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 27, 1997
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 48-1135402
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
399 Park Avenue, 32nd Floor
New York, New York 10022
(Address of principal executive offices)(Zip Code)
(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
27, 1997 was 1,000 shares. All of such shares are owned by Harris Chemical
Group, Inc.
This document consists of 17 sequentially numbered pages.
1
<PAGE>
<TABLE>
<CAPTION>
HARRIS CHEMICAL NORTH AMERICA, INC.
FORM 10-Q For the Quarter ended September 27, 1997
Index
Page #
<S> <C> <C>
Part I Financial Information
Item 1. Financial Statements........................................................ 3
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................................... 12
Part II Other Information
Item 1. Legal Proceedings........................................................... 16
Item 6. Exhibits and Reports on Form 8-K............................................ 16
Signature Page................................................................................ 17
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
HARRIS CHEMICAL NORTH AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands)
(Unaudited)
September 28, March 29, September 27,
1996 1997 1997
------------- ------------- -------------
ASSETS
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents .................................... $ - $ 17,076 $ 2,017
Trade accounts receivable, less allowance for doubtful
accounts of $1,545 at September 28, 1996, $1,716 at
March 29, 1997 and $2,336 at September 27, 1997............. 74,720 117,726 77,816
Other receivables ............................................ 7,324 9,916 9,815
Inventories .................................................. 132,367 86,818 120,053
Deferred income taxes ........................................ 6,127 6,019 6,019
Other ........................................................ 10,051 6,938 6,888
------------- ------------- -------------
Total current assets .................................... 230,589 244,493 222,608
Property, plant and equipment, net ............................ 390,064 388,011 374,936
Deferred financing costs, net ................................. 25,934 25,553 23,454
Other ......................................................... 8,585 7,337 6,926
------------- ------------- -------------
Total assets ............................................ $ 655,172 $ 665,394 $ 627,924
============= ============= =============
LIABILITIES AND STOCKHOLDER'S DEFICIT
Current liabilities:
Current portion of long-term debt ........................... $ 7,157 $ 9,403 $ 15,347
Accounts payable ............................................ 51,473 59,526 49,965
Accrued expenses ............................................ 21,707 25,259 20,316
Accrued interest ............................................ 24,039 23,250 23,812
Accrued salaries and wages .................................. 10,834 14,613 13,260
Income taxes payable ........................................ 1,595 2,483 661
------------- ------------- -------------
Total current liabilities ............................... 116,805 134,534 123,361
Long-term debt, net of current portion ........................ 814,577 774,372 786,159
Deferred income taxes ......................................... 21,430 26,417 25,763
Other noncurrent liabilities .................................. 16,065 36,502 33,500
Commitments and contingencies
Common stockholder's deficit:
Common stock, at par ........................................ - - -
Additional paid-in capital .................................. 103,441 99,941 99,941
Cumulative translation adjustment ........................... (3,352) (3,532) (3,550)
Common stockholder's receivable ............................. (3,168) (3,462) (4,070)
Accumulated deficit ......................................... (410,626) (399,378) (433,180)
------------- ------------- -------------
Total common stockholder's deficit ...................... (313,705) (306,431) (340,859)
------------- ------------- -------------
Total liabilities and stockholder's deficit ............. $ 655,172 $ 665,394 $ 627,924
============= ============= =============
</TABLE>
The accompanying notes are an integral part of the
financial statements.
3
<PAGE>
<TABLE>
<CAPTION>
HARRIS CHEMICAL NORTH AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands)
(Unaudited)
Thirteen weeks ended Twenty-six weeks ended
------------------------------------- ------------------------------------
September 28, September 27, September 28, September 27,
1996 1997 1996 1997
----------------- ----------------- ----------------- ----------------
<S> <C> <C> <C> <C>
Net Sales........................................... $ 92,337 $ 94,907 $ 191,918 $ 188,106
Cost of sales....................................... 74,483 71,984 155,961 147,991
----------------- ----------------- ----------------- ----------------
Gross profit........................................ 17,854 22,923 35,957 40,115
Selling, general and administrative expenses........ 13,013 13,251 26,978 28,758
----------------- ----------------- ----------------- ----------------
Operating income.................................... 4,841 9,672 8,979 11,357
Other income (expense):
Interest expense.................................. (22,293) (24,109) (42,826) (47,769)
Foreign currency transaction gain (loss).......... (575) 146 (606) 427
Other, net ....................................... 696 2,063 1,961 3,571
----------------- ----------------- ----------------- ----------------
Loss before taxes ................................ (17,331) (12,228) (32,492) (32,414)
Provision for income taxes ......................... 258 1,329 189 1,388
----------------- ----------------- ----------------- ----------------
Net loss ........................................... $ (17,589) $ (13,557) $ (32,681) $ (33,802)
================= ================= ================= ================
</TABLE>
The accompanying notes are an integral part of the
financial statements.
