UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10 - K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the fiscal year ended March 29, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
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)
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
None
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 ( )
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ X ]
The number of shares outstanding of the registrant's common stock at March 29,
1997 was 1,000 shares. All of such shares are owned by Harris Chemical Group,
Inc.
This document consists of 60 sequentially numbered pages. The exhibit index can
be found on page 56 of the sequential numbering system.
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HARRIS CHEMICAL NORTH AMERICA, INC.
FORM 10-K For the Fiscal Year ended March 29, 1997
Index
<S> <C> <C>
Part I Description Page #
- ------ ----------- ------
Item 1. Business.................................................................... 3
Item 2. Properties.................................................................. 13
Item 3. Legal Proceedings........................................................... 15
Item 4. Submission of Matters to a Vote of Security Holders......................... 16
Part II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters......................................................... 16
Item 6. Selected Historical Consolidated Financial Information...................... 17
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................................... 18
Item 8. Financial Statements........................................................ 24
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure......................................... 48
Part III
Item 10. Directors and Executive Officers of the Registrant.......................... 48
Item 11. Executive Compensation and Other Information................................ 51
Item 12. Security Ownership of Certain Beneficial Owners and Management.............. 53
Item 13. Certain Relationships and Related Transactions.............................. 54
Part IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K............. 56
Signatures ............................................................................ 59
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HARRIS CHEMICAL NORTH AMERICA, INC.
FORM 10-K
PART I
Item 1 BUSINESS1
General
Harris Chemical North America, Inc. ("Harris") was formed in July 1993 for
the purpose of becoming a holding company for its principal wholly-owned
subsidiaries: North American Chemical Company ("NACC"), NAMSCO Inc. ("NAMSCO")
and its subsidiaries North American Salt Company ("NASC") and Sifto Canada Inc.
("Sifto"), and GSL Corporation ("GSL") and its subsidiary Great Salt Lake
Minerals Corporation ("GSLMC"). Harris and its direct and indirect subsidiaries
are collectively referred to as the "Company."
The Company is a major producer and marketer of inorganic chemical
products, including principally salt, soda products, boron chemicals and
specialty potash fertilizers. The Company markets its products throughout the
United States and Canada as well as in Asia, the Pacific Rim countries, Latin
America and Europe. Revenues derived from markets outside the United States in
FY 1997 were approximately $184.7 million or 36.3% of total revenues.
Harris is a wholly owned subsidiary of Harris Chemical Group, Inc. ("HCG"). HCG
was formed in 1992. On September 24, 1993 the stockholders of NACC, NAMSCO and
GSL exchanged their shares in those companies for shares in HCG. HCG then
contributed its shares in NACC, NAMSCO and GSL to Harris. Those transactions are
referred to as the "Consolidation."
Subsequent to the Consolidation, the Company was recapitalized (the
"Recapitalization"). As part of the Recapitalization, Harris issued $250 million
of 10.25% Senior Secured Discount Notes due July 15, 2001 (the "Discount Notes")
and $335 million of 10.75% Senior Subordinated Notes due October 15, 2003 (the
"Senior Subordinated Notes") and Sifto issued $100 million of 8.5% Senior
Secured Notes due July 15, 2000 (the "Sifto Notes"). The Discount Notes, the
Senior Subordinated Notes and the Sifto Notes are collectively referred to
herein as the "Notes." The Discount Notes were issued for net proceeds
aggregating $200.4 million. NACC, NAMSCO and GSL, collectively, and Sifto have
also entered into revolving credit agreements (the "Bank Agreements") providing
for borrowings of up to $130 million and $20 million, respectively, secured by
inventory and accounts receivable.
The Company intends to continue its strategy of growth through internal
reinvestment and development, as well as through joint ventures and
acquisitions, particularly in product markets in which the Company currently
competes or in similar areas of the inorganic chemical industry where the
Company's existing expertise in technology, process capabilities and marketing
can be used to strengthen and improve the acquired business or joint venture.
The Bank Agreements restrict the Company's ability to make investments,
including acquisitions and entering into joint ventures, without the lenders'
consent.
In addition, the Company continually reviews its businesses and asset base
in light of its cash requirements and strategic plans. Based on these reviews,
the Company may determine that it is in its best interest to (i) enter into
strategic business alliances, including through the possible contribution of
assets to joint ventures and/or (ii) offer for sale assets deemed not to be
strategic. In July 1996, NACC entered into an agreement for the sale and
leaseback of an electric and steam generating facility associated with its
Searles Valley Soda Ash Facility ("Argus Utilities"). See Note 7 to the
Financial Statements.
Statements in this report that are forward-looking statements are subject
to various risks and uncertainties including but not limited to changes in
economic conditions, weather, product demand and industry capacity, competitive
products and pricing, price and availability of freight transportation, changes
in interest rates and capital markets, manufacturing efficiencies, availability
and price of raw materials and critical manufacturing equipment, plant expansion
efforts, the international regulatory
- --------
1Unless otherwise stated, all references herein to "dollars" or "$" are to
U.S. dollars. References to any particular fiscal year ("FY") mean the 52 or 53
week fiscal year ending on the last Saturday in March of the indicated year.
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and trade environment and other risks indicated in this report and other SEC
filings. These factors could cause actual results to differ materially from the
forward-looking statements set forth herein.
Products
The Company's net sales (in thousands) by product line and the percentage
of net sales represented by such sales during the last three fiscal years are as
follows:
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Product Line FY 1995 FY 1996 FY 1997
- --------------------------- ------------------------- -------------------------- --------------------------
<S> <C> <C> <C> <C> <C> <C>
Salt ...................... $191,917 44.0% $224,500 47.2% $235,899 46.4%
Soda products ............. 103,247 23.7 115,978 24.4 119,800 23.6
Boron chemicals ........... 67,479 15.5 67,979 14.3 63,051 12.4
Specialty potash
fertilizers ............ 61,453 14.1 55,459 11.7 71,547 14.1
Other ..................... 11,768 2.7 11,558 2.4 18,325 3.5
------------- -------- -------------- --------- ------------ --------
Net sales .............. $435,864 100.0% $475,474 100.0% $508,622 100.0%
============= ======== ============== ========= ============ =========
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Salt
Salt is used in a variety of applications, including as a deicer for both
highway and consumer use, an ingredient in the production of chemicals for paper
bleaching and plastic production, a flavor enhancer and preservative in food, an
ingredient and nutrient in animal feeds, and an essential item in both
industrial and consumer water softeners. The demand for salt has historically
remained relatively stable during economic cycles due to the large variety of
uses. However, demand in the highway deicing market is affected by changes in
winter weather.
According to industry data published in 1995, the Company is the second
largest producer of salt in North America. The Company expects that its rank
will be changed to third upon completion of the proposed acquisition of Akzo
Nobel Salt Inc. ("Akzo") by Cargill Inc. ("Cargill"). The Company produced
approximately 9.5 million tons of salt in FY 1997 compared to 8.5 million tons
in FY 1996. Production activities are conducted at eight facilities, four
located primarily in the western United States and four located in Canada.
Canadian sales represented approximately 31% of the Company's total sales of
salt in FY 1997.
Markets/Customers. The Company separates sales of salt into three major
market segments: general trade, highway deicing and chemical. The general trade
segment is the Company's largest segment and accounted for approximately 55% of
FY 1997 salt sales. This segment includes consumer applications such as table
salt, water conditioning, home ice control, food and meat processing,
agricultural applications, including feed mixes, and a variety of industrial
applications such as oil refining and drilling, metal processing and tanning.
Highway deicing constitutes the Company's second largest segment of salt
sales accounting for approximately 34% of FY 1997 salt sales. Principal
customers are states, provinces and municipalities that purchase bulk salt for
ice control on public roadways. Highway salt is sold mostly via a tendered bid
contract system with price, product quality and deliverability being the
overriding market factors. Since distribution cost is one of the largest single
costs in this segment, the location of the source of supply and distribution
outlets in relation to the customer is important. The Company has an extensive
network of approximately 80 depots for storage and distribution of highway
deicing salt. The majority of these depots are located on the Great Lakes and
the Mississippi River system.
Winter weather variability is a factor affecting salt sales for deicing
applications because mild winters reduce the need for salt used in ice and snow
control. During the past five years annual highway deicing sales by the Company
ranged from 3.2 million tons to 5.9 million tons per year. Unusually mild
weather occurring in the Company's principal deicing markets would adversely
affect the Company's sales and earnings. The vast majority of the Company's
deicing sales are made in Canada and the northern United States, where winter
weather is generally harsher than in other parts of North America.
The chemical industry accounted for approximately 11% of the Company's FY
1997 salt sales. Principal customers are producers of intermediate chemical
products used in pulp bleaching and plastic production that do not have a
captive source of brine.
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Sales and Marketing. The general trade market is driven by strong customer
relationships. Sales in the general trade business occur through retail channels
such as grocery, building supply and hardware stores, automotive stores, feed
suppliers, and industrial manufacturers in various industries. Distribution in
the U.S. general trade market is channelled through a direct sales force located
in various parts of the United States, who sell products to distributors,
dealers and end users. The Company also maintains a network of brokers who sell
table salt, consumer deicing and water conditioning products. These brokers
service wholesale and chain grocery headquarters and retail stores as well as
the food service industry.
The Company has maintained a stable presence in the U.S. general trade
market over recent years due to its strong focus on the mid-western region, its
distribution network to the grocery trade and its relationships with the large
distributors of water conditioning salt. In order to continue to expand its
volume and profitability in the general trade market, the Company has focused
its efforts on improving its marketing programs in both the Canadian and U.S.
markets. These programs include: (i) consolidating its various water
conditioning brand names under one umbrella brand name, the "North American Salt
Company", (ii) developing a new line of consumer deicing products, sold as the
"Guardian" brand name and (iii) differentiating the Company's various brand
names through promotional activities.
The highway deicing customer base consists of states, provinces and
municipalities that purchase bulk salt for ice control. Contracts are awarded
annually on the basis of tendered bids once the purchaser is assured that the
minimum requirements for purity, service and delivery can be met. The bidding
process eliminates the need to invest significant time and effort in marketing
and advertising. Since the highway deicing business requires little, if any,
personal contact with the buyers, the Company maintains a relatively small
marketing team for this segment.
Distribution into the chemical market is made through one-to-five year
supply agreements, which are negotiated privately. Price, service and quality of
product are the major market requirements.
Competition. In Canada, the Company's "Sifto" name is well recognized in
the general trade market. Competition in the Canadian general trade business
comes principally from Windsor Salt, the Canadian operation of Morton
International, Inc.
("Morton").
Competition in the U.S. general trade market is regional in nature. Morton
is the only nationally recognized brand name and the majority of sales in the
United States are lower priced, nonbranded or "private label" products. Cargill
Inc. ("Cargill") and Morton, which both have facilities in Kansas, are the
principal competitors with respect to the Company's Kansas facilities. Cargill
and Morton, which also operate solar facilities on the Great Salt Lake, present
competition to the Company's solar salt business.
Competition in the Canadian highway deicing market comes principally from
Morton and Cargill. Morton competes with the Company throughout the entire
Canadian market area, principally from its rock salt plant in Ojibway, Ontario.
Cargill, with its mine in Cleveland, Ohio, competes in the Toronto and Montreal
metropolitan areas. In the U.S. Great Lakes deicing market and in the U.S.
deicing market adjacent to the Mississippi River system, both Morton and Cargill
compete with the Company.
In the chemical market, Morton and Cargill are also the Company's two major
competitors.
Production Techniques and Facilities. Summarized below are the three
processing methods used to produce salt. The Company utilizes all three methods.
Rock Salt Mining. The Company employs a drill and blast mining technique at
its Cote Blanche, Louisiana and Goderich, Ontario rock salt mines.
Mechanical Evaporation. The mechanical evaporation method involves
subjecting salt-saturated brine to vacuum pressure and heat to precipitate salt.
The resulting product has both a high purity and an attractive physical shape.
Solar Evaporation. The solar evaporation method is a cost effective method
of salt production used in areas of the world where high salinity and low
rainfall are common. Water with above average salt content is pumped into large
open ponds where sun and wind evaporate the water and dry the salt into a solid
which is then harvested mechanically.
The Company produces salt at eight different locations. Mechanically
evaporated salt for the Canadian market is produced at three facilities
strategically located throughout Canada: Amherst, Nova Scotia in eastern Canada,
Goderich, Ontario in central Canada and Unity, Saskatchewan in western Canada.
From the Goderich rock salt mine, the Company also serves the highway deicing
market within the Great Lakes region of the United States.
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The Company's central and midwest U.S. customer base is served by two
mechanical evaporation plants located in Kansas. The Cote Blanche, Louisiana
rock salt mine serves chemical customers in the southern and western U.S.
markets as well as the highway deicing markets through a series of depots
located along the Mississippi and Ohio Rivers. The Company's solar evaporation
facility located at Ogden, Utah is the largest solar salt production site in the
United States. This facility principally serves the western general trade
markets, but also provides salt for chemical applications and highway deicing.
Control of Resources. Based on the geological characteristics of the salt
deposits that provide the Company's raw materials and the current production
rates, the Company believes there are sufficient sources of readily recoverable
salt for the foreseeable future.
Soda Products
Soda products include soda ash, sodium sulfate and sodium bicarbonate. Soda
ash is used in the production of glass, sodium-based chemicals, detergents, pulp
and paper and for water treatment and numerous other applications. Sodium
sulfate is used as an ingredient in many laundry detergents and in the
processing of wood pulp into paper. Sodium bicarbonate is used as a buffering
agent in animal feeds, as a chemical additive and in pharmaceutical, food and
other consumer applications.
Soda Ash
There are currently two production processes for soda ash. The principal
production process, the "ammonia-soda" or "synthetic" process, is raw material
(using coke, salt, and limestone) and energy-intensive and generates by-products
such as calcium chloride and aluminum chloride. Today, roughly two-thirds of the
worldwide production uses a variation of this process. The other one-third of
worldwide production uses a newer production process, developed only within the
past 30 years, which refines naturally occurring trona deposits and is
considerably less costly than the synthetic process. Outside of the United
States, production of soda ash using trona deposits occurs currently in Kenya,
Botswana and China. The six U.S. producers, by using the natural production
process, are regarded as the world's lowest cost producers of high quality soda
ash.
Of the six U.S. soda ash producers, five are located in Green River,
Wyoming. The Green River suppliers produce soda ash by conventional underground
mining techniques and mechanical separation. The Company is the other domestic
producer and produces soda ash from the carbonation of brine by solution mining
rather than by underground mining. The Company is the only domestic producer not
located in Green River, Wyoming. The Company's California location results in
reduced transportation costs to the California soda ash market and to ports for
export.
Prior to April 1996, the Company had higher costs of production than the
Green River producers, but in the Company's opinion these production costs were
largely offset by reduced transportation costs for sales of soda ash in the
western U.S., European and faster growing Asian, Pacific Rim and Latin American
markets. As of April 1996, the Company completed the first phase of a two-phase
strategic capital expenditure program (Long Range Process Plan or "LRPP"). By
employing newly developed technology which has increased the mineral
concentration of the brine and by modifying the existing manufacturing process,
the Company has reduced production costs and increased capacity by 300,000 tons.
See "--Production Techniques and Facilities."
Markets/Customers. Soda ash produced by the Company is used principally in
the production of container glass, flat glass, sodium-based chemicals and
detergents. Container glass and flat glass include bottles and other containers,
windows for buildings and automobiles, mirrors, lighting ware, tableware,
glassware and laboratory ware. The chemical industry uses soda ash as a source
of sodium ions and to synthesize value-added products. lt is mainly used in the
production of sodium bicarbonate, sodium phosphates, sodium silicates and chrome
chemicals. Soda ash is also a component of powdered detergents and is often the
prime alkali used to make phosphates and silicates for dry detergent
applications.
The Company, along with other U.S. producers of natural soda ash, exports
soda ash through the American Natural Soda Ash Corporation ("ANSAC"), an export
sales and marketing association organized in 1983 which is authorized by the
Webb-Pomerene Act. ANSAC represents the Company and the five other domestic
producers for export sales to customers in all parts of the world other than
Canada and the European Union ("EU"). ANSAC rules require the Company and the
other five domestic producers to sell exclusively through ANSAC in ANSAC
territories, with limited exceptions for sales to affiliates.
The Company resumed exports of soda ash to Europe in 1991, after the EU
removed an antidumping duty that had been placed on U.S. producers of soda ash
in 1983, which had effectively precluded the U.S. producers from serving the EU
soda ash market. All of the production of soda ash within the EU is by the
higher cost synthetic method. The antidumping duty had allowed the EU producers
to pass along these higher costs to customers. In 1993, the EU Commission
initiated an antidumping
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action against American producers of soda ash exported to the EU, including soda
ash manufactured by the Company. In October 1995, the EU Commission imposed
definitive duties on imports ranging from 0-8.9%. The duty imposed on the
Company's customers was 7.1%. The duty is in effect for a maximum of five years
with a review expected near the end of the first year. The Company is vigorously
resisting maintaining duties on the basis that the EU Commission must find
injury in order to maintain the duties. The Company continues to sell in the
European market primarily to customers who are subject to a duty drawback
provision that allows them to purchase a portion of their raw materials duty
free. Sales to the European market represented approximately 3.7% of the
Company's FY 1997 soda ash sales.
Sales and Marketing. The Company's domestic sales are concentrated in the
western U.S. glass market, where the Company's soda ash production facility is
located. The Company's strategy for increasing soda ash sales in the U.S. market
is to target the pulp processing, water treatment and chemical market segments
as well as to increase sales into the southeastern United States. The Company
expects demand in these segments to grow faster than demand in the glass
segment. The Company will continue to participate in ANSAC for sales in all
export markets where they are allowed to operate, which include all foreign
markets other than Canada and the EU. ANSAC's strategy is to continue to service
these relatively faster growing developing markets with low cost, high quality
soda ash from the U.S. producers.
Competition. Competition in the worldwide soda ash market varies in each of
the major geographical regions. Solvay S.A. ("Solvay"), a large Belgium-based
producer of chemicals, is the world's largest producer of soda ash. With
substantial synthetic soda ash capacity in Europe and 2.0 million tons of
natural soda ash capacity in Green River, Wyoming, through its U.S. subsidiary,
Solvay Minerals Inc., Solvay accounts for an estimated 14% of the world's soda
ash production capacity. Solvay has announced a three-part 1.2 million ton
expansion. The timing of these expansions will be based on market demand with
the first increment available no later than the end of 1998. In the U.S. market,
the Company competes with the five Green River produc ers of natural soda ash,
which include FMC Corporation, Solvay, OCI Chemical Corp. (formerly
Rhone-Poulenc), General Chemical Corporation and TG Soda Ash, Inc. FMC
Corporation has announced that it expanded its Wyoming facility in the fall of
1996 by 600,000 tons in an effort to lower its production costs and maintain its
capacity leadership position. In FY 1997, OCI announced a 600,000 plus ton
expansion project to be completed in the first quarter of 1999. A large portion
of this new volume is expected to displace the forecasted shutdown of OCI's
Korean synthetic plant. Imports of soda ash into the United States are
insignificant due to the low cost, high quality soda ash offered by the domestic
producers.
In the EU, the Company competes with EU producers, including the EU
operations of Solvay and Rhone-Poulenc, producers from Eastern Europe and other
American producers. HCG has two wholly owned subsidiaries in the EU, Matthes +
Weber GmbH ("M&W"), a soda ash producer in Germany, and Harris Soda Products
Europe ("HSPE"), which is based in France and markets and sells soda products.
The Company markets its soda products in Europe through HSPE. For sales of soda
ash to Pacific Rim countries and Latin America, the Company is represented by
ANSAC. ANSAC's principal competition in these markets is from local production,
Solvay's European operations and, in the case of Latin America, producers from
Eastern Europe.
Production Techniques and Facilities. The Company produces soda ash at one
facility located at Searles Valley, California ("Searles Valley"). At the end of
FY 1997, the plant had a rated production capacity of 1.5 million tons per year
and accounted for approximately 12.0% of total U.S. soda ash production. In the
Company's process, brine containing carbonate is reacted with carbon dioxide,
cooled to precipitate sodium bicarbonate, and calcined to yield an intermediate,
low-density grade of sodium carbonate. The low-density sodium carbonate is
dissolved and recrystallized, separated by centrifuge, dried, and stored for
sale as dense soda ash.
The Company commenced in FY 1993 the LRPP, a two-phase capital expenditure
program, which could cost up to $132.0 million, intended to lower the Company's
soda ash and boron unit production costs and to increase its soda ash production
capacity. The initial phase of the LRPP utilizes newly developed technology that
increases the mineral concentration of the brine from which soda ash and boron
chemicals are produced and changes the production process, by including more
efficient drying and processing equipment. As a result, the Company's soda ash
rated production capacity is 1.5 million tons annually and production costs for
soda ash and boron chemicals have been reduced and further cost reductions are
expected in FY 1998. The second phase of the program is designed to increase
soda ash rated production capacity to between 1.8-2.0 million tons annually and
reduce costs further. The Company plans to market the increased soda ash volume
both domestically and in the EU and, through an increase in its ANSAC
allocation, in other world markets. The Company spent $68.0 million on the LRPP
from FY 1993 through FY 1997. The implementation of the second phase of the
capital expenditure program which is divided into two increments and the timing
of the spending of the remaining estimated capital requirements of approximately
$64.0 million will depend upon the growth of future market demand for soda ash.
Control of Resources. The Company produces soda ash at its California plant
by processing naturally occurring brines that the Company mines from its own
property as well as under leases with the U.S. Department of the Interior,
Bureau of Land
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Management (the "BLM"). The Company's supply of brine for the production of soda
ash is extensive. The Company believes that it has adequate deposits, at the
Company's current and projected production rates, for the foreseeable future.
Sodium Bicarbonate
In November 1992, the Company acquired a 50% interest in a joint venture
processing plant with NaTec Resources, Inc. ("NRI") to provide the Company with
access to a low cost source of sodium bicarbonate. In August 1995, the Company
acquired the remaining 50% interest in its joint venture processing plant from
NRI. The sodium bicarbonate is produced at a facility approximately 48 miles
northwest of Rifle, Colorado. Commercial production at the plant was started in
July 1991. Located on sodium leases in Rio Blanco County, Colorado, the facility
uses proprietary technology involving solution mining and crystallization
techniques to produce natural sodium bicarbonate.
During FY 1994 the joint venture experienced a number of operating problems
at its plant. As a result, production of the various food-grade sodium
bicarbonate products was delayed, resulting in less than expected market
penetration. By the end of FY 1994, production of the various food-grade
products was resolved by revising certain production methods, but volume was
still insufficient to achieve expected market penetration. In the second quarter
FY 1996, the Company spent $1.2 million on various innovations to increase
capacity, improve product quality and ensure consistent supply. Since that time
the facility has reliably and consistently produced the quality and quantities
necessary to sustain the marketing strategy. Improved production volumes in FY
1997 resulted in a 47% and 59% increase in sales volumes and revenues,
respectively, versus FY 1996. The Bureau of Land Management approved in March
1996 a new mine plan that includes mine field innovations and allows for an
extraction level of sodium bicarbonate that is five times higher than was
previously allowed.
