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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 quarterly period ended September 30, 1999
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 Identification No.)
incorporation or organization)
2100 Sanders Road
Northbrook, Illinois 60062
(Address of principal executive (Zip Code)
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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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, 1998, are unaudited but include all adjustments which the
management of IMC Global Inc. (IMC), the managing general
partner of PLP, considers necessary for a fair presentation.
These adjustments consist of normal recurring accruals.
Certain 1998 amounts have been reclassified to conform to the
1999 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)
(Unaudited)
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
1999 1998 1999 1998
- - --------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $ 138.1 $ 156.4 $ 479.7 $ 511.2
Cost of goods sold 115.3 114.3 370.7 380.3
------- ------- ------- -------
Gross margins 22.8 42.1 109.0 130.9
Selling, general and
administrative expenses 6.8 4.5 21.0 20.4
Exploration expenses 0.8 0.6 4.2 19.5
------- ------- ------- -------
Operating earnings 15.2 37.0 83.8 91.0
Interest expense 10.0 10.1 29.7 29.7
Other (income) expense, net 0.7 (0.4) (2.0) (1.7)
------- ------- ------- -------
Earnings before cumulative effect
of a change in accounting
principle 4.5 27.3 56.1 63.0
Cumulative effect of a change in
accounting principle - - (2.6) -
------- ------- ------- -------
Earnings $ 4.5 $ 27.3 $ 53.5 $ 63.0
======= ======= ======= =======
Earnings per unit:
Earnings before cumulative effect
of a change in accounting
principle $ 0.04 $ 0.26 $ 0.54 $ 0.61
Cumulative effect of a change in
accounting principle - - (0.02) -
-------- ------- ------- -------
Earnings per unit $ 0.04 $ 0.26 $ 0.52 $ 0.61
Average units outstanding 103.5 103.5 103.5 103.5
Distributions paid per publicly
held unit $ 0.30 $ 0.13 $ 0.43 $ 0.13
(See Notes to Condensed Financial Statements)
</TABLE>
<TABLE>
CONDENSED BALANCE SHEET
(In millions)
<CAPTION>
(Unaudited)
September 30, December 31,
Assets 1999 1998
- - ------------------------------------------------------------------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 3.0 $ 10.8
Receivables, net 54.8 65.0
Inventories, net 101.7 122.2
Other current assets 0.3 0.9
------- -------
Total current assets 159.8 198.9
Property, plant and equipment, net 497.8 477.5
Other assets 23.0 43.4
------- -------
Total assets $ 680.6 $ 719.8
======= =======
Liabilities and Partners' Deficit
- - ------------------------------------------------------------------------
Current liabilities:
Accounts payable and
accrued liabilities $ 52.4 $ 59.5
Short-term debt and current maturities
of long-term debt 4.3 4.4
------- -------
Total current liabilities 56.7 63.9
Long-term debt, less current maturities 541.6 556.9
Other noncurrent liabilities 232.3 258.0
Partners' deficit (150.0) (159.0)
------- -------
Total liabilities and partners' deficit $ 680.6 $ 719.8
======= =======
(See Notes to Condensed Financial Statements)
</TABLE>
<TABLE>
CONDENSED STATEMENT OF CASH FLOWS
(In millions)
(Unaudited)
<CAPTION>
Nine months ended
September 30,
1999 1998
- - ------------------------------------------------------------------------
<S> <C> <C>
Cash Flows from Operating Activities
Earnings $ 53.5 $ 63.0
Adjustments to reconcile earnings to net cash
provided by operating activities:
Depreciation, depletion and amortization 19.8 18.9
Oil and gas exploration expenses - 14.4
Other charges and credits, net (20.6) 7.6
Changes in:
Receivables 10.2 (7.7)
Inventories 20.5 (6.8)
Other current assets 0.6 2.2
Accounts payable and accrued liabilities (6.3) (39.6)
------ ------
Net cash provided by operating activities 77.7 52.0
------ ------
Cash Flows from Investing Activities
Capital expenditures (41.8) (63.4)
Proceeds from sale of investment 12.8 -
Proceeds from sales of property, plant and
equipment 4.8 1.9
------ ------
Net cash used in investing activities (24.2) (61.5)
------ ------
Net cash provided (used) before financing
activities 53.5 (9.5)
------ ------
Cash Flows from Financing Activities
Cash distributions to unitholders (44.5) (13.5)
Payments of long-term debt (17.2) (19.9)
Proceeds from issuance of long-term debt 0.4 51.0
Change in short-term debt, net - (13.8)
------ ------
Net cash (used in) provided by financing
activities (61.3) 3.8
------ ------
Net change in cash and cash equivalents (7.8) (5.7)
Cash and cash equivalents - beginning of period 10.8 17.4
----- ------
Cash and cash equivalents - end of period $ 3.0 $ 11.7
===== ======
(See Notes to Condensed Financial Statements)
</TABLE>
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Dollars in millions)
1. Sale of Investment
------------------
During the second quarter of 1999, PLP sold its entire investment in
McMoRan Exploration Co. (MMR) stock. In connection with the sale,
PLP received proceeds of $12.8 million and recorded a loss of $0.7
million.
