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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
AMENDMENT TO APPLICATION OR REPORT
Filed pursuant to Section 12, 13 or 15(d) of
THE SECURITIES EXCHANGE ACT OF 1934
IMC Fertilizer Group, Inc.
(Exact name of registrant as specified in charter)
AMENDMENT NO. 2
The undersigned registrant hereby amends the following items,
financial statements, exhibits or other portions of its Annual Report
on Form 10-K for the year ended June 30, 1993, as set forth in the
pages attached hereto:
PART II.
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this amendment to be signed on its
behalf by the undersigned, thereunto duly authorized.
IMC Fertilizer Group, Inc.
ROBERT C. BRAUNEKER
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Robert C. Brauneker
Executive Vice President
and Chief Financial Officer
April 8, 1994
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Item 7.Management's Discussion and Analysis of Financial Condition and
Results of Operations
1993 vs. 1992
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The Company incurred a net loss of $167.1 million, or $7.57 per
share, in 1993. This compares to a 1992 net loss of $74.6 million, or
$3.38 per share. Included in 1993 results was a one-time charge of
$47.1 million, or $2.13 per share, for the cumulative effect on prior
years of a change in accounting for postretirement benefits as a result
of the adoption of Statement of Financial Accounting Standards (SFAS)
No. 106, as of July 1, 1992. 1992 results included a one-time charge
of $165.5 million, or $7.50 per share, for the cumulative effect on
prior years of a change in accounting for income taxes as a result of
the adoption of SFAS No. 109, as of July 1, 1991.
Net sales in 1993 were $897.1 million, a 15 percent decrease from
1992 when net sales were $1.059 billion. The Company continued to
experience severe price declines and decreased demand for its products
throughout the year, particularly phosphate chemicals where prices fell
to their lowest level in 20 years, due primarily to economic and
political uncertainties in key foreign markets, especially China and
India. Information regarding sales by product line may be found on
page 2 of this annual report.
Fiscal 1993 results also included a pre-tax charge of $169.1
million related to the settlement of litigation resulting from the May
1991 explosion at a Sterlington, Louisiana, nitroparaffins plant owned
by Angus Chemical Company but operated by the Company. See Note 3 of
Notes to Consolidated Financial Statements for further discussion of
this matter.
Also included in 1993 results was a pre-tax charge of $32.4 million
related to the settlement of a dispute over an insurance claim
receivable resulting from a water inflow at the Company's potash mines
in Canada and a gain of $8.1 million from the resolution of a contract
dispute with a major uranium oxide customer. In 1992, operating
results included a pre-tax gain of $34.2 million from the sale of the
Company's ammonia production facility at Sterlington, Louisiana, and a
charge of $5.3 million from the temporary shutdown and mothballing of
the Company's uranium production facilities. These items are included
in the Consolidated Statement of Operations under "Other operating
income and expense, net." See Notes 4 and 7 of Notes to Consolidated
Financial Statements for further discussion of these matters.
Gross margins decreased $105 million from a year ago, primarily due
to lower margins for phosphate chemicals ($53 million), phosphate rock
($19 million), and potash ($4 million). Also affecting margins was the
impact of the Company's decision to sell its ammonia business and,
after the sales contracts which supported the facility expired, the
temporary shutdown and mothballing of the Company's uranium oxide
production facilities. These actions resulted in lost margins for
ammonia and uranium of $7 million and $21 million, respectively.
Phosphate chemical margins were lower primarily as a result of a 21
percent decrease in the price of DAP, the major product of the
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Company's phosphate chemical business and the product that indicates
trends in phosphate chemical prices. The DAP decrease, along with
decreases in the other phosphate chemical products, accounted for a $75
million decrease in margins. Partially offsetting this decrease were
lower overall production costs which decreased four percent, mainly due
to lower raw material costs, ($17 million) and increased shipping
volume ($5 million). Phosphate rock margins decreased primarily due to
lower shipping volume ($12 million) and a five percent increase in
production costs ($7 million) primarily resulting from lower production
volumes. Potash margins were lower as a result of a two percent
decrease in prices ($6 million), partially offset by a one percent
reduction in production costs ($2 million).
