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, 1994
Commission File Number: 1-9164
Freeport-McMoRan Resource Partners, Limited Partnership
Organized in Delaware 72-1067072
(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 [ ]
FREEPORT-McMoRan RESOURCE PARTNERS, LIMITED PARTNERSHIP
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 6
Management's Discussion and Analysis
of Financial Condition and
Results of Operations 7
Part II. Other Information 11
Signature 12
FREEPORT-McMoRan RESOURCE PARTNERS, LIMITED PARTNERSHIP
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements.
FREEPORT-McMoRan RESOURCE PARTNERS, LIMITED PARTNERSHIP
CONDENSED BALANCE SHEETS (Unaudited)
June 30, December 31,
1994 1993
---------- ------------
(In Thousands)
ASSETS
Current assets:
Cash and short-term investments $ 9,089 $ 24,448
Accounts receivable 60,267 62,902
Inventories 119,087 133,405
Prepaid expenses and other 767 2,143
---------- ----------
Total current assets 189,210 222,898
Property, plant and equipment, net 931,558 970,960
Other assets 63,661 103,015
---------- ----------
Total assets $1,184,429 $1,296,873
========== ==========
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Accounts payable and accrued liabilities $ 77,205 $ 78,443
Current portion of long-term debt 498 465
---------- ----------
Total current liabilities 77,703 78,908
Long-term debt, less current portion 408,640 488,102
Reclamation and mine shutdown reserves 96,644 97,333
Accrued postretirement benefits and
other liabilities 141,864 140,126
Partners' capital 459,578 492,404
---------- ----------
Total liabilities and partners' capital $1,184,429 $1,296,873
========== ==========
The accompanying notes are an integral part of these financial statements.
FREEPORT-McMoRan RESOURCE PARTNERS, LIMITED PARTNERSHIP
STATEMENTS OF OPERATIONS (Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
-------------------- ----------------------
1994 1993 1994 1993
-------- -------- -------- ---------
(In Thousands, Except Per Unit Amounts)
Revenues $185,444 $201,684 $367,517 $ 364,107
Cost of sales:
Production and delivery 138,533 171,094 270,835 311,099
Depreciation and
amortization 9,475 33,811 24,986 54,197
-------- -------- -------- ---------
Total cost of sales 148,008 204,905 295,821 365,296
Exploration expenses - 958 - 1,662
Provision for
restructuring charges - 30,749 - 33,947
Loss on valuation and
sale of assets, net - 26,631 - 66,631
General and
administrative
expenses 11,948 23,747 23,218 41,404
-------- -------- -------- ---------
Total costs and
expenses 159,956 286,990 319,039 508,940
-------- -------- -------- ---------
Operating income (loss) 25,488 (85,306) 48,478 (144,833)
Interest expense, net (8,551) - (15,866) -
Other income, net 3,599 5,690 1,337 4,300
-------- -------- -------- ---------
Income (loss) before
changes in accounting
principle 20,536 (79,616) 33,949 (140,533)
Cumulative effect of
changes in accounting
principle - - - (23,700)
-------- -------- -------- ---------
Net income (loss) $ 20,536 $(79,616) $ 33,949 $(164,233)
======== ======== ======== =========
Net income (loss) per unit:
Before changes in
accounting principle $.20 $(.77) $.33 $(1.35)
Cumulative effect of
changes in
accounting principle - - - (.23)
---- ----- ---- ------
$.20 $(.77) $.33 $(1.58)
==== ===== ==== ======
Average units
outstanding 103,698 103,698 103,698 103,698
======= ======= ======= =======
Distributions per
publicly held unit $.60 $.60 $1.20 $1.20
==== ==== ===== =====
The accompanying notes are an integral part of these financial statements.
