-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, NrDzhwMpmmvz6Zy6kJIy9GrTZkB92w+JTK5CAr9Nq/M22DSW+laFDjm91lkoZmpk Oj8BVPchrb61CB3lsmhZLQ== 0000912057-94-003839.txt : 19941121 0000912057-94-003839.hdr.sgml : 19941121 ACCESSION NUMBER: 0000912057-94-003839 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19940930 FILED AS OF DATE: 19941114 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: NORD RESOURCES CORP CENTRAL INDEX KEY: 0000072316 STANDARD INDUSTRIAL CLASSIFICATION: 1090 IRS NUMBER: 850212139 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-08733 FILM NUMBER: 94559276 BUSINESS ADDRESS: STREET 1: 8150 WASHINGTON VILLAGE DR CITY: DAYTON STATE: OH ZIP: 45458 BUSINESS PHONE: 5134336307 MAIL ADDRESS: STREET 1: 8150 WASHINGTON VILLAGE DRIVE CITY: DAYTON STATE: OH ZIP: 45458 10-Q 1 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 F O R M 10-Q (X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1994 OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission file number 0-6202-2 Nord Resources Corporation ----------------------------------------------- (Exact name of registrant as specified in its charter) Delaware 85-0212139 - - --------------------------------- ------------------ (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification No.) 8150 Washington Village Drive, Dayton Ohio 45458 - - ------------------------------------------ ----- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (513) 433-6307 -------------- Not Applicable ----------------------------------- Former name, former address and former fiscal year, if changed since last report 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 twelve 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 --- --- Common shares outstanding as of September 30, 1994: 15,142,974 NORD RESOURCES CORPORATION AND SUBSIDIARIES INDEX
PAGE NUMBER ------ PART I. FINANCIAL INFORMATION: ITEM 1. Financial Statements: Condensed Balance Sheets - September 30, 1994 and December 31, 1993 1 Statements of Operations - Quarter and Three Quarters Ended September 30, 1994 and 1993 2 Condensed Statements of Cash Flows - Three Quarters Ended September 30, 1994 and 1993 3 Notes to Condensed Financial Statements 4-9 ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 10-14 PART II. OTHER INFORMATION: ITEM 1. Legal Proceedings 15 ITEM 2-5. Inapplicable 16 ITEM 6. Exhibits and Reports on Form 8-K 16
NORD RESOURCES CORPORATION AND SUBSIDIARIES CONDENSED BALANCE SHEETS (In Thousands) ASSETS
SEPTEMBER 30, DECEMBER 31, 1994 1993 ------------- ----------- CURRENT ASSETS: Cash and Cash Equivalents $ 14,108 $ 20,555 Accounts Receivable 9,376 9,442 Accounts Receivable - related party 1,035 1,376 Refundable Income Taxes 179 Inventories - at lower of cost (first-in, first-out) or market: Finished and Semi-Finished 7,478 5,527 Supplies 3,211 2,354 ------ ------ 10,689 7,881 Prepaid Expenses 2,526 1,822 Income Tax Asset 2,105 2,105 ------ ------ TOTAL CURRENT ASSETS 40,018 43,181 RESTRICTED CASH AND INVESTMENTS 5,683 5,380 INCOME TAX ASSET 11,696 11,527 INVESTMENTS IN AND ADVANCES TO AFFILIATES 7,668 6,552 PROPERTY, PLANT AND EQUIPMENT, net 89,935 86,250 OTHER ASSETS 9,205 9,868 ------ ------ $ 164,205 $ 162,758 --------- --------- --------- --------- LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts Payable $ 4,710 $ 4,478 Accounts Payable - related parties 5,482 1,454 Accrued Expenses 3,521 4,251 Current Maturities of Long-Term Debt 3,682 4,451 ------ ------ TOTAL CURRENT LIABILITIES 17,395 14,634 LONG-TERM DEBT 21,374 19,738 IMPUTED INTEREST ON NON-INTEREST BEARING DEBT 2,232 2,653 OTHER LONG-TERM LIABILITIES 7,539 6,895 STOCKHOLDER LITIGATION SETTLEMENT 4,250 4,250 MINORITY INTEREST 4,843 5,779 STOCKHOLDERS' EQUITY: Common Stock 151 151 Additional Paid-in Capital 53,873 53,856 Retained Earnings 52,546 54,703 Cumulative Foreign Currency Translation Adjustment 282 379 Minimum Pension Liability (280) (280) ----- ----- 106,572 108,809 ------- ------- $ 164,205 $ 162,758 --------- --------- --------- ---------
See notes to condensed financial statements. NORD RESOURCES CORPORATION AND SUBSIDIARIES STATEMENTS OF OPERATIONS (In Thousands, Except Per Share Amount)
