ARCADIAN CORP, 10-Q, 1996-08-14

ARCADIAN CORP
10-Q, 1996-08-14
AGRICULTURAL CHEMICALS

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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

(MARK ONE)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1996
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
THE TRANSITION PERIOD FROM --------------- TO ---------------

COMMISSION FILE NUMBER 1-13774

ARCADIAN CORPORATION
(Exact name of registrant as specified in its charter)

<TABLE>
<S> <C>
DELAWARE 76-0275035
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
</TABLE>

6750 POPLAR AVENUE, SUITE 600
MEMPHIS, TENNESSEE 38138-7419
(Address of principal executive offices)
(Zip Code)

(901) 758-5200
(Registrant's telephone number, including area code)

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 / /

At June 30, 1996, there were 32,626,395 outstanding shares of Common Stock,
par value $.01 per share, of Arcadian Corporation.

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<PAGE> 2

ARCADIAN CORPORATION

TABLE OF CONTENTS
FOR
QUARTERLY REPORT ON FORM 10-Q

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
Independent Auditors' Report.......................................................... 3
Condensed Consolidated Balance Sheet as of June 30, 1996, and December 31, 1995....... 4
Condensed Consolidated Statements of Operations for --
Six Months Ended June 30, 1996 and 1995............................................ 5
Three Months Ended June 30, 1996 and 1995.......................................... 6
Condensed Consolidated Statements of Cash Flows for --
Six Months Ended June 30, 1996 and 1995............................................ 7
Three Months Ended June 30, 1996 and 1995.......................................... 8
Notes to Condensed Consolidated Financial Statements.................................. 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS...................................................................... 14
PART II -- OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES........................................................... 18
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS............................. 18
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K................................................ 19
SIGNATURE............................................................................... 20
</TABLE>

1
<PAGE> 3

PART I

FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)

See next page.

2
<PAGE> 4

INDEPENDENT AUDITORS' REPORT

The Board of Directors
Arcadian Corporation:

We have reviewed the condensed consolidated balance sheet of Arcadian
Corporation and subsidiaries as of June 30, 1996, and the related condensed
consolidated statements of operations and cash flows for the three and six-month
periods ended June 30, 1996 and 1995, in accordance with standards established
by the American Institute of Certified Public Accountants.

A review of interim financial information consists principally of obtaining
an understanding of the system for the preparation of interim financial
information, applying analytical review procedures to financial data, and making
inquiries of persons responsible for financial and accounting matters. It is
substantially less in scope than an audit in accordance with generally accepted
auditing standards, the objective of which is the expression of an opinion
regarding the financial statements taken as a whole. Accordingly, we do not
express such an opinion.

Based on our review, we are not aware of any material modifications that
should be made to the condensed consolidated financial statements referred to
above for them to be in conformity with generally accepted accounting
principles.

We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of Arcadian Corporation and
subsidiaries as of December 31, 1995, and the related consolidated statements of
operations, stockholders' equity and cash flows for the year then ended (not
presented herein); and in our report dated February 9, 1996, we expressed an
unqualified opinion on those consolidated financial statements. In our opinion,
the information set forth in the accompanying condensed consolidated balance
sheet as of December 31, 1995, is fairly presented, in all material respects, in
relation to the consolidated balance sheet from which it has been derived.

KPMG PEAT MARWICK LLP

Memphis, Tennessee
August 14, 1996

3
<PAGE> 5

ARCADIAN CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEET

<TABLE>
<CAPTION>
JUNE 30,
1996 DECEMBER 31,
(UNAUDITED) 1995
($000) ($000)
----------- ------------
<S> <C> <C>
ASSETS
Cash and Cash Equivalents........................................... $ 298,860 $ 202,738
Restricted Reserve Accounts......................................... 47,083 50,450
Accounts Receivable, Net............................................ 102,140 109,496
Inventories......................................................... 103,886 136,767
Other............................................................... 5,435 6,569
---------- ----------
Total Current Assets...................................... 557,404 506,020
Property, Plant and Equipment, Net.................................. 597,962 606,410
Goodwill, Net....................................................... 95,175 96,393
Other, Net.......................................................... 68,917 61,831
---------- ----------
$ 1,319,458 $1,270,654
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts Payable and Accrued Liabilities............................ $ 146,448 $ 170,808
Current Portion of Long-Term Debt................................... 15,000 15,000
---------- ----------
Total Current Liabilities................................. 161,448 185,808
---------- ----------
Long-Term Debt, Less Current Portion................................ 510,000 525,000
Accrued Benefits Cost............................................... 10,755 8,329
Other Long-Term Liabilities......................................... 14,507 14,477
Deferred Income Taxes............................................... 110,022 100,621
---------- ----------
645,284 648,427
---------- ----------
Mandatorily Convertible Preferred Stock............................. 202,545 214,195
Common Stock........................................................ 326 305
Additional Paid-In Capital.......................................... 235,696 223,190
Retained Earnings (Deficit)......................................... 74,159 (1,271)
---------- ----------
Total Stockholders' Equity................................ 512,726 436,419
---------- ----------
$ 1,319,458 $1,270,654
========== ==========
</TABLE>

See accompanying notes to condensed consolidated financial statements.

