UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10 - Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 28, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___ to ___
Commission file number 33-67546
HARRIS CHEMICAL NORTH AMERICA, INC.
(Exact name of registrant as specified in its charter)
Delaware 48-1135402
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
399 Park Avenue, 32nd Floor
New York, New York 10022
(Address of principal executive offices)(Zip Code)
(212) 207-6400
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes (X) No ( )
The number of shares outstanding of the registrant's common stock at June 28,
1997 was 1,000 shares. All of such shares are owned by Harris Chemical Group,
Inc.
This document consists of 16 sequentially numbered pages.
1
<PAGE>
<TABLE>
<CAPTION>
HARRIS CHEMICAL NORTH AMERICA, INC.
FORM 10-Q For the Quarter ended June 28, 1997
Index
Page #
<S> <C> <C>
Part I Financial Information
Item 1. Financial Statements........................................................ 3
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................................... 12
Part II Other Information
Item 1. Legal Proceedings........................................................... 15
Item 6. Exhibits and Reports on Form 8-K............................................ 15
Signature Page................................................................................ 16
</TABLE>
2
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<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
HARRIS CHEMICAL NORTH AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands)
(Unaudited)
June 29, March 29, June 28,
1996 1997 1997
--------------- --------------- ---------------
ASSETS
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents ............................... $ - $ 17,076 $ 9,736
Trade accounts receivable, less allowance for doubtful
accounts of $1,143 at June 29, 1996, $1,716 at
March 29, 1997 and $2,439 at June 28, 1997 .......... 77,413 117,726 75,402
Other receivables ....................................... 6,455 9,916 6,557
Inventories ............................................. 117,210 86,818 104,624
Deferred income taxes ................................... 6,181 6,019 6,019
Other ................................................... 7,735 6,938 4,146
Total current assets ................................ 214,994 244,493 206,484
Property, plant and equipment, net ........................ 395,956 388,011 381,164
Deferred financing costs, net ............................. 22,931 25,553 24,380
Other ..................................................... 8,182 7,337 7,088
Total assets ........................................ $ 642,063 $ 665,394 $ 619,116
=============== =============== ===============
LIABILITIES AND STOCKHOLDER'S DEFICIT
Current liabilities:
Current portion of long-term debt ....................... $ 6,653 $ 9,403 $ 15,415
Accounts payable ........................................ 59,262 59,526 45,643
Accrued expenses ........................................ 18,480 25,259 19,768
Accrued interest ........................................ 23,790 23,250 22,971
Accrued salaries and wages .............................. 14,762 14,613 11,590
Income taxes payable .................................... 728 2,483 2,127
Total current liabilities ........................... 123,675 134,534 117,514
Long-term debt, net of current portion .................... 775,989 774,372 768,264
Deferred income taxes ..................................... 22,077 26,417 25,674
Other noncurrent liabilities .............................. 16,294 36,502 34,825
Commitments and contingencies
Common stockholder's deficit:
Common stock, at par .................................... - - -
Additional paid-in capital .............................. 103,441 99,941 99,941
Cumulative translation adjustment ....................... (3,341) (3,532) (3,523)
Common stockholder's receivable ......................... (3,035) (3,462) (3,956)
Accumulated deficit ..................................... (393,037) (399,378) (419,623)
Total common stockholder's deficit .................. (295,972) (306,431) (327,161)
Total liabilities and stockholder's deficit ......... $ 642,063 $ 665,394 $ 619,116
=============== =============== ===============
</TABLE>
The accompanying notes are an integral part of the financial statements.