THREE QUARTERS QUARTER ENDED ENDED SEPTEMBER 30 SEPTEMBER 30 --------------- --------------- 1994 1993 1994 1993 ---- ---- ---- ---- REVENUES: Sales $ 15,971 $ 18,524 $ 49,057 $ 64,400 Other revenues 28 506 264 642 -------- -------- -------- -------- Total Revenues 15,999 19,030 49,321 65,042 OPERATING COSTS AND EXPENSES: Cost of sales 14,296 17,290 43,974 58,590 Selling, general & administrative expenses 3,111 2,806 8,717 8,910 -------- -------- -------- -------- Total Operating Costs and Expenses 17,407 20,096 52,691 67,500 -------- -------- -------- -------- OPERATING (LOSS) (1,408) (1,066) (3,370) (2,458) OTHER INCOME (EXPENSE): Interest income 160 166 444 262 Interest expense (354) (1,720) (1,265) (5,073) Litigation recoveries 3,200 550 3,700 Shareholder litigation settlement (4,750) Equity in net earnings (loss) of affiliate 149 (232) 1,087 (1,340) Minority interest 296 593 935 1,221 -------- -------- -------- -------- Total Other Income (Expense) 251 2,007 1,751 (5,980) -------- -------- -------- -------- (LOSS) BEFORE INCOME TAXES (1,157) (941) (1,619) (8,438) INCOME TAX (BENEFIT) EXPENSE (5) 958 538 1,721 -------- -------- -------- -------- (LOSS) FROM CONTINUING OPERATIONS (1,152) (17) (2,157) (10,159) GAIN FROM DISCONTINUED OPERATIONS 106 106 -------- -------- -------- -------- NET EARNINGS (LOSS) $ (1,152) $ 89 $ (2,157) $(10,053) -------- -------- -------- -------- -------- -------- -------- -------- EARNINGS (LOSS) PER COMMON AND COMMON EQUIVALENT SHARE: From continuing operations $ (.08) $ -- $ (.14) $ ( .67) From discontinued operations .01 .01 -------- -------- -------- -------- Net earnings (loss) $ (.08) $ .01 $ (.14) $ (.66) -------- -------- -------- -------- -------- -------- -------- -------- Average shares 15,140 15,133 15,140 15,132 -------- -------- -------- -------- -------- -------- -------- --------
See notes to condensed financial statements. 2 NORD RESOURCES CORPORATION AND SUBSIDIARIES CONDENSED STATEMENTS OF CASH FLOWS (In Thousands)
THREE QUARTERS ENDED SEPTEMBER 30 ---------------------- 1994 1993 ---- ---- CASH FLOWS FROM OPERATING ACTIVITIES: Net (Loss) $ (2,157) $ (10,053) Adjusted for: Changes in Assets and Liabilities 890 (7,038) Minority Interest (935) (1,221) Depreciation, Depletion & Amortization 7,857 12,618 Shareholder Litigation Settlement 4,250 Raw Material Contributed by Investor 4,619 Other Non-Cash Items (1,228) (180) -------- --------- Net Cash Provided by (Used In) Operating Activities 4,427 2,995 CASH FLOWS FROM INVESTING ACTIVITIES: Capital Expenditures (10,656) (8,188) (Increase) Decrease in Other Assets (222) (1,226) Proceeds from Sale of a Minority Interest in a Subsidiary 4,950 Decrease (Increase) in Investment in and Advances to Affiliates (127) (1,442) -------- --------- Net Cash Provided by (Used In) Investing Activities (11,005) (5,906) CASH FLOWS FROM FINANCING ACTIVITIES: Additional Borrowings 3,001 2,000 Payments of Indebtedness (2,584) (10,448) Restricted Cash and Investments (303) (1,860) Stock Option Activity 17 13 -------- --------- Net Cash Provided by (Used In) Financing Activities 131 (10,295) -------- --------- (DECREASE) IN CASH AND CASH EQUIVALENTS (6,447) (13,206) CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD 20,555 15,800 -------- --------- CASH AND CASH EQUIVALENTS - END OF PERIOD $ 14,108 $ 2,594 -------- --------- -------- ---------
See notes to condensed financial statements. 3 NORD RESOURCES CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED FINANCIAL STATEMENTS QUARTERS ENDED SEPTEMBER 30, 1994 AND 1993 1. FINANCIAL STATEMENTS The balance sheet at December 31, 1993 is condensed financial information taken from the audited financial statements. The interim financial statements are unaudited. In the opinion of management, all adjustments, which consist of normal recurring adjustments, necessary to present fairly the financial position and results of operations for the interim periods presented have been made. The results shown for the first three quarters of 1994 are not necessarily indicative of the results that may be expected for the entire year. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. It is suggested that these financial statements be read in conjunction with the financial statements and notes thereto included in the Company's December 31, 1993 annual report to shareholders. 