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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 March 31, 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
Northbrook, Illinois 60062
(Address of principal executive offices) (Zip Code)
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 or Partnership) 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 the
Partnership's Annual Report on Form 10-K for the year ended December
31, 1997, are unaudited but include all adjustments which the
Partnership's management considers necessary for a fair presentation.
These adjustments consist of normal recurring accruals except as
discussed in the Notes to Condensed Financial Statements. 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 EARNINGS
(In millions except per unit amounts)
<CAPTION>
Three months ended
March 31,
1998 1997
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<S> <C> <C>
Net sales $158.8 $211.8
Cost of goods sold 123.4 155.0
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Gross margins 35.4 56.8
Selling, general and administrative expense 8.2 12.5
Exploration expense 9.5 6.2
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Operating earnings 17.7 38.1
Interest expense 9.6 8.5
Other (income) and expense, net (0.7) 0.4
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Earnings $ 8.8 $ 29.2
====== ======
Earnings per unit $ .09 $ .28
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Average units outstanding 103.5 103.5
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Distributions paid per publicly held unit $ - $ .60
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(See Notes to Condensed Financial Statements on Page 4)
</TABLE>
<PAGE>
<TABLE>
CONDENSED BALANCE SHEET
(In millions)
<CAPTION>
March 31, December 31,
Assets 1998 1997
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<S> <C> <C>
Current assets:
Cash and cash equivalents $ 17.1 $ 17.4
Receivables, net 43.7 47.3
Inventories 126.1 126.0
Other current assets 1.6 2.4
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Total current assets 188.5 193.1
Property, plant and equipment, net 443.6 432.5
Other assets 43.5 39.9
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Total assets $675.6 $665.5
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Liabilities and Partners' Deficit
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Current liabilities:
Accounts payable and accrued liabilities $ 81.3 $ 94.7
Short-term debt and current maturities
of long-term debt 13.9 14.3
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Total current liabilities 95.2 109.0
Long-term debt, less current maturities 511.7 505.5
Other noncurrent liabilities 228.3 219.4
Partners' deficit (159.6) (168.4)
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Total liabilities and partners' deficit $675.6 $665.5
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(See Notes to Condensed Financial Statements on Page 4)
</TABLE>
<PAGE>
<TABLE>
CONDENSED STATEMENT OF CASH FLOWS
(In millions)
<CAPTION>
Three months ended
March 31,
1998 1997
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Cash Flows from Operating Activities
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<S> <C> <C>
Earnings $ 8.8 $ 29.2
Adjustments to reconcile earnings to net
cash provided by operating activities:
Depreciation, depletion and amortization 6.1 8.5
Oil and gas exploration expenses 7.2 6.2
Cash distributions from IMC-Agrico in
excess of interest in capital - 12.3
Reclamation and mine shutdown expenditures 1.5 (4.7)
Other charges and credits, net 0.1 (2.9)
Changes in:
Receivables 10.1 (2.8)
Inventories (0.1) (18.1)
Other current assets 0.8 1.3
Accounts payable and accrued liabilities (13.4) (10.3)
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Net cash provided by operating activities 21.1 18.7
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Cash Flows from Investing Activities
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Capital expenditures (27.5) (10.0)
Proceeds from sales of property, plant and
equipment 0.3 -
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Net cash used in investing activities (27.2) (10.0)
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Net cash provided (used) before financing
activities (6.1) 8.7
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Cash Flows from Financing Activities
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Cash distributions to partners - (43.0)
Payments of long-term debt - (44.8)
Proceeds of long-term debt 6.2 64.7
Change in short-term debt, net (0.4) -
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Net cash provided (used) in financing
activities 5.8 (23.1)
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Net change in cash and cash equivalents (0.3) (14.4)
Cash and cash equivalents - beginning of period 17.4 19.4
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Cash and cash equivalents - end of period $ 17.1 $ 5.0
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(See Notes to Condensed Financial Statements on Page 4)
</TABLE>
<PAGE>
NOTES TO CONDENSED FINANCIAL STATEMENTS
1. Oil and Gas Exploration Charges
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As part of the exploration program with McMoRan Oil & Gas (MOXY)
(MOXY Exploration Program), PLP incurred $9.5 million of exploration
expenses for the three months ended March 31, 1998. These expenses
were primarily related to the following: (i) dry hole costs which
largely resulted from unsuccessful drilling at West Cameron Block 157
exploratory well #1; 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,
resulting in a $6.2 million charge to exploration expense for the three
months ended March 31, 1997.