FREEPORT-McMoRan RESOURCE PARTNERS, LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOW (Unaudited)
Six Months Ended
June 30,
---------------------
1994 1993
-------- ---------
(In Thousands)
Cash flow from operating activities:
Net income (loss) $ 33,949 $(164,233)
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Cumulative effect of changes in
accounting principle - 23,700
Depreciation and amortization 24,986 54,197
Provision for restructuring charges, net of
payments - 28,371
Other noncash charges to earnings - 7,150
Loss on valuation and sale of assets, net - 66,631
Cash received from IMC-Agrico Company in
excess of capital interest 25,457 -
(Increase) decrease in working capital,
net of effect of acquisitions and dispositions:
Accounts receivable 2,807 6,114
Inventories 14,318 7,745
Prepaid expenses and other 1,278 606
Accounts payable and accrued liabilities 3,020 (10,009)
Reclamation and mine shutdown expenditures (7,385) (7,387)
Other 2,617 2,500
-------- ---------
Net cash provided by operating activities 101,047 15,385
-------- ---------
Cash flow from investing activities:
Capital expenditures:
Main Pass (1,845) (36,542)
Agricultural minerals (10,069) (10,152)
Proceeds from asset sales 44,735 23,000
Other 530 (354)
-------- ---------
Net cash provided by (used in) investing
activities 33,351 (24,048)
-------- ---------
Cash flow from financing activities:
Distributions to partners (66,775) (60,589)
Proceeds from 8 3/4% Senior Subordinated Notes 146,125 -
Proceeds from debt 29,503 216,722
Repayment of debt (258,610) (153,490)
-------- ---------
Net cash provided by (used in) financing
activities (149,757) 2,643
-------- ---------
Net decrease in cash and short-term investments (15,359) (6,020)
Cash and short-term investments at
beginning of year 24,448 7,099
-------- ---------
Cash and short-term investments at end of period $ 9,089 $ 1,079
======== =========
The accompanying notes are an integral part of these financial statements.
FREEPORT-McMoRan RESOURCE PARTNERS, LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
1. 8 3/4% SENIOR SUBORDINATED NOTE OFFERING
In February 1994, Freeport-McMoRan Resource Partners, Limited Partnership
(FRP) sold publicly $150 million of 8 3/4% Senior Subordinated Notes due 2004.
Net proceeds were used to reduce other indebtedness.
2. INTEREST COSTS
Interest expense excludes capitalized interest of $5.7 million and $11.1
million in the second quarter and first six months of 1993, respectively.
FRP has a 10.2 percent interest rate exchange agreement entered into in
1988 on $43.6 million of financing at June 30, 1994, reducing approximately $7
million annually through 1999. FRP entered into this interest rate exchange
agreement to manage exposure to interest rate changes on a portion of its
floating-rate bank debt. Under this interest swap, FRP received an average
interest rate of 3.6 percent and 3.5 percent during the first six months of
1994 and 1993, respectively, based on the London Interbank Offering Rate
(LIBOR), resulting in an additional interest cost of $.7 million and $.9
million in the second quarter of 1994 and 1993, respectively, and $1.5 million
and $1.8 million in the first six months of 1994 and 1993, respectively.
Based on market conditions at June 30, 1994, unwinding this interest swap
would require an estimated $3.9 million.
3. RATIO OF EARNINGS TO FIXED CHARGES
The ratio of earnings to fixed charges for the first six months of 1994 was
3.1 to 1 compared with a shortfall of $151.6 million for the 1993 period. For
this calculation, earnings are income from continuing operations before fixed
charges. Fixed charges are interest and that portion of rent deemed
representative of interest.
-------------------
Remarks
The information furnished herein should be read in conjunction with FRP's
financial statements contained in its 1993 Annual Report to unitholders and
incorporated by reference in its 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.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
RESULTS OF OPERATIONS
Second Quarter Six Months
------------------ ----------------
1994 1993 1994 1993
------ ------ ------ ------
(In Millions, Except Per Unit Amounts)
Revenues $185.4 $201.7 $367.5 $364.1
Operating income (loss) 25.5 (85.3)a 48.5 (144.8)a
Net income (loss) 20.5 (79.6)a 33.9 (164.2)a,b
Net income (loss) per unit .20 (.77)a .33 (1.58)a,b
a. Includes charges totaling $82.1 million ($.79 per unit) and $125.3
million ($1.21 per unit) for the second-quarter and six-month periods of
1993, respectively, for charges related to restructuring the
administrative organization at Freeport-McMoRan Inc. (FTX), the general
partner of Freeport-McMoRan Resource Partners, Limited Partnership (FRP),
asset recoverability charges, and other related charges.
b. Includes a $23.7 million charge ($.23 per unit) for the cumulative effect
of changes in accounting principle.
