<PAGE> 1
- ------------------------------------------------------------------------------
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 September 28, 1996
OR
/ / 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 33-67546
HARRIS CHEMICAL NORTH AMERICA, INC.
(Exact name of registrant as specified in its charter)
DELAWARE
(State or other jurisdiction of
incorporation or organization)
399 PARK AVENUE, 32nd FLOOR
NEW YORK, NEW YORK 10022
(Address of principal executive offices)
(Zip Code)
48-1135402
(I.R.S. Employer Identification Number)
(212) 207-6400
(Registrant's telephone number, including area code)
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 ( )
The number of shares outstanding of the registrant's Common stock at September
28, 1996 was 1,000 shares. All of such shares are owned by Harris Chemical
Group, Inc.
- ------------------------------------------------------------------------------
<PAGE> 2
HARRIS CHEMICAL NORTH AMERICA, INC.
FORM 10-Q For the Quarter ended September 28, 1996
Index
Page #
------
PART I Financial Information
Item 1 Financial Statements 3
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 14
PART II Other Information
Item 1 Legal Proceedings 23
Item 6 Exhibits and Reports on Form 8-K 23
Signature Page 23
<PAGE> 3
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
HARRIS CHEMICAL NORTH AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands) (Unaudited)
<TABLE>
<CAPTION>
September 23, March 30, September 28,
1995 1996 1996
------------- ---------- -------------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.................... $ - $ 9,093 $ -
Trade accounts receivable, less allowance for
doubtful accounts of $1,169 at September 23,
1995, $2,336 at March 30, 1996 and $1,545 at
September 28, 1996........................... 70,537 109,542 74,720
Other receivables............................ 8,395 9,572 7,324
Inventories.................................. 115,388 103,255 132,367
Deferred income taxes........................ 7,961 6,235 6,127
Other........................................ 5,230 4,787 10,051
---------- ---------- ----------
Total current assets....................... 207,511 242,484 230,589
Property, plant and equipment, net............. 410,789 403,286 390,064
Investments.................................... 1,576 1,989 1,989
Deferred financing costs....................... 26,856 23,840 25,934
Other.......................................... 7,075 6,374 6,596
---------- ---------- ----------
Total assets............................... $ 653,807 $ 677,973 $ 655,172
========== ========== ==========
LIABILITIES AND STOCKHOLDER'S DEFICIT
Current liabilities:
Current portion of long-term debt............ $ 11,968 $ 6,788 $ 7,157
Accounts payable............................. 55,213 66,301 51,473
Accrued expenses............................. 14,639 19,442 21,707
Accrued salaries and wages................... 8,450 13,658 10,834
Accrued interest............................. 18,298 24,234 24,039
Income taxes payable......................... 371 1,181 1,595
---------- ---------- ----------
Total current liabilities.................. 108,939 131,604 116,805
Long-term debt, net of current portion......... 788,212 785,470 814,577
Deferred income taxes.......................... 20,337 22,865 21,430
Other noncurrent liabilities................... 19,466 18,964 16,065
Commitments and contingencies
Common stockholder's deficit:
Common stock, at par......................... - - -
Additional paid in capital................... 107,253 103,441 103,441
Cumulative translation adjustment............ (3,282) (3,343) (3,352)
Common stockholder's receivable.............. (4,343) (3,083) (3,168)
Accumulated deficit.......................... (382,775) (377,945) (410,626)
---------- ---------- ----------
Total common stockholder's deficit......... (283,147) (280,930) (313,705)
---------- ---------- ----------
Total liabilities and stockholder's
deficit.................................. $ 653,807 $ 677,973 $ 655,172
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 4
HARRIS CHEMICAL NORTH AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Thirteen weeks ended Twenty-six weeks ended
--------------------------- ---------------------------
September 23, September 28, September 23, September 28,
1995 1996 1995 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales................................ $ 93,016 $ 92,337 $ 180,395 $ 191,918
Cost of sales............................ 73,915 74,483 150,811 155,961
---------- ---------- ---------- ----------
Gross profit......................... 19,101 17,854 29,584 35,957
Selling, general and
administrative expenses................ 13,305 13,013 27,537 26,978
---------- ---------- ---------- ----------
Operating income..................... 5,796 4,841 2,047 8,979
Other income (expense):
Interest expense....................... (20,910) (22,293) (40,952) (42,826)
Foreign currency
transaction gain (loss).............. 821 (575) 2,131 (606)
Other, net............................. 1,734 696 2,765 1,961
---------- ---------- ---------- ----------
Loss before income
taxes.............................. (12,559) (17,331) (34,009) (32,492)
Provision (benefit) for income taxes..... (133) 258 (437) 189
---------- ---------- ---------- ----------
Net loss............................. $ (12,426) $ (17,589) $ (33,572) $ (32,681)
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 5
HARRIS CHEMICAL NORTH AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Twenty-six weeks ended
-----------------------------
September 23, September 28,
1995 1996
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net loss............................................. $ (33,572) $ (32,681)
Adjustments to reconcile net loss to net cash flows
from operating activities:
Depreciation....................................... 27,326 28,826
Finance fee amortization........................... 2,680 2,542
Operating amortization............................. 362 375
Accreted interest.................................. 11,811 -
Deferred income taxes.............................. (701) (1,043)
Unrealized foreign currency transaction gain (2,405) (346)
Loss on disposal of property, plant and
equipment........................................ 26 508
Other.............................................. (7) -
Changes in operating assets and liabilities:
Receivables...................................... 22,356 37,070
Inventories...................................... (27,335) (29,368)
Other assets..................................... 672 (5,707)
Accounts payable................................. (4,679) (14,828)
Accrued expenses and other
noncurrent liabilities......................... (17,616) (3,161)
