SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended June 30, 1998
Commission File Number: 1-13617
Freeport-McMoRan Sulphur Inc.
Incorporated in Delaware 72-1392855
(IRS Employer Identification No.)
1615 Poydras Street, New Orleans, Louisiana 70112
Registrant's telephone number, including area code: (504) 582-4000
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
On June 30, 1998, there were issued and outstanding 9,740,603
shares of the registrant's Common Stock, par value $0.01 per
share.
FREEPORT-McMoRan SULPHUR INC.
TABLE OF CONTENTS
Page
Part I. Financial Information
Financial Statements:
Condensed Balance Sheets 3
Statements of Operations 4
Statements of Cash Flow 5
Notes to Financial Statements 6
Remarks 7
Report of Independent Public Accountants 8
Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
Part II. Other Information 12
Signature 13
Exhibit Index E-1
<PAGE> 2
FREEPORT-McMoRan SULPHUR INC.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
<TABLE>
<CAPTION>
FREEPORT-McMoRan SULPHUR INC.
CONDENSED BALANCE SHEETS (Unaudited)
June 30, December 31,
1998 1997
-------- ------------
(In Thousands)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 33,790 $ 21,293
Accounts receivable 24,875 33,739
Inventories 23,531 34,421
Prepaid expenses and other 10,142 5,982
-------- --------
Total current assets 92,338 95,435
Property, plant and equipment, net 100,151 109,833
Deferred tax asset 53,856 56,757
Other assets 10,303 11,008
-------- --------
Total assets $256,648 $273,033
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and
accrued liabilities $ 25,191 $ 25,175
Current portion of reclamation
and mine shutdown reserves 16,349 4,656
-------- --------
Total current liabilities 41,540 29,831
Reclamation and mine shutdown reserves 52,141 67,518
Accrued postretirement and
pension benefits 10,771 15,594
Other liabilities 46,227 45,693
Stockholders' equity 105,969 114,397
-------- --------
Total liabilities and
stockholders' equity $256,648 $273,033
======== ========
</TABLE>
The accompanying notes are an integral part of these financial
statements.
<PAGE> 3
<TABLE>
<CAPTION>
FREEPORT-McMoRan SULPHUR INC.
STATEMENTS OF OPERATIONS (Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
----------------- ------------------
1998 1997 1998 1997
------- ------- -------- --------
(In Thousands, Except Per Share Amounts)
<S> <C> <C> <C> <C>
Revenues $56,672 $54,355 $113,662 $107,750
Cost of sales:
Production and delivery 47,006 43,103 96,032 85,767
Depreciation and
amortization 10,993 8,614 12,735 16,889
------- ------- -------- --------
Total cost of sales 57,999 51,717 108,767 102,656
General and
administrative expenses 2,674 1,927 5,374 3,834
------- ------- -------- --------
Total costs and expenses 60,673 53,644 114,141 106,490
------- ------- -------- --------
Operating income (loss) (4,001) 711 (479) 1,260
Other income, net 432 - 706 -
------- ------- -------- --------
Net income (loss)
before income taxes (3,569) 711 227 1,260
Benefit (provision) for
income taxes 1,235 - (79) -
------- ------- -------- --------
Net income (loss) $(2,334) $ 711 $ 148 $ 1,260
======= ======= ======== ========
Net income (loss) per share of common stock:
Basic $(.24) $.07 $.01 $.12
Diluted $(.24) $.07 $.01 $.12
Average common shares outstanding:
Basic 9,780 10,347d 9,950 10,347d
Diluted 9,780 10,347d 10,031 10,347d
PRO FORMA DATA
Net income before income taxes
reported above $ 711 $ 1,260
Pro forma provision
for income taxes (246) (436)
------- -------
Pro forma net income $ 465 $ 824
======= =======
Pro forma net income
per share $.04 $.08
Pro forma average
shares outstanding 10,347 10,347
</TABLE>
The accompanying notes are an integral part of these financial
statements.
<PAGE> 4
<TABLE>
<CAPTION>
FREEPORT-McMoRan SULPHUR INC.
