=============================================================================
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 March 31, 1999
Commission file number 1-9759
IMC Global Inc.
(Exact name of Registrant as specified in its charter)
Delaware 36-3492467
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2100 Sanders Road 60062
Northbrook, Illinois (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code: (847) 272-9200
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X . No .
----- -----
APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares
outstanding of each of the issuer's classes of common stock as of the latest
practicable date: 114,472,754 shares, excluding 10,676,276 treasury shares as
of May 10, 1999.
=============================================================================
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
The accompanying interim condensed consolidated financial
statements of IMC Global Inc. (Company) do not include all
disclosures normally provided in annual financial statements.
These financial statements, which should be read in
conjunction with the consolidated financial statements
contained in the Company's Annual Report on Form 10-K for the
year ended December 31, 1998, are unaudited but include all
adjustments which the Company's management considers necessary
for a fair presentation. These adjustments consist of normal
recurring accruals except as discussed in the following Notes
to Condensed Consolidated Financial Statements. 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 CONSOLIDATED STATEMENT OF EARNINGS
(In millions, except per share amounts)
<CAPTION>
Three months ended
March 31,
1999 1998
<S> <C> <C>
Net sales $ 769.4 $ 536.5
Cost of goods sold 558.5 382.6
------- -------
Gross margins 210.9 153.9
Selling, general and administrative expenses 42.3 37.4
Exploration expenses 1.5 9.5
------- -------
Operating earnings 167.1 107.0
Interest expense 47.3 21.2
Other (income) expense, net (2.5) (3.9)
------- -------
Earnings from continuing operations before
minority interest 122.3 89.7
Minority interest 13.2 5.4
------- -------
<PAGE>
Earnings from continuing operations before taxes 109.1 84.3
Provision for income taxes 40.9 29.6
------- -------
Earnings from continuing operations before
extraordinary item and cumulative effect of a
change in accounting principle 68.2 54.7
Loss from discontinued operations - (6.7)
------- -------
Earnings before extraordinary item and
cumulative effect of a change in accounting
principle 68.2 48.0
Extraordinary charge - debt retirement - (2.7)
Cumulative effect of a change in accounting
principle (7.5) -
------- -------
Net earnings $ 60.7 $ 45.3
======= =======
Basic earnings per share:
Earnings from continuing operations before
extraordinary item and cumulative effect of a
change in accounting principle $ 0.60 $ 0.48
Loss from discontinued operations - (0.06)
Extraordinary charge - debt retirement - (0.02)
Cumulative effect of a change in accounting
principle (0.07) -
------- -------
Net earnings per share $ 0.53 $ 0.40
======= =======
Basic weighted average number of shares
outstanding 114.3 114.0
Diluted earnings per share:
Earnings from continuing operations before
extraordinary item and cumulative effect of
a change in accounting principle $ 0.60 $ 0.48
Loss from discontinued operations - (0.06)
Extraordinary charge - debt retirement - (0.02)
Cumulative effect of a change in accounting
principle (0.07) -
------- -------
Net earnings per share $ 0.53 $ 0.40
======= =======
<PAGE>
Diluted weighted average number of shares
outstanding 114.5 114.8
</TABLE>
(See Notes to Condensed Consolidated Financial Statements)
<PAGE>
<TABLE>
CONDENSED CONSOLIDATED BALANCE SHEET
(Dollars in millions)
<CAPTION>
March 31, December 31,
Assets 1999 1998
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 62.2 $ 110.6
Receivables, net 397.0 421.5
Inventories, net 522.4 580.6
Assets of discontinued operations
held for sale 276.2 273.3
Deferred income taxes 91.1 91.1
Other current assets 13.1 5.5
--------- ---------
Total current assets 1,362.0 1,482.6
Property, plant and equipment, net 3,728.4 3,697.4
Other assets 1,250.5 1,276.9
--------- ---------
Total assets $ 6,340.9 $ 6,456.9
========= =========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 221.9 $ 255.9
Accrued liabilities 225.1 240.9
Short-term debt and current
maturities of long-term debt 293.3 408.3
--------- ---------
Total current liabilities 740.3 905.1
Long-term debt, less current maturities 2,616.3 2,638.7
Deferred income taxes 573.3 566.6
Other noncurrent liabilities 487.8 486.1
Stockholders' equity:
Common stock, $1 par value, authorized
300,000,000 shares; issued 125,086,727
and 125,072,811 shares at March 31 and
December 31, respectively 125.1 125.0
Capital in excess of par value 1,696.7 1,697.3
Retained earnings 450.6 400.6
Accumulated other comprehensive income (54.7) (66.3)
<PAGE>
Treasury stock, at cost, 10,676,276
and 10,738,520 shares at March 31
and December 31, respectively (294.5) (296.2)
--------- ---------
Total stockholders' equity 1,923.2 1,860.4