The Company continues to experience severe price declines and
decreased demand for its products. As a result of these conditions,
the Company has idled indefinitely two of its phosphate rock mines and
one of its phosphate chemical plants, and in July 1993, the newly
formed joint venture partnership temporarily reduced phosphate chemical
production by approximately 40 percent of capacity and reduced
operations at its largest phosphate rock mine to reflect this reduction
in phosphate chemical output.
Administrative costs decreased $8 million principally as a result
of reduced management compensation awards in 1993 ($4 million) and
lower rent expense due to equipment leases which were cancelled and
bought out in 1992 ($3 million).
See Note 14 of Notes to Consolidated Financial Statements for
information on income taxes.
These conditions are expected to result in the Company reporting an
operating loss for the first quarter of 1994, and without a substantial
increase in product prices it is probable the Company will operate at a
loss in 1994.
1992 vs. 1991
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In fiscal 1992, earnings totaled $90.9 million, or $4.12 per share,
on average outstanding shares of 22.1 million. This compares with 1991
earnings of $95.8 million, or $3.85 per share, on average outstanding
shares of 24.9 million. Fiscal 1992 earnings are before the recording
of a one-time charge of $165.5 million for the cumulative effect on
prior years of a change in accounting for income taxes as a result of
adopting SFAS No. 109 as of July 1, 1991. The recording of that one-
time charge resulted in a net loss of $74.6 million, or $3.38 per
share, for the year ended June 30, 1992.
Net sales in 1992 were $1.059 billion, a six percent decrease from
fiscal 1991 when net sales were $1.131 billion. Continued depressed
prices, particularly for phosphate chemicals, was the primary reason
for this decrease. Information regarding sales by product line is
included on page 2 of this annual report.
Included in 1992 results was a pre-tax gain of $34.2 million from
the sale of the Company's ammonia production facility in Sterlington,
Louisiana. 1992 also included a charge of $5.3 million resulting from
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the temporary shutdown and mothballing of the Company's uranium
production facilities. In 1991, operating results included a pre-tax
gain of $17.9 million from the sale of certain potash reserve interests
in New Mexico. These items are included in the Consolidated Statement
of Operations under "Other operating income and expense, net."
Gross margins decreased $11 million from 1991. Major product lines
contributing to this decrease were uranium, an $11 million decrease,
and ammonia, a $7 million decrease. Phosphate chemicals increased $5
million while phosphate rock and potash only changed slightly from last
year.
Uranium margins decreased primarily from lower prices compared to
1991 ($18 million) as the Company resumed shipping product to a major
contract customer, at agreed upon lower prices, pending the resolution
of a contract pricing dispute. Partially offsetting this decrease was
higher sales volume ($7 million), resulting from the resumption of such
shipments. On June 30, 1992, the Company's uranium contracts expired.
Because the market price of uranium oxide did not justify continued
operation of the uranium oxide production facilities, a temporary
shutdown of these facilities took place. Since the facilities are
fully depreciated, the temporary shutdown is not expected to have a
material impact on future operations, other than the loss of related
margins. In fiscal 1992, uranium contributed approximately $21 million
to the Company's total margins. Ammonia margins declined principally
from lower sales volume, as a result of the sale of the ammonia
production facility in February 1992. Phosphate chemical margins
increased as a result of significantly lower production costs ($43
million), primarily due to favorable sulphur costs and the $4.4 million
benefit of the extension of the estimated useful lives of the New Wales
phosphate chemical assets (see Note 8 of Notes to Consolidated
Financial Statements), largely offset by an eight percent decrease in
the price of DAP, the major product in the Company's phosphate chemical
business, and decreases in other phosphate chemical products ($38
million). Phosphate rock margins reflected a modest one percent
increase in prices ($7 million). However, this improvement was totally
offset by reduced sales volume. Potash margins remained flat when
favorable production costs ($3 million), reflecting lower water
spending, were totally offset by lower sales volume.
