<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
Commission file number 1-9164
Phosphate Resource Partners Limited Partnership
(Exact name of Registrant as specified in its charter)
Delaware 72-1067072
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2100 Sanders Road 60062
Northbrook, Illinois (Zip Code)
(Address or principal executive offices)
Registrant's telephone number, including area code: (847) 272-9200
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 .
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<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
The accompanying interim condensed financial statements of Phosphate
Resource Partners Limited Partnership (PLP) do not include all
disclosures normally provided in annual financial statements. These
financial statements, which should be read in conjunction with the
financial statements contained in PLP's Annual Report on Form 10-K
for the year ended December 31, 1997, are unaudited but include all
adjustments which PLP's management considers necessary for a fair
presentation. These adjustments consist of normal recurring
accruals. Certain 1997 amounts have been reclassified to conform to
the 1998 presentation. Interim results are not necessarily
indicative of the results expected for the full year.
<TABLE>
CONDENSED STATEMENT OF OPERATIONS
(In millions except per unit amounts)
<CAPTION>
Three months ended Nine months ended
September 30, September, 30
1998 1997 1998 1997
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $ 156.4 $ 196.2 $ 511.2 $ 636.8
Cost of goods sold 114.3 531.0 380.3 862.4
------- ------- ------- -------
Gross margins 42.1 (334.8) 130.9 (225.6)
Selling, general and
administrative expenses 4.5 13.7 20.4 39.0
Exploration expense 0.7 9.1 19.6 15.3
------- ------- ------- -------
Operating earnings (loss) 36.9 (357.6) 90.9 (279.9)
Interest expense 10.1 9.2 29.7 26.2
Other (income) expense, net (0.5) (0.2) (1.8) 0.7
------- ------- ------- -------
Earnings (loss) $ 27.3 $(366.6) $ 63.0 $(306.8)
======= ======= ======= =======
Earnings (loss) per unit $0.26 $(3.54) $ 0.61 $(2.96)
Average units outstanding 103.5 103.5 103.5 103.5
Distributions paid per publicly
held unit $0.13 $0.33 $0.13 $1.24
(See Notes to Condensed Financial Statements on Page 5)
</TABLE>
<PAGE>
<TABLE>
CONDENSED BALANCE SHEET
(In millions)
<CAPTION>
September 30, December 31,
Assets 1998 1997
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<S> <C> <C>
Current assets:
Cash and cash equivalents $ 11.7 $ 17.4
Receivables, net 55.0 47.3
Inventories 132.8 126.0
Other current assets 0.2 2.4
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Total current assets 199.7 193.1
Property, plant and equipment, net 483.6 432.5
Other assets 41.7 39.9
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Total assets $725.0 $665.5
====== ======
Liabilities and Partners' Deficit
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Current liabilities:
Accounts payable and accrued liabilities $ 49.4 $ 94.7
Short-term debt and current maturities of
long-term debt 4.4 14.3
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Total current liabilities 53.8 109.0
Long-term debt, less current maturities 556.5 505.5
Other noncurrent liabilities 233.6 219.4
Partners' deficit (118.9) (168.4)
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Total liabilities and partners' deficit $725.0 $665.5
====== ======
(See Notes to Condensed Financial Statements on Page 5)
</TABLE
<PAGE>
</TABLE>
<TABLE>
CONDENSED STATEMENT OF CASH FLOWS
(In millions)
<CAPTION>
Nine months ended
September 30,
1998 1997
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Cash Flows from Operating Activities
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<S> <C> <C>
Earnings (loss) $ 63.0 $(306.8)
Adjustments to reconcile earnings (loss) to net cash
provided by operating activities:
Sulphur asset impairment charge - 384.5
Depreciation, depletion and amortization 18.9 27.9
Oil and gas exploration expenses 14.4 15.3
Cash distributions from IMC-Agrico in excess
of interest in capital - 34.7
Other charges and credits, net 7.6 (14.3)
Changes in:
Receivables (7.7) 2.0
Inventories (6.8) (30.1)
Other current assets 2.2 (0.4)
Accounts payable and accrued liabilities (39.6) (2.0)
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Net cash provided by operating activities 52.0 110.8
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Cash Flows from Investing Activities
- ------------------------------------
Capital expenditures (63.4) (51.7)
Assets held for sale - (45.3)
Proceeds from sales of property, plant and equipment 1.9 -
------ ------
Net cash used in investing activities (61.5) (97.0)
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Net cash provided (used) before financing