The Company's sodium bicarbonate sales are targeted for all major sodium
bicarbonate markets. The Company's marketing strategy for sodium bicarbonate is
to: (i) continue sales to the animal feed market through a distributor
arrangement with a recognized leader in animal nutrition products; (ii) develop
market specific programs for industrial segments such as swimming pool and water
treatment, fire extinguishers and paper processing through the Company's
existing secondary distribution network and sales force; (iii) continue
promotion of a natural, high quality, sodium bicarbonate in food and consumer
segments through the Company's sales force and become a recognized leader in
distribution to the food industry; and (iv) leverage export logistical
advantages to supply international markets. Implementation of the strategy and
improved production volumes in FY 1997 resulted in a 47% and 59% increase in
sales volumes and revenues, respectively, versus FY 1996. The Company believes
that the food processing and selected consumer segments continue to offer
opportunities for growth and improved margins.
Sodium Sulfate
The Company is the largest domestic producer of naturally occurring sodium
sulfate which is used as an inactive ingredient in dry detergents and as a
source of sulfur in pulp processing. Recent strong demand worldwide for sodium
sulfate, particularly from detergent manufacturers, has resulted in Company
sales at capacity with significant margin improvements. Sodium sulfate is
currently produced at Searles Valley.
Boron Chemicals
Boron chemicals include boric acid, several sodium borate products and a
number of related specialty compounds intended for specific applications. Boron
compounds are used in a wide range of applications. Approximately 60% of their
use is in glass and ceramic products to improve chemical and thermal stability.
The remaining 40% is used in fire retardants, fertilizers, soaps, detergents and
pesticides.
Boric acid is used primarily in the production of textile fiberglass and
other borosilicate glasses where it improves strength and imparts chemical and
thermal stability. Sodium borates are used in a broader range of glass and
ceramic products to enhance manufacturing processes. They also improve chemical
resistance and thermal stability in products such as frits, ceramics, fiberglass
insulation and specialty glasses such as Pyrex(R) and automobile headlights.
According to industry data published in 1995, the Company is the second
largest producer of boron chemicals in the United States and the third largest
producer in the world after the U.K. based RTZ Corporation plc and the Turkish
state-owned producer, Etibank.
Markets/Customers. The Company's sales of boron chemicals are divided
between domestic and foreign market segments. In FY 1997, a majority of sales
were derived from domestic sales to producers of textile fiberglass, porcelain
frits, high quality
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glasses, fiberglass insulation and chemical distributors. The remaining FY 1997
sales were derived from international sales, with western Europe and Japan
representing the Company's two largest markets.
Sales and Marketing. The Company's sales of boric acid and sodium borates
are handled domestically through its own national sales staff complemented by
approved local or regional chemical distributors. International sales are made
by both commissioned agents and distributors, whose activities are managed by
the Company's marketing staff. The Company's marketing strategy for boron
chemicals is to expand its sales of high margin products in specialty niche
markets, enter into exclusive sales agreements, build a strong distribution
network and emphasize customer service.
Boric acid is used in the production of textile fiberglass and borosilicate
glass where it improves tensile strength and hardness, respectively. The Company
has traditionally been a strong competitor in this market due to its product
quality. For instance, the Company introduced to the market during FY 1994
anhydrous boric acid, which is a high purity specialty product used in
borosilicate glass and specialty ceramic frits. Other specialty products
marketed by the Company include nuclear grade and high purity boric acid for
laboratory chemicals, which are produced at Societa Chimica Larderello SpA
("SCL"). SCL is an Italian producer of specialty boric acid products and an
affiliate of HCNA. In FY 1994 the Company entered into an agreement to become
the distributor of SCL products to the U.S. market. See "Certain Relationships
and Related Transactions--Agreements with Affiliates."
The Company's most important sodium borate products include anhydrous
borax, decahydrate and pentahydrate borax, which are used in the production of
frits, ceramics and borosilicate glass where the borate improves the thermal
resistance of the glass. Historically, the Company's strategy has been to focus
on the sale of anhydrous borax, which has been its most profitable sodium borate
product. The Company continues to focus marketing efforts to maintain a
leadership position in this segment and to selectively market decahydrate and
pentahydrate in niche segments.
Competition. The Company's principal competition comes from RTZ Corporation
plc, which is the world's largest boron chemicals producer through its
subsidiaries U.S. Borax, Borax Consolidated Ltd. (U.K.), Borax Francais and
Borax Argentina. Other worldwide competitors are located in Turkey (Etibank),
Chile, Russia and the Commonwealth of Independent States.
Production Techniques and Facilities. Prior to April 1, 1996, the Company
produced its boron chemicals at two separate facilities located in Searles
Valley. Both plants utilized solution mining and chemical processing techniques
to recover borax minerals from the ore bodies and to refine them further into
finished products.
At one site, boric acid is produced by extracting crude borax from brine
through a proprietary solvent extraction process. After extraction, the solution
is concentrated in an evaporator and the boric acid is recovered through
crystallization. At the other site, sodium borates were produced by a cooling
process in which borax-enriched brines were cooled to crystallize a line of
sodium borate products. Effective April 1, 1996, as part of the strategic
capital expenditure program designed to lower the cost of soda ash production,
the Company enhanced its feedstock process to improve sodium borate production
consistency. The Company believes this will ultimately result in a significant
reduction in production costs.
Control of Resources. The Company produces boric acid and sodium borate by
processing at its California plant naturally occurring brines that the Company
mines from its own property as well as under leases with the BLM. The Company
believes that its supply of brine for the production of boric acid and sodium
borate is adequate for the foreseeable future.
Specialty Potash Fertilizers
Sulfate of potash ("SOP") is a specialty potash fertilizer used for high
value crops such as fruits, vegetables and nuts and chloride-sensitive crops
such as tobacco. The Company is the largest American producer of SOP. The
Company markets SOP products both domestically and overseas. Potash fertilizers
come in various forms with differing levels of potassium content. The Company
offers seven grades of SOP, while its competitors produce primarily two grades.
Markets/Customers. The annual worldwide consumption of potash fertilizers
approaches 50 million tons. Muriate of potash ("MOP"), or potassium chloride, is
the most common source of potassium and accounts for approximately 92% of all
potash consumed in fertilizer production. SOP represents about 6% of potash
consumption. The remaining 2% is supplied in the forms of potassium magnesium
sulfate and potassium nitrate. All of these products contain varying
concentrations of potassium expressed as potassium oxide (K20) and different
combinations of co-nutrients.
9
<PAGE>
MOP is the least expensive form of potash fertilizer based on the
concentration of K20. It is the preferred potassium source for most crops and
contains about 60% K20. However, MOP also contains a substantial amount of
chloride, an element which in excessive amounts can be harmful, especially to
chloride-sensitive plants.
SOP's retail prices are approximately twice those of MOP. Because SOP is
virtually chloride free, it is a preferred potassium source when agronomic
conditions favor a non-chloride fertilizer. Examples of crops where SOP is
preferred include tobacco, tea, potatoes, citrus fruits, grapes, almonds, some
vegetables and on turfgrass for golf courses. Approximately 50% of the Company's
annual SOP sales are made to domestic customers, which include retail fertilizer
dealers and distributors of professional turf care products. These dealers and
distributors combine or blend SOP with other fertilizers and minerals to produce
fertilizer blends tailored to individual requirements.
Approximately 69% of the world SOP production is located in Europe, 18% in
the United States and the remaining 13% in various countries. The world
consumption of SOP totals about 3.5 million tons. Based on studies conducted by
industry analysts, the Company expects consumption of SOP in Asia and the
Pacific Rim countries to grow considerably through the end of the century. This
anticipated growth is a result of increased production of high value cash crops,
for which SOP is a preferred potassium source. The Company has focused on sales
to Asia and Pacific Rim countries where its inland and marine transportation
costs are at or below competitors' costs.
Sales and Marketing. The Company's domestic sales of SOP are concentrated
in the western states of California, Oregon, Washington and Idaho and the
central, tobacco belt area where the crops and soil conditions favor SOP. The
Company employs trained agronomic sales personnel and fertilizer agents, who
contact dealers and growers in the United States.
The Company's strategy for increasing SOP sales in the United States is
twofold. First, the Company is targeting specific crops where the benefits of
using SOP versus other potassium sources are identified by research consultants
in agricultural testing programs. The Company believes that these activities
have encouraged the increased use of SOP on potatoes, vegetables, and
professionally managed turf and golf courses. Second, the Company plans to
differentiate itself through unique products specifically designed for targeted
markets. These SOP products vary in particle size and product quality to provide
marketing strength in bulk fertilizer blending programs where particle sizing is
important, as well as direct SOP application where solubility is important. In
addition, the Company continues to test market unique SOP-based products, with
which the Company has targeted the substantial liquid and suspension fertilizer
markets previously served by non-SOP potassium sources.
The Company generally exports SOP through major trading companies. Export
SOP sales volumes in FY 1997 were 50% of the Company's annual SOP sales.
Competition. The Company's major competition for SOP sales into the United
States include IMC Fertilizer Group Inc. ("IMC"), the only other significant
domestic producer of SOP, and imports from large European producers which
compete primarily on the East Coast and in markets along the Mississippi River.
For exports into Asia, the Pacific Rim countries and Latin America, the Company
competes with IMC, local production and European production. The European
producers, the largest in the world, include Kali und Salz, A.G., Tessenderlo
Chemie and Kemira Oy. A new venture in Chile was announced with annual SOP
capacity of 250,000 tons. The new production is expected to begin in 1998. SOP
also competes with other forms of potash and other fertilizers.
Production Techniques and Facilities. Prior to April 1, 1996, the Company
produced SOP at two facilities. The largest facility is located on the Great
Salt Lake in Ogden Utah ("Ogden"), while a smaller 50,000 ton facility was
located in Searles Valley, California. During FY 1992 and FY 1993 the Company
invested approximately $13.0 million at its Ogden facility to match its
production of raw materials from the evaporation ponds with its present plant
capacity of approximately 550,000 tons of SOP. This project consisted of
construction of a new 17,500 acre preconcentration pond and a 22 mile underwater
canal on the bottom of the Great Salt Lake. The preconcentration pond and
related canal are operational and supplying increasing levels of potassium each
year to the primary pond system, resulting in increased production. Further
investment in the expansion is planned for FY 1998, as additional cooling
capacity will be constructed at a cost of $3.0 million.
In April 1996, the Company discontinued production of SOP at its California
facility. The shutdown was an element of the Company's strategic capital
expenditure program to increase soda ash production, reduce its boron products
production cost and discontinue production of its potash co-products. Another
element of this plan was the discontinuance of 100,000 tons per year of MOP
production at Searles Valley. The Company plans to purchase its requirements for
MOP to serve strategic Western United States markets and has negotiated supply
arrangements.
10
<PAGE>
Record levels of rain from 1982 to 1984 at Ogden, and the resulting rise in
the level of the Great Salt Lake, caused a breach in the dike system at the
facilities in May 1984. A large portion of the evaporation pond area was flooded
and the pond floors dissolved. As a result, GSLMC was unable to produce SOP from
1984 through the beginning of 1989. Following the flood, $26.0 million was
invested to repair the pond system. As part of this project the perimeter dikes
were raised to a height three feet over the historic peak flood level. The new
dikes employ interior berms to increase their load bearing capability, and
utilize stronger building materials which are designed to retard erosion due to
wave action, a principal cause of the 1984 dike breach. The dikes are also
designed such that they can be raised further without weakening the foundation.
Also, following the flood, the State of Utah constructed and implemented the
West Desert Pumping Project which could be utilized to lower the level of the
Great Salt Lake by up to twelve inches per year thus reducing the risk of
flooding. The Company believes that the subsequent dike improvements and the
West Desert Pumping Project have virtually eliminated the likelihood of future
pond flooding. The Company maintains both property damage and business
interruption insurance policies for this risk.
Control of resources. The Company obtains its SOP minerals from the
potassium rich brines of the Great Salt Lake in Utah. Based on estimated
deposits of potassium and the current forecast for production requirements, the
Company believes it has adequate deposits for the foreseeable future.
Other Products
The Company also produces several other products which are by-products of
the various manufacturing processes conducted by the Company.
Seasonality and Backlogs
Sales of salt for highway deicing are quite seasonal, and vary with winter
conditions in areas where that product is used. In keeping with industry
practice, ice control salt is stockpiled both by the Company and its customers
in sufficient quantities to meet estimated requirements for the next season.
Sales of soda ash to the glass container industry are somewhat seasonal because
sales of beverage containers are stronger in the summer. SOP sales are seasonal
as most of the Company's sales are made between December and March in order to
meet the spring fertilizer season. Due to the nature of the Company's business,
there are no significant backlogs. For a further discussion of the financial
effects of seasonality on the Company, see "Management's Discussion and Analysis
of Financial Condition and Results of Operations--Seasonality and Quarterly
Financial Data (Unaudited)."
Employees
At the end of FY 1997 the Company had approximately 2,400 full-time
employees, of which approximately 800 are represented by unions. Two collective
bargaining agreements covering approximately 450 employees will expire at the
end of FY 1998. The Company considers its labor relations to be good.
SIFTO
According to industry data published in 1995, Sifto, a wholly owned
subsidiary of NASC, is the fourth largest salt producer in North America. Sifto
produced approximately 5.4 million tons of salt in FY 1997 compared to 4.3
million tons in FY 1996. Sifto sells salt to the full range of end-users in the
highway deicing, general trade and chemical markets. Sifto's major business is
in the North American highway deicing market. General trade products, sold
predominantly in Canada under the Sifto brand name, include table, water
conditioning, livestock feed, and deicing salt.
Highway deicing salt is sold primarily through a public tender process.
Sifto uses a computer-pricing system to determine its bid prices. General trade
and chemical sales contracts are negotiated privately. Sifto distributes salt
through an extensive network of warehouses and depots located within, or closely
linked to, all its key markets.
Sifto operates a large-scale underground rock salt mine in Goderich,
Ontario and evaporator plants at Goderich, Ontario, Amherst, Nova Scotia and
Unity, Saskatchewan. All distribution facilities are leased or operated on a
contract basis. Sifto is managed from the Company's headquarters located in
Overland Park, Kansas.
11
<PAGE>
Markets
Highway Deicing Segment. Sifto's largest market overall is in North
American highway deicing sales, which in FY 1997 were 56% of Sifto's total
revenue. Sifto sells approximately 55% of its highway deicing volume into the
United States and 45% into Canada. Sifto's competitive strengths are its
efficient mining and distribution of rock salt in large volumes at low cost, and
the well-located, high-quality salt deposits in its rock salt mines. The vast
majority of Sifto's deicing sales are made in Canada and the northern United
States, where winter weather is generally harsher than in other parts of North
America.
General Trade Segment. In FY 1997, the general trade segment contributed
38% of Sifto's total revenue. Sifto's direct general trade business is focused
in Canada, where it has established brand-name recognition.
Chemical Segment. In FY 1997, the chemical segment contributed 6% of
Sifto's total revenue. Consumption of salt by the chemical industry is largely
dependent on the demand for chlor-alkali products, especially chlorine gas and
caustic soda.
Production
Sifto produces salt at four locations. Its rock salt mine is located in
Goderich, Ontario and as of March 1997 was the largest rock salt mine in North
America. Sifto uses the bench mining method to extract salt. The Company
believes that the Goderich mine operating cost structure is among the lowest in
the North American salt industry.
Sifto's evaporated salt plants are located in Amherst, Nova Scotia,
Goderich, Ontario and Unity, Saskatchewan. The Amherst plant serves the east
coast of Canada and the United States. The Goderich plant serves Ontario, Quebec
and the Great Lakes states. The Unity plant serves western Canada. See
"Properties."
Competition
Sifto's competition in the highway deicing market is principally from
Morton and Cargill. Morton competes with Sifto throughout the entire Canadian
market area, principally from its rock salt plant in Ojibway, Ontario. Akzo
competes with Sifto from its mine located in Cleveland, Ohio. In general trade,
Sifto competes with Windsor Salt, the Canadian operation of Morton.
12
<PAGE>
Item 2. PROPERTIES
Facilities
The table below presents certain information relating to facilities owned and
leased by the Company.
<TABLE>
<CAPTION>
Location Description Status
<S> <C> <C>
The Company:
Searles Valley, California ............ Soda Ash, Boron Chemicals and Sodium Sulfate processing
plant totalling 11,000 acres Owned
24,000 acres of mineral leases Leased
Ogden, Utah ........................... SOP Processing Plant totalling 35,000 square feet Owned
Salt Plant totalling 95,000 square feet Owned
Solar Ponding Operations located on 37,000 acres Leased
Solar Ponding Operations located on 1,500 acres Owned
117,000 acres of mineral leases Leased
Cote Blanche, Louisiana ............... Rock Salt Production Facility totalling 11,000 square feet Owned
Rock Salt Mine totalling 200 acres of leased land Leased
Various mineral leases Leased
Lyons, Kansas ......................... Salt Evaporation Plant totalling 134,000 square feet located
on 997 acres Owned
Hutchinson, Kansas .................... Salt Evaporation Plant totalling 165,000 square feet located
on 326 acres Owned
Chicago, Illinois ..................... Salt Packaging Facility totalling 20,000 square feet located
on 12 acres Owned
Humphreys County, Tennessee ........... Shipping and Storage Facility totalling 50,000 square feet
on 2.5 acres Leased
San Diego, California ................. Shipping and Storage Facility totalling 24,000 square feet
on 93,000 square feet of land Leased
Boron, California ..................... Transloader Facility located on 75,000 square feet of land Leased
Rifle, Colorado ....................... Sodium Bicarbonate Processing Plant totalling
30,000 square feet Owned
8,200 acres of mineral leases Leased
Sifto:
Goderich, Ontario ..................... Salt Evaporation Plant totalling 85,000 square feet located
on 97 acres Owned
Rock Salt Production Facility
totalling 250,000 square feet Leased
Rock Salt Mine totalling 50 acres of
leased land Leased
Amherst, Nova Scotia .................. Salt Evaporation Plant totalling 90,000 square feet located
on 249 acres Owned
Various mineral leases Leased
Unity, Saskatchewan ................... Salt Evaporation Plant totalling 94,000 square feet located
on 484 acres Owned
Various mineral leases Leased
Montreal, Quebec ...................... Salt Packaging Facility totalling 18,000 square feet located
on 4 acres Owned
</TABLE>
In addition to the above properties, the Company leases or owns numerous
warehouses and depots and various sales and administrative offices. It also owns
fresh and brackish water systems, including extensive pipelines and wells, in
conjunction with the Mojave Desert plants in Searles Valley, and track, office
and service areas related to its two short-line common carriers which connect
the Company facilities with commercial railroads. The Searles Valley facility is
supplied by two on-site power generation facilities which sell excess power to a
local utility. In July 1996, NACC entered into an agreement for the sale and
leaseback of one of these facilities (See Note 7 to the Financial Statements).
13
<PAGE>
Encumbrances
The Argus plant, which is part of the Searles Valley property, serves as
steam host for, and receives back-up power from, the on-site cogeneration plant
owned by ACE Cogeneration Company. The Company's Searles Valley properties are
subject to a ground lease and various easements granted to ACE Cogeneration
Company for its cogeneration plant and related utility services, parking lots,
access roads and similar requirements.
Substantially all of the assets of Sifto are pledged as security for the
Sifto Notes.
Mineral Rights
In connection with its Searles Valley plants, the Company holds 30 leases
from the BLM covering approximately 24,000 acres of the dry lakebed of Searles
Lake. The leases are subject to a royalty fee and have terms of 10 or 20 years
with varying expiration dates and preferential rights for renewal.
In connection with its Goderich, Ontario plant, Sifto holds three mineral
leases from the Ontario Ministry of Northern Development and Mines for salt
deposits located under Lake Huron and one lease for surface rights from the
Canada Department of Transport. Two of the mineral leases expire in 1999 and one
expires in 2003, but Sifto has an option to renew each of the leases for another
21-year term. A rental charge and royalty are paid to the Ontario Ministry of
Northern Development and Mines for each ton of salt mined under the lake. The
surface lease expires in 1998 but is renewable for an additional 21 years. Sifto
also holds a Mining License of Occupation for salt deposits lying under the
Maitland River in Ontario. The license was issued in 1960 and does not have an
expiration date.
In connection with its Cote Blanche, Louisiana rock salt mine, the Company
holds a private lease for surface facilities and an underlying salt dome which
expires in 2060. A royalty is paid to the owners according to a formula based on
the tons of salt shipped and the selling price of the salt for the immediately
preceding calendar year.
In connection with its Ogden plant, the Company holds 9 mineral leases from
the State of Utah. The leases continue in effect so long as salt is produced and
the State of Utah receives a minimum royalty and rent. See "Legal Proceedings --
Royalty Matter."
In connection with its Amherst, Nova Scotia plant, Sifto leases the salt
mineral rights from the Province of Nova Scotia and pays a royalty for each ton
mined. The leases expire in July 2003 and are renewable for an additional
20-year period.
In connection with its Unity, Saskatchewan plant, Sifto leases the salt
mineral rights from the Saskatchewan provincial government under a 21-year lease
which expires at the end of December 2009. This lease is renewable for a further
21-year period. These mineral rights are subject to a royalty for each ton
extracted and refined.
In connection with its Rifle, Colorado plant, the Company holds four leases
from the BLM covering approximately 8,200 acres. The leases are subject to a
royalty fee and have an expiration of July 1, 2001 with successive 10 year
renewal options provided that sodium is being produced in paying quantities.
Railway Companies
Trona Railway Company ("TRC"), a 31-mile common carrier which is a wholly
owned subsidiary of the Company, provides the Company's Searles Valley
facilities with rail access to Southern Pacific Railroad's track at Searles
Station, California, approximately 30 miles from the Company's plants. The rail
cars and locomotives used by TRC are currently leased. The Hutchinson & Northern
Railway Company ("H&N"), a wholly owned subsidiary of the Company, connects the
Company's Hutchinson, Kansas properties with the Santa Fe Railroad, six miles
away.
North American Terminals, Inc.
North American Terminals, Inc. ("NATI"), a wholly owned subsidiary of the
Company, operates a leased bulk cargo terminal at the Port of San Diego,
California, from which products produced at the Company's Searles Valley
facilities are exported. Its facilities consist of a transloader in Boron,
California ("Boron") and a leased bulk loading and storage facility in San
Diego. Products are shipped from the Searles Valley production facility via
truck to Boron where they are transloaded onto the Santa Fe Railroad and shipped
to the port in San Diego. In addition, products are shipped directly by the
Southern Pacific Railroad from the Searles Valley facilities to the San Diego
terminal for export. The Company formed NATI in order to reduce rail and loading
costs while providing soda ash, SOP and sodium sulfate storage capacity.
14
<PAGE>
Searles Domestic Water Company
In connection with its acquisition of the Searles Valley facilities from
Kerr-McGee Chemical Corporation ("KMCC"), KMCC transferred all of the
outstanding stock of Searles Domestic Water Company ("SDWC"), a water utility
serving a small number of residential customers in Trona, California to the
Company. The transfer of the stock was completed in March 1994 when approval of
the California Public Utility Commission was received.
Licenses, Trademarks and Patents
The Company has a licensing agreement with Culligan International to
package and sell water conditioning salt under the Culligan brand name to all
classes of retail trade. The Company is currently marketing the Culligan name
under the brand "Care Cubes." This product is currently available in most
states. Sifto considers the "Sifto" trademark to be valuable because of its name
brand recognition.
On March 28, 1989, a patent was granted to a predecessor of the Company for
a nacholite solution mining process at its sodium bicarbonate operation in
Rifle, Colorado. The Company believes it is the low cost domestic producer of
sodium bicarbonate as a result of this exclusive right to practice this
technology.