4
<PAGE> 6

ARCADIAN CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)

<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
-----------------------
1996 1995
($000) ($000)
-------- --------
<S> <C> <C>
Net Sales............................................................ $641,718 $691,078
Cost of Sales........................................................ 452,472 492,922
-------- --------
Gross Profit....................................................... 189,246 198,156
Selling, General and Administrative Expenses......................... 24,609 29,136
-------- --------
Operating Income................................................... 164,637 169,020
Interest Expense, Net................................................ 19,701 28,026
Other, Net........................................................... 946 254
-------- --------
Income Before Non-Controlling Interest and Income Taxes.............. 143,990 140,740
Non-Controlling Interest in Earnings of Partnership.................. -- (74,401)
-------- --------
Income Before Income Taxes........................................... 143,990 66,339
Income Tax Provision................................................. 51,326 31,063
-------- --------
Net Income........................................................... $ 92,664 $ 35,276
======== ========
Net Income Per Common Share.......................................... $ 1.97 $ 2.11
======== ========
</TABLE>

See accompanying notes to condensed consolidated financial statements.

5
<PAGE> 7

ARCADIAN CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)

<TABLE>
<CAPTION>
THREE MONTHS ENDED
JUNE 30,
-----------------------
1996 1995
($000) ($000)
-------- --------
<S> <C> <C>
Net Sales............................................................ $344,322 $350,240
Cost of Sales........................................................ 242,506 239,838
-------- --------
Gross Profit....................................................... 101,816 110,402
Selling, General and Administrative Expenses......................... 13,369 13,020
-------- --------
Operating Income................................................... 88,447 97,382
Interest Expense, Net................................................ 8,896 13,468
Other, Net........................................................... (161) 96
-------- --------
Income Before Non-Controlling Interest and Income Taxes.............. 79,712 83,818
Non-Controlling Interest in Earnings of Partnership.................. -- (46,862)
-------- --------
Income Before Income Taxes........................................... 79,712 36,956
Income Tax Provision................................................. 28,078 15,425
-------- --------
Net Income........................................................... $ 51,634 $ 21,531
======== ========
Net Income Per Common Share.......................................... $ 1.10 $ 1.28
======== ========
</TABLE>

See accompanying notes to condensed consolidated financial statements.

6
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ARCADIAN CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)

<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30,
-----------------------
1996 1995
($000) ($000)
-------- --------
<S> <C> <C>
Cash Flows From Operating Activities:
Net Income......................................................... $ 92,664 $ 35,276
Adjustments to Reconcile Net Income to Cash from Operating
Activities:
Depreciation and Amortization................................... 34,065 33,356
Amortization of Deferred Financing Costs........................ 1,079 1,401
Non-Controlling Interest........................................ -- 74,401
Deferred Income Taxes........................................... 9,401 12,123
Net Change in Operating Assets and Liabilities:
Short-Term Investments........................................ -- 13,307
Accounts Receivable........................................... 7,356 26,930
Inventories................................................... 32,881 33,084
Other Current Assets.......................................... 1,134 (5,730)
Accounts Payable, Accrued Expenses and Other Liabilities...... (21,904) (27,254)
Other, Net.................................................... (4,039) (297)
-------- --------
Cash Provided by (Used for) Operating Activities........... 152,637 196,597
-------- --------
Cash Flows from Investing Activities:
Purchase of Property, Plant and Equipment, Net..................... (16,823) (8,402)
Rotational Plant Maintenance Costs................................. (661) (477)
Investment in Joint Venture........................................ (11,000) --
-------- --------
Cash Provided by (Used for) Investing Activities........... (28,484) (8,879)
-------- --------
Cash Flows from Financing Activities:
Restricted Reserve Accounts........................................ 3,367 (5,956)
Cash Distributions to Non-Controlling Interest..................... -- (17,875)
Proceeds from (Repayment of) Debt, Net............................. (15,000) (63,691)
Repurchase of Preferred Stock...................................... (11,837) --
Cash Dividends on Common and Preferred Stock....................... (14,841) (23,211)
Transaction and Financing Fees..................................... (465) (1,055)
Proceeds from Issuance of Common Stock............................. 10,745 5,530
Other, Net......................................................... -- (11)
-------- --------
Cash Provided by (Used for) Financing Activities........... (28,031) (106,269)
-------- --------
Increase (Decrease) in Cash and Cash Equivalents..................... 96,122 81,449
Cash and Cash Equivalents at Beginning of Period..................... 202,738 51,093
-------- --------
Cash and Cash Equivalents at End of Period........................... $298,860 $132,542
======== ========
</TABLE>

See accompanying notes to condensed consolidated financial statements.

