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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 June 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)
<CAPTION>
Three months ended Six months ended
June 30, June 30,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Net sales $174.2 $196.0 $341.6 $354.8
Cost of goods sold 131.8 142.6 255.4 266.0
------ ------ ------ ------
Gross margins 42.4 53.4 86.2 88.8
Selling, general and
administrative expenses 6.7 7.7 14.2 15.9
Exploration expenses 1.9 9.4 3.4 18.9
------ ------ ------ ------
Operating earnings 33.8 36.3 68.6 54.0
Interest expense 9.8 10.0 19.7 19.6
Other (income) expense, net (0.2) (0.6) (2.7) (1.3)
------ ------ ------ ------
Earnings before cumulative
effect of a change in
accounting principle 24.2 26.9 51.6 35.7
Cumulative effect of a change
in accounting principle - - (2.6) -
------ ------ ------ ------
Earnings $ 24.2 $ 26.9 $ 49.0 $ 35.7
====== ====== ====== ======
Earnings per unit:
Earnings before cumulative
effect of a change in
accounting principle $ 0.23 $ 0.26 $ 0.49 $ 0.35
Cumulative effect of a change
in accounting principle - - (0.02) -
------ ------ ------ ------
Earnings per unit $ 0.23 $ 0.26 $ 0.47 $ 0.35
====== ====== ====== ======
Average units outstanding 103.5 103.5 103.5 103.5
Distributions paid per publicly
held unit $ 0.03 $ - $ 0.13 $ -
(See Notes to Condensed Financial Statements)
</TABLE>
<TABLE>
CONDENSED BALANCE SHEET
(In millions)
<CAPTION>
June 30, December 31,
Assets 1999 1998
- ---------------------------------------------------------------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 21.0 $ 10.8
Receivables, net 53.4 65.0
Inventories, net 97.4 122.2
Other current assets 0.2 0.9
-------- --------
Total current assets 172.0 198.9
Property, plant and equipment, net 499.9 477.5
Other assets 22.5 43.4
-------- --------
Total assets $ 694.4 $ 719.8
======== ========
Liabilities and Partners' Deficit
- ------------------------------------------------------------------
Current liabilities:
Accounts payable and accrued
liabilities $ 45.5 $ 59.5
Short-term debt and current maturities
of long-term debt 4.3 4.4
-------- --------
Total current liabilities 49.8 63.9
Long-term debt, less current maturities 530.9 556.9
Other noncurrent liabilities 237.2 258.0
Partners' deficit (123.5) (159.0)
-------- --------
Total liabilities and partners' deficit $ 694.4 $ 719.8
======== ========
(See Notes to Condensed Financial Statements)
</TABLE>
<TABLE>
CONDENSED STATEMENT OF CASH FLOWS
(In millions)
<CAPTION>
Six months ended
June 30,
1999 1998
- -------------------------------------------------------------------------
<S> <C> <C>
Cash Flows from Operating Activities
Earnings $ 49.0 $ 35.7
Adjustments to reconcile earnings to net cash
provided by operating activities:
Depreciation, depletion and amortization 11.5 12.5
Oil and gas exploration expenses - 14.3
Other charges and credits, net (16.5) (4.5)
Changes in:
Receivables 11.6 (0.2)
Inventories 24.8 8.3
Other current assets 0.6 1.5
Accounts payable and accrued liabilities (13.1) (19.9)
------- -------
Net cash provided by operating activities 67.9 47.7
------- -------
Cash Flows from Investing Activities
Capital expenditures (30.1) (48.9)
Proceeds from sale of investment 12.8 -
