("Agrium"), a wholly-owned
subsidiary of Agrium Inc. A tender offer for all of the outstanding shares of
common stock of the Company was consummated by Agrium on October 2, 1995 at a
price of $10.50 cash per common share. A total of 8,886,943 shares, representing
95.9% of the total number of outstanding common shares, were validly tendered
and not withdrawn prior to the expiration of the tender offer.
The Company filed a Proxy Statement on October 17, 1995 (the "Proxy Statement")
for a special meeting of the stockholders of the Company which was held on
November 6, 1995 to approve the merger of Agrium into the Company. The merger
was approved by approximately 97% of the shareholders (see Part 2, Item 4) and
each issued and outstanding common share not previously tendered and as to which
appraisal rights were not perfected, was converted into the right to receive
$10.50 cash without interest. The Company's Class A preferred stock and Class B
preferred stock remains outstanding.
-8-
<PAGE>
Due to the change of ownership which has resulted, the Company's usage of its
net operating losses may be limited. Final disposition of certain tax issues
has not yet been determined.
(7) COMMITMENTS AND CONTINGENT LIABILITIES
Rhone-Poulenc Agreement
The Company entered into a seven-year agreement with Rhone-Poulenc Basic
Chemical Company, a division of Rhone-Poulenc, Inc. ("RP") for supply of
phosphate ore (the "RP Agreement"). The phosphate ore mined by RP contains
higher quality ore with substantially lower overburden removal requirements than
found in other known reserves in southeastern Idaho, including those owned by
Nu-West Mining. The Company has realized significant annual production cost
savings by purchasing phosphate ore under the RP Agreement versus the estimated
cost of mining its own reserves. The RP Agreement was contingent on the
Company's ability to obtain and make available to RP approximately $13.3 million
of mobile mining equipment. On November 2, 1993, the Company entered into a
lease financing arrangement with Caterpillar Financial Services Corp.
("Caterpillar") providing for the necessary mining equipment. The Company has
posted a $2.0 million letter of credit with Caterpillar to secure its
obligations under the lease.
The Caterpillar lease has a 60 month term and provides for the optional purchase
of the equipment based on fair market value at the end of the lease. The
annual minimum lease payments under this lease are $2.4 million for fiscal
1996, 1997 and 1998, and $608,000 for fiscal 1999. The equipment is subleased
by the Company to RP on payment terms equivalent to those between the Company
and Caterpillar. RP may cancel the sublease, however, if the Company fails to
take shipments or make timely payment for ore received under the RP Agreement.
The terms of the RP Agreement provide that the Company will not be required to
take a minimum annual tonnage of ore and may mine its own phosphate ore
reserves, but will be responsible for idle leased equipment costs resulting from
a reduction in the Company's purchase requirements from RP below 1.6 million
tons per year. The Company may not elect to purchase more than 1.6 million tons
of ore per year without the consent of RP and must give six months' notice of
reductions in its ore purchase requirements. The Company has constructed a new
haul road and ore loading system at the RP mine site at a combined total cost of
approximately $1.8 million and has transferred these assets to RP in exchange
for a 69 month non-interest bearing note receivable. RP makes equal monthly
payments on the note. The unpaid balance at September 30, 1995 was $1.6 million
of which $1.3 million is included in Deferred costs and Other assets and the
balance is included in Accounts receivable. Through September 30, 1995, the
Company had spent $2.1 million on the construction of a maintenance shop, and
additional expenditures of $100,000 will be required prior to November 1995 for
the completion of this
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<PAGE>
project. This asset will also be transferred to RP in exchange for a non-
interest bearing note receivable.
Payment for delivery of ore is based on the actual cost of mining by RP plus 50%
of the net savings recognized by RP and the Company as a result of the RP
Agreement. RP is prohibited from selling its ore reserves without assumption of
the RP Agreement by any purchaser. Part of the mining cost paid by the Company
will be the cost of reclamation of mined acreage based on cost estimates as the
ore is mined, with subsequent adjustments as required. RP will be responsible
for all reclamation work and has indemnified the Company against environmental
exposure at the mine.