2. ACCOUNTING POLICIES On an interim basis, all costs subject to recurring year-end adjustments have been estimated and allocated ratably to the quarters. Income taxes have been provided based on the estimated tax rate for the respective years after excluding infrequently occurring items whose specific tax effect is reported during the same interim period as the related transaction. The financial statements include the accounts of Nord Resources Corporation ("Parent") and its wholly-owned subsidiaries and partnerships (the "Company") and its 50% interest in Sierra Rutile Limited ("SRL"). Financial statements amounts relating to SRL represent the Company's proportionate share in each of the assets, liabilities and operations of SRL, which are 100% owned by the Company through November 17, 1993 and 50% owned thereafter. All significant intercompany transactions and balances are eliminated. Investment in 20% to 40%-owned affiliates and joint ventures and in affiliates or joint ventures in which the Company's investment may temporarily be in excess of 40% are carried using the equity method. 4 3. MINORITY INTEREST In March 1993, the Company and a subsidiary entered into a Stock Purchase Agreement ("Agreement") under which a 20% interest in Norplex, Inc. ("Norplex"), which owns 100% of NKC, was sold to an investor. The investor also received an option to purchase an additional 31% interest in Norplex from the Company at a price which increases from $27,000,000 during 1994 to $36,000,000 during 1997, after which it expires if unexercised. Under this option, the price received by the Company would be reduced by an amount, determined at exercise date, equal to the cumulative amount of temporary tax differences of Norplex plus operating losses used by the Company multiplied by Norplex's marginal tax rate and the percentage of Norplex owned by the investor after exercise. This amount is estimated to be $5,169,000 at September 30, 1994, if the investor had exercised the 31% option at that date. The Agreement provides both the Company and the investor with the right of first refusal if either party elects to sell any of its interest in Norplex and requires the Company, if necessary, to fund up to $5,000,000 of cash requirements of NKC in 1994 if the investor elects not to contribute its 20% portion of such cash requirement. Through September 30, 1994 the Company has funded 100% of the $3,150,000 in cash required by NKC. The Agreement also requires NKC to purchase a portion of its raw material requirements from the investor at market prices. Related party transactions with the minority investor in Norplex include the following:
Three Quarters Ended September 30 -------------------- 1994 1993 ---- ---- (In Thousands) Sales $6,040 $3,141 Purchases $9,008
4. DISPOSITION OF 50% OF RUTILE OPERATIONS The Company sold 50% of its equity interest in rutile operations ("SRL") in November 1993 for initial proceeds of $54,800,000. The total amount of cash to be received and any gain or loss on the transaction will be based on the audited book value of SRL at the date of the sale with such amount expected to be determined 5 during 1994. The Company's balance sheet at September 30, 1994 includes net assets of $473,000 in excess of the initial proceeds received from this transaction. 5. INDEBTEDNESS The Company's 50% share of SRL's borrowings during 1994 was $3,001,000 while $2,584,000 of borrowings were paid during the same period, including $2,205,000 as the Company's share of payments by SRL. In June 1994, Nord Kaolin Company refinanced $1.9 million in Industrial Development Revenue Bonds. The new bonds contain a variable interest rate (4.20% at September 30, 1994) compared to a 10 1/8% fixed rate under the retired bonds. The new bonds are payable ratably over 10 years beginning July, 1995. The Company has secured payment of the bonds by obtaining a letter of credit in an amount equal to 120% of the amount of the bonds outstanding plus six months interest. The letter of credit is secured by funds invested by the Company which are restricted as to withdrawal. The Company incurred $1,676,000 of interest cost in the first three quarters of 1994, of which $411,000 was capitalized in connection with capital expenditure programs at SRL. No interest was capitalized in 1993. 6. INCOME TAXES Income taxes consist of the following:
Three Quarters Ended September 30, -------------------- 1994 1993 ------ ------ (In Thousands) Domestic: Currently payable (refundable) $ (49) $ 1,000 Deferred 6,900 Change in Valuation Allowance (7,900) ------ ------- Total domestic (49) 0 Foreign: Currently payable 520 1,435 Long-term deferred (benefit) 67 286 ------ ------- Total foreign 587 1,721 ------ ------- Total $ 538 $ 1,721 ------ ------- ------ -------