---------- ----------
Net cash used in operating activities.......... (21,082) (17,813)
---------- ----------
Cash flows from investing activities:
Capital expenditures................................. (17,634) (13,131)
Capitalized interest................................. (1,846) (1,417)
Proceeds from sales of property, plant and
equipment.......................................... 82 161
Other................................................ (1,679) -
---------- ----------
Net cash used in investing activities.......... (21,077) (14,387)
---------- ----------
Cash flows from financing activities:
Revolver borrowings.................................. 69,335 136,241
Revolver payments.................................... (28,813) (179,350)
Principal payments on other long-term debt, including
capital leases..................................... (2,431) (4,052)
Issuance of long-term debt........................... - 75,000
Capitalized finance costs............................ (1,020) (4,655)
Other................................................ (551) (85)
---------- ----------
Net cash provided by financing activities...... 36,520 23,099
---------- ----------
Effect of exchange rate changes on cash................ (9) 8
---------- ----------
<PAGE> 6
HARRIS CHEMICAL NORTH AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS-Continued
(in thousands)
(Unaudited)
Twenty-six weeks ended
----------------------------
September 23, September 28,
1995 1996
---------- ----------
Net decrease in cash........................... (5,648) (9,093)
Cash and cash equivalents, beginning of period......... 5,648 9,093
---------- ----------
Cash and cash equivalents, end of period............... $ - $ -
========== ==========
Supplemental disclosure of noncash activities:
Assets acquired under capital leases................. $ 2,272 $ 1,778
========== ==========
Acquisition of White River Nahcolite L.L.C........... $ 9,008 -
========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 7
HARRIS CHEMICAL NORTH AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation:
The accompanying financial statements have not been audited but reflect
all normal recurring adjustments which, in the opinion of management, are
necessary for a fair presentation of the Company's financial position and
results of operations for the interim periods presented. These interim
financial statements should be read in conjunction with the consolidated
financial statements and the notes thereto for the fiscal year ("FY") ended
March 30, 1996 included in the Company's FY 1996 Form 10-K filed with the
Securities and Exchange Commission on July 15, 1996. The balance sheet as of
September 23, 1995 is presented to assist in understanding the impact of
seasonal fluctuations on the financial condition of the Company. Certain
reclassifications have been made to the prior year statement of operations
and statement of cash flows to conform with the current year presentation.
2. Organization:
The consolidated financial statements include the consolidated accounts
of: Harris Chemical North America, Inc. ("Harris") and its wholly owned
subsidiaries, consisting principally of North American Chemical Company
("NACC"), NAMSCO Inc. ("NAMSCO") and its wholly owned subsidiaries North
American Salt Company ("NASC") and Sifto Canada Inc. ("Sifto"), and GSL
Corporation ("GSL") and its wholly owned subsidiary Great Salt Lake Minerals
Corporation ("GSLMC"). Harris and its direct and indirect subsidiaries are
collectively referred to as the "Company." Harris is a wholly owned subsidiary
of Harris Chemical Group, Inc. ("HCG").
3. Details of Inventories and Property, Plant and Equipment:
Inventories are stated at the lower of cost or market, and consist of the
following (in thousands):
September 23, March 30, September 28,
1995 1996 1996
--------- -------- ---------
Finished goods................ $ 86,596 $ 68,951 $ 99,710
Raw materials and supplies.... 28,792 34,304 32,657
--------- -------- ---------
Total inventories............. $ 115,388 $103,255 $ 132,367
========= ======== =========
Property, Plant and Equipment (in thousands):
September 23, March 30, September 28,
1995 1996 1996
--------- --------- ---------
At cost....................... $ 651,436 $ 666,995 $ 681,623
Less accumulated depreciation
and amortization.............. 240,647 263,709 291,559
--------- --------- ---------
Net property, plant and
equipment..................... $ 410,789 $ 403,286 $ 390,064
========= ========= =========
<PAGE> 8
In July 1996, NACC entered into an agreement for the sale and leaseback of
an electric and steam generating facility associated with its Searles Valley
soda ash facilities (the "Argus Utilities"). In connection with this
transaction, the Company extended the useful lives of Argus Utilities plant and
equipment with a net book value of $31,000,000 to 15 years to match the terms
of the lease. The effect of this revision in useful lives reduced depreciation
expense and the net loss of the second quarter of fiscal 1997 by $1,700,000.
4. Income Taxes:
The financial statements for the twenty-six weeks ended September 28, 1996
reflect an income tax provision of $189,000 arising from a loss before provision
for income taxes of $32,492,000. The income tax provision relates to U.S.
alternative minimum tax partially offset by Sifto's current operating loss tax
benefit.
The Company believes Sifto's Canadian net operating loss carryforwards
will be fully utilized in the near future due to historical seasonal operating
results and, as a result, the Company has recognized the associated tax
benefits. The Company believes that some uncertainty exists with the future
utilization of its U.S. net operating loss carryforwards. Therefore, in
accordance with SFAS 109, the Company has recorded a valuation allowance against
deferred income tax assets and has not recognized any income tax benefits
associated with its U.S. current year loss.
5. Subsequent Event:
As part of the original NACC acquisition, NACC assumed the seller's
obligation under the Emission Controls, Maintenance and Construction Agreement
("ECMC") with a provider of steam. Under the agreement, NACC must maintain
certain emission standards and construct environmental upgrades (if required).
In consideration of the foregoing, NACC receives annual payments from the steam
provider ranging from $1.3 million to $7.5 million through 2015. On
September 30, 1996, the steam provider agreed to prepay a portion of the amounts
due under the ECMC Agreement. NACC received $23.0 million in cash ($5.0 million
in July, 1996 and $18.0 million on September 30, 1996). The prepayment will be
recorded as deferred revenue and amortized over the remaining life of the ECMC
Agreement.