3
<PAGE>
<TABLE>
<CAPTION>
HARRIS CHEMICAL NORTH AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands)
(Unaudited)
Thirteen weeks ended
-------------------------------------------------
June 29, June 28,
1996 1997
------------------- -------------------
<S> <C> <C>
Net sales ............................................. $ 99,581 $ 93,199
Cost of sales ......................................... 81,478 76,007
Gross profit ....................................... 18,103 17,192
Selling, general and administrative expenses .......... 13,965 15,507
Operating income ................................... 4,138 1,685
Other income (expense):
Interest expense ................................... (20,533) (23,660)
Foreign currency transaction gain (loss) ........... (31) 281
Other, net ......................................... 1,265 1,508
Income (loss) before taxes ......................... (15,161) (20,186)
Provision (benefit) for income taxes .................. (69) 59
Net income (loss) .................................. $ (15,092) $ (20,245)
=================== ===================
</TABLE>
The accompanying notes are an integral part of the financial statements.
4
<PAGE>
<TABLE>
<CAPTION>
HARRIS CHEMICAL NORTH AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
Thirteen weeks ended
-------------------------------
June 29, 1996 June 28, 1997
-------------- --------------
<S> <C> <C>
Cash flows from operating activities:
Net loss ..................................................................... $ (15,092) $ (20,245)
Adjustments to reconcile net loss to net cash flows from operating activities:
Depreciation .............................................................. 15,042 13,666
Finance fee amortization .................................................. 1,347 1,203
Operating amortization .................................................... 195 168
Accreted interest ......................................................... - 500
Deferred income taxes ..................................................... (673) (2,433)
Unrealized foreign currency transaction loss (gain) ....................... (230) (177)
Loss (gain) on disposal of property, plant and equipment .................. 10 (37)
Changes in operating assets and liabilities:
Receivables ............................................................ 35,246 45,683
Inventories ............................................................ (14,212) (17,806)
Other assets ........................................................... (2,886) 2,872
Accounts payable ....................................................... (7,039) (13,883)
Accrued expenses and other noncurrent liabilities ...................... (3,262) (9,110)
Net cash provided by operating activities ........................... 8,446 401
-------------- --------------
Cash flows from investing activities:
Capital expenditures ......................................................... (6,501) (5,313)
Capitalized interest ......................................................... (1,128) (60)
Proceeds from sales of property, plant and equipment ......................... 20 6
Net cash used in investing activities ............................... (7,609) (5,367)
-------------- --------------
Cash flows from financing activities:
Revolver borrowings .......................................................... 72,173 -
Revolver payments ............................................................ (80,044) -
Principal payments on other long-term debt, including capital leases ......... (1,663) (1,909)
Capitalized finance costs .................................................... (455) (3)
Other ........................................................................ 48 (494)
Net cash provided by (used in) financing activities ................. (9,941) (2,406)
-------------- --------------
Effect of exchange rate changes on cash ......................................... 11 32
Net increase (decrease) in cash ..................................... (9,093) (7,340)
Cash and cash equivalents, beginning of period .................................. 9,093 17,076
Cash and cash equivalents, end of period ........................................ $ - $ 9,736
============== ==============
Supplemental disclosure of noncash activities:
Assets acquired under capital leases ......................................... $ 75 $ 1,522
============== ==============
</TABLE>
The accompanying notes are an integral part of the financial statements.
5
<PAGE>
HARRIS CHEMICAL NORTH AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation:
The accompanying financial statements have not been audited but reflect all
normal recurring adjustments which, in the opinion of management, are necessary
for a fair presentation of the Company's financial position and results of
operations for the interim periods presented. These interim financial statements
should be read in conjunction with the consolidated financial statements and the
notes thereto for the fiscal year ("FY") ended March 29, 1997 included in the
Company's FY 1997 Form 10-K filed with the Securities and Exchange Commission on
June 27, 1997. The balance sheet as of June 29, 1996 is presented to assist in
understanding the impact of seasonal fluctuations on the financial condition of
the Company.
2. Organization:
The consolidated financial statements include the consolidated accounts of
Harris Chemical North America, Inc. ("Harris") and its wholly owned
subsidiaries, consisting principally of North American Chemical Company
("NACC"), NAMSCO Inc. ("NAMSCO") and its wholly owned subsidiaries North
American Salt Company ("NASC") and Sifto Canada Inc. ("Sifto"), and GSL
Corporation ("GSL") and its wholly owned subsidiary Great Salt Lake Minerals
Corporation ("GSLMC"). Harris and its direct and indirect subsidiaries are
collectively referred to as the "Company." Harris is a wholly owned subsidiary
of Harris Chemical Group, Inc. ("HCG").
