SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): January 3, 1995
FREEPORT-McMoRan INC.
Delaware 1-8124 13-3051048
(State or other (Commission (IRS Employer
jurisdiction of File Number) Identification
incorporation or Number)
organization)
1615 Poydras Street, New Orleans, Louisiana 70112
Registrant's telephone number, including area code: (504) 582-4000
Freeport-McMoRan Inc.
The undersigned registrant hereby amends the following items,
financial statements, exhibits or other portions of its Current Report
on Form 8-K dated January 3, 1995, as set forth in the page(s) attached
hereto:
Item 7. Financial Statements and Exhibits.
---------------------------------
(a) Financial statements of business acquired. The financial
statements of the business acquired filed as part of this
report are listed in the Financial Information Table of
Contents appearing on page F-1 hereof.
(b) Pro forma financial information. The pro forma financial
statements of FTX filed as part of this report are listed in
the Financial Information Table of Contents appearing on
page F-1 hereof.
(c) Exhibits. Not applicable.
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.
FREEPORT-McMoRan INC.
By: /s/ John T. Eads
----------------------------------
John T. Eads
Assistant Vice President &
Controller - Financial Reporting
Date: February 27, 1995
Freeport-McMoRan Inc.
Financial Information
Table of Contents
Pennzoil Assets Acquired
Report of Independent Public Accountants F-2
Balance Sheets as of December 31, 1993 (Audited) and
September 30, 1994 (Unaudited) F-3
Statements of Operations and Divisional Equity for the
Year Ended December 31, 1993 (Audited) and for the
Nine Months Ended September 30, 1994 (Unaudited) F-4
Statements of Cash Flows for the Year Ended
December 31, 1993 (Audited) and for the Nine Months
Ended September 30, 1994 (Unaudited) F-5
Notes to Financial Statements F-6
Freeport-McMoRan Inc.
Unaudited Pro Forma Statement of Operations for the Year
Ended December 31, 1993 F-10
Unaudited Pro Forma Statement of Operations for the Nine
Months Ended September 30, 1994 F-11
Unaudited Pro Forma Condensed Balance Sheet as of
September 30, 1994 F-12
Notes to Pro Forma Financial Statements F-13
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Pennzoil Company:
We have audited the accompanying balance sheet attributable to the domestic
sulphur operations of Pennzoil Company's sulphur division identified in Note 1
(the Business) as of December 31, 1993, and the related statements of
operations and divisional equity and cash flows for the year then ended.
These financial statements are the responsibility of the Business's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the Business as of
December 31, 1993, and the results of its operations and its cash flows for
the year then ended in conformity with generally accepted accounting
principles.
Arthur Andersen LLP
Houston, Texas
December 7, 1994
PENNZOIL DOMESTIC SULPHUR BUSINESS
BALANCE SHEET
(In Thousands)
December 31, September 30,
1993 1994
------------ -------------
(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 2,320 $ 1,994
Accounts receivable 7,619 7,614
Sulphur inventories 18,895 17,416
Materials and supplies, at average cost 3,699 3,040
Other current assets 296 323
-------- -------
Total current assets 32,829 30,387
PROPERTY, PLANT AND EQUIPMENT, at cost 178,957 186,802
Less- Accumulated depreciation, depletion
and amortization 113,860 166,910
-------- --------
Net property, plant and equipment 65,097 19,892
-------- --------
Total assets $ 97,926 $ 50,279
======== ========
LIABILITIES AND DIVISIONAL EQUITY
CURRENT LIABILITIES:
Accounts payable $ 5,521 $ 3,616
Accrued taxes 254 1,758
Other current liabilities 4,953 3,826
-------- --------
Total current liabilities 10,728 9,200
DEFERRED INCOME TAXES 7,038 -
OTHER LIABILITIES 2,523 3,919
COMMITMENTS AND CONTINGENCIES (Note 5)
DIVISIONAL EQUITY:
Accumulated deficit (17,672) (68,161)
Contributions from parent 95,309 105,321
--------- ---------
Total divisional equity 77,637 37,160
--------- ---------
Total liabilities and divisional equity $ 97,926 $ 50,279
========= =========
The accompanying notes are an integral part of these financial statements.