activities (9.5) 13.8
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Cash Flows from Financing Activities
- ------------------------------------
Cash distributions to unitholders (13.5) (109.2)
Payments of long-term debt (19.9) (115.1)
Proceeds from issuance of long-term debt 51.0 196.8
Change in short-term debt, net (13.8) -
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Net cash provided by (used in) financing
activities 3.8 (27.5)
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Net change in cash and cash equivalents (5.7) (13.7)
Cash and cash equivalents - beginning of period 17.4 19.4
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Cash and cash equivalents - end of period $ 11.7 $ 5.7
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(See Notes to Condensed Financial Statements on Page 5)
</TABLE>
<PAGE>
NOTES TO CONDENSED FINANCIAL STATEMENTS
1. Oil and Gas Exploration Charges
- -------------------------------
As part of the exploration program with McMoRan Oil & Gas Company (MOXY),
PLP incurred $0.7 million and $19.6 million of exploration expenses for the
three and nine months ended September 30, 1998, respectively. These
expenses were primarily related to the following: (i) dry hole costs which
largely resulted from unsuccessful drilling at West Cameron 157,
Atchafalaya Bay and Grand Isle 54; and (ii) geological and geophysical
expenses.
In 1997, PLP participated in a joint venture with Phillips Petroleum
Company and MOXY in a North Bay Junop prospect (North Bay Junop Joint
Venture). In April 1997, the North Bay Junop Joint Venture completed
drilling of the second of two high-risk, high-potential prospects which
have been drilled within the North Bay Junop Joint Venture's project area
in south Louisiana. The well reached total depth but did not encounter
commercial hydrocarbons in the primary objective zones, however it was
completed in a shallower zone, resulting in a $6.2 million charge to
exploration expense for the nine months ended September 30, 1997. In
addition, exploratory wells drilled at the Eugene Island Block 19,
Vermilion Block 159 and Grand Isle Block 65 prospects did not discover
commercial hydrocarbons, resulting in an additional $9.1 million of expense
in 1997.
2. Impairment Assessment of Sulphur Assets
- ---------------------------------------
As a result of a review of its sulphur assets at September 30, 1997, PLP
concluded that the carrying value of its sulphur assets, primarily the Main
Pass Block 299 businesses, exceeded the undiscounted estimated future net
cash flows, and, therefore, an impairment write-down of $384.5 million was
recorded. Fair values were determined using discounted estimated future
cash flows related to these assets. This write-down is reflected in the
accompanying financial statements as additional depreciation and
amortization charges.
3. Restructuring Charge
- --------------------
IMC Global Inc. (IMC), the administrative managing general partner of PLP,
recently announced the consolidation of its phosphate and potash businesses
into a new operating entity, IMC Crop Nutrients. Concurrent with forming
IMC Crop Nutrients, IMC is undertaking an extensive program of performance
improvement in the phosphate business, targeting productivity increases,
operating cost reductions and major asset restructuring. IMC is in the
process of evaluating the accounting impact of the foregoing restructuring
activities and currently expects to record a charge to earnings (Charge)
related to such restructuring activities, in an as yet undetermined amount,
in the fourth quarter of 1998. This Charge will be reflected in PLP's
results of operations commensurate with PLP's ownership interest in IMC-
Agrico Company.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.(1)
Results of Operations
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Three months ended September 30, 1998 vs. three months ended
September 30, 1997
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Overview
Phosphate Resource Partners Limited Partnership, formerly
Freeport-McMoRan Resource Partners, Limited Partnership (PLP), is a
joint venture partner in IMC-Agrico Company (IMC-Agrico).
IMC-Agrico's business includes the mining and sale of phosphate rock
and the producing, marketing and distributing of phosphate crop
nutrients and animal feed ingredients.
IMC-Agrico was formed as a joint venture partnership in July 1993
when PLP and IMC Global Inc. (IMC) contributed their respective
phosphate crop nutrients businesses to IMC-Agrico. PLP's business
operations now consist of: (i) its joint venture interest in
IMC-Agrico; (ii) its interest in the oil and gas exploration program
with McMoRan Oil & Gas Company (MOXY); and (iii) certain other oil
and gas operations.