Item 3. LEGAL PROCEEDINGS
General
The Company is involved in legal and administrative proceedings and claims
of various types from normal business activities. While any litigation contains
an element of uncertainty, management, based upon the opinion of the Company's
counsel, presently believes that the outcome of each such proceeding or claim
which is pending or known to be threatened, or all of them combined, will not
have a material adverse effect on the Company's results of operations or
financial position.
Environmental Issues
The Company's operations are subject to federal, state, provincial and
local environmental laws and regulations in the United States and Canada, which
govern the discharge of pollutants into the air and water, as well as the
handling and disposal of solid and hazardous wastes. The Company believes that
its operations are currently in substantial compliance with environmental permit
conditions and applicable laws and regulations.
Air Issues. From time to time, the Company has received notices of
violation from the San Bernardino County Air Quality Control District (the
"Local District"), relating to the operation of equipment for which its Searles
Valley facility has air permits. In July 1992, the California Air Resources
Board ("CARB"), which has oversight jurisdiction over the Local District,
conducted an inspection of the Searles Valley facility. CARB reported its
findings to the Local District and to the U.S. Environmental Protection Agency
("EPA") and in 1994, the EPA served the Company with a Finding and Notice of
Violation ("NOV") issued pursuant to the Clean Air Act. On April 26, 1997, the
United States District Court for the Central District of California entered a
Consent Decree settling in full the NOV. The Consent Decree requires the Company
to install pollution controls (selective catalytic reduction), estimated to cost
$2.3 million, on a gas turbine at the Company'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.
EU Antidumping Proceeding
In 1993, the EU Commission initiated an antidumping action against American
producers of soda ash exported to the EU, including soda ash manufactured by the
Company. In October 1995, the EU Commission imposed definitive duties on imports
ranging from 0-8.9%. The duty imposed on the Company's customers was 7.1%. The
duty is in effect for a maximum of five years with a review expected near the
end of the first year. The Company is vigorously resisting maintaining duties on
the basis that the EU Commission must find injury in order to maintain the
duties. The Company continues to sell in the European market primarily to
customers which are subject to a duty drawback provision that allows them to
purchase a portion of their raw materials duty free. See "Business - Soda Ash."
15
<PAGE>
Royalty Matter
On May 4, 1993, the Company received a letter from the Utah Division of
State Lands and Forestry (the "Utah Division") stating that the Company owed
additional royalties, including interest, in the amount of approximately
$730,000 for 1992 relating to its Ogden facility. The Utah Division based its
calculations on an interpretation of a royalty agreement and price assumptions
that the Company believes are incorrect. Effective February 1, 1997, the Company
executed an amendment to its royalty agreement with the State of Utah which
changed the royalty on salt from an ad valorem rate to a fixed rate per ton of
dry salt sold. Concurrent with the Company's execution of this amendment, the
Utah Division agreed to waive any claim to increased royalties for any period
prior to February 1, 1997.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable.
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS
Not Applicable.
16
<PAGE>
Item 6. SELECTED HISTORICAL CONSOLIDATED FINANCIAL INFORMATION
The following selected historical consolidated financial information should
be read in conjunction with the audited Consolidated Financial Statements of the
Company as of March 29, 1997 and March 30, 1996 and for the three fiscal years
ended March 29, 1997, included in the financial statement section of this Form
10-K.
<TABLE>
<CAPTION>
FY 1993 FY 1994 FY 1995 FY 1996 FY 1997
----------- ------------ ------------ ----------- -----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Net sales (1) ........................................ $ 434,678 $ 427,588 $ 435,864 $ 475,474 $ 508,622
Cost of sales (1) .................................... 315,154 325,690 331,949 351,040 374,137
----------- ----------- ----------- ----------- -----------
Gross profit ...................................... 119,524 101,898 103,915 124,434 134,485
Selling, general and administrative expenses ......... 44,168 50,578 55,578 64,273 57,508
Recapitalization expenses ............................ -- 68,753 -- -- --
Asset impairment charge .............................. -- -- -- 7,044 --
----------- ----------- ----------- ----------- -----------
Operating income (loss) ........................... 75,356 (17,433) 48,337 53,117 76,977
Interest expense ..................................... (44,600) (55,664) (78,526) (84,938) (91,925)
Foreign currency exchange gain (loss) ................ (3,096) (6,078) (1,743) 2,039 (1,301)
Other income ......................................... 975 5,290 5,944 6,240 3,916
----------- ----------- ----------- ----------- -----------
Income (loss) before taxes and extraordinary item . 28,635 (73,885) (25,988) (23,542) (12,333)
Provision (benefit) for income taxes ................. 13,464 (11,093) 5,308 5,200 9,100
----------- ----------- ----------- ----------- -----------
Income (loss) from continuing operations ....... 15,171 (62,792) (31,296) (28,742) (21,433)
Extraordinary items, net of taxes .................... -- (71,371) -- -- --
----------- ----------- ----------- ----------- -----------
Net income (loss) .............................. $ 15,171 $ (134,163) $ (31,296) $ (28,742) $ (21,433)
=========== =========== =========== =========== ===========
Other Data:
Operating income (loss) .............................. $ 75,356 $ (17,433) $ 48,337 $ 53,117 $ 76,977
Depreciation and amortization in operating income .... 46,631 49,097 53,295 56,930 54,496
Capital additions (includes capital leases) .......... 36,882 79,863 52,044 45,915 39,270
Net Sales by Product Line:
Salt (1) ............................................. $ 185,156 $ 199,345 $ 191,917 $ 224,500 $ 235,899
Soda products ........................................ 115,560 100,160 103,247 115,978 119,800
Boron chemicals ...................................... 72,010 69,179 67,479 67,979 63,051
Specialty potash fertilizers ......................... 56,336 48,289 61,453 55,459 71,547
Other ................................................ 5,616 10,615 11,768 11,558 18,325
Balance Sheet Data (end of period):
Total assets ......................................... $ 607,130 $ 661,619 $ 651,658 $ 677,973 $ 665,394
Working capital (2) .................................. 105,711 110,671 91,286 117,668 119,363
Total debt ........................................... 345,645 736,650 740,715 792,258 783,775
Mandatorily redeemable preferred stock ............... 15,315 -- -- -- --
Common stockholder's equity (deficit) ................ 98,016 (216,841) (249,137) (280,930) (306,431)
</TABLE>
(1) Certain reclassifications were made to the prior years' net sales and cost
of sales to conform to the current year presentation.
(2) Working capital represents current assets less current liabilities excluding
the current portion of long-term debt.
17
<PAGE>
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion of the results of operations and financial
condition should be read in conjunction with the Company's Financial Statements
and related Notes thereto.
Introduction2
The Company is a major producer and marketer of inorganic chemical
products. Its principal products include salt, sodium products (including soda
ash, sodium sulfate and sodium bicarbonate), boron chemicals, and specialty
potash fertilizers. The highway deicing salt business is highly dependent on
weather. Consequently, the extent of snowfall in the Company's primary deicing
markets in Canada and the Upper Midwest can result in significant fluctuations
in the Company's sales, earnings and liquidity. See Item 1 - Products and
Seasonality for additional discussion of the Company's products and the effects
of weather and seasonality on the Company's results of operations.
Results of Operations
The following table sets forth, in both dollars and as percentages of net
sales, selected components of the consolidated statements of operations as well
as net sales by product line, for the fiscal years ended March 25, 1995, March
30, 1996 and March 29, 1997.
<TABLE>
<CAPTION>
FY 1995 FY 1996 FY 1997
--------------------- --------------------- ---------------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Net sales (1) ................................. $ 435,864 100.0% $ 475,474 100.0% $ 508,622 100.0%
Cost of sales (1) ............................. 331,949 76.2 351,040 73.8 374,137 73.6
----------- ------- ----------- ------- ----------- -------
Gross profit ............................... 103,915 23.8 124,434 26.2 134,485 26.4
Selling, general and administrative expenses .. 55,578 12.8 64,273 13.5 57,508 11.3
Asset impairment charge ....................... -- 0.0 7,044 1.5 -- 0.0
----------- ------- ----------- ------- ----------- -------
Operating income ........................... 48,337 11.0 53,117 11.2 76,977 15.1
Interest expense .............................. (78,526) (18.0) (84,938) (17.9) (91,925) (18.1)
Foreign currency exchange gain (loss) ......... (1,743) (0.4) 2,039 0.4 (1,301) (0.3)
Other income .................................. 5,944 1.4 6,240 1.3 3,916 0.8
----------- ------- ----------- ------- ----------- -------
Income (loss) before taxes ................. (25,988) (6.0) (23,542) (5.0) (12,333) (2.5)
Provision for income taxes .................... 5,308 1.2 5,200 1.0 9,100 1.7
----------- ------- ----------- ------- ----------- -------
Net income (loss) ....................... $ (31,296) (7.2)% $ (28,742) (6.0)% $ (21,433) (4.2%)
=========== ======= =========== ======= =========== =======
Net sales by product line:
Salt (1) ................................... $ 191,917 44.0% $ 224,500 47.2% $ 235,899 46.4%
Soda products .............................. 103,247 23.7 115,978 24.4 119,800 23.6
Boron chemicals ............................ 67,479 15.5 67,979 14.3 63,051 12.4
Specialty potash fertilizers ............... 61,453 14.1 55,459 11.7 71,547 14.1
Other ...................................... 11,768 2.7 11,558 2.4 18,325 3.5
----------- ------- ----------- ------- ----------- -------
Total ................................... $ 435,864 100.0% $ 475,474 100.0% $ 508,622 100.0%
=========== ======= =========== ======= =========== =======
</TABLE>
(1) Certain reclassifications were made to the prior years' net sales and cost
of sales to conform to the current year presentation.
- --------
2Parenthetical references herein to a "Note" followed by a number refer to
the notes accompanying the consolidated financial statements.
18
<PAGE>
FY 1997 Compared With FY 1996
Net sales for FY 1997 were $508.6 million compared to $475.5 million for FY
1996.
Salt sales increased $11.4 million for FY 1997 versus FY 1996 because of
greater volumes partially offset by unfavorable price/mix variances compared to
the prior year. Total volumes were up 9% compared to last year because of an
increase in highway deicing tons, partly offset by lower chemical and general
trade volumes. The increased highway deicing tons sold were the result of record
production combined with increased sales resulting from heavy snowfalls in
Canada and the Upper Midwest, the Company's primary highway deicing markets.
Highway deicing sales experienced slight price declines due to mix offset by
favorable price/mix variances in chemical and general trade salt.
FY 1997 soda products (soda ash, sodium sulfate and sodium bicarbonate)
sales increased $3.8 million or 3% versus FY 1996. Soda ash volumes decreased 2%
compared to the prior year and averages sales prices per ton increased 3%. Net
unfavorable soda ash volume variances were due to decreased sales volume in both
domestic and non-ANSAC export markets partially offset by increased sales volume
in the ANSAC market. Domestic soda ash pricing was higher than in FY 1996 while
export and ANSAC pricing was slightly lower than in FY 1996 resulting in a net
favorable price variance. Domestic demand in FY 1997 was impacted by a decline
in caustic soda pricing, a drop of 7% in demand for container glass and a delay
in the start-up of a major soda ash consumption project at DuPont, coupled with
a capacity expansion by another soda ash manufacturer. Sodium sulfate volumes
were down 28% partially offset by an increase in prices and a more favorable
mix. As a result of production volume constraints for sodium sulfate related to
the start up of the Long Range Process Plan ("LRPP") project and reduced
inventory carryover from FY 1996, the Company selectively reduced sales to its
lower margin markets and improved overall pricing. Sodium bicarbonate sales
increased 59% over the prior year. Increased production at the White River plant
allowed the Company to increase sales volumes by 47%. Average sales prices
increased 8% compared to the prior year because of increased sales to the higher
margin food and chemical processing segments.
In the aggregate, boron chemical sales were $4.9 million lower for FY 1997
compared to FY 1996. The unfavorable variance is due to net unfavorable volume
variances partially offset by net favorable price variances and improved product
mix. The unfavorable volume variances result from a shortfall in the production
of crude borax during the start up phase of the LRPP project.
The Company's specialty potash fertilizer sales in FY 1997 increased $16.1
million or 29% compared to FY 1996. Volumes were up 28% and average pricing was
up 1% compared to FY 1996. The increased volumes were due to greater export
shipments in FY 1997 compared to FY 1996.
Other product sales increased by $6.8 million in FY 1997 versus FY 1996.
Other product sales include magnesium chloride, crude trona and the revenues of
other service subsidiaries of the Company. Approximately $4.4 million of the
increase in FY 1997 versus FY 1996 is related to magnesium chloride sales.
Cost of sales was $374.1 million or 73.6% of sales in FY 1997 compared to
$351.0 million or 73.8% of sales in FY 1996. The $23.1 million increase in cost
of sales was primarily due to increased sales volumes in salt and specialty
potash fertilizer products. The slight decline in cost of sales as a percentage
of sales was largely due to price improvements in sodium and boron products and
reduced production costs as a result of increased production volumes of rock
salt and soda ash partially offset by decreased production of boron chemical
products and sodium sulfate.
Gross profit increased by $10.1 million in FY 1997 versus FY 1996 due to
the improvement in sales and cost of sales discussed above.
Selling, general and administrative expenses were $57.5 million or 11.3% of
sales in FY 1997 compared to $64.3 million or 13.5% of sales in FY 1996. The
decrease was due principally to lower incentive compensation, payroll, selling
expenses and professional fees.
The asset impairment charge of $7.0 million in FY 1996 is a non-cash
write-down arising out of the shut down in March 1996 of the Company's Main
Plant Cycle at the Searles Valley plant in California. The shut down was the
result of the implementation of the strategic LRPP at the Searles Valley plant.
19
<PAGE>
Operating income of $77.0 million in FY 1997 increased $23.9 million
compared to FY 1996 for the reasons discussed above. Excluding the effect of the
asset impairment charge, operating income increased $16.8 million in FY 1997
compared to FY 1996.
Interest expense was $7.0 million higher in FY 1997 compared to FY 1996.
The increase was due to higher average long-term debt balances in FY 1997 versus
FY 1996, higher interest costs recorded for the Argus Utilities transaction (see
Note 7) and interest capitalized on construction in process being $3.0 million
lower in FY 1997 compared to FY 1996.
An exchange loss of $1.3 million related to the translation of United
States dollar-denominated debt of Sifto into Canadian dollars was recorded in FY
1997 compared to a gain of $2.0 million in FY 1996.
Other income principally consists of ground lease and maintenance income,
gains and losses on disposals of property, plant and equipment and equity in
earnings on investments. Other income was $2.3 million lower in FY 1997 compared
to FY 1996. The decrease was due to $0.8 million higher losses on disposition of
assets in FY 1997 compared to FY 1996 and an equity loss of $0.4 million on
investments in FY 1997 compared to equity income of $0.5 million in FY 1996.
A provision for income taxes of $9.1 million was recorded in FY 1997
primarily relating to Sifto's Canadian income tax, Ontario mining taxes, current
U.S. alternative minimum tax and state income taxes. Greater income in Canada in
FY 1997 utilized all of the Canadian net operating loss carryforwards and
resulted in a higher tax provision in FY 1997. A $5.2 million provision for
income taxes was recorded in FY 1996. Income tax benefits associated with the
U.S. FY 1997 loss have not been recognized as future realization is uncertain
(see Note 5).
A net loss of $21.4 million was recorded for FY 1997 compared to a net loss
of $28.7 million in FY 1996 due to the factors described above.
FY 1996 Compared With FY 1995
Net sales for FY 1996 were $475.5 million compared to $435.9 million for FY
1995.
Salt sales increased $32.6 million or 17% for FY 1996 versus FY 1995.
Volume increases accounted for a significant portion of the variance as tons
sold increased by 15.5%. Favorable price/mix variances also contributed to the
increase. The majority of the volume increase was from higher highway deicing
salt sales as a harsh winter increased highway deicing salt sales compared to a
mild winter in FY 1995. General trade volumes increased slightly because of
increased contractor bulk and consumer deicing sales brought on by higher sales
of bulk food grade products and the stronger winter weather. The favorable
price/mix variance was due to higher prices in highway and consumer deicing
products and favorable mix in the general trade business.
FY 1996 soda products (soda ash, sodium sulfate and sodium bicarbonate)
sales increased $12.7 million or 12% versus FY 1995. Soda ash volumes were up 1%
compared to the prior year and prices were up an average of 9%. The worldwide
soda ash price increases experienced in the second half of FY 1996 compared
favorably to depressed prices in FY 1995. Favorable soda ash volume variances
were due to increased sales volume in both domestic and export markets. Sales of
sodium sulfate increased 30% in FY 1996 because of volume increases of 41%
partially offset by an 8% decrease in average prices. The unfavorable sodium
sulfate prices were due to increased volumes sold to export customers at higher
transportation costs resulting in lower netbacks. Sodium bicarbonate sales
volumes and price variances were $0.8 million favorable in FY 1996 compared to
FY 1995.
In the aggregate, boron chemical sales were $0.5 million higher for FY 1996
compared to FY 1995. The favorable variance is due to favorable volume and price
variances of $0.4 million and $0.1 million, respectively. Both the favorable
volume and price variances were due to mix.
The Company's specialty potash fertilizer sales in FY 1996 were $6.0
million lower than FY 1995. The lower sales were due to decreased export
shipments in FY 1996 compared to export shipments in FY 1995, which contributed
an unfavorable $12.0 million volume variance. The lower export shipments were
partially offset by higher domestic shipments in FY 1996 which generated a
favorable $4.7 million volume variance. Export sales were lower due to the lack
of shipments to China during FY 1996. Favorable domestic sales were largely due
to the alfalfa market and the timing of fertilizer seasons, which in the fourth
quarter of FY 1995 were delayed due to bad weather. Export and domestic
price/mix variances were favorable
20
<PAGE>
due to mix. The larger export shipments in FY 1995 resulted in lower netbacks
compared to the shipments into other export areas with higher netbacks in FY
1996. Increased competitive domestic pricing was more than offset by favorable
overall customer mix.
Other product sales decreased by $0.2 million in FY 1996 versus FY 1995.
Other product sales include magnesium chloride, crude trona and the revenues of
other service subsidiaries of the Company.
Cost of sales was $351.0 million or 73.8% of sales in FY 1996 compared to
$331.9 million or 76.2% of sales in FY 1995. The $19.1 million increase in cost
of sales was primarily due to increased sales volume in salt, soda products and
boron products. The favorable decline in cost of sales as a percentage of sales
was largely caused by favorable sales price variances and increased production
of soda products and specialty potash fertilizers, which resulted in reduced
costs per ton. Increased production was partially offset by increased
manufacturing costs in labor and processed chemical usage.
Gross profit increased by $20.5 million in FY 1996 versus FY 1995 due to
the improvement in sales and cost of sales discussed above.
Selling, general and administrative expenses were $64.3 million or 13.5% of
sales in FY 1996 compared to $55.6 million or 12.8% of sales in FY 1995. The
increase was due principally to increased incentive compensation costs based on
performance, increased professional and consulting services, reorganization
costs and the resignation of a company officer, and the FY 1996 Canadian dollar
increase versus the United States dollar.
The asset impairment charge of $7.0 million in FY 1996 is a non-cash
write-down arising out of the shut down in March 1996 of the Company's Main
Plant Cycle at the Searles Valley plant in California.
Operating income of $53.1 million in FY 1996 increased $4.8 million
compared to FY 1995 for the reasons discussed above. Excluding the effect of the
assets impairment charge, operating income increased $11.8 million compared to
FY 1995.
Interest expense was $6.4 million higher in FY 1996 compared to FY 1995.
The increase was due to higher revolver balances, higher interest rates compared
to FY 1995 and higher amortization of deferred finance costs. Interest
capitalized on construction in process was $1.2 million higher in FY 1996
compared to FY 1995, which partially offset the increase in interest expense.
An exchange gain of $2.0 million related to the translation of United
States dollar-denominated debt of Sifto into Canadian dollars was recorded in FY
1996 compared to a loss of $1.7 million in FY 1995. This favorable variance is
due to an increase in FY 1996 in the value of the Canadian dollar relative to
the United States dollar versus a decrease in FY 1995.
A provision for income taxes of $5.2 million was recorded in FY 1996
primarily relating to Sifto's operating income and Canadian provincial taxes on
mining profits, and to U.S. alternative minimum tax. A $5.3 million provision
for income taxes was recorded in FY 1995 relating to Sifto's Canadian provincial
taxes on mining profits and non-deductible, noncash foreign currency translation
losses. Income tax benefits associated with the U.S. FY 1996 loss have not been
recognized as future realization is uncertain (see Note 5).
A net loss of $28.7 million was recorded for FY 1996 compared to a net loss
of $31.3 million in FY 1995 due to the factors described above.
Liquidity, Capital Resources and Financial Condition
Seasonality and Cash Flows
The Company's accounts receivable and inventory levels can vary by as much
as $60.0 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 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 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 near
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.
21
<PAGE>
FY 1997 operating activities provided $38.3 million in net cash compared to
$34.2 million in FY 1996 and $67.2 million in FY 1995. 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 FY 1997 versus the
accretion of $19.4 million and $21.9 million of noncash interest expense on
these Notes in FY 1996 and FY 1995, respectively. After a build up of
inventories in FY 1995 and FY 1996, the Company liquidated specialty potash and
boron inventories in FY 1997 and generated $16.4 million in cash. Increased
specialty potash sales in FY 1997 resulted in further increased receivables and
a use of cash of $8.5 million in FY 1997. Other assets used $3.7 million more
cash in FY 1997 versus FY 1996 because of prepaid interest expense related to
the Argus Utilities transaction. Improved liquidity in FY 1997 resulted in a use
of cash of $10.0 million to decrease accounts payable and accrued expenses
versus increases or sources of cash from these accounts of $16.4 million and
$5.3 million in FY 1995 and FY 1996, respectively.
FY 1997 investing activities used $33.3 million of cash compared to a use
of $47.1 million in FY 1996 and $43.6 million in FY 1995. Capital spending
(including capitalized interest on construction in progress) decreased from
$45.1 million in FY 1995 and $45.6 million in FY 1996 to $34.0 million in FY
1997. The decreased capital spending is because of lower capital spending on
strategic projects, primarily the LRPP at Searles Valley, a multi-year project
which was substantially completed in FY 1996.
FY 1997 financing activities provided a source of cash of $3.1 million in
FY 1997 compared to $16.2 million in FY 1996. In FY 1997, the Company issued
$75.0 million in debt by entering into an agreement for the sale and leaseback
of an electric and steam generating facility associated with the Searles Valley
soda ash facilities (See Note 7). In addition, a steam provider prepaid $23.2
million for contractual amounts due to the Company over an 18 year period. The
prepayment was recorded as deferred revenue to be amortized over the remaining
life of the contract. Proceeds from the Argus Utilities transaction and deferred
revenue were used to pay down borrowings under the Company's Bank Agreements.
Net revolver payments or borrowings fluctuate based on cash provided from
operations, cash used in investing activities, principal payments on long-term
debt and proceeds from the issuance of new debt. As a result, net revolver
payments were $79.0 million in FY 1997 compared to net revolver borrowings of
$32.0 million in FY 1996 and net revolver payments of $18.0 million in FY 1995.
Capitalized finance costs were $6.8 million or $5.7 million higher than FY 1996
due to fees and costs incurred related to the Argus Utilities transaction.