STATEMENTS OF CASH FLOW (Unaudited)
Six Months
Ended June 30,
--------------------
1998 1997
------- -------
(In Thousands)
<S> <C> <C>
Cash flow from operating activities:
Net income $ 148 $ 1,260
Adjustments to reconcile net income
to net cash provided by
operating activities:
Depreciation and amortization 12,735 16,889
Curtailment gain on Culberson pension and
postretirement liabilities (4,148) -
Reclamation and mine shutdown
expenditures (3,505) (4,822)
Utilization of deferred tax asset 79 -
Other (307) (880)
(Increase) decrease in working capital:
Accounts receivable 8,937 2,005
Inventories 10,890 578
Prepaid expenses and other (1,338) 1,309
Accounts payable and
accrued liabilities (303) (71)
------- -------
Net cash provided by
operating activities 23,188 16,268
------- -------
Cash flow from investing activities:
Capital expenditures (2,288) (2,744)
Sale of assets 141 891
------- -------
Net cash used in investing activities (2,147) (1,853)
------- -------
Cash flow from financing activities:
Net distributions to PLP - (15,944)
Purchase of FSC common stock (8,847) -
Other 303 -
------- -------
Net cash used in financing activities (8,544) (15,944)
------- -------
Net increase (decrease) in cash
and cash equivalents 12,497 (1,529)
Cash and cash equivalents
at beginning of year 21,293 3,116
------- -------
Cash and cash equivalents
at end of period $33,790 $ 1,587
======= =======
</TABLE>
The accompanying notes are an integral part of these financial
statements.
<PAGE> 5
FREEPORT-McMoRan SULPHUR INC.
NOTES TO FINANCIAL STATEMENTS
1. BACKGROUND AND BASIS OF PRESENTATION
Background. Freeport-McMoRan Sulphur Inc. (FSC) became an
independent, publicly held company as of December 22, 1997, when
Phosphate Resource Partners Limited Partnership (PLP), formerly
Freeport-McMoRan Resource Partners, Limited Partnership,
contributed to FSC its sulphur business, including its 58.3
percent interest in its Main Pass sulphur and oil operations
(Main Pass), together with the 25.0 percent interest in Main Pass
previously owned by IMC Global Inc. (IGL), a joint venture
partner with PLP. PLP distributed 10,346,578 shares of FSC
common stock pro rata to its unitholders (the Distribution) in
connection with the merger of Freeport-McMoRan Inc. (FTX), the
former administrative managing general partner and majority owner
of PLP, into IGL (the Merger). FTX distributed the shares of FSC
common stock that it received from PLP to FTX stockholders on a
pro rata basis in connection with the Merger.
Basis of Presentation. FSC operated as an integral part of PLP
prior to the Distribution. For periods prior to the
Distribution, FSC's financial statements were prepared from the
books and records of PLP. FSC's investment in the Main Pass joint
venture is reflected using the proportionate consolidation method
in accordance with standard industry practice. No interest
expense was allocated to FSC as no interest costs were incurred
in the past by FSC and no debt previously recorded by PLP was
assumed by FSC. Intercompany balances between PLP and FSC related
to various general and administrative and similar charges which
were settled monthly. PLP is not a taxable entity and
historically did not provide income taxes on the results of
operations of FSC. Upon formation of FSC as a wholly owned
taxable subsidiary of PLP prior to being spun-off to PLP
unitholders, a deferred tax asset of $63.8 million was recognized
in 1997 to reflect the excess of tax over book basis in the
related assets. Unaudited pro forma income taxes for the second-
quarter and six-month periods of 1997 are included in the
statements of operations as if FSC were a separate taxable entity
during those periods.
2. NEW ACCOUNTING STANDARDS
In February 1997, the Financial Accounting Standards Board (FASB)
issued Statement of Financial Accounting Standards No. 128 (SFAS
128), "Earnings Per Share," which simplifies the computation of
earnings per share. FSC adopted SFAS 128 in the fourth quarter
of 1997.