PLP's third quarter net sales of $156.4 million decreased 20 percent
from $196.2 million in the year-earlier period principally due to the
absence in this quarter's results of PLP's sulphur business and its
58.3 percent interest in the Main Pass Block 299 businesses (Main
Pass), both of which were transferred to Freeport-McMoRan Sulphur
Inc. (FSC) as a result of Freeport-McMoRan Inc.'s (FTX) merger with
IMC (FTX Merger) in December 1997.
PLP's gross margins of $42.1 million in the third quarter decreased
from gross margins of $49.7 million in the third quarter of 1997,
excluding a one-time $384.5 million impairment charge related to
sulphur assets recorded in the third quarter of 1997. See Note 2,
"Impairment Assessment of Sulphur Assets," of Notes to Condensed
Financial Statements. This decrease was primarily the result of the
absence in this year's results of PLP's sulphur business and its 58.3
percent interest in Main Pass, partially offset by a 15 percent
increase in IMC-Agrico's gross margins. See "IMC-Agrico Company"
below for further detail.
IMC-Agrico Company
IMC-Agrico's operations consist of its phosphate crop nutrients
business (Phosphates) and its animal feed ingredients business (Feed
Ingredients).
The amounts included in the following Phosphates and Feed Ingredients
discussions are shown in total for IMC-Agrico, unless otherwise
indicated.
Phosphates
Phosphates' net sales for the third quarter remained relatively
unchanged as they decreased $1.6 million from $354.3 million in 1997
to $352.7 million in 1998, primarily as a result of lower
concentrates sales volumes, partially offset by higher average sales
realizations of concentrates and higher sales volumes of phosphate
rock. Sales volumes of concentrated phosphates, primarily granular
triple superphosphate (GTSP) and diammonium phosphate (DAP) declined
$22.8 million. The decreased shipments were mainly attributable to
aggressive pricing from competitors and lower shipments to Brazil and
China due to severe weather and weakened economic conditions. Higher
concentrate sales prices of $8.7 million were mainly caused by higher
DAP realizations, while the increase in phosphate rock volumes of
$11.0 million primarily resulted from additional sales to a large
contract customer.
Gross margins increased 11 percent to $86.4 million in the third
quarter compared to $77.9 million in the third quarter of 1997,
mainly due to lower production costs and the higher prices discussed
above, partially offset by the lower volumes discussed above.
Production costs decreased compared to the prior year's third quarter
primarily as a result of lower raw material costs for purchased
ammonia and sulphur.
The following table summarizes Phosphates' sales of products and
average selling prices for the three months ended September 30th:
1998 1997
---- ----
Sales volumes (in thousands of short tons)(a): 1,575 1,753
Average DAP price per ton(b): $182 $175
(a) Sales volumes include tons sold captively and represent dry
product tons, primarily DAP.
(b) Average prices represent sales made FOB plant.
Feed Ingredients
Feed Ingredients' net sales increased 12 percent to $41.8 million in
the current quarter from $37.4 million in the prior year quarter,
mainly as a result of an increase of $3.9 million in sales volumes,
primarily in the Latin American market.
Gross margins increased 11 percent to $8.0 million in the third
quarter from $7.2 million in the third quarter of 1997. This
increase resulted from lower production costs primarily attributable
to lower raw material costs and higher production volumes as
discussed above.
Oil and Gas Operations
PLP participates in a multi-year, aggregate $210.0 million McMoRan
Oil & Gas Exploration Program (MOXY Exploration Program). The
exploration expenses of $0.7 million for the three months ended
September 30, 1998 related primarily to the MOXY Exploration Program
and were largely comprised of geological and geophysical expenses.
The relatively low amount of exploration expenses recorded in the
current quarter resulted from PLP reaching its investment requirement
in the MOXY Exploration Program for the current year.
Selling, General and Administrative Expenses
Selling, general and administrative expenses decreased $9.2 million,
or 67 percent, to $4.5 million in the third quarter as compared to
$13.7 million in the third quarter of 1997. The decrease was
primarily due to the absence of certain general and administrative
expenses as a result of the FTX Merger. These eliminated expenses
included the following: (i) $2.4 million of general and
administrative expenses resulting from sulphur operations which were
transferred to FSC; and (ii) $5.5 million of expenses previously
allocated by FTX to PLP, which were eliminated as a result of the FTX
Merger.