PENNZOIL DOMESTIC SULPHUR BUSINESS
STATEMENTS OF OPERATIONS AND DIVISIONAL EQUITY
(In Thousands)
Nine Months
Year Ended Ended
December 31, September 30,
1993 1994
------------ -------------
(Unaudited)
REVENUES:
Net sales $65,214 $39,867
Other income, net 857 2,477
------- -------
66,071 42,344
------- -------
COSTS AND EXPENSES:
Cost of sales 73,184 44,702
Selling, general and administrative expenses 3,566 2,341
Management fee to Pennzoil Company (Note 4) 4,230 2,327
Depreciation, depletion and amortization 7,904 3,467
Valuation adjustment (Note 1) - 50,200
Taxes other than income 2,145 1,363
------- -------
LOSS BEFORE INCOME TAXES (24,958) (62,056)
INCOME TAX BENEFIT (8,637) (11,567)
------- -------
NET LOSS (16,321) (50,489)
DIVISIONAL EQUITY:
Beginning of period 79,807 77,637
Contributions from parent 14,151 10,012
------- ---------
End of period $77,637 $ 37,160
======= =========
The accompanying notes are an integral part of these financial statements.
PENNZOIL DOMESTIC SULPHUR BUSINESS
STATEMENT OF CASH FLOWS
(In Thousands)
Nine Months
Year Ended Ended
December 31, September 30,
1993 1994
------------ -------------
(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(16,321) $(50,489)
Adjustments to reconcile net loss to net
cash used in operating activities-
Depreciation, depletion and amortization 7,904 3,467
Valuation adjustment - 50,200
Deferred income taxes (1,482) (7,038)
(Increase) decrease in accounts receivable 10,490 (99)
(Increase) decrease in inventories (4,385) 1,123
Decrease in accounts payable (10,030) (1,655)
Increase (decrease) in accrued taxes (11) 1,504
Other current assets and liabilities, net 2,048 845
-------- --------
Net cash used in operating activities (11,787) (2,142)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (2,295) (8,262)
Proceeds from sale of assets 80 66
-------- --------
Net cash used in investing activities (2,215) (8,196)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Contributions from parent 14,151 10,012
-------- --------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 149 (326)
CASH AND CASH EQUIVALENTS, beginning of
period 2,171 2,320
-------- --------
CASH AND CASH EQUIVALENTS, end of period $ 2,320 $ 1,994
======== ========
The accompanying notes are an integral part of these financial statements.
PENNZOIL DOMESTIC SULPHUR BUSINESS
NOTES TO FINANCIAL STATEMENTS
(Information as of and for the nine months ended September 30, 1994, is
unaudited.)
1. ORGANIZATION AND OPERATIONS:
In 1986, Pennzoil Sulphur Company was organized as a Nevada Corporation and
received a capital contribution of all of Pennzoil Company's (Pennzoil's)
sulphur operations, including properties and related assets and liabilities.
All assets and liabilities contributed were recorded at historical cost. In
October 1991, Pennzoil Sulphur Company was dissolved; all assets and
liabilities were transferred at cost back to Pennzoil and the operations have
been operated as a separate division (Pennzoil Sulphur) of Pennzoil since that
time.
In October 1994, Pennzoil entered into an agreement to sell substantially all
of the domestic operating assets (the Business) of Pennzoil Sulphur to
Freeport-McMoRan Resource Partners, Limited Partnership (Freeport-McMoRan),
pursuant to the terms of the Asset Purchase Agreement (the Agreement). As
consideration under the Agreement, (a) Freeport-McMoRan will assume certain
liabilities relating to or arising out of the Business, including
environmental and employee severance obligations, (b) Pennzoil will receive a
series of quarterly installment payments from Freeport-McMoRan based on
prevailing future market prices of sulphur over a period not to exceed 20
years and (c) Freeport-McMoRan will purchase any remaining dry sulphur
inventory over a 30-month period to the extent such inventory is not sold in
export markets. In connection with this transaction, Pennzoil Sulphur
recorded a valuation adjustment charge of $50.2 million in September 1994 to
reduce Pennzoil Sulphur's carrying amounts to their net realizable value.