7
<PAGE> 9

ARCADIAN CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)

<TABLE>
<CAPTION>
THREE MONTHS
ENDED JUNE 30,
-----------------------
1996 1995
($000) ($000)
-------- --------
<S> <C> <C>
Cash Flows From Operating Activities:
Net Income......................................................... $ 51,634 $ 21,531
Adjustments to Reconcile Net Income to Cash from Operating
Activities:
Depreciation and Amortization................................... 16,844 16,609
Amortization of Deferred Financing Costs........................ 524 824
Non-Controlling Interest........................................ -- 46,862
Deferred Income Taxes........................................... 5,811 5,926
Net Change in Operating Assets and Liabilities:
Accounts Receivable........................................... 237 36,482
Inventories................................................... 26,109 12,068
Other Current Assets.......................................... (355) (5,502)
Accounts Payable, Accrued Expenses and Other Liabilities...... (28,813) (24,151)
Other, Net.................................................... (3,015) (364)
-------- --------
Cash Provided by (Used for) Operating Activities........... 68,976 110,285
-------- --------
Cash Flows from Investing Activities:
Purchase of Property, Plant and Equipment, Net..................... (12,179) (7,114)
Rotational Plant Maintenance Costs................................. (461) (75)
Investment in Joint Venture........................................ (11,000) --
-------- --------
Cash Provided by (Used for) Investing Activities........... (23,640) (7,189)
-------- --------
Cash Flows from Financing Activities:
Restricted Reserve Accounts........................................ 6,250 (3,172)
Cash Distributions to Non-Controlling Interest..................... -- (8,937)
Proceeds from (Repayment of) Debt, Net............................. (15,000) (2,176)
Repurchase of Preferred Stock...................................... (8,460) --
Cash Dividends on Common and Preferred Stock....................... (8,177) (12,785)
Transaction and Financing Fees..................................... -- (1,055)
Proceeds from Issuance of Common Stock............................. 437 2,937
Other, Net......................................................... -- (11)
-------- --------
Cash Provided by (Used for) Financing Activities........... (24,950) (25,199)
-------- --------
Increase (Decrease) in Cash and Cash Equivalents..................... 20,386 77,897
Cash and Cash Equivalents at Beginning of Period..................... 278,474 54,645
-------- --------
Cash and Cash Equivalents at End of Period........................... $298,860 $132,542
======== ========
</TABLE>

See accompanying notes to condensed consolidated financial statements.

8
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ARCADIAN CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

1. BASIS OF PRESENTATION

The accompanying condensed consolidated financial statements of Arcadian
Corporation and its subsidiaries (collectively "Company") are unaudited and have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to the Quarterly Report
on Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include
all of the information and footnotes required by generally accepted accounting
principles for complete financial statements. These condensed consolidated
financial statements should be read in conjunction with the consolidated
financial statements and the notes thereto included in the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1995.

In the opinion of the Company, the accompanying condensed consolidated
financial statements contain all adjustments (consisting of only normal,
recurring adjustments) necessary to present fairly the financial position,
results of operations, and cash flows of the Company as of the dates and for the
periods presented.

Because of the seasonal nature of the Company's business, the results of
operations for the periods presented are not necessarily indicative of the
results of operations for a full fiscal year.

The accompanying condensed consolidated financial statements of the Company
include the results of operations of Arcadian Corporation ("Corporation") and
its subsidiaries, including Arcadian Partners, L.P. ("Partners"), Arcadian
Fertilizer, L.P. ("Fertilizer"), and their respective subsidiaries (collectively
"Partnership"), on a consolidated basis. All intercompany balances and
transactions have been eliminated in consolidation. Prior to the August 1995
Merger, the approximately 55% limited partner interest in the Partnership
represented by the preference units was accounted for as a "Non-Controlling
Interest."

2. PRO FORMA

The following unaudited pro forma financial information of the Company for
the six months and three months ended June 30, 1995, gives effect to the August
1995 Merger and Public Offering as if they had occurred on January 1, 1995. The
pro forma data presented below do not purport to represent what the Company's
results of operations would have been had such transactions in fact occurred as
of January 1, 1995, or to project the Company's results of operations in any
future periods:

<TABLE>
<CAPTION>
PRO FORMA*
-------------------------------
SIX MONTHS THREE MONTHS
ENDED ENDED
JUNE 30, 1995 JUNE 30, 1995
($000) ($000)
------------- -------------
<S> <C> <C>
Net Sales................................................... $ 691,078 $ 350,240
Net Income.................................................. 82,413 51,087
Net Income per Common Share................................. 1.78 1.10
</TABLE>

- ---------------

* The pro forma adjustments include amortization of goodwill resulting from the
August 1995 Merger, the decrease in interest expense as a result of the
Company's redemption of its 16% Junior Subordinated Exchange Debentures due
December 15, 2004 ("Exchange Debentures"), the elimination of the non-
controlling interest in the Partnership represented by the preference units,
and the income tax effect of the pro forma adjustments.