--------- ---------
Total liabilities and stockholders'
equity $ 6,340.9 $ 6,456.9
========= =========
</TABLE>
(See Notes to Condensed Consolidated Financial Statements)
<PAGE>
<TABLE>
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(In millions)
<CAPTION>
Three months ended
March 31,
1999 1998
<S> <C> <C>
Cash Flows from Operating Activities
Net earnings $ 60.7 $ 45.3
Adjustments to reconcile net earnings
to net cash provided by operating activities:
Depreciation, depletion and amortization 66.0 48.2
Minority interest 13.2 5.4
Deferred income taxes 6.7 6.3
Other charges and credits, net (2.9) (27.8)
Changes in:
Receivables 24.5 (13.3)
Inventories 58.2 (86.7)
Other current assets (7.4) (0.2)
Accounts payable (34.0) 66.5
Accrued liabilities (7.2) (17.4)
Net current assets of discontinued
operations 6.2 -
------- -------
Net cash provided by operating activities 184.0 26.3
------- -------
Cash Flows from Investing Activities
Capital expenditures (80.4) (88.7)
Other 1.2 1.3
------- -------
Net cash used in investing activities (79.2) (87.4)
------- -------
Net cash provided (used) before financing
activities 104.8 (61.1)
------- -------
<PAGE>
Cash Flows from Financing Activities:
Cash distributions to the unitholders of
Phosphate Resource Partners Limited Partnership (5.0) -
Payments of long-term debt (0.9) (728.3)
Proceeds from issuance of long-term debt, net 5.1 886.3
Changes in short-term debt, net (144.7) (82.0)
Stock options exercised and restricted stock
awards 1.4 7.9
Cash dividends paid (9.1) (9.1)
Other - 0.4
------- -------
Net cash provided by (used in) financing
activities (153.2) 75.2
------- -------
Net change in cash and cash equivalents (48.4) 14.1
Cash and cash equivalents - beginning of
period 110.6 109.7
------- -------
Cash and cash equivalents - end of period $ 62.2 $ 123.8
======= =======
</TABLE>
(See Notes to Condensed Consolidated Financial Statements)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except per share amounts)
1. Acquisitions
------------
In April 1998, the Company acquired privately held Harris Chemical
Group, Inc. and its Australian affiliate, Harris Chemical Australia
Pty Ltd. & Its Controlled Entities (collectively, Harris), for
approximately $1.4 billion (Harris Acquisition). Under the terms
of the Harris Acquisition, the Company purchased all Harris equity
for approximately $450.0 million in cash and assumed approximately
$1.0 billion of debt. Harris, with annual sales of approximately
$800.0 million, is a leading producer of salt, soda ash, boron
chemicals and other inorganic chemicals, including potash crop
nutrients.
<PAGE>
For financial statement purposes, the Harris Acquisition was
accounted for as a purchase and, accordingly, Harris' results have
been included in the consolidated financial statements since the
date of acquisition. The purchase price, which was initially
financed through proceeds borrowed under credit facilities and
assumed debt, has been allocated to acquired assets and liabilities
based on estimated fair values at the date of acquisition. This
allocation resulted in an excess of purchase price over
identifiable net assets acquired, or goodwill, of approximately
$326.0 million which is included in Other assets in the Condensed
Consolidated Balance Sheet. This goodwill is being amortized on a
straight-line basis over 40 years.
The unaudited pro forma information of the Company for the period
set forth below gives effect to the Harris Acquisition as if it had
occurred as of January 1, 1998. No pro forma effect is given for
the three months ended March 31, 1999 as actual results include the
effect of the Harris Acquisition. The pro forma information is
presented for informational purposes only and is not necessarily
indicative of the results of operations that actually would have
been achieved had the Harris Acquisition been consummated as of
that time.
<TABLE>
<CAPTION>
Three months ended
March 31, 1998
------------------
<S> <C>
Net sales $ 763.7
Earnings from continuing operations before
minority interest 94.1
Earnings from continuing operations before
taxes 88.7
Earnings from continuing operations before
extraordinary item and cumulative effect
of a change in accounting principle 61.3
Net earnings 49.4
Net earnings per diluted share 0.43
</TABLE>
<PAGE>
2. Restructuring Plan
------------------
During the fourth quarter of 1998, the Company 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 in an
effort to realize certain operating and staff reduction synergies;
(ii) restructuring of the phosphate rock mining, concentrated
phosphate and salt 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
the Company's core competencies; and (iv) reduction of operational
and corporate headcount. In conjunction with the Restructuring
Plan, the Company recorded pre-tax charges totaling $193.3 million
($162.0 million net of minority interest) in the fourth quarter of
1998.
The following table summarizes the activity during the period
January 1, 1999 to March 31, 1999 of the accruals recorded in
conjunction with the Restructuring Plan.
