UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10 - Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 27, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___ to ___
Commission file number 33-67546
HARRIS CHEMICAL NORTH AMERICA, INC.
(Exact name of registrant as specified in its charter)
Delaware 48-1135402
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
399 Park Avenue, 32nd Floor
New York, New York 10022
(Address of principal executive offices)(Zip Code)
(212) 207-6400
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes (X) No ( )
The number of shares outstanding of the registrant's common stock at December
27, 1997 was 1,000 shares. All of such shares are owned by Harris Chemical
Group, Inc.
This document consists of 17 sequentially numbered pages.
1
<PAGE>
<TABLE>
<CAPTION>
HARRIS CHEMICAL NORTH AMERICA, INC.
FORM 10-Q For the Quarter ended December 27, 1997
Index
Page #
<S> <C> <C>
Part I Financial Information
Item 1. Financial Statements........................................................ 3
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................................... 12
Part II Other Information
Item 1. Legal Proceedings........................................................... 17
Item 6. Exhibits and Reports on Form 8-K............................................ 17
Signature Page................................................................................ 17
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
HARRIS CHEMICAL NORTH AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands)
(Unaudited)
December 28, March 29, December 27,
1996 1997 1997
------------ ------------ ------------
ASSETS
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents .................................... $ - $ 17,076 $ 1,106
Trade accounts receivable, less allowance for doubtful
accounts of $1,592 at December 28, 1996, $1,716 at
March 29, 1997 and $2,542 at December 27, 1997.............. 126,082 117,726 120,246
Other receivables ............................................ 8,756 9,916 10,506
Inventories .................................................. 122,704 86,818 119,764
Deferred income taxes ........................................ 6,073 6,019 6,019
Other ........................................................ 7,611 6,938 3,347
------------ ------------ ------------
Total current assets .................................... 271,226 244,493 260,988
Property, plant and equipment, net ............................. 386,152 388,011 365,607
Deferred financing costs, net .................................. 25,442 25,553 22,253
Other .......................................................... 8,536 7,337 6,870
------------ ------------ ------------
Total assets ............................................. $ 691,356 $ 665,394 $ 655,718
============ ============ ============
LIABILITIES AND STOCKHOLDER'S DEFICIT
Current liabilities:
Current portion of long-term debt ............................ $ 8,454 $ 9,403 $ 10,938
Accounts payable ............................................. 61,744 59,526 55,521
Accrued expenses ............................................. 20,796 25,259 22,244
Accrued interest ............................................. 23,482 23,250 23,580
Accrued salaries and wages ................................... 11,529 14,613 14,976
Income taxes payable ......................................... 1,228 2,483 1,254
------------ ------------ ------------
Total current liabilities ................................. 127,233 134,534 128,513
Long-term debt, net of current portion ......................... 810,035 774,372 805,860
Deferred income taxes .......................................... 23,900 26,417 27,171
Other noncurrent liabilities ................................... 38,469 36,502 27,770
Commitments and contingencies
Common stockholder's deficit:
Common stock, at par ......................................... - - -
Additional paid-in capital ................................... 103,441 99,941 99,941
Cumulative translation adjustment ............................ (3,423) (3,532) (3,988)
Common stockholder's receivable .............................. (3,436) (3,462) (4,599)
Accumulated deficit .......................................... (404,863) (399,378) (424,950)
------------ ------------ ------------
Total common stockholder's deficit ....................... (308,281) (306,431) (333,596)
------------ ------------ ------------
Total liabilities and stockholder's deficit .............. $ 691,356 $ 665,394 $ 655,718
============ ============ ============
</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 Thirty-nine weeks ended
----------------------------------- -----------------------------------
December 28, December 27, December 28, December 27,
1996 1997 1996 1997
-------------- ----------------- --------------- ----------------
<S> <C> <C> <C> <C>
Net Sales............................................. $ 151,068 $ 146,214 $ 342,986 $ 334,320
Cost of sales......................................... 104,353 95,960 260,314 243,951
------------- -------------- ------------- -------------
Gross profit.......................................... 46,715 50,254 82,672 90,369
Selling, general and administrative expenses.......... 14,498 14,016 41,476 42,774
------------- -------------- ------------- -------------
Operating income...................................... 32,217 36,238 41,196 47,595
Other income (expense):
Interest expense.................................... (24,485) (24,456) (67,311) (72,225)
Foreign currency transaction gain (loss)............ (143) (1,289) (749) (862)
Other, net ......................................... 1,218 1,278 3,179 4,849
------------- -------------- ------------- -------------
Income (loss) before taxes ........................... 8,807 11,771 (23,685) (20,643)
Provision for income taxes ........................... 3,044 3,541 3,233 4,929
------------- -------------- ------------- -------------
Net income (loss) .................................... $ 5,763 $ 8,230 $ (26,918) $ (25,572)
============= ============== ============= =============
</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)
Thirty-nine weeks ended
-----------------------------------
December 28, December 27,
1996 1997
--------------- ---------------
<S> <C> <C>
Cash flows from operating activities:
Net loss ...................................................................... $ (26,918) $ (25,572)
Adjustments to reconcile net loss to net cash flows from operating activities:
Depreciation ............................................................... 41,469 41,123