9
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ARCADIAN CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)

3. SUPPLEMENTAL CASH FLOW INFORMATION

The Company considers highly liquid investments with an original maturity
of three months or less to be cash equivalents, except for those which are part
of the restricted reserve accounts. The following is supplemental cash flow
information:

<TABLE>
<CAPTION>
SIX MONTHS ENDED THREE MONTHS ENDED
JUNE 30, JUNE 30,
------------------- -------------------
1996 1995 1996 1995
($000) ($000) ($000) ($000)
------- ------- ------- -------
<S> <C> <C> <C> <C>
Interest Paid................................ $23,343 $31,634 $23,315 $24,634
Income Taxes Paid............................ 25,179 8,380 18,563 8,033
</TABLE>

4. NET INCOME PER COMMON SHARE

For purposes of computing net income per common share, the conversion of
Mandatorily Convertible Preferred Stock, Series A ("Preferred Stock"), which is
a common stock equivalent because of its mandatory conversion feature, is
assumed when such conversion is dilutive. Common and common equivalent shares
outstanding were 46,921,164 and 16,719,761 for the six months ended June 30,
1996 and 1995, and 46,780,889 and 16,802,827 for the three months ended June 30,
1996 and 1995, respectively.

5. INVENTORIES

Inventories consist of the following:

<TABLE>
<CAPTION>
JUNE 30,
1996 DECEMBER 31,
(UNAUDITED) 1995
($000) ($000)
----------- ------------
<S> <C> <C>
Finished Products............................................ $ 48,230 $ 70,459
Raw Materials and Supplies................................... 55,656 66,308
-------- --------
$103,886 $136,767
======== ========
</TABLE>

6. DEBT

Debt consists of the following:

<TABLE>
<CAPTION>
JUNE 30,
1996 DECEMBER 31,
(UNAUDITED) 1995
($000) ($000)
----------- ------------
<S> <C> <C>
First Mortgage Notes......................................... $185,000 $200,000
Senior Notes................................................. 340,000 340,000
Revolving Credit Facility.................................... -- --
-------- --------
525,000 540,000
Less Current Portion of Long Term Debt....................... 15,000 15,000
-------- --------
$510,000 $525,000
======== ========
</TABLE>

At June 30, 1996, there was no outstanding balance on the Company's $100
million revolving credit facility, and the amount available for borrowing in the
form of loans and letters of credit, after considering outstanding and committed
letters of credit of $38 million, was $62 million.

10
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ARCADIAN CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)

7. RESTRICTED RESERVE ACCOUNTS

At June 30, 1996, restricted reserve accounts of $47 million were comprised
primarily of a $21 million Cash Collateral Account maintained by Fertilizer for
the benefit of the holders of the First Mortgage Notes and a $20 million Debt
Service Reserve Account maintained by Partners for the benefit of the holders of
the 10 3/4% Series B Senior Notes due 2005 ("Senior Notes").

8. STOCKHOLDERS' EQUITY

SECONDARY OFFERING OF COMMON STOCK

In February 1996, the Company completed an underwritten public offering of
2.4 million shares of Common Stock on behalf of certain holders of Common Stock
and warrants to purchase Common Stock. The Company received net proceeds of $4
million from the exercise of the warrants and $5 million from the issuance of an
additional 0.2 million shares upon the exercise of the underwriters'
over-allotment option.

PREFERRED STOCK REPURCHASE

In February 1996, the Company's Board of Directors authorized the Company
to implement a $50 million stock repurchase program for the Preferred Stock. At
June 30, 1996, the Company had repurchased approximately 592,000 shares of
Preferred Stock at an aggregate cost of approximately $12 million and an
aggregate premium of approximately $3 million above their original issue price.
The Company has not repurchased any shares of Preferred Stock subsequent to June
30, 1996.

9. COMMITMENTS AND CONTINGENCIES

OPERATING LEASE COMMITMENT

In March 1996, the Company entered into a lease agreement with an
unaffiliated entity ("Second Lessor") with respect to an ammonia plant to be
constructed at the Trinidad plant site ("Second Trinidad Plant Lease"). Upon
completion of construction, the Second Lessor will lease the plant to a
subsidiary of the Company. The annual lease payments under the Second Trinidad
Plant Lease are expected to be approximately $21 million. The initial seven-year
lease term is renewable for an additional five-year term, subject to certain
conditions. If the Second Trinidad Plant Lease is not renewed or is otherwise
terminated, a subsidiary of the Company may be required to make a residual
termination payment equal to 85% of the estimated $285 million total cost of the
project. In addition, the Company has an option to purchase the plant during the
term of the Second Trinidad Plant Lease for a price approximating its fair
market value at the date of exercise. The plant is expected to be operational in
1998.