Harris is a producer and marketer of inorganic chemical and extractive mineral
products with manufacturing sites in North America. Its principal products are
salt, sodium-based chemicals including soda ash and sodium bicarbonate, sulfate
of potash, and boron chemicals. Together, these businesses serve a variety of
markets, including agriculture, food processing, the chemical process industry,
glass manufacturing and highway de- icing.
3. Details of Inventories and Property, Plant and Equipment:
Inventories are stated at the lower of cost or market, and consist of the
following (in thousands):
<TABLE>
June 29, March 29, June 28,
1996 1997 1997
----------------- ------------------ -----------------
<S> <C> <C> <C>
Finished goods ........................ $ 84,416 $ 54,820 $ 74,666
Raw materials and supplies ............ 32,794 31,998 29,958
Total inventories ................ $ 117,210 $ 86,818 $ 104,624
================= ================== =================
</TABLE>
6
<PAGE>
HARRIS CHEMICAL NORTH AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)
Property, Plant and Equipment (in thousands):
<TABLE>
June 29, March 29, June 28,
1996 1997 1997
------------------ ------------------ ------------------
<S> <C> <C> <C>
At cost .......................................... $ 674,652 $ 702,944 $ 709,672
Less accumulated depreciation
and amortization .............................. 278,696 314,933 328,508
Net property, plant and equipment ........... $ 395,956 $ 388,011 $ 381,164
================== ================== ==================
</TABLE>
4. Income Taxes:
The financial statements for the thirteen weeks ended June 28, 1997 reflect
an income tax provision of $59,000 arising from a loss before provision for
income taxes of $20,186,000. The income tax provision relates to U.S.
Alternative minimum tax and state income tax, Sifto's Canadian income tax and
Ontario mining tax.
The Company believes that some uncertainty exists with the future
utilization of its U.S. net operating loss carryforwards. Therefore, in
accordance with SFAS 109, the Company has recorded a valuation allowance against
deferred income tax assets and has not recognized any income tax benefits
associated with its U.S.
current year loss.
5. Condensed Consolidating Financial Statements:
Separate condensed consolidating financial statements of certain subsidiaries of
the Company are presented below. Except for Sifto, which is domiciled in Canada,
all subsidiaries of Harris are domiciled in the United States. In order to
present the financial statements of Sifto separately, the financial statements
of NAMSCO present the investment in Sifto using the cost method.
Separate financial statements of the subsidiaries of Harris which have
guaranteed Harris' and Sifto's outstanding public debt (the "Guarantors"),
including NACC, North American Terminals, Inc., NAMSCO, NASC, Carey Salt
Company, The Hutchinson & Northern Railway Company, GSL, GSLMC, and White River
Nahcolite Limited Liability Co., are not included for the following reasons: (i)
pursuant to their respective guarantees, the Guarantors are jointly and
severally liable with respect to Harris' and Sifto's outstanding public debt,
(ii) the aggregate assets, liabilities, earnings and equity of the Guarantors
and Sifto are substantially equal to the assets, liabilities, earnings and
equity of Harris on a consolidated basis and (iii) accordingly, Harris does not
believe that separate full financial statements concerning the Guarantors and
Sifto are material to investors. Financial statements of the subsidiaries of
Harris which are not Guarantors are not presented separately as these companies
are immaterial.