Finance fee amortization ................................................... 3,963 3,628
Operating amortization ..................................................... 457 509
Accreted interest .......................................................... - 1,502
Deferred income taxes ...................................................... 1,420 701
Unrealized foreign currency transaction loss (gain) ........................ (220) 1,961
Loss (gain) on disposal of property, plant and equipment ................... 545 (667)
Other ...................................................................... 40 -
Changes in operating assets and liabilities:
Receivables ............................................................. (15,724) (3,110)
Inventories ............................................................. (19,705) (32,947)
Other assets ............................................................ (3,258) 3,574
Accounts payable ........................................................ (4,557) (17,265)
Accrued expenses and other noncurrent liabilities ....................... (7,798) 1,103
-------------- --------------
Net cash used in operating activities ............................... (30,286) (25,460)
-------------- --------------
Cash flows from investing activities:
Capital expenditures .......................................................... (21,200) (17,336)
Capitalized interest .......................................................... (1,406) (195)
Proceeds from sales of property, plant and equipment .......................... 178 839
-------------- --------------
Net cash used in investing activities ............................... (22,428) (16,692)
-------------- --------------
Cash flows from financing activities:
Revolver borrowings ........................................................... 190,186 105,435
Revolver payments ............................................................. (233,100) (70,000)
Principal payments on other long-term debt, including capital leases .......... (5,758) (7,710)
Issuance of long-term debt..................................................... 75,000 -
Capitalized finance costs ..................................................... (5,491) (324)
Prepayment of deferred revenue................................................. 23,152 -
Other ......................................................................... (353) (1,137)
-------------- --------------
Net cash provided by financing activities ........................... 43,636 26,264
-------------- --------------
Effect of exchange rate changes on cash........................................ (15) (82)
-------------- --------------
Net decrease in cash................................................. (9,093) (15,970)
Cash and cash equivalents, beginning of period .................................. 9,093 17,076
-------------- --------------
Cash and cash equivalents, end of period ........................................ $ - $ 1,106
============== ==============
Supplemental disclosure of noncash activities:
Assets acquired under capital leases .......................................... $ 2,754 $ 3,746
============== ==============
</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 December 28, 1996 is presented to assist
in understanding the impact of seasonal fluctuations on the financial condition
of the Company.
2. Organization and Pending Sale Transaction:
The consolidated financial statements include the consolidated accounts of
Harris Chemical North America, Inc. ("Harris" or "Company") 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.
On December 12, 1997, HCG and IMC Global Inc. (IMC) announced that IMC had
reached a definitive agreement with HCG to acquire all of HCG's equity for cash.
The acquisition by IMC, which is conditioned upon the receipt of regulatory
approvals, is expected to be completed during Harris' fiscal year 1998 fourth
quarter.
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>
December 28, March 29, December 27,
1996 1997 1997
--------------- --------------- ---------------
<S> <C> <C> <C>
Finished goods ......................... $ 88,964 $ 54,820 $ 87,572
Raw materials and supplies ............. 33,740 31,998 32,192
--------------- --------------- ---------------
Total inventories ................. $ 122,704 $ 86,818 $ 119,764
=============== =============== ===============
</TABLE>
6
<PAGE>
HARRIS CHEMICAL NORTH AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)
Property, Plant and Equipment (in thousands):
<TABLE>
December 28, March 29, December 27,
1996 1997 1997
--------------- --------------- ---------------
<S> <C> <C> <C>
At cost ................................. $ 690,133 $ 702,944 $ 718,328
Less accumulated depreciation
and amortization ..................... 303,981 314,933 352,721
--------------- --------------- ---------------
Net property, plant and equipment .. $ 386,152 $ 388,011 $ 365,607
=============== =============== ===============
</TABLE>
4. Income Taxes:
The financial statements for the thirty-nine weeks ended December 27, 1997
reflect an income tax provision of $4.9 million arising from a loss before
provision for income taxes of $20.6 million. The income tax provision relates to
U.S. alternative minimum tax, state income taxes, and Sifto's Canadian income
tax and Ontario mining tax.
The Company believes that some uncertainty exists with respect to the
future utilization of its U.S. net operating loss carryforwards. Therefore, in
accordance with SFAS 109, the Company has recorded a valuation allowance against
deferred income tax assets and has not recognized any income tax benefits
associated with its U.S. current year loss.
5. Subsequent Event
As disclosed in the Company's fiscal year 1997 Form 10-K, the Company
exercised its option to repurchase its port facilities from SDT Capital, Inc.
("SDT") in San Diego for the greater of $7.0 million or fair market value.
Through the lease term, the Company has accreted the difference between the
initial stated value of $5.5 million and the minimum repurchase value of $7.0
million. On December 31, 1997, the Company reached an agreement as to the fair
value of the facilities, $9.5 million, and paid that amount to SDT in
satisfaction of its obligations under the lease agreement. The Company will
record an extraordinary loss of approximately $2.5 million in the fourth quarter
of fiscal 1998 for the early extinguishment of debt. Because the Company
financed the aforementioned payment to SDT with long-term borrowings, the
Company has recorded the $7.0 million obligation on the accompanying December
27, 1997 consolidated balance sheet as long-term debt.