Administrative costs increased $3 million, primarily due to a
reserve recorded for the cancellation and buy out of equipment leases.
Interest earned and other non-operating income and expense was $5
million worse as a result of the negative effects of foreign currency
translation losses.
Interest charges were $3 million higher than last year as a result
of costs incurred on higher debt balances ($12 million), offset by
higher capitalized interest ($9 million).
See Note 14 of Notes to Consolidated Financial Statements for
information on income taxes.
Supply Contracts
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The Company purchases sulphur and ammonia (beginning in 1992 after
the sale of its ammonia production facility) from third parties and
sells phosphate rock and chemicals to third parties under contracts
extending in some cases for multiple years. Purchases and sales under
these contracts are generally at prevailing market prices, except for
certain phosphate rock sales which are at prices based on the Company's
cost of production. On July 1, 1993, these contracts were contributed
to the joint venture partnership described on page 3.
CAPITAL RESOURCES AND LIQUIDITY
The Company's primary sources of liquidity are cash provided by
operating activities and financing activities. Information on the
Company's consolidated cash flows for the past three years may be found
on the Consolidated Statement of Cash Flows on page 35 of this annual
report.
Working capital at June 30, 1993 was $195 million compared with $80
million at June 30, 1992. The increase was due primarily to the
Company's settlement of an insurance claim receivable, the repurchase
of previously sold receivables and net proceeds received from its
Senior notes financing. The working capital ratio at June 30, 1993 was
1.8 to 1. This compares to a ratio of 1.4 to 1 at June 30, 1992.
The Company is highly leveraged. Consolidated indebtedness
increased to $926.7 million at June 30, 1993 from $642.8 million at
June 30, 1992. The ratio of the Company's indebtedness to total
capitalization correspondingly increased to 68.3 percent at June 30,
1993 from 51.1 percent at June 30, 1992.
In June 1993, the Company restructured its long-term debt by
issuing $135 million of 10.125% Senior notes due June 15, 2001 and $125
million of 10.75% Senior notes due June 15, 2003. Net proceeds from
the issuance were used to retire $100 million of short-term notes,
repurchase $50 million of receivable interests previously sold, and pay
a $60.6 million installment on the Angus/IRI note discussed in Note 3
of Notes to Consolidated Financial Statements.
In April 1993, the then existing revolving credit agreement, with
certain financial covenants of which the Company was not then in
compliance, was cancelled. In June 1993, the Company entered into an
agreement with a group of banks to provide the Company with a new
unsecured revolving credit facility (the Working Capital Facility)
under which the Company can borrow up to $100 million for general
corporate purposes until June 30, 1996. At June 30, 1993, $38 million
was drawn down in the form of standby letters of credit to support
industrial revenue bonds. Borrowings under the Working Capital
Facility are limited to $25 million during a specified period in any
year. There were no other borrowings under the Working Capital
Facility at June 30, 1993.
The Senior notes, Working Capital Facility, and 11.25% Notes
contain provisions which (i) restrict the Company's ability to make
capital expenditures and dispose of assets, (ii) limit the payment of
dividends or other distributions to shareholders, and (iii) prohibit
the incurrence of additional indebtedness except for a proposed joint
venture working capital facility in a principal amount up to $75
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million and other limited exceptions. The Working Capital Facility and
the 11.25% Note agreement, as recently amended, also contain financial
ratios and tests which must be met with respect to interest coverage
(increasing from .85 to 1.50 in 1994), fixed charge coverage
(increasing from .15 to .80 in 1994), net worth (increasing from $325
million to $335 million in 1994), total debt to capitalization
(decreasing from 75 percent to 74 percent), and a current ratio of 1.2
to 1. At June 30, 1993, the Company was in compliance with its debt
instruments' covenants.
