<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 December 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 December
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 December 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 22
Item 6 Exhibits and Reports on Form 8-K 22
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>
December 23, March 30, December 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 $938 at December 23,
1995, $2,336 at March 30, 1996 and $1,592 at
December 28, 1996............................ 115,014 109,542 126,082
Other receivables............................ 7,857 9,572 8,756
Inventories.................................. 117,531 103,255 122,704
Deferred income taxes........................ 7,121 6,235 6,073
Other........................................ 6,123 4,787 7,611
---------- ---------- ----------
Total current assets....................... 253,646 242,484 271,226
Property, plant and equipment, net............. 412,388 403,286 386,152
Investments.................................... 1,576 1,989 1,989
Deferred financing costs....................... 25,385 23,840 25,442
Other.......................................... 7,379 6,374 6,547
---------- ---------- ----------
Total assets............................... $ 700,374 $ 677,973 $ 691,356
========== ========== ==========
LIABILITIES AND STOCKHOLDER'S DEFICIT
Current liabilities:
Current portion of long-term debt............ $ 12,540 $ 6,788 $ 8,454
Accounts payable............................. 64,676 66,301 61,744
Accrued expenses............................. 18,610 19,442 20,796
Accrued salaries and wages................... 11,832 13,658 11,529
Accrued interest............................. 12,512 24,234 23,482
Income taxes payable......................... 702 1,181 1,228
---------- ---------- ----------
Total current liabilities.................. 120,872 131,604 127,233
Long-term debt, net of current portion......... 821,522 785,470 810,035
Deferred income taxes.......................... 21,215 22,865 23,900
Other noncurrent liabilities................... 19,269 18,964 38,469
Commitments and contingencies
Common stockholder's deficit:
Common stock, at par......................... - - -
Additional paid-in capital................... 107,253 103,441 103,441
Cumulative translation adjustment............ (3,315) (3,343) (3,423)
Common stockholder's receivable.............. (5,624) (3,083) (3,436)
Accumulated deficit.......................... (380,818) (377,945) (404,863)
---------- ---------- ----------
Total common stockholder's deficit......... (282,504) (280,930) (308,281)
---------- ---------- ----------
Total liabilities and common stockholder's
deficit.................................. $ 700,374 $ 677,973 $ 691,356
========== ========== ==========
</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 Thirty-nine weeks ended
--------------------------- ---------------------------
December 23, December 28, December 23, December 28,
1995 1996 1995 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales................................ $ 133,464 $ 151,068 $ 313,859 $ 342,986
Cost of sales............................ 93,333 104,353 244,144 260,314
---------- ---------- ---------- ----------
Gross profit......................... 40,131 46,715 69,715 82,672
Selling, general and
administrative expenses................ 15,249 14,498 42,786 41,476
---------- ---------- ---------- ----------
Operating income..................... 24,882 32,217 26,929 41,196
Other income (expense):
Interest expense....................... (21,479) (24,485) (62,431) (67,311)
Foreign currency
transaction gain (loss).............. (380) (143) 1,751 (749)
Other, net............................. 1,500 1,218 4,265 3,179
---------- ---------- ---------- ----------
Income (loss) before taxes........... 4,523 8,807 (29,486) (23,685)
Provision for income taxes............... 2,566 3,044 2,129 3,233
---------- ---------- ---------- ----------
Net income (loss).................... $ 1,957 $ 5,763 $ (31,615) $ (26,918)
========== ========== ========== ==========
</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>
Thirty-nine weeks ended
---------------------------
December 23, December 28,
1995 1996
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net loss............................................. $ (31,615) $ (26,918)
Adjustments to reconcile net loss to net cash flows
from operating activities:
Depreciation....................................... 40,951 41,469
Finance fee amortization........................... 4,196 3,963
Operating amortization............................. 546 457
