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 30, 1998
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)
2100 Sanders Road
Northbrook, Illinois 60062-6142
(Address of principal executive offices)(Zip Code)
(847) 272-9200
(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 August 14,
1998 was 1,000 shares. All of such shares are owned by IMC Inorganic Chemicals
Inc.
1
<PAGE>
<TABLE>
<CAPTION>
HARRIS CHEMICAL NORTH AMERICA, INC.
FORM 10-Q For the Quarter ended June 30, 1998
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................................................... 13
Part II Other Information
Item 1. Legal Proceedings........................................................... 16
Item 6. Exhibits and Reports on Form 8-K............................................ 16
Signature Page................................................................................ 16
</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)
June 28, March 28, June 30,
1997 1998 1998
------------------- ---------------- ------------------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents .................................... $ 9,736 $ 18,088 $ 20,236
Trade accounts receivable, less allowance for doubtful
accounts of $2,439 at June 28, 1997, $1,772 at
March 28, 1998 and $2,269 at June 30, 1998.................. 75,402 101,440 75,760
Other receivables ............................................ 6,557 14,986 12,405
Inventories .................................................. 104,624 97,017 122,052
Deferred income taxes ........................................ 6,019 4,092 4,092
Other ........................................................ 4,146 5,367 4,130
--------- --------- ---------
Total current assets .................................... 206,484 240,990 238,675
Property, plant and equipment, net ............................. 381,164 374,916 365,957
Deferred financing costs, net .................................. 24,380 21,125 20,002
Other .......................................................... 7,088 6,436 6,227
--------- --------- ---------
Total assets ............................................. $ 619,116 $ 643,467 $ 630,861
========= ========= =========
LIABILITIES AND STOCKHOLDER'S DEFICIT
Current liabilities:
Current portion of long-term debt ............................ $ 15,415 $ 10,674 $ 10,243
Accounts payable ............................................. 45,643 70,069 57,633
Accrued expenses ............................................. 19,768 21,702 17,380
Accrued interest ............................................. 22,971 23,700 23,497
Accrued salaries and wages ................................... 11,590 16,963 11,411
Income taxes payable ......................................... 2,127 2,855 -
--------- ----------- ---------
Total current liabilities ................................. 117,514 145,963 120,164
Long-term debt, net of current portion ......................... 768,264 766,661 759,548
Due to IMC ..................................................... - - 55,318
Deferred income taxes .......................................... 25,674 24,393 23,860
Other noncurrent liabilities ................................... 34,825 27,183 25,833
Common stockholder's deficit:
Common stock, at par ......................................... - - -
Additional paid-in capital ................................... 99,941 97,341 115,775
Accumulated comprehensive income ............................. (3,523) (3,700) (4,333)
Common stockholder's receivable .............................. (3,956) (3,679) (37,802)
Accumulated deficit .......................................... (419,623) (410,695) (427,502)
--------- --------- ---------
Total common stockholder's deficit ....................... (327,161) (320,733) (353,862)
--------- --------- ---------
Total liabilities and stockholder's deficit .............. $ 619,116 $ 643,467 $ 630,861
========= ========= =========
</TABLE>
The accompanying notes are an integral part of the financial statements.