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 March 31, 1998 vs. three months ended March 31, 1997
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Overview
First quarter net sales of $158.8 million decreased approximately 25
percent from $211.8 million in the year-earlier period principally due
to the absence in this year's results of Phosphate Resource Partners
Limited Partnership's (PLP or Partnership) sulphur business and its
58.3 percent interest in Main Pass Block 299 sulphur and oil property,
which were transferred to Freeport-McMoRan Sulphur Inc. (FSC) as a
result of Freeport-McMoRan's (FTX) merger with IMC Global Inc. (IMC)
(FTX Merger) in December 1997.
PLP's gross margins of $35.4 million in the first quarter
represented a 38 percent decline versus $56.8 million in the first
quarter of 1997. The absence of sulphur operations discussed above as
well as a decline of approximately 17 percent in IMC-Agrico Company's
(IMC-Agrico) gross margins contributed to the decrease.
IMC-Agrico Company
IMC-Agrico's operations consist of its phosphate crop nutrients
business (Crop Nutrients) and its animal feed ingredients business
(Feed Ingredients).
The amounts included in the following Crop Nutrients and Feed
Ingredients discussions are shown in total for IMC-Agrico unless
otherwise indicated.
<PAGE>
Crop Nutrients
Crop Nutrients' net sales for the first quarter increased two
percent to $364.5 million compared to $355.7 million last year due to
higher sales volumes, which were partially offset by lower sales
realizations as compared to the same period one year ago. Overall
volumes of concentrated phosphates, primarily diammonium phosphate
(DAP) and granular monoammonium phosphate, increased by $28.6 million
from the prior year. The higher volumes resulted from strong winter
fill movements, an early start to the spring season and favorable
logistic conditions related to product movement. Lower average prices
of concentrated phosphates, driven by reduced international DAP
realizations, negatively impacted net sales $7.1 million. Furthermore,
urea sales decreased $7.1 million from the prior year primarily due to
a decrease in volumes sold to a large customer during the first quarter
of 1998 in comparison to the first quarter of 1997 coupled with
unfavorable pricing conditions primarily resulting from China's exit
from the market in mid-1997. In addition, rock sales declined $3.8
million, mainly due to Crop Nutrients' strategic decision to phase out
export sales of rock. This action is being taken to maximize relative
values of rock and concentrated phosphates by utilizing high-quality
reserves for internal upgrading.
Gross margins declined 11 percent to $71.3 million for the quarter
compared to $79.9 million last year, mainly due to higher production
costs, partially offset by the combination of the higher volumes and
lower prices discussed above. Production costs increased compared to
the prior year's first quarter due to higher rock costs, increased
operating expenses associated with record rainfall in Florida, and the
temporary shutdown of the Faustina, Louisiana, plant in January due to
utility power outages.
The following table summarizes Crop Nutrients' sales of products and
average selling price for the three months ended March 31:
<TABLE>
<CAPTION>
1998 1997
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<S> <C> <C>
Sales volumes (in thousands of short tons) (a): 1,758 1,610
Average DAP price per ton (b): $171 $178
</TABLE>
(a)Sales volumes include tons sold captively and represent dry product
tons, primarily DAP.
(b)Average prices represent sales made FOB mine/plant.