2. Cumulative Effect of a Change in Accounting Principle
-----------------------------------------------------
In April 1998, the American Institute of Certified Public
Accountants issued Statement of Position (SOP) 98-5, "Reporting on
the Costs of Start-Up Activities," which requires that costs related
to start-up activities be expensed as incurred, effective January 1,
1999. Prior to 1999, PLP capitalized its start-up activity costs.
PLP adopted the provisions of SOP 98-5 in its financial statements
for the year beginning January 1, 1999. The effect of the adoption
of SOP 98-5 was to record a charge during the first quarter for the
cumulative effect of a change in accounting principle of $2.6
million to expense start-up costs that had been capitalized prior to
1999. The future impact of SOP 98-5 is not expected to be material
to the Company's operating results.
3. Operating Segments
------------------
<TABLE>
Segment information for 1999 and 1998 was as follows:
<CAPTION>
IMC IMC Feed
Phosphates Ingredients Oil & Gas Other(a) Total
---------- ----------- --------- -------- -----
<S> <C> <C> <C> <C> <C>
Three months ended September 30, 1999
Net sales $ 117.2 $ 17.6 $ 3.3 $ - $ 138.1
Intersegment net
sales 7.8 - - - 7.8
Gross margins 16.4 4.4 (0.9) 2.9 22.8
Exploration
expenses - - 0.8 - 0.8
Operating
earnings 12.7 3.8 (1.7) 0.4 15.2
Nine months ended September 30, 1999
Net sales $ 418.2 $ 53.0 $ 8.5 $ - $ 479.7
Intersegment net
sales 24.9 - - - 24.9
Gross margins 85.3 12.1 2.9 8.7 109.0
Exploration
expenses - - 4.2 - 4.2
Operating
earnings 74.2 10.3 (1.3) 0.6 83.8
Three months ended September 30, 1998
Net sales $ 139.0 $ 17.3 $ 0.1 $ - $ 156.4
Intersegment net
sales 8.5 - - - 8.5
Gross margins 35.9 3.3 - 2.9 42.1
Exploration
expenses - - 0.6 - 0.6
Operating
earnings 32.0 2.7 (0.6) 2.9 37.0
Nine months ended September 30, 1998
Net sales $ 461.3 $ 49.7 $ 0.2 $ - $ 511.2
Intersegment net
sales 24.1 - - - 24.1
Gross margins 113.3 8.9 - 8.7 130.9
Exploration
expenses - - 19.5 - 19.5
Operating
earnings 101.1 7.0 (19.5) 2.4 91.0
(a) Segment information below the quantitative thresholds is
attributable to PLP corporate headquarters. PLP's 1998 Form 10-K
included IMC Feed Ingredients (Feed Ingredients) in Other as its
segment information was below the quantitative thresholds. In
1999, Feed Ingredients segment information met the quantitative
thresholds and, accordingly, is disclosed as a separate segment.
</TABLE>
4. Restructuring Activities
------------------------
The following footnote discloses amounts in total for IMC-Agrico
Company (IMC-Agrico).
During the fourth quarter of 1998, IMC-Agrico developed and began
execution of a plan to improve profitability (Restructuring Plan).
The Restructuring Plan was comprised of four major initiatives: (i)
the combination of the potash and phosphates business units of IMC
in an effort to realize certain operating and staff function
synergies; (ii) restructuring of the phosphate rock mining and
concentrated phosphate production/distribution operations and
processes in an effort to reduce costs; (iii) simplification of the
current business activities by eliminating businesses not deemed
part of IMC-Agrico's core competencies; and (iv) reduction of
operational and administrative headcount. In conjunction with the
Restructuring Plan, IMC-Agrico recorded pre-tax charges totaling
$148.8 million in the fourth quarter of 1998.