4
<PAGE>
<TABLE>
<CAPTION>
HARRIS CHEMICAL NORTH AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
Twenty-six weeks ended
----------------------------------
September 28, September 27,
1996 1997
--------------- ---------------
<S> <C> <C>
Cash flows from operating activities:
Net loss ..................................................................... $ (32,681) $ (33,802)
Adjustments to reconcile net loss to net cash flows from operating activities:
Depreciation .............................................................. 28,826 27,396
Finance fee amortization .................................................. 2,542 2,397
Operating amortization .................................................... 375 336
Accreted interest ......................................................... - 1,001
Deferred income taxes ..................................................... (1,043) (2,044)
Unrealized foreign currency transaction loss (gain) ....................... (346) (44)
Loss (gain) on disposal of property, plant and equipment .................. 508 (743)
Changes in operating assets and liabilities:
Receivables ............................................................ 37,070 39,889
Inventories ............................................................ (29,368) (33,238)
Other assets ........................................................... (5,707) 127
Accounts payable ....................................................... (14,828) (9,561)
Accrued expenses and other noncurrent liabilities ...................... (3,161) (9,122)
--------------- ---------------
Net cash used in operating activities .............................. (17,813) (17,408)
--------------- ---------------
Cash flows from investing activities:
Capital expenditures ......................................................... (13,131) (12,529)
Capitalized interest ......................................................... (1,417) (138)
Proceeds from sales of property, plant and equipment ......................... 161 797
--------------- ---------------
Net cash used in investing activities .............................. (14,387) (11,870)
--------------- ---------------
Cash flows from financing activities:
Revolver borrowings .......................................................... 136,241 51,000
Revolver payments ............................................................ (179,350) (30,500)
Principal payments on other long-term debt, including capital leases ......... (4,052) (5,454)
Issuance of long-term debt.................................................... 75,000 -
Capitalized finance costs .................................................... (4,655) (253)
Other ........................................................................ (85) (608)
--------------- ---------------
Net cash provided by financing activities .......................... 23,099 14,185
--------------- ---------------
Effect of exchange rate changes on cash ........................................ 8 34
--------------- ---------------
Net change in cash ................................................. (9,093) (15,059)
Cash and cash equivalents, beginning of period ................................. 9,093 17,076
--------------- ---------------
Cash and cash equivalents, end of period ....................................... $ - $ 2,017
=============== ===============
Supplemental disclosure of noncash activities:
Assets acquired under capital leases ......................................... $ 1,778 $ 1,956
=============== ===============
</TABLE>
The accompanying notes are an integral part of the
financial statements.
5
<PAGE>
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 29, 1997 included in the
Company's FY 1997 Form 10-K filed with the Securities and Exchange Commission on
June 27, 1997. The balance sheet as of September 28, 1996 is presented to assist
in understanding the impact of seasonal fluctuations on the financial condition
of the Company.
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").
Harris is a producer and marketer of inorganic chemical and extractive mineral
products with manufacturing sites in North America. Its principal products are
salt, sodium-based chemicals including soda ash and sodium bicarbonate, sulfate
of potash, and boron chemicals. Together, these businesses serve a variety of
markets, including agriculture, food processing, the chemical process industry,
glass manufacturing and highway de-icing.
