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 September 30, 1995
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 Income 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
Exhibit Index E-1
FREEPORT-McMoRan RESOURCE PARTNERS, LIMITED PARTNERSHIP
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements.
---------------------
FREEPORT-McMoRan RESOURCE PARTNERS, LIMITED PARTNERSHIP
CONDENSED BALANCE SHEETS (Unaudited)
September 30, December 31,
1995 1994
------------ ------------
(In Thousands)
ASSETS
Current assets:
Cash and short-term investments $ 23,855 $ 9,859
Accounts receivable 63,989 58,265
Inventories 106,699 109,677
Prepaid expenses and other 5,154 1,350
---------- ----------
Total current assets 199,697 179,151
Property, plant and equipment, net 924,527 910,469
Other assets 56,660 57,311
---------- ----------
Total assets $1,180,884 $1,146,931
========== ==========
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable and accrued liabilities $ 117,032 $ 84,888
Long-term debt, less current portion 346,915 368,637
Reclamation and mine shutdown reserves 116,716 96,445
Accrued postretirement benefits and other
liabilities 194,653 149,301
Partners' capital 405,568 447,660
---------- ----------
Total liabilities and partners' capital $1,180,884 $1,146,931
========== ==========
The accompanying notes are an integral part of these financial statements.
FREEPORT-McMoRan RESOURCE PARTNERS, LIMITED PARTNERSHIP
STATEMENTS OF INCOME (Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
------------------- ------------------
1995 1994 1995 1994
-------- -------- -------- --------
(In Thousands, Except Per Unit Amounts)
Revenues $242,908 $188,479 $730,376 $555,996
Cost of sales:
Production and delivery 170,766 136,387 509,134 403,487
Depreciation and amortization 10,831 8,990 31,445 33,976
-------- -------- -------- --------
Total cost of sales 181,597 145,377 540,579 437,463
General and administrative
expenses 26,226 11,030 51,441 34,248
-------- -------- -------- --------
Total costs and expenses 207,823 156,407 592,020 471,711
-------- -------- -------- --------
Operating income 35,085 32,072 138,356 84,285
Interest expense, net (7,884) (8,243) (23,461) (24,109)
Other income, net (366) (568) (802) (2,966)
-------- -------- -------- --------
Net income $ 26,835 $ 23,261 $114,093 $ 57,210
======== ======== ======== ========
Net income per unit $.26 $.22 $1.10 $.55
==== ==== ===== ====
Average units outstanding 103,466 103,698 103,495 103,698
======= ======= ======= =======
Distributions paid per
publicly held unit $.60 $.60 $1.815 $1.80
==== ==== ====== =====
The accompanying notes are an integral part of these financial statements.
FREEPORT-McMoRan RESOURCE PARTNERS, LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOW (Unaudited)
Nine Months Ended
September 30,
------------------
1995 1994
-------- --------
(In Thousands)
Cash flow from operating activities:
Net income $114,093 $ 57,210
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 31,445 33,976
Cash distribution from IMC-Agrico in
excess of interest in capital 31,751 33,801
Reclamation and mine shutdown expenditures (9,215) (6,968)
(Increase) decrease in working capital, net of
effects of acquisition:
Accounts receivable (6,347) (1,318)
Inventories 5,617 17,663
Prepaid expenses and other (3,875) (10)
Accounts payable and accrued liabilities 39,393 13,358
Other 11,394 7,778
-------- --------
Net cash provided by operating activities 214,256 155,490
-------- --------
Cash flow from investing activities:
Capital expenditures (21,410) (21,775)
Sale of assets and other (1,423) 45,305
-------- --------
Net cash provided by (used in) investing
activities (22,833) 23,530
-------- --------
Cash flow from financing activities:
Distributions to partners (154,124) (97,072)
Repayments of debt, net (21,242) (241,284)
Purchase of Partnership units (2,061) -
Proceeds from 8 3/4% Senior subordinated notes - 146,125
-------- --------
Net cash used in financing activities (177,427) (192,231)
-------- --------
Net increase (decrease) in cash and short-term
investments 13,996 (13,211)
Cash and short-term investments at
beginning of year 9,859 24,448
-------- --------
Cash and short-term investments at end of period $ 23,855 $ 11,237
======== ========
The accompanying notes are an integral part of these financial statements.