Interest Expense
Interest expense totaled $10.1 million in the third quarter, an
increase of $0.9 million or ten percent from the same period last
year when interest expense totaled $9.2 million. The increase in
interest expense was due to higher average borrowings in 1998 as
compared to the prior year primarily as a result of additional
borrowings used to fund oil and gas expenditures related to the MOXY
Exploration Program.
<PAGE>
Nine months ended September 30, 1998 vs. nine months ended September
30, 1997
- ---------------------------------------------------------------------
Overview
Net sales for the nine months ended September 30, 1998 of $511.2
million decreased 20 percent from $636.8 million in the same period
one year ago primarily resulting from the absence in this year's
results of PLP's sulphur business, including its interest in Main
Pass, both of which were transferred to FSC as a result of the FTX
Merger.
PLP's gross margins of $130.9 million for the first nine months of
1998 decreased $28.0 million from $158.9 million in the first nine
months of 1997, excluding a one-time $384.5 million impairment charge
related to sulphur assets recorded in the third quarter of 1997. See
Note 2, "Impairment Assessment of Sulphur Assets," of Notes to
Condensed Financial Statements. The decrease primarily resulted from
the absence in this years' results of PLP's sulphur business,
including its 58.3 percent interest in Main Pass, partially offset by
an increase of eight percent in IMC-Agrico's gross margins.
Phosphates
Phosphates' net sales for the first nine months of 1998 improved five
percent to $1,173.8 million compared to $1,114.3 million for the same
period last year primarily due to increased concentrate sales volumes
and higher average sales realizations. Sales volumes of concentrated
phosphates, primarily domestic shipments of DAP and domestic and
international shipments of granular monoammonium phosphate, increased
by $41.6 million from the same prior year period. These favorable
volume variances reflected the following factors: (i) a strong spring
season; (ii) an increase in the number of supply contracts over the
prior period; (iii) an active summer fill program; and (iv)
significant spot sales to co-ops. Average sales realizations for the
first nine months of 1998 increased $12.2 million as compared to the
prior year period primarily as a result of higher international GTSP
realizations and an increase in the transfer price of phosphoric acid
sold to Feed Ingredients. See "Feed Ingredients" discussion below.
Gross margins increased 13 percent to $273.7 million for the first
nine months of 1998 compared to $242.5 million for the first nine
months of 1997, mainly due to lower production costs and the higher
volumes and prices discussed above. Production costs decreased
compared to the prior year's first nine months primarily as a result
of lower raw material costs for purchased ammonia and sulphur,
partially offset by increased costs for phosphate rock operations.
The following table summarizes Phosphates' sales of products and
average selling prices for the nine months ended September 30th:
1998 1997
---- ----
Sales volumes (in thousands of short tons)(a): 5,494 5,321
Average DAP price per ton(b): $177 $177
(a) Sales volumes include tons sold captively and represent dry
product tons, primarily DAP.
(b) Average prices represent sales made FOB plant.
Feed Ingredients
Net sales decreased one percent to $120.0 million for the first nine
months of 1998 from $121.4 million in the first nine months of the
prior year, mainly the result of a decrease of $1.3 million in sales
prices. This decrease was primarily attributable to weakened global
economies.
<PAGE>
Gross margins decreased 34 percent to $21.7 million for the first
nine months of 1998 from $33.0 million for the first nine months of
1997. This was mainly due to the lower prices discussed above coupled
with higher production costs, which primarily resulted from a change
in the transfer price of phosphoric acid from Phosphates to Feed
Ingredients.
Oil and Gas Operations
Exploration expenses were $19.6 million for the nine months ended
September 30, 1998 as compared to $15.3 million for the nine months
ended September 30, 1997. Current year exploration expenses were
primarily the result of the MOXY Exploration Program and were mainly
comprised of the following: (i) dry hole costs which largely resulted
from unsuccessful drilling at West Cameron 157, Atchafalaya Bay and
Grand Isle 54; and (ii) geological and geophysical expenses.
Selling, General and Administrative Expenses
Selling, general and administrative expenses decreased $18.6 million,
or 48 percent, to $20.4 million for the first nine months of 1998 as
compared to $39.0 million for the same period one year ago. The
decrease was primarily due to the absence of certain general and
administrative expenses as a result of the FTX Merger. These
eliminated expenses included the following: (i) $6.8 million of
general and administrative expenses resulting from sulphur operations
which were transferred to FSC; and (ii) $14.8 million of expenses
previously allocated by FTX, which were eliminated as a result of the
FTX Merger.