<TABLE>
The following table summarizes the activity during the period
January 1, 1999 to September 30, 1999 of the accruals recorded in
conjunction with the Restructuring Plan.
<CAPTION>
Accrual at Accrual at
January 1, 1999 Cash Paid September 30, 1999
--------------- --------- ------------------
<S> <C> <C> <C>
Non-employee exit costs:
Demolition and closure costs $ 31.2 $ 4.3 $ 26.9
Idled leased transportation
equipment 13.2 3.6 9.6
Other 4.6 3.1 1.5
Employee headcount reductions:
Severance benefits 14.1 13.8 0.3
------ ------ ------
Total $ 63.1 $ 24.8 $ 38.3
====== ====== ======
</TABLE>
The timing and costs of the Restructuring Plan are generally on
schedule with the original time and dollar estimates disclosed in
the fourth quarter of 1998. During the first nine months of 1999,
52 employees who had accepted a voluntary retirement plan as
of December 31, 1998 left IMC-Agrico in accordance with their
target retirement date. An additional $0.1 million of severance
benefits was paid during the period by IMC, which will be reimbursed
by IMC-Agrico during the fourth quarter of 1999.
5. Inventories
-----------
<TABLE>
Inventories consisted of the following:
<CAPTION>
September 30, December 31,
1999 1998
------------- ------------
<S> <C> <C>
Products (principally finished $ 82.7 $100.2
Operating materials and supplies 23.3 24.4
------ ------
106.0 124.6
Less: Inventories allowances 4.3 2.4
------ ------
Inventories, net $101.7 $122.2
====== ======
</TABLE>
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.(1)
Results of Operations
---------------------
Three months ended September 30, 1999 vs. three months ended
September 30, 1998
------------------------------------------------------------
Overview
PLP, through its joint venture operation in IMC-Agrico, is one of
the world's largest and lowest cost producers, marketers and
distributors of phosphate crop nutrients and animal feed
ingredients, with operations in central Florida and on the
Mississippi River in Louisiana. IMC-Agrico is 41.5 percent owned
by PLP and 58.5 percent owned by IMC. PLP also participates in
the exploration and production of oil and gas (Exploration
Program) primarily through its agreement with MMR.
PLP's third quarter net sales of $138.1 million decreased 12
percent from $156.4 million in the year-earlier period principally
due to a decrease in IMC-Agrico's net sales of 14 percent. PLP's
gross margins of $22.8 million in the third quarter of 1999
represented a 46 percent decrease from gross margins of $42.1
million in the third quarter of 1998. A decrease of 47 percent in
IMC-Agrico's gross margins was the primary reason for this
decrease. Earnings for the third quarter of 1999 were $4.5
million, or $0.04 per unit, while earnings for the third quarter
of 1998 were $27.3 million, or $0.26 per unit.
IMC-Agrico Company
IMC-Agrico's operations consist of its phosphate crop nutrients
business (Phosphates) and its animal feed ingredients business.
The amounts included in the following Phosphates and Feed
Ingredients discussions are shown in total for the respective
operations, unless otherwise indicated.
Phosphates
Phosphates' net sales for the third quarter of 1999 declined 14
percent to $301.9 million compared to $352.7 million for the same
period last year largely due to lower average sales realizations.
Lower average concentrate sales prices, driven by lower average
diammonium phosphate (DAP) realizations, reduced sales by $42.7
million. Additionally, sales of urea decreased $5.7 million.
Gross margins decreased 54 percent to $39.8 million for the third
quarter of 1999 compared to $86.4 million for the third quarter of
last year, mainly due to the lower prices discussed above as
well as higher production costs. Production costs increased
compared to the prior year's third quarter primarily as a result
of higher idle plant costs, partially offset by lower uranium
costs and raw material prices.
<TABLE>
The following table summarizes Phosphates' sales volumes and
average selling prices for the three months ended September 30:
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Sales volumes (in thousands of short tons)(a): 1,574 1,575
Average DAP price per ton(b): $156 $182
(a) Sales volumes include tons sold captively and represent dry
product tons, primarily DAP.
(b) Average prices represent sales made FOB plant.