Basic net income per share of common stock for the 1998
periods was calculated by dividing net income applicable to
common stock by the weighted-average number of common shares
outstanding during the periods. Diluted net income per share of
common stock was calculated by dividing net income applicable to
common stock by the weighted-average number of common shares
outstanding during the period plus the net effect of dilutive
stock options. Options to purchase approximately 741,000 shares
of common stock at an average exercise price of $11.09 during the
second quarter of 1998 were excluded from the calculation as
anti-dilutive considering FSC's second-quarter loss. Dilutive
stock options representing approximately 81,000 shares were
included for the six-month 1998 period.
Options to purchase 15,676 shares and 18,676 shares of
common stock at average exercise prices of $13.81 per share and
$13.77 per share, respectively, were outstanding during the
second-quarter and six-month periods of 1998, respectively, but
were not included in the computation of diluted net income per
share of common stock. These options were excluded because their
exercise prices were greater than the average market price of the
common stock during the respective periods.
Basic and diluted net income per share of common stock for
the 1997 periods were calculated by dividing net income for the
applicable period by the number of shares distributed on December
22, 1997 (10,346,578 shares). FSC had no options outstanding
prior to the fourth quarter of 1997.
In June 1998, the FASB issued SFAS 133, "Accounting for
Derivative Instruments and Hedging Activity," which establishes
accounting and reporting standards requiring that every
derivative instrument (including certain derivative instruments
embedded in other contracts) be recorded in the balance sheet as
either an asset or liability measured at its fair value. SFAS
133 requires that changes in the derivative's fair value be
recognized currently in earnings unless specific hedge accounting
criteria are met. Special accounting for qualifying hedges allows
a derivative's gains and losses to offset related results on the
hedged item in the income statement, and requires that a company
must formally document, designate and assess the effectiveness of
transactions that receive hedge accounting. SFAS 133 is
effective for fiscal years beginning after June 15, 1999 with
earlier application permitted beginning as early as July 1, 1998.
<PAGE> 6
FSC is currently assessing the impact that adoption of SFAS 133
would have on its current accounting for the financial contracts
discussed below and on its financial statements, if any, and has
not yet determined the timing or method of adoption of SFAS 133;
however, it could impact earnings and other comprehensive income.
3. FINANCIAL CONTRACTS
FSC has entered into financial contracts to manage certain risks
resulting from fluctuations in the price of natural gas, which
comprises a significant portion of its production costs, by
creating offsetting exposures. FSC views all of its financial
contracts as hedges for its future purchases of natural gas
consumed in its operations. Gains or losses on the contracts are
recognized with the hedged transaction. Also, gains or losses
are recognized if the hedged transaction is no longer expected to
occur or if deferral criteria are not met. FSC monitors its
credit risk on an ongoing basis and considers this risk to be
minimal because its contracts are with a financially strong
counterparty.
4. SUBSEQUENT EVENT
On August 3, 1998, McMoRan Oil & Gas Co. (MOXY) and FSC announced
that they had signed a definitive agreement to combine their
operations. In the proposed transaction, a new holding company,
McMoRan Exploration Co. (McMoRan), would issue approximately 6.1
million McMoRan common shares in exchange for all of FSC's common
shares and approximately 8.6 million McMoRan common shares in
exchange for all of MOXY's common shares. FSC shareholders would
receive 0.625 McMoRan shares for each common share of FSC
outstanding and MOXY shareholders would receive 0.20 McMoRan
shares for each common share of MOXY outstanding. Immediately
following the transaction, McMoRan would have approximately 14.7
million common shares outstanding that would be owned
approximately 58.5 percent by MOXY's existing common shareholders
and approximately 41.5 percent by FSC's existing common
shareholders. McMoRan's Board of Directors and executive
management will include current members of the Board of Directors
and executive management of both MOXY and FSC. The transaction
would be tax-free with respect to both MOXY and FSC shareholders
and will be reported on the basis of purchase accounting,
reflecting MOXY as the acquiring entity. The completion of the
merger transaction is subject to approval by MOXY and FSC
shareholders and applicable regulatory approvals.
----------------------
Remarks
The information furnished herein should be read in conjunction
with FSC's financial statements contained in its 1997 Annual
Report on Form 10-K. The information furnished herein reflects
all adjustments which are, in the opinion of management,
necessary for a fair statement of the results for the periods.
All such adjustments are, in the opinion of management, of a
normal recurring nature.