LAKE CHARLES PLANT

In connection with a 1992 incident at its Lake Charles plant, the Company
is contesting penalties proposed by the United States Occupational Safety and
Health Administration ("OSHA") totaling $4 million. The OSHA legal proceeding to
date has generally been favorable to the Company. While management and legal
counsel believe that any civil penalty ultimately paid by the Company will be
substantially less than the remaining $4 million penalty proposed by OSHA, they
cannot predict with certainty the outcome of this proceeding. The Company also
is defending civil litigation relating to the Lake Charles incident which
include personal injury, property damage, employee relations, and other claims.
Management believes that these matters either are without merit or are
satisfactorily covered by insurance, and that there will be no material adverse
effect to the Company upon the resolution of these matters.

11
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ARCADIAN CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)

PORT AUTHORITY OF NEW YORK AND NEW JERSEY

On March 13, 1996, the Company, two other nitrogen producers, and up to 30
unidentified parties were named as defendants in a lawsuit filed by the
subrogating insurers of the Port Authority of New York and New Jersey ("Port
Authority") in a New Jersey state court. The Port Authority's insurers are
seeking to recover damages allegedly incurred as a result of the explosion at
the World Trade Center in New York City on February 26, 1993. The Port
Authority's insurers allege in their complaint that the two other named
defendants and one or more unidentified parties (as manufacturers of ammonium
nitrate), the Company and one or more unidentified parties (as producers of
urea), and one or more unidentified makers of nitric acid are liable under
various tort theories for unspecified property damages, business interruption
losses, lost rent and other damages allegedly incurred by the Port Authority as
a result of the Word Trade Center explosion. The Company and the other
defendants have removed the case to federal court in New Jersey. Pending the
resolution of a dispute involving the role of the insurers' counsel, the court
has stayed any further proceedings in the suit. The Company is unaware of any
basis for liability and intends to vigorously defend against the Port
Authority's insurers' allegations.

10. SUBSEQUENT EVENTS

COMMON STOCK REPURCHASE

In July 1996, the Company's Board of Directors authorized the Company to
implement a $100 million stock repurchase program for the Common Stock. At
August 2, 1996, the Company had repurchased approximately 1,653,000 shares of
Common Stock at an aggregate cost of approximately $37 million. The Company has
not repurchased any shares of Common Stock subsequent to August 2, 1996.

PROPOSED BUSINESS COMBINATION

On August 5, 1996, the Company and Freeport-McMoRan Inc. ("FTX") signed a
non-binding letter of intent for the combination of their businesses into a
newly formed company ("Newco"). FTX, through its 51.5%-owned affiliate,
Freeport-McMoRan Resource Partners, Limited Partnership ("FRP"), is one of the
world's leading integrated phosphate fertilizer producers. The potential
combination is subject to a number of conditions, including the negotiation and
execution of a definitive agreement, completion of due diligence, approval by
the Boards of Directors of the Company and FTX, approval by the shareholders of
the Company and FTX, and approval under the Hart-Scott-Rodino Anti-Trust
Improvements Act. Completion of the combination is also subject to such rights
as IMC Global Inc. may have to participate in the transaction under its
partnership agreement with FRP governing the IMC-Agrico Company joint venture.
The Company and FTX intend to complete the definitive agreement within 30 days
after the date of the letter of intent.

Although it is not a condition to the proposed combination, it is also
intended that FRP will be offered an opportunity to participate in a transaction
that would convert the publicly held limited partnership units of FRP into
capital stock of Newco at a conversion rate to be agreed upon by FTX, FRP and
the Company. The proposed transaction with FRP would be subject to approval by a
special committee of the Board of Directors of FTX representing the interests of
the public unitholders of FRP and to approval by such unitholders.

12
<PAGE> 14

ARCADIAN CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)

COMMON STOCK DIVIDEND

On August 13, 1996, the Company paid a cash dividend on the Common Stock in
the amount of $0.10 per share or approximately $3 million in the aggregate to
holders of record at the close of business on August 2, 1996.

PREFERRED STOCK DIVIDEND

On August 13, 1996, the Company paid a cash dividend on the Preferred Stock
in the amount of $0.3681 per share or approximately $5 million in the aggregate
to holders of record at the close of business on August 2, 1996.

13
<PAGE> 15

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

RESULTS OF OPERATIONS

Because of the seasonal nature of the Company's business, the results of
operations for the periods presented are not necessarily indicative of the
results for a full fiscal year.