Interest Expense
Interest expense totaled $29.7 million for the first nine months of
1998, up $3.5 million or 13 percent from the same period last year
when interest expense totaled $26.2 million. The increase in
interest expense was due to higher average borrowings for the first
nine months in 1998 as compared to the same period of the prior year
primarily as a result of additional borrowings used to fund oil and
gas expenditures related to the MOXY Exploration Program.
Capital Resources and Liquidity
- -------------------------------
Liquidity and Operating Cash Flow
Cash and cash equivalents as of September 30, 1998 were $11.7 million
as compared to $17.4 million at December 31, 1997. PLP generates
cash through its joint venture operations in IMC-Agrico and has
borrowing capacity to meet its operating and discretionary spending
requirements. Net cash provided by operating activities totaled
$52.0 million for the nine months ended September 30, 1998 versus
$110.8 million for the same period one year ago. The decrease in net
cash provided by operating activities of $58.8 million was mainly the
result of: (i) a decrease in earnings of $14.7 million, excluding the
one-time impairment charge related to sulphur assets of $384.5
million; (ii) a decrease in cash distributions from IMC-Agrico in
excess of interest in capital of $34.7 million primarily as a result
of PLP's capital and cash ownership interests in IMC-Agrico becoming
equal on July 1, 1997; and (iii) other net cash decreases of $9.4
million.
Net cash used in investing activities for the first nine months of
1998, which consisted primarily of capital expenditures, decreased to
$61.5 million from $97.0 million in the same period one year ago.
The decrease was mainly attributable to the absence of acquisitions
of assets held for sale in the current year as compared with $45.3
million in the prior year. The prior year balance related to assets
purchased by PLP to be sold to MOXY upon MOXY's completion of its
public rights offering. Partially offsetting this decrease was an
increase in capital expenditures of $11.7 million. See "Capital
Expenditures" below for further detail.
<PAGE>
Net cash provided by financing activities for the nine month period
was $3.8 million for the current year compared to net cash used in
financing activities of $27.5 million for the same period in the
prior year. The increase in cash provided by financing activities of
$31.3 million was primarily due to a decrease in distributions to
unitholders of $95.7 million during the first nine months of the
current year which was the result of increased MOXY Exploration
Program funding requirements. This was partially offset by a
decrease in net debt proceeds of $64.4 million. The higher net debt
proceeds in the prior year were primarily attributable to the
additional capital requirements for the MOXY Exploration Program and
the MOXY rights offering.
Capital Expenditures
Capital expenditures increased $11.7 million from the prior year
primarily due to an increase in oil and gas expenditures of $12.3
million related to the MOXY Exploration Program which was entered
into by PLP and MOXY in March 1997 and subsequently modified in
December 1997. Capital expenditures related to the MOXY Exploration
Program totaled $40.1 million for the first nine months of 1998 and
primarily included: (i) $27.3 million of exploration costs which were
capitalized and will remain so until a determination of the viability
of each well is made; and (ii) well development costs of $12.8
million.
Distributions
In October 1998, PLP declared a distribution of $0.09 per unit
payable on November 13, 1998 to unitholders of record as of November
6, 1998. PLP's distributable cash is shared ratably by PLP's public
unitholders and its administrative managing general partner, IMC,
except that IMC will be entitled to receive payment for cash
distributions not paid in prior quarters ($431.3 million unpaid at
September 30, 1998) from one-half of the quarterly distributable cash
after the payment of $0.60 per unit in any quarter to all PLP
unitholders.
PLP's future distributions will primarily depend on the following
factors: (i) distributions received from IMC-Agrico; (ii) the cash
requirements of its oil and gas exploration activities, net of any
cash flows from production or sale of discovered reserves; (iii) the
level and methods of financing its capital expenditure needs; and
(iv) costs related to reclamation and growth projects. PLP's share
of IMC-Agrico cash distributions totaled $99.0 million for the first
nine months of 1998 which reflected the reduction in PLP's share of
cash distributions from IMC-Agrico effective July 1, 1997 from 54.4
percent to 41.5 percent. Future distributions from IMC-Agrico will
depend primarily on concentrated phosphate market conditions.