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):
<TABLE>
September 28, March 29, September 27,
1996 1997 1997
----------------- ------------- -----------------
<S> <C> <C> <C>
Finished goods .................... $ 99,710 $ 54,820 $ 91,093
Raw materials and supplies ........ 32,657 31,998 28,960
----------------- ------------- -----------------
Total inventories ............ $ 132,367 $ 86,818 $ 120,053
================= ============= =================
</TABLE>
6
<PAGE>
HARRIS CHEMICAL NORTH AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)
Property, Plant and Equipment (in thousands):
<TABLE>
September 28, March 29, September 27,
1996 1997 1997
----------------- -------------- -----------------
<S> <C> <C> <C>
At cost .............................................. $ 681,623 $ 702,944 $ 716,826
Less accumulated depreciation
and amortization .................................. 291,559 314,933 341,890
----------------- -------------- -----------------
Net property, plant and equipment ............... $ 390,064 $ 388,011 $ 374,936
================= ============== =================
</TABLE>
4. Income Taxes:
The financial statements for the twenty-six weeks ended September 27, 1997
reflect an income tax provision of $1,388,000 arising from a loss before
provision for income taxes of $32,414,000. The income tax provision relates to
U.S. alternative minimum tax, state income taxes, and Sifto's Canadian income
tax and Ontario mining tax.
The Company believes that some uncertainty exists with respect to 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. 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.
7
<PAGE>
<TABLE>
<CAPTION>
HARRIS CHEMICAL NORTH AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
CONDENSED CONSOLIDATING BALANCE SHEETS
September 28, 1996
(in thousands)
NACC GSL NAMSCO Sifto HCNA Eliminations Consolidated
-------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Cash and cash equivalents ....... $ - $ - $ - $ - $ 1,038 $ (1,038) $ -
Receivables, net ................ 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 and
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, net of
current portion ............... 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
=========== =========== ============ =========== =========== =========== ===========
CONDENSED CONSOLIDATING BALANCE SHEETS
September 27, 1997
(in thousands)
NACC GSL NAMSCO Sifto HCNA Eliminations Consolidated
--------------------------------------------------------------------------------------------
Cash and cash equivalents ....... $ - $ - $ - $ - $ 2,017 $ - $ 2,017
Receivables, net ................ 47,427 9,189 20,302 10,337 376 - 87,631
Inventories ..................... 38,124 17,495 49,653 17,288 - (2,507) 120,053
Other current assets ............ 9,878 300 (1,323) 3,814 238 - 12,907
Property, plant and
equipment, net ................ 204,211 45,077 63,463 62,185 - - 374,936
Investment in Sifto ............. - - 2,513 - - (2,513) -
Other ........................... 9,869 46 1,768 2,047 411,592 (394,942) 30,380
----------- ----------- ------------ ----------- ----------- ----------- -----------
Total assets .................... $ 309,509 $ 72,107 $ 136,376 $ 95,671 $ 414,223 $ (399,962) $ 627,924
=========== =========== ============ =========== =========== =========== ===========
Total current liabilities ....... $ 54,611 $ 9,081 $ 19,229 $ 16,158 $ 24,282 $ - $ 123,361
Long-term debt, net of
current portion ............... 95,695 1,017 2,626 101,821 585,000 - 786,159
Other noncurrent liabilities .... 9,732 (14,598) (11,698) (32,808) 145,800 (37,165) 59,263
Total common stockholder's
equity (deficit) .............. 149,471 76,607 126,219 10,500 (340,859) (362,797) (340,859)
----------- ----------- ------------ ----------- ----------- ----------- -----------
Total liabilities and
common stockholder's
equity (deficit) .............. $ 309,509 $ 72,107 $ 136,376 $ 95,671 $ 414,223 $ (399,962) $ 627,924
=========== =========== ============ =========== =========== =========== ===========
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
HARRIS CHEMICAL NORTH AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
For the Twenty-Six Weeks Ended September 28, 1996
(in thousands)
NACC GSL NAMSCO Sifto HCNA Eliminations Consolidated
-------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
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, general and
administrative expenses ....... 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
provision for income