SIX MONTHS ENDED JUNE 30, 1996, COMPARED TO SIX MONTHS ENDED JUNE 30, 1995

For the six months ended June 30, 1996, the Company generated net income of
$93 million, or $1.97 per common share, compared to net income of $35 million,
or $2.11 per common share, for the same period last year. Operating income
decreased $4 million for the six months ended June 30, 1996, from the prior year
period.

For the six months ended June 30, 1996, compared to the same period last
year, net sales decreased $49 million or 7%, of which 3% was related to
decreased selling prices, and 4% was related to decreased sales volumes. Unusual
weather conditions that caused an extended planting season resulted in lower
ammonia and urea selling prices, the effects of which were partially offset by
an increase in the selling prices of nitrogen solutions. Lower sales volumes
reflect reduced sales of low margin purchased product for resale.

Gross profit decreased $9 million primarily as a result of the decreased
selling prices and sales volumes noted above. Gross profit as a percentage of
net sales increased from 29% for the six months ended June 30, 1995, to 30% for
the six months ended June 30, 1996, due in part to the reduced sales of low
margin purchased product for resale noted above. The per unit natural gas cost
included in cost of sales decreased approximately 1% from 1995.

Selling, general and administrative expenses as a percentage of net sales
remained flat at 4% for the six months ended June 30, 1996 and 1995.

Net interest expense decreased 30% to $20 million in the six months ended
June 30, 1996, compared to $28 million for the same period in 1995, reflecting
the improvements in the Company's net debt.

The non-controlling interest in earnings of the Partnership in 1995
reflected the approximately 55% interest of the Preference Unitholders in the
net earnings of the Partnership prior to the August 1995 Merger.

The income tax provision increased $20 million for the six months ended
June 30, 1996, compared to the same period in 1995. The increase primarily
reflects the increase in the Partnership's income allocable to the Corporation
as a result of the August 1995 Merger, partially offset by a reduction in the
Trinidad statutory income tax rate. The effective income tax rate for the six
months ended June 30, 1996, was approximately 36%.

THREE MONTHS ENDED JUNE 30, 1996, COMPARED TO THREE MONTHS ENDED JUNE 30, 1995

For the three months ended June 30, 1996, the Company generated net income
of $52 million, or $1.10 per common share, compared to net income of $22
million, or $1.28 per common share, for the same period last year. Operating
income decreased $9 million for the three months ended June 30, 1996, from the
prior year period.

For the three months ended June 30, 1996, compared to the same period last
year, net sales decreased $6 million or 2%, of which 7% was related to decreased
selling prices, offset by a 5% increase in sales volumes. Unusual weather
conditions that caused an extended planting season resulted in lower ammonia and
urea selling prices, the effects of which were partially offset by an increase
in the selling prices of nitrogen solutions. Higher sales volumes reflect
increased sales tonnage of ammonia and urea.

Gross profit decreased $9 million primarily as a result of the decreased
selling prices noted above. Gross profit as a percentage of net sales decreased
from 32% in the second quarter of 1995 to 30% in the second quarter of 1996
partially as a result of the lower ammonia and urea selling prices noted above.
The per unit natural gas cost included in cost of sales decreased approximately
5% from 1995.

14
<PAGE> 16

Selling, general and administrative expenses as a percentage of net sales
remained flat at 4% for the three months ended June 30, 1996 and 1995.

Net interest expense decreased 34% to $9 million in the second quarter of
1996 compared to $13 million for the same period in 1995, reflecting the
improvements in the Company's net debt.

The income tax provision increased $13 million for the three months ended
June 30, 1996, compared to the same period in 1995. The increase primarily
reflects the increase in the Partnership's income allocable to the Corporation
as a result of the August 1995 Merger which was partially offset by a reduction
in the Trinidad statutory income tax rate. The effective income tax rate for the
second quarter of 1996 was approximately 35%.

LIQUIDITY AND CAPITAL RESOURCES

Operating Activities

Net cash provided by operating activities was $153 million and $197 million
for the six months ended June 30, 1996 and 1995, and $69 million and $110
million for the three months ended June 30, 1996 and 1995, respectively. At June
30, 1996 and 1995, working capital, net of restricted reserve accounts, was $349
million and $231 million, respectively.

Investing Activities

Net cash used for investing activities of $28 million and $9 million for
the six months ended June 30, 1996 and 1995, and $24 million and $7 million for
the three months ended June 30, 1996 and 1995, respectively, reflects primarily
capital expenditures and an investment in the second quarter of 1996 of $11
million in a joint venture that acquired an ammonia terminal in Texas.

Financing Activities

Net cash used for financing activities was $28 million and $106 million for
the six months ended June 30, 1996 and 1995, and $25 million and $25 million for
the three months ended June 30, 1996 and 1995, respectively. The six months
ended June 30, 1995, amount reflected a $61 million reduction in the outstanding
balance under the revolving credit facility.