Completion of this transaction, which is anticipated by December 31, 1994, is
subject to a number of conditions, including the receipt of required
governmental approvals.
The Business includes only the domestic assets, liabilities, operations and
cash flows of Pennzoil Sulphur. Foreign assets, liabilities, operations and
cash flows of Pennzoil Sulphur are excluded as they are not included as part
of the sale of operating assets to Freeport-McMoRan.
Operations of the Business include the mining and marketing of sulphur
produced from its Culberson County property in West Texas. Sulphur sales are
made primarily to phosphate industry customers for use in the manufacture of
phosphate fertilizer materials.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Basis of Presentation - The accompanying financial statements include the
accounts of the Business. All significant intradivisional accounts and
transactions have been eliminated. Earnings per share data has not been
provided because the Business is part of a wholly owned division of Pennzoil.
Receivables - Trade receivables are presented net of an allowance for doubtful
accounts of $.7 million and $.8 million at December 31, 1993, and
September 30, 1994, respectively.
The Business extends credit to various companies in the sulphur industry in
the normal course of business. Within this industry, a concentration of
credit risk exists. Because sulphur sales are primarily made to customers for
use in the manufacture of phosphate fertilizer materials, changes in economic
or other conditions within this industry may impact the Business's overall
credit risk. At December 31, 1993, and September 30, 1994, receivables
related to this group concentration were $7.5 million and $7.1 million,
respectively. Decisions to extend credit and the amount of collateral
required are based on management's credit evaluation of the counterparties on
a case-by-case basis.
Inventories - Substantially all sulphur inventories are reported at cost using
the last-in, first-out (LIFO) method, which is lower than market. Inventories
valued on the LIFO method totaled $18.8 million at December 31, 1993, and
$17.3 million at September 30, 1994. The current cost of LIFO inventories was
approximately $19.6 million and $21.2 million at December 31, 1993, and
September 30, 1994, respectively.
Property, Plant and Equipment - Property, plant and equipment are stated at
cost. Major development expenditures at operating mines which are expected to
benefit future production are capitalized and depreciated on the unit-of-
production method based on estimated quantities of commercially recoverable
minerals. Exploration costs associated with operating mines and development
costs to maintain production of operating mines are charged to expense as
incurred, as are maintenance and repair costs.
Exploration costs related to specific undeveloped projects are initially
capitalized. If commercially recoverable minerals are not discovered, the
exploration costs are expensed. Exploration costs not identified with a
specific project are charged to expense as incurred. The carrying amounts of
mines are reviewed periodically, and an impairment reserve is provided as
conditions warrant.
Sulphur properties are generally depreciated and depleted on the unit-of-
production method, except for assets having an estimated life less than the
estimated life of the mineral deposits, which are depreciated on the straight-
line method. The useful lives of assets being depreciated on a straight-line
basis range from three to thirty-five years.
Other Liabilities - Other liabilities consist of the following obligations
allocated to the Business by Pennzoil (expressed in millions):
December 31, September 30,
1993 1994
------------ -------------
(Unaudited)
Postretirement obligations $2.5 $2.6
Postemployment obligations - 1.3
---- ----
$2.5 $3.9
==== ====
Cash Flow Information - For purposes of the statement of cash flows, all
highly liquid investments purchased with a maturity of three months or less
are considered to be cash equivalents. Income taxes either allocated by and
credited to Pennzoil or paid directly to taxing authorities were $7.2 million
in 1993 and $5.0 million in the nine months ended September 30, 1994.
Interim Financial Data - The financial statements and related information of
the Business as of and for the period ended September 30, 1994, have been
prepared by management of the Business in accordance with the Securities and
Exchange Commission's rules and regulations for interim financial reporting.