Proceeds from sales of property, plant and
equipment 0.5 1.6
------- -------
Net cash used in investing activities (16.8) (47.3)
------- -------
Net cash provided before financing activities
51.1 0.4
------- -------
Cash Flows from Financing Activities
Cash distributions to unitholders (13.5) -
Payments of long-term debt (27.8) (11.1)
Proceeds from issuance of long-term debt 0.4 10.5
Change in short-term debt, net - 0.1
------- -------
Net cash used in financing activities (40.9) (0.5)
------- -------
Net change in cash and cash equivalents 10.2 (0.1)
Cash and cash equivalents - beginning of period 10.8 17.4
------- -------
Cash and cash equivalents - end of period $ 21.0 $ 17.3
======= =======
(See Notes to Condensed Financial Statements)
</TABLE>
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Dollars in millions)
1.Sale of Investment in MMR
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
Segment information for 1999 and 1998 was as follows:
<TABLE>
<CAPTION>
IMC-Agrico IMC-Agrico
Phosphates Feed Ingredients Oil & Gas Other(a) Total
---------- ---------------- --------- -------- -----
Three months ended June 30, 1999
<S> <C> <C> <C> <C> <C>
Net sales $ 153.2 $ 17.4 $ 3.6 $ - $ 174.2
Intersegment net
sales 8.7 - - - 8.7
Gross margins 32.9 3.9 2.7 2.9 42.4
Exploration
expenses - - 1.9 - 1.9
Operating
earnings 29.2 3.3 0.8 0.5 33.8
Six months ended June 30, 1999
Net sales $ 301.0 $ 35.4 $ 5.2 $ - $ 341.6
Intersegment net
sales 17.1 - - - 17.1
Gross margins 68.9 7.7 3.8 5.8 86.2
Exploration
expenses - - 3.4 - 3.4
Operating
earnings 61.5 6.5 0.4 0.2 68.6
IMC-Agrico IMC-Agrico
Phosphates Feed Ingredients Oil & Gas Other(a) Total
---------- ---------------- --------- -------- -----
Three months ended June 30, 1999
Net sales $ 180.2 $ 15.7 $ 0.1 $ - $ 196.0
Intersegment net
sales 7.6 - - - 7.6
Gross margins 48.0 2.5 - 2.9 53.4
Exploration
expenses - - 9.4 - 9.4
Operating
earnings 43.9 1.9 (9.4) (0.1) 36.3
Six months ended June 30, 1999
Net sales $ 322.3 $ 32.4 $ 0.1 $ - $ 354.8
Intersegment net
sales 15.6 - - - 15.6
Gross margins 77.4 5.6 - 5.8 88.8
Exploration
expenses - - 18.9 - 18.9
Operating
earnings 69.1 4.3 (18.9) (0.5) 54.0
(a) Segment information below the quantitative thresholds is
attributable to PLP corporate headquarters. PLP's 1998 Form 10-
K included IMC-Agrico 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 Charge
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.
The following table summarizes the activity during the period
January 1, 1999 to June 30, 1999 of the accruals recorded in
conjunction with the Restructuring Plan.
<TABLE>
<CAPTION>
Accrual at Accrual at
January 1, 1999 Cash Paid June 30, 1999
--------------- --------- -------------
<S> <C> <C> <C>
Non-employee exit costs:
Demolition and closure costs $ 31.2 $ 2.3 $ 28.9
Idled leased transportation
equipment 13.2 2.2 11.0
Other 4.6 2.8 1.8
Employee headcount reductions:
Severance benefits 14.1 7.7 6.4
------ ------ ------
Total $ 63.1 $ 15.0 $ 48.1
====== ====== ======
</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 six months of 1999, 51
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 $5.7 million of severance benefits was
paid during the period by IMC, which will be reimbursed by IMC-Agrico
during the third quarter of 1999.