Management believes that its present working capital position, combined
with projected cash flows from operations and available borrowing capacity, will
be sufficient to meet the Company's remaining 1996 and anticipated 1997 cash
requirements for operating needs, projected capital expenditures, and dividend
payments on the Company's Mandatorily Convertible Preferred Stock, Series A
("Preferred Stock").

From 1997 through 2000, the Company's principal long-term liquidity
requirements will focus on maturities of long-term debt. Excluding the revolving
credit facility, maturities of long-term debt will range from $15 million to $18
million in 1997 through 2000. Cash from operations is expected to be sufficient
for the payment of all such maturities of long-term debt.

The Company's 10 3/4% Series B Senior Notes due 2005, its First Mortgage
Notes, and the revolving credit facility contain provisions restricting
distributions on the equity interests of Arcadian Partners, L.P., Arcadian
Fertilizer, L.P., and certain other subsidiaries in the event that certain
financial covenants are not met. Management believes that such subsidiaries will
continue to meet all such financial covenants for the foreseeable future.

15
<PAGE> 17

In February 1996, the Company's Board of Directors authorized the Company
to implement a stock repurchase program for the Preferred Stock. The Board of
Directors authorized the Company to spend up to $50 million in repurchasing
shares of Preferred Stock from time to time as management deems appropriate. At
June 30, 1996, the Company had repurchased approximately 592,000 shares of
Preferred Stock at an aggregate cost of approximately $12 million and an
aggregate premium of approximately $3 million above their original issue price.
The Company has not repurchased any shares of Preferred Stock subsequent to June
30, 1996. The timing of Preferred Stock repurchases is dependent upon many
factors, including the price, the Company's financial condition, and general
economic and market factors.

In July 1996, the Company's Board of Directors authorized the Company to
implement a stock repurchase program for the Common Stock. The Board of
Directors authorized the Company to spend up to $100 million in repurchasing
shares of Common Stock from time to time as management deems appropriate. At
August 2, 1996, the Company had repurchased approximately 1,653,000 shares of
Common Stock at an aggregate cost of approximately $37 million. The Company has
not repurchased any shares of Common Stock subsequent to August 2, 1996. The
timing of Common Stock repurchases is dependent upon many factors, including the
price, the Company's financial condition, and general economic and market
factors.

In May 1996, the Company's stockholders approved a charter amendment that
gives the holders of Preferred Stock the opportunity to convert their shares
into Common Stock if they desire to do so. Holders of Preferred Stock may, but
are not required to, convert their shares of Preferred Stock into Common Stock
on a share-for-share basis, subject to a value limitation of $22.475 per share.
Holders of Preferred Stock may exercise the optional conversion right at any
time until the close of business on August 16, 1996. Shares of Preferred Stock
not converted will continue to have exactly the same rights as they had prior to
the approval of the optional conversion right. At August 13, 1996, approximately
3,726,000 shares of Preferred Stock had been converted into a like number of
shares of Common Stock. Based on the Company's existing dividend policies, the
conversion of such shares from Preferred Stock to Common Stock will result in a
net decrease of approximately $4 million in the Company's annual dividend
requirements.

In February, May and August 1996, the Company paid cash dividends on the
Common Stock in the aggregate amounts of approximately $2 million ($0.05 per
share), $3 million ($0.10 per share) and $3 million ($0.10 per share),
respectively.

In February, May and August 1996, the Company paid cash dividends on the
Preferred Stock in the aggregate amount of approximately $5 million ($0.3681 per
share) for each payment.

Operating Lease Commitment

16
<PAGE> 18

Lake Charles Plant

Port Authority of New York and New Jersey

On March 13, 1996, the Company, two other nitrogen producers, and up to 30
unidentified parties were named as defendants in a lawsuit filed by the
subrogating insurers of the Port Authority of New York and New Jersey ("Port
Authority") in a New Jersey state court. The Port Authority's insurers are
seeking to recover damages allegedly incurred as a result of the explosion at
the World Trade Center in New York City on February 26, 1993. The Port
Authority's insurers allege in their complaint that the two other named
defendants and one or more unidentified parties (as manufacturers of ammonium
nitrate), the Company and one or more unidentified parties (as producers of
urea), and one or more unidentified makers of nitric acid are liable under
various tort theories for unspecified property damages, business interruption
losses, lost rent and other damages allegedly incurred by the Port Authority as
a result of the World Trade Center explosion. The Company and the other
defendants have removed the case to federal court in New Jersey. Pending the
resolution of a dispute involving the role of the insurers' counsel, the court
has stayed any further proceedings in the suit. The Company is unaware of any
basis for liability and intends to vigorously defend against the Port
Authority's insurers' allegations.