In June 1995, the RP Agreement was extended for an additional five year term
through 2005. RP also notified the Company of its intent to cease taking ore
from the mine for its own account. RP may resume taking ore with ninety days
notice, although no such action is anticipated in the foreseeable future. The
Company's ore requirements have exceeded 80% of the total output of the RP mine
during fiscal 1995, and no material cost or operational disadvantage is expected
as a result of the cessation of deliveries to RP.
Kennecott Agreement
On July 28, 1994, the Company entered into a five-year sulfuric acid purchase
contract with Kennecott Utah Copper Corporation ("Kennecott") for the purchase
of 300,000 tons of sulfuric acid per year to replace the output of the older of
the two sulfuric acid facilities currently operating at the Conda Plant. Shut
down of the older sulfuric acid plant will significantly reduce sulfur dioxide
emissions as part of a settlement of the air quality enforcement action
described below. Shipments of sulfuric acid are to begin in November 1995 and
prices under the contract will be adjusted quarterly based on the equivalent
cost of sulfur and the Company's selling price for one of its fertilizer
products. The Company also entered into a $4 million loan agreement with
Kennecott. The proceeds of the $4 million loan are being used to construct
tankage and rail spurs to receive and unload the sulfuric acid and a boiler to
replace the steam now supplied by the older acid plant. At September 30, 1995,
$3.7 million had been spent toward the construction of those assets, and
advances on the loan were $3.5 million. The five-year senior subordinated loan
is secured by the constructed assets described and bears interest at prime plus
2%. Interest will be paid quarterly, and principal will be repaid as sulfuric
acid is purchased over the five year term of the loan.
Environmental Matters
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.
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<PAGE>
The phosphoric acid process water 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
("RCRA"). The EPA, with input from an advisory committee, is currently
evaluating potential improved processing, handling and storage measures for
phosphogypsum under provisions of the Toxic Substances Control Act and RCRA.
The exact requirements of those potential future rules cannot be predicted with
certainty at this time but will likely control 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 completed by an EPA contractor in 1994. 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.
In March 1994, the EPA issued a Notice of Violation pertaining to numerous
excess SO\\2\\ emissions during the period from October 1989 to May 1993. The
Company has negotiated a settlement with the EPA that provides for the payment
of a $150,000 fine and reduced SO\\2\\ emissions limitations until November
1995, at 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
to replace the production of this plant. (See Note 7 "Kennecott Agreement" for
further information.)
The Company has received a Notice of Violation from the EPA for alleged
violations under the Safe Drinking Water Act ("SDWA") 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. However, the Company has committed
to make improvements to its water supply system to comply with SDWA requirements
at a cost of approximately $100,000.
The Company owns an idled plant site in Bear Lake County, Idaho. Evaluation of
the costs which may be incurred to dismantle and reclaim this site is currently
being conducted. Since an accurate estimate of these costs is not available, a
liability has not been recorded at September 30, 1995.
Litigation
Since the commencement of the tender offer by Agrium, four class action
complaints have been filed in the Delaware Chancery Court on behalf of all
persons who own common shares against
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<PAGE>
the Company, certain of its directors and, in one instance, Agrium Inc. In the
suits, the plaintiffs alleged, among other things, that the Company and certain
of its directors breached their fiduciary duties to holders of the common shares
by, among other things, entering into the merger agreement with Agrium and
failing to attempt to maximize stockholder value. In the suit in which Agrium
Inc. is named as a defendant, the plaintiffs also alleged that Agrium aided and
abetted such alleged breach of fiduciary duty. Each suit seeks various remedies,
including an injunction to prevent consummation of the transaction, and damages,
costs and disbursements of the action. The plaintiffs and the defendants have
entered into a Memorandum of Understanding dated as of September 19, 1995 that
provides for the settlement of the above-referenced actions. As provided in the
Memorandum of Understanding, the Company's Schedule 14D-9 was amended to reflect
the disclosure included therein, Agrium extended the tender offer to October 2,
1995 and the minimum percentage of common shares to be tendered as a condition
to Agrium's obligation to consummate the offer was increased from 60% to 65%. A
Stipulation of Settlement on substantially the terms set forth in the Memorandum
of Understanding was entered into by the parties on or about October 3, 1995 and
filed with the Delaware Chancery Court (the "Court"). A hearing has been
scheduled by the Court on December 14, 1995 to determine whether the settlement
should be approved by the Court, whether final judgment should be entered
thereof, and to consider the application by plaintiffs' counsel for attorneys'
fees and reimbursement of expenses. A capital contribution of $200,000 was made
by Weiss, Peck and Greer, the Company's majority shareholder prior to the tender
offer, for legal expenses related to this litigation.