6. Condensed Consolidating Financial Statements:
Separate condensed consolidating financial statements of certain
subsidiaries of the Company are presented below. Except for Sifto, which is
domiciled in Canada, all subsidiaries of Harris are domiciled in the United
States. In order to present the financial statements of Sifto separately, the
financial statements of NAMSCO present the investment in Sifto using the cost
method.
Separate financial statements of the subsidiaries of Harris which have
guaranteed Harris' and Sifto's outstanding public debt (the "Guarantors"),
including NACC, North American Terminals, Inc., NAMSCO, NASC, Carey Salt
Company, The Hutchinson & Northern Railway Company, GSL, GSLMC, and White River
Nahcolite Limited Liability Co., are not included for the following reasons: (i)
pursuant to their respective guarantees, the Guarantors are jointly and
severally liable with respect to Harris' and Sifto's outstanding public debt,
(ii) the aggregate assets, liabilities, earnings and equity of the Guarantors
and Sifto are substantially equal to the assets, liabilities, earnings and
equity of Harris on a consolidated basis and (iii) accordingly, Harris does not
believe that separate full financial statements concerning the Guarantors and
Sifto are material to investors. Financial statements of the subsidiaries of
Harris which are not Guarantors are not presented separately as these companies
are immaterial.
7
<PAGE>
<TABLE>
<CAPTION>
HARRIS CHEMICAL NORTH AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
CONDENSED CONSOLIDATING BALANCE SHEETS
December 28, 1996
(in thousands)
NACC GSL NAMSCO Sifto HCNA Eliminations Consolidated
---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Cash and cash equivalents ....... $ - $ - $ - $ - $ 2,982 $ (2,982) $ -
Receivables, net ................ 45,971 16,244 48,680 22,630 1,313 - 134,838
Inventories ..................... 45,207 18,085 42,333 19,329 - (2,250) 122,704
Other current assets ............ 9,293 385 524 2,917 565 - 13,684
Property, plant and
equipment, net ................ 217,930 41,964 64,344 61,914 - - 386,152
Investment in Sifto ............. - - 2,513 - - (2,513) -
Other ........................... 10,203 46 2,442 2,428 387,560 (368,701) 33,978
---------- ---------- ---------- ---------- ---------- ----------- ------------
Total assets .................... $ 328,604 $ 76,724 $ 160,836 $ 109,218 $ 392,420 $ (376,446) $ 691,356
========== ========== ========== ========== ========== =========== ============
Total current liabilities ....... $ 46,874 $ 15,974 $ 25,169 $ 21,284 $ 20,990 $ (3,058) $ 127,233
Long-term debt, net of
current portion ............... 98,391 1,529 14,706 110,409 585,000 - 810,035
Other noncurrent liabilities .... 31,876 (9,641) 3,710 (29,009) 94,711 (29,278) 62,369
Total common stockholder's
equity (deficit) .............. 151,463 68,862 117,251 6,534 (308,281) (344,110) (308,281)
---------- ---------- ---------- ---------- ---------- ----------- ------------
Total liabilities and
common stockholder's
equity (deficit) .............. $ 328,604 $ 76,724 $ 160,836 $ 109,218 $ 392,420 $ (376,446) $ 691,356
========== ========== ========== ========== ========== =========== ============
CONDENSED CONSOLIDATING BALANCE SHEETS
December 27, 1997
(in thousands)
NACC GSL NAMSCO Sifto HCNA Eliminations Consolidated
---------------------------------------------------------------------------------
Cash and cash equivalents ....... $ - $ - $ - $ - $ 1,106 $ - $ 1,106
Receivables, net ................ 51,509 12,215 44,850 20,517 1,661 - 130,752
Inventories ..................... 36,219 24,074 42,711 16,225 - 535 119,764
Other current assets ............ 6,988 60 327 1,775 216 - 9,366
Property, plant and
equipment, net ................ 197,313 46,599 63,387 58,308 - - 365,607
Investment in Sifto ............. - - 2,513 - - (2,513) -
Other ........................... 9,696 52 1,853 1,827 436,350 (420,655) 29,123
---------- ---------- ---------- ---------- ---------- ----------- ------------
Total assets .................... $ 301,725 $ 83,000 $ 155,641 $ 98,652 $ 439,333 $ (422,633) $ 655,718
========== ========== ========== ========== ========== =========== ============
Total current liabilities ....... $ 51,236 $ 12,192 $ 24,879 $ 18,546 $ 21,660 $ - $ 128,513
Long-term debt, net of
current portion ............... 91,553 2,530 13,660 113,117 585,000 - 805,860
Other noncurrent liabilities .... 6,983 (11,204) (16,951) (45,872) 166,269 (44,284) 54,941
Total common stockholder's
equity (deficit) .............. 151,953 79,482 134,053 12,861 (333,596) (378,349) (333,596)
---------- ---------- ---------- ---------- ---------- ----------- ------------
Total liabilities and
common stockholder's
equity (deficit) .............. $ 301,725 $ 83,000 $ 155,641 $ 98,652 $ 439,333 $ (422,633) $ 655,718
========== ========== ========== ========== ========== =========== ============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
HARRIS CHEMICAL NORTH AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
For the Thirty-nine Weeks Ended December 28, 1996
(in thousands)