<TABLE>
<CAPTION>
Accrual at Accrual at
January 1, 1999 Cash Paid March 31, 1999
--------------- --------- -------------
<S> <C> <C> <C>
Asset impairments:
Facilities closed prior
to December 31, 1998 $ - $ - $ -
Facilities to be closed
in 1999 - - -
Non-employee exit costs:
Demolition and closure
costs 33.6 1.3 32.3
Idled leased
transportation equipment 13.2 1.5 11.7
Other 5.3 1.7 3.6
Employee headcount reductions:
Severance benefits 17.4 13.1 4.3
Settlement, curtailment
and special termination
benefits - - -
Inventories and spare parts of exited businesses:
Finished goods inventories - - -
Spare parts inventories - - -
------ ------ ------
Total $ 69.5 $ 17.6 $ 51.9
====== ====== ======
</TABLE>
<PAGE>
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 quarter of 1999, 51
employees, who had accepted a voluntary retirement plan as of
December 31, 1998, left the Company in accordance with their target
retirement date.
3. Discontinued Operations
-----------------------
The Consolidated Statement of Operations of the Company has been
restated to report separately the operating results of IMC
AgriBusiness (AgriBusiness) as discontinued operations. See Note 8,
"Subsequent Events."
For financial reporting purposes, the assets and liabilities of
AgriBusiness to be sold, net of estimated loss on disposal, have
been classified in the Consolidated Balance Sheet as Assets of
discontinued operations held for sale as follows:
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
--------- ------------
<S> <C> <C>
Assets:
Accounts receivable $ 78.9 $ 63.7
Inventories 215.9 157.1
Other current assets 0.7 0.5
Property, plant and equipment, net 140.0 130.4
Other assets 5.3 6.0
------- -------
Total assets 440.8 357.7
<PAGE>
Liabilities:
Accounts payable 155.4 69.8
Accrued liabilities 6.0 11.1
Other noncurrent liabilities 3.2 3.5
------- -------
Total liabilities 164.6 84.4
------- -------
Assets of discontinued operations
held for sale $ 276.2 $ 273.3
======= =======
</TABLE>
4. Extraordinary Charge - Debt Retirement
--------------------------------------
In January 1998, the Company prepaid $120.0 million of unsecured
term loans which bore interest at rates ranging between 7.12
percent and 7.18 percent which were to mature at various dates
between 2000 and 2005. In connection with the prepayment of such
unsecured term loans, the Company recorded an extraordinary charge,
net of taxes, of $2.7 million for redemption premiums incurred.
This prepayment was financed by net debt proceeds from the issuance
in January 1998 of $150.0 million 6.55 percent senior notes due
2005 and $150.0 million 7.30 percent debentures due 2028.
5. Change in Accounting Principle
------------------------------
In April 1998, the American Institute of Certified Public
Accountants issued Statement of Position (SOP) 98-5, "Reporting the
Costs of Start-Up Activities," which mandated that costs related to
start-up activities be expensed as incurred, effective January 1,
1999. Prior to the adoption of SOP 98-5, the Company capitalized
its start-up costs (i.e., pre-operating costs). The Company
adopted the provisions of SOP 98-5 in its financial statements
beginning on January 1, 1999 and in accordance with SOP 98-5
recorded a charge for the cumulative effect of an accounting change
of $7.5 million or $0.07 per share, net of tax benefits and
minority interest, in order to expense start-up costs that had been
previously capitalized. The future impact of SOP 98-5 will not be
material to the Company's operating results.
<PAGE>
6. Operating Segments
------------------
Segment information for 1999 and 1998 was as follows(a):
<TABLE>
<CAPTION>
IMC-Agrico IMC IMC IMC
Phosphates Kalium Salt Chemicals Other(b) Total
---------- ------ ---- --------- -------- -----
<S> <C> <C> <C> <C> <C> <C>
Three months ended March 31, 1999
Net sales from
external
customers $337.8 $161.2 $125.0 $100.4 $ 45.0 $769.4
Intersegment
net sales 37.0 25.8 0.6 - - 63.4
Gross margins 86.7 69.9 44.7 11.5 (1.9) 210.9
Operating
earnings 77.6 64.9 36.2 4.2 (15.8) 167.1
IMC-Agrico IMC IMC IMC
Phosphates Kalium Salt Chemicals Other(b) Total
---------- ------ ---- --------- -------- -----
Three months ended March 31, 1998
Net sales from
external
customers $316.2 $150.2 $ - $ - $ 70.1 $536.5
Intersegment
net sales 48.3 25.4 - - 3.0 76.7
Gross margins 71.3 76.6 - - 6.0 153.9
Operating
earnings 61.1 69.9 - - (24.0) 107.0
(a) The operating results and assets of Great Salt Lake Minerals
(GSL), IMC Salt (Salt) and IMC Chemicals (Chemicals), acquired
as part of the Harris Acquisition, are included in the segment
information since the date of acquisition, April 1998. See
Note 1, "Acquisitions." The operating results of AgriBusiness
have not been included in the segment information provided as
this business has been classified as discontinued operations.