Accreted interest.................................. 17,839 -
Deferred income taxes.............................. 885 1,420
Unrealized foreign currency transaction gain (1,771) (220)
Loss on disposal of property, plant and
equipment........................................ 9 545
Other.............................................. (10) 40
Changes in operating assets and liabilities:
Receivables...................................... (21,591) (15,724)
Inventories...................................... (29,430) (19,705)
Other assets..................................... (657) (3,258)
Accounts payable................................. 4,784 (4,557)
Accrued expenses and other
noncurrent liabilities......................... (15,964) (7,798)
---------- ----------
Net cash used in operating activities.......... (31,828) (30,286)
---------- ----------
Cash flows from investing activities:
Capital expenditures................................. (31,163) (21,200)
Capitalized interest................................. (2,944) (1,406)
Proceeds from sales of property, plant and
equipment.......................................... 104 178
Other................................................ (1,679) -
---------- ----------
Net cash used in investing activities.......... (35,682) (22,428)
---------- ----------
Cash flows from financing activities:
Revolver borrowings.................................. 114,516 190,186
Revolver payments.................................... (45,822) (233,100)
Principal payments on other long-term debt, including
capital leases..................................... (3,960) (5,758)
Issuance of long-term debt........................... - 75,000
Capitalized finance costs............................ (1,048) (5,491)
Prepayment of deferred revenue....................... - 23,152
Other................................................ (1,832) (353)
---------- ----------
Net cash provided by financing activities...... 61,854 43,636
---------- ----------
Effect of exchange rate changes on cash................ 8 (15)
---------- ----------
<PAGE> 6
HARRIS CHEMICAL NORTH AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS-Continued
(in thousands)
(Unaudited)
Thirty-nine weeks ended
---------------------------
December 23, December 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................. $ 3,474 $ 2,754
========== ==========
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
December 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):
December 23, March 30, December 28,
1995 1996 1996
------------ ---------- ------------
Finished goods................ $ 87,005 $ 68,951 $ 88,964
Raw materials and supplies.... 30,526 34,304 33,740
------------ ---------- ------------
Total inventories............. $ 117,531 $ 103,255 $ 122,704
============ ========== ============
Property, Plant and Equipment (in thousands):
December 23, March 30, December 28,
1995 1996 1996
------------ ---------- ------------
At cost....................... $ 666,276 $ 666,995 $ 690,133
Less accumulated depreciation
and amortization.............. 253,888 263,709 303,981
------------ ---------- ------------
Net property, plant and
equipment..................... $ 412,388 $ 403,286 $ 386,152
============ ========== ============
<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"). This transaction, which raised
total proceeds of $75 million, is being accounted for as a financing
transaction. 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. This revision in
useful lives reduced depreciation expense and the net loss by $2,565,000 and
$4,265,000 in the third quarter of fiscal 1997 and year to date, respectively.
4. Income Taxes:
The financial statements for the thirty-nine weeks ended December 28, 1996
reflect an income tax provision of $3,233,000 arising from a loss before
provision for income taxes of $23,685,000. The income tax provision relates to
U.S. alternative minimum tax and state income tax, Sifto's Canadian income tax
and Ontario mining tax.
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. Deferred Revenue:
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 was entitled to receive 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 $23.2 million in cash
($5.0 million in July, 1996 and $18.2 million on September 30, 1996). The
prepayment has been recorded as deferred revenue to be amortized over the
remaining life of the ECMC Agreement at an effective rate of 15.5%.
<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
December 23, 1995
(in thousands) (Unaudited)
<TABLE>
<CAPTION>
NACC GSL NAMSCO SIFTO HCNA Eliminations Consolidated