NACC GSL NAMSCO Sifto HCNA Eliminations Consolidated
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales ....................... $ 152,022 $ 56,632 $ 101,658 $ 67,503 $ - $ (34,829) $ 342,986
Cost of sales ................... 129,274 47,769 69,836 46,681 - (33,246) 260,314
---------- ---------- ---------- ---------- ---------- ----------- ------------
Gross profit .................. 22,748 8,863 31,822 20,822 - (1,583) 82,672
Selling, general and
administrative expenses ....... 12,726 4,134 12,323 9,771 2,522 - 41,476
---------- ---------- ---------- ---------- ---------- ----------- ------------
Operating income (loss) ....... 10,022 4,729 19,499 11,051 (2,522) (1,583) 41,196
Interest expense ................ (6,423) (191) (420) (7,910) (52,367) - (67,311)
Other income (expense) .......... 4,000 4,838 (5,592) (816) 27,971 (27,971) 2,430
---------- ---------- ---------- ---------- ---------- ----------- ------------
Income (loss) before
provision for income
taxes ........................ 7,599 9,376 13,487 2,325 (26,918) (29,554) (23,685)
Provision (benefit) for
income taxes ................. - 3,213 4,989 2,558 - (7,527) 3,233
---------- ---------- ---------- ---------- ---------- ----------- ------------
Net income (loss) ............ $ 7,599 $ 6,163 $ 8,498 $ (233) $ (26,918) $ (22,027) $ (26,918)
========== ========== ========== ========== ========== =========== ============
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
For the Thirty-nine Weeks Ended December 27, 1997
(in thousands)
NACC GSL NAMSCO Sifto HCNA Eliminations Consolidated
---------------------------------------------------------------------------------
Net sales ....................... $ 153,508 $ 45,537 $ 96,039 $ 64,172 $ - $ (24,936) $ 334,320
Cost of sales ................... 125,483 35,960 64,705 43,894 - (26,091) 243,951
---------- ---------- ---------- ---------- ---------- ----------- ------------
Gross profit .................. 28,025 9,577 31,334 20,278 - 1,155 90,369
Selling, general and
administrative expenses ...... 13,077 5,041 14,221 9,045 1,390 - 42,774
---------- ---------- ---------- ---------- ---------- ----------- ------------
Operating income (loss) ...... 14,948 4,536 17,113 11,233 (1,390) 1,155 47,595
Interest expense ................ (13,569) (237) (600) (7,515) (50,304) - (72,225)
Other income (expense) .......... 5,131 4,846 (5,157) (967) 26,590 (26,456) 3,987
---------- ---------- ---------- ---------- ---------- ----------- ------------
Income (loss) before
provision for income
taxes ........................ 6,510 9,145 11,356 2,751 (25,104) (25,301) (20,643)
Provision (benefit) for
income taxes ................. 56 2,782 4,210 3,919 468 (6,506) 4,929
---------- ---------- ---------- ---------- ---------- ----------- ------------
Net income (loss) ............ $ 6,454 $ 6,363 $ 7,146 $ (1,168) $ (25,572) $ (18,795) $ (25,572)
========== ========== ========== ========== ========== =========== ============
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
HARRIS CHEMICAL NORTH AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
For the Thirty-nine Weeks Ended December 28, 1996
(in thousands)
NACC GSL NAMSCO Sifto HCNA Eliminations Consolidated
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net cash provided by (used
in) operating activities ..... $ 23,542 $ 16,258 $ (14,061) $ 1,985 $ (29,392) $ (28,618) $ (30,286)
---------- ---------- ---------- ---------- ---------- ----------- ------------
Cash flows from investing:
Capital expenditures ......... (6,273) (4,506) (7,484) (2,937) - - (21,200)
Capitalized interest ......... (1,406) - - - - - (1,406)
Proceeds from sales .......... 22 - 156 - - - 178
Other ........................ - - - - (27,891) 27,891 -
---------- ---------- ---------- ---------- ---------- ----------- ------------
Net cash provided by (used
in) investing activities ..... (7,657) (4,506) (7,328) (2,937) (27,891) 27,891 (22,428)
---------- ---------- ---------- ---------- ---------- ----------- ------------
Cash flows from financing:
Gross borrowings ............. 99,986 21,995 92,502 50,703 - - 265,186
Gross repayments ............. (46,804) (29,519) (120,591) (41,944) - - (238,858)
Other ........................ (69,067) (4,228) 49,478 (16,885) 57,854 156 17,308
---------- ---------- ---------- ---------- ---------- ----------- ------------
Net cash provided by (used
in) financing activities ..... (15,885) (11,752) 21,389 (8,126) 57,854 156 43,636
---------- ---------- ---------- ---------- ---------- ----------- ------------
Effect of exchange rate
changes on cash .............. - - - (15) - - (15)
---------- ---------- ---------- ---------- ---------- ----------- ------------
Net increase (decrease) in
cash and cash equivalents .... - - - (9,093) 571 (571) (9,093)
Cash and cash equivalents:
Beginning of period .......... - - - 9,093 2,411 (2,411) 9,093
---------- ---------- ---------- ---------- ---------- ----------- ------------
End of period ................ $ - $ - $ - $ - $ 2,982 $ (2,982) $ -
========== ========== ========== ========== ========== =========== ============
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