<PAGE> 9
6. Condensed Consolidating Financial Statements:
Separate condensed consolidating financial statements of certain
subsidiaries of the Company are presented below. Except for Sifto, which is
domiciled in Canada, all subsidiaries of Harris are domiciled in the United
States. In order to present the financial statements of Sifto separately,
the financial statements of NAMSCO present the investment in Sifto using the
cost method.
Separate financial statements of the subsidiaries of Harris which have
guaranteed Harris' and Sifto's outstanding public debt (the "Guarantors"),
including NACC, North American Terminals, Inc., NAMSCO, NASC, Carey Salt
Company, The Hutchinson & Northern Railway Company, GSL, GSLMC and White River
Nahcolite Limited Liability Co. are not included for the following reasons:
(i) pursuant to their respective guarantees, the Guarantors are jointly and
severally liable with respect to Harris' and Sifto's outstanding public debt,
(ii) the aggregate assets, liabilities, earnings and equity of the Guarantors
and Sifto are substantially equal to the assets, liabilities, earnings and
equity of Harris on a consolidated basis and (iii) accordingly, Harris does not
believe that separate full financial statements concerning the Guarantors and
Sifto are material to investors. Financial statements of the subsidiaries of
Harris which are not Guarantors are not presented separately as these companies
are immaterial.
CONDENSED CONSOLIDATING BALANCE SHEETS
September 23, 1995
(in thousands)
<TABLE>
<CAPTION>
NACC GSL NAMSCO SIFTO HCNA Eliminations Consolidated
--------- -------- --------- --------- --------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Cash.............. $ - $ - $ - $ - $ 705 $ (705) $ -
Receivables....... 44,274 5,011 22,043 7,635 - (31) 78,932
Inventories....... 43,171 11,184 41,401 21,444 - (1,812) 115,388
Other current
assets........... 9,084 944 1,118 1,880 165 - 13,191
Property, plant
equipment, net... 237,377 42,170 63,772 67,470 - - 410,789
Investment in
Sifto............ - - 2,513 - - (2,513) -
Other............. 5,369 17 1,821 3,313 350,106 (325,119) 35,507
--------- -------- --------- --------- --------- ---------- ---------
Total assets..... $ 339,275 $ 59,326 $ 132,668 $ 101,742 $ 350,976 $(330,180) $ 653,807
========= ======== ========= ========= ========= ========== =========
Total current
liabilities...... $ 53,397 $ 8,326 $ 17,216 $ 12,759 $ 17,970 $ (729) $ 108,939
Long-term debt.... 52,040 9,942 35,173 113,608 577,449 - 788,212
Other noncurrent
liabilities...... 73,339 (19,392) (14,550) (26,173) 38,704 (12,125) 39,803
Total common
stockholder's
equity (deficit). 160,499 60,450 94,829 1,548 (283,147) (317,326) (283,147)
--------- -------- --------- --------- ---------- --------- ----------
Total liabilities
and common
stockholder's
equity (deficit). $ 339,275 $ 59,326 $ 132,668 $ 101,742 $ 350,976 $(330,180) $ 653,807
========= ======== ========= ========= ========= ========== =========
<PAGE> 10
CONDENSED CONSOLIDATING BALANCE SHEETS
September 28, 1996
(in thousands)
NACC GSL NAMSCO SIFTO HCNA Eliminations Consolidated
--------- -------- --------- --------- --------- ------------ ------------
Cash.............. $ - $ - $ - $ - $ 1,038 $ (1,038) $ -
Receivables....... 45,592 6,998 18,513 10,311 630 - 82,044
Inventories....... 47,274 19,832 47,464 21,277 - (3,480) 132,367
Other current
assets........... 11,788 412 (1,181) 4,746 413 - 16,178
Property, plant
equipment, net... 222,213 41,811 63,983 62,057 - - 390,064
Investment in
Sifto............ - - 2,513 - - (2,513) -
Other............. 9,701 201 2,370 2,606 364,368 (344,727) 34,519
--------- -------- --------- --------- --------- ---------- ---------
Total assets..... $ 336,568 $ 69,254 $ 133,662 $ 100,997 $ 366,449 $(351,758) $ 655,172
========= ======== ========= ========= ========= ========== =========
Total current
liabilities...... $ 50,721 $ 8,872 $ 20,133 $ 14,996 $ 23,430 $ (1,347) $ 116,805
Long-term debt.... 99,968 1,769 17,402 110,438 585,000 - 814,577
Other noncurrent
liabilities...... 35,358 (6,168) (13,764) (26,788) 71,724 (22,867) 37,495
Total common
stockholder's
equity (deficit). 150,521 64,781 109,891 2,351 (313,705) (327,544) (313,705)
--------- -------- --------- --------- --------- --------- ----------
Total liabilities
and common
stockholder's
equity (deficit). $ 336,568 $ 69,254 $ 133,662 $ 100,997 $ 366,449 $(351,758) $ 655,172
========= ======== ========= ========= ========= ========== =========
</TABLE>
<PAGE> 11
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
For the Twenty-six Weeks Ended September 23, 1995
(in thousands)
<TABLE>
<CAPTION>
NACC GSL NAMSCO SIFTO HCNA Eliminations Consolidated
-------- -------- -------- -------- -------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net Sales......... $ 95,537 $ 28,240 $ 49,385 $ 30,477 $ - $(23,244) $ 180,395
Cost of sales..... 86,830 23,513 38,066 24,319 - (21,917) 150,811
-------- -------- -------- -------- -------- --------- ---------
Gross profit..... 8,707 4,727 11,319 6,158 - (1,327) 29,584
Selling and
administrative... 10,620 2,592 8,171 5,454 700 - 27,537
-------- -------- -------- -------- -------- --------- ---------
Operating income
(loss)........... (1,913) 2,135 3,148 704 (700) (1,327) 2,047
Interest expense.. (97) (75) (355) (5,007) (35,418) - (40,952)