taxes ........................ 6,657 3,211 1,806 (4,747) (32,681) (6,738) (32,492)
Provision (benefit) for
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)
=========== =========== ============ =========== =========== ============ =============
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
For the Twenty-six Weeks Ended September 27, 1997
(in thousands)
NACC GSL NAMSCO Sifto HCNA Eliminations Consolidated
---------------------------------------------------------------------------------------------
Net sales ....................... $ 99,964 $ 24,930 $ 45,379 $ 34,620 $ - $ (16,787) $ 188,106
Cost of sales ................... 81,957 20,985 32,730 27,219 - (14,900) 147,991
----------- ----------- ------------ ----------- ----------- ------------ -------------
Gross profit .................. 18,007 3,945 12,649 7,401 - (1,887) 40,115
Selling, general and
administrative expenses ...... 8,558 3,397 9,865 6,207 731 - 28,758
----------- ----------- ------------ ----------- ----------- ------------ -------------
Operating income (loss) ...... 9,449 548 2,784 1,194 (731) (1,887) 11,357
Interest expense ................ (9,138) (163) (485) (4,818) (33,165) - (47,769)
Other income (expense) .......... 3,679 3,219 (3,391) 390 406 (305) 3,998
----------- ----------- ------------ ----------- ----------- ------------ -------------
Income (loss) before
provision for income
taxes ........................ 3,990 3,604 (1,092) (3,234) (33,490) (2,192) (32,414)
Provision (benefit) for
income taxes ................. 18 116 (405) 734 312 613 1,388
----------- ----------- ------------ ----------- ----------- ------------ -------------
Net income (loss) ............ $ 3,972 $ 3,488 $ (687) $ (3,968) $ (33,802) $ (2,805) $ (33,802)
=========== =========== ============ =========== =========== ============ =============
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
HARRIS CHEMICAL NORTH AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
For the Twenty-six Weeks Ended September 28, 1996
(in thousands)
NACC GSL NAMSCO Sifto HCNA Eliminations Consolidated
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net cash provided by (used
in) operating activities ..... $ 19,126 $ 9,082 $ (5,793) $ (4,561) $ (32,478) $ (3,189) $ (17,813)
----------- ----------- ------------ ----------- ----------- ------------ -------------
Cash flows from 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 cash provided by (used
in) investing activities ..... (4,652) (3,014) (5,430) (1,291) (4,244) 4,244 (14,387)
----------- ----------- ------------ ----------- ----------- ------------ -------------
Cash flows from financing:
Gross borrowings ............. 96,986 21,995 49,502 42,758 - - 211,241
Gross 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 cash provided by (used
in) financing activities ..... (14,474) (6,068) 11,223 (3,249) 35,349 318 23,099
----------- ----------- ------------ ----------- ----------- ------------ -------------
Effect of exchange rate
changes on cash .............. - - - 8 - - 8
----------- ----------- ------------ ----------- ----------- ------------ -------------
Net increase (decrease) in
cash and cash equivalents .... - - - (9,093) (1,373) 1,373 (9,093)
Cash and cash equivalents:
Beginning of period .......... - - - 9,093 2,411 (2,411) 9,093
----------- ----------- ------------ ----------- ----------- ------------ -------------
End of period ................ $ - $ - $ - $ - $ 1,038 $ (1,038) $ -
=========== =========== ============ =========== =========== ============ =============
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
HARRIS CHEMICAL NORTH AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
For the Twenty-six Weeks Ended September 27, 1997
(in thousands)
NACC GSL NAMSCO Sifto HCNA Eliminations Consolidated
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net cash provided by (used
in) operating activities ...... $ 16,794 $ 14,756 $ (15,417) $ (684) $ (32,552) $ (305) $ (17,408)
----------- ----------- ------------ ----------- ------------ ------------ -------------
Cash flows from investing:
Capital expenditures .......... (3,103) (4,848) (1,889) (2,689) - - (12,529)
Capitalized interest .......... (138) - - - - - (138)
Proceeds from sales ........... 795 - - 2 - - 797
Other.......................... - - - - (287) 287 -
----------- ----------- ------------ ----------- ------------ ------------ -------------
Net cash provided by (used
in) investing activities ...... (2,446) (4,848) (1,889) (2,687) (287) 287 (11,870)
