<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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
March 31, 1996
- - --------------
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 000-19182
---------
Nord Pacific Limited
- - --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Bermuda Not Applicable
- - ---------------------------- ----------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization
22 Church St.
Hamilton HM11 Bermuda N/A
- - ---------------------------------------- --------
(Address of principal executive officers) (Zip Code)
Registrant's telephone number, including area code (809) 292-2363
--------------
Not Applicable
----------------------------------------------
(Former name, former address, and former fiscal
year, if changed since last report)
Indicated by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding twelve months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES X NO
----- ------
The number of shares of Common Stock outstanding as of May 5, 1996 was
47,461,270.
<PAGE>
NORD PACIFIC LIMITED
INDEX
Page
Number
------
PART I. FINANCIAL INFORMATION:
ITEM 1. Condensed Financial Statements:
Balance Sheets - March 31, 1996
and December 31, 1995 2-3
Statements of Operations - Quarters
ended March 31, 1996 and 1995 4
Statements of Cash Flows - Quarters
ended March 31, 1996 and 1995 5
Notes to Condensed Financial Statements 6-9
ITEM 2. Management's Discussion and Analysis
of Financial Condition and Results of
Operations 10
PART II. OTHER INFORMATION:
ITEM 1-5. Not Applicable 11
ITEM 6. Exhibits and Reports on Form 8-K 11
1
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. CONDENSED FINANCIAL STATEMENTS
NORD PACIFIC LIMITED
CONDENSED BALANCE SHEETS
ASSETS
(In Thousands of U.S. Dollars)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1996 1995
--------- ------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 710 $ 3,656
Accounts receivable:
Trade 1,363 1,172
Affiliates 10 40
Other 37 49
-------- --------
1,410 1,261
Inventories:
Copper 100 88
Supplies 194 183
-------- --------
294 271
Forward currency exchange contracts 1,023 1,022
Premium on derivative financial instruments 272 348
Prepaid expenses 121 172
-------- --------
TOTAL CURRENT ASSETS 3,830 6,730
RESTRICTED CASH 1,000 1,080
PREMIUM ON DERIVATIVE FINANCIAL INSTRUMENTS 370 960
DEFERRED COSTS ASSOCIATED WITH ORE UNDER
LEACH, net of accumulated amortization
of $6,341 in 1996 and $5,867 in 1995 5,991 5,606
PROPERTY, PLANT AND EQUIPMENT -
at cost less accumulated depreciation 5,982 5,919
DEFERRED EXPLORATION AND DEVELOPMENT COSTS:
Girilambone, net of accumulated amortization
of $870 in 1996 and $799 in 1995 1,307 1,356
Exploration prospects 14,683 12,956
DEBT ISSUANCE COSTS, net of accumulated amortization
of $469 in 1996 and $430 in 1995 20 59
-------- --------
$ 33,183 $ 34,666
-------- --------
-------- --------
</TABLE>
SEE NOTES TO CONDENSED FINANCIAL STATEMENTS
2
<PAGE>
NORD PACIFIC LIMITED
CONDENSED BALANCE SHEETS
LIABILITIES AND
SHAREHOLDERS' EQUITY
(In Thousands of U.S. Dollars)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1996 1995
--------- ------------
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable:
Trade $ 1,250 $ 1,613
Affiliates 102 32
-------- --------
1,352 1,645
Accrued expenses 817 822
Payable on derivative financial instruments 506 393
Current maturities of long-term debt 3,120 3,930
-------- --------
TOTAL CURRENT LIABILITIES 5,795 6,790
LONG-TERM LIABILITIES:
Long-term debt 1,125 1,500
Payable on derivative financial instruments 505 883
Deferred income tax liability 1,420 1,120
Obligation under purchase agreement 782 744
Retirement benefits 183 169
-------- --------