Accordingly, these financial statements and related information have been
prepared without audit, and certain information and note disclosures normally
included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted. In the opinion
of management, these financial statements include all adjustments, consisting
of normal recurring entries, which are necessary for a fair presentation of
the financial position and results of operations of the Business for the
periods presented, and the disclosures are adequate to make the information
presented not misleading.
3. FEDERAL AND STATE INCOME TAXES:
The Business is allocated an amount of federal income taxes equal to the
amount of federal income taxes that it would pay if it was a separate
corporate entity filing a separate return.
Federal and state income tax benefits consisted of the following (expressed in
millions):
December 31, September 30,
1993 1994
------------ -------------
(Unaudited)
Current-
Federal $(6.9) $(4.6)
State (.2) -
Deferred (1.5) (7.0)
----- ------
Total tax benefit $(8.6) $(11.6)
===== ======
The Business s deferred tax asset and liabilities are as follows (expressed in
millions):
December 31, September 30,
1993 1994
------------ -------------
(Unaudited)
Deferred tax liability $7.0 $ 7.4
Deferred tax asset - (17.6)
Valuation allowance - 10.2
Net deferred tax asset - (7.4)
---- -----
Net deferred tax liability $7.0 $ -
==== =====
The deferred tax asset resulted from the financial statement write-down of
sulphur assets to their net realizable value in connection with the sale of
substantially all of the Business s domestic operating assets (see Note 1),
which created a tax basis in excess of that reported for financial reporting
purposes. The valuation allowance of $10.2 million at September 30, 1994, was
provided based on the likelihood that the Business s deferred tax asset will
only be realized to the extent that existing taxable temporary differences
reverse in future periods. Deferred tax liabilities result primarily from
temporary differences in the tax versus financial reporting recognition of
mine exploration and development costs and depreciation, and depletion and
amortization of property, plant and equipment.
4. RELATED-PARTY TRANSACTIONS:
The Business has engaged in various transactions with Pennzoil and its
affiliates that are characteristic of entities under common control. As such,
excess cash generated by the Business is transferred to Pennzoil on a regular
basis. In addition, Pennzoil directly funds the Business s operations.
Contributions from Pennzoil have no defined repayment terms, are noninterest-
bearing and are included in divisional equity in the accompanying balance
sheet. Pennzoil allocates costs and expenses to the Business for various
costs incurred by Pennzoil directly associated with the Business s operations.
The Business was charged $22.9 million and $11.7 million during 1993 and the
nine months ended September 30, 1994, respectively, for salaries, wages,
retirement and postretirement benefits provided by Pennzoil. Of this amount,
$20.7 million and $9.7 million, respectively, are reflected in cost of sales,
and $2.2 million and $2.0 million, respectively, are reflected in selling,
general and administrative expenses in the accompanying statement of
operations. The Business was also charged $1.3 million in 1993 and
$.7 million in the nine months ended September 30, 1994, for legal and
administrative services and computer rentals. These charges are included in
selling, general and administrative expenses in the accompanying statement of
operations.
In addition to general and administrative costs directly associated with the
Business s operations, Pennzoil has furnished to the Business certain
financial, administrative, legal and other staff functions and services. The
costs of providing such functions and services have been allocated to the
Business using a method based on total assets, revenues and number of
employees. Management believes such charges are equal to or less than what
the Business would have incurred to obtain such services on its own. Such
charges were $4.2 million in 1993 and $2.3 million in the nine months ended
September 30, 1994, and are reflected as management fees in the accompanying
statement of operations.
5. COMMITMENTS AND CONTINGENCIES:
Total operating lease rental expense was $2.4 million in 1993 and $1.5 million
in the nine months ended September 30, 1994. Aggregate minimum rental
obligations subsequent to December 31, 1993, under noncancelable leases for
the years ending December 31, 1994, 1995, 1996, 1997 and 1998, are estimated
to be $2.1 million, $.4 million, $.4 million, $.4 million and $.4 million,
respectively.
Pennzoil has been notified by the state of Texas that royalty payments for
sulphur produced from its Culberson mine from 1974 to 1986 have been
underpaid. Pennzoil management believes that the state s claim for additional
royalties is without merit. As such, Pennzoil management believes that the
ultimate resolution of this matter will not have a material effect on the
financial statements of the Business. This claim is not included as part of
the liabilities to be assumed by Freeport-McMoRan in the sale discussed in
Note 1.