----------- ----------- ------------ ----------- ------------ ------------ -------------
Cash flows from financing:
Gross borrowings .............. 38,000 - 18,000 - - (5,000) 51,000
Gross repayments .............. (21,013) (847) (18,613) (481) - 5,000 (35,954)
Other ......................... (31,335) (9,061) 21,894 (1,738) 19,361 18 (861)
----------- ----------- ------------ ----------- ------------ ------------ -------------
Net cash provided by (used
in) financing activities ...... (14,348) (9,908) 21,281 (2,219) 19,361 18 14,185
----------- ----------- ------------ ----------- ------------ ------------ -------------
Effect of exchange rate
changes on cash ............... - - 5 29 - - 34
----------- ----------- ------------ ----------- ------------ ------------ -------------
Net increase (decrease) in
cash and cash equivalents...... - - 3,980 (5,561) (13,478) - (15,059)
Cash and cash equivalents:
Beginning of period ........... - - (3,980) 5,561 15,495 - 17,076
----------- ----------- ------------ ----------- ------------ ------------ -------------
End of period ................. $ - $ - $ - $ - $ 2,017 $ - $ 2,017
=========== =========== ============ =========== =========== ============ =============
</TABLE>
11
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following table sets forth the Company's net sales by product line for
the thirteen and twenty-six week periods ended September 27, 1997 and September
28, 1996.
<TABLE>
Net Sales by Product Line
Thirteen Weeks Ended Twenty-six Weeks Ended
------------------------------- -------------------------------
Sept. 28, 1996 Sept. 27, 1997 Sept. 28, 1996 Sept. 27, 1997
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Salt.......................... $ 35,141 $ 33,965 $ 70,428 $ 64,986
Soda Products................. 28,302 30,200 59,488 61,533
Boron chemicals............... 14,743 17,505 31,957 33,614
Specialty potash fertilizers.. 11,068 10,053 23,533 21,640
Other......................... 3,083 3,184 6,512 6,333
------------- ------------ ------------- -------------
Total...................... $ 92,337 $ 94,907 $ 191,918 $ 188,106
============= ============ ============= =============
</TABLE>
Thirteen Weeks Ended September 27, 1997 Compared With Thirteen Weeks Ended
September 28, 1996
Net sales for the thirteen weeks ended September 27, 1997 (the "Second
Quarter FY 1998") were $94.9 million compared to $92.3 million for the thirteen
weeks ended September 28, 1996 (the "Second Quarter FY 1997"), an increase of
2.8%.
The $1.2 million decline in salt sales was primarily the result of the
exclusive distributor program introduced this year in the general trade
business. The almost 12% decline in general trade volumes reduced sales by
approximately $3 million. However, the gross margin for this business remained
consistent with the prior year total. The highway/chemical salt business
partially offset the sales decline with a $1.8 million increase in sales, due to
increased volumes sold. Overall, pricing in the salt business was not
significantly different than the year earlier period.
The $1.9 million increase in net sales from soda products (soda ash, sodium
sulfate and sodium bicarbonate) in the Second Quarter FY 1998 when compared to
the prior year period was due to an increase in the sales of soda ash and sodium
sulfate, while sodium bicarbonate sales were relatively flat. Sales volumes for
soda ash and sodium sulfate increased by approximately 12% and pricing was up
12% for sodium sulfate. The average price for soda ash was down from the Second
Quarter FY 1998. The increased volumes are the result of higher export sales of
the Company's products, and the favorable pricing for sodium sulfate is the
result of strong demand for this product.
The $2.8 million increase in net sales from boron chemicals is due to an 18%
increase in sales volumes during the Second Quarter FY 1998 period when compared
to the prior year period. Additionally, the average sales prices for most of the
boron products increased compared to the prior year period, and the Company
experienced a favorable change in product mix which also impacted the average
price received for boron products sold.
Specialty potash fertilizer net sales in the Second Quarter FY 1998 decreased
$1.0 million, or 9%, compared to the Second Quarter FY 1997. The decline in
sales was a result of a 17% decrease in tons sold, partially offset by a 10%
increase in the average sales price. Domestic volumes remained strong in the
quarter, while the timing of export sales has lagged behind the prior year
volumes.