Bank Agreements and Liquidity
At March 29, 1997, the Company had revolving lines of credit under its Bank
Agreements totalling $150 million, including a commitment of $130 million for
its U.S. subsidiaries (NACC, NAMSCO and GSL) and a Canadian commitment of $20
million for Sifto. Availability of the revolving credit facilities is generally
based on 85% of eligible accounts receivable outstanding and 50% of eligible
inventories (65% of eligible inventory for NASC and Sifto from July 1 through
January 31 of each fiscal year). These revolving credit facilities terminate on
February 15, 2001, unless no Discount Notes are outstanding on such date in
which case the termination date is February 28, 2002. Indebtedness under the
revolving credit facilities is secured by a lien on inventories and accounts
receivable. Under the Bank Agreements, the Company must comply with certain
covenants including maintaining certain minimum interest coverage, fixed charge
and net funded debt coverage ratios, all of which were met for FY 1997.
As of May 24, 1997, the Company had $59.5 million of available borrowing
capacity under its revolving credit agreements and $16.2 million of cash. No
significant long term debt payments are due until FY 2001. Capital expenditures
for FY 1998 are estimated to be approximately $35 million. 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.
Impact of Year 2000
The Year 2000 is not expected to have a material impact on the Company's
information systems or results of operations because software currently in use
is Year 2000 compliant or can readily be modified to be Year 2000 compliant. The
Company has a plan in FY 1998 to modify and test its hardware and software for
compatibility with the Year 2000. The impact of the Year 2000 on the Company's
customers and vendors is not known.
22
<PAGE>
Impact of Inflation
Inflation has not had a significant impact on the Company's operations
during the three fiscal years ended March 29, 1997.
Environmental Matters
Due to the nature of the Company's business, it must continually monitor
compliance with all applicable environmental laws and regulations. At March 29,
1997, the Company had recorded $3.8 million of current liabilities and $11.3
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.
Amounts expensed for environmental costs were $1.6 million in FY 1997, $1.8
million in FY 1996 and $1.9 million in FY 1995.
Seasonality and Quarterly Financial Data (Unaudited)
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 by
fiscal quarter.
<TABLE>
<CAPTION>
Fiscal 1996 Fiscal 1997
----------------------------------------------- ------------------------------------------------
1st 2nd 3rd 4th 1st 2nd 3rd 4th
--- --- --- --- --- --- --- ---
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Operating Data:
Net sales .................... $87,379 $93,016 $133,464 $161,615 $99,581 $92,337 $151,068 $165,636
Gross profit ................. 10,483 19,101 40,131 54,719 18,103 17,854 46,715 51,813
Operating income (loss) ...... (3,749) 5,796 24,882 26,188 4,138 4,841 32,217 35,781
Interest expense ............. 20,042 20,910 21,479 22,507 20,533 22,293 24,485 24,614
Net income (loss) ............ (21,146) (12,426) 1,957 2,873 (15,092) (17,589) 5,763 5,485
Sales by Product:
Salt ......................... 31,644 35,965 69,033 87,858 35,287 35,141 72,124 93,347
Soda products ................ 23,965 29,190 30,472 32,351 31,186 28,302 31,179 29,133
Boron chemicals .............. 16,315 15,706 16,951 19,007 17,214 14,743 14,417 16,677
Specialty potash fertilizers.. 13,002 9,694 13,803 18,960 12,465 11,068 23,484 24,530
Other ........................ 2,453 2,461 3,205 3,439 3,429 3,083 9,864 1,949
</TABLE>
23
<PAGE>
Item 8. FINANCIAL STATEMENTS
Index
<TABLE>
<CAPTION>
Description Page #
<S> <C>
Report of Coopers & Lybrand L.L.P., Independent Certified Public Accountants 25
Consolidated Balance Sheets as of March 30, 1996 and March 29, 1997 26
Consolidated Statements of Operations for the three fiscal years ended March 29, 1997 27
Consolidated Statements of Common Stockholder's Equity (Deficit) for the three fiscal
years ended March 29, 1997 28
Consolidated Statements of Cash Flows for the three fiscal years ended March 29, 1997 29
Notes to Consolidated Financial Statements 31
</TABLE>
24
<PAGE>
REPORT OF COOPERS & LYBRAND L.L.P. INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors of Harris Chemical North America, Inc. and
Subsidiaries
We have audited the consolidated financial statements of Harris Chemical North
America, Inc. and Subsidiaries listed in the index on page 56 of this Form 10-K.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Harris Chemical
North America, Inc. and Subsidiaries as of March 29, 1997 and March 30, 1996 and
the consolidated results of their operations and their cash flows for each of
the three fiscal years in the period ended March 29, 1997, in conformity with
generally accepted accounting principles.
/s/ Coopers & Lybrand L.L.P.
------------------------------
Kansas City, Missouri COOPERS & LYBRAND L.L.P.
May 22, 1997
25
<PAGE>
<TABLE>
<CAPTION>
HARRIS CHEMICAL NORTH AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
as of March 30, 1996 and March 29, 1997
(in thousands)
March 30, March 29,
1996 1997
-------------------- ------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents .......................................... $ 9,093 $ 17,076
Trade accounts receivable, less allowance for doubtful
accounts of $2,336 at March 30, 1996 and $1,716 at March
29, 1997 ......................................................... 109,542 117,726
Other receivables .................................................. 9,572 9,916
Inventories ........................................................ 103,255 86,818
Deferred income taxes .............................................. 6,235 6,019
Other .............................................................. 4,787 6,938
------------------ -------------------
Total current assets ........................................... 242,484 244,493
Property, plant and equipment, net ................................... 403,286 388,011
Deferred financing costs, net ........................................ 23,840 25,553
Other ................................................................ 8,363 7,337
------------------ -------------------
Total assets ................................................... $ 677,973 $ 665,394
================== ===================
LIABILITIES AND STOCKHOLDER'S DEFICIT
Current liabilities:
Current portion of long-term debt .................................. $ 6,788 $ 9,403
Accounts payable ................................................... 66,301 59,526
Accrued expenses ................................................... 19,442 25,259
Accrued interest ................................................... 24,234 23,250
Accrued salaries and wages ......................................... 13,658 14,613
Income taxes payable ............................................... 1,181 2,483
------------------ -------------------
Total current liabilities ...................................... 131,604 134,534
Long-term debt, net of current portion ............................... 785,470 774,372
Deferred income taxes ................................................ 22,865 26,417
Other noncurrent liabilities ......................................... 18,964 36,502
Commitments and contingencies
Common stockholder's deficit:
Common stock, at par ............................................... - -
Additional paid-in capital ......................................... 103,441 99,941
Cumulative translation adjustment .................................. (3,343) (3,532)
Common stockholder's receivable .................................... (3,083) (3,462)
Accumulated deficit ................................................ (377,945) (399,378)
------------------ -------------------
Total common stockholder's deficit ............................. (280,930) (306,431)
------------------ -------------------
Total liabilities and stockholder's deficit .................... $ 677,973 $ 665,394
================== ===================
</TABLE>
The accompanying notes are an integral part of the
financial statements.
26
<PAGE>
<TABLE>
<CAPTION>
HARRIS CHEMICAL NORTH AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
for the three fiscal years ended March 29, 1997
(in thousands)
FY 1995 FY 1996 FY 1997
-------------------- -------------------- ---------------------
<S> <C> <C> <C>
Net sales ............................................ $ 435,864 $ 475,474 $ 508,622
Cost of sales ........................................ 331,949 351,040 374,137
------------------ ------------------ -------------------
Gross profit ...................................... 103,915 124,434 134,485
Selling, general and administrative expenses ......... 55,578 64,273 57,508
Asset impairment charge .............................. - 7,044 -
------------------ ------------------ -------------------
Operating income .................................. 48,337 53,117 76,977
Other income (expense):
Interest expense .................................. (78,526) (84,938) (91,925)
Foreign currency transaction gain (loss) .......... (1,743) 2,039 (1,301)
Other, net ........................................ 5,944 6,240 3,916
------------------ ------------------ -------------------
Income (loss) before taxes ........................ (25,988) (23,542) (12,333)
Provision for income taxes ........................... 5,308 5,200 9,100
------------------ ------------------ -------------------
Net income (loss) ................................. $ (31,296) $ (28,742) $ (21,433)
================== ================== ===================
</TABLE>
The accompanying notes are an integral part of the
financial statements.
27
<PAGE>
<TABLE>
<CAPTION>
HARRIS CHEMICAL NORTH AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMMON STOCKHOLDER'S EQUITY (DEFICIT)
for the three fiscal years ended March 29, 1997
(in thousands)
Common
Common Additional Cumulative Stockholder's Retained
Stock, Paid-in Translation Notes Earnings
at Par Capital Adjustment Receivable (Deficit) Total
<S> <C> <C> <C> <C> <C> <C>
Balance, March 26, 1994 ........ $ - $ 107,253 $ (3,602) $ (2,585) $ (317,907) $ (216,841)
Translation adjustment ...... 207 207
Receivable from HCG ......... (1,207) (1,207)
Net loss .................... (31,296) (31,296)
----------- ------------- ------------ ------------- ------------- -------------
Balance, March 25, 1995 ........ - 107,253 (3,395) (3,792) (349,203) (249,137)
Translation adjustment ...... 52 52
Receivable from HCG ......... (3,103) (3,103)
Noncash capital
distribution to HCG ...... (1,812) 1,812 0
Harris Chemical Australia
rights (Note 11) ......... (2,000) 2,000 0
Net loss .................... (28,742) (28,742)
----------- ------------ ------------ ------------- ------------- -------------
Balance, March 30, 1996 ........ - 103,441 (3,343) (3,083) (377,945) (280,930)
Translation adjustment ...... (189) (189)
Receivable from HCG ......... (1,129) (1,129)
Noncash capital
distribution to HCG ...... (750) 750 0
Purchase of patents
from affiliate ........... (2,750) (2,750)
Net loss .................... (21,433) (21,433)
----------- ------------- ------------ ------------- ------------- -------------
Balance, March 29, 1997 ........ $ - $ 99,941 $ (3,532) $ (3,462) $ (399,378) $ (306,431)
=========== ============= ============ ============= ============= =============
</TABLE>
The accompanying notes are an integral part of the
financial statements.
28
<PAGE>
<TABLE>
<CAPTION>
HARRIS CHEMICAL NORTH AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the three fiscal years ended March 29, 1997
(in thousands)
FY 1995 FY 1996 FY 1997
------------- -------------- --------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss ..................................................................... $ (31,296) $ (28,742) $ (21,433)
Adjustments to reconcile net loss to net cash flows from operating activities:
Depreciation .............................................................. 52,588 56,187 53,242
Finance fee amortization .................................................. 4,854 5,749 5,342
Operating amortization .................................................... 707 743 1,254
Accreted interest ......................................................... 21,882 19,362 -
Deferred income taxes ..................................................... 2,696 3,778 3,768
Unrealized foreign currency transaction loss (gain) ....................... 1,921 (2,317) (232)
Loss (gain) on disposal of property, plant and equipment .................. (171) 47 895
Asset impairment charge ................................................... - 7,044 -
Other ..................................................................... (1,487) (959) 440
Changes in operating assets and liabilities:
Receivables ............................................................ 10,630 (17,796) (8,527)
Inventories ............................................................ (12,530) (15,201) 16,437
Other assets ........................................................... 1,012 1,067 (2,597)
Accounts payable ....................................................... 3,465 6,409 (6,775)
Accrued expenses and other noncurrent liabilities ...................... 12,972 (1,156) (3,499)
------------- ------------- -------------
Net cash provided by operating activities ........................... 67,243 34,215 38,315
------------- ------------- -------------
Cash flows from investing activities:
Capital expenditures ......................................................... (42,069) (41,382) (32,719)
Capitalized interest ......................................................... (3,037) (4,230) (1,244)
Proceeds from sales of property, plant and equipment ......................... 1,330 171 679
Other ........................................................................ 171 (1,650) -
------------- ------------- -------------
Net cash used in investing activities ................................ (43,605) (47,091) (33,284)
------------- ------------- -------------
Cash flows from financing activities:
Revolver borrowings .......................................................... 169,873 152,287 206,745
Revolver payments ............................................................ (187,873) (120,287) (285,745)
Principal payments on other long-term debt, including capital leases ......... (4,687) (11,645) (8,155)
Issuance of long-term debt ................................................... - - 75,000
Capitalized finance costs .................................................... (964) (1,049) (6,794)
Proceeds from deferred revenue ............................................... - - 23,152
Other ........................................................................ (1,207) (3,103) (1,129)
------------- ------------- -------------
Net cash provided by (used in) financing activities ................. (24,858) 16,203 3,074
------------- ------------- -------------
Effect of exchange rate changes on cash ......................................... (27) 118 (122)
------------- ------------- -------------
Net increase (decrease) in cash ..................................... (1,247) 3,445 7,983
Cash and cash equivalents, beginning of period .................................. 6,895 5,648 9,093
------------- ------------- -------------
Cash and cash equivalents, end of period ........................................ $ 5,648 $ 9,093 $ 17,076
============= ============= =============
</TABLE>
The accompanying notes are an integral part of the
financial statements.
29
<PAGE>
<TABLE>
<CAPTION>
HARRIS CHEMICAL NORTH AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - (Continued)
for the three fiscal years ended March 29, 1997
(in thousands)
FY 1995 FY 1996 FY 1997
------------- -------------- --------------
<S> <C> <C> <C>
Supplemental cash flow information:
Interest paid including capitalized interest ................................. $ 53,574 $ 60,009 $ 91,578
Income taxes paid ............................................................ 1,863 1,695 3,007
Supplemental disclosure of noncash activities:
Assets acquired under capital leases ......................................... $ 4,937 $ 4,533 $ 6,551
Acquisition of White River Nahcolite L.L.C. .................................. - 9,008 -
Noncash capital distribution ................................................. - 1,812 750
Harris Chemical Australia rights ............................................. - 2,000 -
Purchase of patents from affiliate ........................................... - - 2,750
</TABLE>
The accompanying notes are an integral part of the
financial statements.
30
<PAGE>
HARRIS CHEMICAL NORTH AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Organization:
The consolidated financial statements include the consolidated accounts of:
Harris Chemical North America, Inc. ("Harris") and its wholly owned
subsidiaries, 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"). The common
stockholder's equity of Harris consists of a single class of $.01 par value
common stock with 1,000 shares authorized, issued and outstanding at March 29,
1997.
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.
2. Summary of Significant Accounting Policies:
a. Management Estimates: The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
b. Basis of Consolidation: The consolidated financial statements include
the consolidated accounts of Harris and its wholly owned subsidiaries. All
significant intercompany balances and transactions have been eliminated in
consolidation.
c. Foreign Currency Translation: Assets and liabilities are translated into
U.S. dollars at year-end exchange rates. Revenues and expenses are translated
using the average rates of exchange for the year. Adjustments resulting from the
translation of a foreign currency financial statement into the reporting
currency, U.S. dollars, are made directly to a separate component of common
stockholder's equity. Exchange gains and losses from transactions denominated in
a currency other than a company's functional currency are included in income.
d. Fiscal Year-End: The Company has adopted a 52-53 week fiscal year ("FY")
ending on the last Saturday in March. FYs 1997 and 1995 include 52 weeks and FY
1996 includes 53 weeks.
e. Cash and Cash Equivalents: The Company considers all investments with
original maturities of three months or less to be cash equivalents. The Company
maintains the majority of its cash in bank deposit accounts with two commercial
banks with high credit ratings in the U.S. and Canada. The Company does not
believe it is exposed to any significant credit risk on cash and equivalents.
f. Inventories: Inventories are stated at the lower of cost or market. Raw
materials and supply costs are determined by either the first-in, first-out
(FIFO) or the average cost method. Finished goods costs are determined by either
the last-in, first-out (LIFO) or average cost method.
g. Revenue Recognition: Revenue is recognized by the Company upon the
transfer of title to the customer, which is generally at the time product is
shipped.
h. Property, Plant and Equipment: Property, plant and equipment, including
assets under capital leases, are stated at cost and include interest on funds
borrowed to finance construction. The costs of replacements or renewals which
improve or extend the life of existing property are capitalized. Maintenance and
repairs are expensed as incurred. The costs of certain major maintenance
projects are accrued ratably over the periods prior to the next scheduled
maintenance project. Depreciation and amortization are provided on the
straight-line method over the following estimated useful lives:
31
<PAGE>
Land improvements........................................ 5 to 25 years
Buildings and improvements...............................10 to 40 years
Machinery and equipment.................................. 3 to 18 years
Solar ponds complex......................................10 to 20 years
Rolling stock and track..................................15 to 25 years
Furniture and fixtures................................... 3 to 10 years
i. Deferred Financing Costs: Deferred financing costs are net of
accumulated amortization of $13,428,000 in FY 1996 and $18,727,000 in FY 1997.
Deferred financing costs are amortized using the effective interest rate method
over the term of the related debt.
j. Income Taxes: HCG files consolidated federal income tax returns with Harris
and its U.S. subsidiaries. Under the Tax Sharing Agreement, Harris generally
agrees to reimburse HCG in amounts designed to approximate the amount of income
taxes that Harris and its wholly owned subsidiaries (other than Sifto) would
have paid had they filed consolidated federal income tax returns (and analogous
state and local returns) separate from HCG. Sifto files a separate Canadian
income tax return.
The Company accounts for income taxes using the liability method in accordance
with the provisions of Statement of Financial Accounting Standards No. 109 -
Accounting for Income Taxes ("SFAS 109"). Under the liability method, deferred
taxes are determined based on the differences between the financial statement
and the tax basis of assets and liabilities using enacted tax rates in effect in
the years in which the differences are expected to reverse.
k. Research and Development Expenses: Research and development expenditures
are expensed as incurred and were approximately $941,000, $1,041,000 and
$1,010,000 in FYs 1995, 1996 and 1997, respectively.
l. Environmental Costs: Environmental costs, other than those of a capital
nature, are accrued at the time the exposure becomes known and costs can
reasonably be estimated. Costs are accrued based upon management's estimates of
all direct costs, after taking into account reimbursement by third parties
(primarily the sellers of acquired businesses), and are reviewed by outside
consultants. Environmental costs are charged to expense unless a settlement with
an indemnifying party has been reached. Reimbursement of costs previously
expensed is recorded as a reduction of operating expense when settlement with
the indemnifying party is reached. The Company does not accrue liabilities for
unasserted claims that are not probable of assertion, nor does it provide for
environmental clean-up costs, if any, at the end of the useful lives of its
facilities because, given the long lives of its mineral deposits, it is not
practical to estimate such costs.
m. Reclassifications: Certain reclassifications have been made to the prior
years' financial statements to conform with the current year presentation.
3. Inventories:
Inventories are stated at the lower of cost or market, and consist of the
following (in thousands):
March 30, 1996 March 29, 1997
-------------------- --------------------
Finished goods .................. $68,951 $54,820
Raw materials and supplies ...... 34,304 31,998
-------------------- --------------------
$103,255 $86,818
==================== ====================
As of March 30, 1996 and March 29, 1997 approximately 49% and 52%, respectively,
of finished goods inventories are valued at LIFO. The excess of LIFO costs over
the current cost of inventories based upon the LIFO method (and after lower of
cost or market adjustments) was $2,819,000 at March 30, 1996 and $3,402,000 at
March 29, 1997.
32
<PAGE>
4. Property, Plant & Equipment:
Property, plant and equipment consists of the following (in thousands):
March 30, 1996 March 29, 1997
------------------ ------------------
Land and improvements ............ $27,589 $30,992
Buildings and improvements ....... 49,826 76,764
Machinery and equipment .......... 461,785 523,295
Solar ponds complex .............. 32,923 33,233
Rolling stock and track .......... 7,332 7,464
Furniture and fixtures ........... 8,578 8,724
Construction in progress ......... 78,962 22,472
------------------ ------------------
666,995 702,944
Less accumulated depreciation .... 263,709 314,933
------------------ ------------------
$403,286 $388,011
================== ==================
In April, 1996, the Company discontinued production at a section of its facility
located in Searles Valley, California. The shutdown was an element of the
Company's strategic capital expenditure program to increase soda ash production
and reduce boron and soda ash production costs. The amount of the loss due to
the discontinued production was $7.0 million which is reflected as a charge
against operating income as of March 30, 1996. To the extent that assets were no
longer of any use to other production facilities at the Searles Valley location,
they were written off in their entirety as they represent no additional value to
the Company. For those assets which can be used by other production facilities,
the values were transferred to those facilities at their net book value as of
March 30, 1996.
In connection with Argus Utilities Financing (see Note 7), the Company extended
the useful lives of Argus Utilities plant and equipment with a net book value of
$28.2 million to 15 years to match the terms of the lease. This revision in
useful lives reduced depreciation expense and the net loss by $6.5 million in FY
1997.
5. Income Taxes:
The income tax provisions for FYs 1995, 1996 and 1997 consist of the following
(in thousands):
FY 1995 FY 1996 FY 1997
----------- ----------- -----------
Current:
Federal ......................... $ - $ 50 $ 545
State ........................... - 150 760
Foreign income .................. 221 438 645
Foreign mining .................. 2,391 984 3,050
----------- ----------- -----------
Total current ................. 2,612 1,622 5,000
----------- ----------- -----------
Deferred:
Federal ......................... (11,350 (14,362) (13,577)
State ........................... (2,620) (3,314) (3,133)
Foreign income .................. 1,367 2,403 3,366
Foreign mining .................. 767 1,032 532
Change in valuation allowance ... 14,532 17,819 16,912
----------- ----------- -----------
Total deferred ................ 2,696 3,578 4,100
----------- ----------- -----------
Total provision for income taxes .. $ 5,308 $ 5,200 $ 9,100
=========== =========== ===========
33
<PAGE>
The sources of income (loss) before taxes are as follows (in thousands):
FY 1995 FY 1996 FY 1997
----------- ----------- -----------
United States ..................... $ (31,939) $ (31,877) $ (27,821)
Foreign ........................... 5,951 8,335 15,488
----------- ----------- -----------
Income (loss) before taxes ........ $ (25,988) $ (23,542) $ (12,333)
=========== =========== ===========
The Company does not provide U.S. federal income taxes on undistributed earnings
of foreign subsidiaries that are not currently taxable in the United States. No
undistributed earnings of foreign subsidiaries were subject to U.S. income tax
in FY 1995, FY 1996 or FY 1997. Total undistributed earnings on which no U.S.
federal income tax has been provided were $28.8 million at March 29, 1997. If
these earnings are distributed, foreign tax credits may become available under
current law to reduce or possibly eliminate the resulting U.S. income tax
liability.
