<PAGE>
UNITED STATES
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, 1998
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 (441) 292-2363
--------------
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 15, 1998 was
12,925,203.
<PAGE>
NORD PACIFIC LIMITED
INDEX
Page
Number
------
PART I. FINANCIAL INFORMATION:
ITEM 1. Condensed Consolidated Financial Statements:
Balance Sheets - March 31, 1998
and December 31, 1997 3-4
Statements of Operations - Three
Months ended March 31, 1998
and 1997 5
Statements of Cash Flows - Three
Months ended March 31, 1998 and
1997 6
Notes to Condensed Consolidated Financial
Statements 7-10
ITEM 2. Management's Discussion and Analysis
of Financial Condition and Results of
Operations 11-12
PART II. OTHER INFORMATION:
ITEM 1-5. Not Applicable
ITEM 6. Exhibits and Reports on Form 8-K 13
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NORD PACIFIC LIMITED
BALANCE SHEETS
ASSETS
(Unaudited)
(In Thousands of U.S. Dollars)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1998 1997
--------- ------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 4,139 $ 3,351
Accounts receivable:
Trade 1,244 1,313
Affiliates 59 53
Subscribed shares receivable -- 2,700
Other 176 90
-------- --------
1,479 4,156
Inventories:
Copper 196 137
Supplies 180 204
-------- --------
376 341
Premium on copper contracts 560 760
Prepaid expenses 119 137
-------- --------
TOTAL CURRENT ASSETS 6,673 8,745
DEFERRED COSTS ASSOCIATED WITH ORE UNDER
LEACH, net of accumulated amortization of $12,728
in 1998 and $11,518 in 1997 8,703 8,970
PROPERTY, PLANT AND EQUIPMENT -
at cost less accumulated depreciation of $5,808 in
1998 and $5,488 in 1997 4,364 4,737
DEFERRED EXPLORATION AND DEVELOPMENT
COSTS: Girilambone, net of accumulated amortization
of $2,110 in 1998 and $1,883 in 1997 4,395 4,335
Other projects 15,274 13,492
OTHER ASSETS 127 118
-------- --------
$ 39,536 $ 40,397
-------- --------
-------- --------
</TABLE>
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
3
<PAGE>
NORD PACIFIC LIMITED
BALANCE SHEETS (Continued)
LIABILITIES AND
SHAREHOLDERS' EQUITY
(Unaudited)
(In Thousands of U.S. Dollars)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1998 1997
--------- ------------
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable:
Trade $ 742 $ 975
Affiliates 256 168
-------- --------
998 1,143
Accrued expenses 1,734 1,484
Income taxes payable 1,200 1,200
Payable on copper contracts 560 760
Forward currency exchange contracts 1,973 2,099
Current maturities of long-term debt 2,248 2,548
Obligation under purchase agreement 662 650
-------- --------
TOTAL CURRENT LIABILITIES 9,375 9,884
LONG-TERM LIABILITIES:
Long-term debt -- 313
Deferred income tax liability 4,840 4,840
Retirement benefits 113 104
-------- --------
4,953 5,257
SHAREHOLDERS' EQUITY:
Common stock 646 618
Common stock subscribed -- 2,677
Additional paid-in capital 46,735 44,022
Accumulated deficit (22,971) (22,859)
Foreign currency translation adjustment 798 798
-------- --------
25,208 25,256
-------- --------
$ 39,536 $ 40,397
-------- --------
-------- --------
</TABLE>
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
4
<PAGE>
NORD PACIFIC LIMITED
STATEMENTS OF OPERATIONS
(Unaudited)
(In Thousands of U.S. Dollars, except per share amounts)
<TABLE>
<CAPTION>
QUARTER ENDED
MARCH 31,
----------------------
1998 1997
------- -------
<S> <C> <C>
SALES $ 3,252 $ 3,936
COSTS AND EXPENSES:
Cost of sales 2,528 1,987
Abandoned projects -- 197
General and administrative 684 1,077
------- -------
TOTAL COSTS AND EXPENSES 3,212 3,261
------- -------
OPERATING EARNINGS 40 675
OTHER INCOME (EXPENSE):
Interest and other income 82 37
Interest and amortization of debt issuance costs (61) (148)
Forward currency exchange
contracts gain (loss) 155 (170)
Copper contracts gain (loss) -- 232
Foreign currency transaction
gains (losses) (329) 31
------- -------
TOTAL OTHER INCOME (EXPENSE) (153) (18)
------- -------
EARNINGS (LOSS) BEFORE INCOME TAXES (113) 657
PROVISION FOR INCOME TAXES -- 700
------- -------
NET (LOSS) $ (113) $ (43)
------- -------
------- -------
BASIC (LOSS) PER SHARE $ --* $ --*
------- -------
------- -------
AVERAGE COMMON
SHARES OUTSTANDING 12,852 9,516
------- -------
------- -------
</TABLE>
*less then $.01 per share
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
5
<PAGE>
NORD PACIFIC LIMITED
STATEMENTS OF CASH FLOWS
(Unaudited)
(In Thousands of U.S. Dollars)
<TABLE>
<CAPTION>
QUARTER ENDED MARCH 31,
-----------------------
1998 1997
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ (113) $ (43)
Changes in non-cash
working capital 1,888 323
Depreciation and amortization 1,822 1,041
------- -------
Net cash provided by operating activities 3,597 1,321
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (1) (165)
Deferred exploration and development costs (2,093) (1,492)
------- -------
Net cash (used in) investing activities (2,094) (1,657)