12
<PAGE>
Cost of sales in the Second Quarter FY 1998 and Second Quarter FY 1997 was
75.8% and 80.7% of sales, respectively. The improvement in gross margin
percentage from prior year is attributable to continued efficiencies being
experienced in the soda products and boron businesses from the implementation of
cost reduction strategies and capital improvements made, as well as favorable
prices and product mix for boron chemicals.
Selling, general and administrative expenses were relatively unchanged,
increasing $0.2 million Second Quarter FY 1998 compared to Second Quarter FY
1997. As a percentage of sales, these expenses totaled 14.0% and 14.1% for
Second Quarter FY 1998 and Second Quarter FY 1997, respectively.
Interest expense increased $1.8 million for the Second Quarter FY 1998
period as compared to the prior year period. The increase was due to higher
interest costs for the Argus utilities debt which originated in the Second
Quarter FY 1997, $0.2 million lower capitalized interest on construction in
process, and $0.5 million of accreted interest on the San Diego Terminal debt
for the Second Quarter FY 1998 period. These increases were partially offset by
a lower average debt balance outstanding during the Second Quarter FY 1998 as
compared to Second Quarter FY 1997.
An exchange gain of $0.1 million was recorded in the Second Quarter FY 1998
period, primarily relating to the translation of United States
dollar-denominated debt of Sifto into Canadian dollars, compared to a $0.6
million loss in the Second Quarter FY 1997 period. No other significant exchange
gains or losses were recorded during the period.
Other income principally consists of ground lease and maintenance income,
and gains and losses on disposal of property, plant and equipment. Other income
was $1.4 million higher in the Second Quarter FY 1998 than the Second Quarter FY
1997 primarily due to the sale of land near the Searles Valley facility in
California for a gain of $0.8 million. Other miscellaneous expenses were also
lower in the Second Quarter FY 1998 period.
A provision for income taxes of $1.3 million was recorded in the Second
Quarter FY 1998, relating to U.S. alternative minimum tax, state income taxes,
and Sifto's Canadian income tax and Ontario mining taxes. Income tax benefits
associated with the U.S. losses have not been recognized as future realization
is uncertain.
Twenty-six Weeks Ended September 27, 1997 Compared With Twenty-six Weeks Ended
September 28, 1996
Net sales for the twenty-six weeks ended September 27, 1997 (the "YTD FY
1998") were $188.1 million, down 2.0% from the $191.9 million recorded for the
twenty-six weeks ended September 28, 1996 (the "YTD FY 1997").
Salt sales declined $5.4 million primarily due to the introduction of the
exclusive distributor program in the general trade business. The 11% decline in
YTD FY 1998 general trade volumes, compared to the prior year, resulted in a
$5.6 million decline in sales. The highway/chemical business volumes are
substantially unchanged from the YTD FY 1997 period as an increase in second
quarter sales offset the lower first quarter volumes, as compared to FY 1997.
Overall, salt pricing was substantially unchanged from the prior year period.
Sales of soda products increased $2.0 million to $61.5 million in the YTD
FY 1998 period as compared to the YTD FY 1997 period. Most of the increase was
due to a $1.7 million increase in the sales of sodium sulfate. The increase was
due to both a 6% increase in volumes sold and a 16% increase in the average
sales price. Sodium sulfate, which is used as an ingredient in detergents, among
13
<PAGE>
other things, experienced a price increase late in FY 1997 due to the strong
demand for this product. Sales of soda ash and sodium bicarbonate in the YTD FY
1998 period were substantially unchanged from the prior year period.
Boron chemical sales in the YTD FY 1998 period were $1.7 million higher
than in the prior period in FY 1997. The primary factor increasing sales was an
increase in average unit prices in the first quarter, combined with increased
sales volumes in the second quarter period which offset an unfavorable first
quarter volume variance. These volume changes from prior year periods are
primarily timing related. The YTD FY 1998 average price increased approximately
$27 per ton (or 5%). Most boron chemical products experienced an increase in
prices and the Company benefited from a favorable product mix.
Specialty potash fertilizer net sales were down $1.9 million for the YTD FY
1998 period as compared to prior year, due to a 14% decline in volumes. This was
partially offset by a 7%, or $10 per ton, increase in the average sales price.