6 Domestic income taxes have not been provided on undistributed earnings of the foreign subsidiaries aggregating $57,200,000 at September 30, 1994 which the Company intends to reinvest in the foreign operations. The unrecognized domestic deferred tax liability for the temporary differences related to the Company's investment in its foreign subsidiaries was estimated to be $16,800,000 at September 30, 1994. 7. NET (LOSS) PER COMMON AND COMMON EQUIVALENT SHARE Net (loss) per common and common equivalent share is computed by dividing net earnings by the weighted average number of common shares outstanding during the period adjusted for the dilutive effect of common share equivalents when applicable. 8. EQUITY IN NET EARNINGS (LOSS) OF AFFILIATE The Company has a 35% interest in Nord Pacific Limited at September 30, 1994 (47% until February 15, 1994). Summary financial data for the operations of Nord Pacific Limited for the periods are as follows:
Three Quarters Ended September 30, --------------------- (In Thousands) 1994 1993 ---- ---- Revenues $ 8,642 $ 2,412 Costs and expenses (8,108) (4,209) Other income (expense) 2,119 (1,627) ------- -------- Net earnings (loss) $2,653 $ (3,424) ------ -------- ------ --------
Other income (expense) includes a $1,920,000 gain on foreign currency contracts for the three quarters ended September 30, 1994 and a $962,000 loss for the three quarters ended September 30, 1993. The Company's share of the net earnings (loss) for the three quarters ended September 30, 1994 and 1993 was $946,000 and $(1,331,000), respectively. 7 9. DISCONTINUED OPERATIONS In August 1993 the Company disposed of the perlite operations for $1,270,000 in cash, for a gain of $106,000. During the first three quarters of 1993 the Company charged $941,000, for operating losses of the perlite operation to the provision for operating losses. 10. LITIGATION The Company has reached settlements with all principal defendants in SRL's action against those allegedly responsible for certain allegedly improper and fraudulent transactions against SRL, except for one remaining defendant and certain related parties thereto. The settling defendants have agreed to pay $7.85 million to the Company, of which $6.2 million has already been collected and recognized as revenue. The remainder of the settlements will be included in earnings upon assurance of collectibility. During August 1994, a defendant in this action filed counterclaims and third party claims against SRL and a former officer of the Company. The claims assert, among other things, that certain acts complained of by SRL in the above action and upon which a $56 million judgement was awarded to SRL in a previous arbitration were not only known to SRL but also were participated in by the Company and its officers. The Company has been advised by counsel that based on the facts presently known, the above claims are without merit and the Company intends to vigorously oppose the counterclaims and third party claims asserted. In May 1993, an agreement in principle was reached for settlement of a class action complaint filed by stockholders in October 1990 against the Company and certain of its officers and directors. The terms of the settlement agreement were approved by the Board of Directors of the Company and in April 1994 by the United States District Court after which the case was dismissed subject to the Company's compliance with the terms of the settlement agreement. The settlement agreement requires the Company to pay a total of $4,750,000, consisting of $500,000 in cash, which was paid in April 1994, and $4,250,000 in Common Stock of the Company. In addition, the Company will pay up to $100,000 for costs of notice and administration. Since all costs of the settlement will be borne by the Company, the entire amount of the settlement was recorded in the quarter ended March 31, 1993. 8 11. EQUITY The Company will be required to issue 690,159 shares of common stock pursuant to the terms of a settlement agreement as explained in Note 10. The terms of the agreement require the Company to issue the shares upon receipt of the list of authorized claimants. The Company anticipates that the shares could be issued prior to the end of 1994. 