See Note 3, "Discontinued Operations."
<PAGE>
(b) Segment information below the quantitative thresholds is
attributable to two business units [IMC-Agrico Feed
Ingredients (Feed Ingredients) and IMC Vigoro] and corporate
headquarters. The Company produces and markets animal feed
ingredients through Feed Ingredients. IMC Vigoro manufactured
and distributed consumer lawn and garden products; produced
and marketed professional products for turf, nursery and
horticulture markets; and produced and distributed potassium-
based ice melter products. IMC Vigoro was sold in June 1998.
Corporate headquarters includes the elimination of
inter-business unit transactions and oil and gas activities
through its interest in Phosphate Resource Partners Limited
Partnership.
</TABLE>
7. Comprehensive Income
--------------------
Comprehensive income, net of taxes, was as follows:
<TABLE>
<CAPTION>
Three months ended
March 31,
1999 1998
------------------
<S> <C> <C>
Comprehensive income:
Net earnings $ 60.7 $ 45.3
Foreign currency translation adjustment 11.6 2.4
------ ------
Total comprehensive income for the period $ 72.3 $ 47.7
====== ======
</TABLE>
8. Subsequent Events
-----------------
In December 1998, the Company signed an agreement to sell Chemicals
with the Company retaining an ongoing minority economic interest.
However, due to the recent downturn in performance in the soda ash
business, which management believes is temporary, the Company's
anticipated sale of the Chemicals business unit will not occur
under the terms of the current agreement. The Company is exploring
alternative disposition strategies with the ultimate disposition
<PAGE>
expected to be completed by the end of 1999. No adjustment to the
estimated loss on the sale of Chemicals, which was accrued in the
fourth quarter of 1998, is warranted at this time as management
believes that the value for Chemicals, utilized in the estimated
loss calculation, can be received pursuant to one of the proposed
alternative disposition strategies.
In April 1999, the Company completed the sale of AgriBusiness and
received proceeds of approximately $265.0 million which were used
to reduce the amount of the Company's outstanding indebtedness.
The final sale proceeds still remain subject to the settlement of
certain items outlined in the definitive sales agreement. The
Company expects final settlement during the second quarter of
1999. See Note 3, "Discontinued Operations."
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.(1)
Results of Operations
---------------------
Three months ended March 31, 1999 vs. three months ended
March 31, 1998
--------------------------------------------------------
Overview
Net sales for the first quarter ended March 31, 1999 were
$769.4 million and gross margins were $210.9 million.
Earnings from continuing operations before a cumulative effect
of a change in accounting principle, were $68.2 million, or
$0.60 per share. A cumulative effect of a change in
accounting principle of $7.5 million, or $0.07 per share,
reduced net earnings to $60.7 million, or $0.53 per share.
Net sales for the first quarter ended March 31, 1998 were
$536.5 million and gross margins were $153.9 million.
Earnings from continuing operations before an extraordinary
charge were $54.7 million, or $0.48 per share. Net earnings
of $45.3 million, or $0.40 per share were reduced by a loss
from discontinued operations of $6.7 million, or $0.06 per
share, and an extraordinary charge of $2.7 million, or $0.02
per share, related to the early extinguishment of debt.
<PAGE>
Net sales increased 43 percent from the prior year first
quarter while gross margins increased 37 percent from the same
period one year ago. The sales improvement was attributable
to continued strong demand for the Company's agricultural
products as well as additional revenues from the Harris
Acquisition. Increased international prices and higher
domestic sales volumes at IMC-Agrico Phosphates (Phosphates),
higher prices and export volumes at IMC Kalium (Kalium),
and improved sales, particularly to Asia, at Feed Ingredients
contributed to the sales improvement noted above.
The gross margin increase was primarily attributable to the
following: (i) favorable margins from the Harris Acquisition;
and (ii) tighter cost controls at Phosphates; partially offset
by (iii) reduced margins at Kalium largely attributable to
lower domestic volumes and changes in product mix.
The operating results of the Company's significant business
units are discussed in more detail below.
IMC-Agrico Phosphates
Phosphates' net sales for the first quarter increased $10.3
million from $364.5 million in 1998 to $374.8 million in 1999,
primarily as a result of higher average concentrates sales
realizations and higher uranium sales volumes, partially
offset by lower sales volumes of concentrates. Higher average
concentrate sales prices of $5.3 million were driven by higher
average diammonium phosphate (DAP) realizations. A decrease
of $7.0 million in sales volumes of concentrated phosphates
was primarily due to decreased shipments of monoammonium
phosphate, granular monoammonium phosphate and granular triple
superphosphate, partially offset by increased shipments of
merchant acid and DAP. The decreased shipments were mainly
attributable to lower international shipments to certain
countries. Uranium volumes increased net sales by $9.3
million as a result of the absence of sales in the prior year
caused by a temporary delay pending an anticipated upswing in
spot market prices.