The decline in volumes are due to the depletion of the remaining inventory from
the Searles Valley facilities in California. Production of the specialty potash
fertilizer was terminated in Searles Valley upon completion of the Long Range
Process Plan in FY 1997.
Cost of sales in YTD FY 1998 and YTD FY 1997 was 78.7% and 81.3% of sales,
respectively. The improvement in gross margin percentage from prior year is
attributable to continued efficiencies being gained in the soda products and
boron businesses from the implementation of cost reduction strategies and the
positive impact of capital improvements, favorable pricing of the boron products
and the product mix previously discussed, and an increase in the gross margin
percentage in the general trade salt business due to the implementation of an
exclusive distributor program.
Selling, general and administrative expenses for the YTD FY 1998 period were
$28.8 million, or 15.3% of net sales, compared to $27.0 million, or 14.1% of net
sales, in the first half of fiscal 1997. The increase in the percentage of net
sales, which principally occurred in the first quarter, relates to higher
professional fees.
Interest expense increased $4.9 million for the YTD FY 1998 period as
compared to the prior year period in FY 1997. The increase was due to higher
interest costs for the Argus utilities debt which originated in the Second
Quarter FY 1997, lower capitalized interest on construction in process of $0.1
million YTD FY 1998 compared to $1.4 million YTD FY 1997, and $1.0 million of
accreted interest on the San Diego Terminal debt for the year to date period.
An exchange gain of $0.4 million was recorded in the YTD FY 1998 period,
primarily relating to the translation of United States dollar-denominated debt
of Sifto into Canadian dollars, compared to a $0.6 million loss in the YTD FY
1997 period. No other significant exchange gains or losses were recorded during
the period.
Other income was $1.6 million higher in the YTD FY 1998 period compared to
the prior year, primarily due to the sale of land near the Searles Valley
facility in California for a gain of $0.8 million.
Other miscellaneous expenses were also lower in the YTD FY 1998 period.
A provision for income taxes of $1.4 million was recorded in the YTD FY
1998 period, relating to U.S. alternative minimum tax, state income taxes, and
Sifto's Canadian income tax and Ontario mining taxes. Income tax benefits
associated with the U.S. losses have not been recognized as future realization
is uncertain.
14
<PAGE>
Liquidity, Capital Resources and Financial Condition
Seasonality and Cash Flows
The Company's combined accounts receivable and inventory levels have varied
by as much as $60.0 million during a fiscal year. Generally, during the second
and third fiscal quarters highway deicing 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 fiscal quarter adding to the
specialty potash fertilizer inventory levels. Inventories then decline in the
fourth fiscal quarter. Accounts receivable increase during the third and fourth
fiscal quarters as highway salt sales and specialty potash fertilizer sales peak
during this period. Cash requirements rapidly decline near the end of the fourth
fiscal quarter and the early part of the next fiscal year first quarter as
accounts receivable are converted into cash.
YTD FY 1998 operating activities utilized $17.4 million in net cash
compared to $17.8 million utilized in the YTD FY 1997 period. A heavier buildup
of inventories YTD FY 1998 versus YTD FY 1997 used $4.0 million more cash. This
was almost entirely offset by higher collections from accounts receivable YTD FY
1998 versus YTD FY 1997, due to higher sales and receivables in the fourth
fiscal quarter of 1997 than in the fourth fiscal quarter of 1996.
YTD FY 1998 investing activities used $11.9 million of cash compared to a
use of $14.4 million in the YTD FY 1997 period. This decrease is the result of
lower capital spending (including capitalized interest on construction in
progress) in YTD FY 1998 as compared to the same period in FY 1997.
YTD FY 1998 financing activities provided cash of $14.2 million compared to
$23.1 million in the FY 1997 period. The primary difference is a change in the
net borrowings on the revolver (and net of a sale-leaseback arrangement in FY
1997) due to the larger available cash balance which existed at the beginning of
the 1998 fiscal year as compared to the beginning of the 1997 fiscal year.
As disclosed in the Company's fiscal year 1997 Form 10-K, the Company
exercised its option to repurchase its port facilities from SDT Capital, Inc.