-12-
<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, 1995.
On August 10, 1995 the Company and Agrium Inc. announced that they had entered
into a merger agreement which provides for the acquisition of the Company in a
two-step transaction by Agrium Acquisition Corp. ("Agrium"), a wholly-owned
subsidiary of Agrium Inc. (a Canadian corporation). A tender offer for all of
the outstanding shares of common stock of the Company was consummated by Agrium
on October 2, 1995 at a price of $10.50 cash per common share. A total of
8,886,943 shares, representing 95.9% of the total number of outstanding common
shares, were validly tendered and not withdrawn prior to the expiration of the
tender offer.
The Company filed a Proxy Statement on October 17, 1995 (the "Proxy Statement")
for notification of a special meeting of the stockholders of the Company which
was held on November 6, 1995 to approve the merger of Agrium into the Company.
The merger was approved by approximately 97% of the stockholders (see Part 2,
Item 4) and each issued and outstanding common share not previously tendered and
as to which appraisal rights were not perfected, was converted into the right to
receive $10.50 in cash, without interest. Reference is made to the Proxy
Statement and to Part 2 Item 5 for information regarding changes in the
Company's board of directors and executive management.
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.
The Company's business is very seasonal in nature with emphasis on the crop
planting seasons of spring and fall. The Company's first fiscal quarter is
generally the period of lowest product demand and followed a period of extremely
wet weather conditions in areas of the U.S. during the spring of 1995. Product
inventories were higher than expected at the conclusion of the spring season and
prices declined during the summer months; however, product shipments during the
fall of 1995 have been strong and prices have strengthened. The outlook for the
price of phosphate fertilizer remains favorable due to product demand both
internationally and domestically. It has historically been difficult, however,
to forecast the effects of international
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<PAGE>
politics and economics on the fertilizer export tonnage or the weather patterns
and farm income in the U.S.
RESULTS OF OPERATIONS
QUARTER ENDED SEPTEMBER 30, 1995 VS. QUARTER ENDED SEPTEMBER 30, 1994
Consolidated net loss before extraordinary item for the quarter ended September
30, 1995 was $2.3 million, or $.38 per share after provision for preferred stock
dividends. This compares to net income of $449,000, or a loss of $.04 per share
after provision for preferred stock dividends for the three months ended
September 30, 1994. Included in the results for the 1995 quarter were $2.6
million of investment banking and legal fees resulting from the acquisition of
the Company's common stock by Agrium. After an extraordinary loss of $10.5
million from the write-off of loan fees and early extinguishment of debt
associated with refinancing of the Company's long-term debt in August 1995 (See
"Liquidity and Capital Resources - Financing Activities"), the total
consolidated net loss for the quarter ended September 30, 1995 was $12.8
million, or $1.66 per common share.
Net sales increased to $28.9 million for the current quarter compared to $21.8
million for the corresponding quarter in the previous fiscal year. A 26%
increase in sales volume accounted for substantially all of the increase in net
sales. The increase in sales volume resulted from a 77% increase in sales tons
of dry granular fertilizer products on a phosphoric acid ("P\\2\\O\\5\\") basis
which was partially offset by a 12% decrease in sales tons of liquid products.