<TABLE>
Freeport-McMoRan Inc.
Unaudited Pro Forma Statement of Operations
Year Ended December 31, 1993
<CAPTION>
Pro Forma Adjustments
------------------------
Pennzoil Fertiberia
Historical (Note 1) (Note 2) Pro Forma
---------- --------- ---------- ----------
(In Thousands, Except Per Share Amounts)
<S> <C> <C> <C> <C>
Revenues $1,610,581 $ 65,214 $258,073 $1,933,868
Cost of sales:
Production and delivery 1,141,705 73,717 279,673 1,495,095
Depreciation and amortization 191,938 3,636 (6,612) 188,962
---------- -------- -------- ----------
Total cost of sales 1,333,643 77,353 273,061 1,684,057
Exploration expenses 65,080 - - 65,080
Provision for restructuring
charges 67,145 - - 67,145
Loss on valuation and
sale of assets, net 64,114 - - 64,114
General and administrative 169,059 7,796 30,518 207,373
---------- -------- -------- ----------
Total costs and expenses 1,699,041 85,149 303,579 2,087,769
---------- -------- -------- ----------
Operating loss (88,460) (19,935) (45,506) (153,901)
Interest expense, net (79,882) - - (79,882)
Gain on conversion/distribution
of FCX securities 44,116 - - 44,116
Other expense, net (2,727) (1,288) (856) (4,871)
---------- -------- -------- ----------
Loss before income taxes and
minority interests (126,953) (21,223) (46,362) (194,538)
Provision for income taxes (17,854) 3,810 - (14,044)
Minority interests in net loss of
consolidated subsidiaries 61,689 10,336 22,578 94,603
---------- -------- -------- ----------
Loss before changes in accounting
principle (83,118) (7,077) (23,784) (113,979)
Cumulative effect of changes in
accounting principle (20,717) - - (20,717)
---------- -------- -------- ----------
Net loss (103,835) (7,077) (23,784) (134,696)
Preferred dividends (22,368) - - (22,368)
---------- -------- -------- ----------
Net loss applicable to common stock $ (126,203) $ (7,077) $(23,784) $ (157,064)
========== ======== ======== ==========
Net loss per primary share:
Before changes in accounting
principle $(.74) $(.96)
Cumulative effect of changes in
accounting principle (.15) (.15)
----- ------
$(.89) $(1.11)
===== ======
Average shares outstanding 141,595 141,595
======= =======
The accompanying notes are an integral part of these pro forma financial statements.
</TABLE>
<TABLE>
Freeport-McMoRan Inc.
Unaudited Pro Forma Statement of Operations
Nine Months Ended September 30, 1994
<CAPTION>
Pro Forma Adjustments
---------------------------
Pennzoil Fertiberia
Historical (Note 1) (Note 2) Pro Forma
---------- -------- ---------- ----------
(In Thousands, Except Per Share Amounts)
<S> <C> <C> <C> <C>
Revenues $1,421,179 $ 39,867 $271,489 $1,732,535
Cost of sales:
Production and delivery 943,732 44,597 250,156 1,238,485
Depreciation and amortization 92,050 2,727 (4,959) 89,818
---------- -------- -------- ----------
Total cost of sales 1,035,782 47,324 245,197 1,328,303
Exploration expenses 35,389 - - 35,389
General and administrative 123,893 4,668 16,815 145,376
---------- -------- -------- ----------
Total costs and expenses 1,195,064 51,992 262,012 1,509,068
---------- -------- -------- ----------
Operating income (loss) 226,115 (12,125) 9,477 223,467
Interest expense, net (67,626) - - (67,626)
Gain on conversion/distribution
of FCX securities 95,723 - - 95,723
Other income (expense), net (2,685) 1,114 (1,662) (3,233)
---------- -------- -------- ----------
Income (loss) before income taxes
and minority interests 251,527 (11,011) 7,815 248,331
Provision for income taxes (98,548) 1,977 - (96,571)
Minority interests in net income of
consolidated subsidiaries (104,257) 5,362 (3,806) (102,701)
---------- -------- -------- ----------
Income before extraordinary item 48,722 (3,672) 4,009 49,059
Extraordinary loss on early
extinguishment of debt, net (9,108) - - (9,108)
---------- -------- -------- ----------
Net income (loss) 39,614 (3,672) 4,009 39,951
Preferred dividends (16,563) - - (16,563)
---------- -------- -------- ----------
Net income (loss) applicable to
common stock $ 23,051 $ (3,672) $ 4,009 $ 23,388
========== ======== ======== ==========
Net income (loss) per primary share:
Before extraordinary item $.23 $.23
Extraordinary loss on early
extinguishment of debt (.06) (.06)
---- ----
$.17 $.17
==== ====
Average shares outstanding 139,538 139,538
======= =======
The accompanying notes are an integral part of these pro forma financial statements.