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.(1)
Results of Operations
Three months ended June 30, 1999 vs. three months ended June
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 second quarter net sales of $174.2 million decreased 11
percent from $196.0 million in the year-earlier period
principally due to a decrease in IMC-Agrico's net sales of 13
percent. PLP's gross margins of $42.4 million in the second
quarter of 1999 represented a 21 percent decrease from gross
margins of $53.4 million in the second quarter of 1998. A
decrease of 27 percent in IMC-Agrico's gross margins was the
primary reason for this decrease. Earnings for the second
quarter of 1999 were $24.2 million, or $0.23 per unit, while
earnings for the second quarter of 1998 were $26.9 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 second quarter of 1999 declined
14 percent to $394.4 million compared to $456.6 million for
the same period last year largely due to decreased sales
volumes and lower average sales realizations. Decreased
shipments of granular monoammonium phosphate (GMAP) and
granular triple superphosphate (GTSP), partially offset by a
slight increase in shipments of diammonium phosphate (DAP)
reduced sales by $35.3 million. These decreased volumes were
mainly attributable to lower international shipments to
certain countries as well as lower domestic shipments
resulting from cutbacks in overall application rates coupled
with aggressively priced imports. Lower average concentrate
sales prices, driven by lower average DAP realizations,
reduced sales by $16.2 million. Additionally, sales of
uranium, ammonia and urea decreased $3.7 million, $2.2 million
and $1.9 million, respectively.
Gross margins decreased 31 percent to $80.3 million for the
second quarter of 1999 compared to $116.0 million last year,
mainly due to higher production costs as well as the lower
volumes and prices discussed above. Production costs
increased compared to the prior year's second quarter
primarily as a result of higher idle plant costs, partially
offset by reduced spending and lower raw material prices.
The following table summarizes Phosphates' sales volumes and
average selling prices for the three months ended June 30:
1999 1998
---- ----
Sales volumes (in thousands of
short tons)(a): 1,973 2,161
Average DAP price per ton(b): $168 $178
(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 10 percent to $41.9
million for the second quarter of 1999 from $38.0 million in
the prior year quarter, primarily created by increases in
domestic and international sales volumes, which favorably
impacted net sales by $4.8 million.
Gross margins increased 52 percent to $9.4 million for the
second quarter of 1999 from $6.2 million in the same quarter
one year ago. This was largely because of the higher volumes
discussed above coupled with positive leveraging of lower
production costs.
Oil and Gas Operations
The Exploration Program had net sales of $3.6 million and
gross margins of $2.7 million for the second quarter of 1999
as production has continued at both Vermilion Block 159 and
West Cameron Block 616.
Exploration expenses of $1.9 million for the three months
ended June 30, 1999 were largely comprised of geological and
geophysical expenses. This decrease from prior year expenses
of $9.4 million occurred largely because of the absence of dry
hole costs during the current quarter compared to $7.1 million
of dry hole costs during the same period last year.
Selling, General and Administrative Expenses
Selling, general and administrative expenses decreased $1.0
million, or 13 percent, to $6.7 million for the second quarter
of 1999 as compared to $7.7 million in the second quarter one
year ago. This decrease was primarily due to a reduction in
spending for consulting, and outside services.
Six months ended June 30, 1999 vs. Six months ended June 30,
1998
Overview
Net sales for the first six months of 1999 of $341.6 million
declined four percent from $354.8 million for the same period
one year ago primarily as a result of a decrease in sales by
IMC-Agrico of five percent. PLP's gross margins of $86.2
million for the first six months of 1999 represented a three
percent decrease versus $88.8 million in the first six months
of 1998. A decrease of eight percent in IMC-Agrico's gross
margins contributed to the decrease which was partially offset
by increased margins from oil and gas operations of $3.8
million for the first six months of 1999 versus none in the
prior year. Earnings, before the cumulative effect of a
change in accounting principle, were $51.6 million, or $0.49
per unit, for the first six months of 1999 as compared with
$35.7 million, or $0.35 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 year
to $49.0 million, or $0.47 per unit. The increase in earnings
resulted primarily from a reduction in exploration expenses
related to the Exploration Program.