4,015 4,416
SHAREHOLDERS' EQUITY:
Common Stock 475 475
Additional paid-in capital 31,336 31,336
Deficit (9,236) (9,149)
Foreign currency translation adjustment 798 798
-------- --------
23,373 23,460
-------- --------
$ 33,183 $ 34,666
-------- --------
-------- --------
</TABLE>
SEE NOTES TO CONDENSED FINANCIAL STATEMENTS
3
<PAGE>
NORD PACIFIC LIMITED
CONDENSED STATEMENTS OF OPERATIONS
(In Thousands of U.S. Dollars, except share and per share amounts)
<TABLE>
<CAPTION>
QUARTER ENDED MARCH 31,
-----------------------
1996 1995
---- ----
<S> <C> <C>
SALES $ 3,210 $ 3,048
COSTS AND EXPENSES:
Cost of sales 1,961 1,793
Abandoned projects 101
General and administrative 898 747
-------- --------
TOTAL COSTS AND EXPENSES 2,960 2,540
-------- --------
OPERATING EARNINGS 250 508
OTHER INCOME (EXPENSE):
Interest and other income 65 142
Interest and debt issuance costs (142) (192)
Forward currency exchange contracts gain (loss) 384 (798)
Copper contracts gain (loss) (301)
Foreign currency transaction gain (loss) (43) (350)
-------- --------
TOTAL OTHER INCOME (EXPENSE) (37) (1,198)
-------- --------
EARNINGS (LOSS) BEFORE INCOME TAXES 213 (690)
PROVISION FOR INCOME TAXES 300
-------- --------
NET (LOSS) $ (87) $ (690)
-------- --------
-------- --------
NET (LOSS) PER COMMON AND
COMMON EQUIVALENT SHARE $ - $ (.01)
-------- --------
-------- --------
AVERAGE COMMON AND COMMON
EQUIVALENT SHARES (In thousands) 47,461 47,454
-------- --------
-------- --------
</TABLE>
SEE NOTES TO CONDENSED FINANCIAL STATEMENTS
4
<PAGE>
NORD PACIFIC LIMITED
CONDENSED STATEMENTS OF CASH FLOWS
(In Thousands of U.S. Dollars)
<TABLE>
<CAPTION>
QUARTER ENDED MARCH 31,
-----------------------
1996 1995
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings (loss) adjusted for non-cash items
except depreciation and amortization $ 314 $ 214
Depreciation and amortization 902 1,008
-------- --------
Net cash provided by operating activities 1,216 1,222
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (381) (434)
Deferred exploration and development costs (1,850) (533)
Deferred costs associated with ore under leach: (859) (994)
-------- --------
Net cash (used in) investing activities (3,090) (1,961)
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments of long-term debt (1,185) (828)
Restricted cash 80 24
-------- --------
Net cash (used in) provided by financing activities (1,105) (804)
EFFECT OF EXCHANGE RATE CHANGES ON
CASH AND CASH EQUIVALENTS 33 (338)
-------- --------
(DECREASE) IN CASH AND CASH
EQUIVALENTS (2,946) (1,881)
CASH AND CASH EQUIVALENTS -
beginning of period 3,656 7,149
-------- --------
CASH AND CASH EQUIVALENTS - end of period $ 710 $ 5,268
-------- --------
-------- --------
</TABLE>
SEE NOTES TO CONDENSED FINANCIAL STATEMENTS
5
<PAGE>
NORD PACIFIC LIMITED
NOTES TO CONDENSED FINANCIAL STATEMENTS
QUARTERS ENDED MARCH 31, 1996 AND 1995
A. FINANCIAL STATEMENTS
The balance sheet at December 31, 1995 contains financial information taken
from the audited financial statements. The interim financial statements
are unaudited. In the opinion of management, all adjustments, which
consist of normal recurring adjustments, necessary to present fairly the
financial position and results of operations for the interim periods
presented have been made. The results shown for the first quarter of 1996
are not necessarily indicative of the results that may be expected for the
entire year.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been omitted. It is suggested that these financial
statements be read in conjunction with the financial statements and notes
thereto included in the Company's Annual Report on Form 10-K for the year
ended December 31, 1995.