</TABLE>
Feed Ingredients
Feed Ingredients' net sales increased one percent to $42.3 million
for the third quarter of 1999 from $41.8 million in the prior year
quarter, primarily as a result of an increase in domestic sales
volumes, partially offset by a decrease in international sales
volumes.
Gross margins increased 36 percent to $10.9 million for the third
quarter of 1999 from $8.0 million in the same quarter one year
ago. This was largely attributable to the higher volumes discussed
above coupled with lower raw material costs.
Oil and Gas Operations
The Exploration Program had net sales of $3.3 million and negative
margins of $0.9 million for the third quarter of 1999 as
production has continued at both Vermilion Block 159 and West
Cameron Block 616. The negative margins were the result of an
acceleration of depletion expense in the current quarter.
Exploration expenses of $0.8 million for the three months ended
September 30, 1999 were largely comprised of general and
administrative expenses and were consistent with exploration
expenses of $0.6 million in the prior year quarter.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased $2.3
million, or 51 percent, to $6.8 million for the third quarter of
1999 as compared to $4.5 million in the third quarter one year
ago. This increase primarily resulted from stock option
mark-to-market adjustments.
Nine months ended September 30, 1999 vs. nine months ended
September 30, 1998
------------------------------------------------------------------
Overview
Net sales for the first nine months of 1999 of $479.7 million
declined six percent from $511.2 million for the same period one
year ago primarily as a result of a decrease in sales by IMC-
Agrico of eight percent. PLP's gross margins of $109.0 million
for the first nine months of 1999 represented a 17 percent
decrease versus $130.9 million in the nine months of 1998. A
decrease of 20 percent in IMC-Agrico's gross margins caused the
decrease which was partially offset by increased margins from
oil and gas operations of $2.9 million for the first nine months
of 1999 compared to no margin in the prior year period. Earnings,
before the cumulative effect of a change in accounting principle,
were $56.1 million, or $0.54 per unit, for the first nine
months of 1999 as compared with $63.0 million, or $0.61 per unit,
for the same period in 1998. The cumulative effect of a change
in accounting principle of $2.6 million, or $0.02 per unit,
reduced earnings for the first nine months to $53.5 million, or
$0.52 per unit.
Phosphates
Phosphates' net sales for the first nine months of 1999 declined
nine percent to $1,071.1 million compared to $1,173.8 million for
the same period last year primarily as a consequence of lower
average sales realizations and decreased concentrate sales
volumes. Decreased shipments of granular monoammonium
phosphate and granular triple superphosphate, partially offset by
an increase in shipments of DAP, reduced sales by $45.8
million. The unfavorable volume variances reflected a depressed
agricultural economy and lower international sales realizations.
Average sales realizations for the first nine months of 1999
decreased as compared to the prior year period primarily as a
result of lower domestic and international DAP realizations.
Gross margins declined 24 percent to $206.8 million for the first
nine months of 1999 compared to $273.7 million for the first nine
months of last year, mainly because of the lower volumes
and prices discussed above as well as increased production costs.
Production costs were higher when compared to the same period
of the prior year primarily as a result of unfavorable variances
from concentrated phosphate operations created by decreased
volumes and higher idle plant costs. These increases were
partially offset by lower raw material costs for purchased ammonia
and natural gas, and lower urea and uranium costs.
<TABLE>
The following table summarizes Phosphates' sales volumes and
average selling prices for the nine months ended September 30:
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Sales volumes (in thousands of short tons)(a): 5,237 5,494
Average DAP price per ton(b): $167 $177
(a) Sales volumes include tons sold captively and represent dry
product tons, primarily DAP.
(b) Average prices represent sales made FOB plant.
</TABLE>
Feed Ingredients
Net sales increased six percent to $127.6 million for the nine
months of 1999 from $120.0 million in the nine months of the prior
year, as a consequence of growth in sales volumes. Sales volumes
increased as a result of the following: (i) Feed Ingredients'
planned increase for domestic volumes caused by the increased
capacity from the new kiln start-up in November 1999; and (ii)
higher international volumes to Asia as a result of the
improvements in the Asian economy over the prior year.
Gross margins increased 36 percent to $29.5 million for the nine
months of 1999 from $21.7 million for the nine months one year
ago. This was mainly due to the higher volumes discussed above
coupled with lower raw material costs.
Oil and Gas Operations
The Exploration Program posted net sales of $8.5 million and gross
margins of $2.9 million for the current year as production
occurred at both Vermilion Block 159 and West Cameron Block 616.