<PAGE>
Gross margins increased 22 percent to $86.7 million in the
first quarter of 1999 compared to $71.3 million in the first
quarter of 1998, mainly due to lower production costs and the
higher prices discussed above, partially offset by the lower
volumes discussed above. Production costs decreased compared
to the prior year's first quarter primarily as a result of
improved mining conditions for the phosphate rock operations,
as well as the following factors: (i) dry weather; (ii) a
reduction in water removal efforts; and (iii) lower raw
material costs for purchased ammonia and natural gas.
IMC Kalium
Kalium's net sales increased six percent to $187.0 million in
the current quarter from $175.6 million in the prior year
quarter. The improvement was primarily due to higher prices
resulting from multiple price increases when compared to the
same period in the prior year and increased export sales.
Increased export sales volumes were slightly offset by lower
domestic sales volumes arising from lower domestic demand as
North American customers took advantage of favorable pricing
terms in the fourth quarter of 1998 by pre-purchasing product
that normally would have been sold during the first quarter.
Current quarter domestic sales volumes were also negatively
affected by poor weather conditions which delayed the start of
field work.
Gross margins decreased nine percent to $69.9 million for the
quarter from $76.8 million in the same period one year ago.
This decrease was primarily due to the impact of the lower
domestic sales volumes discussed above and higher production
costs, partially offset by the increased sales prices
discussed above. The higher production costs were primarily
due to increased water control expenditures and resource taxes
as well as the impact of product mix.
IMC Salt
Salt's net sales were $125.6 million with gross margins of
$44.7 million in the current quarter. These results were
higher than comparable pre-acquisition amounts of $92.2
million and $37.5 million, respectively. Salt, a new core
business for the Company, was established concurrent with the
Harris Acquisition. Demand for highway and consumer deicing
products was generally stronger than the prior year period
despite milder than average winter weather.
<PAGE>
Other
The Company's net sales and gross margins in the current
quarter included results from Feed Ingredients and Chemicals.
Chemicals, with current quarter sales and margins of $100.4
million and $11.5 million, respectively, was established
concurrent with the Harris Acquisition. Sales and gross
margins at Feed Ingredients increased eight percent and 23
percent, respectively, to $43.4 million and $9.2 million,
respectively, for the current quarter as compared to the prior
year period. The Feed Ingredients increases were driven by
improved sales, particularly to Asia, reduced spending and raw
material costs along with lower production costs related to
increased production volumes. Partially offsetting these
increases in current quarter sales and gross margins, as
compared to the same period in the prior year, was the absence
of sales and margins for IMC Vigoro as a result of its
divestiture during the second quarter of 1998. See Note 6,
"Operating Segments," of Notes to Condensed Consolidated
Financial Statements.
Key Statistics
The following table summarizes the Company's core business
sales volumes and average selling prices for the three months
ended March 31:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Sales volumes (in thousands of short tons)(a):
IMC-Agrico Phosphates 1,690 1,758
IMC Kalium 2,157 2,287
IMC Salt 5,210 n/a
Average price per ton(b):
DAP $176 $171
Potash 86 77
Salt 24 n/a
(a) Sales volumes include tons sold captively. Phosphates'
volumes represent dry product tons, primarily DAP.
(b) Average prices represent sales made FOB mine/plant.
n/a Not applicable as a result of the Harris Acquisition in
April 1998.
</TABLE>
<PAGE>
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased $4.9
million, or 13 percent, to $42.3 million for the current
quarter compared to $37.4 million for the first quarter of
1998. This increase was primarily due to the Harris
Acquisition, partially offset by the divestiture of IMC Vigoro
in June 1998 and an overall reduction in general corporate
spending. See Note 1, "Acquisitions," of Notes to Condensed
Consolidated Financial Statements.
Exploration Expenses
The Company participates in the exploration and production of
oil and gas (Exploration Program) through its ownership of
Phosphate Resource Partners Limited Partnership (PLP).
Exploration expenses of $1.5 million related to the
Exploration Program for the three months ended March 31, 1999
were largely comprised of geological and geophysical expenses.
The decrease from prior year expenses of $9.5 million occurred
largely because of the absence of dry hole costs in the
current quarter compared to $7.2 million of dry hole costs for
the same period in 1998.
Interest Expense
Interest expense totaled $47.3 million in the current quarter,
an increase of $26.1 million from the same period in the prior
year. The increase in interest expense was due to increased
debt outstanding primarily as a result of debt assumed in
connection with the Harris Acquisition.