9 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS LIQUIDITY AND CAPITAL RESOURCES Cash decreased from $20,555,000 at December 31, 1993 to $14,108,000 at September 30, 1994. The Company's operating activities provided $4.4 million in cash during the first three quarters of 1994. Cash of $7.7 million and $3.0 million of additional borrowings were used to pay for additions to property, plant and equipment and $2.6 million was used to repay indebtedness. In February 1994, the Company converted $2.9 million of its advances to Pacific to shares of Pacific's common stock, in connection with Pacific successfully completing a public offering of its shares in Australia. The Company does not project receiving dividends in 1994 on its investment in Pacific in 1994. The Company's operating activities provided cash during the first three quarters of 1994, as cash was provided by rutile operating activities and cash was used in the other operating activities of the Company. Due to certain lender imposed limitations on dividend payments by Sierra Rutile Limited ("SRL"), the cash generated by SRL is not available for general corporate use. At September 30, 1994, $3.0 million of the Company's cash balance is at SRL and is restricted as to dividend payment. The remainder of the Company's operating activities experienced a cash shortfall of $2.5 million during the first three quarters of 1994, which required the use of a portion of the Company's available cash balances. This trend is expected to continue until such time as the Company's kaolin operation is able to generate operating cash flow to fund its operations, to repay the Company funds previously advanced and to pay a dividend to the Company. Payments under lease agreements at Nord Kaolin Company ("NKC") are secured by a guaranty by the Company. Under the terms of the guaranty, the Company is required to maintain certain covenants, including minimum levels of tangible net worth compared to total liabilities and cash flow relative to current maturities of long-term debt. The lessors have agreed that a covenant violation by the Company under the guaranty will not result in a default under the NKC lease agreements through December 31, 1994. Any covenant violation by the Company after December 31, 1994 would result in a default under the NKC lease agreements. The Company, however, has the right to cure a covenant default through September 1995 by obtaining a letter of credit in the name of the lessors which currently would be in the amount of $23 million. The lease agreements also place restrictions on the amount of cash which NKC may transfer to the Company and its other owner and limitations on the repayment of advances previously made by the Company to NKC. Financing agreements at SRL require SRL to maintain various financial ratios while indebtedness is outstanding and additional financial ratios prior to declaring a dividend and 10 also place limitations on the amount of cash transfers from SRL to its owners. Until SRL's capital expansion program attains "project completion", as defined in the financing agreements, the Company has agreed to provide 100% of any funds which may be required by SRL to fulfill its financial obligations, of which 50% is to be reimbursed to the Company by its joint venture partner in SRL. There are no events of default for the Company and its subsidiaries relative to the lease or financing agreements at September 30, 1994. The Company's principal financial requirements, anticipated sources and uses of funds for 1994 on a segment basis are described below. RESULTS OF OPERATIONS The loss from continuing operations for the three quarters ended September 30, 1994 and 1993 was $2,157,000 and $10,159,000, respectively. The loss from continuing operations for the quarter ended September 30, 1994 and 1993 was $1,152,000 and $17,000, respectively. The Company's operations for 1994 include 50% of the results of the rutile segment due to the sale of 50% of that operation in November 1993. For the three quarters ended September 30, 1994, operating results at the kaolin segment improved compared to 1993 results due to increased sales volume and prices and a lower cost of sales as a percentage of sales. However, the earnings contribution to the Company from the rutile operation was lower in 1994 compared to 1993 due to the aforementioned sale of 50% of SRL. The loss in 1993 includes $4,750,000 which was accrued for settlement of litigation against the Company and certain of its officers and directors. Operations were favorably impacted in the first three quarters of 1994 and 1993 by $550,000 and $3,700,000, respectively of revenue recognized in connection with the settlement with a defendant of litigation instituted by SRL. The Company also realized $1,087,000 as its share of net earnings of an affiliate for