Restructuring Charge
- --------------------
IMC, the administrative managing general partner of PLP, recently
announced the consolidation of its phosphate and potash businesses
into a new operating entity, IMC Crop Nutrients. Concurrent with
forming IMC Crop Nutrients, IMC is undertaking an extensive program
of performance improvement in the phosphate business, targeting
productivity increases, operating cost reductions and major asset
restructuring. IMC is in the process of evaluating the accounting
impact of the foregoing restructuring activities and currently
expects to record a charge to earnings (Charge) related to such
restructuring activities, in an as yet undetermined amount, in the
fourth quarter of 1998. This Charge will be reflected in PLP's
results of operations commensurate with PLP's ownership interest in
IMC-Agrico Company.
<PAGE>
Year 2000 Compliance
- --------------------
All references herein to PLP refer to PLP's business activities as
executed through its ownership interest in IMC-Agrico, its interest
in the MOXY Exploration Program and certain other oil and gas
operations. Like other businesses dependent on modern technology,
PLP must address potential Year 2000-related issues. PLP is
progressing through a comprehensive program (Year 2000 Program) to
evaluate and address the impact of Year 2000-related issues on its
operational systems, business application software, computer
hardware, facilities infrastructure and equipment with embedded
technology and Year 2000-related risks associated with its vendors
and customers.
PLP's Year 2000-related effort is a cooperative venture coordinated
among all of the business units of IMC and appropriate members of
IMC's senior management. Progress reviews are held periodically with
senior management and the Board of Directors of IMC. IMC has also
created the position of Year 2000 Risk Manager to provide leadership,
oversight and coordination of its Year 2000 project.
State of Readiness
PLP is using both internal and external resources to implement its
Year 2000 Program, which includes the following overlapping phases:
system inventory and analysis; remediation, testing and
implementation; and vendor and customer review . PLP expects that
its Year 2000 Program will be substantially complete by the end of
the third quarter of 1999.
System Inventory and Analysis Phase
- -----------------------------------
The system inventory and analysis phase consists of compiling a
detailed inventory of all of PLP's systems and platforms to determine
which items are date sensitive, affected by the Year 2000, and,
therefore, require remediation. PLP has focused specifically on the
following seven target areas: business application software,
mainframe hardware and software, network servers, desktop
environment, network and telephone systems, non-information
technology assets and facilities, and major suppliers and service
providers. This analysis has involved both an internal assessment
conducted by PLP engineers, technicians, and managers, as well as
contact with the manufacturers of computer systems and equipment used
by PLP in its operations. PLP has substantially completed its system
inventory and analysis phase. The principal business application
systems requiring remediation that were identified by PLP during this
stage include the following systems: equipment maintenance, spare
parts inventory, purchasing, mine simulation, payroll/human resource
and financial/accounting. In addition, certain PLP plants have
identified production control systems that will require Year 2000-
related remediation in order to remain operative.
Remediation, Testing and Implementation Phase
- ---------------------------------------------
The remediation, testing and implementation phase involves
determining and implementing a remediation method (upgrade, replace
or discontinue) that is most appropriate for each specific date
sensitive item. The remediated item is then tested and returned to
normal operations when Year 2000-related issues have been addressed.
Testing includes functional testing of remedial measures and
regression testing to validate that changes have not altered existing
functionality. System manufacturers have provided testing procedures
for their equipment and have been available for consultations about
Year 2000-related testing.
<PAGE>
As a separate initiative, IMC is implementing its Global Vision
Project, an enterprise-wide resource planning (ERP) software package.
Its scope includes accounts payable, inventory, purchasing, general
ledger, payroll, human resources, and plant maintenance. This new
ERP software and the improvements to the infrastructure hardware
required to support the Global Vision Project should further
remediate issues associated with the Year 2000.
Vendor and Customer Review
- --------------------------
Vendor reviews consist of assessing vendor readiness and, if
necessary, identifying alternate channels to receive critical
materials and/or supplies. PLP has developed a questionnaire that
has been submitted to its primary suppliers and vendors to determine
their Year 2000-related status. PLP currently is analyzing the
information provided in these responses, and will determine the best
way to address any specific issues. As an additional precaution,
PLP's purchase orders now contain a Year 2000-related clause to help
ensure that any newly purchased equipment adequately addresses Year
2000-related issues.