Minority Interest
Minority interest increased in the current quarter $7.8
million from the same period last year to $13.2 million. The
increase in minority interest was attributable to higher IMC-
Agrico Company (IMC-Agrico) earnings and lower exploration
expenses in the current quarter as compared to the prior year
period.
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
quarter of 1999, 51 employees, who had accepted a voluntary
retirement plan as of December 31, 1998, left the Company in
accordance with their target retirement date. See Note 2,
"Restructuring Plan," of Notes to Condensed Consolidated
Financial Statements.
<PAGE>
Divestitures
In December 1998, the Company signed an agreement to sell
Chemicals with the Company retaining an ongoing minority
economic interest. However, due to the recent downturn in
performance in the soda ash business, which management
believes is temporary, the Company's anticipated sale of
Chemicals will not occur under the terms of the current
agreement. The Company is exploring alternative disposition
strategies with the ultimate disposition expected to be
completed by the end of 1999. No adjustment to the estimated
loss on the sale of Chemicals, which was accrued in the fourth
quarter of 1998, is warranted at this time as management
believes that the value for Chemicals, utilized in the
estimated loss calculation, can be received pursuant to one of
the proposed alternative disposition strategies.
Capital Resources and Liquidity
-------------------------------
The Company generates significant cash from operations and has
sufficient borrowing capacity to meet its operating and
discretionary spending requirements.
Operating activities generated $184.0 million of cash in 1999
compared with $26.3 million in 1998. The increase of $157.7
million was primarily due to a decrease in working capital and
lower debt fee payments as a result of a reduction in debt
issuances. The change in working capital was primarily the
result of lower inventory levels in response to the upcoming
planting season and increased collection of receivables.
Net cash used in investing activities decreased $8.2 million
compared with 1998 primarily due to lower capital
expenditures. The decrease primarily related to the absence
in 1999 of AgriBusiness capital expenditures as this business
has been discontinued. The Company estimates that its capital
expenditures for 1999 will be approximately $250.0 million and
will be financed primarily through operations.
<PAGE>
Cash generated from financing activities decreased $228.4
million in 1999 from a source of funds of $75.2 million to a
use of funds of $153.2 million. This decrease in financing
funds was primarily due to lower net debt proceeds in 1999 of
$216.5 million and increased cash distributions to the
unitholders of Phosphate Resource Partners Limited Partnership
of $5.0 million. In April 1999, the Company completed the sale
of AgriBusiness and received proceeds of approximately $265.0
million which were used to reduce the amount of the Company's
outstanding indebtedness.
Year 2000 Compliance
--------------------
Like other businesses dependent on modern technology, the
Company must address potential Year 2000-related issues. The
Company is progressing through a comprehensive program (Year
2000 Program) to evaluate and address the impact of Year 2000-
related issues on its operational systems, business
application software, computer hardware, facilities
infrastructure and equipment with embedded technology, and
Year 2000-related risks associated with its vendors and
customers.
The Company's Year 2000-related effort is a cooperative
venture coordinated among business units and appropriate
members of the Company's senior management. Progress reviews
are held regularly with senior management and the Board of
Directors. As an additional step, the Company has created the
position of Year 2000 Risk Manager to provide Company-wide
leadership, oversight and coordination of its Year 2000
project.
State of Readiness
The Company 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. The Company expects that its Year 2000
Program will be substantially complete by the end of the third
quarter of 1999.
<PAGE>
System Inventory and Analysis Phase The system inventory and
analysis phase consists of compiling a detailed inventory of
all of the Company's systems and platforms to determine which
items are date sensitive, affected by the Year 2000, and
therefore require remediation. Each of the Company's business
units 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 Company engineers,
technicians and business unit managers, as well as contact
with the manufacturers of computer systems and equipment used
by the Company in its operations. Each of the Company's
business units has completed its system inventory and analysis
phase. The principal business application systems requiring
remediation that were identified by the Company during this
stage include the following systems: (i) equipment
maintenance; (ii) spare parts inventory; (iii) distribution;
(iv) customer order entry; and (v) financial/accounting. In
addition, some Company plants have identified certain
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. In certain
cases, the Company has also retained special consultants to
assist with its remediation efforts. The Company expects all
of its business units to have substantially completed the
remediation, testing and implementation phase in the third
quarter of 1999.
<PAGE>
As a separate initiative, the Company 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. Each business unit has developed a questionnaire
that has been submitted to its primary suppliers and vendors
to determine their Year 2000-related status. The business
units are currently analyzing the information provided in
these responses, and will determine the best way to address
any specific issues. As an additional precaution when
appropriate, each business unit'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 the Company is attempting to monitor and validate the
efforts of other parties, it may not have control over the
success of these efforts. In the event that satisfactory
commitments from key suppliers are not received, the Company
is forming plans for the continuing availability of critical
materials and supplies through alternate channels. In
general, however, the Company is satisfied with the progress
made by key vendors to date and no critical issues have been
identified.