Reconciliation of the U.S. statutory federal income tax rate to the
effective income tax rate is as follows:
<TABLE>
FY 1995 FY 1996 FY 1997
------------- ------------- -------------
<S> <C> <C> <C>
U.S. federal statutory tax rate .................. 35.0% 35.0% 35.0%
U.S. statutory depletion ......................... 18.9 22.9 39.4
State income taxes, net of federal tax benefit ... 6.1 9.2 12.5
Foreign income tax rate differential ............. (6.1) 0.3 11.4
Foreign mining taxes ............................. (12.5) (8.6) (29.0)
Change in valuation allowance..................... (55.9) (75.7) (137.2)
Other, net ....................................... (5.9) (5.2) (5.9)
------------- ------------- -------------
Effective tax rate ........................... (20.4)% (22.1)% (73.8)%
============= ============= =============
</TABLE>
Under SFAS 109, deferred tax assets and liabilities are recognized for the
estimated future tax effects, based on enacted tax law, of temporary differences
between the values of assets and liabilities recorded for financial reporting
and for tax purposes and of net operating loss and other carryforwards. The tax
effects of the types of temporary differences and carryforwards that give rise
to deferred tax assets and liabilities are as follows (in thousands):
March 30, March 29,
1996 1997
----------- -----------
Deferred tax liabilities:
Fixed assets and depreciation ................ $ 53,025 $ 40,385
Inventories .................................. 598 521
Other ........................................ 8,761 7,924
----------- -----------
62,384 48,830
----------- -----------
Deferred tax assets:
Inventories .................................. 202 202
Accrued reserves and liabilities ............. 10,276 7,640
Interest on high yield debt .................. 19,853 19,795
Prepaid income ............................... 0 9,627
Net operating loss carryforwards ............. 77,973 72,946
Alternative minimum tax credit carryforwards . 2,228 2,720
Other ........................................ 8,711 5,902
----------- -----------
119,243 118,832
Less valuation allowance ......................... 73,489 90,401
----------- -----------
45,754 28,431
----------- -----------
Net deferred tax liabilities ..................... 16,630 20,399
Less net current deferred tax assets ............. 6,235 6,019
----------- -----------
Net long-term deferred tax liabilities ........... $ 22,865 $ 26,418
=========== ===========
34
<PAGE>
SFAS 109 requires a valuation allowance against deferred tax assets if, based on
available evidence, it is more likely than not that some or all of the deferred
tax assets will not be realized. The Company believes that some uncertainty
exists with respect to the future utilization of net operating loss
carryforwards and foreign currency translation losses; therefore, the Company
carried a valuation allowance relating to such items of $73,489,000 and
$90,401,000 as of March 30, 1996 and March 29, 1997, respectively.
At March 29, 1997, net operating loss carryforwards for U.S. federal income tax
purposes available to offset future taxable income for the Company are
approximately $186,700,000. If not utilized, these carryforwards expire in the
FYs 2005 through 2012. As of March 29, 1997, Sifto has fully utilized its
Canadian federal and provincial net operating loss carryforwards.
In addition, the Company has an alternative minimum tax credit carryforward at
March 29, 1997 of approximately $2,720,000. These credit carryforwards may be
carried forward indefinitely to offset any excess of regular tax liability over
alternative minimum tax liability subject to certain separate company
limitations. To the extent not offset by a valuation allowance, these net
operating loss and alternative minimum tax credit carryforwards have been
reflected as a reduction of noncurrent deferred income tax liabilities for
financial reporting purposes.
6. Other Income:
Other income, net consists of the following (in thousands):
<TABLE>
FY 1995 FY 1996 FY 1997
---------------- ---------------- ----------------
<S> <C> <C> <C>
Land lease and revenue sharing - cogeneration facility ... $3,062 $4,033 $4,774
Interest income .......................................... 187 379 213
Equity income (loss) in Harris Chemical Europe Ltd. ...... 625 513 (399)
Other .................................................... 2,070 1,315 (672)
---------------- ---------------- ----------------
Other income, net ..................................... $5,944 $6,240 $3,916
================ ================ ================
</TABLE>
7. Long-term Debt:
Long-term debt consists of the following (in thousands):
<TABLE>
March 30, 1996 March 29, 1997
---------------------- -----------------------
<S> <C> <C>
Senior debt:
Notes payable, 8.5%, due July 15, 2000 .................... $ 100,000 $ 100,000
Notes payable, 10.25%, due July 15, 2001 ................. 250,000 250,000
Senior subordinated debt:
Notes payable, 10.75%, due October 15, 2003 ............... 335,000 335,000
Revolving lines of credit ........................................ 79,000 -
Argus utilities notes payable, 12.3%, due through 2011 ........... - 71,502
Other, including capital lease obligations ....................... 28,258 27,273
---------------------- -----------------------
792,258 783,775
Less current portion (6,788) (9,403)
---------------------- -----------------------
$785,470 $774,372
====================== =======================
</TABLE>
Contractual maturities of long-term debt are as follows (in thousands):
$9,403 in FY 1998; $9,224 in FY 1999; $5,065 in FY 2000; $104,080 in FY 2001;
$253,829 in FY2002 and $402,174 thereafter.
In FY 1994, Harris issued $250 million of 10.25% Senior Secured Discount Notes
due July 15, 2001 (the "Discount Notes"), $335 million of 10.75% Senior
Subordinated Notes due October 15, 2003 (the "Senior Subordinated Notes") and
Sifto issued $100 million of 8.5% Senior Secured Notes due July 15, 2000 (the
"Sifto Notes"). The Discount Notes, the Senior Subordinated Notes and the Sifto
Notes are collectively referred to herein as the "Notes." The Sifto Notes
require interest payments each January 15 and July 15. The Discount Notes began
accruing cash interest January 15, 1996 with interest payable each January 15
and July 15 starting July 15, 1996. The Senior Subordinated Notes require
interest payments each April 15 and October 15.
35
<PAGE>
The Discount Notes and Senior Subordinated Notes are redeemable at any time on
or after October 15, 1998 and prior to maturity at the option of Harris, in
whole or in part, at the following redemption prices (expressed as percentages
of principal amount) plus accrued interest if redeemed during the 12-month
periods beginning October 15 of the years indicated:
Senior Subordinated
Senior Notes Notes
---------------------- ------------------------
1998 ........................ 103.0% 104.05%
1999 ........................ 101.5% 102.70%
2000 ........................ 100.0% 101.35%
2001 and thereafter ......... 100.0% 100.00%
Harris has pledged the common stock of NACC, NAMSCO and GSL for the benefit of
the Discount Notes and the Sifto Notes. The stock of Sifto has not been pledged.
All trade accounts receivable and product inventories have been pledged under
the revolving lines of credit. All other assets of Sifto are pledged for the
benefit of the Sifto Notes.
At March 29, 1997, the Company had revolving lines of credit totalling $150
million, including a commitment of $130 million for its U.S. entities (NACC,
NAMSCO and GSL) and a Canadian commitment of $20 million for Sifto. These Bank
Agreements terminate the earlier of February 28, 2002 or February 15, 2001, if
any Discount Notes are outstanding on such date. These lines of credit bear
interest, at Harris' option, at either a defined U.S. Base Rate (or in the case
of Sifto's Canadian Dollar borrowings, a defined Canadian Prime Rate) plus 1.50%
or the London Interbank Offered Rate (LIBOR) (or in the case of Sifto's Canadian
Dollar borrowings, a defined BA Loan Rate) plus 2.75%. Commitment fees of 0.375%
per year of the unused portion of the lines are payable quarterly. Borrowing
capacity under these lines of credit is reduced by outstanding letters of
credit, which were $29.0 million at March 29, 1997 for NACC, NAMSCO and GSL. The
Company had $78.9 million of available borrowing capacity under its revolving
credit agreements at March 29, 1997.
The Notes and Bank Agreements described above contain various restrictive
covenants which limit among other things, indebtedness, dividends and stock
repurchases, transactions with affiliates and related persons, liens, sale and
leaseback transactions, mergers and consolidations, dividend and other payment
restrictions affecting restricted subsidiaries disposition of proceeds of asset
sales and capital expenditures. In addition, the Bank Agreements require Harris
to maintain certain minimum interest coverage, fixed charge and net funded debt
coverage ratios, all of which were met for fiscal year 1997.
In July 1996, NACC entered into an agreement for the sale and leaseback of an
electric and steam generating facility associated with its Searles Valley soda
ash facilities (the "Argus Utilities"). Under the terms of the agreement the
Argus Utilities were sold to two institutional investors for $75 million,
approximately $70.0 million in cash, net of related expenses and taxes. The
initial term of the lease is 13 years with a two-to-fifteen year reduced rate
renewal option. After expiration of the reduced rate renewal period there are
three fair market renewal options of up to 5 years each. The Company has
provided a guarantee for the performance of NACC's obligations under the lease
and related agreements. In addition, during the initial term of the lease NACC
is required to provide letters of credit of approximately $15 million as
additional credit support. The Company has also agreed to certain covenants,
including maintaining access to adequate working capital, meeting fixed charge
and interest coverage ratios, and restrictions on assets dispositions and
mergers. The transaction is being accounted for as a financing transaction
during the initial and reduced rate rental periods. Proceeds from this
transaction were used to reduce the outstanding revolving credit balance.
8. Employee Benefit Plans:
The Company has a 401(k) retirement savings and investment plan covering
substantially all employees. Contributions are made to this plan by participants
through voluntary salary deferral and by the Company in accordance with the
terms of the plan. Company contributions to the plan were approximately
$4,184,000, $6,295,000 and $6,199,000 in FYs 1995, 1996 and 1997, respectively.
NAMSCO and GSL have defined benefit pension plans that cover certain of its
hourly employees. Benefits are based on years of service and levels of
compensation. NAMSCO and GSL fund an amount equal to the maximum allowable
deduction for tax purposes. Net periodic pension cost (income) for FYs 1995,
1996 and 1997 was $(471,000), $95,000 and $86,000, respectively. The Company
froze the benefits and future participation of the GSL plan in FY 1995 and
recognized a curtailment gain of approximately $577,000. The Company distributed
the assets of this plan to the vested participants in FY 1997. At March 29,
1997, the NAMSCO plan is fully funded and has a net accrued pension asset of
$218,000.
36
<PAGE>
The Company offers a variety of health and welfare benefit plans to active
employees. No Company-sponsored health and welfare benefit plans are offered to
retirees.
9. Commitments and Contingencies:
The Company is involved in legal and administrative proceedings and claims of
various types from normal business activities. While any litigation contains an
element of uncertainty, management, based upon the opinion of the Company's
counsel, presently believes that the outcome of each such proceeding or claim
which is pending or known to be threatened, or all of them combined, will not
have a material adverse effect on the Company's results of operations or
financial position.
Leases: The Company leases certain property and equipment under non-cancelable
operating leases for varying periods. The Company also leases various equipment
under capital leases with a net book value of $17,240,000 and $16,828,000 at
March 30, 1996 and March 29, 1997, respectively, that are included in property,
plant, and equipment in the accompanying consolidated balance sheet.
The aggregate minimum annual rentals under lease arrangements are as follows (in
thousands):
Fiscal Capital Operating
Year Leases Leases
- -------------------------------------------------- ----------- -----------
1998 .......................................... $ 8,973 $ 15,606
1999 .......................................... 6,290 14,473
2000 .......................................... 3,987 13,512
2001 .......................................... 2,251 13,106
2002 .......................................... 1,812 12,764
Thereafter .................................... 45,475 126,236
----------- -----------
Total ................................... 68,788 $195,697
===========
Less amounts representing interest ............ (50,090)
-----------
Present value of net minimum lease payments ... $18,698
===========
Rental expense, net of sublease income, for FYs 1995, 1996 and 1997 was
$14,752,000, $16,514,000 and $16,603,000, respectively.
Royalties: A substantial portion of the land used in the Company's operations at
the Searles Valley facility is owned by the U.S. government. The Company pays a
royalty to the U.S. government of 5% on the sales value of the minerals
extracted from government land. The leases generally have a term of 10 years
with preferential renewal options. Total royalty expense was approximately
$5,623,000, $6,732,000 and $4,675,000 in FYs 1995, 1996 and 1997, respectively.
In addition, the Company has various private, state and Canadian provincial
leases associated with the salt and specialty potash businesses. Total royalty
expense related to these leases was approximately $3,403,000, $2,018,000 and
$3,459,000 in FYs 1995, 1996 and 1997, respectively.
Purchase Commitments: NACC is committed under a contract to purchase a
percentage of tons of coal based on total coal purchases per year, at agreed
upon prices, for operations at its Searles Valley facility in California. The
contract continues through December 1999, with an option to extend the agreement
an additional five years.
Environmental Matters: At March 29, 1997, the Company has recorded accruals of
$15.1 million ($3.8 million classified in accrued expenses and $11.3 million
classified in other noncurrent liabilities) for future costs associated with
existing environmental exposures at certain of its facilities. The Company
estimates that a significant portion of these accruals will be used over the
next five years. It is the opinion of management that the outcome of known
environmental contingencies will not have a material adverse effect on the
operations, financial position or liquidity of the Company.
10. Acquisition:
On August 24, 1995, NACC and NaTec Resources, Inc. ("NRI") executed an agreement
regarding the acquisition by NACC of the remaining 50% interest in White River
Nahcolite Limited Liability Co. ("White River") owned by NRI. Pursuant to that
agreement, the consideration paid to NRI totalled $9,508,000 consisting of (i)
$500,000 in cash paid by NACC to NRI,
37
<PAGE>
(ii) a $4.0 million non-interest bearing promissory note of NACC payable in
installments through the third anniversary of the closing date (discounted
balance $3,236,000) and (iii) a $6.0 million non-interest bearing promissory
note of White River which was paid on January 12, 1996 (discounted balance
$5,772,000). The remaining note is collateralized by substantially all of White
River's assets.
As a result of the acquisition, NACC owns 100% of White River. The Company
accounted for the acquisition as a purchase and beginning August 24, 1995 the
accounts of White River were consolidated in the accompanying financial
statements. The effect of the purchase on the Company's consolidated balance
sheet was a decrease to investments of $12.2 million (to eliminate the original
50% equity investment which is now consolidated) and an increase in assets and
liabilities of $24.7 million and $3.0 million, respectively (to consolidate the
accounts of White River). If the acquisition had occurred at the beginning of FY
95, the Company's results of operations would not be materially different than
those reflected in the accompanying financial statements.
11. Related Party Transactions:
HCG's wholly owned subsidiaries include Harris (see Note 1), Harris Chemical
Europe, Ltd. ("HCEL") and Harris Chemical Group Europe, Inc. ("HCGE"). The
principal wholly owned subsidiaries of HCEL include NAMSCO (UK), Ltd. ("NUK"),
with salt operations in the United Kingdom (Salt Union Ltd. or "SUL"), Matthes +
Weber GmbH ("M&W"), with soda operations in Germany, Harris Soda Products Europe
("HSPE") which is based in France and markets and sells soda products in Europe,
and Societa Chimica Larderello ("SCL"), with boron operations in Italy. In
addition, certain stockholders of HCG have minority ownership interests in
Penrice Soda Products Pty Ltd. ("Penrice"), U.S. Silica and Harris Specialty
Chemical Company. These entities are collectively referred to as HCG affiliates.
The Company has management services agreements with HCG and certain of its
affiliates and the Company occasionally purchases and sells products to HCG
affiliates in the ordinary course of business. The following table summarizes
the revenues (expenses) with HCG affiliates in FY's 1995, 1996 and 1997 (in
thousands):
<TABLE>
FY 1995 FY 1996 FY 1997
-------------- ------------- --------------
<S> <C> <C> <C>
Harris services agreement with HCG $408 $408 $408
NAMSCO services agreement with NUK 388 403 378
NAMSCO fee to HCGE for services to NUK (274) (282) (378)
NACC technical services agreement with SCL - - (105)
NACC inventory sales to SCL 1,345 1,852 217
GSL inventory sales to SCL 639 911 356
NACC inventory sales to HSPE - - 66
NACC inventory sales to Penrice - - 118
NACC inventory purchases from SCL 4,031 2,643 2,963
GSL inventory purchases from SCL - - 343
</TABLE>
Pursuant to the credit agreements, Harris is allowed to pay to HCG an amount not
to exceed $750,000 per fiscal year for the purpose of enabling HCG to pay its
actual operating expenses in the ordinary course of business. The total amount
paid by Harris to HCG was $750,000 in FY's 1995, 1996 and 1997. At March 30,
1996 and March 29, 1997, the Company has a balance due from HCG of approximately
$3,083,000 and $3,462,000 respectively, classified as a reduction in
stockholder's equity. Such amount consists of advances to HCG for the repurchase
of common shares of HCG from employees who terminated their relationship with
the Company and the services agreement with Harris (see above).
The Company has net receivables from HCG affiliates totalling $740,000 and
$458,000 at March 30, 1996 and March 29, 1997, respectively.
In FY 1996, NAMSCO exchanged its 5.6% economic ownership in NUK for a 6.51%
economic ownership in Harris Chemical Europe Limited ("HCEL"), a corporation
organized under the laws of the United Kingdom. NAMSCO has recorded an equity
investment in NUK of $1,520,000 at March 25, 1995 and an equity investment in
HCEL of $1,961,000 at March 30, 1996 and $1,674,000 at March 29, 1997.
The Company entered into an agreement in FY 1994 to become a distributor of SCL
products to the U.S. market. SCL also distributes certain boron chemical
products of the Company in Europe. The Company prepaid to SCL $1,345,000 and
$1,300,000 in FY's 1995 and 1997, respectively, for boron containing minerals
used in SCL's production process. In FY 1997, NACC entered into a technical
services agreement with SCL for $250,000 annually to compensate SCL for
providing
38
<PAGE>
technical expertise and assistance to NACC in specialty boron production.
Additionally, in FY 1997, an agreement was reached whereby NACC purchased
patents from SCL for $2,750,000. The $2,750,000 is reflected as a payable to SCL
and a reduction to paid in capital in the accompanying balance sheet and
statement of common stockholder's equity. The Company had net receivables due
from SCL of $665,000, $241,000 and $91,000 at March 25, 1995, March 30, 1996 and
March 29, 1997, respectively.
In FY 1996, certain stockholders of HCG purchased a minority interest in
Penrice, an Australian enterprise engaged in the production and distribution of
soda ash products. In connection therewith, HCG obtained an option agreement
that permits HCG to purchase Penrice at fair market value under certain
circumstances. HCG transferred this option to the Company. In addition, HCG
permitted the Company to enter into a services agreement with Penrice. The
agreement provides that Penrice will pay the Company 200,000 Australian dollars
per year beginning in FY 1997 for management consulting and operating support
services. Management believes this agreement will also open up new markets for
certain of the Company's products. The Company agreed to consideration of $2.0
million to HCG which is the estimated fair market value to HCNA of the above
agreements. The $2.0 million is reflected as a reduction of both stockholder's
receivable and paid in capital in the accompanying balance sheet and statement
of common stockholder's equity.
In 1993, NACC entered into an agreement to sell its port facilities in San Diego
to SDT Capital, Inc. ("SDT") for $5.5 million, and lease such facilities back
from SDT. SDT's president is a relative of a former officer of Harris who is a
shareholder in HCG. Annual rentals under the agreement are $1.7 million per year
payable quarterly for the initial four-year period and the first and second
five-year option periods. The annual rentals for the first and second option
periods will be increased for any increases in the seven-year U.S. Treasury note
rate. Additional rents are due at $3 per ton for shipments in excess of 850,000
tons per year through the end of the second option period. Three additional
five-year option periods and a final six-year option period will have rents
based on fair market value rents as agreed to by SDT and the Company. The
Company has the option to repurchase the facilities at the end of either the
initial lease period (December 31, 1997) or any renewal option period for the
greater of $7.0 million or fair market value. However, the Company must purchase
the facility for the greater of $7.0 million or fair market value at the end of
any lease period in which the lease is not extended. This transaction is being
accounted for as a financing with the difference between the initial stated
value of $5.5 million and the minimum repurchase value of $7.0 million being
accrued through the term of lease. The Company has begun negotiations with SDT
to possibly repurchase the facilities at December 31, 1997. The agreement states
that fair market value shall be mutually agreed upon by the Company and SDT.
However, if the Company and SDT are unable to agree, then fair market value is
determined through an appraisal process.
12. Fair Value of Financial Instruments:
The carrying amounts and estimated fair values of the Company's financial
instruments at March 29, 1997 are as follows (in thousands):
Carrying Estimated
Value Fair Value
-------------- --------------
Senior debt:
Notes payable, 8.5% .................. $100,000 $99,875
Notes payable, 10.25% ................ 250,000 255,000
Subordinated debt:
Notes payable, 10.75% ............... 335,000 337,513
Revolving lines of credit ................ - -
Argus utilities notes payable, 12.3% ..... 71,502 71,502
Other, including capital leases .......... 27,273 27,273
The following methods and assumptions were used to estimate the fair value of
the financial instruments:
Senior debt: The fair value is based on the quoted market price at the
close of trading on March 28, 1997.
Subordinated debt: The fair value is based on the quoted market price at
the close of trading on March 28, 1997.
Revolving Lines of Credit: The interest rate is variable, based on either
the bank's base rate plus 1.50% or LIBOR plus 2.75%. Under the assumption
that the interest rate, including the applicable margin percentage, is
reflective of current interest rates available to the Company for
obligations with similar terms and maturities, the fair value approximates
carrying value.
39
<PAGE>
Argus utilities and other, including capital leases: Under the assumption
that the interest rate, including the applicable margin percentage, is
reflective of current interest rates available to the Company for
obligations with similar terms and maturities, the fair value approximates
carrying value.
13. Export Sales:
Export sales from the United States were as follows (in millions):
FY 1995 FY 1996 FY 1997
----------- ----------- -----------
Asia/Pacific rim ........ $ 60.0 $51.9 $ 58.3
Latin America ........... 17.3 21.5 25.9
Europe .................. 15.5 14.9 11.2
Canada .................. 3.8 4.5 4.2
Other ................... 6.3 6.1 7.0
----------- ----------- -----------
Total ............. $102.9 $98.9 $106.6
=========== =========== ===========
14. Valuation and Qualifying Accounts:
Activity in the valuation and qualifying accounts for the years ended March 25,
1995, March 30, 1996 and March 29, 1997 is as follows:
<TABLE>
Additions Additions
Charged Charged
Balance at to to Balance at
Beginning Costs and Other End of
of Period Expenses Accounts Deductions Period
(000's) (000's) (000's) (000's) (000's)
-------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Year ended March 25, 1995:
Allowance for doubtful accounts....... $ 1,707 $ (61) $ 494 $ 985 $ 1,155
Inventory obsolescence reserves ...... 1,833 400 235 946 1,522
Accumulated amortization:
Deferred financing costs .......... 2,704 4,755 - - 7,459
Deferred organization costs ....... 240 530 - - 770
Year ended March 30, 1996:
Allowance for doubtful accounts....... $ 1,155 $ 1,381 $ 65 $ 265 $ 2,336
Inventory obsolescence reserves ...... 1,522 985 201 1,259 1,449
Accumulated amortization:
Deferred financing costs .......... 7,459 5,888 81 - 13,428
Deferred organization costs ....... 770 553 406 - 1,729
Year ended March 29, 1997:
Allowance for doubtful accounts....... $ 2,336 $ 2,909 $ 71 $ 3,600 $ 1,716
Inventory obsolescence reserves ...... 1,449 1,804 1 997 2,257
Accumulated amortization:
Deferred financing costs .......... 13,428 5,336 - 37 18,727
Deferred organization costs ....... 1,729 545 - - 2,274
</TABLE>
40
<PAGE>
15. 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,
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.