Although PLP is attempting to monitor and validate the efforts of
other parties, it may not have control over the success of these
efforts. If satisfactory commitments from key suppliers are not
received, PLP is forming plans for the continuing availability of
critical materials and supplies through alternate channels. In
general, however, PLP is satisfied with the progress made by critical
vendors to date and no critical issues have been identified.
In addition to investigating its key suppliers, PLP will be
contacting key customers to explain its Year 2000-related efforts and
to solicit certain information about each customer's Year 2000-
related efforts to assess potential Year 2000-related problems that
could affect future orders from such customers.
MOXY Review
- -----------
PLP will be assessing Year 2000-related issues with respect to the
MOXY Exploration Program. PLP is monitoring the public disclosures
of MOXY with respect to its progress toward remediation of its Year
2000-related issues and, as appropriate, has discussions with MOXY
personnel regarding MOXY's Year 2000-related issues.
Costs
PLP does not currently expect that the costs of addressing its Year
2000-related issues will have a material effect on its financial
position, results of operations or liquidity. Costs related to Year
2000-related issues are expensed as incurred and are funded through
operating cash flows. PLP estimates its total Year 2000-related
technology and non-information technology systems remediation costs
to be approximately $1.7 million, of which $0.6 million will be
expended in 1998. The remaining costs will be incurred during 1999.
A sizable portion of these costs represents the redeployment of
existing employee resources rather than incremental expenses.
Risks
Progress reports on PLP's Year 2000 Program are presented regularly
to IMC's Board of Directors and senior management. As the program
continues, PLP may discover additional Year 2000-related challenges,
including that remediation plans are not feasible or that the cost of
such plans exceed current expectations. In many cases, PLP is
relying on written assurances from vendors that the current systems
are able to, or that new or upgraded systems acquired by PLP will,
adequately address Year 2000-related issues. PLP believes that one
of its principal Year 2000-related risks is the effect Year 2000-
related issues will have on its vendors, especially its utilities
vendors. A substantial part of PLP's day-to-day operations is
dependent on power, transportation systems and telecommunication
services, as to which alternative sources of service may not be
available. PLP will continue to investigate the readiness of its
suppliers, including utilities, and pursue the availability of
alternatives to further diminish the extent of any impact Year 2000-
related issues may have on PLP. Although there can be no assurance
that PLP will be able to complete all of the modifications in the
required time frame or that no unanticipated events will occur, it is
management's belief that PLP is taking adequate action to address
Year 2000-related issues. However, because of the range of possible
issues and the large number of variables involved, it is impossible
to quantify the potential cost of problems should PLP's remediation
efforts or the efforts of those it does business with not be
successful. If either PLP or its vendors fail to adequately address
Year 2000-related issues, PLP may suffer business interruptions. If
such interruptions cause PLP to be unable to fulfill its obligations
to third parties, PLP may potentially be exposed to third party
liability.
Contingency Planning
At the present time, PLP has plans to develop contingency measures to
address the possibility that it will not have fully addressed Year
2000-related issues by December 31, 1999. PLP's Year 2000-related
strategy is currently emphasizing remediation, testing, and
implementation activities. PLP will initiate contingency planning in
early 1999.
Item 3. Market Risk.
PLP is exposed to the impact of interest rate changes and the impact
of fluctuations in the purchase price of natural gas consumed in
operations, as well as changes in the fair value of its financial
instruments. PLP periodically enters into derivatives in order to
minimize these risks, but not for trading purposes. At September 30,
1998, PLP's exposure to these market risk factors was not significant
and had not materially changed from December 31, 1997.
Part II. OTHER INFORMATION
Item 1. Legal Proceedings.(1)
Merger Litigation
- -----------------
In August 1997, five identical class action lawsuits were filed in
Chancery Court in Delaware by unitholders of PLP. Each case named
the same defendants and broadly alleged that FTX and FMRP Inc. (FMRP)
had breached fiduciary duties owed to the public unitholders of PLP.
IMC was alleged to have aided and abetted these breaches of fiduciary
duty.