Exploration expenses of $4.2 million for the nine months of 1999
were primarily comprised of geological and geophysical expenses.
The decrease from prior year expenses of $19.5 million occurred
largely because PLP has incurred no dry hole costs during the
current year compared to $14.4 million of dry hole costs during
the same period last year.
Management of IMC, as administrative managing general partner, on
behalf of PLP, is accelerating its efforts to exit the oil &
gas business. The ultimate disposition is expected to be
completed in the fourth quarter and could necessitate a loss being
recorded.
Restructuring Activities
------------------------
1998 Restructuring
The timing and costs of the Restructuring Plan are generally on
schedule with the original time and dollar estimates disclosed in
the fourth quarter of 1998. During the nine months of 1999, 52
employees who had accepted a voluntary retirement plan as of
December 31, 1998 left IMC-Agrico in accordance with their target
retirement date. See Note 4, "Restructuring Activities," of Notes
to Condensed Financial Statements.
1999 Restructuring
In October 1999, IMC announced an extensive program of asset
restructuring, consolidation of facilities and operating cost
reductions for IMC's headquarters and administrative offices, as
well as for IMC-Agrico. This program will include a review of
the carrying value and recoverability of certain assets, including
those related to recent acquisitions. IMC is in the process of
evaluating the accounting impact of the foregoing restructuring
activities and currently expects to record a major charge to
earnings in the fourth quarter, predominantly non-cash, related
to such activities, in an as yet undetermined amount.
Capital Resources and Liquidity
-------------------------------
PLP generates cash through its joint venture operations in IMC-
Agrico and has sufficient borrowing capacity to meet its operating
and discretionary spending requirements. Net cash provided by
operating activities totaled $77.7 million for the first nine
months of 1999 versus $52.0 million for the same period in 1998.
The increase in net cash provided by operating activities was
primarily attributable to a decrease in working capital primarily
related to the following: (i) a reduction in phosphate rock
inventories; (ii) a decrease of uranium inventories due to
the permanent shut-down of the uranium plant; (iii) lower
DAP inventories resulting from sales outpacing production; and
(iv) a reduction in receivables due to lower sales.
Net cash used in investing activities for the first nine months of
1999 decreased to $24.2 million from $61.5 million in the same
period one year ago. This decline was mainly attributable to a
reduction in capital expenditures for oil and gas activities and
the sale of PLP's investment in MMR. See Note 1, "Sale of
Investment," of Notes to Condensed Financial Statements.
Net cash used in financing activities for the nine month period
ending September 30, 1999 was $61.3 million compared to $3.8
million provided by financing activities for the same period in
1998. The increase in cash used in financing activities was
primarily attributable to: (i) cash distributions to partners of
$44.5 million in the current period compared to $13.5 million in
the prior year mainly due to reduced oil & gas expenditures and
the sale of PLP's investment in MMR; and (ii) an increase in net
debt payments of $34.1 million as a consequence of a reduction in
working capital loans with IMC.
Year 2000 Compliance
--------------------
All references herein to PLP refer to PLP's business activities as
executed through its ownership interest in IMC-Agrico. Like other
businesses dependent on modern technology, PLP must address
potential Year 2000-related issues. PLP and IMC (as General
Partner) are progressing through a comprehensive program (Year
2000 Program) to evaluate and address the impact of Year 2000-
related issues on PLP's 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
regularly with senior management and the audit committee of 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 Program.
State of Readiness
PLP is using both internal and external resources to implement its
Year 2000 Program, which includes the following overlapping
phases: (i) system inventory and analysis; (ii) remediation,
testing and implementation; and (iii) vendor and customer review.
As of the end of the third quarter of 1999, PLP has substantially
completed its Year 2000 Program.
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: (i) business application software; (ii) mainframe
hardware and software; (iii) network servers; (iv) desktop
environment; (v) network and telephone systems; (vi) non-
information technology assets and facilities; and (vii) 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 systems
and equipment used by PLP in its operations. PLP has completed
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:
(i) equipment maintenance; (ii) spare parts inventory; (iii)
purchasing; (iv) mine simulation; (v) payroll/human resource; and
(vi) financial/accounting. In addition, certain PLP plants
identified certain production control systems that required 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. Several system manufacturers have
provided testing procedures for their equipment and have been
available for consultations about Year 2000-related testing. As of
the end of the third quarter of 1999, PLP has substantially
completed the remediation testing and implementation phase.