41
<PAGE>
<TABLE>
<CAPTION>
HARRIS CHEMICAL NORTH AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
CONDENSED CONSOLIDATING BALANCE SHEETS
March 30, 1996
(in thousands)
NACC GSL NAMSCO Sifto HCNA Eliminations Consolidated
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Cash and cash equivalents.... $ - $ - $ - $ 9,093 $ 2,411 $ (2,411) $ 9,093
Receivables, net ............ 49,797 12,700 35,440 20,439 738 - 119,114
Inventories ................. 46,195 22,924 21,662 12,886 - (412) 103,255
Other current assets ........ 8,681 336 761 813 431 - 11,022
Property, plant and
equipment, net ............ 236,218 40,874 62,087 64,107 - - 403,286
Investment in Sifto ......... - - 2,513 - - (2,513) -
Other ....................... 5,308 56 2,189 2,948 362,512 (340,810) 32,203
---------------------------------------------------------------------------------------
Total assets ................ $ 346,199 $ 76,890 $ 124,652 $ 110,286 $ 366,092 $(346,146) $ 677,973
=======================================================================================
Total current liabilities.... $ 54,636 $ 13,918 $ 23,932 $ 15,802 $ 25,727 $ (2,411) $ 131,604
Long-term debt, net of
current portion ........... 48,769 8,722 42,108 100,871 585,000 - 785,470
Other noncurrent liabilities. 98,930 (8,449) (50,142) (13,234) 36,295 (21,571) 41,829
Total common stockholder's
equity (deficit) .......... 143,864 62,699 108,754 6,847 (280,930) (322,164) (280,930)
---------------------------------------------------------------------------------------
Total liabilities and
common stockholder's
equity (deficit) .......... $ 346,199 $ 76,890 $ 124,652 $ 110,286 $ 366,092 $(346,146) $ 677,973
=======================================================================================
CONDENSED CONSOLIDATING BALANCE SHEETS
March 29, 1997
(in thousands)
NACC GSL NAMSCO Sifto HCNA Eliminations Consolidated
----------------------------------------------------------------------------------------
Cash and cash equivalents.... $ - $ - $ (3,980) $ 5,561 $ 15,495 $ - $ 17,076
Receivables, net ............ 49,298 24,502 30,630 22,754 458 - 127,642
Inventories ................. 39,403 15,389 20,663 11,983 - (620) 86,818
Other current assets ........ 9,539 185 1,979 752 502 - 12,957
Property, plant and
equipment, net ............ 216,334 42,828 65,206 63,643 - - 388,011
Investment in Sifto ......... - - 2,513 - - (2,513) -
Other ....................... 10,006 46 1,833 2,410 413,250 (394,655) 32,890
---------------------------------------------------------------------------------------
Total assets ................ $ 324,580 $ 82,950 $ 118,844 $ 107,103 $ 429,705 $(397,788) $ 665,394
=======================================================================================
Total current liabilities.... $ 52,129 $ 14,020 $ 21,936 $ 20,797 $ 25,599 $ 53 $ 134,534
Long-term debt, net of
current portion ........... 83,234 1,440 2,878 101,820 585,000 - 774,372
Other noncurrent liabilities. 43,718 (5,629) (32,875) (30,001) 125,537 (37,831) 62,919
Total common stockholder's
equity (deficit) .......... 145,499 73,119 126,905 14,487 (306,431) (360,010) (306,431)
---------------------------------------------------------------------------------------
Total liabilities and
common stockholder's
equity (deficit) .......... $ 324,580 $ 82,950 $ 118,844 $ 107,103 $ 429,705 $(397,788) $ 665,394
=======================================================================================
</TABLE>
42
<PAGE>
<TABLE>
<CAPTION>
HARRIS CHEMICAL NORTH AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
For the Fiscal Year Ended March 25, 1995
(in thousands)
NACC GSL NAMSCO Sifto HCNA Eliminations Consolidated
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales ................... $ 193,920 $ 70,936 $ 133,305 $ 91,027 $ - $ (53,324) $ 435,864
Cost of sales ............... 173,839 58,297 89,813 62,669 - (52,669) 331,949
---------------------------------------------------------------------------------------
Gross profit .............. 20,081 12,639 43,492 28,358 - (655) 103,915
Selling, general and
administrative expenses... 21,538 5,399 15,219 10,751 2,671 - 55,578
---------------------------------------------------------------------------------------
Operating income (loss) .. (1,457) 7,240 28,273 17,607 (2,671) (655) 48,337
Interest expense ............ (456) (91) (1,055) (9,641) (67,283) - (78,526)
Other income (expense) ...... 4,939 7,380 (6,103) (2,015) 38,658 (38,658) 4,201
---------------------------------------------------------------------------------------
Income (loss) before
provision for income
taxes .................... 3,026 14,529 21,115 5,951 (31,296) (39,313) (25,988)
Provision (benefit) for
income taxes ............. - 4,423 8,083 4,833 - (12,031) 5,308
---------------------------------------------------------------------------------------
Net income (loss) ........ $ 3,026 $ 10,106 $ 13,032 $ 1,118 $ (31,296) $ (27,282) $ (31,296)
=======================================================================================
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
For the Fiscal Year Ended March 30, 1996
(in thousands)
NACC GSL NAMSCO Sifto HCNA Eliminations Consolidated
----------------------------------------------------------------------------------------
Net sales ................... $ 202,797 $ 67,943 $ 154,840 $ 94,023 $ - $ (44,129) $ 475,474
Cost of sales ............... 172,192 54,574 104,268 64,208 - (44,202) 351,040
---------------------------------------------------------------------------------------
Gross profit .............. 30,605 13,369 50,572 29,815 - 73 124,434
Selling, general and
administrative expenses .. 25,197 5,302 18,908 11,818 3,048 - 64,273
Write down of assets ........ 7,044 - - - - - 7,044
---------------------------------------------------------------------------------------
Operating income (loss) .. (1,636) 8,067 31,664 17,997 (3,048) 73 53,117
Interest expense ............ 284 (218) 443 (11,696) (73,751) - (84,938)
Other income (expense) ...... 5,853 6,956 (6,564) 2,034 48,176 (48,176) 8,279
---------------------------------------------------------------------------------------
Income (loss) before
provision for income
taxes .................... 4,501 14,805 25,543 8,335 (28,623) (48,103) (23,542)
Provision (benefit) for
income taxes ............. - 2,991 4,891 4,300 119 (7,101) 5,200
---------------------------------------------------------------------------------------
Net income (loss) ........ $ 4,501 $ 11,814 $ 20,652 $ 4,035 $ (28,742) $ (41,002) $ (28,742)
=======================================================================================
</TABLE>
43
<PAGE>
<TABLE>
<CAPTION>
HARRIS CHEMICAL NORTH AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
For the Fiscal Year Ended March 29, 1997
(in thousands)
NACC GSL NAMSCO Sifto HCNA Eliminations Consolidated
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales ................... $ 197,717 $ 84,490 $ 159,606 $ 105,080 $ - $ (38,271) $ 508,622
Cost of sales ............... 172,508 69,068 106,602 64,021 - (38,062) 374,137
---------------------------------------------------------------------------------------
Gross profit .............. 25,209 15,422 53,004 41,059 - (209) 134,485
Selling, general and
administrative expenses .. 17,598 5,542 16,795 13,146 4,427 - 57,508
---------------------------------------------------------------------------------------
Operating income (loss) .. 7,611 9,880 36,209 27,913 (4,427) (209) 76,977
Interest expense ............ (11,293) (284) 462 (11,110) (69,700) - (91,925)
Other income (expense) ...... 5,442 6,525 (8,037) (1,315) 54,034 (54,034) 2,615
---------------------------------------------------------------------------------------
Income (loss) before
provision for income
taxes .................... 1,760 16,121 28,634 15,488 (20,093) (54,243) (12,333)
Provision (benefit) for
income taxes ............. 125 5,701 10,594 7,547 1,340 (16,207) 9,100
---------------------------------------------------------------------------------------
Net income (loss) ........ $ 1,635 $ 10,420 $ 18,040 $ 7,941 $ (21,433) $ (38,036) $ (21,433)
=======================================================================================
</TABLE>
44
<PAGE>
<TABLE>
<CAPTION>
HARRIS CHEMICAL NORTH AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
For the Fiscal Year Ended March 25, 1995
(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.. $ 78,249 $ 18,878 $ 22,991 $ 5,470 $ (6,717) $ (51,628) $ 67,243
---------------------------------------------------------------------------------------
Cash flows from investing:
Capital expenditures ..... (25,305) (3,456) (7,077) (6,231) - - (42,069)
Capitalized interest ..... (3,037) - - - - - (3,037)
Proceeds from sales ...... 896 315 8 111 - - 1,330
Other .................... 189 - (18) - 20,440 (20,440) 171
---------------------------------------------------------------------------------------
Net cash used in
investing activities ..... $ (27,257) (3,141) (7,087) (6,120) 20,440 (20,440) (43,605)
---------------------------------------------------------------------------------------
Cash flows from financing:
Gross borrowings ......... 3,000 6,200 126,900 33,773 - - 169,873
Gross repayments ......... (12,619) (12,369) (133,321) (34,251) - - (192,560)
Recapitalization costs ... - - - (92) (872) - (964)
Other .................... (41,373) (9,568) (9,483) - (1,000) 60,217 (1,207)
---------------------------------------------------------------------------------------
Net cash provided by (used
in) financing activities . (50,992) (15,737) (15,904) (570) (1,872) 60,217 (24,858)
---------------------------------------------------------------------------------------
Effect of exchange rate
changes on cash .......... - - - (27) - - (27)
---------------------------------------------------------------------------------------
Net decrease in cash and
cash equivalents ......... - - - (1,247) 11,851 (11,851) (1,247)
Cash and cash equivalents:
Beginning of period ...... - - - 6,895 - - 6,895
---------------------------------------------------------------------------------------
End of period ............ $ - $ - $ - $ 5,648 $ 11,851 $ (11,851) $ 5,648
=======================================================================================
</TABLE>
45
<PAGE>
<TABLE>
<CAPTION>
HARRIS CHEMICAL NORTH AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
For the Fiscal Year Ended March 30, 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.. $ 63,388 $ 1,107 $ (10,998) $ 6,306 $ 13,149 $ (38,737) $ 34,215
---------------------------------------------------------------------------------------
Cash flows from investing:
Capital expenditures ..... (32,369) (2,767) (3,704) (2,542) - - (41,382)
Capitalized interest ..... (4,230) - - - - - (4,230)
Proceeds from sales ...... 111 59 - 1 - - 171
Other .................... (1,679) - 29 - (18,489) 18,489 (1,650)
---------------------------------------------------------------------------------------
Net cash used in
investing activities ..... (38,167) (2,708) (3,675) (2,541) (18,489) 18,489 (47,091)
---------------------------------------------------------------------------------------
Cash flows from financing:
Gross borrowings ......... 19,643 25,184 75,342 32,118 - - 152,287
Gross repayments ......... (24,617) (18,644) (56,115) (32,556) - - (131,932)
Other .................... (20,247) (4,939) (4,554) - (4,100) 29,688 (4,152)
---------------------------------------------------------------------------------------
Net cash provided by (used
in) financing activities . (25,221) 1,601 14,673 (438) (4,100) 29,688 16,203
---------------------------------------------------------------------------------------
Effect of exchange rate
changes on cash .......... - - - 118 - - 118
---------------------------------------------------------------------------------------
Net decrease in cash and
cash equivalents ......... - - - 3,445 (9,440) 9,440 3,445
Cash and cash equivalents:
Beginning of period ...... - - - 5,648 11,851 (11,851) 5,648
---------------------------------------------------------------------------------------
End of period ............ $ - $ - $ - $ 9,093 $ 2,411 $ (2,411) $ 9,093
=======================================================================================
</TABLE>
46
<PAGE>
<TABLE>
<CAPTION>
HARRIS CHEMICAL NORTH AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
For the Fiscal Year Ended March 29, 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.. $ 29,690 $ 16,933 $ 38,177 $ 24,134 $ (16,246) $ (54,373) $ 38,315
---------------------------------------------------------------------------------------
Cash flows from investing:
Capital expenditures ..... (9,638) (6,574) (9,975) (6,532) - - (32,719)
Capitalized interest ..... (1,244) - - - - - (1,244)
Proceeds from sales ...... 24 - 503 152 - - 679
Other .................... - - - - (53,845) 53,845 -
---------------------------------------------------------------------------------------
Net cash used in
investing activities ..... (10,858) (6,574) (9,472) (6,380) (53,845) 53,845 (33,284)
---------------------------------------------------------------------------------------
Cash flows from financing:
Gross borrowings ......... 99,986 21,995 108,502 51,262 - - 281,745
Gross repayments ......... (63,493) (29,746) (148,530) (52,131) - - (293,900)
Other .................... (55,325) (2,608) 7,343 (20,295) 83,175 2,939 15,229
---------------------------------------------------------------------------------------
Net cash provided by (used
in) financing activities . (18,832) (10,359) (32,685) (21,164) 83,175 2,939 3,074
---------------------------------------------------------------------------------------
Effect of exchange rate
changes on cash .......... - - - (122) - - (122)
---------------------------------------------------------------------------------------
Net decrease in cash and
cash equivalents ......... - - (3,980) (3,532) 13,084 2,411 7,983
Cash and cash equivalents:
Beginning of period ...... - - - 9,093 2,411 (2,411) 9,093
---------------------------------------------------------------------------------------
End of period ............ $ - $ - $ (3,980) $ 5,561 $ 15,495 $ - $ 17,076
=======================================================================================
</TABLE>
47
<PAGE>
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable
Part III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth the name, age and position with Harris or
Sifto of each person who is currently an executive officer or director of Harris
or Sifto.
<TABLE>
Name Age Position
<S> <C> <C>
D. George Harris................... 64 Chairman, Chief Executive Officer and Director of Harris
Anthony J. Petrocelli.............. 59 Vice Chairman and Director of Harris
Michael R. Boyce................... 49 President, Chief Operating Officer and Director of Harris
Emanuel J. Di Teresi............... 52 Senior Vice President and Chief Financial Officer of Harris
Richard J. Donahue................. 53 Senior Vice President - Corporate Development of Harris
Donald G. Kilpatrick............... 42 Senior Vice President, Secretary and General Counsel of Harris
Richard J. Nick.................... 53 Senior Vice President - Finance and Treasurer of Harris
James T. Beale, Jr................. 53 Director of Harris
Fred W. Broling.................... 61 Director of Harris
John D. Burns...................... 64 Director of Harris
Archibald Cox, Jr.................. 56 Director of Harris
Peter J. Savage.................... 53 Director of Harris
Heinn F. Tomfohrde II.............. 63 Director of Harris
Jeffrey C. Walker.................. 41 Director of Harris
Robert F. Clark.................... 55 President of GSL
John F. Tancredi................... 54 President of NACC
Gary R. Noseworthy................. 44 Director of Sifto
Alan Hamilton...................... 45 Director of Sifto
</TABLE>
The Certificate of Incorporation and By-Laws of Harris provide for a Board of
Directors of not less than three or more than fifteen directors, with the number
of directors currently set at 11. There is currently one vacancy. Directors are
elected at the annual meeting of the stockholders. Each director holds office
until a successor is elected and qualified, or until such director's earlier
resignation or removal. Vacancies on the Board of Directors may be filled as set
forth in the Stockholders Agreement. Officers of Harris serve at the discretion
of the Board of Directors. See Item 13, "Certain Relationships and Related
Transactions--The Stockholders Agreement."
D. George Harris has been the Chairman, Chief Executive Officer and a
director of Harris since 1993 and has served as an officer and/or director of
various subsidiaries of Harris and HCG. Mr. Harris has also been a director and
Chairman of DGHA since 1989 and has served as an officer and/or director of
various affiliated companies including Harris Specialty Chemicals, Penrice Soda
Products Pty Ltd., and U.S. Silica. From 1981 through 1986, Mr. Harris was
President of SCM Chemicals (1981-1985) and SCM Corporation (1985-1986), a major
producer of consumer and industrial products with approximately $2 billion of
annual revenues. From 1975 through 1981, Mr. Harris was President of
Rhone-Poulenc U.S.A., Rhone-Poulenc's U.S. subsidiary. From 1987 to 1988, Mr.
Harris was a Senior Advisor in the Investment Banking Department of Robert
Fleming & Co., Ltd. where he was involved in global investment banking
activities covering Europe, the Far East and the United States. He is currently
a director of McWhorter Technologies, Inc., a major coatings company, and a
trustee of the Tax-Free Fund for Utah, one of the Aquila group of funds.
Anthony J. Petrocelli has been Vice Chairman and a director of Harris since
1993, and has served as an officer and/or director of various subsidiaries of
Harris and HCG. Mr. Petrocelli has also been Vice Chairman of DGHA since 1989
and has served as an officer and/or director of various affiliated companies
including Harris Specialty Chemicals, Penrice Soda Products Pty Ltd., and U.S.
Silica. From 1984 to 1986, Mr. Petrocelli was the President of Crystal Greeting,
Inc., a manufacturer and distributor of greeting cards.
48
<PAGE>
Michael R. Boyce has been President and Chief Operating Officer of Harris
since 1993, and has served as an officer and/or director of various subsidiaries
of Harris and HCG. He is also Chief Executive Officer of Penrice and a Managing
Director of DGHA. From 1987 to 1989, Mr. Boyce was Vice President and General
Manager of the Industrial Chemicals Division at General Chemical Corporation.
Emanuel J. Di Teresi has been Senior Vice President and Chief Financial
Officer of Harris since September 1994 and has served as an officer and/or
director of various subsidiaries of Harris and HCG. From 1991 until 1994, Mr Di
Teresi was Vice President and Controller of Olin Corporation and from 1988 to
1991, Mr. Di Teresi was the Chief Financial Officer of the Chemical Division of
Olin Corporation.
Richard J. Donahue has been a Senior Vice President of Harris since 1993,
and has served as an officer and/or director of various subsidiaries of Harris
and HCG. Mr. Donahue has also been a Managing Director of DGHA since 1989. Prior
to joining DGHA, Mr. Donahue was in the investment banking department of Robert
Fleming & Co., Ltd. from 1987 to 1988. From 1978 through 1986, he held a series
of financial and corporate development positions at SCM Corporation.
Donald G. Kilpatrick has been Senior Vice President, General Counsel and
Secretary of Harris since 1993, and has served as an officer and/or director of
various subsidiaries of Harris and HCG. Since 1992, Mr. Kilpatrick has also been
a Managing Director of DGHA. From 1981 to 1992, Mr. Kilpatrick was an attorney
with Winthrop, Stimson, Putnam & Roberts ("Winthrop"), where he was made a
member of the firm in 1990. Mr. Kilpatrick is currently on a leave of absence
from Winthrop. Winthrop provides legal services to the Company and HCG on an
ongoing basis.
Richard J. Nick has been a Senior Vice President and Treasurer of Harris
since 1993, and has served as an officer and/or director of various subsidiaries
of Harris and HCG. Mr. Nick has also been a Managing Director of DGHA since
1989. From 1987 to 1989, Mr. Nick was Vice President--Finance & Administration
of Baltimore Spice, Inc., a subsidiary of Hanson Industries.
James T. Beale, Jr. became a director of Harris in 1993 and has served as a
director of various subsidiaries of Harris. Mr. Beale is currently a managing
director of Chase Manhattan Bank and has been a director of Chase Manhattan
Investment Holdings, Inc. (1986-1993) and Chase Capital (1986-1993).
Fred W. Broling became a director of Harris in 1993 and has served as a
director of various subsidiaries of Harris. Mr. Broling is the Chairman of
PureTec Corporation., a manufacturer of plastic products. In addition, Mr.
Broling is a Director of Morton Metalcraft, a steel fabrication company.
John D. Burns became a director of Harris in 1993 and has served as a
director of various subsidiaries of Harris. From 1986 until 1992, Mr. Burns was
Chairman, Chief Executive Officer and President of Vista Chemical Company
("Vista"), a petrochemical manufacturer. Prior to joining Vista, Mr. Burns was
Executive Vice President of Conoco Inc., in charge of operations for Conoco
Chemicals Company.
Archibald Cox, Jr. became a director of Harris in 1996. Mr. Cox founded
Sextant Group, Inc., a financial advisory firm in 1993 and is Vice Chairman and
President of Magnequench International, Inc., an international manufacturer of
magnetic material. Previously, Mr. Cox was President and Chief Executive Officer
of The First Boston Corporation and a Managing Director of Morgan Stanley
International.
Peter J. Savage became a director of Harris in 1996. He is a management
consultant and a director of Inspec Group plc., Kelsey Industries plc., and
United Industries plc. and a number of other smaller unlisted companies in the
U.K. From 1987 until 1994, Mr. Savage served as Managing Director of Harcros
Chemicals Group and as a director of its parent company, Harrisons & Crossfield
plc. Prior to joining Harcros, Mr. Savage served as European Business Director
of Rohm & Haas Company.
Heinn F. Tomfohrde II became a director of Harris in 1996. From 1987 until
1991, Mr. Tomfohrde served as President, Chief Operating Officer and director of
International Specialty Products Inc. and its predecessor company GAF Chemicals
Corp. Before joining GAF, he served as President and Chief Operating Officer of
the Consumer and Industrial Products and Services Group of Union Carbide
Corporation. Mr. Tomfohrde is presently a director of McWhorter Technologies,
Inc. and Sybron Chemicals, Inc.
Jeffrey C. Walker became a director of Harris in 1996. Mr. Walker is
currently a Senior Managing Director of Chase Manhattan Bank and the Managing
Partner of Chase Capital Partners. Mr. Walker previously served in similar roles
at Chemical Bank and Chemical Venture Capital Partners, respectively, before the
merger between Chemical and Chase. Mr. Walker was a co-founder of Chemical
Venture Capital Partners in 1984.
49
<PAGE>
Robert F. Clark has been President and a director of GSL and GSLMC since
1993. Previously, Mr. Clark served as Vice President of NACC (1991 - 1993) and
from 1964 until 1991 he was employed by the General Electric Company.
John F. Tancredi has been President of NACC since April 1996. Previously,
since 1989, Mr. Tancredi was Vice President-Chief Technical and Quality Officer
of International Specialty Products.
Gary R. Noseworthy has been a director of Sifto since October 1994. From 1990
to 1992, Mr. Noseworthy was Ontario Regional Sales Manager for Sifto and since
1992 he has been Sifto's National Sales Manager.
Alan Hamilton has been a director of Sifto since August 1995. From 1989 to
1995, Mr. Hamilton was the Mine Manager at the Goderich Mine and since 1995 he
has been Sifto's Chemical Business Manager.
Directors who are officers of the Company receive no additional compensation
for serving on the Board of Directors. The Company has authorized an annual
retainer to unaffiliated Directors of $15,000 plus $1,000 for each day on which
they attend a Board meeting and/or one or more Board Committee meetings, with
any director who serves as a chair of such Committee meeting receiving an
additional $250.
50
<PAGE>
Item 11. EXECUTIVE COMPENSATION AND OTHER INFORMATION
The following table sets forth the HCNA related compensation earned by the
Chief Executive Officer and the four next most highly compensated executive
officers of the Company in FY 1997 and their HCNA related compensation for FY
1996 and FY 1995.
<TABLE>
<CAPTION>
Summary Compensation Table
Long Term Compensation (1)
Annual Compensation Awards Payouts
------------------------------------------------ ------------------------------------
Other Restricted Securities
Annual Stock Underlying All Other
Name and Compen- Awards Options/ LTIP Compen-
Principal Position Year Salary Bonus sation SARs Payouts sation (3)
- ------------------------ --------- ------------- ----------- ---------- ----------- ------------ ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
D. George Harris 1997 $1,150,000 (2) - - - - $55,707
Chairman 1996 1,150,000 (2) - - - - 135,845
1995 1,040,000 (2) - - - - (174,527)
Anthony J. Petrocelli 1997 758,000 (2) - - - - 48,323
Vice Chairman 1996 775,000 (2) - - - - 98,206
1995 725,000 (2) - - - - 132,716
Michael R. Boyce 1997 550,000 441,784 - - - - 22,410
Chief Operating Office1996 550,000 279,043 - - - - 65,284
1995 500,000 284,043 - - - - 58,561
Donald G. Kilpatrick 1997 400,000 271,095 - - - - 21,128
General Counsel 1996 370,000 157,532 - - - - 14,682
1995 370,000 162,532 - - - - 28,590
Richard J. Donahue 1997 275,000 160,649 - - - - 21,838
Senior Vice President 1996 275,000 71,470 - - - - 16,152
1995 250,000 106,470 - - - - (16,685)
</TABLE>
(1) The named executive officers do not participate in any of the Long Term
Compensation plans offered by HCG.