--------- -------- --------- --------- --------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Cash.............. $ - $ - $ - $ - $ 2,693 $ (2,693) $ -
Receivables....... 47,949 8,426 41,764 23,387 1,384 (39) 122,871
Inventories....... 43,846 17,800 38,195 19,002 - (1,312) 117,531
Other current
assets........... 10,065 641 544 1,547 447 - 13,244
Property, plant
equipment, net... 242,625 41,865 62,836 65,062 - - 412,388
Investment in
Sifto............ - - 2,513 - - (2,513) -
Other............. 6,051 13 1,826 3,110 339,468 (316,128) 34,340
--------- -------- --------- --------- --------- ---------- ---------
Total assets..... $ 350,536 $ 68,745 $ 147,678 $ 112,108 $ 343,992 $(322,685) $ 700,374
========= ======== ========= ========= ========= ========== =========
Total current
liabilities...... $ 60,145 $ 10,049 $ 22,679 $ 20,314 $ 10,473 $ (2,788) $ 120,872
Long-term debt.... 57,584 10,866 52,854 116,741 583,477 - 821,522
Other noncurrent
liabilities...... 88,752 (10,822) (26,666) (28,487) 32,546 (14,839) 40,484
Total common
stockholder's
equity (deficit). 144,055 58,652 98,811 3,540 (282,504) (305,058) (282,504)
--------- -------- --------- --------- ---------- --------- ----------
Total liabilities
and common
stockholder's
equity (deficit). $ 350,536 $ 68,745 $ 147,678 $ 112,108 $ 343,992 $(322,685) $ 700,374
========= ======== ========= ========= ========= ========== =========
<PAGE> 10
CONDENSED CONSOLIDATING BALANCE SHEETS
December 28, 1996
(in thousands) (Unaudited)
NACC GSL NAMSCO SIFTO HCNA Eliminations Consolidated
--------- -------- --------- --------- --------- ------------ ------------
Cash.............. $ - $ - $ - $ - $ 2,982 $ (2,982) $ -
Receivables....... 45,971 16,244 48,680 22,630 1,313 - 134,838
Inventories....... 45,207 18,085 42,333 19,329 - (2,250) 122,704
Other current
assets........... 9,293 385 524 2,917 565 - 13,684
Property, plant
equipment, net... 217,930 41,964 64,344 61,914 - - 386,152
Investment in
Sifto............ - - 2,513 - - (2,513) -
Other............. 10,203 46 2,442 2,428 387,560 (368,701) 33,978
--------- -------- --------- --------- --------- ---------- ---------
Total assets..... $ 328,604 $ 76,724 $ 160,836 $ 109,218 $ 392,420 $(376,446) $ 691,356
========= ======== ========= ========= ========= ========== =========
Total current
liabilities...... $ 46,874 $ 15,974 $ 25,169 $ 21,284 $ 20,990 $ (3,058) $ 127,233
Long-term debt.... 98,391 1,529 14,706 110,409 585,000 - 810,035
Other noncurrent
liabilities...... 31,876 (9,641) 3,710 (29,009) 94,711 (29,278) 62,369
Total common
stockholder's
equity (deficit). 151,463 68,862 117,251 6,534 (308,281) (344,110) (308,281)
--------- -------- --------- --------- --------- --------- ----------
Total liabilities
and common
stockholder's
equity (deficit). $ 328,604 $ 76,724 $ 160,836 $ 109,218 $ 392,420 $(376,446) $ 691,356
========= ======== ========= ========= ========= ========== =========
</TABLE>
<PAGE> 11
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
For the Thirty-nine Weeks Ended December 23, 1995
(in thousands) (Unaudited)
<TABLE>
<CAPTION>
NACC GSL NAMSCO SIFTO HCNA Eliminations Consolidated
-------- -------- -------- -------- -------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net Sales......... $147,834 $ 45,739 $ 95,814 $ 60,799 $ - $(36,327) $ 313,859
Cost of sales..... 131,355 37,195 67,890 43,204 - (35,500) 244,144
-------- -------- -------- -------- -------- --------- ---------
Gross profit..... 16,479 8,544 27,924 17,595 - (827) 69,715
Selling and
administrative... 16,256 3,862 13,268 8,255 1,145 - 42,786
-------- -------- -------- -------- -------- --------- ---------
Operating income
(loss)........... 223 4,682 14,656 9,340 (1,145) (827) 26,929
Interest expense.. (57) (145) 531 (8,888) (53,872) - (62,431)
Other income
(expense)......... 4,526 4,988 (5,272) 1,774 23,402 (23,402) 6,016
-------- -------- --------- ------- -------- --------- ---------
Income (loss)
before taxes..... 4,692 9,525 9,915 2,226 (31,615) (24,229) (29,486)
Income taxes...... - 1,758 (658) 1,454 - (425) 2,129
-------- -------- -------- -------- -------- --------- ----------
Net income
(loss)........... $ 4,692 $ 7,767 $ 10,573 $ 772 $(31,615) $(23,804) $ (31,615)
======== ======== ======== ======== ======== ========= ==========
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
For the Thirty-nine Weeks Ended December 28, 1996
(in thousands) (Unaudited)
NACC GSL NAMSCO SIFTO HCNA Eliminations Consolidated
-------- -------- -------- -------- -------- ------------ ------------
Net Sales......... $152,022 $ 56,632 $101,658 $ 67,503 $ - $ (34,829) $ 342,986