<PAGE> 7
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To The Board of Directors and Stockholders of
Freeport-McMoRan Sulphur Inc.:
We have reviewed the accompanying condensed balance sheet of
Freeport-McMoRan Sulphur Inc. (a Delaware corporation) as of June
30, 1998, and the related statements of operations for the three
and six-month periods ended June 30, 1998 and 1997, and the
statements of cash flow for the six-month periods ended June 30,
1998 and 1997 for Freeport-McMoRan Sulphur Inc. and its
predecessor. These financial statements are the responsibility
of the Company's management.
We conducted our review in accordance with standards
established by the American Institute of Certified Public
Accountants. A review of interim financial information consists
principally of applying analytical procedures to financial data
and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an
audit conducted in accordance with generally accepted auditing
standards, the objective of which is the expression of an opinion
regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material
modifications that should be made to the financial statements
referred to above for them to be in conformity with generally
accepted accounting principles.
We have previously audited, in accordance with generally
accepted auditing standards, the balance sheet of Freeport-
McMoRan Sulphur Inc. as of December 31, 1997, and the related
statements of operations, stockholders' equity and cash flow for
the year then ended (not presented herein), and, in our report
dated January 20, 1998, we expressed an unqualified opinion on
those financial statements. In our opinion, the information set
forth in the accompanying condensed balance sheet as of December
31, 1997, is fairly stated, in all material respects, in relation
to the balance sheet from which it has been derived.
ARTHUR ANDERSEN LLP
New Orleans, Louisiana
July 21, 1998 (except with
respect to Note 4, as to
which the date is August
3, 1998)
<PAGE> 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
OVERVIEW
As discussed in Note 1, Freeport-McMoRan Sulphur Inc. (FSC)
became an independent, publicly held company as of December 22,
1997 and prior to that date operated as an integral part of
Phosphate Resource Partners Limited Partnership (PLP). FSC's
1998 financial results reflect the operating results of the
assets previously owned by PLP and the 25.0 percent interest in
the Main Pass sulphur and oil joint venture (Main Pass) acquired
from IMC Global Inc. (IGL). FSC's 1997 financial results reflect
only the operating results of the assets previously owned by PLP.
FSC's sulphur business consists of the sale of sulphur, the
marketing of logistics services, and the operation of a sulphur
mine and a logistics system consisting of sulphur transportation
and terminaling assets. FSC's sulphur operations include the Main
Pass mine located offshore Louisiana in the Gulf of Mexico, five
sulphur terminals located across the Gulf Coast, and marine and
rail transportation assets. The oil operations consist of FSC's
interest in the Main Pass operations, where crude oil is produced
in conjunction with FSC's sulphur mining operations.
On June 30, 1998, FSC announced plans to permanently
discontinue sulphur production at its Culberson sulphur mine
because sulphur prices had fallen to a level at which it was no
longer economically feasible to operate the mine. As a result,
FSC recorded net charges totaling $6.0 million ($3.9 million to
net income or $0.40 per share) in the second quarter of 1998,
including charges of $9.5 million ($6.2 million to net income) to
depreciation and amortization expense for a writedown of the
Culberson mine assets and $0.6 million ($0.4 million to net
income) to production costs for other closure-related costs,
partially offset by a $4.1 million benefit ($2.7 million to net
income) to production costs for a related reduction in pension
and postretirement benefit liabilities. Production at the mine is
expected to cease in August 1998. FSC will continue to meet its
customers' sulphur requirements in the long term from production
at its Main Pass mine and from third party purchases of recovered
sulphur and, in the short term, by liquefying solid inventories
held at its Port Sulphur, Louisiana terminal.