7
<PAGE>
HARRIS CHEMICAL NORTH AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
<TABLE>
<CAPTION>
CONDENSED CONSOLIDATING BALANCE SHEETS
June 29, 1996
(in thousands)
NACC GSL NAMSCO Sifto HCNA Eliminations Consolidated
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Cash and cash equivalents.... $ - $ - $ - $ - $ 4,578 $ (4,578) $ -
Receivables, net ............ 46,211 8,031 20,164 8,623 839 - 83,868
Inventories ................. 47,431 21,444 33,953 16,715 - (2,333) 117,210
Other current assets ........ 9,157 369 (2,680) 6,468 602 - 13,916
Property, plant and
equipment, net ............ 229,613 41,012 62,943 62,388 - - 395,956
Investment in Sifto ......... - - 2,513 - - (2,513) -
Other ....................... 5,193 53 2,184 2,780 365,178 (344,275) 31,113
Total assets ................ $ 337,605 $ 70,909 $ 119,077 $ 96,974 $ 371,197 $ (353,699) $ 642,063
=========================================================================================
Total current liabilities.... $ 52,628 $ 10,213 $ 24,415 $ 17,986 $ 23,073 $ (4,640) $ 123,675
Long-term debt, net of
current portion ........... 55,736 8,126 17,853 109,274 585,000 - 775,989
Other noncurrent liabilities. 80,222 (12,241) (32,256) (34,799) 59,096 (21,651) 38,371
Total common stockholder's
equity (deficit) .......... 149,019 64,811 109,065 4,513 (295,972) (327,408) (295,972)
Total liabilities and
common stockholder's
equity (deficit) .......... $ 337,605 $ 70,909 $ 119,077 $ 96,974 $ 371,197 $ (353,699) $ 642,063
=========================================================================================
CONDENSED CONSOLIDATING BALANCE SHEETS
June 28, 1997
(in thousands)
NACC GSL NAMSCO Sifto HCNA Eliminations Consolidated
-----------------------------------------------------------------------------------------
Cash and cash equivalents.... $ - $ - $ - $ - $ 9,736 $ - $ 9,736
Receivables, net ............ 45,752 9,792 16,741 9,361 313 - 81,959
Inventories ................. 39,507 18,475 34,352 14,194 - (1,904) 104,624
Other current assets ........ 6,820 157 (2,772) 5,604 356 - 10,165
Property, plant and
equipment, net ............ 210,534 43,105 63,938 63,587 - - 381,164
Investment in Sifto ......... - - 2,513 - - (2,513) -
Other ....................... 9,808 46 1,765 2,233 408,638 (391,022) 31,468
Total assets ................ $ 312,421 $ 71,575 $ 116,537 $ 94,979 $ 419,043 $ (395,439) $ 619,116
=========================================================================================
Total current liabilities.... $ 56,051 $ 7,529 $ 16,730 $ 16,053 $ 21,151 $ - $ 117,514
Long-term debt, net of
current portion ........... 77,130 1,329 2,698 102,107 585,000 - 768,264
Other noncurrent liabilities. 33,273 (12,782) (28,417) (34,341) 140,053 (37,287) 60,499
Total common stockholder's
equity (deficit) .......... 145,967 75,499 125,526 11,160 (327,161) (358,152) (327,161)
Total liabilities and
common stockholder's
equity (deficit) .......... $ 312,421 $ 71,575 $ 116,537 $ 94,979 $ 419,043 $ (395,439) $ 619,116
=========================================================================================
</TABLE>
8
<PAGE>
HARRIS CHEMICAL NORTH AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
<TABLE>
<CAPTION>
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
For the Thirteen Weeks Ended June 29, 1996
(in thousands)
NACC GSL NAMSCO Sifto HCNA Eliminations Consolidated
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales .................. $ 52,716 $ 15,201 $ 26,158 $ 20,261 $ - $ (14,755) $ 99,581
Cost of sales .............. 44,505 13,379 19,807 16,877 - (13,090) 81,478
Gross profit ............. 8,211 1,822 6,351 3,384 - (1,665) 18,103
Selling, general and
administrative expenses . 4,896 1,434 3,870 3,464 301 - 13,965
Operating income (loss) . 3,315 388 2,481 (80) (301) (1,665) 4,138
Interest expense ........... 474 (63) (150) (2,540) (18,254) - (20,533)
Other income (expense) ..... 1,366 1,633 (1,755) (10) 3,463 (3,463) 1,234
Income (loss) before
provision for income
taxes ................... 5,155 1,958 576 (2,630) (15,092) (5,128) (15,161)
Provision (benefit) for
income taxes ............ - (154) 265 (294) - 114 (69)
Net income (loss) ....... $ 5,155 $ 2,112 $ 311 $ (2,336) $ (15,092) $ (5,242) $ (15,092)