</TABLE>
<TABLE>
Freeport-McMoRan Inc.
Unaudited Pro Forma Condensed Balance Sheet
September 30, 1994
<CAPTION>
Pro Forma Adjustments
-----------------------
Pennzoil Fertiberia
Historical (Note 1) (Note 2) Pro Forma
---------- -------- ---------- ----------
(In Thousands)
<S> <C> <C> <C> <C>
Cash and short-term investments $ 28,794 $ - $ 60,516 $ 89,310
Accounts receivable 263,319 - 97,032 360,351
Inventories 387,540 5,635 102,820 495,995
Prepaid expenses and other 16,429 - - 16,429
---------- ------- -------- ----------
Total current assets 696,082 5,635 260,368 962,085
Property, plant and equipment, net 3,243,457 59,538 - 3,302,995
Other assets 198,818 - 428 199,246
---------- ------- -------- ----------
Total assets $4,138,357 $65,173 $260,796 $4,464,326
========== ======= ======== ==========
Accounts payable and accrued
liabilities $ 502,721 $17,400 $ 94,002 $ 614,123
Current portion of long-term debt
and short-term borrowings 102,487 - - 102,487
---------- ------- -------- ----------
Total current liabilities 605,208 17,400 94,002 716,610
Long-term debt, less current
portion 1,437,129 - - 1,437,129
Reclamation and mine shutdown
reserves 124,719 16,000 89,165 229,884
Accrued postretirement benefits
and other liabilities 418,612 31,773 77,629 528,014
Deferred income taxes 244,122 - - 244,122
Minority interests in consolidated
subsidiaries 1,497,289 - - 1,497,289
Stockholders' equity (deficit) (188,722) - - (188,722)
---------- ------- -------- ----------
Total liabilities and
stockholders' equity $4,138,357 $65,173 $260,796 $4,464,326
========== ======= ======== ==========
The accompanying notes are an integral part of these pro forma financial statements.
</TABLE>
Freeport-McMoRan Inc.
Notes to Pro Forma Financial Statements
The accompanying Pro Forma Statements of Operations have been
prepared assuming the transactions discussed below occurred on January 1,
1993, whereas the Pro Forma Condensed Balance Sheet assumes the
transactions occurred on September 30, 1994. The pro forma financial
statements are not necessarily indicative of the actual results that
would have been achieved nor are they indicative of future results.
Both acquisitions afford Freeport-McMoRan Resource Partners, Limited
Partnership (FRP) the opportunity to generate significant cost savings
through operating synergies; however, for purposes of these pro forma
financial statements no anticipated cost reductions or efficiencies have
been reflected.
1. Pennzoil Acquisition
On January 4, 1995, FRP, a Delaware limited partnership and a 51.4
percent owned affiliate of Freeport-McMoRan Inc. (FTX), acquired
essentially all of the domestic assets of Pennzoil Sulphur Company
(Pennzoil Sulphur), a division of Pennzoil Company, effective January 1,
1995. Pennzoil Company will receive quarterly payments from FRP over 20
years based on the prevailing price of sulphur. The installment payments
may be terminated earlier by FRP through the exercise of a $65 million
call option, or by Pennzoil Company through a $10 million put option.