HARRIS CHEMICAL NORTH AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
For the Thirty-nine Weeks Ended December 27, 1997
(in thousands)
NACC GSL NAMSCO Sifto HCNA Eliminations Consolidated
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net cash provided by (used
in) operating activities ..... $ 24,380 $ 15,435 $ (15,381) $ 3,633 $ (27,071) $ (26,456) $ (25,460)
---------- ---------- ---------- ---------- ---------- ----------- -----------
Cash flows from investing:
Capital expenditures ......... (4,011) (6,801) (3,301) (3,223) - - (17,336)
Capitalized interest ......... (195) - - - - - (195)
Proceeds from sales .......... 836 - 1 2 - - 839
Other ........................ - - - - (26,000) 26,000 -
---------- ---------- ---------- ---------- ---------- ----------- -----------
Net cash provided by (used
in) investing activities ..... (3,370) (6,801) (3,300) 3,221 (26,000) 26,000 (16,692)
---------- ---------- ---------- ---------- ---------- ----------- -----------
Cash flows from financing:
Gross borrowings ............. 48,000 5,000 41,000 11,435 - - 105,435
Gross repayments ............. (40,430) (5,316) (30,912) (1,052) - - (77,710)
Other ........................ (28,580) (8,318) 12,573 (16,274) 38,682 456 (1,461)
---------- ---------- ---------- ---------- ---------- ----------- -----------
Net cash provided by (used
in) financing activities ..... (21,010) (8,634) 22,661 (5,891) 38,682 456 26,264
---------- ---------- ---------- ---------- ---------- ----------- -----------
Effect of exchange rate
changes on cash .............. - - - (82) - - (82)
---------- ---------- ---------- ---------- ---------- ----------- -----------
Net increase (decrease) in
cash and cash equivalents .... - - 3,980 (5,561) (14,389) - 15,970)
Cash and cash equivalents:
Beginning of period .......... - - (3,980) 5,561 15,495 - 17,076
---------- ---------- ---------- ---------- ---------- ----------- -----------
End of period ................ $ - $ - $ - $ - $ 1,106 $ - $ 1,106
========== ========== ========== ========== ========== =========== ===========
</TABLE>
10
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following table sets forth the Company's net sales by product line for
the thirteen and thirty-nine week periods ended December 27, 1997 and December
28, 1996.
<TABLE>
Net Sales by Product Line
Thirteen Weeks Ended Thirty-nine Weeks Ended
------------------------------- -------------------------------
Dec. 28, 1996 Dec. 27, 1997 Dec. 28, 1996 Dec. 27, 1997
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Salt.......................... $ 72,124 $ 73,737 $ 142,552 $ 138,723
Soda Products................. 31,179 34,430 90,667 95,963
Boron Chemicals............... 14,417 17,313 46,374 50,927
Specialty Potash Fertilizers.. 23,484 16,086 47,017 37,726
Other......................... 9,864 4,648 16,376 10,981
--------------- --------------- --------------- ---------------
Total...................... $ 151,068 $ 146,214 $ 342,986 $ 334,320
=============== =============== =============== ===============
</TABLE>
Thirteen Weeks Ended December 27, 1997 Compared With Thirteen Weeks Ended
December 28, 1996
Net sales for the thirteen weeks ended December 27, 1997 ("Third Quarter FY
1998") were $146.2 million compared to $151.1 million for the thirteen weeks
ended December 28, 1996 ("Third Quarter FY 1997"), a decrease of 3.2%.
The $1.6 million increase in salt sales was primarily the result of overall
favorable pricing, which increased sales approximately $2.4 million when
compared to the year earlier period. Additionally, the highway/chemical salt
segment experienced a $2.1 million favorable volume variance as compared to the
prior year period due to winter weather and the related customer inventory
restocking. Partially offsetting these favorable variances was a decrease in
sales of the general trade segment as a result of the exclusive distributor
program introduced this year. The almost 12% decline in general trade segment
volumes reduced sales by approximately $2.9 million.
The $3.3 million increase in net sales from soda products (soda ash, sodium
sulfate and sodium bicarbonate) in the Third Quarter FY 1998 when compared to
the prior year period was due to an increase in the sales of soda ash, while
sodium sulfate and sodium bicarbonate sales were relatively flat. Sales volumes
for soda ash increased by approximately 17%. The average price for soda ash was
down slightly from the Third Quarter FY 1997. The increased volumes are the
result of the timing of export sales of the Company's products.
The $2.9 million increase in net sales from boron chemicals is due to a 26%
increase in sales volumes during the Third Quarter FY 1998 period when compared
to the prior year period. The increased sales volumes are the result of
increased production of these products at the Company's facilities in Searles
Valley. Although the average sales prices for most of the boron chemicals
increased compared to the prior year period, the Company experienced a change in
product mix which negatively impacted the average sales price of boron
chemicals.