The Company has reached an agreement with The Prudential Insurance
Company of America (Prudential) giving it the right to purchase on or
before November 1, 1993 the $220 million principal amount of the
Company's 11.25% Notes for approximately $250 million (the Purchase
Price). The Company's ability to exercise this right is dependent upon
the Company obtaining sufficient financing prior to November 1. The
Company currently intends to obtain such financing through the issuance
of new debt and/or equity or equity-related securities. If the Company
does not purchase the Notes by November 1, Prudential has the option to
sell the Notes to specified third parties for the Purchase Price. The
Company has agreed to purchase from these third parties the Notes for
the Purchase Price, upon completion of alternative financing. If the
Company is not able to obtain such financing and purchase the Notes,
the Company has agreed to reimburse the third parties for any losses
they incur as a result of their purchase and subsequent resale of the
Notes. See Note 20 of Notes to Consolidated Financial Statements for
further discussion of this matter.
The ongoing ability of the Company to meet its debt service and
other obligations, including compliance with covenants in its debt
instruments, will be dependent upon the future performance of the
Company which will be subject to financial, business and other factors,
certain of which are beyond its control, such as prevailing economic
and industry conditions and prices for the Company's products. The
Company anticipates that its cash flow together with available
borrowings will be sufficient to meet its operating expenses and
service its debt requirements as they become due. However, if product
prices do not improve in 1994, the Company may have difficulty
complying with its covenants.
The estimate of capital expenditures for 1994 is $66 million
(including $54 million by the joint venture partnership). The Company
expects to finance these expenditures (including its portion of the
partnership's capital expenditures) from operations. See "Other
Matters" for a discussion of environmental capital expenditures.
The Company does not consider the impact of inflation to be
significant in the business in which it operates.
On April 15, 1993, the Company's Board of Directors voted to
suspend the dividend payment for the quarter ended June 30, 1993. This
action was taken in light of the financial demands of the then recent
litigation settlement and the continued weakness in fertilizer prices.
Because the Company's debt covenants limit the ability of the Company
to pay dividends, future dividend payments will be contingent upon
improvement in net income. Without a substantial increase in product
prices, it is probable the Company will operate at a loss in 1994.
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JOINT VENTURE PARTNERSHIP
On July 1, 1993, IMC Fertilizer, Inc. (IMC), a wholly-owned
subsidiary of the Company, and Freeport-McMoRan Resource Partners,
Limited Partnership (FRP) contributed their respective phosphate
fertilizer businesses, including the mining and sale of phosphate rock
and the production, distribution and sale of phosphate chemicals,
uranium oxide and related products, to a joint venture partnership (the
Partnership) in return for a 56.5 percent and 43.5 percent economic
interest, respectively, in the Partnership, over the term of the
Partnership. The Partnership is governed by a Policy Committee which
has equal representation from each company and is being operated by
IMC. The Partnership agreement contains a cash sharing arrangement
under which distributable cash, as defined in the agreement, will be
shared at a ratio of 41.4 percent and 58.6 percent in 1994 to IMC and
FRP, respectively, increasing thereafter until 1998 when the sharing
ratio will be fixed at 59.4 percent and 40.6 percent to IMC and FRP,
respectively.
The formation of the joint venture Partnership continues the
Company's strategy of pursuing competitive cost positions in its
markets. As a result of the joint venture transaction, the Partnership
is expected to save approximately $17 million annually in the area of
transportation and distribution by reducing the unit cost to transport
product between the various Partnership plant locations, by taking
advantage of multiple shipping locations to reduce the cost to
transport product to customers, and by reducing per unit warehousing
costs through opportunities created by the size of the Partnership as
compared to the two Partners. The Partnership is expected to be able
to reduce production costs by approximately $40 million annually
through headcount reduction by eliminating duplicative plant
administrative functions, applying operational technologies that have
proven successful at each of the Partner's respective plant locations
to the other Partner's contributed plants and by being able to more
efficiently utilize in-process product at plants that have previously
had underutilized upgrading capacity. IMC's and FRP's selling, general
and administrative expenses have been reduced approximately $38 million
through reduced headcount that was achieved by eliminating duplicative
headquarters functions and consolidating the Partner's sales forces.