In November 1997, an amended class action complaint was filed with
respect to all cases. The amended complaint named the same
defendants and raised the same broad allegations of breaches of
fiduciary duty against FTX and FMRP for allegedly favoring the
interests of FTX and FTX's common stockholders in connection with the
FTX Merger. The plaintiffs claimed specifically that, by virtue of
the FTX Merger, the public unitholders' interests in PLP's ownership
of IMC-Agrico would become even more subject to the dominant interest
of IMC. The amended complaint seeks certification as a class action
and an injunction against the proposed FTX Merger or, in the
alternative, rescissionary damages. The defendants' time to answer
or otherwise plead to the amended complaint has been extended.
<PAGE>
In May 1998, IMC and PLP (collectively, Plaintiffs) filed a lawsuit
(IMC Action) in Delaware Chancery Court against certain former
directors of FTX (the Director Defendants) and MOXY. IMC alleges
that the Director Defendants, as the directors of PLP's
administrative managing general partner, FTX, owed duties of loyalty
to PLP and its limited partnership unitholders. IMC further alleges
that the Director Defendants breached their duties by causing PLP to
enter into a series of interrelated non-arm's-length transactions
with MOXY, an affiliate of FTX. IMC also alleges that MOXY knowingly
aided and abetted and conspired with the Director Defendants to
breach their fiduciary duties. On behalf of the PLP public
unitholders, IMC seeks to reform or rescind the contracts that PLP
entered into with MOXY and to recoup the monies lost as a result of
PLP's participation in those agreements. The Director Defendants and
MOXY have filed motions to dismiss Plaintiffs' claims. IMC intends
to pursue this action vigorously.
Subsequently, in May 1998, Jacob Gottlieb filed an action (Gottlieb
Action) on behalf of himself and all other PLP unitholders against
the Director Defendants, MOXY, and IMC asserting the same claims that
IMC asserts in the IMC Action. Because IMC and PLP had already
asserted these claims, IMC has filed a motion to dismiss the Gottlieb
Action. The court has not set a briefing schedule for IMC's motion
to dismiss. IMC intends to defend this action vigorously.
Other
- -----
PLP is involved from time to time in various legal proceedings of a
character normally incident to its businesses. PLP believes that its
potential liability in any such pending or threatened proceedings
will not have a material adverse effect on the financial condition or
results of operations of PLP. PLP, through IMC and IMC-Agrico,
maintains liability insurance to cover some, but not all, potential
liabilities normally incident to the ordinary course of its
businesses with such coverage limits as management deems prudent.
<PAGE>
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
Exhibit No. Description
- --------------------------------------------------------------------------
27 Financial Data Schedule
(b) Reports on Form 8-K.
Up to the date of this report, no reports on Form
8-K were filed.
* * * * * * * * * * * * * * * *
SIGNATURES
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.
PHOSPHATE RESOURCE PARTNERS
LIMITED PARTNERSHIP
By: IMC GLOBAL INC.,
Its Administrative Managing
General Partner
By: /s/ Anne M Scavone
------------------------------
Anne M. Scavone
Vice President and Controller
(on behalf of the Registrant
and as Chief Accounting
Officer)
Date: November 13, 1998
<PAGE>
- --------------------------------
(1) Except for statements of historical fact contained herein, the statements
appearing under Part I, Item 2, "Management's Discussion and Analysis of
Financial Condition and Results of Operations," and Part II, Item 1,
"Legal Proceedings," presented herein constitute "forward-looking
statements" within the meaning of the Private Securities Litigation
Reform Act of 1995.
Factors that could cause actual results to differ materially from those
expressed or implied by the forward-looking statements include, but are
not limited to, the following: general business and economic conditions
in localities where the Company operates; the impact of competitive
products; pressure on prices realized by the Company for its products;
constraints on supplies of raw materials used in manufacturing certain of
the Company's products; capacity constraints limiting the production of
certain products; difficulties or delays in the development, production,
testing and marketing of products; difficulties or delays in receiving
required governmental and regulatory approvals; market acceptance issues,
including the failure of products to generate anticipated sales levels;
difficulties in integrating acquired businesses and in realizing related
cost savings and other benefits; the effects of and change in trade,
monetary and fiscal policies, laws and regulations; foreign exchange
rates and fluctuations in those rates; the costs and effects of legal,
including environmental, and administrative proceedings involving the
Company, the completion of the Company's Year 2000 plan, and the other
risk factors reported from time to time in the Company's SEC reports.
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