In addition to investigating the Company's key suppliers, the
Company's business units are also contacting key customers to
explain the Company's 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.
<PAGE>
Costs
The Company 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 for Year 2000-related issues
are expensed as incurred and are funded through operating cash
flows. In a few limited instances, some business units have
deferred certain non-Year 2000-related information technology
projects due to their respective Year 2000-related efforts.
The Company believes, however, that these deferred projects
are not critical to its present or future financial
performance or business operations. The Company estimates its
total Year 2000-related technology and non-information
technology systems remediation costs to be approximately $6.0
million, of which approximately $2.0 million was expended in
1998. The remaining costs will be incurred during 1999. A
sizable portion of these costs represent the redeployment of
existing employee resources rather than incremental expenses.
Risks
Progress reports on the Year 2000 Program are presented
regularly to the Company's Board of Directors and senior
management. As the program continues, the Company may
discover additional Year 2000-related challenges, including
that remediation plans are not feasible or that the cost of
such plans exceeds current expectations. In many cases, the
Company is relying on written assurances from vendors that the
current systems are, or that new or upgraded systems acquired
by the Company will adequately address Year 2000-related
issues. The Company 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 the Company'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. The Company 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 the Company. Although there can be no
assurance that the Company 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
<PAGE>
that the Company 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 the Company's remediation efforts or the efforts of
those it does business with not be successful. If either the
Company, or the Company's vendors, fail to adequately address
Year 2000-related issues, the Company may suffer business
interruptions. If such interruptions cause the Company to be
unable to fulfill its obligations to third parties, the
Company may potentially be exposed to third-party liability.
Contingency Planning
The Company is developing contingency measures to address the
possibility that it will not have fully addressed Year 2000-
related issues by December 31, 1999. Each of the Company's
business units is developing a contingency plan based upon
templates and suggested procedures that have been provided by
the Year 2000 Risk Manager. Each business unit contingency
plan will identify the risk and document the steps that need
to be taken to allow the Company to continue to meet the needs
of its customers in the event of a Year 2000-related failure.
The Company expects each business unit to complete its
contingency plan in the third quarter of 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.
The Company is exposed to the impact of interest rate changes,
fluctuations in the Canadian currency, and fluctuations in the
purchase price of natural gas, ammonia and sulphur consumed in
operations, as well as changes in the market value of its
financial instruments. The Company periodically enters into
derivatives in order to minimize these risks, but not for
trading purposes. At March 31, 1999, the Company's exposure
to these market risk factors was not significant and had not
materially changed from December 31, 1998.
<PAGE>
Part II. OTHER INFORMATION
Item 1. Legal Proceedings.(1)
Potash Antitrust Litigation
---------------------------
The Company was a defendant, along with other Canadian and
United States potash producers, in a class action antitrust
lawsuit filed in federal court in 1993. The plaintiffs
alleged a price-fixing conspiracy among North American potash
producers beginning in 1987 and continuing until the filing of
the complaint. The class action complaint against all
defendants, including the Company, was dismissed by summary
judgment in January 1997. The summary judgment dismissing the
case was appealed by the plaintiffs to the United States Court
of Appeals for the Eighth Circuit (Court of Appeals).
Recently, the Court of Appeals in a divided opinion (2 to 1)
rendered its decision reversing the grant of summary judgment
as to certain defendants, including the Company, and affirming
as to certain other defendants. The dissent strongly
disagreed with the majority opinion, stating that the majority
had erred in not affirming the dismissal of the case as to all
of the defendants. According to the dissent, all of the
defendants were entitled to summary judgment. The Company,
along with the other defendants remaining in the case, intend
to seek rehearing of the case from the entire Court of
Appeals.
In addition, in 1993 and 1994, class action antitrust lawsuits
with allegations similar to those made in the federal case
were filed against the Company and other Canadian and United
States potash producers in state courts in Illinois and
California. The Illinois case was dismissed for failure to
state a claim. In the California litigation, all proceedings
have been stayed pending the decision of the Court of Appeals.
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. The Company was alleged to
have aided and abetted these breaches of fiduciary duty.
<PAGE>
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 the
Company. 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. IMC alleges that the Director Defendants, as the
directors of PLP's administrative managing general partner
FTX, owed duties of loyalty to PLP and its limited partnership
unitholders. IMC further alleges that the Director
Defendants breached their duties by causing PLP to enter into
a series of interrelated non-arm's-length transactions with
MOXY, an affiliate of FTX.
IMC also alleges that MOXY knowingly aided and abetted and
conspired with the Director Defendants to breach their
fiduciary duties. On behalf of the PLP public unitholders,
IMC seeks to reform or rescind the contracts that PLP entered
into with MOXY and to recoup the monies 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 to dismiss which are awaiting argument. No
trial date has been scheduled. IMC intends to pursue this
action vigorously.