Cost of sales..... 129,274 47,769 69,836 46,681 - (33,246) 260,314
-------- -------- -------- -------- -------- ---------- ---------
Gross profit..... 22,748 8,863 31,822 20,822 - (1,583) 82,672
Selling and
administrative... 12,726 4,134 12,323 9,771 2,522 - 41,476
-------- -------- -------- -------- -------- ---------- ---------
Operating income
(loss)........... 10,022 4,729 19,499 11,051 (2,522) (1,583) 41,196
Interest expense.. (6,423) (191) (420) (7,910) (52,367) - (67,311)
Other income
(expense)......... 4,000 4,838 (5,592) (816) 27,971 (27,971) 2,430
-------- -------- --------- -------- -------- ---------- ---------
Income (loss)
before taxes..... 7,599 9,376 13,487 2,325 (26,918) (29,554) (23,685)
Income taxes...... - 3,213 4,989 2,558 - (7,527) 3,233
-------- -------- -------- -------- --------- ---------- ----------
Net income
(loss)........... $ 7,599 $ 6,163 $ 8,498 $ (233) $(26,918) $ (22,027) $ (26,918)
======== ======== ======== ========= ========= ========== ==========
</TABLE>
<PAGE> 12
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
For the Thirty-nine Weeks Ended December 23, 1995
(in thousands) (Unaudited)
<TABLE>
<CAPTION>
NACC GSL NAMSCO SIFTO HCNA Eliminations Consolidated
-------- ------- -------- --------- --------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net operating
activities........ $ 38,757 $(1,581) $(22,673) $(19,535) $(12,551) $ (14,245) $(31,828)
-------- -------- -------- --------- --------- ---------- ---------
Investing:
Capital
expenditures..... (24,092) (2,181) (3,164) (1,726) - - (31,163)
Capitalized
interest......... (2,944) - - - - - (2,944)
Proceeds from
sales............ 104 - - - - - 104
Other............ (1,679) - - - 6,193 (6,193) (1,679)
--------- -------- --------- --------- --------- ---------- ---------
Net investing... (28,611) (2,181) (3,164) (1,726) 6,193 (6,193) (35,682)
--------- -------- --------- --------- --------- ---------- ---------
Financing:
Borrowings....... 19,643 20,580 53,471 20,822 - - 114,516
Repayments....... (9,542) (11,879) (23,144) (5,217) - - (49,782)
Other............ (20,247) (4,939) (4,490) - (2,800) 29,596 (2,880)
--------- -------- --------- --------- --------- ---------- ---------
Net financing... (10,146) 3,762 25,837 15,605 (2,800) 29,596 61,854
--------- -------- --------- --------- --------- ---------- ---------
Exchange rate
changes........... - - - 8 - - 8
--------- -------- --------- --------- --------- ---------- ---------
Net decrease in
cash............ - - - (5,648) (9,158) 9,158 (5,648)
Cash beginning.... - - - 5,648 11,851 (11,851) 5,648
--------- -------- --------- --------- --------- ---------- ---------
Cash ending....... $ - $ - $ - $ - $ 2,693 $ (2,693) $ -
========= ======== ========= ========= ========= ========== =========
<PAGE> 13
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
For the Thirty-nine Weeks Ended December 28, 1996
(in thousands) (Unaudited)
NACC GSL NAMSCO SIFTO HCNA Eliminations Consolidated
-------- -------- --------- --------- --------- ------------ ------------
Net operating
activities........ $ 23,542 $16,258 $ (14,061) $ 1,985 $(29,392) $ (28,618) $(30,286)
-------- -------- --------- --------- --------- ---------- ---------
Investing:
Capital
expenditures..... (6,273) (4,506) (7,484) (2,937) - - (21,200)
Capitalized
interest......... (1,406) - - - - - (1,406)
Proceeds from
sales............ 22 - 156 - - - 178
Other............ - - - - (27,891) 27,891 -
--------- -------- --------- --------- --------- ---------- ---------
Net investing... (7,657) (4,506) (7,328) (2,937) (27,891) 27,891 (22,428)
--------- -------- --------- --------- --------- ---------- ---------
Financing:
Borrowings....... 99,986 21,995 92,502 50,703 - - 265,186
Repayments....... (46,804) (29,519) (120,591) (41,944) - - (238,858)
Other............ (69,067) (4,228) 49,478 (16,885) 57,854 156 17,308
--------- -------- --------- --------- --------- ---------- ---------
Net financing... (15,885) (11,752) 21,389 (8,126) 57,854 156 43,636
--------- -------- --------- --------- --------- ---------- ---------
Exchange rate
changes........... - - - (15) - - (15)
--------- -------- --------- --------- --------- ---------- ---------
Net decrease in
cash.............. - - - (9,093) 571 (571) (9,093)
Cash beginning.... - - - 9,093 2,411 (2,411) 9,093
--------- -------- --------- --------- --------- ---------- ---------
Cash ending....... $ - $ - $ - $ - $ 2,982 $ (2,982) $ -
========= ======== ========= ========= ========= ========== =========
</TABLE>
<PAGE> 14
Item 2.
Management's Discussion and Analysis of Financial Condition and Results of
Operations.