The total of these savings of approximately $95 million is expected to
be achieved in the second year of operations of IMC-Agrico and, through
the determination of the sharing ratios for the Partnership's
Distributable Cash (as defined below), were intended to be shred
equally by IMC and FRP. Approximately $80 million of such savings are
expected to be realized in 1994.
SULPHUR, OIL AND NATURAL GAS VENTURES
The Company participates in a joint venture, in which the Company
has a 25 percent interest, that, in 1989, discovered sulphur at Main
Pass Block 299 in the Gulf of Mexico. FRP, the joint venture operator,
has essentially completed development of the deposit. Progress is
still being made in heating the underwater sulphur deposit, which
contains an estimated 67 million long tons of recoverable sulphur, or
16.8 million long tons net to the Company, before royalties. It is
expected that production rates will gradually increase to a level of
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two million long tons per year as early as the second half of calendar
1994. The Company has capitalized interest and costs associated with
heating the sulphur deposit through June 30, 1993, but will begin
expensing such interest and costs on July 1, 1993. Costs capitalized
during 1993 totaled $32 million (including capitalized interest of $19
million).
During the exploration for sulphur at Main Pass No. 299, the joint
venture also discovered oil and natural gas reserves which were located
in the same immediate area. Production began in 1991. At June 30,
1993, the field contained proved and probable reserves of 26.7 million
barrels of oil and 2.8 billion cubic feet of natural gas.
OTHER MATTERS
The Company is subject to various environmental laws of federal and
local governments in the United States and Canada. Although
significant capital expenditures, as well as operating costs, have been
incurred and will continue to be incurred on account of these laws and
regulations, the Company does not believe they have had or will have a
material adverse effect on its business. However, the Company cannot
predict the impact of new or changed laws or regulations.
In connection with the development order received from Polk County,
Florida authorities in July 1990 for the New Wales gypsum stack
expansion at the Company's New Wales phosphate chemicals facility, the
Company agreed to sample groundwater through monitoring wells on a
quarterly basis. Under the terms of the development order, if the
samples indicated groundwater contamination in excess of specified
levels, the Company would have two years to take the cooling pond
relating to the gypsum stack out of service.
Beginning in July 1992, water samples taken at New Wales indicated
substantially elevated levels of sulphate concentrations, a non-toxic
contaminant, above permitted levels. The Company immediately began an
investigation and believes, based on available information and the
advice of outside experts, that the likely sources of contamination are
one or more of the 12 former recharge wells located within the cooling
pond. To date, all of the recharge wells have been located and 11 of
the 12 recharge wells have been plugged. The aggregate cost of
locating and plugging all of the recharge wells is estimated to be
approximately $2.3 million. Pursuant to an amended development order
and related action plan, which have been approved by the Central
Florida Regional Planning Council and by Polk County authorities, (i)
the Company will have until April 30, 1994 to plug the remaining
recharge well and will have until October 3, 1994 for levels of
contamination to return to permitted levels, and (ii) if either of such
deadlines is not met, the Company will have until September 1997 to
obtain permits for and to accomplish the lining or relocation of the
cooling pond. The cost of such lining or relocation, if necessary, is
currently estimated to be between $35 million and $68 million, with the
bulk of any such expenditures expected to take place in 1996 and 1997.
The Company has been advised by its outside experts that plugging the
recharge wells should reduce the contamination to permitted levels, but
there can be no assurance in this regard. Pursuant to the agreement
for the formation of the joint venture discussed above, any
expenditures relating to these, or any other, actions with respect to
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this contamination would be a liability retained by the Company,
provided that the first $5 million aggregate amount of expenditures
incurred subsequent to the formation of the joint venture partnership
that related to this contamination or certain other environmental
liabilities identified in the agreement for the formation of the joint
venture would be a liability assumed by the Partnership.
Environmental capital expenditures were primarily related to air
emission control, wastewater purification, land reclamation and solid
waste disposal. These expenditures totaled approximately $14 million
in 1993. The Company expects that with the addition of the newly
formed joint venture partnership, environmental capital expenditures
(including its portion of the Partnership's environmental capital
expenditures) will average between $20 million and $25 million per year
over the next two years.