FREEPORT-McMoRan RESOURCE PARTNERS, LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
1. ACQUISITION
In January 1995, Freeport-McMoRan Resource Partners, Limited Partnership
(FRP) acquired essentially all of the domestic assets of Pennzoil Co.'s
sulphur division. Pennzoil 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 through a $10 million put option.
Neither option may be exercised prior to 1999. The purchase price
allocation follows (in thousands):
Current assets $ 5,635
Current liabilities (14,065)
Property, plant and equipment 60,159
Accrued long-term liabilities (51,729)
-------
Net cash investment $ -
=======
Accrued long-term liabilities include the estimated future installment
payments based on the prevailing sulphur price upon acquisition and
estimated future reclamation and mine shutdown costs.
2. CREDIT FACILITY
In July 1995, Freeport-McMoRan Inc. (FTX) obtained a new credit facility.
The facility provides $400 million of credit, all of which is available to
FRP and $75 million of which is available to FTX as the holding company.
The new variable rate facility matures July 2000 and has covenants and
security requirements similar to the previous credit agreement.
3. RATIO OF EARNINGS TO FIXED CHARGES
The ratio of earnings to fixed charges for the first nine months of 1995
and 1994 was 5.3 to 1 and 3.3 to 1, respectively. For this calculation,
earnings are income from continuing operations before fixed charges. Fixed
charges include 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 1994 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
Freeport-McMoRan Resource Partners, Limited Partnership (FRP) continues to
benefit from the significant strengthening in the phosphate fertilizer
markets which began in mid-1993 and has continued during 1995, resulting in
improved operating results at its agricultural minerals segment.
Third Quarter Nine Months
----------------- -----------------
1995 1994 1995 1994
------ ------ ------ ------
(In Millions, Except Per Unit Amounts)
Revenues $242.9 $188.5 $730.4 $556.0
Operating income 35.1* 32.1 138.4* 84.3
Net income 26.8* 23.3 114.1* 57.2
Net income per unit .26* .22 1.10* .55
* General and administrative expenses include a $12.3 million noncash
charge ($0.12 per unit) for stock option costs resulting from the rise in
the price of Freeport-McMoRan Inc. (FTX) common stock during the third
quarter.
Agricultural Minerals Operations - FRP's agricultural minerals segment,
which includes its fertilizer and phosphate rock operations (conducted
through IMC-Agrico) and its sulphur business, reported third-quarter 1995
operating income of $40.9 million on revenues of $234.7 million compared
with operating income of $33.4 million on revenues of $182.2 million for
the 1994 period. Operating income for the first nine months of 1995 was
$145.1 million on revenues of $703.6 million compared with operating income
of $84.8 million on revenues of $531.2 million for the year-ago period.
Significant items impacting operating income follow (in millions):
Third Nine
Quarter Months
------- ------
Agricultural minerals operating income - 1994 $33.4 $84.8
----- ------
Increases (decreases):
Sales volumes 17.4 70.4
Realizations 31.7 99.8
Other 3.4 2.2
----- ------
Revenue variance 52.5 172.4
Cost of sales (35.0)a (102.7)a
General and administrative and other (10.0)b (9.4)b
----- ------
7.5 60.3
----- ------
Agricultural minerals operating income - 1995 $40.9 $145.1
===== ======
a. Includes a reduction to depreciation and amortization of $6 million and
$7.7 million for the third quarter of 1995 and 1994, respectively, and
$22.1 million and $14.9 million for the nine-month period of 1995 and 1994,
respectively, caused by FRP's disproportionate interest in IMC-Agrico cash
distributions.
b. Includes $8.5 million of the stock option charge discussed earlier.
FRP's third-quarter 1995 phosphate fertilizer sales volumes were
higher than those of the year-ago quarter, with IMC-Agrico experiencing
continued excellent export demand and strengthening domestic sales for
diammonium phosphate (DAP), its principal fertilizer product. These
increased exports coupled with the seasonal rebound in fall domestic
movement caused IMC-Agrico to restart its Taft fertilizer facility in
August 1995. Despite current industrywide capacity utilization approaching
100 percent, domestic phosphate fertilizer producer inventories have
recently declined. This tight supply/demand situation is reflected in the
improved phosphate fertilizer realizations. FRP's average DAP realization
increased 15 percent from the year-ago period (up 3 percent from the
previous quarter). FRP's 1995 DAP realizations include large forward sales
to China at below current market prices, contracted during mid-1995 and
late-1994 at then market terms. Unit production costs benefited from
ongoing cost savings achieved at IMC-Agrico, somewhat offset by higher raw
material costs for ammonia.