=========================================================================================
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
For the Thirteen Weeks Ended June 28, 1997
(in thousands)
NACC GSL NAMSCO Sifto HCNA Eliminations Consolidated
-----------------------------------------------------------------------------------------
Net sales .................. $ 50,427 $ 13,507 $ 21,668 $ 15,523 $ - $ (7,926) $ 93,199
Cost of sales .............. 42,370 10,441 16,225 13,614 - (6,643) 76,007
Gross profit ............. 8,057 3,066 5,443 1,909 - (1,283) 17,192
Selling, general and
administrative expenses . 4,471 1,744 5,804 3,361 127 - 15,507
Operating income (loss) . 3,586 1,322 (361) (1,452) (127) (1,283) 1,685
Interest expense ........... (4,609) (68) (160) (2,414) (16,409) - (23,660)
Other income (expense) ..... 1,500 1,607 (1,669) 262 (3,553) 3,642 1,789
Income (loss) before
provision for income
taxes ................... 477 2,861 (2,190) (3,604) (20,089) 2,359 (20,186)
Provision (benefit) for
income taxes ............ 9 481 (810) (268) 156 491 59
Net income (loss) ....... $ 468 $ 2,380 $ (1,380)$ (3,336) $ (20,245) $ 1,868 $ (20,245)
=========================================================================================
</TABLE>
9
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HARRIS CHEMICAL NORTH AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
<TABLE>
<CAPTION>
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
For the Thirteen Weeks Ended June 29, 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 .. $ 12,662 $ 5,544 $ 9,162 $ 3,542 $ (16,771) $ (5,693) $ 8,446
Cash flows from investing:
Capital expenditures ...... (2,229) (1,307) (2,531) (434) - - (6,501)
Capitalized interest ...... (1,128) - - - - - (1,128)
Proceeds from sales ....... 20 - - - - - 20
Other ..................... - - - - (3,465) 3,465 -
Net cash used in
investing activities ...... (3,337) (1,307) (2,531) (434) (3,465) 3,465 (7,609)
Cash flows from financing:
Gross borrowings .......... 9,986 21,995 14,001 26,191 - - 72,173
Gross repayments .......... (3,171) (22,649) (38,257) (17,630) - - (81,707)
Other ..................... (16,140) (3,583) 17,625 (20,773) 22,403 61 (407)
Net cash provided by (used
in) financing activities .. (9,325) (4,237) (6,631) (12,212) 22,403 61 (9,941)
Effect of exchange rate
changes on cash ........... - - - 11 - - 11
Net increase (decrease) in
cash and cash equivalents . - - - (9,093) 2,167 (2,167) (9,093)
Cash and cash equivalents:
Beginning of period ....... - - - 9,093 2,411 (2,411) 9,093
End of period ............. $ - $ - $ - $ - $ 4,578 $ (4,578) $ -
=========================================================================================
</TABLE>
10
<PAGE>
HARRIS CHEMICAL NORTH AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
<TABLE>
<CAPTION>
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
For the Thirteen Weeks Ended June 28, 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 .. $ 11,594 $ 9,456 $ (426) $ (582) $ (23,283) $ 3,642 $ 401
Cash flows from investing:
Capital expenditures ...... (1,678) (1,430) (553) (1,652) - - (5,313)
Capitalized interest ...... (60) - - - - - (60)
Proceeds from sales ....... 4 - - 2 - - 6
Other ..................... - - - - 3,633 (3,633) -
Net cash used in
investing activities ...... (1,734) (1,430) (553) (1,650) 3,633 (3,633) (5,367)
Cash flows from financing:
Gross borrowings .......... - - - - - - -
Gross repayments .......... (1,055) (392) (315) (147) - - (1,909)
Other ..................... (8,805) (7,634) 5,274 (3,214) 13,891 (9) (497)
Net cash provided by (used
in) financing activities .. (9,860) (8,026) 4,959 (3,361) 13,891 (9) (2,406)
Effect of exchange rate
changes on cash ........... - - - 32 - - 32
Net increase (decrease) in
cash and cash equivalents . - - 3,980 (5,561) (5,759) - (7,340)
Cash and cash equivalents:
Beginning of period ....... - - (3,980) 5,561 15,495 - 17,076
End of period ............. $ - $ - $ - $ - $ 9,736 $ - $ 9,736
=========================================================================================
</TABLE>
11
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The following table sets forth the net sales by product line for the quarter
ended June 28, 1997 as well as the quarter ended June 29, 1996.