Results for the 1994 periods reflect improved phosphate fertilizer
prices, higher phosphate rock sales volumes, and reduced average unit
production costs, partially offset by lower phosphate fertilizer and oil
(during the second quarter) sales volumes and weaker oil prices. The
significant decrease in second-quarter 1994 depreciation and amortization
expense results from the combined effect of several unrelated items,
consisting of (1) $9.3 million representing the adjustment to FRP's earnings
from its disproportionate interest in current cash distributions from the IMC-
Agrico Company joint venture and amortization of the excess of FRP's
proportionate share of the recorded amount of the joint venture's net assets
over its book value, (2) $12.5 million attributable to 1993 reductions in the
carrying amount of assets, and (3) the remainder resulting from the change in
the assets owned by FRP as a result of entering into the joint venture and
other factors. General and administrative expenses were lower due to the
benefits from the July 1, 1993 formation of the IMC-Agrico Company joint
venture and other restructuring activities undertaken in 1993, with the 1993
periods including charges totaling $7.3 million resulting from the
restructuring project, while the six-month 1994 period benefited from a $2.2
million reduction in the estimated cost of excess office space (originally
estimated in the second quarter of 1993 as part of restructuring FTX's
administrative organization). Interest expense increased due to the Main Pass
sulphur project becoming operational for accounting purposes in July 1993;
previously, development related interest costs were capitalized.
Agricultural Minerals Operations - FRP's agricultural minerals segment, which
includes its fertilizer and phosphate rock operations (conducted through its
partnership interest in IMC-Agrico Company) and its sulphur business, reported
second-quarter 1994 operating income of $27.1 million on revenues of $176.5
million compared with a loss of $85.4 million on revenues of $186.8 million
for the 1993 period. Operating income for the first six months of 1994 was
$47.6 million on revenues of $349.0 million compared with a loss of $102.3
million on revenues of $342.5 million for the year-ago period. Significant
items impacting operating income are as follows (in millions):
Second Six
Quarter Months
------- -------
Agricultural minerals operating income - 1993 $(85.4) $(102.3)
Increases (decreases):
Sales volumes (30.7) (14.1)
Realizations 19.6 20.2
Other .8 .4
------ -------
Revenue variance (10.3) 6.5
Cost of sales 52.7 * 65.5 *
1993 provision for restructuring charges 30.7 33.9
1993 loss on valuation and sale of assets, net 26.6 26.6
General and administrative and other 12.8 * 17.4 *
------ -------
Agricultural minerals operating income - 1994 $ 27.1 $ 47.6
====== =======
* The second-quarter and six-month periods of 1993 included charges
totaling $17.5 million in cost of sales and $7.3 million in general and
administrative expenses resulting from the restructuring project.
FRP's proportionate share of the IMC-Agrico Company second-quarter 1994
sales volumes for diammonium phosphate (DAP), its principal fertilizer
product, decreased from FRP's high level of sales during the 1993 period.
Industrywide domestic sales activity was lower due to an early domestic
planting season. However, strong export purchases, especially by China,
continued during the current quarter and helped to keep DAP prices firm
despite a rise in producer inventories. Second-quarter 1994 phosphate
fertilizer prices continued to strengthen from the already improved first-
quarter 1994 levels. As a result, FRP's average DAP realizations for the 1994
periods were significantly improved from the near 20-year lows experienced
during the 1993 periods. Unit production costs reflected higher ammonia
prices, offset by production efficiencies from IMC-Agrico Company.
Strong export demand for phosphate fertilizer products for the remainder
of 1994 is expected to continue as key export customers, particularly China,
remain active in the marketplace. Business in other international markets
such as India, Pakistan, and Latin America is expected to sustain a tight
supply/demand balance. Normal summer plant maintenance turnarounds throughout
the industry should reduce industry operating rates during the third quarter.
Additionally, since late-1992, phosphate fertilizer exports from the former
Soviet Union have declined by nearly 40 percent and are not likely to rebound.
From an FRP standpoint, the completion of spring planting contributed to IMC-
Agrico Company idling its Taft, Louisiana fertilizer plant and accelerating
the plant maintenance turnarounds at three of its fertilizer facilities.