RESULTS OF OPERATIONS
Summary comparative results for the second-quarter and six-month
periods follow (dollar amounts in thousands, except
realizations):
<TABLE>
<CAPTION>
Second Quarter Six Months
---------------- --------------------
1998(a) 1997(b) 1998(a) 1997(b)
------- ------- --------- ---------
<S> <C> <C> <C> <C>
Revenues:
Sulphur $50,887 $46,563 $ 101,680 $ 91,422
Oil 5,785 7,792 11,982 16,328
------- ------- --------- ---------
Total revenues $56,672 $54,355 $ 113,662 $ 107,750
======= ======= ========= =========
Operating income (loss):
Sulphur $(6,463) $ (781) $ (5,956) $ (2,965)
Oil 2,462 1,492 5,477 4,225
------- ------- --------- ---------
Total operating
income (loss) $(4,001) $ 711 $ (479) $ 1,260
======= ======= ========= =========
Sulphur sales (long tons) 844,200 738,900 1,678,000 1,476,900
Sulphur average realized
price per long ton $59.71 $61.23 $59.98 $60.29
Oil sales (barrels) 451,400 443,700 907,600 867,500
Oil average realized
price per barrel $12.21 $17.52 $12.88 $18.78
</TABLE>
a. Includes net charges to sulphur operating income totaling $6.0
million for the Culberson mine shutdown.
b. Results for 1997 represent the operating results of the assets
previously owned by PLP that were transferred to FSC on
December 22, 1997. These results do not include the 25.0
percent interest in Main Pass previously owned by IGL prior to
December 22, 1997 when it was contributed to FSC.
Sulphur operations reported operating losses of $6.5 million
in the second quarter of 1998 and $6.0 million in the six-month
1998 period compared with operating losses of $0.8 million for
the 1997 quarter and $2.9 million for the 1997 six-month period.
The 1998 periods include net charges of $6.0 million for the
Culberson shutdown discussed above.
<PAGE> 9
Average sulphur realized prices for the 1998 periods were
lower than the 1997 periods, while sulphur sales volumes rose
because of FSC's additional 25.0 percent interest acquired from
IGL and an increase in recovered sulphur purchases. FSC has a
long-term supply contract with IMC-Agrico Company (a joint
venture partnership between IGL and PLP) which extends as long as
IMC-Agrico Company's operations have a requirement for sulphur.
As a percentage of total FSC sulphur sales, sales to IMC-Agrico
Company totaled 73 percent in the 1998 periods and 63 percent in
the 1997 periods.
Overall average sulphur unit production costs, excluding the
$3.5 million net benefit related to the Culberson shutdown, were
slightly higher in the 1998 periods primarily because of lower
production and higher drilling costs at Main Pass. Increased
drilling activity during the first half of 1998, coupled with
increasing water levels, is expected to increase second-half 1998
production and improve unit costs for Main Pass sulphur operations.
Culberson operations are expected to have a minimal impact on
third-quarter 1998 net income as the facilities shut down.
Depreciation and amortization expense in the 1998 periods
includes $9.5 million to write off the Culberson mine assets.
Unit depreciation rates were significantly lower in 1998
following a third-quarter 1997 write-down of asset values based
on an impairment assessment of sulphur assets resulting in a $4.2
million decrease in second-quarter 1998 depreciation costs
compared with second-quarter 1997 and an $8.0 million decrease in
the first six months of 1998 compared with the 1997 period.
In April 1998, FSC entered into contracts to purchase
450,000 million british thermal units (mmbtu's) of natural gas
per month (approximately 75 percent of FSC's expected Main Pass
natural gas purchases)for $2.175 per mmbtu through December 1998.
Pursuant to the terms of the contracts, the supplier has the
option to put 450,000 mmbtu's per month to FSC at a price of
$2.175 per mmbtu during 1999. As of June 30, 1998, these
contracts had a fair value of approximately $0.9 million.
Main Pass operating income from oil operations totaled $2.5
million in the second quarter of 1998 and $5.5 million for the
six-month 1998 period compared with $1.5 million in the second
quarter of 1997 and $4.2 million in the six-month 1997 period.
Higher sales volumes in the 1998 periods reflect FSC's additional
25.0 percent interest acquired from IGL, partially offset by a
natural production decline. Gross oil production averaged 6,900
barrels per day in the second quarter of 1998 and 9,700 barrels
per day in the second quarter of 1997. The benefits of higher
sales volumes were more than offset by an approximate 30 percent
decline in average realized prices compared with the 1997
periods. Quarterly oil sales volumes are expected to decline as
the reserves continue to deplete over a period expected to extend
through the year 2002. Revised unit depreciation rates in 1998
resulted in a $2.6 million decrease in second-quarter 1998
depreciation expense compared with the 1997 quarter and a $4.9
million decrease in six-month 1998 depreciation expense compared
with the 1997 six-month period. FSC's share of 1998 oil sales is
expected to approximate 1.7 million barrels, compared with 1.6
million barrels in 1997.