CASH FLOWS FROM FINANCING ACTIVITIES:
Addition to long-term debt -- 1,071
Payments of long-term debt (614) (2,070)
Net borrowings from Nord Resources Corporation -- 1,662
Costs associated with issuance
of common stock (4) (336)
------- -------
Net cash provided by (used in) financing activities (618) 327
EFFECT OF EXCHANGE RATE CHANGES ON CASH
AND CASH EQUIVALENTS (97) 9
------- -------
INCREASE IN CASH AND CASH EQUIVALENTS 788 --
CASH AND CASH EQUIVALENTS - beginning of period 3,351 439
------- -------
CASH AND CASH EQUIVALENTS - end of period $ 4,139 $ 439
------- -------
------- -------
CASH PAID FOR INTEREST $ 61 $ 108
------- -------
------- -------
NON-CASH TRANSACTIONS:
Purchase of Derivative Financial Instruments $ -- $ 198
------- -------
------- -------
</TABLE>
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
6
<PAGE>
NORD PACIFIC LIMITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
QUARTERS ENDED MARCH 31, 1997 AND 1996
A. FINANCIAL STATEMENTS OF NORD PACIFIC LIMITED (THE "COMPANY")
These interim consolidated financial statements are unaudited. In the opinion
of management, all adjustments, which consist of normal recurring accruals,
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 1998 are not necessarily indicative of the results that may be
expected for the entire year.
The Company has adopted SFAS No. 129, "Disclosure of Information about Capital
Structure", which was effective for financial statements for periods ending
after December 15, 1997 and established standards for disclosing information
about an entity's capital structure. The adoption of SFAS No. 129 had no
significant effect on the Company's disclosures about its capital structure.
The Company has adopted SFAS No. 130, "Reporting Comprehensive Income", which
was effective for financial statements for periods beginning after December 15,
1997 and established standards for reporting and display of comprehensive income
and its components (revenues, expenses, gains and losses) in a full set of
general-purpose financial statements. The adoption of SFAS No. 130 has not had
a material impact on the Company's financial statement presentation or related
disclosures.
The Company has adopted SFAS No. 131, "Disclosure about Segments of an
Enterprise and Related Information", which was effective for fiscal years
beginning after December 15, 1997 and established standards for the way that
public business enterprises report information about operating segments in
annual financial statements and requires that those enterprises report selected
information about operating segments in interim financial reports issued to
shareholders. It also establishes standards for related disclosures about
products and services, geographic areas and major customers. The Company
operates in one business segment and the Company's adoption of FASB No. 131 has
not had a material impact on its financial statement presentation or related
disclosures.
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, 1997.
Certain reclassifications have been made in the 1997 financial statements to
conform to the classification used in 1998. These reclassifications had no
effect on results of operations or shareholders' equity as previously reported.
7
<PAGE>
B. TAXATION
Under current Bermuda law, the Company is not required to pay 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.
A provision for deferred income taxes of $700,000 was recorded in the first
quarter of 1997, resulting from the profitable operations of the Girilambone
Copper Property in Australia. No provision for income taxes has been recorded
for the first quarter of 1998. The effective tax rate differs resulting from
the statutory tax rate primarily because losses in other countries cannot be
used to offset taxable earnings in Australia.
C. GIRILAMBONE
The Company is a 40% joint venturer in the Girilambone Copper Property and a
50% joint venturer in the Girilambone North Copper Property (collectively
"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 combined balance sheet
information for Girilambone:
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
-------------- ------------
(In Thousands of U.S. Dollars)
<S> <C> <C>
Current assets $ 2,481 $ 1,638
Deferred costs associated with ore under
leach, net 19,001 19,934
Property, plant and equipment, net 9,819 10,541
Deferred exploration and development
costs, net 20,788 16,602
-------- --------
Total assets 52,089 48,715
Current liabilities 3,541 2,230
-------- --------
Partners' equity $ 48,548 $ 46,485
-------- --------
-------- --------
Company's share of equity $ 18,090 $ 18,846
Less: Eliminations (1,555) (1,587)
-------- --------
Net assets recorded by Company $ 16,535 $ 17,259
-------- --------
-------- --------
</TABLE>
8
<PAGE>
Debt incurred related to Girilambone is the separate responsibility of each
venturer and is not included in the joint ventures' financial statements.