Thirteen Weeks Ended December 28, 1996 Compared With Thirteen Weeks Ended
December 23, 1995
Net sales for the thirteen weeks ended December 28, 1996 (the "Third
Quarter FY 1997") were $151.1 million compared to $133.5 million for the
thirteen weeks ended December 23, 1995 (the "Third Quarter FY 1996").
The following table presents the average price per ton, volume and net
sales by major product line for the Third Quarter FY 1997 compared to the
Third 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
-----------------------------------
December 23, December 28,
1995 1996
------------- -------------
SALT
Volume (000's tons)........... 2,840.0 3,148.0
Price/Ton..................... $24.31 $22.91
Net Sales ($000's)............ $69,033 $72,124
SODA PRODUCTS
Volume (000's tons)........... 369.5 353.1
Price/Ton..................... $82.47 $88.30
Net Sales ($000's)............ $30,472 $31,179
BORON CHEMICALS
Volume (000's tons)........... 38.1 27.9
Price/Ton..................... $444.91 $516.74
Net Sales ($000's)............ $16,951 $14,417
SPECIALTY POTASH FERTILIZERS
Volume (000's tons)........... 98.8 170.2
Price/Ton..................... $139.71 $137.98
Net Sales ($000's)............ $13,803 $23,484
OTHER
Net Sales ($000's)............ $3,205 $9,864
TOTAL NET SALES ($000's)...... $133,464 $151,068
Third Quarter FY 1997 salt sales were $72.1 million or $3.1 million higher
than in Third Quarter FY 1996. Actual tons sold increased 10.8%, generating a
favorable volume variance of $0.8 million. Additionally, increased prices and
improved mix generated net favorable price variances of $2.3 million.
<PAGE> 15
Increased volume in the highway salt business generated a $6.0 million
favorable volume variance primarily due to higher highway salt demand in Third
Quarter FY 1997 caused by heavy snowfalls in the U.S. and Canada. This
favorable volume variance was partially offset by unfavorable price variances
of $1.0 million. General trade salt sales volumes were lower in Third Quarter
FY 1997 compared to Third Quarter FY 1996 generating a $5.1 million unfavorable
volume variance which was partially offset by favorable price variances of $2.8
million. Chemical salt sales volumes were slightly lower in Third Quarter
FY 1997 compared to Third Quarter FY 1996 generating a $0.1 million unfavorable
volume variance which was offset by favorable price variances of $0.5 million.
Third Quarter FY 1997 soda products (soda ash, sodium sulfate and sodium
bicarbonate) sales were $31.2 million or $0.7 million higher than in Third
Quarter FY 1996. Increased ANSAC soda ash sales due to the timing of shipments
generated a $0.2 million favorable volume variance which was partially offset
by an unfavorable price variance of $0.1 million. Higher soda ash prices in
domestic markets provided a favorable price variance of $1.3 million, which was
partially offset by unfavorable domestic soda ash volume variances of
$0.6 million due to some softness in domestic soda ash demand. Other export
soda ash volume variances were an unfavorable $1.0 million. Sodium sulfate
generated favorable price variances of $0.5 million which were offset by
unfavorable volume variances of $0.2 million. Sodium bicarbonate contributed
favorable volume and price variances of $0.4 million and $0.2 million,
respectively, due to increased production which allowed expansion into export
markets as well as increased domestic sales.
Boron chemical sales were $14.4 million or $2.5 million lower than in
Third Quarter FY 1996. The unfavorable variance is due to unfavorable volume
variances of $2.8 million partially offset by favorable price variances of
$0.3 million. The unfavorable volume variances result from a shortfall in the
production of crude borax.
Specialty potash fertilizer sales were $23.5 million or $9.7 million higher
than in Third Quarter FY 1996. The favorable variance was due to increased
export volume which generated net favorable variances of $9.1 million. The
higher volumes were largely due to two significant export sales in the Third
Quarter FY 1997. Export potash prices were lower than in Third Quarter FY 1996
due to customer mix.
Other product sales were $9.9 million or $6.7 million higher than in Third
Quarter FY 1996. The increase in other product sales is primarily due to
NACC's service subsidiaries which generated a favorable revenue variance of
$5.0 million. Additionally, magnesium chloride sales were $1.2 million higher
than Third Quarter FY 1996 resulting from favorable volume variances partially
offset by unfavorable price variances.
Cost of sales was $104.4 million or 69.1% of net sales in Third Quarter
FY 1997 compared to $93.3 million or 69.9% of net sales in Third Quarter
FY 1996. The decrease in the cost of sales percentage in Third Quarter FY 1997
is related to lower operating costs including maintenance.