The Company sold approximately 12,000 tons of MAP and 23,000 tons of 16-20-0 as
export sales, lowering inventory levels which had risen as a result of lower
than expected fertilizer shipments due to adverse weather conditions during the
1995 spring season. Liquid product shipments declined compared to the prior year
quarter due again to high inventories at the beginning of the summer at dealer
locations. Product prices for 16-20-0 declined by approximately 2% as compared
to the prior year quarter as a result of the export sales described above while
product prices were 2%-3% higher for all other dry granular products. Product
prices and demand have strengthened as the 1995 fall season progresses. Sales of
liquid products accounted for 35% of net product sales for the quarter ended
September 30, 1995 and 55% for the quarter ended September 30, 1994 and
contributed a substantial portion of gross margins in both periods.
The gross operating margin of $3.6 million for the quarter ended September 30,
1995 compares to a gross margin of $3.8 million for the comparable prior year
quarter. Production costs on a per ton basis were approximately 4% higher in the
current quarter due to increases of 74%, 13%, and 9% in sulfur, sulfuric acid
and ammonia, respectively, which are significant raw materials of the company's
products. Phosphate rock, the principal raw material in the Company's products,
increased a more moderate 3%. Partially offsetting cost increases was a 2%
increase in production volumes during the quarter ended September 30, 1995 as
compared to those of the quarter ended September 30, 1994 on a P\\2\\O\\5\\
basis.
Selling, general and administrative ("SGA") expense increased $469,000 from the
prior fiscal year's quarter and increased as a percentage of sales from 4.6% to
5.1%. Interest expense
-14-
<PAGE>
decreased by $534,000 due primarily to the refinancing of the Company's long-
term debt at lower interest rates in August 1995.
LIQUIDITY AND CAPITAL RESOURCES
Operating Activities: Cash used for operations during the three months ended
September 30, 1995 was $7.4 million as compared to a use of cash of $1.7 million
for the period ended September 30, 1994. Accounts receivable resulted in the
largest change in use of operating capital and increased by $9.4 million from
June 30, 1995 due to greater use of extended payment terms for summer sales and
increased shipping in September. The Company's liquidity and profitability have
improved significantly during the past two years as a result of higher phosphate
fertilizer prices and the realization of phosphate ore cost reduction. Sales
volumes and prices currently reflect good demand in the Company's market area
although wet weather conditions in the spring of 1995 resulted in lower sales
tonnage and product price for fertilizer products during the summer months due
to high inventories at the producer and dealer level at the conclusion of the
spring planting season. Sulfur prices compared over the same periods are
approximately 74% higher, a result primarily of increased demand by the
phosphate fertilizer industry. Ammonia prices have risen 9% due to 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 and ammonia in the near term. The Company
expects savings from cost cutting measures which have been taken at the RP Mine
to help offset increased costs resulting from inflation which are allowed under
the RP Agreement.
Demand for phosphate fertilizer products in the Company's market area has been
good and the Company expects moderately good product shipments during its fiscal
second quarter based on current domestic market information. Increased buying in
the international market has been a key factor in the balancing of supply and
demand that has led to product price recovery. It is difficult, however, to
forecast the future effect or duration of 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. 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. In
spite of these uncertainties, the Company remains optimistic for continued price
stability in the months ahead based on demand within its market area and
reported expectations of near-term export shipments.
The Company finances its working capital needs through its revolving line of
credit. Working capital increased by $3.7 million due primarily to the increase
of $9.4 million in receivables referred to earlier, offset by a $2 million
reduction in inventory and an increase of $3.3 million in payables and accrued
liabilities. Inventories have decreased due to lower finished good inventory as
shipments increase at the beginning of the fall shipping season compared to
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<PAGE>
unusually high inventory levels at June 30, 1995. Accrued liabilities increased
due to accrual of investment banking and other fees related to the Agrium
acquisition.
The Company's revolving credit facility bears interest based on a combination of
Prime plus 1.25% and LIBOR plus 2.25% (10.0% and 8.125%, respectively, at
September 30, 1995). The blended rate at September 30, 1995 was 8.6%. Cash
balances were $225,000 and unused borrowing capacity totalled approximately $4.4
million. Outstanding borrowings were $10.6 million at September 30, 1995. The
Company had working capital of approximately $28.5 million and a current ratio
of 2.46:1 at September 30, 1995. 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.