The original oil and gas lease holder of the oil reserves at
Main Pass owns a royalty equal to 25 percent of revenues (less
transportation costs) from oil production, limited to 50 percent
of net profit, after 36 million barrels of oil have been produced
at Main Pass. FSC exceeded 36 million barrels of cumulative oil
production in June 1998 and, as a result, will now be required to
pay royalties to the original lease holder at the rate of 50
percent of net profit from Main Pass oil production.
General and administrative expenses were higher in the 1998
periods compared with the 1997 periods primarily because of FSC's
increased interest in Main Pass and certain employee benefit
costs.
OUTLOOK
In response to a weak sulphur market, FSC curtailed production at
its Culberson mine in early 1998 and announced on June 30, 1998
that it planned to permanently cease operations at the mine. The
closure of the Culberson mine is expected to improve near-term
sulphur market fundamentals, and FSC is seeking an increase in
third-quarter 1998 sulphur contract prices compared with prices
realized in the first half of 1998, although the major sulphur
consumers are strongly resisting any price increase. Negotiations
are currently ongoing and no assurance can given that a price
increase will be realized.
CAPITAL RESOURCES AND LIQUIDITY
Net cash provided by operating activities totaled $23.2 million
for the first six months of 1998, compared with $16.3 million for
the first six months of 1997. A reduction in sulphur inventories
was the primary reason for higher net cash provided by operating
activities in the 1998 period compared with the 1997 period.
Capital expenditures, which primarily relate to maintaining
current levels of production, totaled $2.3 million for the six-
month 1998 period and $2.7 million for the six-month 1997 period.
Capital expenditures for 1998 are expected to total
approximately $6.0 million, slightly higher than for 1997 because
of the addition of IGL's former 25.0 percent interest and
additional drilling activities scheduled in 1998 to maintain
required levels of water treatment capacity for sulphur mining
operations at Main Pass.
<PAGE> 10
In May 1998 FSC's Board of Directors expanded the open
market share purchase program from a total of 1.0 million shares
of its common stock to up to 1.6 million shares. The timing of
the purchases is dependent upon many factors, including the price
of FSC's common stock, FSC's operating results, cash flows and
financial position, and general economic and market conditions.
FSC purchased 125,700 shares in the second quarter of 1998 for
$1.8 million (an average of $14.09 per share). Through June 30,
1998, FSC has purchased 646,100 shares for $8.8 million (an
average of $13.69 per share) under its share purchase program.
Based on current projections, management believes that FSC
will generate sufficient cash flow from operations to fund its
ongoing working capital requirements, reclamation costs and
projected capital expenditures for the foreseeable future.
Additionally, in December 1997 FSC established a $100 million
revolving credit facility to further enhance its liquidity and
financial flexibility. No amounts were outstanding under this
facility as of July 21, 1998. As of June 30, 1998, FSC held cash
balances totaling $33.8 million which are available to fund
working capital requirements, reclamation costs, projected
capital expenditures and other growth opportunities which FSC may
pursue in the future.
On August 3, 1998, FSC and McMoRan Oil & Gas Co. (MOXY)
announced they had signed a definitive agreement to combine their
operations (see Note 4). FSC's merger with MOXY is expected to
be completed during the fourth quarter of 1998, subject to
approval by shareholders of FSC and MOXY and applicable regulatory
agencies.
CAUTIONARY STATEMENT
Management's discussion and analysis of financial condition and
results of operations contains forward-looking statements,
including without limitation, FSC's reserve expectations,
operating costs, demand for sulphur, the availability of
financing, the ability to satisfy future cash obligations and
environmental costs. Important factors that may cause future
results to differ from these projections include the reliance on
IMC-Agrico Company as a continuing customer, the seasonality and
volatility of sulphur markets, competition and environmental
issues as described in more detail under the heading "Cautionary
Statements" in FSC's Form 10-K for the year ended December 31,
1997.