("SDT") in San Diego for the greater of $7.0 million or fair market value. Since
the Company and SDT have been unable to agree on the fair market value of the
port facility, fair market value will be determined through an appraisal
process. The Company is accreting the difference between the initial stated
value of $5.5 million and the minimum repurchase value of $7.0 million through
the term of the lease (December 31, 1997). An extraordinary loss will be
recorded for the difference between $7.0 million and fair market value, if the
appraised fair market value is determined to be greater than $7.0 million.
As of September 27, 1997, the Company had $45.6 million of available
borrowing capacity under its revolving credit agreements and $2.0 million of
cash. The Company believes that 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 in FY 1998.
Environmental Matters
Due to the nature of the Company's business, it must continually monitor
compliance with all applicable environmental laws and regulations. At September
27, 1997, the Company had recorded $3.1 million of current liabilities and $10.2
million of non-current liabilities to reflect the estimated future costs
associated with environmental matters. Environmental costs, other than those of
a capital nature, are accrued at the time the exposure becomes known and costs
can reasonably be estimated. Management believes that the outcome of presently
known environmental contingencies will not have a material adverse effect on the
operations, financial condition or liquidity of the Company.
15
<PAGE>
Seasonality and Quarterly Financial Data (Unaudited)
The Company experiences a substantial amount of seasonality in sales of its
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 fertilizer
potash fertilizer 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 by
fiscal quarter.
<TABLE>
Fiscal 1997 Fiscal 1998
--------------------------------------------------- -------------------------
1st 2nd 3rd 4th 1st 2nd
--- --- --- --- --- ---
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Operating Data:
Net sales ..................... $99,581 $92,337 $151,068 $165,636 $93,199 $94,907
Gross profit .................. 18,103 17,854 46,715 51,813 17,192 22,923
Operating income .............. 4,138 4,841 32,217 35,781 1,685 9,672
Interest expense .............. 20,533 22,293 24,485 24,614 23,660 24,109
Net income (loss) ............. (15,092) (17,589) 5,763 5,485 (20,245) (13,557)
Sales by Product:
Salt .......................... 35,287 35,141 72,124 93,347 31,021 33,965
Soda products ................. 31,186 28,302 31,179 29,133 31,333 30,200
Boron chemicals ............... 17,214 14,743 14,417 16,677 16,109 17,505
Specialty potash fertilizers .. 12,465 11,068 23,484 24,530 11,587 10,053
Other ......................... 3,429 3,083 9,864 1,949 3,149 3,184
</TABLE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Reference is made to Item 3 of the Harris Chemical North America, Inc.
Form 10-K for the fiscal year ended March 29, 1997 as it related to the European
Union Anti-dumping Proceeding. The Company has been notified by the European
Commission that the anti-dumping duties were repealed effective October 15,
1997.
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
16
<PAGE>
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)
November 6, 1997 /s/ Emanuel J. Di Teresi
---------------------------------
Emanuel J. Di Teresi
Senior Vice President and
Chief Financial Officer
(Chief Accounting Officer)
17
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Balance Sheet at September 27, 1997 (Unaudited) and the
Consolidated Statement of Operations for the Twenty-six Weeks Ended September
27, 1997 (Unaudited) and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> MAR-28-1998
<PERIOD-END> SEP-27-1997
<CASH> 2,017
<SECURITIES> 0
<RECEIVABLES> 80,152
<ALLOWANCES> 2,336
<INVENTORY> 120,053
<CURRENT-ASSETS> 222,608
<PP&E> 716,826
<DEPRECIATION> 341,890
<TOTAL-ASSETS> 627,924
<CURRENT-LIABILITIES> 123,361
<BONDS> 685,000
0
0
<COMMON> 0
<OTHER-SE> (433,180)
<TOTAL-LIABILITY-AND-EQUITY> 627,924
<SALES> 188,106
<TOTAL-REVENUES> 188,106
<CGS> 147,991
<TOTAL-COSTS> 147,991
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 47,769
<INCOME-PRETAX> (32,414)
<INCOME-TAX> 1,388
<INCOME-CONTINUING> (33,802)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (33,802)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