Other income
(expense)......... 2,899 3,297 (3,463) 2,163 2,546 (2,546) 4,896
-------- -------- --------- ------- -------- --------- ---------
Income (loss)
before taxes..... 889 5,357 (670) (2,140) (33,572) (3,873) (34,009)
Income taxes...... - 731 (2,633) (887) - 2,352 (437)
-------- -------- -------- -------- -------- --------- ----------
Net income
(loss)........... $ 889 $ 4,626 $ 1,963 $ (1,253) $(33,572) $ (6,225) $ (33,572)
======== ======== ======== ======== ======== ========= ==========
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
For the Twenty-six Weeks Ended September 28, 1996
(in thousands)
NACC GSL NAMSCO SIFTO HCNA Eliminations Consolidated
-------- -------- -------- -------- -------- ------------ ------------
Net Sales......... $ 99,629 $ 28,513 $ 51,363 $ 37,513 $ - $ (25,100) $ 191,918
Cost of sales..... 85,261 25,568 37,604 29,816 - (22,288) 155,961
-------- -------- -------- -------- -------- ---------- ---------
Gross profit..... 14,368 2,945 13,759 7,697 - (2,812) 35,957
Selling and
administrative... 8,304 2,821 7,806 6,499 1,548 - 26,978
-------- -------- -------- -------- -------- ---------- ---------
Operating income
(loss)........... 6,064 124 5,953 1,198 (1,548) (2,812) 8,979
Interest expense.. (2,089) (126) (289) (5,263) (35,059) - (42,826)
Other income
(expense)......... 2,682 3,213 (3,858) (682) 3,926 (3,926) 1,355
-------- -------- --------- -------- -------- ---------- ---------
Income (loss)
before taxes..... 6,657 3,211 1,806 (4,747) (32,681) (6,738) (32,492)
Income taxes...... - 1,129 669 (260) - (1,349) 189
-------- -------- -------- -------- --------- ---------- ----------
Net income
(loss)........... $ 6,657 $ 2,082 $ 1,137 $ (4,487) $(32,681) $ (5,389) $ (32,681)
======== ======== ======== ========= ========= ========== ==========
</TABLE>
<PAGE> 12
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
For the Twenty-six Weeks Ended September 23, 1995
(in thousands)
<TABLE>
<CAPTION>
NACC GSL NAMSCO SIFTO HCNA Eliminations Consolidated
-------- ------- -------- --------- -------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net operating
activities........ $ 10,615 $(6,388) $(10,071) $(16,947) $(6,890) $ 8,599 $(21,082)
-------- -------- -------- --------- -------- ---------- ---------
Investing:
Capital
expenditures..... (12,133) (1,412) (2,739) (1,350) - - (17,634)
Capitalized
interest......... (1,846) - - - - - (1,846)
Proceeds from
sales............ 82 - - - - - 82
Other............ (1,679) - - - (2,798) 2,798 (1,679)
--------- -------- --------- --------- -------- ---------- ---------
Net investing... (15,576) (1,412) (2,739) (1,350) (2,798) 2,798 (21,077)
--------- -------- --------- --------- -------- ---------- ---------
Financing:
Borrowings....... 10,200 12,800 33,513 12,822 - - 69,335
Repayments....... (5,239) (5,000) (20,841) (164) - - (31,244)
Other............ - - 138 - (1,458) (251) (1,571)
--------- -------- --------- --------- -------- ---------- ---------
Net financing... 4,961 7,800 12,810 12,658 (1,458) (251) 36,520
--------- -------- --------- --------- -------- ---------- ---------
Exchange rate
changes........... - - - (9) - - (9)
--------- -------- --------- --------- -------- ---------- ---------
Net decrease in
cash............ - - - (5,648) (11,146) 11,146 (5,648)
Cash beginning.... - - - 5,648 11,851 (11,851) 5,648
--------- -------- --------- --------- -------- ---------- ---------
Cash ending....... $ - $ - $ - $ - $ 705 $ (705) $ -
========= ======== ========= ========= ======== ========== =========
<PAGE> 13
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
For the Twenty-six Weeks Ended September 28, 1996
(in thousands)
NACC GSL NAMSCO SIFTO HCNA Eliminations Consolidated
-------- -------- --------- --------- --------- ------------ ------------
Net operating
activities........ $ 19,126 $ 9,082 $ (5,793) $ (4,561) $(32,478) $ (3,189) $(17,813)
-------- -------- --------- --------- --------- ---------- ---------
Investing:
Capital
expenditures..... (3,257) (3,014) (5,569) (1,291) - - (13,131)
Capitalized
interest......... (1,417) - - - - - (1,417)
Proceeds from
sales............ 22 - 139 - - - 161
Other............ - - - - (4,244) 4,244 -
--------- -------- --------- --------- --------- ---------- ---------
Net investing... (4,652) (3,014) (5,430) (1,291) (4,244) 4,244 (14,387)
--------- -------- --------- --------- --------- ---------- ---------
Financing:
Borrowings....... 96,986 21,995 49,502 42,758 - - 211,241
Repayments....... (45,911) (29,324) (74,519) (33,648) - - (183,402)
Other............ (65,549) 1,261 36,240 (12,359) 35,349 318 (4,740)
--------- -------- --------- --------- --------- ---------- ---------
Net financing... (14,474) (6,068) 11,223 (3,249) 35,349 318 23,099
--------- -------- --------- --------- --------- ---------- ---------
Exchange rate
changes........... - - - 8 - - 8
--------- -------- --------- --------- --------- ---------- ---------
Net decrease in
cash.............. - - - (9,093) (1,373) 1,373 (9,093)
Cash beginning.... - - - 9,093 2,411 (2,411) 9,093
--------- -------- --------- --------- --------- ---------- ---------
Cash ending....... $ - $ - $ - $ - $ 1,038 $ (1,038) $ -
========= ======== ========= ========= ========= ========== =========
</TABLE>
<PAGE> 14
Item 2.