--------------------
The results of operations reported and summarized above are not
necessarily indicative of future operating results.
<PAGE> 11
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders.
(a) The Annual Meeting of Stockholders of Freeport-McMoRan
Sulphur Inc. (FSC) was held on May 12, 1998 (the Annual
Meeting). Proxies were solicited pursuant to Regulation 14A
under the Securities Exchange Act of 1934, as amended.
(b) At the Annual Meeting, J. Terrell Brown and Rene L.
Latiolais were elected to serve until the 2001 annual meeting of
stockholders. In addition to the directors elected at the Annual
Meeting, the terms of the following directors continued after the
Annual Meeting: Richard C. Adkerson, Thomas D. Clark, Jr., James
R. Moffett, B.M. Rankin, Jr. and Robert M. Wohleber.
(c) At the Annual Meeting, holders of shares of FSC's
Common Stock elected two directors with the number of votes cast
for or withheld from each nominee as follows:
Name For Withheld
- ----------------- --------- --------
J. Terrell Brown 8,963,452 143,211
Rene L. Latiolais 8,972,767 133,896
With respect to the election of directors, there were no abstentions or
broker non-votes.
At the Annual Meeting, the stockholders also voted on and
approved a proposal to ratify the appointment of Arthur Andersen
LLP to act as the independent public accountants to audit the
financial statements of FSC and its subsidiaries for the year 1998.
Holders of 9,014,582 shares voted for, holders of 59,035 shares
voted against and holders of 33,046 shares abstained from voting
on, such proposal. There were no broker non-votes with respect to
such proposal.
At the Annual Meeting, the stockholders also voted on and
approved FSC's 1997 Stock Option Plan. Holders of 8,216,237
shares voted for, holders of 768,508 shares voted against and
holders of 121,918 shares abstained from voting on, such
proposal. There were no broker non-votes with respect to such
proposal.
Item 6. Exhibits and Reports on Form 8-K.
(a) The exhibits to this report are listed in the
Exhibit Index beginning on Page E-1 hereof.
(b) During the quarter for which this report is filed,
the registrant filed one Current Report on Form 8-
K dated June 30, 1998 reporting information under
Item 5.
<PAGE> 12
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 hereunto duly authorized.
FREEPORT-McMoRan SULPHUR INC.
By:/s/C. Donald Whitmire, Jr.
------------------------------
C. Donald Whitmire, Jr.
Vice President and
Controller-Financial Reporting
(authorized signatory and
Principal Accounting Officer)
Date: August 11, 1998
<PAGE> 13
Freeport-McMoRan Sulphur Inc.
EXHIBIT INDEX
Number Description
- ------ ------------------------------------------------------
2.1 Contribution and Distribution Agreement by and among
Freeport-McMoRan Inc. (the Company), Freeport-McMoRan Inc.
(FTX) and Freeport-McMoRan Resource Partners, Limited
Partnership (FRP), dated as of August 26, 1997(1)
2.2 Assignment and Assumption Agreement by and between IMC
Global Inc. (IGL) and FRP dated as of December 22, 1997(2)
3.1 Certificate of Incorporation of the Company(1)
3.2 By-laws of the Company(1)
4.1 Form of the Company's Common Stock certificate(1)
4.2 Stockholder Protection Rights Agreement between
Freeport-McMoRan Sulphur Inc. and Mellon Securities Trust
Company, as Rights Agent(3)
10.1 Employee Benefits Agreement by and between FTX and the
Company(2)
10.2 Asset Sale Agreement for Main Pass Block 299 between
FRP and Chevron USA, Inc. dated as of May 2, 1990(1)
10.3 Main Pass 299 Sulphur and Salt Lease, effective May 1,
1988(1)
10.4 Joint Operating Agreement by and between FRP, IMC-
Fertilizer, Inc. and Felmont Oil Corporation, dated
June 5, 1990(1)
10.5 Joint Operating Agreement by and between FRP, IMC-
Fertilizer, Inc. and Felmont Oil Corporation, dated May
1, 1988(1)