3
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<TABLE>
<CAPTION>
HARRIS CHEMICAL NORTH AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands)
(Unaudited)
Quarter ended
June 28, June 30,
1997 1998
-------------- -------------
<S> <C> <C>
Net sales............................................. $ 93,199 $ 93,368
Cost of sales......................................... 76,007 75,080
-------- --------
Gross profit.......................................... 17,192 18,288
Selling, general and administrative expenses.. 15,507 10,305
-------- --------
Operating income...................................... 1,685 7,983
Other income (expense):
Interest expense.................................... (23,660) (24,285)
Foreign currency transaction gain (loss)............ 281 (997)
Other, net ......................................... 1,508 1,910
-------- --------
Loss before taxes .................................... (20,186) (15,389)
Provision for income taxes ........................... 59 1,418
-------- --------
Net loss ............................................. $ (20,245) $ (16,807)
======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
4
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<TABLE>
<CAPTION>
HARRIS CHEMICAL NORTH AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
Quarter ended
June 28, June 30,
1997 1998
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net loss ........................................................................ $ (20,245) $ (16,807)
Adjustments to reconcile net loss to net cash flows from operating activities:
Depreciation ................................................................. 13,666 14,453
Finance fee amortization ..................................................... 1,203 1,302
Operating amortization ....................................................... 168 151
Accreted interest ............................................................ 500 -
Deferred income taxes ........................................................ (2,433) (533)
Unrealized foreign currency transaction loss (gain) .......................... (177) 1,660
Loss (gain) on disposal of property, plant and equipment ..................... (37) 7
Changes in operating assets and liabilities:
Receivables ............................................................... 45,683 28,259
Inventories ............................................................... (17,806) (25,034)
Other assets .............................................................. 2,872 1,089
Accounts payable .......................................................... (13,883) (12,436)
Accrued expenses and other noncurrent liabilities ......................... (9,110) (14,322)
Net cash provided by (used in) operating activities ................... 401 (22,211)
--------- ---------
Cash flows from investing activities:
Capital expenditures ............................................................ (5,313) (7,281)
Capitalized interest ............................................................ (60) (33)
Proceeds from sales of property, plant and equipment ............................ 6 -
Net cash used in investing activities ................................. (5,367) (7,314)
Cash flows from financing activities:
Revolver borrowings ............................................................. - 59,601
Revolver payments ............................................................... - (7,284)
Principal payments on other long-term debt, including capital leases ............ (1,909) (4,909)
Capitalized finance costs ....................................................... (3) -
Capital contributions from IMC .................................................. - 18,434
IMC merger costs paid on behalf of common stockholder ........................... - (35,419)
Other ........................................................................... (494) 1,296
Net cash provided by (used in) financing activities ................... (2,406) 31,719
--------- ---------
Effect of exchange rate changes on cash and cash equivalents .................... 32 (46)
--------- ---------
Net increase (decrease) in cash and cash equivalents ................ (7,340) 2,148
Cash and cash equivalents, beginning of period .................................... 17,076 18,088
--------- ---------
Cash and cash equivalents, end of period .......................................... $ 9,736 $ 20,236
========= =========
Supplemental disclosure of noncash activities:
Assets acquired under capital leases ............................................ $ 1,522 $ 804
========= =========
</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 28, 1998 included in the
Company's FY 1998 Form 10-K filed with the Securities and Exchange Commission on
June 26, 1998. The balance sheet as of June 28, 1997 is presented to assist in
understanding the impact of seasonal fluctuations on the financial condition of
the Company.
The accompanying financial statements reflect the historical basis of Harris
in the assets and liabilities. Also, in connection with the Merger (see Note 2),
Harris changed its fiscal year end to December 31 and changed the related
quarter ends to the last day of the respective months.
2. Organization and Merger:
The consolidated financial statements include the consolidated accounts of
Harris Chemical North America, Inc. ("Harris" or "HCNA") and its wholly-owned
subsidiaries, consisting principally of IMC Chemicals Inc. (formerly North
American Chemical Company, "NACC"), NAMSCO Inc., ("NAMSCO") and its wholly-owned
subsidiaries IMC Salt Inc. (formerly North American Salt Company, "NASC") and
Sifto Canada Inc. ("Sifto"), and GSL Corporation ("GSL") and its wholly-owned
subsidiary IMC Kalium Ogden Corp. (formerly 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 IMC Inorganic Chemicals Inc. (formerly Harris Chemical Group, Inc., "HCG").
On April 1, 1998, HCG was acquired by IMC Global Inc., a Delaware
corporation ("IMC"), pursuant to an Agreement and Plan of Merger, dated as of
December 11, 1997, by and among HCG, IMC and IMC Merger Sub Inc., a Delaware
corporation and a wholly-owned subsidiary of IMC. On April 1, IMC Merger Sub
Inc. was merged with and into HCG ("the Merger") and as a result, all of the
subsidiaries of HCG, including Harris, became indirect wholly-owned subsidiaries
of IMC.
The Company 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.