Fertilizer prices continue to rise into the fourth quarter and are
expected to remain firm for the near term, as the tight supply/demand
situation benefits producers at a time when no operable idle capacity
exists and several turnarounds are planned, including IMC-Agrico
facilities. Furthermore, strong domestic demand is expected to continue
into the spring of 1996 due to an expectation of a 13 percent increase in
planted corn acreage. Domestic corn and wheat ending stocks are currently
forecast to be at their lowest level in 20 years further strengthening
grain prices and the outlook for next spring's fertilizer use. FRP's
export sales through year-end 1995 will continue to come principally from
the agreement that was reached with China. IMC-Agrico is committed to
maintaining a reasonable balance between supply and demand and will adjust
production levels in response to market conditions.
FRP's third-quarter 1995 phosphate rock sales volumes were essentially
unchanged from the year-ago quarter. Ongoing phosphate rock sales volumes
will be negatively impacted by the expiration of a contract providing
annual sales of 1.5 million tons net to FRP. However, because of the low
margin associated with these sales, the impact to FRP's earnings is not
significant.
FRP's Main Pass and Culberson sulphur mines continued to perform well
during the quarter compared with the 1994 period when FRP had only the Main
Pass mine in operation. The 1995 quarter was hampered by the precautionary
shutting-in of Main Pass production because of a hurricane in the Gulf of
Mexico. FRP's increased production capacity, combined with continued
strong demand from the domestic phosphate fertilizer industry, resulted in
a 33 percent increase in sales volumes. FRP also benefited from the
continued strengthening in Tampa, Florida sulphur prices. To the extent
U.S. phosphate fertilizer production remains strong, improved sulphur
demand is expected to continue, although the availability of Canadian
sulphur limits the potential for significant price increases.
Third Quarter Nine Months
-------------------- -------------------
1995 1994 1995 1994
--------- ---------- --------- ---------
Phosphate fertilizers - primarily DAP
Sales (short tons) a 891,600 840,100 2,551,900 2,368,900
Average realized price b
All phosphate
fertilizers $167.96 $145.93 $165.17 $141.65
DAP 173.50 151.25 170.69 146.65
Phosphate rock
Sales (short tons) a 1,051,500 1,062,500 3,611,700 3,073,100
Average realized price b $21.53 $19.91 $21.94 $21.59
Sulphur
Sales (long tons) c 751,300 562,900 2,284,600 1,586,500
a. Reflects FRP's 45.1 percent and 46.5 percent share of the IMC-Agrico
assets for the years ended June 30, 1995 and 1994, respectively, while FRP
received 55 percent and 58.6 percent of the cash flow generated during such
periods. FRP's share of the IMC-Agrico assets for the year ended June 30,
1996 is 43.6 percent, while it will receive 53.1 percent of the cash flow.
b. Represents average realization f.o.b. plant/mine.
c. Includes internal consumption totaling 187,100 tons and 189,700 tons
for the third quarter of 1995 and 1994, respectively, and 555,700 tons and
564,500 tons for the nine-month period of 1995 and 1994, respectively.
Oil Operation -
Third Quarter Nine Months
------------------- ----------------------
1995 1994 1995 1994
------- ------- --------- ---------
Sales (barrels) 524,600 417,900 1,686,400 1,853,000
Average realized price $15.58 $14.94 $15.86 $13.34
Operating income (in millions) $(1.0) $.2 $1.5 $2.2
Main Pass oil operating income was impacted by $1.4 million of the
previously discussed stock option charge. Third-quarter 1995 oil
production reflects the hurricane-related shut in and certain workover
activities. Net production for 1995 is estimated to total approximately
2.3 million barrels.