Specialty potash fertilizer net sales in the Third Quarter FY 1998
decreased $7.4 million, or 32%, compared to the Third Quarter FY 1997. The
decline in sales was a result of a 41% decrease in tons sold, partially offset
by a 16% increase in the average sales price. Domestic volumes remained strong
in the quarter, while the timing of export sales has lagged behind the prior
year volumes.
11
<PAGE>
Cost of sales in the Third Quarter FY 1998 and Third Quarter FY 1997 was
65.6% and 69.1% of sales, respectively. The improvement in gross margin
percentage from prior year is attributable to continued efficiencies being
experienced in the soda products and boron businesses from the implementation of
cost reduction strategies and capital projects which have resulted in higher
levels of production at lower average costs. Additionally, gross margin for the
salt business improved over the prior year period, primarily due to lower
freight and operating costs. These factors were partially offset by higher raw
material costs in the specialty potash fertilizer business resulting from this
year's poor summer solar evaporation season.
Selling, general and administrative expenses were relatively unchanged,
decreasing $0.5 million Third Quarter FY 1998 compared to Third Quarter FY 1997.
As a percentage of sales, these expenses totaled 9.6% for both Third Quarter FY
1998 and Third Quarter FY 1997.
Interest expense was relatively unchanged for the Third Quarter FY 1998
period as compared to the prior year period.
An exchange loss of $1.3 million was recorded in the Third Quarter FY 1998
period, primarily relating to the translation of United States
dollar-denominated debt of Sifto into Canadian dollars, compared to a $0.1
million loss in the Third Quarter FY 1997 period. No other significant exchange
gains or losses were recorded during the period.
Other income principally consists of ground lease and maintenance income,
and gains and losses on disposal of property, plant and equipment. Other income
was $0.1 million higher in the Third Quarter FY 1998 than the Third Quarter FY
1997.
A provision for income taxes of $3.5 million was recorded in the Third
Quarter FY 1998, $0.5 million more than in the Third Quarter FY 1997, relating
to U.S. alternative minimum tax, state income taxes, and Sifto's Canadian income
tax and Ontario mining tax. Income tax benefits associated with the U.S. losses
have not been recognized as future realization is uncertain.
Thirty-nine Weeks Ended December 27, 1997 Compared With Thirty-nine Weeks Ended
December 28, 1996
Net sales for the thirty-nine weeks ended December 27, 1997("YTD FY 1997")
were $334.3 million, down 2.5% from the $343.0 million recorded for the
thirty-nine weeks ended December 28, 1996 ("YTD FY 1997").
Salt sales declined $3.8 million primarily due to the introduction of the
exclusive distributor program in the general trade segment. An 11% decline in
YTD FY 1998 general trade segment volumes, compared to the prior year, resulted
in a $8.5 million decline in sales. The highway/chemical segment volumes were
approximately 3% higher than the YTD FY 1997 period resulting in a $2.2 million
increase in sales. Overall, salt pricing was approximately $2.5 million
favorable to the year earlier period.
Sales of soda products increased $5.3 million to $96.0 million in the YTD
FY 1998 period as compared to the YTD FY 1997 period. Most of the increase was
due to a $3.4 million and $1.8 million increase in the sales of soda ash and
sodium sulfate, respectively. The soda ash increase was due to an 11% increase
in volumes sold partially offset by lower prices while the sodium sulfate
increase was due to a 21% increase in the average sales price partially offset
by 4% lower volumes. Sodium sulfate, which is used as an ingredient in
detergents, among other things, experienced a price increase late in FY 1997 due
to the strong demand for this product. Sales of sodium bicarbonate in the YTD FY
1998 period were substantially unchanged from the prior year period.
12
<PAGE>
Boron chemical sales in the YTD FY 1998 period were $4.6 million higher
than in the prior period in FY 1997. The primary factor increasing sales was
increased sales volumes during the YTD FY 1998 period as compared to the prior
year. The 7% increase in volumes sold has resulted in an approximate $4.2
million increase in sales. The increased sales volumes are the result of
increased production of these products at the Company's facilities in Searles
Valley.
Specialty potash fertilizer net sales were down $9.3 million for the YTD FY
1998 period as compared to prior year, due to a 28% decline in volumes. This was
partially offset by an 11%, or $16 per ton, increase in the average sales price.
The decline in volumes are primarily due to the timing of export sales in YTD FY
1998 and YTD FY 1997, as well as the depletion of the remaining inventory from
the Searles Valley facilities in California. Production of the specialty potash
fertilizer was terminated in Searles Valley upon completion of the Long Range
Process Plan in FY 1997.
Cost of sales in YTD FY 1998 and YTD FY 1997 was 73.0% and 75.9% of sales,
respectively. The improvement in gross margin percentage from the prior year
period is attributable to continued efficiencies being gained in the soda
products and boron businesses from the implementation of cost reduction
strategies and the positive impact of capital projects which have resulted in
higher levels of production at lower average costs, and an increase in the gross
margin percentage in the general trade salt segment due to the implementation of
an exclusive distributor program.