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 the operations of the mine is as
follows:
<TABLE>
<CAPTION>
Three Months Ended
March 31,
----------------------------
1998 1997
---- ----
(In Thousands of U.S. Dollars)
<S> <C> <C>
Cost of copper sales $ 6,110 $ 4,843
General and administrative expense $ 98 $ 125
</TABLE>
D. INDEBTEDNESS
In February 1997, the Company finalized the restructuring of its financing
agreement with the Girilambone lender. The restructuring provided additional
financing of $980,000 which was used to pay a loan previously outstanding,
increased the amount of financing available to $5,225,000, and bears interest
at Singapore Interbank Offered Rates ("SIBOR") plus 1-1/2 %. Principal
payments are made quarterly at the greater of $425,000 or 50% of available
cash flow. In April 1997, the Girilambone lender approved an additional
drawing of $2,000,000 under the restructured financing agreement. The
agreement also contains certain debt coverage ratio requirements.
During the period the loan is outstanding, the Company is maintaining a reserve
account with the lender sufficient to meet the next quarterly principal
repayment. 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. As collateral on the loan, the lender
holds a security interest in the Australian assets of the Company including the
Company's share of assets of and production from Girilambone. The balance due
at March 31, 1998 totaled $2,248,000 and is due and payable on or before March
31, 1999.
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 currency exchange rates, particularly the
Australian dollar. The Company does not hold or issue financial instruments for
trading purposes.
COPPER AGREEMENTS
In November 1996, the Company purchased put options at a cost of $.08 per
pound of copper for 4.0 million pounds of copper maturing ratably each month
from January through March 1998. In April 1997, the Company purchased put
options at a cost of $.05 per pound of copper for an additional 11.9 million
pounds of copper maturing ratably each month from April through December
1998. This hedging program is intended to mitigate the effect of price
changes on substantially all of the Company's expected copper sales through
December 31, 1998 and guarantees that the Company will receive a minimum
gross price of $.90 per pound. The premiums are payable upon the expiration
of each contract.
9
<PAGE>
The Company had outstanding both swap and call option agreements with a single
counterparty on a total of 13.2 million pounds of copper which settled ratably
each month through December 31, 1997. The swap agreements locked in a fixed
forward price as a floor, with the purchase of call options above the floor
permitting the Company to benefit from an increase in copper price above the
call price. The copper swap agreements were designated as hedges up to the
level of anticipated copper sales, with gains and losses deferred and reflected
as a component of sales when each contract settled. The swap agreements with
contract amounts in excess of the anticipated copper sales and call options did
not qualify as hedges and were recorded at market. Under this combination swap
and call option arrangement, at the settlement date for each copper contract
during 1997, the Company received $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, 1998, include a gain of $199,000 and sales
for the quarter ended March 31,1997, include a loss of $256,000 realized in
settlement of copper hedging contracts.
FORWARD CURRENCY EXCHANGE CONTRACTS
The Company has entered into forward exchange contracts to protect against
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. Outstanding
contracts at March 31, 1998 total $12 million and mature in monthly
installments of $800,000 at an average exchange rate of A$1.00 = U.S.$.7963.
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. 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. NORD RESOURCES CORPORATION
Nord Resources Corporation ("Resources") owns 28.6% of the outstanding common
stock of the Company. In 1997, Resources provided certain services to the
Company under a management agreement. Resources was reimbursed for all
direct expenses and its overhead associated with the operations of the
Company at approximately $7,000 per month as per the management agreement.
Management believes that the costs that would have been incurred had the
Company obtained such services on a stand-alone basis would have approximated
the amounts paid to Resources. In December 1997, Resources closed its office
in Dayton, Ohio and moved its administrative functions to Albuquerque, New
Mexico. The Company currently shares office space, administrative personnel
and expenses with Resources on a 50/50 basis.
10
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The Company recorded a net loss of $113,000 for the quarter ended March 31,
1998 compared to a net loss of $43,000 for the same period in 1997. The
Company recorded operating earnings of $40,000 for the quarter ended
March 31, 1998 compared to $675,000 for the quarter ended March 31, 1997.
The Company's share of copper sold in the first quarter of 1998 totaled
3,851,000 pounds compared to 3,735,000 pounds sold in the same period in 1997.