CAPITAL RESOURCES AND LIQUIDITY
Net cash provided by operating activities during the first nine months of
1995 increased to $214.3 million, compared with $155.5 million in the 1994
period, caused primarily by the improvement in FRP's earnings. Net cash
used in investing activities was $22.8 million in 1995, consisting of
capital expenditures, compared with $23.5 million generated during the 1994
period as a result of asset sales. Total capital expenditures for 1995 are
expected to approximate $40 million. Net cash used in financing activities
during the 1995 period totaled $177.4 million, compared with $192.2 million
in the 1994 period. In early 1994, FRP issued $150 million of 8 3/4%
Senior Subordinated Notes, using the proceeds to reduce other indebtedness.
On October 17, 1995, IMC-Agrico acquired the animal feed ingredients
business of Mallinckrodt Group Inc. for $110 million cash. Mallinckrodt's
animal feed ingredients business is one of the world's largest producers of
phosphate-based animal feed ingredients with an annual capacity in excess
of 700,000 tons. This business is IMC-Agrico's largest phosphoric acid
customer, consuming nearly 300,000 tons per year or about seven percent of
IMC-Agrico's phosphoric acid capacity. This acquisition provides high
quality diversification and growth for IMC-Agrico and enhances the joint
venture's flexibility in maximizing returns from its core phosphate
production.
Publicly owned FRP units have cumulative rights to receive quarterly
distributions of 60 cents per unit through the distribution for the quarter
ending December 31, 1996 (the Preference Period) before any distributions
may be made to FTX. On October 20, 1995, FRP declared a distribution of 60
cents per publicly held unit ($30.2 million) and 34 cents per FTX-owned
unit ($18.3 million), payable November 15, 1995, bringing the total unpaid
distribution due FTX to $382.4 million. Unpaid distributions due FTX will
be recoverable from one-half of the excess of future quarterly FRP
distributions over 60 cents per unit for all units. The October 1995
distributable cash included $49.2 million from IMC-Agrico. FRP's future
distributions will be dependent on the distributions received from IMC-
Agrico and future cash flow from FRP's sulphur and oil operations.
In July 1995, FTX completed a plan to separate its two principal
businesses, copper/gold and agricultural minerals, into two independent
financial and operating entities. In connection with this restructuring
plan, the existing FTX revolving credit agreement in which FRP participated
was replaced with a new facility for FRP and FTX which will provide greater
access to credit markets and reduce financing costs (Note 2). FRP believes
that its short-term cash requirements will be met from internally generated
funds and borrowings under this new credit facility ($227 million available
as of October 20, 1995).
-------------------------------
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) The exhibits to this report are listed in the Exhibit Index
appearing on page E-1 hereof.
(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: October 25, 1995
FREEPORT-McMoRan RESOURCE PARTNERS, LIMITED PARTNERSHIP
EXHIBIT INDEX
-------------
Sequentially
Numbered
Number Description Page
- ------ ----------- ------------
4.1 Credit Agreement dated as of June 30, 1995,
among Freeport-McMoRan Resource Partners,
Limited Partnership, Freeport-McMoRan Inc.
("FTX"), the several financial institutions
that are parties thereto, Chemical Bank, as
agent, and The Chase Manhattan Bank (National
Association), as documentary agent.
Incorporated by reference to Exhibit 4.1 to the
Quarterly Report on Form 10-Q of FTX for the
quarter ended September 30, 1995.
27.1 Financial Data Schedule
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<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1995
<CASH> 23,855
<SECURITIES> 0
<RECEIVABLES> 47,236
<ALLOWANCES> 0
<INVENTORY> 106,699
<CURRENT-ASSETS> 199,697
<PP&E> 1,788,112
<DEPRECIATION> 863,585
<TOTAL-ASSETS> 1,180,884
<CURRENT-LIABILITIES> 117,032
<BONDS> 346,915
<COMMON> 405,568
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 1,180,884
<SALES> 730,376
<TOTAL-REVENUES> 730,376
<CGS> 540,579
<TOTAL-COSTS> 540,579
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 23,461
<INCOME-PRETAX> 114,093
<INCOME-TAX> 0
<INCOME-CONTINUING> 114,093
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 114,093
<EPS-PRIMARY> 1.10
<EPS-DILUTED> 0
</TABLE>