As a separate initiative, IMC implemented 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 has further remediated any issues associated with the Year
2000.
Vendor and Customer Review Phase: 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 continues to analyze the information provided in
these responses, but has not identified any material problem
areas to date. As an additional precaution, when appropriate,
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 has formed plans for the continuing availability of
critical materials and supplies through alternate channels. In
general, however, PLP is satisfied with the progress made by key
vendors to date and no critical issues have been identified.
In addition to investigating its key suppliers, PLP has also
contacted its 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.
While PLP continues to be apprised of the progress made by these
key customers in addressing their own Year 2000 issues, no
guarantees can be made that these key customers will adequately
address Year 2000-related issues by December 31, 1999. If these
key customers fail in their attempts to adequately address Year
2000-related issues, PLP could potentially experience a delay in
order processing. In general, however, PLP is satisfied with
the progress made to date by these key customers.
MMR Review
PLP is assessing Year 2000-related issues with respect to the
Exploration Program. PLP is monitoring the public disclosures of
MMR with respect to its progress toward remediation of its Year
2000-related issues and, as appropriate, has discussions with MMR
personnel regarding MMR'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.
Modification 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 $2.1 million, of which $0.6 million was 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 is presented regularly
to IMC's audit committee of the Board of Directors and senior
management. As the program continues, PLP may discover additional
Year 2000-related challenges, including that any remaining
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,
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
PLP has developed contingency measures to address the
possibility that it will not have fully addressed Year 2000-
related issues by December 31, 1999. These contingency measures
provide PLP with an alternative plan of action if PLP
experiences a shutdown in one of its mission critical systems, or
a failure in the delivery of needed supplies, services, or
equipment. PLP developed its contingency plan based upon templates
and suggested procedures that have been provided by IMC's Year
2000 Risk Manager. PLP's contingency identifies the risk and
documents the steps that need to be taken to allow PLP to continue
to meet the needs of its customers in the event of a Year 2000-
related failure. As part of the ongoing contingency planning
effort, PLP continues to identify alternative channels for
receiving critical supplies from alternate vendors. Although
PLP has substantially completed its contingency plan, PLP will
continue to revise and supplement its contingency plan through
December 31, 1999.
The above section, even if incorporated by reference into other
documents or disclosures, is a Year 2000 Readiness Disclosure as
defined under the Year 2000 Information and Readiness Disclosure
Act of 1998.
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,
ammonia and sulphur 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, 1999, PLP's exposure to
these market risk factors was not significant and had not
materially changed from December 31, 1998.
Part II. OTHER INFORMATION
Item 1. Legal Proceedings.
FTX 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 Freeport-
McMoRan Inc. (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 merger between FTX and IMC (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' moved the
court to dismiss the amended complaint in November 1998. In May
1999, the plaintiffs agreed to dismiss the action. Final terms
of the dismissal have not yet been determined.
In May 1998, IMC and PLP (collectively, Plaintiffs) filed a
lawsuit (IMC Action) in Delaware Chancery Court against certain
former directors of FTX (Director Defendants) and McMoRan Oil
& Gas Co., an affiliate of FTX (MOXY). The Plaintiffs allege
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. The
Plaintiffs further allege 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, which IMC alleges unfairly benefited MOXY
and the Director Defendants to PLP's detriment.
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
rescind the contracts that PLP entered into with MOXY and to
recoup the monies expended as a result of PLP's participation in
those agreements. The Director Defendants and MOXY have filed
motions to dismiss the Plaintiffs' claims. The defendants filed
their briefs in support of their motions in January 1999. IMC
filed its amended complaint, and its responses to the motions to
dismiss in February 1999. In response, the Director Defendants
filed renewed motions which are awaiting argument. No trial
date has been scheduled. IMC intends to pursue this action
vigorously.
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 and PLP intend 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 of IMC deems prudent.
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 5, 1999
_______________________________
(1) All statements, other than statements of historical fact, 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," 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 the agricultural industry, the oil & gas industry or in
localities where PLP or its customers operate; weather conditions;
the impact of competitive products; pressure on prices realized by
PLP for its products; constraints on supplies of raw materials used
in manufacturing certain of PLP'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
proceedings, including environmental, and administrative proceedings
involving PLP; the completion of PLP's Year 2000 program; and the
other risk factors reported from time to time in PLP's Securities and
Exchange Commission reports.
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