10.6 Agreement to Coordinate Operating Agreements by and
between FRP, IMC-Fertilizer and Felmont Oil Corporation,
dated May 1, 1988(1)
10.7 Asset Purchase Agreement between FRP and Pennzoil
Company dated as of October 22, 1994 (the Asset Purchase
Agreement)(1)
10.8 Amendment No. 1 to the Asset Purchase Agreement dated
as of January 3, 1995(1)
10.9 Agreement for Sulphur Supply, as amended, dated as of
July 1, 1993 among FRP, IMC Fertilizerand IMC-Agrico
Company (the Sulphur Supply Agreement)(1)(4)
10.10 Side letter with IGL regarding the Sulphur Supply
Agreement(1)
10.11 Processing and Marketing Agreement between the Freeport
Sulphur Company (a division of FRP) and Felmont Oil
Corporation dated June 19, 1990 (the Processing
Agreement)(1)
10.12 Amendment Number 1 to the Processing Agreement(1)
10.13 Amendment Number 2 to the Processing Agreement(1)
10.14 Services Agreement dated as of December 23, 1997 between
the Company and FM Services Company (FMS)(2)
<PAGE> E-1
10.15 Credit Agreement dated as of December 12, 1997 among the
Company, as borrower, the financial institutions party
thereto, the Chase Manhattan Bank, as administrative agent
and documentary agent, and Hibernia National Bank, as co-
agent(2)
Executive Compensation Plans and Arrangements
(Exhibits 10.16 through 10.19)
10.16 1997 Stock Option Plan for Non-Employee Directors(1)
10.17 Company Adjusted Stock Award Plan(1)
10.18 Freeport Sulphur 1997 Stock Option Plan(1)
10.19 Letter Agreement dated December 22, 1997 between FMS and
Rene L. Latiolais(2)
15.1 Letter dated July 21, 1998 from Arthur Andersen LLP
regarding unaudited interim financial
statements.
27.1 Financial Data Schedule
- ----------------------
(1) Incorporated by reference from the Company's Registration
Statement on Form S-1 (Registration No. 333-40375) filed with
the Securities and Exchange Commission on November 17, 1997.
(2) Incorporated by reference from the Company's Annual Report on
Form 10-K for the year ended December 31, 1997.
(3) Incorporated by reference from the Company's Current Report
on Form 8-K dated December 16, 1997.
(4) Portions of this Exhibit have been omitted pursuant to a
confidentiality request filed with the Securities and Exchange
Commission in connection with the filing of the Registration
Statement on Form S-1.
<PAGE> E-2
Exhibit 15.1
July 21, 1998
Freeport-McMoRan Sulphur Inc.
1615 Poydras St.
New Orleans, LA 70112
Gentlemen,
We are aware that Freeport-McMoRan Sulphur Inc. has
incorporated by reference in its previously filed
Registration Statement on Form S-8 (File No.333-44449) its
Form 10-Q for the quarter ended June 30, 1998, which
includes our report dated July 21, 1998 covering the
unaudited interim financial information contained therein.
Pursuant to Regulation C of the Securities Act of 1933 (the
Act), this report is not considered a part of the
registration statement prepared or certified by our firm or
a report prepared or certified by our firm within the
meaning of Sections 7 and 11 of the Act.
Very truly yours,
/s/ Arthur Andersen LLP
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from
Freeport-McMoRan Sulphur Inc. unaudited financial statements at June 30,
1998 and for the six months then ended, and is qualified in its entirety
by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 33,790
<SECURITIES> 0
<RECEIVABLES> 21,124
<ALLOWANCES> 0
<INVENTORY> 23,531
<CURRENT-ASSETS> 92,338
<PP&E> 843,618
<DEPRECIATION> 743,467
<TOTAL-ASSETS> 256,648
<CURRENT-LIABILITIES> 41,540
<BONDS> 0
0
0
<COMMON> 104
<OTHER-SE> 105,865
<TOTAL-LIABILITY-AND-EQUITY> 256,648
<SALES> 113,662
<TOTAL-REVENUES> 113,662
<CGS> 108,767
<TOTAL-COSTS> 108,767
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 227
<INCOME-TAX> 79
<INCOME-CONTINUING> 148
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 148
<EPS-PRIMARY> .01
<EPS-DILUTED> .01
</TABLE>