FRP's proportionate share of the larger IMC-Agrico Company phosphate rock
operation caused second-quarter and six-month 1994 sales volumes to increase
24 percent and 20 percent from the 1993 periods, respectively.
Sulphur production for the 1994 periods increased over the 1993 period
levels with Main Pass operations averaging nearly 6,200 tons per day during
the current quarter (exceeding full design operating rates of 5,500 tons per
day or approximately 2 million tons per year), helping to lower unit
production costs. Production is expected to be near the 6,000 tons per day
level for the immediate future. Further efforts to optimize earnings and cash
flow are being made, including a "water load" management program which should
further improve unit costs. Due to the increased production from Main Pass,
FRP ceased operating the marginally profitable Caminada mine in January 1994,
with no material impact on FRP's earnings. Sulphur realizations for the 1994
periods were significantly lower, reflecting the decline in prices which
occurred throughout 1993. Improved phosphate fertilizer operating rates,
coupled with reduced imports from Canada and Mexico and lower sulphur
recoveries from oil refineries, resulted in a $6 to $8 per ton improvement in
Tampa, Florida sulphur prices early in the third quarter of 1994; however,
Canadian producers continue to increase inventories and FRP does not
anticipate a major increase in sulphur prices for at least the near term.
Second Quarter Six Months
------------------- ---------------------
1994 1993 1994 1993
-------- -------- --------- ---------
Phosphate fertilizers (short tons)a
Diammonium phosphate
Sales:
Florida 277,900 494,500
Louisiana 184,700 456,400
Other 55,400 101,400
------- -------- --------- ---------
Total sales 518,000 844,000 1,052,300 1,339,300
Average realized price:b
Florida $145.10 $140.46
Louisiana 153.18 147.63
Monoammonium phosphate
Sales:
Granular 73,900 188,000 160,600 310,800
Powdered 40,400 - 83,200 -
Average realized price:b
Granular $160.55 $156.69
Powdered 127.08 123.73
Granular triple superphosphate
Sales 102,300 162,900 232,700 340,600
Average realized priceb $118.44 $111.49
Phosphate rock (short tons)a
Sales 1,004,100 807,600 2,010,600 1,682,200
Average realized priceb $23.24 $22.47
Sulphur (long tons)
Salesc 508,100 538,100 1,023,600 998,800
a. Certain information prior to the July 1, 1993 formation of IMC-Agrico
Company was not recorded on a basis consistent with that currently being
presented and therefore is not available. Reflects FRP's 46.5 percent
share of the assets of IMC-Agrico Company during the year ended June 30,
1994, while FRP received 58.6 percent of the cash flow generated during
such period. FRP's share of the assets of IMC-Agrico Company during the
year ended June 30, 1995 is 45.1 percent, while it will receive 55.0
percent of the cash flow generated during such period.
b. Represents average realization f.o.b. plant/mine.
c. Includes 187,700 tons, 413,200 tons, 374,800 tons, and 750,600 tons for
the second-quarter and six-month periods of 1994 and 1993, respectively,
which represent internal consumption and Main Pass start-up sales that
are not included in sales for accounting purposes.
Oil Operation -
Second Quarter Six Months
----------------- ----------------------
1994 1993 1994 1993
------- ------- --------- ---------
Sales (barrels) 611,900 925,700 1,435,100 1,359,200
Average realized price $14.52 $16.01 $12.88 $15.86
Operating income (in
millions) 1.0 .9 2.0 (.8)
Second-quarter 1994 oil production for the Main Pass joint venture (in
which FRP owns a 58.3 percent interest) was hampered by mechanical problems,
which have been corrected, at one of the two oil platforms and by the
anticipated increase in water encroachment into the producing oil wells. FRP
recently initiated the drilling of additional wells at an estimated cost to
FRP of approximately $4 million. As a result, FRP's 1994 net production is
currently expected to be slightly under 3 million barrels. Oil realizations
continue to reflect the significant price declines which occurred in late
1993; although prices have improved throughout 1994, and continued improving
into the third quarter of 1994.