Gross profit in Third Quarter FY 1997 versus Third Quarter FY 1996
increased by $6.6 million due to higher sales and lower cost of sales
discussed above.
<PAGE> 16
Selling, general and administrative expenses were $14.5 million or $0.8
million lower than in Third Quarter FY 1996 due to lower payroll costs,
incentive compensation and selling expenses. Selling, general and
administrative expenses were 9.6% of net sales compared to 11.4% of net sales
in the prior year.
Operating income was $32.2 million in Third Quarter FY 1997 versus $24.9
million in Third Quarter FY 1996 for the reasons discussed above.
Third Quarter FY 1997 interest expense was $3.0 million higher than Third
Quarter FY 1996. The increase in interest expense is due to higher average
long-term debt balances in Third Quarter FY 1997 versus Third Quarter FY 1996,
higher interest rates on the new debt related to the Argus Utilities
transaction (see Note 3) and interest capitalized on construction in process
being $1.1 million lower in Third Quarter FY 1997 versus Third Quarter 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 $0.1 million related to the translation of United States
dollar-denominated debt of Sifto into Canadian dollars was recorded in the
Third Quarter FY 1997 compared to a translation loss of $0.4 million in the
Third Quarter FY 1996.
Other income/expense in Third Quarter FY 1997 was $0.3 million unfavorable
to Third Quarter FY 1996.
A $3.0 million provision for income taxes was recorded in Third Quarter FY
1997 primarily relating to current U.S. alternative minimum tax and state income
taxes, Sifto's Canadian income tax and Ontario mining tax. A $2.6 million
provision for income taxes was recorded in Third Quarter FY 1996 for the same
reason.
Net income of $5.8 million was recorded for Third Quarter FY 1997 compared
to net income of $2.0 million in Third Quarter FY 1996 due to the factors
described above.
<PAGE> 17
Thirty-nine Weeks Ended December 28, 1996 Compared With Thirty-nine Weeks Ended
December 23, 1995
Net sales for the thirty-nine weeks ended December 28, 1996 (the "Year to
Date FY 1997") were $343.0 million compared to $313.9 million for the
thirty-nine weeks ended December 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.
Thirty-nine Weeks Ended
-----------------------------------
December 23, December 28,
1995 1996
------------- -------------
SALT
Volume (000's tons)........... 5,206.4 5,573.6
Price/Ton..................... $26.25 $25.58
Net Sales ($000's)............ $136,642 $142,552
SODA PRODUCTS
Volume (000's tons)........... 1,047.1 1,008.3
Price/Ton..................... $79.87 $89.92
Net Sales ($000's)............ $83,627 $90,667
BORON CHEMICALS
Volume (000's tons)........... 110.4 94.4
Price/Ton..................... $443.59 $491.25
Net Sales ($000's)............ $48,972 $46,374
SPECIALTY POTASH FERTILIZERS
Volume (000's tons)........... 263.1 334.1
Price/Ton..................... $138.73 $140.73
Net Sales ($000's)............ $36,499 $47,017
OTHER
Net Sales ($000's)............ $8,119 $16,376
TOTAL NET SALES ($000's)...... $313,859 $342,986
Salt sales were $142.6 million Year to Date FY 1997 or $5.9 million higher
than in Year to Date FY 1996. Actual tons sold increased 7.1%, generating
favorable price and volume variances of $4.8 million and $1.1 million,
respectively.
<PAGE> 18
Increased volume in the highway salt business generated a $8.9 million
favorable volume variance primarily due to higher highway salt demand in Year
to Date FY 1997 caused by heavy snowfalls in the U.S. and Canada in Year to Date
FY 1997 and higher shipments in the First Quarter FY 1997 following the strong
winter season of 1995/1996. This favorable volume variance was partially
offset by unfavorable price variances of $1.5 million. General trade salt sales
volumes were lower in Year to Date FY 1997 compared to Year to Date FY 1996
generating a $6.9 million unfavorable volume variance which was partially
offset by favorable price variances of $5.5 million. Chemical salt sales
volumes were lower in Year to Date FY 1997 compared to Year to Date FY 1996
generating a $0.9 million unfavorable volume variance which was partially offset
by favorable price variances of $0.8 million.