Feed Ingredients
Feed Ingredients' net sales decreased 12 percent to $40.2 million in
the current quarter from $45.4 million in the prior year first quarter,
mainly due to a decrease of approximately eight percent in sales
volumes, which unfavorably impacted net sales by $5.0 million. This
was primarily the result of decreased sales of $6.7 million to the
Asian market as a result of local economic conditions, partially offset
by an increase in sales to Latin America of $2.0 million. Sales prices
were relatively flat compared to the prior year.
<PAGE>
Gross margins decreased 47 percent to $7.5 million for the quarter
from $14.1 million one year ago, due to the lower volumes discussed
above and higher production costs which primarily resulted from a
change in the transfer price of phosphoric acid from cost plus 15
percent to an adjusted market price.
Oil and Gas Operations
PLP expanded its oil and gas activities through its participation in
a multi-year, aggregate $210.0 million McMoRan Oil & Gas Exploration
Program (MOXY Exploration Program). Exploration expenses increased
from $6.2 million to $9.5 million for the three months ended March 31,
1997, and March 31, 1998, respectively. The $9.5 million was primarily
comprised of the following: (i) dry hole costs which largely resulted
from unsuccessful drilling at West Cameron Block 157 exploratory well
#1; and (ii) geological and geophysical expenses.
Selling, General and Administrative Expenses
Selling, general and administrative expenses decreased $4.3
million, or 34 percent, to $8.2 million for the first quarter compared
to $12.5 million one year ago. The decrease was primarily due to the
absence of certain general and administrative expenses which are either
now funded by a separate entity or eliminated as a result of the FTX
Merger. These eliminated expenses included the following: (i) $2.1
million of general and administrative expenses resulting from sulphur
operations which were transferred to FSC; (ii) $2.4 million of expenses
previously allocated by FTX, which were eliminated as a result of the
FTX Merger.
Interest Expense
Interest expense totaled $9.6 million in the current quarter, up
$1.1 million or 13 percent from the same period last year when interest
expense totaled $8.5 million. The increase in interest expense was due
to higher average borrowings for the first quarter 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
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Liquidity and Operating Cash Flow
Cash and cash equivalents as of March 31, 1998 were $17.1 million as
compared to $17.4 million at December 31, 1997. The Partnership
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 $21.1
million for the three months ended March 31, 1998 versus $18.7 million
for the same period a year ago. The increase was due to the following:
(i) decrease in the cash used in working capital of $27.3 million
created by the lack of an inventory build up by IMC-Agrico in the
current quarter as compared to the same period one year ago combined
with the settlement of a receivable to the Partnership from IMC-Agrico,
partially offset by the absence of sulphur inventory in the current
quarter as a result of the FTX Merger; partially offset by (ii) a
decrease in earnings of $20.4 million; and (iii) other net decreases of
$4.5 million.
<PAGE>
Net cash used in investing activities for the three months ended
March 31, 1998 and 1997, consisting primarily of capital expenditures,
increased to $27.2 million in the current quarter from $10.0 million in
the same period one year ago. See "Capital Expenditures," below for
further detail.
Net cash provided by financing activities for the three-month period
was $5.8 million compared to net cash used by financing activities of
$23.1 million for the same period in the prior year. The increase in
cash provided from financing activities of $28.9 million was primarily
due to the absence of distributions to partners of $43.0 million,
partially offset by a decrease in net debt proceeds of $14.1 million.
The absence of distributions to partners was primarily the result of
increased MOXY Exploration Program funding requirements. Although
average debt balances were higher during the first quarter of 1998 as
compared to the same period one year ago, net debt proceeds were higher
in the first quarter of 1997. This occurred as a result of a higher
debt balance at the end of 1997 as compared to 1996.