the first three quarters of 1994 compared to its share of net loss of $1,340,000 for the same period of 1993. The loss from continuing operations increased for the quarter ended September 30, 1994 compared to the third quarter of 1993 as results for the third quarter of 1993 contained $3,200,000 in revenue at SRL from the aforementioned settlement of litigation. Operating results in the third quarter of 1994 compared to 1993 from the kaolin segment continued to show improvement in sales volume and prices and cost of sales as a percent of sales but earnings contributed from the rutile segment decreased due to the sale of 50% of SRL. In addition, interest expense decreased in 1994 compared to 1993 as the Company paid off a substantial amount of debt in the fourth quarter of 1993 and $411,000 of interest cost was capitalized in 1994 while no interest was capitalized in 1993. The amount of income taxes provided on foreign earnings decreased in 1994 compared to 1993 due to a lower level of taxable foreign earnings recognized by the Company during 1994 compared to 1993. An analysis of the changes in revenues, cost of sales and operating earnings on a segment basis is contained below. 11 RUTILE During November 1993, the Company sold 50% of its interest in SRL. The amounts disclosed for SRL include 100% of SRL's operations in 1993 and 50% in 1994. The Company's share of revenues for the first three quarters ended September 30, 1994 and 1993 were $18,694,000 and $40,583,000 respectively, and were $6,033,000 and $11,004,000 in the third quarter of 1994 and 1993, respectively. Revenues for 100% of SRL's operations decreased in the first three quarters of 1994 compared to 1993 but increased in the third quarter of 1994 compared to 1993. The number of metric tons ("tonnes") sold increased slightly for the first three quarters of 1994 compared to the same 1993 period but the average price per tonne of rutile sold was 8% lower in 1994 compared to 1993 prices. For the third quarter of 1994, metric tonnes sold increased by 29% and average prices decreased by 3% compared to the same period of 1993 while revenues from the sale of ilmenite in the third quarter of 1994 were $145,000 compared to $1,600,000 in the same period of 1993 due to the timing of shipments. The Company anticipates that lower average prices received for rutile will continue throughout 1994 compared to 1993 but that tonnes sold for the full year of 1994 will exceed tonnes sold in 1993 (100% of SRL's operations). Included in revenues are sales to individual customers which exceeded 10% of the Company's revenues during 1994 and 1993. Although there is no indication that current relationships with SRL's customers in 1994 are likely to change, in the event that any major customers were lost or if the customers significantly reduced their orders, such loss or significant reduction could have a material adverse effect upon the financial condition and operations of the Company. The Company's share of SRL's revenues include sales to two customers of $8,000,000 and $6,000,000 during the first three quarters of 1994 and to two customers of $16,500,000 and $6,800,000 during the first three quarters of 1993, each of which exceeded 10% of the Company's revenues during the respective periods. Other income at SRL includes $3,700,000 and $3,200,000 during the first three quarters and third quarter of 1993, respectively, recognized from a partial settlement of litigation instituted by SRL, as previously noted (1994 settlements were recognized at the corporate segment). Cost of sales as a percentage of sales in the first three quarters of 1994 was 79% compared to 80% for the same period of 1993 and was 81% and 82% in the third quarter of 1994 and 1993, respectively. The cost of sales percentage in 1994 was negatively impacted by the previously noted decline in average sales price. However, a greater percentage decline in cost of sales was realized as production efficiencies during the first three quarters of 1994 resulted in lower average cost of production per tonne compared to 1993 amounts. 