Investing Activities: Capital expenditures were $4.1 million for the three
months ended September 30, 1995. Of this amount $630,000 relates to the RP
Agreement, $899,000 is for construction of a new cooling pond, and $1.7 million
relates to construction of certain assets required by the sulfuric acid purchase
contract with Kennecott. (See Note 13 to the Company's June 30, 1995
Consolidated Financial Statements for further information.)
Future capital expenditure requirements of the Company include approximately
$300,000 required by the Kennecott Agreement and an additional $2.9 million for
the construction of a new double lined cooling pond to be completed during the
fall of 1995.
Financing Activities: The capital expenditure requirements for the new cooling
pond and those required to maintain capacity will be funded from the results of
operations. The construction of the assets required by the Kennecott contract
will be financed by a five-year, $4 million loan from Kennecott. Borrowings
under this facility were $3.5 million at September 30, 1995.
On August 3, 1995, the Company refinanced substantially all of its long-term
debt with a $75 million senior secured loan agreement with Harris Trust and
savings Bank ("Harris"), as agent, consisting of (i) a five-year $15 million
revolving credit facility, $5 million of which is available only during the
Company's period of peak working capital requirement from July through February,
(ii) a $5 million letter of credit facility which expires December 31, 1998,
(iii) a five-year $25 million term loan with equal quarterly principal
amortization, and (iv) a six-year $30 million term loan with quarterly principal
amortization in varying amounts. The loans bear interest based, at the Company's
option, on either (i) LIBOR or (ii) the prime commercial rate announced from
time to time by Harris, plus a variable margin determined by the Company's fixed
charge ratio. Based on the initial margin at closing, the $25 million loan and
revolving credit facility bear interest at LIBOR plus 2.25% and the $30 million
loan bears interest at LIBOR plus 3.0%. Using current loan balances and interest
rates, the Company estimates interest savings for fiscal 1996 of approximately
$2.6 million and a reduction in blended interest rates from 13.3% to 8.5%.
-16-
<PAGE>
PART II -- OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
For a description of certain shareholder litigation related to the tender by
Agrium for the Company's common stock, see Note 7 to the Company's Consolidated
Financial Statements in Part 1, Item 1.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held a Special Meeting of Stockholders on November 6, 1995 following
solicitation of proxies to consider (i) adoption and approval of (A) the merger
(the "Merger") of Agrium Acquisition Corporation, a Delaware corporation (the
"Purchaser"), into the Company, pursuant to the terms of that certain Agreement
and Plan of Merger by and between the Company, Agrium Inc. and the Purchaser,
dated August 9, 1995 (the "Merger Agreement"), and (B) the Merger Agreement.
A cash tender offer commenced on August 16, 1995 by the Purchaser for all
outstanding shares of the Company's Common Stock, par value $.01 at a price of
$10.50. The tender offer was consummated on October 2, 1995 and a total of
8,886,943 Common Shares, representing approximately 95.9% of the total number of
outstanding Common Shares, were acquired by the Purchaser. The Purchaser agreed
in the Merger Agreement to vote its Common Shares for approval of the Merger
Agreement and the Merger. Total Shares Voted For (including those held by the
Purchaser) - 8,977,878; Shares Voted Against - 1,130; Shares Which Abstained -
2,631; Shares Not Voted - 100.
On the basis of the voting results, approval was given for the Merger and the
Merger Agreement. The Merger has been effected in accordance with the Merger
Agreement.
Item 5. OTHER INFORMATION
By unanimous consent of the Board of Directors, the following persons were
appointed as officers of the Company:
John M. VanBrunt President
Gary L. Carstens Vice President
Patrick J. Freeman Treasurer
Steven W. Gampp Secretary
Dorothy E. A. Bower Assistant Secretary
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
27 Financial Data Schedule.
-17-
<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: November 13, 1995 /s/ Don LaRue
------------------------------------ ----------------------------------
Vice President of Operations
Dated: November 13, 1995 /s/ Helen K. Smith
------------------------------------ ----------------------------------
Corporate Controller
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM NU-WEST
INDUSTRIES, INC.'S QUARTERLY REPORT ON FORM 10-Q FOR THE PERIOD ENDED SEPTEMBER
30, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
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