Management's Discussion and Analysis of Financial Condition and Results of
Operations.
Thirteen Weeks Ended September 28, 1996 Compared With Thirteen Weeks Ended
September 23, 1995
Net sales for the thirteen weeks ended September 28, 1996 (the "Second
Quarter FY 1997") were $92.3 million compared to $93.0 million for the
thirteen weeks ended September 23, 1995 (the "Second Quarter FY 1996").
The following table presents the average price per ton, volume and net
sales by major product line for the Second Quarter FY 1997 compared to the
Second Quarter FY 1996. The average price is not indicative of the different
prices for separate products within a category and is affected by changes in
the product mix.
Thirteen Weeks Ended
-----------------------------------
September 23, September 28,
1995 1996
------------- -------------
SALT
Volume (000's tons)........... 1,293.2 1,164.2
Price/Ton..................... $27.81 $30.18
Net Sales ($000's)............ $35,965 $35,141
SODA PRODUCTS
Volume (000's tons)........... 362.2 309.9
Price/Ton..................... $80.59 $91.33
Net Sales ($000's)............ $29,190 $28,302
BORON CHEMICALS
Volume (000's tons)........... 34.8 29.9
Price/Ton..................... $451.32 $493.08
Net Sales ($000's)............ $15,706 $14,743
SPECIALTY POTASH FERTILIZERS
Volume (000's tons)........... 70.9 77.3
Price/Ton..................... $136.73 $143.18
Net Sales ($000's)............ $9,694 $11,068
OTHER
Net Sales ($000's)............ $2,461 $3,083
TOTAL NET SALES............... $93,016 $92,337
Second Quarter FY 1997 salt sales were $35.1 million or $0.8 million lower
than in Second Quarter FY 1996. Actual tons sold decreased 10.0%, generating an
unfavorable volume variance of $2.7 million. The unfavorable volume variance
was partially offset by favorable price variances of $1.9 million. Also, there
was no significant change in the relative value of the Canadian dollar compared
to the United States dollar in the Second Quarter FY 1997 versus the Second
Quarter FY 1996.
<PAGE> 15
Decreased volume in the highway salt business generated an unfavorable
variance of $0.9 million primarily due to lower highway salt shipments in
Second Quarter FY 1997 caused by the timing of highway deicing shipments in the
upper Midwest. General trade and chemical salt sales volumes were slightly
lower in Second Quarter FY 1997 compared to Second Quarter FY 1996 generating
unfavorable volume variances. These unfavorable volume variances were offset by
favorable price variances.
Second Quarter FY 1997 soda products (soda ash, sodium sulfate and sodium
bicarbonate) sales were $28.3 million or $0.9 million lower than in Second
Quarter FY 1996. Decreased ANSAC soda ash sales due to the timing of shipments
generated a $1.3 million unfavorable volume variance which was partially offset
by a favorable price variance of $0.2 million. Higher soda ash prices in
domestic markets provided a favorable price variance of $1.4 million, which was
partially offset by unfavorable domestic soda ash volume variances of
$0.5 million due to some softness in domestic soda ash demand. Other export
soda ash volume variances were an unfavorable $1.1 million partially offset by
favorable price variances of $0.1 million. Sodium sulfate generated favorable
price variances of $0.7 million which were offset by unfavorable volume
variances of $1.4 million. Sodium bicarbonate contributed favorable volume and
price variances of $0.9 million and $0.1 million, respectively, due to increased
production which allowed expansion into export markets as well as increased
domestic sales.
Boron chemical sales were $14.7 million or $1.0 million lower than in the
Second Quarter FY 1996. The unfavorable variance is due to unfavorable price and
volume variances of $0.3 million and $0.7 million, respectively. The unfavorable
volume variance is a result of reduced production in the Second Quarter FY 1997.
Specialty potash fertilizer sales were $11.1 million or $1.4 million higher
than in Second Quarter FY 1996. The favorable variance was due to increased
export volume which generated favorable volume variances of $1.3 million. The
higher volumes versus Second Quarter FY 1996 were largely a result of increased
market share coupled with timing of shipments. Export potash prices were
comparable to Second Quarter FY 1996.
Other product sales were $3.1 million or $0.6 million higher than in Second
Quarter FY 1996. The increase in other product sales is primarily due to
magnesium chloride sales which were $0.5 million higher than Second Quarter
FY 1996 resulting from favorable price variances partially offset by unfavorable
volume variances.
Cost of sales was $74.5 million or 80.7% of net sales in Second Quarter
FY 1997 compared to $73.9 million or 79.5% of net sales in Second Quarter
FY 1996. The increase in cost of sales in Second Quarter FY 1997 is related
to lower production volumes, primarily boron chemicals, generating unfavorable
absorption variances.
Gross profit in Second Quarter FY 1997 versus Second Quarter FY 1996
decreased by $1.2 million due to lower sales and higher cost of sales
discussed above.
<PAGE> 16
Selling, general and administrative expenses were relatively unchanged,
decreasing $0.3 million in Second Quarter FY 1997 compared to Second Quarter
FY 1996. Selling, general and administrative expenses were 14.1% of net sales
compared to 14.3% of net sales in the prior year.
Operating income was $4.8 million in Second Quarter FY 1997 versus $5.8
million in Second Quarter FY 1996 for the reasons discussed above.