The Company has adopted Statement of Financial Accounting Standards
("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets To Be Disposed Of," which requires review for
impairment of long-lived assets whenever changes in circumstances indicate
that the carrying amount of the asset may not be recoverable. The adoption
of SFAS No. 121 has had no effect on the financial statements for the
period ended March 31, 1996.
In October 1995, the Financial Accounting Standards Board issued SFAS No.
123, "Accounting for Stock-Based Compensation," which is effective for the
Company beginning January 1, 1996. SFAS No. 123 requires expanded
disclosures of stock-based compensation arrangements with employees and
encourages (but does not require) compensation cost to be measured based on
the fair value of the equity instrument awarded. Companies are permitted,
however, to continue to apply APB Opinion No. 25, which recognizes
compensation cost based on the intrinsic value of the equity instrument
awarded. The Company will continue to apply APB Opinion No. 25 to its
stock based compensation awards to employees and will disclose the required
pro forma effect on net income and earnings per share in its year end
financial statements as required by SFAS No. 123.
Certain reclassifications have been made in the 1995 financial statements
to conform to the classification used in 1996. These reclassifications had
no effect on results of operations or shareholders' equity as previously
reported.
B. TAXATION
Under current Bermuda law, the Company is not required to pay any taxes in
Bermuda on either income or capital gains. The Company has received an
undertaking from the Minister of Finance in Bermuda that in the event of
any such taxes being imposed, the Company will be exempted from taxation
until the year 2016. Although the Company is not subject to income taxes,
it has subsidiaries which are subject to income taxes in their respective
foreign countries.
6
<PAGE>
A provision for deferred income taxes of $300,000 has been recorded in the
first quarter of 1996 resulting from the profitable operations of the
Girilambone copper property in Australia. Operating losses in other
countries cannot be used to offset income taxes in Australia.
C. GIRILAMBONE
The Company is a 40% joint venturer in the Girilambone Copper Property
("Girilambone") in Australia. All costs incurred during mine development
have been capitalized and are being amortized using the units of production
method over the estimated reserves. Following is summarized balance sheet
information of 100% of Girilambone:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1996 1995
--------- ------------
<S> <C> <C>
Current assets $ 1,415 $ 817
Deferred costs associated with ore under leach 14,976 14,015
Property, plant and equipment 13,637 13,651
Deferred exploration and development costs 7,197 7,386
-------- --------
Total assets 37,225 35,869
Current liabilities 2,260 2,437
-------- --------
Partners' equity $ 34,965 $ 33,432
-------- --------
-------- --------
Company's share of equity (40%) $ 13,986 $ 13,373
Less: Eliminations (1,572) (1,599)
-------- --------
Net assets recorded by Company $ 12,414 $ 11,774
-------- --------
-------- --------
</TABLE>
Debt incurred for the development and construction of Girilambone is the
separate responsibility of each venturer and is not included in the joint
venture's financial statements. At March 31, 1996, $4,245,000 remains
outstanding from borrowings by the Company for the construction and
development of the Girilambone mine.
7
<PAGE>
Copper production is distributed to each venturer based on its respective
ownership interest. Sale of copper is the responsibility of each
venturer. Cost and expense information related to operation of the mine is
as follows:
QUARTER ENDED MARCH 31
----------------------
1996 1995
---- ----
(In Thousands of U.S. Dollars)
Cost of copper sales $ 4,902 $ 4,483
General and administrative expense $ 63 $ 71
D. LONG-TERM DEBT
The Company has $4,245,000 outstanding at March 31, 1996, under a financing
agreement to fund its share of the development and construction of
Girilambone. The interest rate at March 31, 1996 was 7.32% (LIBOR plus
1.85%).
During the period the loan is outstanding, the Company is required to
maintain a reserve account with the lender. All cash proceeds generated
from Girilambone operations are required to be deposited with the lender,
and must be used to pay any project costs, bank fees, interest, principal,
and funding required in the reserve account before any cash is available to
the Company.