Thirteen Weeks Ended
----------------------------------
Net Sales by Product Line: June 29, 1996 June 28, 1997
--------------- ---------------
Salt $ 35,287 $ 31,021
Soda products 31,186 31,333
Boron chemicals 17,214 16,109
Specialty potash fertilizers 12,465 11,587
Other 3,429 3,149
Total $ 99,581 $ 93,199
=============== ===============
Thirteen Weeks Ended June 28, 1997 Compared With Thirteen Weeks Ended June
29, 1996
Net sales for the thirteen weeks ended June 28, 1997 (the "First Quarter FY
1998") were $93.2 million compared to $99.6 million for the thirteen weeks ended
June 29, 1996 (the "First Quarter FY 1997").
Salt sales decreased $4.3 million for the First Quarter FY 1998 versus the
First Quarter FY 1997 because of lower volumes and unfavorable price/mix
variances compared to the First Quarter FY 1997. Total volumes were down 10%
compared to the First Quarter FY 1997 because of decreases in highway deicing
and general trade tons, partly offset by higher chemical volumes. The decreased
highway deicing tons sold in the First Quarter FY 1998 were the result of First
Quarter FY 1997 volumes being boosted by significant early fill sales. In
contrast, sales in the First Quarter FY 1998 were affected by the reluctance of
a number of municipal and state governmental agencies to replenish inventories
because of budgetary constraints.
First Quarter FY 1998 soda products (soda ash, sodium sulfate and sodium
bicarbonate) sales increased $0.1 million versus the First Quarter FY 1997. Soda
ash volumes increased 3% in First Quarter FY 1998 versus First Quarter FY 1997
generating favorable volume variances in the domestic and ANSAC markets. First
Quarter FY 1998 soda ash pricing decreased 7% on average compared to First
Quarter FY 1997 for all markets generating unfavorable price variances which
more than offset the favorable volume variances. Sodium sulfate sales generated
small unfavorable volume variances which were more than offset by favorable
pricing in First Quarter FY 1998 versus First Quarter FY 1997. As a result of
production volume constraints for sodium sulfate related to the start up of the
Long Range Process Plan ("LRPP") project, the Company selectively reduced sales
to its lower margin markets and improved overall pricing. Sodium bicarbonate
sales increased 19% in the First Quarter FY 1998 as compared to the First
Quarter FY 1997. Increased production at the White River plant allowed the
Company to increase sales volumes by 17%. Average sales prices were higher in
First Quarter FY 1998 by 2% over First Quarter FY 1997.
In the aggregate, boron chemical sales were $1.1 million lower for the
First Quarter FY 1998 compared to the First Quarter FY 1997. The unfavorable
variance is due to net unfavorable volume and price variances. The unfavorable
volume variances result from lower inventories and product availability in First
Quarter FY 1998 versus First Quarter FY 1997 as a result of the shortfall in
production of crude borax during the start up phase of the LRPP project.
The Company's specialty potash fertilizer sales in the First Quarter FY
1998 decreased $0.9 million or 7% compared to the First Quarter FY 1997. For the
First Quarter FY 1998, volumes were down 12% and average
12
<PAGE>
pricing was up 5% compared to the First Quarter FY 1997. The decreased volumes
were due to lower export shipments in the First Quarter FY 1998 compared to the
First Quarter FY 1997 partially offset by increased domestic volumes. The lower
export shipments in the First Quarter FY 1998 are due to the timing of sales.