Phosphates
Phosphates' net sales for the first six months of 1999
declined six percent to $769.2 million compared to $821.1
million for the same period last year primarily as a
consequence of decreased concentrate sales volumes and lower
average sales realizations. Decreased shipments of GMAP and
GTSP, partially offset by an increase in shipments of DAP
reduced sales by $42.3 million. These unfavorable volume
variances reflected the following factors: (i) a cutback in
overall domestic application rates, (ii) continued
availability of aggressively priced GTSP imports, and (iii)
lower international shipments. Average sales realizations for
the first six 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 11 percent to $167.0 million for the
first six months of 1999 compared to $187.3 million for the
first six months of last year, mainly because of the lower
volumes and prices discussed above, partially offset by
decreased production costs. Production costs were lower when
compared to the prior year's first six months primarily as a
result of the following: (i) lower raw material costs for
purchased ammonia and natural gas; (ii) favorable variances
from phosphate rock operations due to reduced spending;
partially offset by (iii) unfavorable variances from
concentrated phosphate operations created by lower bone
phosphate of lime levels and higher turnaround amortization.
The following table summarizes Phosphates' sales volumes and
average selling prices for the six months ended June 30:
1999 1998
---- ----
Sales volumes (in thousands of
short tons)(a): 3,663 3,919
Average DAP price per ton(b): $171 $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
Net sales increased nine percent to $85.3 million for the
first six months of 1999 from $78.2 million in the first six
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 late 1999; and (ii) higher international volumes
resulting from spot sales and the improvement of the Asian
economy over the prior year.
Gross margins increased 36 percent to $18.6 million for the
first six months of 1999 from $13.7 million for the first six
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 $5.2 million and
gross margins of $3.8 million for the current year as
production occurred at both Vermilion Block 159 and West
Cameron Block 616.
Exploration expenses of $3.4 million for the first six months
of 1999 were primarily comprised of geological and geophysical
expenses. The decrease from prior year expenses of $18.9
million occurred largely because of the absence of dry hole
costs during the current year compared to $14.3 million of dry
hole costs during the same period last year.
Selling, General and Administrative Expenses
Selling, general and administrative expenses decreased $1.7
million, or 11 percent, to $14.2 million for the first six
months of 1999 as compared to $15.9 million for the same
period one year ago. This decrease was primarily due to a
reduction in spending for consulting and other services.
Other (Income) Expense, Net
Other income for the first six months of 1999 increased $1.4
million from the prior year primarily as a result of a gain on
the sale of an IMC-Agrico investment.
Restructuring Plan
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 six
months of 1999, 51 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 3,
"Restructuring Charge," of Notes to Condensed Financial
Statements.
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 $67.9 million for the
first six months of 1999 versus $47.7 million for the same
period one year ago. The increase in net cash provided by
operating activities was primarily caused by 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 six months
of 1999 decreased to $16.8 million from $47.3 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 in MMR," of Notes to Condensed
Financial Statements.
Net cash used in financing activities for the six month period
was $40.9 million for the current year compared to $0.5
million for the same period in the prior year. The increase
in cash used in financing activities was primarily a result
of: (i) the cash distributions to partners of $13.5 million in
the current period while no payments were made in the prior
year; and (ii) an increase in net debt payments of $26.9
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
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: (i) system inventory and analysis; (ii)
remediation, testing and implementation; and (iii) 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: (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 computer systems and
equipment used by PLP in its operations. PLP has 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 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. Several system manufacturers have provided
testing procedures for their equipment and have been available
for consultations about Year 2000-related testing. PLP
expects to have substantially completed the remediation
testing and implementation phase in the third quarter of 1999.
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 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 currently is analyzing
the information provided in these responses, and will
determine the best way to address any specific issues. 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 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 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 be Year 2000 compliant by December 31, 1999.
If these key customers fail in their attempts to be Year 2000
compliant, PLP could potentially experience a decrease in
future orders from such customers. 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 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, 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 continues to develop 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 in the
event PLP experiences a shutdown in one of its mission
critical systems, or a failure in the delivery of needed
supplies, services, or equipment. PLP is currently developing
a contingency plan based upon templates and suggested
procedures that have been provided by IMC's Year 2000 Manager.
PLP's contingency plan will identify the risk and document 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 on-going contingency planning effort,
PLP continues to identify alternative channels for receiving
critical supplies from alternate vendors. Although PLP
expects to complete its contingency plan in the third quarter
of 1999, 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 June 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
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' 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
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: August 13, 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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