E. FINANCIAL INSTRUMENTS
The Company utilizes certain financial instruments, primarily copper
hedging agreements and forward currency exchange contracts. These
financial instruments are utilized to reduce the risk associated with the
volatility of commodity prices and fluctuations in foreign current exchange
rates, particularly the Australian dollar. The Company does not hold or
issue financial instruments for trading purposes.
COPPER AGREEMENTS
To mitigate the effect of a decline in the price of all of its expected
copper sales through December 31, 1997, the Company has entered into both
put and call option agreements for the first quarter of 1996 and both swap
and call option agreements for the remainder of 1996 and all of 1997.
The swap and call agreements are for a total of 23.1 million pounds of
copper and settle ratably each month from April 1996 through December 1997.
The copper swap agreements are designated as hedges up to the level of
anticipated copper sales, and gains and losses under these agreements are
deferred and reflected as a component of sales when each contract settles.
The swap agreements with contract amounts in excess of the anticipated
copper sales and the call options do not qualify as hedges and are marked
to market with the resulting gain or loss included in operations currently.
8
<PAGE>
Under this combination swap and call option arrangement, at the settlement
date for each copper contract during the second through fourth quarters of
1996, the Company will receive $1.10 per pound plus the excess of market
price (as determined by the London Metals Exchange) over $1.19 per pound.
At the settlement date in 1997 for each copper contract, the Company will
receive $1.02 per pound plus the excess of market price (as determined by
the London Metals Exchange) over $1.11 per pound.
Sales for the quarter ended March 31, 1995 include $218,000 of losses, that
were realized in settlement of the copper hedging contracts. There was no
comparable amount recorded in the first quarter of 1996. The net loss for
the quarter ended March 31, 1996, includes a loss of $301,000 resulting
from marking copper contracts to market. A deferred gain of $369,000 on
the swap agreements is included in Payable on Derivative Financial
Instruments at March 31, 1996.
FORWARD CURRENCY EXCHANGE CONTRACTS
The Company has entered into forward exchange contracts, expiring at
various times through July 1996, to hedge against potential Australian
currency fluctuations related to payment of a portion of the expected
operating costs of Girilambone. Realized and unrealized gains and losses
on these contracts are included in the results of operations.
The Company is exposed to copper price fluctuations and currency risks in
the event of nonperformance by the counterparties to the various agreements
described above but has no off balance sheet risk of accounting loss. The
Company anticipates, however, that the counterparties will be able to fully
satisfy their obligations under the agreements. The Company does not
obtain collateral or other security to support financial instruments
subject to credit risk.
F. AMERICAN DEPOSITARY RECEIPTS ("ADRs")
The Company has established a program whereby The Bank of New York has
issued American Depositary Receipts ("ADRs") in exchange for the ordinary
shares of the Company's common stock. The exchange ratio is five ordinary
shares for each ADR. The ADRs commenced trading on the NASDAQ National
Market System on August 7, 1995. Effective September 25, 1995, the
Company's ordinary shares were no longer traded on NASDAQ. The Company's
ordinary shares continue to be listed and traded on the Australian Stock
Exchange. Holders of ordinary shares and holders of ADRs can freely
convert back and forth between both securities upon payment of a fee to The
Bank of New York and presentation of appropriate documentation. Per share
information converted to equivalent ADRs is as follows:
Supplemental Information
(Loss) Per ADR
Quarters Ended March 31,
1996 1995
---------- ----------
Net loss per ADR $ (.01) $ (.07)
Average equivalent ADRs 9,492 9,491
(000's) (Assuming full
conversion of ordinary
shares to ADRs)
9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Nord Pacific Limited (the "Company") recorded a net loss of $87, 000 for the
three months ended March 31, 1996, compared to a net loss of $690,000 for the
same period of 1995. The Company recorded operating earnings of $250,000 for
the three months ended March 31, 1996, compared to $508,000 for the same period
of 1995. The Company's share of copper sold in the first quarter of 1996
totaled 2,733,000 pounds, compared to 2,430,000 pounds sold in the same period
in 1995. Copper production increased during the 1996 period due to completion
of the expansion program during 1995 and early 1996. The average selling price
of copper was $1.19 per pound during the first quarter of 1996, a decrease of
$.06 from the first quarter of 1995. Copper sales for the first quarter of 1995
include $218,000 of losses, that were realized in settlement of copper hedging
contracts. Adversely affecting operating earnings in the first quarter of 1996
was the write-off of an abandoned property in Mexico of $101,000, due to
disappointing results from exploration. Also contributing to lower operating
earnings was a twenty percent increase in general and administrative expense,
which includes general exploration expenditures not allocable to specific
projects. This twenty percent increase was largely due to the increase in
overall exploration activity.