12 The Company's share of operating earnings from this segment in the first three quarters of 1994 were $3,163,000 compared to $9,004,000 for the same period in 1993 and were $568,000 and $4,559,000 in the third quarter of 1994 and 1993, respectively. Operating earnings for the first three quarters and third quarter of 1993 include the previously noted $3,700,000 and $3,200,000, respectively, recognized from a litigation settlement. After adjusting for the impact of the Company's sale of 50% of SRL in 1993 and excluding the litigation settlement, operating earnings during the first three quarters of 1994 improved over operating earnings during the same period of 1993, while operating earnings were comparable for the third quarters of 1994 and 1993. The improvement in operating earnings during the first three quarters of 1994 was due primarily to lower segment selling, general and administrative costs. Selling, general and administrative costs decreased in 1994 compared to 1993 as a result of the elimination of legal costs associated with the aforementioned litigation (now being paid entirely by the Corporate segment) and a lower amount of corporate costs allocated to this segment in 1994. KAOLIN Revenues increased to $30,363,000 in the three quarters ended September 30, 1994 compared to $23,553,000 during the same period of 1993. Revenues for the third quarter of 1994 increased to $9,938,000 compared to $7,484,000 for the same period of 1993. Revenues have increased in the three quarters and quarter ended September 30, 1994 compared to the same periods in 1993 as tons sold and average sales prices increased for the Company's Norplex[Registered Trademark] products. The Company sold 18% more tons of Norplex[Registered Trademark] in the three quarters ended September 30, 1994 and 43% more tons of Norplex[Registered Trademark] in the third quarter of 1994 compared to the same periods in 1993. Revenues from Norplex[Registered Trademark] sales also increased in the 1994 periods due to increases in selling prices and change in the mix of products sold. The Company sold 49% more tons of Norcal[Registered Trademark] products in the three quarters ended September 30, 1994 compared to 1993, although 6% fewer tons of Norcal[Registered Trademark] products were sold in the third quarter of 1994 compared to the same period in 1993. Selling prices of Norcal[Registered Trademark] products averaged 5% higher in 1994 than in 1993. The Company also realized an increase in tons sold and average sales prices for its conventional products for the three quarters and quarter ended September 30, 1994 compared to the same periods in 1993. Included in revenues are sales of $8,165,000 to one customer, which amount exceeded 10% of the Company's revenues during 1994. Although there is no indication that the current relationship with this customer is likely to change, in the event that the customer was lost or if the customer significantly reduced its orders, such loss or significant reduction could have a material adverse effect upon the financial condition and operations of the Company. Cost of sales as a percentage of sales was 96% for the first three quarters of 1994 compared to 108% for the same period in 1993. Cost of sales as a percentage of sales was 94% for the third quarter of 1994 compared to 109% for the same period in 1993. 13 These decreases in cost of sales percentages are due primarily to the aforementioned increase in sales revenue, change in mix of products sold and a decrease in production costs including the cost of certain raw materials. Operating loss was $3,239,000 for the first three quarters of 1994 compared to $7,313,000 for the same period in 1993. Operating loss was $977,000 for the third quarter of 1994 compared to $2,563,000 for the third quarter of 1993. Although this segment has incurred operating losses during the past few years, the Company anticipates that continued improvement in new product sales volume and product mix will have a favorable impact on gross margin and operating results in future periods. NKC has incurred annual operating losses beginning in 1989 due primarily to the costs associated with development and market introduction of its Norplex[Registered Trademark] products and in part to lower demand and prices for certain of its products as a result of the recession. As a result of the above circumstances, NKC had not been able to generate sufficient sales volume at adequate prices to recover its costs of sales. This situation has improved during the first three quarters of 1994, and NKC has realized a sufficient volume of sales to recover its costs of sales. The Company estimates that as sales volume increases, including increased sales of Norplex[Registered Trademark] products which are being emphasized, NKC will reduce the level of operating losses it has been incurring. However, the Company cannot precisely estimate when or if adequate sales levels will be attained to achieve an operating profit or the level of operating losses which may be incurred during future periods. However, the Company believes that, based upon recent conversions of customers to the Norplex[Registered Trademark] products and probable future testing and conversion at a number of different customer locations, that the improvement in sales levels and operating results is more likely than not to occur. 