6
<PAGE>
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>
<CAPTION>
June 28, March 28, June 30,
1997 1998 1998
--------------- ----------------- ---------------
<S> <C> <C> <C>
Finished goods ......................... $ 74,666 $ 63,336 $ 91,895
Raw materials and supplies ............. 29,958 33,681 30,157
--------- --------- ----------
Total inventories ................. $ 104,624 $ 97,017 $ 122,052
========= ========= ==========
</TABLE>
Property, Plant and Equipment (in thousands):
<TABLE>
<CAPTION>
June 28, March 28, June 30,
1997 1998 1998
--------------- ----------------- ---------------
<S> <C> <C> <C>
At cost................................ $ 709,672 $ 745,608 $ 748,552
Less accumulated depreciation
and amortization ...................... 328,508 370,692 382,595
--------- ---------- ---------
Net property, plant and equipment ... $ 381,164 $ 374,916 $ 365,957
========= ========== =========
</TABLE>
4. Income Taxes:
In connection with the Merger (see Note 2), effective April 1, 1998, Harris
and HCG are included in the consolidated income tax return filed by IMC. The
income tax provision in the accompanying financial statements of Harris has been
calculated on a Harris stand-alone basis and primarily reflects Harris' state
income taxes, Sifto's Canadian income tax and Ontario mining tax.
5. Long-Term Debt:
The Company has a $130 million revolving line of credit ("US Credit
Facility"). Simultaneously with the consummation of the Merger (see Note 2), the
former lenders under the US Credit Facility assigned all of their rights and
interest under the US Credit Facility to IMC. At June 30, 1998, the amount due
to IMC under the US Credit Facility is $55.3 million.
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 Notes require that Harris or Sifto, as applicable, offer to purchase
all of the outstanding Notes for 101% of their principal amount plus accrued
interest ( "Offer to Purchase") within 60 days following a change of control of
Harris or HCG. The consummation of the Merger (see Note 2) on April 1, 1998,
resulted in a change of control transaction, as defined by the Indentures,
pursuant to which the Notes were issued. Each of Harris and Sifto issued an
Offer to Purchase that expired on June 29, 1998 and approximately $3.2 million
of the Notes were repurchased.
7
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6. Comprehensive Income:
Beginning in the June 1998 quarter, the Company adopted FASB Statement No.
130, Reporting Comprehensive Income, ("FASB 130"). FASB 130 establishes new
rules for the reporting and display of comprehensive income and its components;
however, the adoption of this Statement had no impact on the Company's net
income or shareholders' equity. FASB 130 requires unrealized gains or losses on
the Company's foreign currency translation adjustments, which are reported
separately in shareholders' equity, to also be reported as a component of other
comprehensive income. During the quarters ending June 30, 1998 and June 28,
1997, total comprehensive income (loss) amounted to ($17,440) and ($20,236),
respectively.
7. 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.
8
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<TABLE>
<CAPTION>
HARRIS CHEMICAL NORTH AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)
CONDENSED CONSOLIDATING BALANCE SHEETS
June 28, 1997
(in thousands)
NACC GSL NAMSCO Sifto HCNA Eliminations Consolidated
-------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
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
===========================================================================================
CONDENSED CONSOLIDATING BALANCE SHEETS
June 30, 1998
(in thousands)
NACC GSL NAMSCO Sifto HCNA Eliminations Consolidated
-------------------------------------------------------------------------------------------
Cash and cash equivalents ......... $ - $ - $ - $ - $ 20,236 $ - $ 20,236
Receivables, net .................. 50,780 10,576 19,086 7,406 217 100 88,165
Inventories ....................... 41,525 20,133 44,774 16,290 - (670) 122,052
Other current assets .............. 6,983 96 (2,750) 5,566 254 (1,927) 8,222
Property, plant and
equipment, net .................. 191,056 45,272 65,591 64,038 - - 365,957
Investment in Sifto ............... - - 2,513 - - (2,513) -
Other ............................. 9,333 - 1,835 1,336 458,879 (445,154) 26,229
-------------------------------------------------------------------------------------------
Total assets ...................... $ 299,677 $ 76,077 $ 131,049 $ 94,636 $ 479,586 $ (450,164) $ 630,861
===========================================================================================
Total current liabilities ......... $ 46,438 $ 20,274 $ 18,608 $ 12,291 $ 21,970 $ 583 $ 120,164
Long-term debt, net of
current portion ................. 91,822 15,554 24,313 98,401 584,776 - 814,866
Other noncurrent liabilities ...... 5,120 (45,192) (57,206) (33,846) 226,702 (45,885) 49,693
Total common stockholder's
equity (deficit) ................ 156,297 85,441 145,334 17,790 (353,862) (404,862) (353,862)
-------------------------------------------------------------------------------------------
Total liabilities and
common stockholder's
equity (deficit) ................ $ 299,677 $ 76,077 $ 131,049 $ 94,636 $ 479,586 $ (450,164) $ 630,861