Selling, general and administrative expenses for the YTD FY 1998 period
were $42.8 million, or 12.8% of net sales, compared to $41.5 million, or 12.1%
of net sales, in the YTD FY 1997 period. The increase, which principally
occurred in the first quarter, relates to higher professional fees.
Interest expense increased $4.9 million for the YTD FY 1998 period as
compared to the prior year period in FY 1997. The increase was due to higher
interest costs for the Argus utilities debt which originated in the Second
Quarter FY 1997, lower capitalized interest on construction in process of $0.2
million YTD FY 1998 compared to $1.4 million YTD FY 1997, and $1.5 million of
accreted interest on the San Diego Terminal lease obligation for the YTD FY 1998
period (see Note 5).
An exchange loss of $0.9 million was recorded in the YTD FY 1998 period,
primarily relating to the translation of United States dollar-denominated debt
of Sifto into Canadian dollars, compared to a $0.7 million loss in the YTD FY
1997 period. No other significant exchange gains or losses were recorded during
the period.
Other income was $1.7 million higher in the YTD FY 1998 period compared to
the prior year, primarily due to the second quarter sale of land near the
Searles Valley facility in California for a gain of $0.8 million. Other
miscellaneous expenses were also lower in the YTD FY 1998 period.
A provision for income taxes of $4.9 million was recorded in the YTD FY
1998 period, $1.7 million more than in the YTD FY 1997 period, relating to U.S.
alternative minimum tax, state income taxes, and Sifto's Canadian income tax and
Ontario mining tax. Income tax benefits associated with the U.S. losses have not
been recognized as future realization is uncertain.
13
<PAGE>
Liquidity, Capital Resources and Financial Condition
Seasonality and Cash Flows
The Company's combined accounts receivable and inventory levels have varied
by as much as $60.0 million during a fiscal year. Generally, during the second
and third fiscal quarters highway deicing salt inventories are increased in
preparation for the winter season. The harvesting of the solar ponds at the
Ogden facility also takes place in the third fiscal quarter adding to the
specialty potash fertilizer inventory levels. Inventories then decline in the
fourth fiscal quarter. Accounts receivable increase during the third and fourth
fiscal quarters as highway salt sales and specialty potash fertilizer sales peak
during this period. Cash requirements rapidly decline near the end of the fourth
fiscal quarter and the early part of the next fiscal year first quarter as
accounts receivable are converted into cash. Sales of soda products and boron
chemicals are, for the most part, not as cyclical.
YTD FY 1998 operating activities utilized $25.5 million in net cash
compared to $30.3 million utilized in the YTD FY 1997 period. A heavier buildup
of inventories YTD FY 1998 versus YTD FY 1997 used $13.2 million more cash. This
was almost entirely offset by higher collections from accounts receivable YTD FY
1998 versus YTD FY 1997, due to higher sales and receivables in the fourth
fiscal quarter of 1997 than in the fourth fiscal quarter of 1996 combined with
lower sales and receivables in Third Quarter FY 1998 versus Third Quarter FY
1997. Accounts payable and accrued expenses used $3.8 million more cash in YTD
FY 1998 than in prior year due to the timing of payments.
YTD FY 1998 investing activities used $16.7 million of cash compared to a
use of $22.4 million in the YTD FY 1997 period. This decrease is the result of
lower capital spending (including capitalized interest on construction in
progress) in YTD FY 1998 as compared to the same period in FY 1997.
YTD FY 1998 financing activities provided cash of $26.3 million compared to
$43.6 million in the FY 1997 period. The primary difference is lower net
borrowings on the revolver (and net of a sale-leaseback arrangement in FY 1997)
due to the larger available cash balance which existed at the beginning of the
1998 fiscal year as compared to the beginning of the 1997 fiscal year.
As disclosed in the Company's fiscal year 1997 Form 10-K, the Company
exercised its option to repurchase its port facilities from SDT Capital, Inc.
("SDT") in San Diego for the greater of $7.0 million or fair market value.
Through the lease term the Company has accreted the difference between the
initial stated value of $5.5 million and the minimum repurchase value of $7.0
million. On December 31, 1997, the Company reached an agreement as to the fair
value of the facilities, $9.5 million, and paid that amount to SDT in
satisfaction of its obligations under the agreement. The Company will record an
extraordinary loss of approximately $2.5 million in the fourth quarter of fiscal
1998 for the early extinguishment of debt.
The Company has issued two series of senior notes and Sifto has issued a
series of senior notes, in amounts of $250 million, $335 million and $100
million, respectively, with stated interest rates of 10.25%, 10.75% and 8.5%,
respectively. None of these senior notes are due in the upcoming year, with the
earliest due date being July 15, 2000, for the $100 million Sifto notes. The
$250 million notes and the $335 million notes are redeemable at the Company's
option beginning October 15, 1998, with stipulated early redemption premiums.
The pending sale of the Company's parent, Harris Chemical Group, Inc., will
result in a change of control for purposes of the Indentures governing the
outstanding notes, and will result in the Company being required to make an
offer to the holders of the notes, within 60 days after the closing of the sale,
to repurchase any and all notes at a purchase price of 101% of the principal
amount thereof, plus accrued interest.