(2) No bonus awarded based on the joint compensation agreement (see "Joint
Compensation Agreement").
(3) All Other Compensation in FY 1997 consists of Company contributions to
defined contribution plans on behalf of the executive officer, imputed
income on excess Company-paid life insurance premiums and automobile and
personal tax return allowances. The following table identifies and
quantifies these amounts for the named executive officers in FY 1997:
401(K) Automobile and
Company Excess Life Tax Return
Name Contribution Insurance Allowances
- ------------------------ ------------ -------------- ---------------
D. George Harris $19,591 $7,722 $28,394
Anthony J. Petrocelli 18,600 5,974 23,749
Michael R. Boyce 15,057 3,827 3,526
Donald G. Kilpatrick 16,302 1,931 2,895
Richard J. Donahue 16,477 2,931 2,430
51
<PAGE>
Aggregated Warrants/Exercises in FY 1997
There were no warrants exercised in FY 1997.
Compensation Committee Interlocks and Insider Participation
The Harris Board of Directors has a Compensation Committee consisting of
six directors, two of whom are designated by the Chairman and three of whom are
designated by The Prudential Insurance Company of America ("Prudential
Insurance"), Chase Manhattan Capital Corporation ("Chase Capital") and First
Plaza Group Trust ("First Plaza") (collectively, the "Institutional Investors").
Pursuant to the terms of the Stockholders Agreement which became effective with
the completion of the Recapitalization among HCG, the Institutional Investors,
certain members of management of HCG and other stockholders of HCG (the
"Stockholders Agreement"), any increase in compensation of officers of the
Company must be approved by the compensation committee. During FY 1997, D.
George Harris, the chief executive officer of the Company, James T. Beale,
Michael R. Boyce, Fred W. Broling, John D. Burns and Heinn F. Tomfohrde II
served as members of the Compensation Committee.
Joint Compensation Agreement
D. George Harris, Anthony J. Petrocelli and Richard J. Donahue are parties
to a joint compensation agreement (the "Joint Compensation Agreement") with HCG,
Harris and certain subsidiaries of Harris. The Joint Compensation Agreement
contains customary employment terms and provides for a base annual salary and a
bonus based on the earnings of the Company before interest, taxes and
depreciation. The Joint Compensation Agreement expires at the end of FY 1998
unless terminated earlier for cause, by certain events constituting a change in
control, or by the death, permanent disability or resignation of the respective
employee. In the event of death or permanent disability, the Joint Compensation
agreement provides that termination shall not become effective for a period of
one year from such event and that all amounts otherwise payable shall continue
to be paid to the respective employee or his estate.
52
<PAGE>
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
Harris is a wholly owned subsidiary of HCG. The following table sets forth
the beneficial ownership of the HCG Common Stock as of June 13, 1997, by (i)
each director of Harris and Sifto, (ii) each executive officer named in Item 11
hereof, and (iii) all directors and executive officers of Harris and Sifto as a
group.
<TABLE>
<CAPTION>
Number of
Shares
Name and Address of Beneficially Percent of
Beneficial Owner Owned Class
- ----------------------- ------------- -----------
<S> <C> <C> <C>
D. George Harris (1)........................................ 187,398 14.9
Anthony J. Petrocelli (2)................................... 135,007 10.8
Michael R. Boyce............................................ 79,393 6.3
Richard J. Donahue.......................................... 60,617 4.8
Richard J. Nick............................................. 27,095 2.2
Donald G. Kilpatrick (1) (2)................................ 13,554 1.1
John D. Burns............................................... 1,786 -- (4)
Fred W. Broling............................................. 1,837 -- (4)
James T. Beale, Jr. (3)..................................... -- -- (4)
Archibald Cox, Jr........................................... -- -- (4)
Emanuel J. Di Teresi........................................ 300 -- (4)
Heinn F. Tomfohrde, II...................................... 2,845 -- (4)
Peter J. Savage............................................. 200 -- (4)
Jeffrey C. Walker (3)....................................... -- -- (4)
Robert F. Clark............................................. 2,904 -- (4)
John F. Tancredi............................................ -- -- (4)
Alan Hamilton............................................... 835 -- (4)
Gary R. Noseworthy.......................................... -- -- (4)
Directors and executive officers of Harris and Sifto as a group
(18 persons).............................................. 513,771 41.0
</TABLE>
(1) Does not include 33,005 shares over which Mr. Harris and Mr. Kilpatrick
may exercise voting control as co-trustees of a trust under Agreement of Anthony
J. Petrocelli dated October 29, 1990.
(2) Does not include 51,259 shares over which Mr. Petrocelli and Mr.
Kilpatrick may exercise voting control as co- trustees of several trusts under
Agreement of D. George Harris.
(3) Excludes 190,345 shares owned by Chase Capital and its affiliates, as
to which Mr. Beale and Mr. Walker disclaim beneficial ownership.
(4) Less than 1%.
53
<PAGE>
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
For descriptions of certain continuing transactions with affiliates, see
Note 11.
HCG's wholly owned subsidiaries include Harris (see Note 1), Harris
Chemical Europe, Ltd. ("HCEL") and Harris Chemical Group Europe, Inc. ("HCGE").
The principal wholly owned subsidiaries of HCEL include NAMSCO (UK), Ltd.
("NUK"), with salt operations in the United Kingdom (Salt Union Ltd. or "SUL"),
Matthes + Weber GmbH ("M&W"), with soda operations in Germany, Harris Soda
Products Europe ("HSPE") is based in France and markets and sells soda products
in Europe, and Societa Chimica Larderello ("SCL"), with boron operations in
Italy. In addition, certain stockholders of HCG have minority ownership
interests in Penrice Soda Products Pty Ltd. ("Penrice"), U.S. Silica and Harris
Specialty Chemical Company. These entities are collectively referred to as HCG
affiliates.
Services Agreement with HCG
Upon consummation of the Recapitalization, Harris entered into a services
agreement with HCG pursuant to which Harris provides to HCG office space and
certain corporate tax, treasury, legal and other administrative services from
time to time. As compensation for such services, Harris receives a fee for the
services provided. The total amount of compensation to Harris under this
agreement was $408,000 in FY 1997.
Management Agreement with HCG
Pursuant to the credit agreements, Harris is allowed to pay to HCG an
amount not to exceed $750,000 per fiscal year for the purpose of enabling HCG to
pay its actual operating expenses in the ordinary course of business. The total
amount paid by Harris to HCG in FY 1997 was $750,000.
Arrangements with Affiliates
SCL is an Italian producer of specialty boric acid and caustic soda
products, and is a subsidiary of HCEL, which is a subsidiary of HCG. During FY
1994, the Company entered into an agreement to become a distributor of SCL
products in North America. SCL also distributes certain boron chemical products
of the Company in Europe. In FY 1997, NACC entered into a technical services
agreement with SCL for $250,000 annually to compensate SCL for providing
technical expertise and assistance to NACC in specialty boron production.
Additionally, in FY 1997, an agreement was reached whereby NACC purchased
patents from SCL for $2,750,000. See "Business--Boron Chemicals."
In FY 1996, the HCG entered into a services agreement with Penrice Soda
Products Pty Ltd. ("Penrice"). Certain stockholders of HCG, including the
principals of DGHA, own a minority interest in Penrice. The agreement provides
that Penrice will pay the HCG 200,000 Australian dollars per year for management
consulting and operating support services.
HCG received $184,000 in FY 1997.
The Company markets its soda products in Europe through HSPE. Sales to HSPE
in FY 1997 were $66,000.
North American Terminals, Inc. Asset Sale
In 1993, NACC entered into an agreement to sell its port facilities in San
Diego to SDT Capital, Inc. ("SDT") for $5.5 million, and lease such facilities
back from SDT. SDT's president is a relative of a former officer of Harris who
is a shareholder in HCG. Annual rentals under the agreement are $1.7 million per
year payable quarterly for the initial four-year period and the first and second
five-year option periods. The annual rentals for the first and second option
periods will be increased for any increases in the seven-year U.S. Treasury note
rate. Additional rents are due at $3 per ton for shipments in excess of 850,000
tons per year through the end of the second option period. Three additional
five-year option periods and a final six-year option period will have rents
based on fair market value rents as agreed to by SDT and the Company. The
Company has the option to repurchase the facilities at the end of either the
initial lease period (December 31, 1997) or any renewal option period for the
greater of $7.0 million or fair market value. However, the Company must purchase
the facility for the greater of $7.0 million or fair market value at the end of
any lease period in which the lease is not extended. The Company has begun
negotiations with SDT to possibly repurchase the facilities at December 31,
1997. The agreement states that fair market value shall be mutually agreed upon
by the Company and SDT. However, if the Company and SDT are unable to agree,
then fair market value is determined through an appraisal process.
54
<PAGE>
Tax Sharing Agreement
Pursuant to a Tax Sharing Agreement entered into in connection with the
Consolidation, HCG agreed to file consolidated federal income tax returns with
Harris and its U.S. subsidiaries. According to the Tax Sharing Agreement, Harris
agreed generally to reimburse HCG in amounts designed to approximate the amount
of income taxes that Harris and its wholly owned subsidiaries (other than Sifto)
would have paid had they filed consolidated federal income tax returns (and
analogous state and local returns) separate from HCG.
The Stockholders Agreement
Pursuant to the terms of the Stockholders Agreement, until the earlier of
an initial public offering of HCG Common Stock and the tenth anniversary of the
Recapitalization, each party to the Stockholders Agreement has agreed to vote
all of the shares of HCG Common Stock owned by such party (i) for the
maintaining of the number of directors of HCG at eleven and (ii) for the
election of a slate of directors so that at all times five directors will be
designated by D. George Harris, three directors will be designated by Anthony J.
Petrocelli and two directors will be designated by the Institutional Investors,
provided that if Mr. Harris is unable to designate such directors, one of the
directors otherwise to be designated by Mr. Harris will be designated by Michael
R. Boyce and four of the directors otherwise to be designated by Mr. Harris will
be designated by certain members of management of HCG, and provided further that
if Mr. Petrocelli is unable to designate such directors, the three directors
otherwise to be designated by Mr. Petrocelli will be designated by certain
members of management of HCG. If any vacancy is created on the Board of
Directors of HCG, it will be filled in accordance with the foregoing
designations.
The Stockholders Agreement contains certain rights and obligations of HCG
and the stockholders thereof with respect to HCG Common Stock, such as
preemptive rights of the stockholders with respect to certain issuances of HCG
capital stock, rights of first offer of HCG and the stockholders with respect to
certain sales of HCG Common Stock by any stockholder, rights of certain
stockholders to sell HCG Common Stock to HCG at certain times or upon the
occurrence of certain events, rights of HCG to purchase HCG Common Stock from
certain HCG stockholders at certain times or upon the occurrence of certain
events and rights of the stockholders to cause the sale of HCG Common Stock held
by other stockholders, or participate in the sale of HCG Common Stock held by
other stockholders, upon the occurrence of certain events. The Stockholders
Agreement also contains certain covenants which prohibit HCG from taking certain
actions, such as amending HCG's Certificate of Incorporation, entering into
certain transactions with affiliates of HCG, disposing of significant assets,
incurring indebtedness above specified levels and entering into transactions
which would cause a change of control of HCG, or require HCG to take certain
actions, unless the consent of the holders of specified percentages of the HCG
Common Stock is obtained. Such rights and obligations are subject to various
restrictions, limitations and exceptions set forth in the Stockholders
Agreement.
The Registration Rights Agreement
Certain of the parties to the Stockholders Agreement are also parties to a
Registration Rights Agreement (the "Registration Rights Agreement") which
provides that upon the earlier of an initial public offering of HCG Common Stock
and the fourth anniversary of the Recapitalization, the Institutional Investors
holding 10% of the HCG Common Stock will have the right, for five years
thereafter, to demand that HCG register at least 10% of the HCG Common Stock
held by them under the Securities Act of 1933, as amended. Such right may be
exercised six times (no more than three times for long form registrations and
the remainder for short form registrations) in which HCG pays all registration
expenses. The Institutional Investors also have rights to an unlimited number of
"piggyback" registrations. All of such registration rights are subject to
various restrictions, limitations and exceptions set forth in the Registration
Rights Agreement.
55
<PAGE>
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND
REPORTS ON FORM 8-K
(a) Set forth below is a list of documents filed as part of this report.
1. Financial Statements included in Item 8.
<TABLE>
Description Page No.
<S> <C>
Report of Coopers & Lybrand L.L.P., Independent Certified Public Accountants 25
Consolidated Balance Sheets as of March 30, 1996 and March 29, 1997 26
Consolidated Statements of Operations for the three fiscal years ended March 29, 1997 27
Consolidated Statements of Common Stockholder's Equity (Deficit) for the three fiscal
years ended March 29, 1997 28
Consolidated Statements of Cash Flows for the three fiscal years ended March 29, 1997 29
Notes to Consolidated Financial Statements 31
</TABLE>
2. The following exhibits are required by Item 601 of Regulation S-K.
<TABLE>
Exhibit No. Description of Exhibit
<S> <C>
2.1 Consolidation Agreement among Harris Chemical Group, Inc. ("HCG"), Harris, NAMSCO Inc. ("NAMSCO"),
NAMSCO Acquisition Corp., GSL Corporation ("GSL"), GSL Acquisition Corp., North American Chemical
Company ("NACC"), and NACC Acquisition Corp., dated as of August 5, 1993. (1)
2.2 Agreement of Merger dated as of August 5, 1993 among HCG, NACC Acquisition Corp. and NACC. (1)
2.3 Agreement of Merger dated as of August 5, 1993 among HCG, NAMSCO Acquisition Corp. and NAMSCO.
(1)
2.4 Agreement of Merger dated as of August 5, 1993 among HCG, GSL Acquisition Corp. and GSL. (1)
2.5 Certificate of Ownership and Merger, merging GSL Holdings, Inc. into GSL Corporation. (4)
3.1 Certificate of Incorporation of Harris together with amendments thereto. (1)
3.2 Certificate of Incorporation of Sifto together with amendments thereto. (1)
3.3 Restated Certificate of Incorporation of NAMSCO. (1)
3.4 Restated Certificate of Incorporation of North American Salt Company ("NASC") together with amendments
thereto. (1)
3.5 Restated Certificate of Incorporation of NACC. (1)
3.6 Restated Certificate of Incorporation of GSL. (1)
3.7 Restated Certificate of Incorporation of Great Salt Lake Minerals Corporation ("GSLMC") together with
amendments thereto. (1)
3.8 Certificate of Incorporation of Carey Salt Company ("Carey") together with amendments thereto. (1)
3.9 Certificate of Incorporation of The Hutchinson & Northern Railway Company ("H&N") together with
amendments thereto. (1)
3.10 Articles of Incorporation of North American Terminals, Inc. ("NATI") together with amendments thereto.(1)
3.11 By-Laws of Sifto. (1)
3.12 By-Laws of NAMSCO. (1)
3.13 By-Laws of NASC (formerly American Salt Company). (1)
3.14 By-Laws of NACC. (1)
3.15 By-Laws of GSL. (1)
3.16 By-Laws of GSLMC. (1)
3.17 By-Laws of Carey (formerly Carey Louisiana Inc.). (1)
3.18 By-Laws of H&N. (1)
3.19 By-Laws of NATI. (1)
3.20 By-Laws of Harris as amended June 28, 1996
56
<PAGE>
Exhibit No. Description of Exhibit
4.1 Senior Secured Indenture dated as of October 15, 1993 by and between Harris, the Subsidiary Guarantors named
therein and the Bank of New York. as trustee. (2)
4.2 Senior Subordinated Indenture dated as of October 15, 1993 by and between Harris, the Subsidiary Guarantors
named therein and the IBJ Schroder Bank & Trust Company. as trustee. (2)
4.3 Senior Secured Indenture dated as of October 15, 1993 by and between Sifto, Harris, the Subsidiary Guarantors
named therein and Chemical Bank, as trustee. (2)
4.4 Deed of Trust and Mortgage dated as of October 15, 1993 between Sifto and TD Trust Company, as trustee. (2)
10.1 Recapitalization Agreement dated as of October 18, 1993, between Harris, HCG Recapitalization Corp. and the
other persons named therein. (2)
10.2 Recapitalization Merger Agreement dated as of October 18, 1993, between HCG and the HCG Recapitalization
Corp. (2)
10.3 Services Agreement dated as of October 28, 1993 between Harris and HCG. (2)
10.4 Joint Compensation Agreement with certain employees of Harris dated as of October 28, 1993. (2) (3)
10.5 Tax Sharing Agreement dated as of September 24, 1993 among HCG, Harris and other signatories thereto. (2)
10.6 NACC Annual Bonus Incentive Plan. (1) (3)
10.7 NASC Annual Bonus Incentive Plan. (1) (3)
10.8 GSLMC Annual Bonus Incentive Plan. (1) (3)
10.9 NASC, NACC, GSLMC Shared Employees Annual Bonus Plan. (1) (3)
10.10 Lease dated June 17, 1985 between Minister of Natural Resources for the Province of Ontario and Domtar Inc.
(predecessor in interest to Sifto) together with amendments thereto. (1)
10.11 Lease dated June 17, 1985 between Minister of Natural Resources for the Province of Ontario and Domtar Inc.
(predecessor in interest to Sifto) together with amendments thereto. (1)
10.12 Lease dated April 16, 1986 between Minister of Northern Development and Mines for the Province of Ontario
and Domtar Inc. (predecessor in interest to Sifto) together with amendments thereto. (1)
10.13 Sodium Chloride Agreement dated December 1, 1988 between Minister of Energy and Mines for the Province
of Saskatchewan and Domtar Inc. (predecessor in interest to Sifto) together with amendments thereto. (1)
10.14 Lease dated July 2, 1983 between Minister of Mines and Energy for the Province of Nova Scotia and Domtar
Inc. (predecessor in interest to Sifto) together with amendments thereto. (1)
10.15 Lease dated July 2, 1983 between Minister of Mines and Energy for the Province of Nova Scotia and Domtar
Inc. (predecessor in interest to Sifto) together with amendments thereto. (1)
10.16 Salt and Surface Lease dated June 21, 1961 between John Taylor Caffery, et al., and Carey with amendments
thereto. (1)
10.17 Distribution Agreement dated December 18, 1988 between Cargill, Incorporated and Domtar Industries Inc.,
Sifto Salt Division (predecessor in interest to Sifto). (1)
10.18 Master Purchase and Lease Agreement between NACC and KENETECH Energy Systems, Inc. dated October
29, 1993, Equipment Schedule No.1 dated November 4, 1993 and Equipment Schedule No. 2 dated February
28, 1994. (4)
10.19 San Diego Port Facilities Acquisition Agreement between NACC and
SDT Capital, Inc. dated June 25, 1993, as amended December 10,
1993, Bill of Sale dated as of December 10, 1993, Equipment Lease
dated December 10, 1993, as amended December 10, 1993, Assignment
of Ground Lease dated as of December 10, 1993, Sublease of Leased
Real Estate dated December 10, 1993 and Guaranty of Harris dated
December 10, 1993.
(4)
10.20 Acquisition Agreement between NACC and NaTec Resources, Inc. dated April 5, 1995. (5)
10.21 Amendment No. 1 to Acquisition Agreement between NACC and NaTec Resources, Inc. dated July 31,
1995. (7)
10.22 Form of Participation Agreement dated as of July 15, 1996 among NACC, Harris, [Owner/Participant]/[Owner
Participant, OP Guarantor] and U.S. Trust Company of California, N.A., as Owner Trustee (8)
10.23 Form of Annex A to Participation Agreement (8)
10.24 Form of Facility Lease dated as of July 15, 1996 between U.S. Trust Company of California, N.A., as Owner
Trustee as Lessor, and NACC, as Lessee (8)
10.25 Form of Guaranty Agreement dated as of July 15, 1996 by Harris for the benefit of [Owner
Participant]/[Owner Participant, OP Guarantor] and U.S. Trust Company of California, N.A., as Owner Trustee
(8)
10.26 US $130,000,000 Credit and Guarantee Agreement dated as of October 15, 1993, as amended and restated
as of February 27, 1997. (9)
57
<PAGE>
10.27 US $20,000,000 Multi-Currency Credit and Guarantee Agreement dated as of October 15, 1993, as amended
and restated as of February 27, 1997. (9)
21 Subsidiaries of Harris.
- -----------------------------------------------------------------------------------------------------------------------
(1) Incorporated by reference from the registration statement on Form S-1, as amended (Registration No. 33-67546) filed by
Harris and Sifto.
(2) Incorporated by reference from the quarterly report on Form 10-Q for the second quarter ended September 23, 1993 filed
by Harris.
(3) Exhibits 10.9, 10.11, 10.12, 10.13 and 10.14, which include a
management contract and other compensatory plans or arrangements,
are filed pursuant to Item 14(c) of this report. A description of
Exhibit 10.9, the Joint Compensation Agreement, is set forth
herein under item 11.
(4) Incorporated by reference from the annual report on Form 10-K for the fiscal year ended March 26, 1994.
(5) Incorporated by reference from the annual report on Form 10-K for the fiscal year ended March 25, 1995.
(6) Incorporated by reference from the quarterly report on Form 10-Q for the first quarter ended June 24, 1995 filed by
Harris.
(7) Incorporated by reference from the quarterly report on Form 10-Q for the second quarter ended September 23, 1995 filed
by Harris.
(8) Incorporated by reference from the quarterly report on Form 10-Q for the first quarter ended June 29, 1996 filed by
Harris.
(9) Incorporated by reference from the current report on Form 8-K dated February 27, 1997 filed by Harris.
(b) A report on Form 8-K dated February 27, 1997 was filed reporting on the Company's execution of new Bank Agreements.
</TABLE>
58
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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)
June 27, 1997 /s/ D. George Harris
-------------------------------
D. George Harris
Chairman and Chief Executive Officer
(Principal Executive Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated:
<TABLE>
<S> <C> <C> <C>
June 27, 1997 /s/ D. George Harris June 27, 1997 /s/ Anthony J. Petrocelli
------------------------------------------ ---------------------------------
D. George Harris Anthony J. Petrocelli
Chairman, Chief Executive Officer Vice Chairman and Director
and Director
June 27, 1997 /s/ James T. Beale, Jr. June 27, 1997 /s/ Archibald Cox, Jr.
----------------------------------------- ---------------------------------
James T. Beale, Jr. Archibald Cox, Jr.
Director Director
June 27, 1997 /s/ Michael R. Boyce June 27, 1997 /s/ Peter J. Savage
----------------------------------------- ---------------------------------
Michael R. Boyce Peter J. Savage
President, Chief Operating Officer Director
and Director
June 27, 1997 /s/ Fred W. Broling June 27, 1997 /s/ Heinn F. Tomfohrde II
----------------------------------------- ---------------------------------
Fred W. Broling Heinn F. Tomfohrde II
Director Director
June 27, 1997 /s/ John D. Burns June 27, 1997 /s/ Jeffrey C. Walker
----------------------------------------- ---------------------------------
John D. Burns Jeffrey C. Walker
Director Director
June 27, 1997 /s/ Emanuel J. Di Teresi
-----------------------------------------
Emanuel J. Di Teresi
Senior Vice President and
Chief Financial Officer
(Chief Financial Officer and
Accounting Officer)
</TABLE>
59
<PAGE>
SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO SECTION
15(d) OF THE ACT BY REGISTRANTS WHICH HAVE NOT REGISTERED SECURITIES PURSUANT TO
SECTION 12 OF THE ACT.