14 PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS The Company's Form 10-K for the fiscal year ended December 31, 1993 ("Form 10- K") describes (i) an Arbitration award in favor of Sierra Rutile Limited ("SRL"), a 50% affiliate of the Company, against Brinc, Ltd., formerly known as Bomar Resources, Inc., (ii) a proceeding in the United States District Court for the Southern District Court of New York captioned SIERRA RUTILE LIMITED v. BOMAR RESOURCES, INC., 90 Civ. 835, in which arbitration of SRL's, disputes with Brinc were compelled, (iii) an action in the United States District Court for the Southern District of New York captioned SIERRA RUTILE LIMITED v. SHIMON Y. KATZ, ET AL., 90 Civ. 4913 (JFK) and (iv) a proceeding in the United States District Court for the Southern District of Ohio captioned IN RE NORD RESOURCES CORPORATION SECURITIES LITIGATION (Dayton) (Civil Action No. C-3-90-391). No material changes have occurred with respect to the Arbitration award or any of the proceedings disclosed in the Form 10-K, except that: (A) with respect to the Sierra Rutile Limited ("SRL") litigation, permission had been granted to assert additional claims against Tradeco Holdings Limited and Bomar International Limited, Cayman Island entities alleged by SRL to be controlled by Berisford International PLC, on a guaranty and fraudulent conveyance claim. An answer denying SRL's allegations was filed on behalf of those entities and on August 4, 1994, an Amended Answer, including counterclaims against SRL, cross-claims and purported third party claims against the Company and other defendants was filed. The counterclaim and third party claims assert, among other things, that the acts complained of by SRL and upon which its judgment in arbitration was predicated, was not only known to SRL but also participated in by the Company and others and constituted a fraud on Tradeco for which SRL and the Company have liability or responsibility. The Company intends to vigorously oppose the counterclaims and third party claims asserted against it which it regards without merit. The Company has been advised by its counsel that based on the facts known to it Tradeco's asserted claims both by counterclaim and/or by third party claim are without merit, (B) with respect to the lawsuit in the United States District Court for the Southern District of Ohio, the Court has approved a settlement agreement reached by the parties involved and the case has been dismissed subject to the Company's compliance with the terms of the settlement agreement. Under the settlement terms, the Company will pay a total of $4,750,000, which is comprised of $500,000 in cash and $4,250,000 in stock. In addition, the Company will pay the costs of notice and administration up to $100,000. 15 ITEMS 2-5. Inapplicable. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K A. No reports were filed on Form 8-K during the third quarter of 1994. 16 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. NORD RESOURCES CORPORATION (Registrant) s/Terence H. Lang ---------------------- Terence H. Lang Senior Vice President - Finance (Principal Financial Officer and Authorized Officer) DATE: November 11, 1994 17 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 of the undersigned thereunto duly authorized. NORD RESOURCES CORPORATION (Registrant) ---------------------- Terence H. Lang Senior Vice President - Finance (Principal Financial Officer and Authorized Officer) DATE: November 11, 1994 18 EX-27 2 EXHIBIT 27
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM NORD RESOURCES CORPORATION FROM 10-Q FOR THE THREE QUARTERS ENDED SEPTEMBER 30,1994 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 9-MOS DEC-31-1994 SEP-30-1994 $14,108 0 $10,590 0 $10,689 $40,018 $152,637 $62,702 $164,205 $17,395 $21,734 $151 0 0 $164,054 $164,205 $49,057 $49,321 $43,974 $52,691 0 0 $1,265 $(1,619) $538 $(2,157) 0 0 0 $(2,157) $(.14) 0
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