14
<PAGE>
As of December 27, 1997, the majority of the current portion of long-term
debt is comprised of the current portion of capital leases. As of December 27,
1997, the Company had $59.6 million of available borrowing capacity under its
revolving credit agreements (after considering the subsequent payment of cash
for the SDT port facilities) and $1.1 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 for the next year.
The Company has export sales of various products, including soda ash and
boron chemicals. A significant portion of these sales are to the Asia-Pacific
rim and Latin America through a third-party exporter (ANSAC) for the United
States soda ash industry. In fiscal year 1997 and YTD FY 1998, the Company's
export sales to ANSAC have totaled approximately $36.5 million and $33.3
million, respectively (or approximately 7% and 10%, respectively, of total net
sales). Based on the recent adverse financial developments being experienced in
the Asia-Pacific rim, ANSAC believes its ability to continue its recent growth
rates in the region may be slowed in the near term. At this time, the Company
does not know what impact, if any, reduced ANSAC sales to the Asia-Pacific rim
may have on the soda products business.
Environmental Matters
Due to the nature of the Company's business, it must continually monitor
compliance with all applicable environmental laws and regulations. At December
27, 1997, the Company had recorded $5.8 million of current liabilities and $5.5
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 its
various products. The result of this seasonality is that net sales and operating
income are generally higher in the third and fourth fiscal quarters and lower in
the first and second fiscal quarters of each fiscal year.
Sales of highway deicing salt in particular, are seasonal in nature,
varying with the winter conditions in areas where the product is used. Following
industry practice, the Company and its customers stockpile sufficient quantities
of ice control salt in the first three fiscal quarters to meet estimated
requirements for the winter season. Soda ash sales to the glass container
industry tend to be somewhat seasonal due to stronger summer demand for
beverages packaged in glass bottles. Most of the Company's specialty fertilizer
potash fertilizer sales are made between December and March in order to meet the
spring planting season requirements.
15
<PAGE>
The table below reflects the seasonality of the Company's
business by fiscal quarter.
<TABLE>
Fiscal 1997 Fiscal 1998
--------------------------------------------------- ------------------------------------------
1st 2nd 3rd 4th 1st 2nd 3rd
--- --- --- --- --- --- ---
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Operating Data:
Net sales ..................... $99,581 $92,337 $151,068 $165,636 $93,199 $94,907 $ 146,214
Gross profit .................. 18,103 17,854 46,715 51,813 17,192 22,923 50,254
Operating income .............. 4,138 4,841 32,217 35,781 1,685 9,672 36,238
Interest expense .............. 20,533 22,293 24,485 24,614 23,660 24,109 24,456
Net income (loss) ............. (15,092) (17,589) 5,763 5,485 (20,245) (13,557) 8,230
Sales by Product:
Salt .......................... 35,287 35,141 72,124 93,347 31,021 33,965 73,737
Soda products ................. 31,186 28,302 31,179 29,133 31,333 30,200 34,430
Boron chemicals ............... 17,214 14,743 14,417 16,677 16,109 17,505 17,313
Specialty potash fertilizers .. 12,465 11,068 23,484 24,530 11,587 10,053 16,086
Other ......................... 3,429 3,083 9,864 1,949 3,149 3,184 4,648
</TABLE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 6. Exhibits and Reports on Form 8-K
(a) All exhibits otherwise required in connection with this quarterly report on
Form 10-Q have heretofore been filed with the Securities and Exchange Commission
except as follows:
None
(b) Reports on Form 8-K
A report on Form 8-K dated December 16, 1997, was filed reporting on the
Company's parent, Harris Chemical Group, Inc., reporting on the execution of a
definitive Agreement and Plan of Merger with IMC Global Inc.
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)
February 10, 1998 /s/ Emanuel J. Di Teresi
---------------------------------
Emanuel J. Di Teresi
Senior Vice President and
Chief Financial Officer
(Chief Accounting Officer)
16
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Balance Sheet at December 27, 1997 (Unaudited) and the Consolidated
Statement of Operations for the Thirty-nine Weeks Ended December 27, 1997
(Unaudited) and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> MAR-28-1998
<PERIOD-END> DEC-27-1997
<CASH> 1,106
<SECURITIES> 0
<RECEIVABLES> 122,788
<ALLOWANCES> 2,542
<INVENTORY> 119,764
<CURRENT-ASSETS> 260,988
<PP&E> 718,328
<DEPRECIATION> 352,721
<TOTAL-ASSETS> 655,718
<CURRENT-LIABILITIES> 128,513
<BONDS> 685,000
0
0
<COMMON> 0
<OTHER-SE> (424,950)
<TOTAL-LIABILITY-AND-EQUITY> 655,718
<SALES> 334,320
<TOTAL-REVENUES> 334,320
<CGS> 243,951
<TOTAL-COSTS> 243,951
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 72,225
<INCOME-PRETAX> (20,643)
<INCOME-TAX> 4,929
<INCOME-CONTINUING> (25,572)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (25,572)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