Soda products sales Year to Date FY 1997 were $90.7 million or $7.0 million
higher than Year to Date FY 1996. Increased ANSAC soda ash sales generated
favorable volume and price variances of $4.3 million and $0.7 million,
respectively. Higher soda ash prices in domestic markets provided a favorable
price variance of $4.4 million, which was partially offset by unfavorable
domestic soda ash volume variances of $1.8 million due to some softness in
domestic soda ash demand. Other export soda ash volume variances were an
unfavorable $2.5 million partially offset by a favorable price variance of
$0.1 million. Sodium sulfate generated favorable price variances of $2.3
million which were offset by unfavorable volume variances of $3.0 million
resulting from a shortfall in production. Sodium bicarbonate contributed
favorable volume and price variances of $1.3 million and $1.2 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 $46.4 million or $2.6
million lower than Year to Date FY 1996. Unfavorable volume variances of $3.2
million were partially offset by favorable price variances of $0.6 million.
The unfavorable volume variances result from a shortfall in the production of
crude borax.
Specialty potash fertilizer sales were $47.0 million Year to Date FY 1997
or $10.5 million higher than Year to Date FY 1996. The favorable variance was
due to increased export volume which generated net favorable variances of $11.2
million. The higher volumes were largely due to two significant export sales
in the Third Quarter FY 1997. Export potash prices were lower Year to Date
FY 1997 compared to Year to Date FY 1996 due to a change in customer mix.
Other product sales were $16.4 million Year to Date FY 1997 or $8.3 million
higher than Year to Date FY 1996, due largely to NACC's service subsidiaries
which generated a favorable revenue variance of $6.3 million. Magnesium
chloride sales were $0.8 million higher than Year to Date FY 1996 resulting
from favorable volume variances partially offset by unfavorable price variances.
Cost of sales was $260.3 million or 75.9% of net sales Year to Date FY 1997
compared to $244.1 million or 77.8% of net sales Year to Date FY 1996. The
decrease in the cost of sales percentage is 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.
Increased production of rock salt due to low inventories remaining after the
winter of 1995/1996 and higher Year to Date FY 1997 sales 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.
<PAGE> 19
Gross profit Year to Date FY 1997 was $82.7 million versus $69.7 million
Year to Date FY 1996. The favorable variance is due to the higher sales and
lower cost of sales discussed above.
Selling, general and administrative expenses were $41.5 million or $1.3
million lower than in Year to Date FY 1996. Selling, general and administrative
expenses were 12.1% of net sales Year to Date FY 1997 compared to 13.6% of net
sales Year to Date FY 1996, due primarily to lower payroll costs and selling
expenses.
Operating income was $41.2 million Year to Date FY 1997 versus $26.9 million
Year to Date FY 1996 for the reasons discussed above.
Year to Date FY 1997 interest expense was $4.9 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, higher
interest rates on the new debt related to the Argus Utilities transaction (see
Note 3) and interest capitalized on construction in process being $1.5 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 $0.7 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 $1.7 million Year to Date FY 1996.
Other income/expense Year to Date FY 1997 was $1.1 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 $3.2 million provision for income taxes was recorded Year to Date FY 1997
primarily relating to current U.S. alternative minimum tax and state income
taxes, Sifto's Canadian income tax and Ontario mining tax. A $2.1 million
provision for income taxes was recorded Year to Date FY 1996 for the same
reason.
A net loss of $26.9 million was recorded Year to Date FY 1997 compared
to a net loss of $31.6 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 $30.3 million
or $1.5 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 $17.8 million. Receivables used $5.9 million less 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. Inventories used $9.7
million less cash Year to Date FY 1997 versus Year to Date FY 1996 due to
higher sales in Year to Date FY 1997. Other assets used $2.6 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 transaction. Accounts payable,
accrued expenses and other noncurrent liabilities used $1.2 million more cash
Year to Date FY 1997 compared to Year to Date FY 1996.
Year to Date FY 1997 cash used in investing activities was $22.4 million
or $13.3 million less than Year to Date FY 1996. Capital spending used $21.2
million or $10.0 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 in Year to Date
FY 1997 was $1.5 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 $43.6 million
or $18.2 million less than cash provided by financing activities in Year to Date
FY 1996. Net revolver payments were $42.9 million compared to net revolver
borrowings of $68.7 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 and proceeds of $23.2 million from the prepayment of deferred revenue
(See Note 5) as well as reduced capital expenditures of $10.0 million in Year to
Date FY 1997. Payments on long-term debt were $1.8 million higher, primarily
due to the new debt related to the Argus Utilities transaction and higher
capital lease payments. Capitalized finance costs Year to Date FY 1997 were
$5.5 million or $4.4 million higher than Year to Date FY 1996 due to fees and
costs incurred related to the Argus Utilities transaction. Other financing
activities used $0.4 million in Year to Date FY 1997 or $1.5 million less than
in Year to Date FY 1996 due to an increase in the stockholder's receivable in
<PAGE> 21
Year to Date FY 1996.