No annual report covering FY 1997 or proxy materials have been sent to
security-holders.
60
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Balance Sheet at March 29, 1997 (Audited) and the Consolidated
Statement of Operations for the Fiscal Year Ended March 29, 1997 (Audited) and
is qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-29-1997
<PERIOD-END> MAR-29-1997
<CASH> 17,076
<SECURITIES> 0
<RECEIVABLES> 119,442
<ALLOWANCES> 1,716
<INVENTORY> 86,818
<CURRENT-ASSETS> 244,493
<PP&E> 702,944
<DEPRECIATION> 314,933
<TOTAL-ASSETS> 665,394
<CURRENT-LIABILITIES> 134,534
<BONDS> 685,000
0
0
<COMMON> 0
<OTHER-SE> (306,431)
<TOTAL-LIABILITY-AND-EQUITY> 665,394
<SALES> 508,622
<TOTAL-REVENUES> 508,622
<CGS> 374,137
<TOTAL-COSTS> 374,137
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 91,925
<INCOME-PRETAX> (12,333)
<INCOME-TAX> 9,100
<INCOME-CONTINUING> (21,433)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (21,433)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
<TABLE>
<CAPTION>
EXHIBIT 21
State of
List of Subsidiaries Incorporation
<S> <C>
Harris Chemical North America, Inc. Delaware
GSL Corporation Delaware
Great Salt Lake Minerals Corporation Delaware
GSL Agricultural-Industrial Trading, Inc. Delaware
GSL Solar Consultants & Advisors, Inc. Delaware
Weber Canal Water Company Utah
NAMSCO Inc. Delaware
North American Salt Company Delaware
Carey Salt Company Delaware
Lake Crystal Salt Company Utah
The Hutchinson & Northern Railway Company Kansas
Sifto Canada, Inc. Canada
Timberlea Chemical Company Delaware
North American Chemical Company Delaware
Searles Domestic Water Company California
Searles Valley Residences, Inc. California
Trona Railway Company California
North American Terminals, Inc. California
Harris International Export Company Guam
North American Carbonate Company Delaware
North American Bicarbonate Company Delaware
Oldexaer, Inc. Delaware
White River Nahcolite Minerals Ltd. Liability Company Colorado
WRNM Holdings, Inc. Delaware
</TABLE>
<PAGE>
6/28/96
BYLAWS
of
HARRIS CHEMICAL NORTH AMERICA INC.
(herein called the "Corporation")
ARTICLE I
Stockholders
Section 1.01 Annual Meeting. The Board of Directors by resolution shall
designate the time, place and date (which shall be, in the case of the first
annual meeting, not more than 13 months after the organization of the
Corporation and, in the case of all other annual meetings, not more than 13
months after the date of the last annual meeting) of the annual meeting of the
stockholders for the election of directors and the transaction of such other
business as may come before it.
Section 1.02 Special Meetings. Special meetings of the stockholders,
for any purpose or purposes, may be called at any time by the Chairman, the
Vice-Chairman, the President, any Vice-President, the Treasurer or the Secretary
or by resolution of the Board of Directors. Special meetings of stockholders
shall be held at such place, within or without the State of Delaware, as shall
be fixed by the person or persons calling the meeting and stated in the notice
or waiver of notice of the meeting.
Section 1.03 Notice of Meetings of Stockholders. Whenever stockholders
are required or permitted to take any action at a meeting, written notice of the
meeting shall be given (unless that notice shall be waived or unless the meeting
is to be dispensed with in accordance with the provisions of the General
Corporation Law of the State of Delaware and Article SIXTH of the Certificate of
Incorporation of the Corporation) which shall state the place, date and hour of
the meeting and, in the case of a special meeting, the purpose or purposes for
which the meeting is called. The written notice of any meeting shall be given,
personally or by mail, not less than ten nor more than sixty days before the
date of the meeting to each stockholder entitled to vote at such meeting. If
mailed, such notice is given when deposited in the United States mail, postage
prepaid, directed to the stockholder at his address as it appears on the records
of the Corporation.
When a meeting is adjourned to another time or place, notice need not
be given of the adjourned meeting if the time and place thereof are announced at
the meeting at which the adjournment is taken. At the adjourned meeting the
Corporation may transact any business which might have been transacted at the
original meeting. If the adjournment is for more than thirty days, or if after
the adjournment a new record date is fixed for the adjourned meeting, a notice
of the adjourned meeting shall be given to each stockholder of record entitled
to vote at the meeting.
Section 1.04 Quorum. At all meetings of the stockholders, the holders
of one-third of the stock issued and outstanding and entitled to vote thereat,
present in person or by proxy, shall constitute a quorum for the transaction of
any business.
<PAGE>
When a quorum is once present to organize a meeting, it is not broken
by the subsequent withdrawal of any stockholders.
The stockholders present may adjourn the meeting despite the absence of
a quorum and at any such adjourned meeting at which the requisite amount of
voting stock shall be represented, the Corporation may transact any business
which might have been transacted at the original meeting had a quorum been there
present.
Section 1.05 Method of Voting. The vote upon any question before the
meeting need not be by ballot. All elections and all other questions shall be
decided by a plurality of the votes cast, at a meeting at which a quorum is
present, except as expressly provided otherwise by the General Corporation Law
of the State of Delaware or the Certificate of Incorporation.
Section 1.06 Voting Rights of Stockholders and Proxies. Each
stockholder of record entitled to vote in accordance with the laws of the State
of Delaware, the Certificate of Incorporation or these By-Laws, shall at every
meeting of the stockholders be entitled to one vote in person or by proxy for
each share of stock entitled to vote standing in his name on the books of the
Corporation, but no proxy shall be voted on after three years from its date,
unless the proxy provides for a longer period.
Section 1.07 Ownership of its Own Stock. Shares of its own capital
stock belonging to the Corporation or to another corporation, if a majority of
the shares entitled to vote in the election of directors of such other
corporation is held, directly or indirectly, by the Corporation, shall neither
be entitled to vote nor be counted for quorum purposes. Nothing in this section
shall be construed as limiting the right of any corporation to vote stock,
including but not limited to its own stock, held by it in a fiduciary capacity.
Section 1.08 Voting by Fiduciaries and Pledgors. Persons holding stock
in a fiduciary capacity shall be entitled to vote the shares so held. Persons
whose stock is pledged shall be entitled to vote, unless in the transfer by the
pledgor on the books of the Corporation he has expressly empowered the pledgee
to vote thereon, in which case only the pledgee, or his proxy, may represent
such stock and vote thereon.
If shares or other securities having voting power stand of record in
the names of two or more persons, whether fiduciaries, members of a partnership,
joint tenants, tenants in common, tenants by the entirety or otherwise, or if
two or more persons have the same fiduciary relationship respecting the same
shares, unless the Secretary of the Corporation is given written notice to the
contrary and is furnished with a copy of the instrument or order appointing them
or creating the relationship wherein it is so provided, their acts with respect
to voting shall have the following effect:
(1) If only one votes, his act binds all;
(2) If more than one vote, the act of the majority so voting binds all;
(3) If more than one vote, but the vote is evenly split on any
particular matter, each faction may vote the securities in question
proportionally, or any person voting the shares, or a beneficiary, if any, may
apply to the Court of Chancery or such other court as may have jurisdiction to
appoint an additional person to act with the persons so voting the shares, which
shall then be voted as determined by a majority of such persons and the person
appointed by the
<PAGE>
Court. If the instrument so filed shows that any such tenancy is held in unequal
interests, a majority or even-split for the purpose of this subsection shall be
a majority or even-split in interest.
Section 1.09 Fixing Date for Determination of Stockholders of Record.
In order to determine the stockholders (i) entitled to notice of or to vote at
any meeting of stockholders or any adjournment thereof, or (ii) entitled to
express consent to corporate action in writing without a meeting, or (iii)
entitled to receive payment of any dividend or other distribution or allotment
of any rights, or (iv) entitled to exercise any rights in respect of any change,
conversion or exchange of stock, or (v) for the purpose of any other lawful
action, the Board of Directors may fix, in advance, a record date, which shall
not be more than sixty nor less than ten days before the date of such meeting,
nor more than sixty days prior to any other action. If no record date is fixed
by the Board of Directors, the record date shall be determined in accordance
with the provisions of the General Corporation Law of the State of Delaware.
Section 1.10 List of Stockholders. The officer who has charge of the
stock ledger of the Corporation shall prepare and make, at least ten days before
every meeting of the stockholders, a complete list of the stockholders entitled
to vote at the meeting, arranged in alphabetical order, and showing the address
of each stockholder and the number of shares registered in the name of each
stockholder. Such list shall be open to the examination of any stockholder, for
any purpose germane to the meeting, during ordinary business hours, for a period
of at least ten days prior to the meeting, either at a place within the city
where the meeting is to be held (which place shall be specified in the notice of
the meeting or, if not so specified, at the place where said meeting is to be
held), and the list shall be produced and kept at the time and place of the
meeting during the whole time thereof, and may be inspected by any stockholder
who may be present. Upon the willful neglect or refusal of the directors to
produce such a list at any meeting for the election of directors, they shall be
ineligible for election to any office at such meeting.
Section 1.11 Stockholder's Right of Inspection. Stockholders of record,
in person or by attorney or other agent, shall have the right, upon written
demand under oath stating the purpose thereof, during the usual hours for
business to inspect for any proper purpose the Corporation's stock ledger, a
list of its stockholders, and its other books and records, and to make copies or
extracts therefrom. A proper purpose shall mean a purpose reasonably related to
such person's interest as a stockholder. In every instance where an attorney or
other agent shall be the person who seeks the right to inspection, the demand
under oath shall be accompanied by a power of attorney or such other writing
which authorizes the attorney or other agent to so act on behalf of the
stockholder. The demand under oath shall be directed to the Corporation at its
registered office in this State or at its principal place of business.
The stock ledger shall be the only evidence as to who are the
stockholders entitled to examine the stock ledger, the list required by Section
1.10 or the books of the Corporation, or to vote in person or by proxy at any
meeting of the stockholders.
ARTICLE II
Directors
<PAGE>
Section 2.01. Management of Business. The business of the Corporation shall
be managed by its Board of Directors.
The Board of Directors, in addition to the powers and authority
expressly conferred upon it herein, by statute, by the Certificate of
Incorporation of the Corporation or otherwise, is hereby empowered to exercise
all such powers as may be exercised by the Corporation, except as expressly
provided otherwise by the statutes of the State of Delaware, by the Certificate
of Incorporation of the Corporation or by these By-Laws.
Without prejudice to the generality of the foregoing, the Board of
Directors, by resolution or resolutions, may create and issue, whether or not in
connection with the issue and sale of any shares of stock or other securities of
the Corporation, rights or options entitling the holders thereof to purchase
from the Corporation any shares of its capital stock of any class or classes or
any other securities of the Corporation, such rights or options to be evidenced
by or in such instrument or instruments as shall be approved by the Board of
Directors. The terms upon which, including the time or times, which may be
limited or unlimited in duration, at or within which, and the price or prices at
which, any such rights or options may be issued and any such shares or other
securities may be purchased from the Corporation upon the exercise of any such
right or option shall be such as shall be fixed and stated in the resolution or
resolutions adopted by the Board of Directors providing for the creation and
issue of such rights or options, and, in every case, set forth or incorporated
by reference in the instrument or instruments evidencing such rights or options.
In the absence of actual fraud in the transaction, the judgment of the directors
as to the consideration for the issuance of such rights or options and the
sufficiency thereof shall be conclusive. In case the shares of stock of the
Corporation to be issued upon the exercise of such rights or options shall be
shares having a par value, the price or prices so to be received therefor shall
not be less than the par value thereof. In case the shares of stock so to be
issued shall be shares of stock without par value, the consideration therefor
shall be determined in the manner provided in Section 153 of the General
Corporation Law of the State of Delaware.
Section 2.02. Qualifications and Number of Directors. Directors need
not be stockholders. The number of directors which shall constitute the whole
Board shall be not less than three nor more than fifteen, the precise number to
be fixed by resolution of the Board of Directors from time to time.
Section 2.03. Election and Term. The directors shall be elected at the
annual meeting of the stockholders, and each director shall be elected to hold
office until his successor shall be elected and qualified, or until his earlier
resignation or removal.
Section 2.04. Resignations. Any director of the Corporation may resign
at any time by giving written notice to the Corporation. Such resignation shall
take effect at the time specified therein, if any, or if no time is specified
therein, then upon receipt of such notice by the Corporation; and, unless
otherwise provided therein, the acceptance of such resignation shall not be
necessary to make it effective.
Section 2.05. Vacancies and Newly Created Directorships. Vacancies and
newly created directorships resulting from any increase in the authorized number
of directors may be filled by a majority of the directors then in office, though
less than a quorum, or by a sole remaining director,
<PAGE>
and the directors so chosen shall hold office until their successors shall be
elected and qualified, or until their earlier resignation or removal. When one
or more directors shall resign from the Board, effective at a future date, a
majority of the directors then in office, including those who have so resigned,
shall have power to fill such vacancy or vacancies, the vote thereon to take
effect when such resignation or resignations shall become effective, and each
director so chosen shall hold office as herein provided in the filling of other
vacancies.
Section 2.06. Quorum of Directors. At all meetings of the Board of
Directors, one-third of the entire Board shall constitute a quorum for the
transaction of business and the act of a majority of the directors present at
any meeting at which there is a quorum shall be the act of the Board of
Directors, except as provided in Section 2.05 hereof.
A majority of the directors present, whether or not a quorum is
present, may adjourn any meeting of the directors to another time and place.
Notice of any adjournment need not be given if such time and place are announced
at the meeting.
Section 2.07. Annual Meeting. The newly elected Board of Directors
shall meet immediately following the adjournment of the annual meeting of
stockholders in each year at the same place, within or without the State of
Delaware, and no notice of such meeting shall be necessary.
Section 2.08. Regular Meetings. Regular meetings of the Board of
Directors may be held at such time and place, within or without the State of
Delaware, as shall from time to time be fixed by the Board and no notice thereof
shall be necessary.
Section 2.09. Special Meetings. Special meetings may be called at any
time by the Chairman or by any two members of the Board of Directors. Special
meetings shall be held at such place, within or without the State of Delaware,
as shall be fixed by the person or persons calling the meeting and stated in the
notice or waiver of notice of the meeting. Special meetings of the Board of
Directors shall be held upon notice to the directors or waiver thereof.
Unless waived, notice of each special meeting of the directors, stating
the time and place of the meeting, shall be given to each director by delivered
letter, by telegram or by personal communication either over the telephone or
otherwise, in each such case not later than the second day prior to the meeting,
or by mailed letter deposited in the United States mail with postage thereon
prepaid not later than the seventh day prior to the meeting. Notices of special
meetings of the Board of Directors and waivers thereof need not state the
purpose or purposes of the meeting.
Section 2.10. Action Without a Meeting. Any action required or
permitted to be taken at any meeting of the Board of Directors or of any
committee thereof may be taken without a meeting if all members of the Board or
committee, as the case may be, consent thereto in a writing or writings and the
writing or writings are filed with the minutes of proceedings of the Board or
committee.
Section 2.11. Compensation. Directors shall receive such fixed sums and
expenses of attendance for attendance at each meeting of the Board or of any
committee and/or such salary as
<PAGE>
may be determined from time to time by the Board of Directors; provided that
nothing herein contained shall be construed to preclude any director from
serving the Corporation in any other capacity and receiving compensation
therefor.
Section 2.12. Executive Committee. The Board of Directors may not, by
resolution or otherwise, permit the formation of an Executive Committee.
ARTICLE III
Officers
Section 3.01. Number. The officers of the Corporation shall be chosen
by the Board of Directors. The officers shall be a Chairman, a Vice-Chairman, a
President, a Secretary and a Treasurer, and such number of Vice-Presidents,
Assistant Secretaries and Assistant Treasurers, and such other officers, if any,
as the Board may from time to time determine. The Board may choose such other
agents as it shall deem necessary. Any number of offices may be held by the same
person.
Section 3.02. Terms of Office. Each officer shall hold his office until his
successor is chosen and qualified or until his earlier resignation or removal.
Any officer may resign at any time upon written notice to the Corporation.
Section 3.03. Removal. Any officer may be removed from office at any time
by the Board of Directors with or without cause.
Section 3.04. Authority. The Secretary shall record all of the
proceedings of the meetings of the stockholders and directors in a book to be
kept for that purpose, and shall have the authority, perform the duties and
exercise the powers in the management of the Corporation usually incident to the
office held by him, and/or such other authority, duties and powers as may be
assigned to him from time to time by the Board of Directors, the Chairman, the
Vice-Chairman or the President. The other officers, and agents, if any, shall
have the authority, perform the duties and exercise the powers in the management
of the Corporation usually incident to the offices held by them, respectively,
and/or such other authority, duties and powers as may be assigned to them from
time to time by the Board of Directors or (except in the case of the Chairman,
the Vice-Chairman or the President, as appropriate) by the Chairman, the
Vice-Chairman or the President.
Section 3.05. Voting Securities Owned by the Corporation. Powers of
attorney, proxies, waivers of notice of meeting, consents and other instruments
relating to securities owned by the Corporation may be executed in the name of
and on behalf of the Corporation by the Chairman, the Vice-Chairman, the
President or any Vice-President and any such officer may, in the name of and on
behalf of the Corporation, take all such action as any such officer may deem
advisable to vote in person or by proxy at any meeting of security holders of
any corporation in which the Corporation may own securities and at any such
meeting shall possess and may exercise any and
<PAGE>
all rights and powers incident to the ownership of such securities and which, as
the owner thereof, the Corporation might have exercised and possessed if
present. The Board of Directors may, by resolution, from time to time confer
like powers upon any other person or persons.
ARTICLE IV
Capital Stock
Section 4.01. Stock Certificates. Every holder of stock in the
Corporation shall be entitled to have a certificate signed by, or in the name of
the Corporation by, the Chairman or Vice-Chairman of the Board of Directors, or
the President or a Vice-President, and by the Treasurer or an Assistant
Treasurer, or the Secretary or an Assistant Secretary, of the Corporation,
certifying the number of shares owned by him in the Corporation. Where such
certificate is signed (1) by a transfer agent other than the Corporation or its
employee, or (2) by a registrar other than the Corporation or its employee, the
signatures of the officers of the Corporation may be facsimiles. In case any
officer who has signed or whose facsimile signature has been placed upon a
certificate shall have ceased to be such officer before such certificate is
issued, it may be issued by the Corporation with the same effect as if he were
such officer at the date of issue.
Section 4.02. Transfers. Stock of the Corporation shall be transferable in
the manner prescribed by the laws of the State of Delaware.
Section 4.03. Registered Holders. Prior to due presentment for
registration of transfer of any security of the Corporation in registered form,
the Corporation shall treat the registered owner as the person exclusively
entitled to vote, to receive notifications and to otherwise exercise all the
rights and powers of any owner, and shall not be bound to recognize any
equitable or other claim to, or interest in, any security, whether or not the
Corporation shall have notice thereof, except as otherwise provided by the laws
of the State of Delaware.
Section 4.04. New Certificates. The Corporation shall issue a new
certificate of stock in the place of any certificate theretofore issued by it,
alleged to have been lost, stolen or destroyed, if the owner: (1) so requests
before the Corporation has notice that the shares of stock represented by that
certificate have been acquired by a bona fide purchaser; (2) files with the
Corporation a bond sufficient (in the judgment of the directors) to indemnify
the Corporation against any claim that may be made against it on account of the
alleged loss or theft of that certificate or the issuance of a new certificate;
and (3) satisfies any other requirements imposed by the directors that are
reasonable under the circumstances. A new certificate may be issued without
requiring any bond when, in the judgment of the directors, it is proper to do
so.
ARTICLE V
INDEMNIFICATION
<PAGE>
Section 5.01. The Corporation shall indemnify its officers, directors,
employees and agents to the fullest extent permitted by the General Corporation
Law of Delaware and Article SEVENTH of the Certificate of Incorporation of the
Corporation.
ARTICLE VI
Miscellaneous
Section 6.01. Offices. The registered office of the Corporation in the
State of Delaware shall be at the Corporation Trust Center, 1209 Orange Street,
Wilmington, Delaware 19801. The Corporation may also have offices at other
places within and/or without the State of Delaware.
Section 6.02. Seal. The corporate seal shall have inscribed thereon the
name of the Corporation, the year of its incorporation and the words "Corporate
Seal Delaware."
Section 6.03. Checks. All checks or demands for money shall be signed by
such person or persons as the Board of Directors may from time to time
determine.
Section 6.04. Fiscal Year. The fiscal year shall begin the first day after
the last Saturday in March and shall end on the last Saturday in March.
Section 6.05. Waivers of Notice: Dispensing with Notice. Whenever any
notice whatever is required to be given under the provisions of the General
Corporation Law of the State of Delaware, of the Certificate of Incorporation of
the Corporation, or of these By-Laws, a waiver thereof in writing, signed by the
person or persons entitled to said notice, whether before or after the time
stated therein, shall be deemed equivalent thereto. Neither the business to be
transacted at, nor the purpose of, any regular or special meeting of the
stockholders need be specified in any written waiver of notice.
Attendance of a person at a meeting of stockholders shall constitute a
waiver of notice of such meeting, except when the stockholder attends a meeting
for the express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened.
Whenever any notice whatever is required to be given under the
provisions of the General Corporation Law of the State of Delaware, of the
Certificate of Incorporation of the Corporation, or of these By-Laws, to any
person with whom communication is made unlawful by any law of the United States
of America, or by any rule, regulation, proclamation or executive order issued
under any such law, then the giving of such notice to such person shall not be
required and there shall be no duty to apply to any governmental authority or
agency for a license or permit to give such notice to such person; and any
action or meeting which shall be taken or held without notice to any such person
or without giving or without applying for a license or permit to give any such
notice to any such person with whom communication is made unlawful as aforesaid,
shall have the same force and effect as if such notice had been given as
provided under the provisions of the General Corporation Law of the State of
Delaware, or under the provisions of the Certificate of Incorporation of the
Corporation or of these By-Laws. In the event that the action taken by the
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Corporation is such as to require the filing of a certificate under any of the
other sections of this title, the certificate shall state, if such is the fact
and if notice is required, that notice was given to all persons entitled to
receive notice except such persons with whom communication is unlawful.
Section 6.06. Loans to and Guarantees of Obligations of Employees and
Officers. The Corporation may lend money to or guaranty any obligation of, or
otherwise assist any officer or other employee of the Corporation or of a
subsidiary, including any officer or employee who is a director of the
Corporation or a subsidiary, whenever, in the judgment of the Board of
Directors, such loan, guaranty or assistance may reasonably be expected to
benefit the Corporation. The loan, guaranty or other assistance may be with or
without interest, and may be unsecured, or secured in such manner as the Board
of Directors shall approve, including, without limitation, a pledge of shares of
stock of the Corporation. Nothing in this Section contained shall be deemed to
deny, limit or restrict the powers of guaranty or warranty of the Corporation at
common law or under any other statute.
Section 6.07. Amendment of By-Laws. These By-Laws may be altered, amended
or repealed at any meeting of the Board of Directors.
Section 6.08. Section Headings and Statutory References. The headings
of the Articles and Sections of these By-Laws, have been inserted for
convenience of reference only and shall not be deemed to be a part of these
By-Laws.
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