Results of operations during the first quarter of 1996 include a gain from
forward currency exchange contracts of $384,000 due to the strengthening of the
Australia dollar in relation to the U.S. dollar compared to a loss of $798,000
in the first quarter of 1995. A loss of $301,000 was recorded in the first
quarter of 1996 resulting from marking copper contracts to market. There was no
corresponding loss recorded in the same period of 1995. Foreign currency
transaction losses totaled $43,000 and $350,000, respectively, for the first
three months of 1996 and 1995. Interest and other income decreased to $65,000
in the first quarter of 1996 from $142,000 in the first quarter of 1995 due to a
decrease in cash available for investment. Interest and debt issuance costs
decreased to $142,000 in the first quarter of 1996 from $192,000 in the first
quarter of 1995 due to repayment of debt under the Girilambone financing
agreement. A provision for income taxes of $300,000 was recorded in the first
quarter of 1996 resulting from profitable operations at Girilambone. No
provision for income taxes was recorded in the same period of 1995.
LIQUIDITY AND CAPITAL RESOURCES
Cash of $1,216,000 was provided during the quarter ended March 31, 1996, by
operating activities related to the Company's forty percent interest in the
Girilambone copper project ("Girilambone"). During the first quarter of 1996,
the Company's share of cash used to fund exploration and development activity
totaled $1,850,000, of which $796,000 related to properties near Girilambone and
$960,000 related to the Tabar gold project. The Company expended $859,000 for
its share of deferred costs associated with ore under leach at Girilambone, and
paid $1,185,000 for principal payments under the Girilambone financing
agreement. Cash decreased during the quarter by $2,946,000.
The Company is proceeding with exploration activities at the Tabar gold project
and the Tritton copper prospect near Girilambone. At the time a project
currently in the exploration stage evolves into construction and eventual
production, significant additional funding will be required from equity or bank
financing.
The Company is currently proceeding with discussions with several financial
institutions in order to obtain additional financing for working capital and
planned exploration and development of current projects.
10
<PAGE>
PART II. OTHER INFORMATION
ITEM 1-5. NOT APPLICABLE
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
No Reports on Form 8-K were filed during the quarter ended March
31, 1996.
11
<PAGE>
SIGNATURES
Pursuant to the requirements of the Security Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NORD PACIFIC LIMITED
May 13, 1995 By:s/Terence H. Lang
Terence H. Lang,
Treasurer, Principal
Financial Officer and
Authorized Officer
12
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM NORD PACIFIC
LIMITED FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 1996 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 710
<SECURITIES> 0
<RECEIVABLES> 1,410
<ALLOWANCES> 0
<INVENTORY> 294
<CURRENT-ASSETS> 3,830
<PP&E> 9,519
<DEPRECIATION> 3,537
<TOTAL-ASSETS> 33,183
<CURRENT-LIABILITIES> 5,795
<BONDS> 0
0
0
<COMMON> 475
<OTHER-SE> 22,898
<TOTAL-LIABILITY-AND-EQUITY> 33,183
<SALES> 3,210
<TOTAL-REVENUES> 3,210
<CGS> 1,961
<TOTAL-COSTS> 2,960
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 142
<INCOME-PRETAX> 213
<INCOME-TAX> 300
<INCOME-CONTINUING> (87)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (87)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