===========================================================================================
</TABLE>
9
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<TABLE>
<CAPTION>
HARRIS CHEMICAL NORTH AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
For the Quarter Ended June 28, 1997
(in thousands)
NACC GSL NAMSCO Sifto HCNA Eliminations Consolidated
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
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)
========================================================================================
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
For the Quarter Ended June 30, 1998
(in thousands)
NACC GSL NAMSCO Sifto HCNA Eliminations Consolidated
-------------------------------------------------------------------------------------------
Net sales ......................... $ 44,235 $ 20,450 $ 23,019 $ 16,758 $ - $(11,094) $ 93,368
Cost of sales ..................... 37,644 16,486 17,319 12,323 - (8,692) 75,080
------------------------------------------------------------------------------------------
Gross profit .................... 6,591 3,964 5,700 4,435 - (2,402) 18,288
Selling, general and
administrative expenses ........ 3,041 1,162 3,307 3,068 (273) - 10,305
------------------------------------------------------------------------------------------
Operating income (loss) ........ 3,550 2,802 2,393 1,367 273 (2,402) 7,983
Interest expense .................. (3,429) (94) (452) (2,374) (17,936) - (24,285)
Other income (expense) ............ 1,659 1,605 (1,390) (1,232) (6,093) 6,364 913
------------------------------------------------------------------------------------------
Income (loss) before
provision for income
taxes .......................... 1,780 4,313 551 (2,239) (23,756) 3,962 (15,389)
Provision (benefit) for
income taxes ................... 600 1,841 190 (1,097) (6,949) 6,833 1,418
------------------------------------------------------------------------------------------
Net income (loss) .............. $ 1,180 $ 2,472 $ 361 $ (1,142) $ (16,807) $ (2,871) $ (16,807)
==========================================================================================
</TABLE>
10
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<TABLE>
<CAPTION>
HARRIS CHEMICAL NORTH AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
For the Quarter 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 provided by (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>
<TABLE>
<CAPTION>
HARRIS CHEMICAL NORTH AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
For the Quarter Ended June 30, 1998
(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 ...... $ (4,227) $ 12,462 $ 1,475 $ (13,004) $ (23,468) $ 4,551 $ (22,211)
----------------------------------------------------------------------------------------
Cash flows from investing:
Capital expenditures .......... (3,653) (1,032) (1,104) (1,492) - - (7,281)
Capitalized interest .......... (33) - - - - - (33)
Proceeds from sales ........... - - - - - - -
Other ......................... - - - - 6,997 (6,997) -
----------------------------------------------------------------------------------------
Net cash provided by (used
in) investing activities ...... (3,686) (1,032) (1,104) (1,492) 6,997 (6,997) (7,314)
----------------------------------------------------------------------------------------
Cash flows from financing:
Gross borrowings .............. 21,401 14,011 24,189 - - - 59,601
Gross repayments .............. (2,398) (14) (6,129) (3,428) (224) - (12,193)
Other ......................... (11,090) (25,427) (18,431) 1,795 35,018 2,446 (15,689)
----------------------------------------------------------------------------------------
Net cash provided by (used
in) financing activities ...... 7,913 (11,430) (371) (1,633) 34,794 2,446 31,719
----------------------------------------------------------------------------------------
Effect of exchange rate
changes on cash ............... - - - (46) - - (46)
----------------------------------------------------------------------------------------
Net increase (decrease in
cash and cash equivalents ..... - - - (16,175) 18,323 - 2,148
Cash and cash equivalents:
Beginning of period ........... - - - 16,175 1,913 - 18,088
----------------------------------------------------------------------------------------
End of period ................. $ - $ - $ - $ - $ 20,236 $ - $ 20,236
========================================================================================
</TABLE>
12
<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 quarters ended June 30, 1998 (the "June Quarter 1998") and June 28, 1997
(the "June Quarter 1997").
Net Sales by Product Line
(in thousands)
Quarter Ended
June 28, 1997 June 30, 1998
------------------ -----------------
Salt ............................... $ 31,021 $ 31,311
Soda Products ...................... 31,333 26,553
Boron Chemicals .................... 16,109 16,544
Specialty Potash Fertilizers ....... 11,587 16,956
Other .............................. 3,149 2,004
------------------ -----------------
Total ............................ $ 93,199 $ 93,368
================== =================
Quarter Ended June 30, 1998 Compared With Quarter Ended June 28, 1997
Net sales for the June Quarter 1998 were $93.4 million compared to $93.2
million for the June Quarter 1997.