Second Quarter FY 1997 interest expense was $1.4 million higher than Second
Quarter FY 1996. The increase in interest expense is due to higher long-term
debt balances at September 28, 1996 compared to the prior year and interest
capitalized on construction in process being $0.7 million lower in Second
Quarter FY 1997 versus Second Quarter FY 1996. The increase in long-term debt
balances of $21.6 million compared to Second Quarter FY 1996 results primarily
from borrowings to finance a greater seasonal build up of rock salt inventories
and a build up of soda ash inventories.
An exchange loss of $0.6 million related to the translation of United States
dollar-denominated debt of Sifto into Canadian dollars was recorded in the
Second Quarter FY 1997 compared to a translation gain of $0.8 million in the
Second Quarter FY 1996.
Other income/expense in Second Quarter FY 1997 was $1.0 million unfavorable
to Second Quarter FY 1996 due largely to a loss of $0.4 million on the closure
of a salt packaging facility in Tampa, Florida.
A $0.3 million provision for income taxes was recorded in Second Quarter FY
1997 primarily relating to a provision for current U.S. alternative minimum tax
partially offset by Sifto's current operating loss tax benefit. A $0.1 million
benefit for income taxes was recorded in Second Quarter FY 1996 for the same
reason; however, the benefit relating to Sifto's operating loss exceeded the
provision for U.S. alternative minimum tax. While the Company has recognized
the full tax benefit associated with Sifto's current operating loss, income
tax benefits associated with the U.S. Second Quarter FY 1997 loss have not been
recognized as future realization is uncertain.
A net loss of $17.6 million was recorded for Second Quarter FY 1997 compared
to a net loss of $12.4 million in Second Quarter FY 1996 due to the factors
described above.
<PAGE> 17
Twenty-six Weeks Ended September 28, 1996 Compared With Twenty-six Weeks Ended
September 23, 1995
Net sales for the twenty-six weeks ended September 28, 1996 (the "Year to
Date FY 1997") were $191.9 million compared to $180.4 million for the
twenty-six weeks ended September 23, 1995 (the "Year to Date FY 1996").
The following table presents the average price per ton, volume and net
sales by major product line Year to Date FY 1997 compared to Year to Date
FY 1996. The average price is not indicative of the different prices for
separate products within a category and is affected by changes in the product
mix.
Twenty-six Weeks Ended
-----------------------------------
September 23, September 28,
1995 1996
------------- -------------
SALT
Volume (000's tons)........... 2,366.4 2,425.6
Price/Ton..................... $28.57 $29.04
Net Sales ($000's)............ $67,609 $70,428
SODA PRODUCTS
Volume (000's tons)........... 677.6 655.2
Price/Ton..................... $78.45 $90.79
Net Sales ($000's)............ $53,155 $59,488
BORON CHEMICALS
Volume (000's tons)........... 72.3 66.5
Price/Ton..................... $442.89 $480.56
Net Sales ($000's)............ $32,021 $31,957
SPECIALTY POTASH FERTILIZERS
Volume (000's tons)........... 164.3 163.9
Price/Ton..................... $138.14 $143.58
Net Sales ($000's)............ $22,696 $23,533
OTHER
Net Sales ($000's)............ $4,914 $6,512
TOTAL NET SALES............... $180,395 $191,918
Salt sales were $70.4 million Year to Date FY 1997 or $2.8 million higher
than Year to Date FY 1996. Actual tons sold increased 2.5%, generating an
favorable volume and price variances of $1.1 million and $1.7 million,
respectively. Also, there was no significant change in the relative value of
the Canadian dollar compared to the United States dollar Year to Date FY 1997
versus Year to Date FY 1996.
<PAGE> 18
Increased volume in the highway salt business generated a favorable
variance of $2.4 million primarily due to higher highway salt shipments in Year
to Date FY 1997 caused by higher shipments in the First Quarter FY 1997
following the strong winter season of 1995/1996. General trade and chemical
salt sales volumes were lower in Year to Date FY 1997 compared to Year to Date
FY 1996 generating unfavorable volume variances. These unfavorable volume
variances were offset by favorable price and mix variances generating a net
favorable variance of $0.4 million.
Soda products sales Year to Date FY 1997 were $59.5 million or $6.3 million
higher than Year to Date FY 1996. Increased ANSAC soda ash sales generated
favorable volume and price variances of $4.0 million and $0.9 million,
respectively. Higher soda ash prices in domestic markets provided a favorable
price variance of $3.0 million, which was partially offset by unfavorable
domestic soda ash volume variances of $1.2 million. Other export soda ash
volume variances were an unfavorable $1.4 million. Sodium sulfate generated
favorable price variances of $1.7 million which were offset by unfavorable
volume variances of $2.7 million. Sodium bicarbonate contributed favorable
volume and price variances of $1.6 million and $0.4 million, respectively,
due to increased production which allowed expansion into export markets as well
as increased domestic sales.
Boron chemical sales Year to Date FY 1997 were $32.0 million or flat
compared to Year to Date FY 1996. Favorable price variances of $0.2 million
were offset by unfavorable volume variances of $0.2 million.
Specialty potash fertilizer sales were $23.5 million Year to Date or $0.8
million higher than Year to Date FY 1996. The favorable variance was due to
increased export volume which generated favorable volume variances of $1.0
million. The higher volumes were largely a result of increased market share.
Export potash prices were down slightly Year to Date FY 1997 compared to Year
to Date FY 1996 due to a change in customer mix generating an unfavorable price
variance of $0.2 million.
Other product sales were $6.5 million Year to Date FY 1997 or $1.6 million
higher than Year to Date FY 1996, due largely to increased sales of magnesium
chloride and increased revenue from other service subsidiaries of the Company,
Trona Railway Company and North American Terminals, Inc. Magnesium chloride
sales were $1.2 million higher than Year to Date FY 1996 resulting from
favorable price and volume variances.