Neither option may be exercised prior to 1999. The historical financial
statements of the acquired Pennzoil Sulphur assets adjusted to reflect
the pro forma impact of the acquisition by FRP follow:
Year Ended December 31, 1993
------------------------------------
Historical Adjustments Pro Forma
---------- ----------- ---------
(In Thousands)
Revenues $ 65,214 $ - $ 65,214
Production and delivery 73,184 533 a 73,717
Depreciation and amortization 7,904 (4,268)b 3,636
General and administrative 7,796 - 7,796
-------- ------ --------
Operating loss (23,670) 3,735 (19,935)
Other expense (1,288) - (1,288)
-------- ------ --------
Net loss $(24,958) $3,735 $(21,223)
======== ====== ========
Nine Months Ended September 30, 1994
------------------------------------
Historical Adjustments Pro Forma
---------- ----------- ---------
(In Thousands)
Revenues $ 39,867 $ - $ 39,867
Production and delivery 44,702 (105)a 44,597
Depreciation and amortization 3,467 (740)b 2,727
Loss on valuation of assets 50,200 (50,200)c -
General and administrative 4,668 - 4,668
-------- ------- --------
Operating loss (63,170) 51,045 (12,125)
Other income 1,114 - 1,114
-------- ------- --------
Net loss $(62,056) $51,045 $(11,011)
======== ======= ========
a. Represents the payments that would have been made to Pennzoil, based on
historical sulphur price levels, less the liability which would have
been recognized at the acquisition date.
b. Represents the adjustment to reflect depreciation and amortization
using FRP's purchase price.
c. Represents the elimination of the historical valuation expense. No
valuation expense would have been recorded using FRP's purchase price.
As of September 30, 1994
-------------------------------------
Historical Adjustments Pro Forma*
---------- ----------- ----------
(In Thousands)
Cash and short-term investments $ 1,994 $(1,994) $ -
Accounts receivable 7,614 (7,614) -
Inventories 20,456 (14,821) 5,635
Prepaid expenses and other 323 (323) -
------- ------- -------
Total current assets 30,387 (24,752) 5,635
Property, plant and equipment, net 19,892 39,646 59,538
------- ------- -------
Total assets $50,279 $14,894 $65,173
======= ======= =======
Accounts payable and accrued
liabilities $ 9,200 $ 8,200 $17,400
Reclamation and mine shutdown
reserves - 16,000 16,000
Other liabilities 3,919 27,854 31,773
Equity 37,160 (37,160) -
------- ------- -------
Total liabilities and equity $50,279 $14,894 $65,173
======= ======= =======
* Represents the allocation of the purchase price. "Other liabilities"
represents the net present value of the estimated future payments to
Pennzoil based on current sulphur prices.
2. Fertiberia Acquisition
FRP has agreed in principle to acquire Fertiberia, S.L., the restructured
nitrogen and phosphate fertilizer business of Ercros, S.A., a Spanish
conglomerate. Since September 1993, FRP has managed this company with
the goal of establishing Fertiberia as a financially viable concern. FRP
intends to continue to work with the Spanish authorities in improving the
operations of Fertiberia and eventually to acquire essentially all of the
company's capital stock, in return for agreeing to make a capital
contribution of $11.5 million upon closing and a further contingent
payment of $10 million in January 1998. As part of the agreement, $38.5
million of nonrecourse financing has been arranged at Fertiberia with
payment terms dependent upon its financial performance. The acquisition
of Fertiberia, one of the largest fertilizer manufacturers in Europe, is
conditioned upon satisfaction of a number of issues.
Under the current terms of the preliminary purchase agreement, FRP
would record a significant amount of negative goodwill (shown as "other
liabilities" in the Pro Forma Condensed Balance Sheet) associated with
the Fertiberia purchase. This negative goodwill is being amortized based
on Fertiberia's historical depreciable lives and results in a decrease to
depreciation and amortization expense.