Capital Expenditures
Capital expenditures increased $17.5 million from the prior year due
to the following: (i) an increase in oil and gas expenditures of $13.9
million related to the MOXY Exploration Program which was entered into
by PLP and McMoRan Oil & Gas (MOXY) in March 1997 and subsequently
modified in December 1997; and (ii) an increase in PLP's share of
IMC-Agrico capital expenditures of $3.6 million. Capital expenditures
related to the MOXY Exploration Program totaled $19.2 million for the
first quarter and included: (a) $12.7 million of exploration costs
which were capitalized and will remain so until a determination of the
viability of each well is made; and (b) development costs for West
Cameron 616 #5 well of $6.5 million.
Financing
In April 1998, PLP declared no cash distribution would be payable
for the 1998 first quarter. PLP's distributable cash is shared ratably
by PLP's public unitholders and its administrative managing general
partner, except that the administrative managing general partner will
be entitled to receive unpaid cash distributions from previous quarters
($431.3 million unpaid at March 31, 1998) from one-half of the
quarterly distributable cash after the payment of 60 cents per unit to
all PLP unitholders.
PLP's future distributions will depend on the distributions received
from IMC-Agrico; the cash requirements of its oil and gas exploration
activities, net of any cash flows from production or sale of discovered
reserves; and the level and methods of financing its capital
expenditure needs, including reclamation and growth projects. PLP's
share of IMC-Agrico cash distributions totaled $22.9 million for the
first quarter which reflected the reduction in PLP's share of cash
distributions from IMC-Agrico effective July 1, 1997 and, thereafter,
from 54.4 percent to 41.5 percent. Future distributions from
IMC-Agrico will depend primarily on concentrated phosphate market
conditions.
<PAGE>
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 March 31, 1998,
the Partnership's exposure to these market risk factors had not
materially changed from December 31, 1997.
Part II. OTHER INFORMATION
Item 1. Legal Proceedings. (1)
Merger Litigation
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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.
Other
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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.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
Exhibit
No. Description
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------------------------------------------------
27 Financial Data Schedule
<PAGE>
(b) Reports on Form 8-K.
Up to the date of this report, the following reports on Form
8-K were filed:
An amended report under Item 1 dated February 5, 1998.
* * * * * * * * * * * * * * * *
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.
IMC GLOBAL INC.
/s/ Anne M. Scavone
------------------------------------
Anne M. Scavone
Vice President and Controller
(on behalf of the Registrant and as
Chief Accounting Officer)
Date: May 14, 1998
- -----------------------------
(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: the effect of general business and
economic conditions; conditions in and policies of the agriculture
industry; risks associated with investments and operations in foreign
jurisdictions and any future international expansion, including those
related to economic, political and regulatory policies of local
governments and laws or policies of the United States; changes in
governmental laws and regulations affecting environmental compliance;
taxes and other matters impacting the Partnership; the risks attendant
with mining operations; the potential impacts of increased competition
in the markets the Partnership operates within; risks attendant with
supply of and demand for oil and gas; the Partnership's ability to
integrate certain acquired businesses and realize certain expected
acquisition-related synergies; and the risk factors reported from time
to time in the reports filed by the Partnership with the Securities and
Exchange Commission.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 800
<SECURITIES> 16,300
<RECEIVABLES> 45,000
<ALLOWANCES> 1,300
<INVENTORY> 126,100
<CURRENT-ASSETS> 1,600
<PP&E> 1,044,000
<DEPRECIATION> 600,400
<TOTAL-ASSETS> 675,600
<CURRENT-LIABILITIES> 95,200
<BONDS> 511,700
<COMMON> 0
0
0
<OTHER-SE> (159,600)
<TOTAL-LIABILITY-AND-EQUITY> 675,600
<SALES> 158,800
<TOTAL-REVENUES> 158,800
<CGS> 123,400
<TOTAL-COSTS> 123,400
<OTHER-EXPENSES> 17,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9,600
<INCOME-PRETAX> 8,800
<INCOME-TAX> 0
<INCOME-CONTINUING> 8,800
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,800
<EPS-PRIMARY> .09
<EPS-DILUTED> .09
</TABLE>