CAPITAL RESOURCES AND LIQUIDITY
Net cash provided by operating activities during the first six months of 1994
was $101.0 million compared with $15.4 million for the 1993 period, primarily
due to increased income from operations. Net cash provided by investing
activities was $33.4 million compared with a use of $24.0 million for the 1993
period, reflecting the early receipt of proceeds from the geothermal notes
receivable (reflected in other assets) and lower capital expenditures. Net
cash used in financing activities was $149.8 million compared with $2.6
million provided during the 1993 period, with the 1994 period reflecting an
$83.0 million net reduction of borrowings whereas the 1993 period reflects a
$63.2 million net increase in borrowings. Included in the 1994 financing
activity was the issuance of $150 million of 8 3/4% Senior Subordinated Notes
due 2004 (Note 1). As a result of FRP receiving $44.1 million of the IMC-
Agrico Company second-quarter distribution before quarter end, cash balances
were able to be reduced contributing to the reduction in borrowings.
In late June 1994, a hole was found in the top of a phosphogypsum storage
area at the New Wales, Florida, facility of IMC-Agrico Company. IMC
Fertilizer, Inc., as operator of the joint venture, is assessing what actions
are necessary and appropriate in the circumstances. The joint venture accrued
as of June 30, 1994, estimated costs of $1.9 million to rectify the situation.
While there is no evidence that indicates the hole will result in significant
liability for the joint venture, the issue of possible underground water
contamination in areas away from the New Wales facility as a result of the
hole is being investigated by IMC-Agrico Company. If this were to be the
case, the costs that would be required are uncertain and cannot be estimated
at the present. If significant costs were incurred, which IMC-Agrico Company
considers unlikely, a determination would be necessary with respect to the
availability of insurance maintained by the joint venture and separately by
FRP and to the appropriate sharing of costs pursuant to the agreement between
the joint venture partners as it relates to environmental matters.
Publicly owned FRP units have cumulative rights to receive quarterly
distributions of 60 cents per unit through December 31, 1996 (the Preference
Period) before any distributions may be made to FTX. On July 19, 1994, FRP
declared a distribution of 60 cents per publicly held unit ($30.3 million),
payable August 15, 1994, bringing the total unpaid distribution to FTX to
$303.1 million. Unpaid distributions due FTX will be recoverable from part of
the excess of future quarterly FRP distributions over 60 cents per unit for
all units. The July 1994 distributable cash included $34.4 million from IMC-
Agrico Company. FRP will receive a total of $55.2 million of distributions
from IMC-Agrico Company, including $12.9 million from working capital
reductions and $7.9 million from the sale of an asset which will be used to
reduce FRP's long-term debt. FRP's future distributions will be dependent on
the distributions received from IMC-Agrico Company, which will primarily be
determined by prices and sales volumes of its commodities and cost reductions
achieved by its combined operations, and the future cash flow of FRP's sulphur
and oil operations. FRP believes that its short-term cash requirements will
be met from internally generated funds and borrowings under its existing
credit facility ($242.0 million available as of July 22, 1994).
In May 1994, FTX announced that it intends to pursue a plan to separate
its two principal businesses, metals and agricultural minerals, into two
independent financial and operating entities. To accomplish this plan, FTX
would make a pro rata distribution of its common stock ownership in Freeport-
McMoRan Copper & Gold Inc. (FCX) to the FTX shareholders. The proposed
distribution, which will require a series of steps to implement over the next
six to twelve months, is contingent on a number of factors. In connection
with this restructuring plan, the existing FTX revolving credit agreement in
which FRP participates will be replaced with a new facility of FRP and FTX,
eliminating any ties to FCX borrowings. The spinoff of FCX will provide
greater access to credit markets and reduce financing costs for both FRP and
FCX.
-------------------------------
The results of operations reported and summarized above are not necessarily
indicative of future operating results.
FREEPORT-McMoRan RESOURCE PARTNERS, LIMITED PARTNERSHIP
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
--------------------------------
(a) Not applicable
(b) No reports on Form 8-K were filed by the registrant during the
quarter for which this report is filed.
FREEPORT-McMoRan RESOURCE PARTNERS, LIMITED PARTNERSHIP
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 RESOURCE PARTNERS,
LIMITED PARTNERSHIP
(A Limited Partnership)
By: /s/ Nancy D. Bonner
------------------------
Nancy D. Bonner
Vice President and Controller
(Authorized signatory and
Principal Accounting Officer)
Date: August 5, 1994