The $0.3 million increase in salt sales was the result of $0.8 million
higher general trade segment net sales in the June Quarter 1998 as compared to
the June Quarter 1997 partially offset by $0.5 million lower highway/chemical
salt segment net sales in the June Quarter 1998 as compared to the June Quarter
1997. The general trade segment net sales increase was the result of favorable
pricing. The highway/chemical segment net sales decrease was related to a
decrease in sales volumes in the June Quarter 1998 as compared to the June
Quarter 1997.
The $4.8 million decrease in net sales from soda products (soda ash, sodium
sulfate and sodium bicarbonate) in the June Quarter 1998 when compared to the
prior year period was due to decreases in the sales of soda ash and sodium
sulfate while sodium bicarbonate sales increased slightly. Sales volumes
decreased by approximately 12% and 49% for soda ash and sodium sulfate,
respectively, as a result of lower ANSAC volumes and timing of export sales. The
average net sales price for soda ash was flat; however, the average net sales
price for sodium sulfate was approximately 12% higher than the June Quarter
1997. Sodium bicarbonate sales volumes increased by approximately 21% while the
average net sales price was approximately 9% lower than the average net sales
price in the June Quarter 1997.
The $0.4 million increase in net sales from boron chemicals is due to a 12%
increase in sales volumes during the June Quarter 1998 when compared to the
prior year period. This volume increase was largely offset by a 9% decrease in
the average net sales price of boron chemicals. A change in the product mix has
negatively impacted the average net sales price of boron chemicals.
The $5.4 million, or 46%, increase in net sales from specialty potash
fertilizers in the June Quarter 1998 when compared to the prior year period was
primarily due to 55% higher domestic sales volumes.
13
<PAGE>
Cost of sales in the June Quarter 1998 and June Quarter 1997 was 80.4% and
81.6% of sales, respectively. The improvement in gross margin percentage from
the prior year is primarily attributable to lower freight and operating costs
for the salt businesses.
Selling, general and administrative expenses decreased $5.2 million, or
34%, in the June Quarter 1998 as compared to the June Quarter 1997. The decline
is the result of lower corporate expenses due to the closing of the New York
office as a result of the merger with IMC (see Note 2) and reduced personnel
costs.
Interest expense was $0.6 million higher in the June Quarter 1998 as
compared to the prior year period. The increase is the result of a higher
revolver balance in the June Quarter 1998 partially offset by the elimination of
higher cost interest and accreted interest on the North American Terminals, Inc.
debt which was retired in January 1998.
An exchange loss of $1.0 million was recorded in the June Quarter 1998,
primarily relating to the translation of United States dollar-denominated debt
of Sifto into Canadian dollars, compared to a $0.3 million gain in the June
Quarter 1997. No other significant exchange gains or losses were recorded during
the period.
Other income principally consists of ground lease and maintenance income
and interest income. Other income was $0.4 million higher in the June Quarter
1998 than in the June Quarter 1997 due to higher interest income resulting from
higher cash and cash equivalent balances.
A provision for income taxes of $1.4 million was recorded in the June
Quarter 1998, $1.3 million more than in the June Quarter 1997, primarily
relating to state income taxes, and Sifto's Canadian income tax and Ontario
mining tax.
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 year. Generally, during the September
quarter and the December 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 December quarter adding to the specialty
potash fertilizer inventory levels. Inventories then decline in the March
quarter. Accounts receivable increase during the December quarter and the March
quarter as highway salt sales and specialty potash fertilizer sales peak during
this period. Cash requirements rapidly decline near the end of the March quarter
and the early part of the June quarter as accounts receivable are converted into
cash. Sales of soda products and boron chemicals are, by comparison, not as
cyclical.
June Quarter 1998 operating activities utilized $22.2 million in net cash
compared to the June Quarter 1997 which provided $0.4 million in net cash. A
heavier buildup of inventories in the June Quarter 1998 versus the June Quarter
1997 used $7.2 million more cash. Collections from accounts receivable in the
June Quarter 1998 versus the June Quarter 1997 were $17.4 million lower due to
lower sales in the March 1998 quarter when compared to the March 1997 quarter.
Accounts payable and accrued expenses used $3.8 million more cash in the June
Quarter 1998 than in the June Quarter 1997 due to the timing of payments.