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 during the term of such
facilities. As of January 25, 1997, the Company had $69.9 million of available
borrowing capacity under its revolving credit agreements.
Environmental Matters
The nature of the Company's business requires a continual monitoring of
compliance with all applicable environmental laws and regulations. At
December 28, 1996, the Company had recorded $3.0 million of current
liabilities and $12.7 million of other noncurrent liabilities to reflect the
estimated future costs associated with environmental matters. Management
believes that the outcome of known environmental contingencies will not have a
material effect on the operations, financial condition or liquidity of the
Company.
Seasonality and Quarterly Financial Data
The Company experiences a substantial amount of seasonality in sales of
the various products. The result of this seasonality is that net sales and
operating income are generally higher in the third and fourth fiscal quarters
and lower in the first and second fiscal quarters of each fiscal year.
Sales of highway deicing salt in particular, are seasonal in nature,
varying with the winter conditions in areas where the product is used.
Following industry practice, the Company and its customers stockpile
sufficient quantities of ice control salt in the first three fiscal quarters
to meet estimated requirements for the winter season. Soda ash sales to the
glass container industry tend to be somewhat seasonal due to stronger summer
demand for beverages packaged in glass bottles. Most of the Company's
specialty potash sales are made between December and March in order to meet
the spring planting season requirements.
The table below reflects the seasonality of the Company's business ($ 000's).
Fiscal Year 1996 by Quarter
-----------------------------------------------
1st 2nd 3rd 4th
--------- --------- ---------- ---------
Operating Data:
Net sales................ $ 87,379 $ 93,016 $ 133,464 $ 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
<PAGE> 22
Fiscal Year 1997 by Quarter
------------------------------------
1st 2nd 3rd
--------- --------- ----------
Operating Data:
Net sales................ $ 99,581 $ 92,337 $ 151,068
Gross profit............. 18,103 17,854 46,715
Operating income......... 4,138 4,841 32,217
Interest expense......... 20,533 22,293 24,485
Net income (loss)........ (15,092) (17,589) 5,763
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Reference is made to Item 3 of the Harris Chemical North America, Inc.
("HCNA") Form 10-K for the fiscal year ended March 30, 1996 as it relates to
Environmental Issues - Air Issues. The United States Department of Justice
has lodged a consent decree in Federal District Court in California that was
negotiated with HCNA's subsidiary North American Chemical Company ("NACC"),
which, when entered by the Court, will resolve outstanding United States
Environmental Protection Agency notices of air violations for the Searles
Valley operations. The Consent Decree requires NACC to install pollution
controls (selective catalytic reduction), estimated to cost $2.3 million, on a
gas turbine at NACC's West End facility, to pay a civil penalty of $320,000 and
to spend $140,000 on a supplemental environmental project to pave certain roads
to reduce dust emissions. The majority of the funds will be spent in FY 1998.
The Consent Decree is not a final settlement until it undergoes a public
comment period and is thereafter entered by the Court. The United States has
filed a complaint and lodged the consent decree simultaneously in federal
district court in the Central District of California. The Consent Decree is
subject to public comment for 30 days before the United States seeks Court
approval and entry of the decree. Notice of the settlement will appear in the
Federal Register. Court entry is expected in Spring 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
<PAGE> 23
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: February 11, 1997 Emanuel J. Di Teresi
----------------- --------------------------
(Emanuel J. Di Teresi)
(Senior Vice President and
Chief Financial Officer)
(Chief Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Balance Sheet at December 28, 1996 (Unaudited) and the Consolidated
Statement of Operations for the Thirty-Nine Weeks Ended December 28, 1996
(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-29-1997
<PERIOD-END> DEC-28-1996
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 127,674
<ALLOWANCES> 1,592
<INVENTORY> 122,704
<CURRENT-ASSETS> 271,226
<PP&E> 690,133
<DEPRECIATION> 303,981
<TOTAL-ASSETS> 691,356
<CURRENT-LIABILITIES> 127,233
<BONDS> 685,000
0
0
<COMMON> 0
<OTHER-SE> (308,281)
<TOTAL-LIABILITY-AND-EQUITY> 691,356
<SALES> 342,986
<TOTAL-REVENUES> 342,986
<CGS> 260,314
<TOTAL-COSTS> 260,314
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 67,311
<INCOME-PRETAX> (23,685)
<INCOME-TAX> 3,233
<INCOME-CONTINUING> (26,918)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (26,918)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