Other product sales decreased by $0.3 million in the First Quarter FY 1998
versus the First Quarter FY 1997. Other product sales include magnesium
chloride, crude trona and the revenues of other service subsidiaries of the
Company. The decrease in First Quarter FY 1998 is related to the revenues of the
service subsidiaries of the Company.
Cost of sales in the First Quarter FY 1998 was 81.6% of sales, which is
comparable to cost of sales of 81.8% of sales in the First Quarter FY 1997.
Gross profit decreased by $0.9 million in the First Quarter FY 1998 versus
the First Quarter FY 1997 due to the lower sales discussed above.
Selling, general and administrative expenses were $15.5 million or 16.6% of
sales in the First Quarter FY 1998 compared to $14.0 million or 14.0% of sales
in the First Quarter FY 1997. The increase was due principally to higher
professional fees.
Operating income of $1.7 million in the First Quarter FY 1998 decreased
$2.5 million compared to the First Quarter FY 1997 for the reasons discussed
above.
Interest expense was $3.1 million higher in the First Quarter FY 1998
compared to the First Quarter FY 1997. The increase was due to higher interest
costs for the Argus Utilities debt which originated in the Second Quarter FY
1997, interest capitalized on construction in process being $1.1 million lower
in the First Quarter FY 1998 compared to the First Quarter FY 1997, and $0.5
million of accreted interest on the San Diego Terminal debt in the First Quarter
FY 1998.
An exchange gain of $0.3 million related to the translation of United
States dollar-denominated debt of Sifto into Canadian dollars was recorded in
the First Quarter FY 1998 compared to a nominal loss in the First Quarter FY
1997.
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 $0.2 million higher in the First
Quarter FY 1998 compared to the First Quarter FY 1997.
A provision for income taxes of $0.1 million was recorded in the First
Quarter FY 1998 primarily relating to Sifto's Canadian income tax, Ontario
mining taxes, current U.S. alternative minimum tax and state income taxes. A
$0.1 million benefit for income taxes was recorded in the First Quarter FY 1997.
Income tax benefits associated with the U.S. FY 1997 loss have not been
recognized as future realization is uncertain.
A net loss of $20.2 million was recorded for the First Quarter FY 1998
compared to a net loss of $15.1 million in the First Quarter FY 1997 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
13
<PAGE>
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.
First Quarter FY 1998 operating activities provided $0.4 million in net
cash compared to $8.4 million in the First Quarter FY 1997. Net income adjusted
for noncash activity used $8.0 million more cash in First Quarter FY 1998 versus
First Quarter FY 1997. Reduced sales and improved collections in First Quarter
FY 1998 resulted in decreased receivables and a source of cash of $10.4 million
more than in First Quarter FY 1997. A heavier buildup of inventories in First
Quarter FY 1998 versus First Quarter FY 1997 used $3.6 million more cash.
Improved liquidity in First Quarter FY 1998 versus First Quarter FY 1997
resulted in a use of cash of $12.7 million to decrease accounts payable and
accrued expenses.
First Quarter FY 1998 investing activities used $5.4 million of cash
compared to a use of $7.6 million in the First Quarter FY 1997. This decrease is
the result of lower capital spending (including capitalized interest on
construction in progress) in the First Quarter FY 1998 as compared to the First
Quarter FY 1997.
First Quarter FY 1998 financing activities used cash of $2.4 million
compared to a use of cash of $9.9 million in the First Quarter FY 1997. The
primary difference is zero revolver borrowings and repayments in First Quarter
FY 1998 versus net revolver payments of $7.9 million in First Quarter FY 1997.