Due to the drop in copper prices, copper revenue, including settlement of
copper hedging contracts, decreased $684,000. Copper production increased 8.7%
during the first quarter of 1998 due to improved heap leach management
practices relating to the aeration of the heaps. During first quarter of
1998, the Company received a net price of $.79 per pound of copper sold
compared to $1.12 received in 1997. The copper hedging programs established
by the Company resulted in an increase in sales of $199,000 during the first
quarter of 1998 compared to a decrease in sales of $256,000 in 1997.
Including the impact of these hedging programs, the Company realized a net
average sales price per pound of $.84 in 1998 compared to $1.05 per pound in
1997.
Cost of sales per pound of copper increased to $.66 per pound for the first
quarter 1998 compared to $.53 per pound in 1997 due primarily to increased
depreciation, depletion and amortization ("DD&A") of deferred leach costs.
Cost of sales as a percentage of sales increased to 78% during the first
quarter of 1998 compared to 52% in 1997 due primarily to lower sales revenues
due to the drop in the price of copper and to increased DD&A.
The Company wrote off costs totaling $197,000 associated with abandoned
properties in the first quarter of 1997. No such write off was necessary in
1998.
General and administrative costs ("G&A") decreased for the first quarter of 1998
compared to 1997. Salaries and related payroll tax and benefit costs were
reduced due to the closing of the Dayton office as were rent and utilities.
Travel expenses were reduced in 1998 compared to 1997 due to a reduction in
exploration activity. G&A in 1997 also included nonrecurring regulatory costs
totaling $70,000.
Interest income increased in 1998 compared to 1997 due to additional funds
available for investment. Interest and amortization of debt issuance costs
decreased in the first quarter of 1998 compared to 1997 due to smaller debt
balances outstanding in 1998 as debt was reduced during 1997. Fluctuations in
gains and losses in the foreign currency exchange contracts and in foreign
currency transactions are primarily a result of changes in the relative strength
of the Australian dollar compared to the U.S. dollar. The Company recorded a
gain of $155,000 on forward currency exchange contracts for the first quarter of
1998 compared to a loss of $170,000 in 1997 and a loss on foreign currency
transactions of $329,000 in 1998 compared to a gain of $31,000 in 1997. The
Company recorded a gain of $232,000 in the first quarter of 1997 on marking its
copper contracts to market. Since the Company had no swap contracts during the
first quarter 1998, no such gain was recorded.
Adversely affecting net earnings in 1997 was a provision for income taxes of
$700,000. No provision for income taxes has been recorded for the first
quarter of 1998. Income taxes are calculated on earnings from Girilambone. The
effective tax rate differs from the statutory tax rate primarily because losses
in other countries cannot be used to offset taxable earnings in Australia.
11
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Cash of $3,597,000 was provided during the quarter ended March 31, 1998, by the
Company's operating activities. During the first quarter of 1998, the Company
expended cash to fund exploration and development activity totaling $2,093,000,
of which $287,000 related to properties near Girilambone, $390,000 related to
the Tabar gold project, $1,264,000 related to the Ramu nickel project with the
remaining $152,000 expended for other projects. The Company made principal
payments totaling $614,000 under the Girilambone financing agreement.
The Company is in the exploration phase of all its projects except Girilambone.
Additional efforts on all exploration projects will be required to determine the
extent to which they will be commercially viable and whether the deferred
exploration costs ultimately will be realized. If commercially viable resources
are identified, the Company will likely seek external sources of financing to
fund development of these resources.
12
<PAGE>
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
No Reports on Form 8-K were filed during the quarter ended March
31, 1998.
EXHIBIT 27. FINANCIAL DATA SCHEDULE - filed herewith as part of
this Report on Form 10-Q.
13
<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 15, 1998 By:/s/ RAY W. JENNER
-------------
Ray W. Jenner
Vice President Finance
and Authorized Officer
14
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM NORD PACIFIC
LIMITED FORM 10-Q FOR THE THREE MONTHS ENDED MARCH 31, 1998 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-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 4,139
<SECURITIES> 0
<RECEIVABLES> 1,244
<ALLOWANCES> 0
<INVENTORY> 376
<CURRENT-ASSETS> 6,673
<PP&E> 10,172
<DEPRECIATION> 5,808
<TOTAL-ASSETS> 39,536
<CURRENT-LIABILITIES> 9,375
<BONDS> 0
0
0
<COMMON> 646
<OTHER-SE> 24,562
<TOTAL-LIABILITY-AND-EQUITY> 39,536
<SALES> 3,252
<TOTAL-REVENUES> 3,252
<CGS> 2,528
<TOTAL-COSTS> 2,528
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 61
<INCOME-PRETAX> (113)
<INCOME-TAX> 0
<INCOME-CONTINUING> (113)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (113)
<EPS-PRIMARY> (.01)
<EPS-DILUTED> (.01)
</TABLE>