<PAGE>
In May 1998, Jacob Gottlieb filed an action (Gottlieb Action)
on behalf of himself and all other PLP unitholders against the
Director Defendants, MOXY and IMC asserting the same claims
that IMC asserts in the IMC Action. Because IMC and PLP had
already asserted these claims, IMC has filed a motion to
dismiss the Gottlieb Action. The court has not set a briefing
schedule for IMC's motion to dismiss. IMC intends to defend
this action vigorously.
Other
-----
In the ordinary course of its business, the Company is and
will from time to time be involved in legal proceedings of a
character normally incident to its business. The Company
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 the
Company.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
Exhibit No. Description
--------------------------------------------------------
11 Earnings Per Share Computation
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.
<PAGE>
**************************
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
IMC GLOBAL INC.
by: /s/ Anne M. Scavone
------------------------
Anne M. Scavone
Vice President and Controller
(on behalf of the Registrant
and as Chief Accounting Officer)
Date: May 14, 1999
<PAGE>
- - -------------------------------
(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 or in
localities where the Company or its customers operate; weather
conditions; the impact of competitive products; pressure on prices
realized by the Company for its products; constraints on supplies
of raw materials used in manufacturing certain of the Company's
products; capacity constraints limiting the production of certain
products; difficulties or delays in the development, production,
testing and marketing of products; difficulties or delays in
receiving required governmental and regulatory approvals; market
acceptance issues, including the failure of products to generate
anticipated sales levels; difficulties in integrating acquired
businesses and in realizing related cost savings and other
benefits; the effects of and change in trade, monetary and fiscal
policies, laws and regulations; foreign exchange rates and
fluctuations in those rates; the costs and effects of legal
proceedings, including environmental, and administrative
proceedings involving the Company; the completion of the
Company's Year 2000 program; and the other risk factors reported
from time to time in the Company's Securities and Exchange
Commission reports.
EXHIBIT 11
<TABLE>
EARNINGS PER SHARE
DILUTED COMPUTATION
FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 1998
(IN MILLIONS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<CAPTION>
Three months ended
March 31,
---------------------
1999 1998
---- ----
<S> <C> <C>
Basis for computation of diluted
earnings per share:
Earnings from continuing operations
before extraordinary item and
cumulative effect of a change in
accounting principle $ 68.2 $ 54.7
Loss from discontinued operations - (6.7)
Extraordinary charge - debt retirement - (2.7)
Cumulative effect of a change in
accounting principle (7.5) -
----------- -----------
Net earnings applicable to
common stock $ 60.7 $ 45.3
=========== ===========
Number of shares:
Weighted average shares outstanding 114,290,868 114,003,829
Common stock equivalents 252,339 767,391
----------- -----------
Total common and common equivalent
shares assuming dilution 114,543,207 114,771,220
=========== ===========
Diluted earnings per share:
Earnings from continuing operations
before extraordinary item and
cumulative effect of a change in
accounting principle $ 0.60 $ 0.48
Loss from discontinued operations - (0.06)
Extraordinary charge -
debt retirement - (0.02)
Cumulative effect of a change in
accounting principle (0.07) -
---------- ----------
Net earnings $ 0.53 $ 0.40
========== ==========
</TABLE>
This calculation is submitted in accordance with Regulation S-K Item
601(b)(11).
<TABLE> <S> <C>
<PAGE>
<CAPTION>
<S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> Dec-31-1999
<PERIOD-END> Mar-31-1999
<CASH> 46,300
<SECURITIES> 15,900
<RECEIVABLES> 406,100
<ALLOWANCES> 9,100
<INVENTORY> 522,400
<CURRENT-ASSETS> 1,362,000
<PP&E> 6,022,400
<DEPRECIATION> 2,294,000
<TOTAL-ASSETS> 6,340,900
<CURRENT-LIABILITIES> 740,300
<BONDS> 2,616,300
<COMMON> 125,100
0
0
<OTHER-SE> 1,798,100
<TOTAL-LIABILITY-AND-EQUITY> 6,340,900
<SALES> 769,400
<TOTAL-REVENUES> 769,400
<CGS> 558,500
<TOTAL-COSTS> 602,300
<OTHER-EXPENSES> 10,700
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 47,300
<INCOME-PRETAX> 109,100
<INCOME-TAX> 40,900
<INCOME-CONTINUING> 68,200
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 7,500
<NET-INCOME> 60,700
<EPS-PRIMARY> 0.53
<EPS-DILUTED> 0.53
<FN>
<F1>
Earnings per share has been calculated in accordance with Statement of
Financial Accounting Standard No. 128, "Earnings Per Share," and is,
therefore, stated on a basic and diluted basis.
</TABLE>