As disclosed in the Company's Annual Report on Form 10-K for the year ended
March 29, 1997, the Company exercised its option to repurchase its port
facilities from SDT Capital, Inc. ("SDT") in San Diego for the greater of $7.0
million or fair market value. Since the Company and SDT have been unable to
agree on the fair market value of the port facility, fair market value will be
determined through an appraisal process. The Company is accreting the difference
between the initial stated value of $5.5 million and the minimum repurchase
value of $7.0 million through the term of the lease (December 31, 1997). An
extraordinary loss will be recorded for the difference between the accreted
value of $7.0 million and fair market value, if the appraised fair market value
is determined to be greater than $7.0 million.
As of July 26, 1997, the Company had $41.0 million of available borrowing
capacity under its revolving credit agreements and $2.8 million of cash. The
Company believes that internal cash generated from operations plus liquidity
provided by its revolving credit facilities will be adequate to meet the
Company's anticipated working capital needs in FY 1998.
Environmental Matters
Due to the nature of the Company's business, it must continually monitor
compliance with all applicable environmental laws and regulations. At June 28,
1997, the Company had recorded $3.2 million of current liabilities and $10.6
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.
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
14
<PAGE>
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 1997 Fiscal 1998
-------------------------------------------- --------------
1st 2nd 3rd 4th 1st
(in thousands)
<S> <C> <C> <C> <C> <C>
Operating Data:
Net sales .................... $99,581 $92,337 $151,068 $165,636 $93,199
Gross profit ................. 18,103 17,854 46,715 51,813 17,192
Operating income ............. 4,138 4,841 32,217 35,781 1,685
Interest expense ............. 20,533 22,293 24,485 24,614 23,660
Net income (loss) ............ (15,092) (17,589) 5,763 5,485 (20,245)
Sales by Product:
Salt ......................... 35,287 35,141 72,124 93,347 31,021
Soda products ................ 31,186 28,302 31,179 29,133 31,333
Boron chemicals .............. 17,214 14,743 14,417 16,677 16,109
Specialty potash fertilizers . 12,465 11,068 23,484 24,530 11,587
Other ........................ 3,429 3,083 9,864 1,949 3,149
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Reference is made to Item 3 of the Harris Chemical North America, Inc.
Form 10-K for the fiscal year ended March 29, 1997 as it related to the European
Union ("EU") Antidumping Proceeding. The Company has been notified by the
European Commission that EU soda ash producers representing around 80% of the
total EU production of soda ash have withdrawn support for the ongoing
antidumping proceeding and that, in these circumstances, the Commission intends
to propose that the proceeding be terminated and the antidumping duty on the
Company's soda ash repealed. It is not yet certain that this repeal will occur
or, if it does, when it will be repealed.
Item 6. Exhibits and Reports on Form 8-K
(a) All exhibits otherwise required in connection with this quarterly report on
Form 10-Q have heretofore been filed with the Securities and Exchange Commission
except as follows:
None
(b) Reports on Form 8-K
None
15
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Harris Chemical North America, Inc.
(Registrant)
August 12, 1997 /s/ Emanuel J. Di Teresi
-----------------------------------
Emanuel J. Di Teresi
Senior Vice President and
Chief Financial Officer
Chief Accounting Officer
16
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Balance Sheet at June 28, 1997 (Unaudited) and the Consolidated
Statement of Operations for the Thirteen Weeks Ended June 28, 1997 (Unaudited)
and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> MAR-28-1998
<PERIOD-END> JUN-28-1997
<CASH> 9,736
<SECURITIES> 0
<RECEIVABLES> 77,841
<ALLOWANCES> 2,439
<INVENTORY> 104,624
<CURRENT-ASSETS> 206,484
<PP&E> 709,672
<DEPRECIATION> 328,508
<TOTAL-ASSETS> 619,116
<CURRENT-LIABILITIES> 117,514
<BONDS> 685,000
0
0
<COMMON> 0
<OTHER-SE> (419,623)
<TOTAL-LIABILITY-AND-EQUITY> 619,116
<SALES> 93,199
<TOTAL-REVENUES> 93,199
<CGS> 76,007
<TOTAL-COSTS> 76,007
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 23,660
<INCOME-PRETAX> (20,186)
<INCOME-TAX> 59
<INCOME-CONTINUING> (20,245)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (20,245)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