Cost of sales was $156.0 million or 81.3% of net sales Year to Date FY 1997
compared to $150.8 million or 83.6% of net sales Year to Date FY 1996. Cost of
sales decreased due to lower maintenance costs Year to Date FY 1997 versus Year
to Date FY 1996 related to the every-other-year Searles Valley facilities shut-
down which occurred Year to Date FY 1996. Reductions in fuel and royalties
contributed $2.5 million to the reduction in cost of sales. Increased
production of rock salt due to low inventories remaining after the winter of
1995/1996 contributed to the favorable variance in Year to Date FY 1997 as did
increased soda ash production. Partially offsetting these Year to Date FY 1997
favorable variances was the impact of decreased production of boron chemical
products and sodium sulfate.
Gross profit Year to Date FY 1997 was $36.0 million versus $29.6 million
Year to Date FY 1996. The favorable variance is due to the higher sales and
lower cost of sales discussed above.
<PAGE> 19
Selling, general and administrative expenses were relatively unchanged,
decreasing $0.6 million Year to Date FY 1997 compared to Year to Date FY 1996.
Selling, general and administrative expenses were 14.1% of net sales Year to
Date FY 1997 compared to 15.3% of net sales Year to Date FY 1996, due primarily
to lower selling expenses.
Operating income was $9.0 million Year to Date FY 1997 versus $2.0 million
Year to Date FY 1996 for the reasons discussed above.
Year to Date FY 1997 interest expense was $1.9 million higher than Year to
Date FY 1996. The increase in interest expense is due to higher average long-
term debt balances Year to Date FY 1997 versus Year to Date FY 1996 combined
with interest capitalized on construction in process being $0.4 million lower
Year to Date FY 1997 versus Year to Date FY 1996. The higher average debt
balances result primarily from borrowings to finance an increased seasonal build
up of rock salt inventories and a build up of soda ash inventories.
An exchange loss of $0.6 million related to the translation of United States
dollar-denominated debt of Sifto into Canadian dollars was recorded Year to Date
FY 1997 compared to a translation gain of $2.1 million Year to Date FY 1996.
Other income/expense Year to Date FY 1997 was $0.8 million unfavorable
to Year to Date FY 1996 due largely to a loss of $0.4 million on the closure of
a salt packaging facility in Tampa, Florida.
A $0.2 million provision for income taxes was recorded Year to Date FY 1997
primarily relating to a provision for current U.S. alternative minimum tax
partially offset by Sifto's current operating loss tax benefit. A $0.4 million
benefit for income taxes was recorded Year to Date FY 1996 for the same reason;
however, the benefit relating to Sifto's operating loss exceeded the provision
for U.S. alternative minimum tax. While the Company has recognized the full
tax benefit associated with Sifto's current operating loss, income tax benefits
associated with the U.S. Year to Date FY 1997 loss have not been recognized as
future realization is uncertain.
A net loss of $32.7 million was recorded Year to Date FY 1997 compared
to a net loss of $33.6 million Year to Date FY 1996 due to the factors
described above.
<PAGE> 20
Liquidity, Capital Resources and Financial Condition
Liquidity:
The Company's accounts receivable and inventory levels can vary by as much
as $50.0 million during the year. Generally, inventories build in the second and
third fiscal quarters and accounts receivable increase in the third and fourth
fiscal quarters. During the third quarter deicing road salt inventories are
increased in preparation for the winter season. The harvesting of the solar
ponds at the Ogden facility also takes place in the third quarter, adding to the
inventory levels. Inventories begin to decline in the fourth quarter and
accounts receivable increase as highway salt sales and specialty potash
fertilizer sales peak during this period. Cash requirements rapidly decline at
the end of the fourth fiscal quarter and the early part of the next fiscal year
first fiscal quarter as accounts receivable are converted into cash.
Year to Date FY 1997 Cash Flows:
Year to Date FY 1997 cash used in operating activities was $17.8 million
or $3.3 million less than cash used in operating activities Year to Date
FY 1996. One of the primary changes in the use of cash for operating activities
relates to the accrual of cash interest on the Senior Secured Discount Notes in
Year to Date FY 1997 versus the accretion of interest in Year to Date FY 1996
of $11.8 million. Receivables provided $14.7 million more cash Year to Date
FY 1997 versus Year to Date FY 1996 due to the high Third and Fourth Quarter
FY 1996 sales which remained in receivables at year-end FY 1996. The buildup
of salt and soda ash inventories used $2.0 million more cash Year to Date
FY 1997 versus Year to Date FY 1996. Other assets used $6.4 million more cash
Year to Date FY 1997 compared to Year to Date FY 1996 primarily due to prepaid
interest expense related to the Argus Utilities financing. Accounts payable,
accrued expenses and other noncurrent liabilities used $4.3 million less cash
Year to Date FY 1997 compared to Year to Date FY 1996 primarily due to a
$5 million deposit received in connection with the ECMC prepayment (see Note 5
of the Notes to Financial Statements).
Year to Date FY 1997 cash used in investing activities was $14.4 million
or $6.7 million less than Year to Date FY 1996. Capital spending used $13.1
million or $4.5 million less than Year to Date FY 1996 due to lower capital
spending on strategic projects, including the Long Range Process Plan at Searles
Valley which was substantially completed in FY 1996. Other investing activities
was $1.7 million lower due primarily to $1.6 million invested in the joint
venture, White River Nahcolite Limited Liability Co., in Year to Date FY 1996.
The Company purchased the remaining 50% interest in the joint venture in the
Second Quarter of FY 1996. Additionally capitalized interest Year to Date
FY 1997 was $0.4 million less than Year to Date FY 1996, and proceeds from sales
of property, plant and equipment were higher by $0.1 million.