June Quarter 1998 investing activities used $7.3 million of cash compared
to a use of $5.4 million in the June Quarter 1997. The increase is the result of
higher capital expenditures.
14
<PAGE>
June Quarter 1998 financing activities provided cash of $31.7 million
compared to the June Quarter 1997 which used $2.4 million of cash. Net revolver
borrowings in the June Quarter 1998 of $52.3 million exceeded no revolver
borrowings in the June Quarter 1997. Additionally, several financing activities
in the June Quarter 1998 are related to the Merger with IMC (see Note 2). First,
capital contributions from IMC of $18.4 million were received in the June
Quarter 1998. Additionally, $35.4 million was paid during the June Quarter 1998
related to costs associated with the Merger. Finally, $3.2 million of the Notes
were redeemed in the June Quarter 1998 pursuant to the Offer to Purchase (see
Note 5).
In 1993, 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 Notes require that
Harris or Sifto, as applicable, offer to purchase all of the outstanding Notes
for 101% of their principal amount plus accrued interest ("Offer to Purchase")
within 60 days following a change of control of Harris or HCG. The consummation
of the Merger (see Note 2) on April 1, 1998, resulted in a change of control
transaction, as defined by the Indentures, pursuant to which the Notes were
issued. Each of Harris and Sifto issued an Offer to Purchase that expired on
June 29, 1998 and approximately $3.2 million of the Notes were repurchased.
As of June 30, 1998, the majority of the current portion of long-term debt
is comprised of the current portion of capital leases. As of June 30, 1998, the
Company had $20.2 million of cash. The Company's new parent, IMC (see Note 2),
is currently evaluating the debt structure of Harris and is considering various
options available to it. The Company believes that cash generated from
operations along with any necessary capital contributions from IMC will be
adequate to meet the Company's anticipated working capital needs during the next
twelve months.
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 December quarter and March quarter and lower
in the June quarter and September quarter of each 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 from April through December 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 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
quarter.
<TABLE>
<CAPTION>
June September December March June
1997 1997 1997 1998 1998
--------- --------- --------- --------- ---------
(in thousands)
<S> <C> <C> <C> <C> <C>
Operating Data:
Net sales .................... $ 93,199 $ 94,907 $146,214 $159,833 $ 93,368
Gross profit ................. 17,192 22,923 50,254 53,638 18,288
Operating income ............. 1,685 9,672 36,238 40,742 7,983
Interest expense ............. 23,660 24,109 24,456 23,123 24,285
Net income (loss) ............ (20,245) (13,557) 8,230 14,255 (16,807)
Sales by Product:
Salt ......................... 31,021 33,965 73,737 77,720 31,311
Soda products ................ 31,333 30,200 34,430 30,378 26,553
Boron chemicals .............. 16,109 17,505 17,313 17,362 16,544
Specialty potash fertilizers . 11,587 10,053 16,086 31,046 16,956
Other ........................ 3,149 3,184 4,648 3,327 2,004
</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 April 1, 1998 was filed reporting on HCG's
Merger with IMC.
A report on Form 8-K dated May 28, 1998 was filed reporting on Harris' and
Sifto's Offer to Purchase the outstanding senior notes.
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 14, 1998 /s/ J. Bradford James
-----------------------------
J. Bradford James
Vice President
(Principal Financial and Accounting Officer)
16
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Balance Sheet at June 30, 1998 (Unaudited) and the Consolidated
Statement of Operations for the Quarter Ended June 30, 1998 (Unaudited) and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 20,236
<SECURITIES> 0
<RECEIVABLES> 78,029
<ALLOWANCES> 2,269
<INVENTORY> 122,052
<CURRENT-ASSETS> 238,675
<PP&E> 748,552
<DEPRECIATION> 382,595
<TOTAL-ASSETS> 630,861
<CURRENT-LIABILITIES> 120,164
<BONDS> 681,721
0
0
<COMMON> 0
<OTHER-SE> (353,862)
<TOTAL-LIABILITY-AND-EQUITY> 630,861
<SALES> 93,368
<TOTAL-REVENUES> 93,368
<CGS> 75,080
<TOTAL-COSTS> 75,080
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 24,285
<INCOME-PRETAX> (15,389)
<INCOME-TAX> 1,418
<INCOME-CONTINUING> (16,807)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (16,807)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