Year to Date FY 1997 cash provided by financing activities was $23.1 million
or $13.4 million less than cash provided by financing activities Year to Date
FY 1996. Net revolver payments were $43.1 million compared to net revolver
borrowings of $40.5 million Year to Date FY 1996, primarily a result of the
proceeds received from the sale and leaseback of the Argus Utilities of $75.0
million (discussed below) as well as the reduced capital expenditures of $4.5
million in Year to Date FY 1997. Payments on long term debt were $1.6 million
higher, primarily due to the new debt related to the Argus Utilities and higher
capital lease payments. Capitalized finance costs Year to Date FY 1997 were
$4.7 million or $3.6 million higher than Year to Date FY 1996 relating to the
sale of the Argus Utilities. Other financing activities used $0.1 million Year
to Date FY 1997 or $0.4 million lower than Year to Date FY 1996.
<PAGE> 21
In order to improve liquidity and to meet seasonal working capital needs,
the Company has undertaken the following actions:
1. In June 1996, the Bank Agreements were amended (1) to permit the sale
and leaseback of the Argus Utilities (discussed below), (2) to change
commencement of the required clean down covenant period from October 15 of each
fiscal year to April 30, 1996 and each anniversary thereof and (3) to stipulate
that all of the proceeds from the sale and leaseback of the Argus Utilities be
used to repay a portion of the outstanding borrowings in order to meet an
additional one-time clean down covenant period ending in mid-August.
2. In July 1996, NACC entered into an agreement for the sale and leaseback
of an electric and steam generating facility associated with its Searles Valley
soda ash facilities (the "Argus Utilities"). Under the terms of the agreement
the Argus Utilities were sold to two institutional investors for $75 million,
(approximately $70 million in cash, net of related expenses and taxes).
Proceeds were used to paydown the outstanding balance under the Company's
revolving credit agreement. The Company has agreed to provide a $15 million
letter of credit as additional credit support.
3. On September 30, 1996 NACC reached an agreement with a steam provider
who would prepay a portion of the amounts due under the ECMC Agreement. NACC
received approximately $23 million in cash.
The Company believes that the above actions, internal cash generated from
operations plus liquidity provided by its revolving credit facilities will be
adequate to meet the Company's anticipated working capital needs during the
term of such facilities. As of October 26, 1996, the Company had $37.3 million
of available borrowing capacity under its revolving credit agreements.
<PAGE> 22
Environmental Matters
The nature of the Company's business requires a continual monitoring of
compliance with all applicable environmental laws and regulations. At
September 28, 1996, the Company had recorded $2.6 million of current
liabilities and $13.7 million of other noncurrent liabilities to reflect the
estimated future costs associated with environmental matters. Management
believes that the outcome of known environmental contingencies will not have a
material effect on the operations, financial condition or liquidity of the
Company.
Seasonality and Quarterly Financial Data
The Company experiences a substantial amount of seasonality in sales of
the various products. The result of this seasonality is that net sales and
operating income are generally higher in the third and fourth fiscal quarters
and lower in the first and second fiscal quarters of each fiscal year.
Sales of highway deicing salt in particular, are seasonal in nature,
varying with the winter conditions in areas where the product is used.
Following industry practice, the Company and its customers stockpile
sufficient quantities of ice control salt in the first three fiscal quarters
to meet estimated requirements for the winter season. Soda ash sales to the
glass container industry tend to be somewhat seasonal due to stronger summer
demand for beverages packaged in glass bottles. Most of the Company's
specialty potash sales are made between December and March in order to meet
the spring planting season requirements.
The table below reflects the seasonality of the Company's business ($ 000's).
Fiscal Year 1996 by Quarter
-----------------------------------------------
1st 2nd 3rd 4th
--------- --------- ---------- ---------
Operating Data:
Net sales................ $ 87,379 $ 93,018 $ 133,461 $ 161,617
Gross profit............. 10,483 19,101 40,131 54,719
Operating income (loss).. (3,749) 5,796 24,882 26,188
Interest expense......... 20,042 20,910 21,479 22,507
Net income (loss)........ (21,146) (12,426) 1,957 2,873
Fiscal Year 1997 by Quarter
---------------------------
1st 2nd
--------- ---------
Operating Data:
Net sales................ $ 99,581 $ 92,337
Gross profit............. 18,103 17,854
Operating income......... 4,138 4,841
Interest expense......... 20,533 22,293
Net loss................. (15,092) (17,589)
<PAGE> 23
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 6. Exhibits and Reports on Form 8-K
(a) All exhibits otherwise required in connection with this quarterly report
on Form 10-Q have heretofore been filed with the Securities and Exchange
Commission except as follows:
None
(b) Reports on Form 8-K
None
SIGNATURE
Pursuant to the requirements 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.
Harris Chemical North America, Inc.
(Registrant)
Date: November 11, 1996 Emanuel J. Di Teresi
----------------- --------------------------
(Emanuel J. Di Teresi)
(Senior Vice President and
Chief Financial Officer)
(Chief Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
ADFGAD
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> MAR-29-1997
<PERIOD-END> SEP-28-1996
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 83,589
<ALLOWANCES> 1,545
<INVENTORY> 132,367
<CURRENT-ASSETS> 230,589
<PP&E> 681,623
<DEPRECIATION> 291,559
<TOTAL-ASSETS> 655,172
<CURRENT-LIABILITIES> 116,805
<BONDS> 685,000
0
0
<COMMON> 0
<OTHER-SE> (313,705)
<TOTAL-LIABILITY-AND-EQUITY> 655,172
<SALES> 191,918
<TOTAL-REVENUES> 191,918
<CGS> 155,961
<TOTAL-COSTS> 155,961
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 42,826
<INCOME-PRETAX> (32,492)
<INCOME-TAX> 189
<INCOME-CONTINUING> (32,681)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (32,681)
<EPS-PRIMARY> 0
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