Proposed Business Combination

17
<PAGE> 19

PART II

OTHER INFORMATION

ITEM 2. CHANGES IN SECURITIES

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

The Company's 1996 Annual Meeting of Stockholders ("Annual Meeting") was
held on May 16, 1996. Proxies for the Annual Meeting were solicited pursuant to
Regulation 14A under the Securities Exchange Act of 1934, as amended. At the
Annual Meeting, the holders of Common Stock and Preferred Stock entitled to vote
thereat considered and voted on the following matters with the indicated
results:

1. On the proposal to elect ten directors to serve on the Board of
Directors of the Company until the 1997 Annual Meeting of Stockholders and
until their successors are duly elected and qualified, the results of the
stockholder vote were as follows:

<TABLE>
<CAPTION>
NOMINEE FOR WITHHOLD
------------------------------------------------------ ---------- -------
<S> <C> <C>
William A. McMinn..................................... 40,433,706 402,011
John R. Block......................................... 40,532,160 303,557
Gordon A. Cain........................................ 40,503,797 331,920
J. D. Campbell........................................ 40,523,043 312,674
William P. Copenhaver................................. 40,513,159 322,558
Allan R. Dragone...................................... 40,524,539 311,178
William R. Huff....................................... 40,538,865 296,852
Herbert W. Kirby...................................... 40,537,560 298,157
James A. Shirley...................................... 40,481,049 354,668
Chester B. Vanatta.................................... 40,538,344 297,373
</TABLE>

There were no broker non-votes with respect to the proposal. The
stockholders elected the foregoing ten directors to serve on the Board of
Directors of the Company by the required vote.

2. With respect to the proposal to amend the Company's Restated
Certificate of Incorporation, as amended, to make the Preferred Stock
convertible into Common Stock until August 16, 1996, at the option of the
holders thereof, the results of the stockholder vote were as follows:

<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN
- ----------- ------- -------
<S> <C> <C>
31,130,388 854,156 408,358
</TABLE>

There were no broker non-votes with respect to the proposal. The
stockholders approved the amendment of the Company's Restated Certificate
of Incorporation to provide for the optional conversion of Preferred Stock
into Common Stock by the required vote.

18
<PAGE> 20

3. With respect to the proposal to approve the Company's Restricted
Stock Plan, the results of the stockholder vote were as follows:

<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN
- ----------- --------- -------
<S> <C> <C>
38,339,801 1,950,350 545,566
</TABLE>

There were no broker non-votes with respect to the proposal. The
stockholders approved the Company's Restricted Stock Plan by the required
vote.

4. With respect to the proposal to ratify the appointment of KPMG Peat
Marwick LLP as the Company's independent auditors for the fiscal year
ending December 31, 1996, the results of the stockholder vote were as
follows:

<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN
- ----------- ------- -------
<S> <C> <C>
40,418,618 208,296 208,803
</TABLE>

There were no broker non-votes with respect to the proposal. The
stockholders ratified the appointment of KPMG Peat Marwick LLP by the
required vote.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits

The following materials are filed as exhibits to this report:

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------------- ---------------------------------------------------------------------------
<S> <C> <C>
11 -- Computation of Net Income per Common Share.
15 -- Letter from KPMG Peat Marwick LLP to Arcadian Corporation with respect to
interim financial information.
27 -- Financial Data Schedule.
</TABLE>

(b) Current Reports on Form 8-K

The Company did not file any Current Report on Form 8-K during the quarter
ended June 30, 1996.

19
<PAGE> 21

SIGNATURE

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, on August 14, 1996.

ARCADIAN CORPORATION

By: /s/ A. L. WILLIAMS
--------------------------------
A. L. Williams
Vice President -- Finance and
Chief Financial Officer

20
<PAGE> 22

INDEX TO EXHIBITS

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- -------------------- ------------------------------------------------------------------------
<S> <C>
11 -- Computation of Net Income per Common Share
15 -- Letter from KPMG Peat Marwick LLP to Arcadian Corporation with
respect to interim financial information.
27 -- Financial Data Schedule
</TABLE>

<PAGE> 1

EXHIBIT 11
<PAGE> 2

ARCADIAN CORPORATION AND SUBSIDIARIES

COMPUTATION OF NET INCOME PER COMMON SHARE
(DOLLARS IN THOUSANDS, EXCEPT SHARES AND PER SHARE AMOUNTS)
(UNAUDITED)

<TABLE>
<CAPTION>
SIX MONTHS ENDED THREE MONTHS ENDED
JUNE 30, JUNE 30,
-------------------------- --------------------------
1996 1995 1996 1995
($000) ($000) ($000) ($000)
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net Income (Applicable to Common
Shares)................................. $ 92,664 $ 35,276 $ 51,634 $ 21,531
Weighted Average Common and Common
Equivalent Shares Outstanding:
Weighted Average Common Shares
Outstanding.......................... 32,033,252 14,637,327 32,466,352 14,766,550
Dilution from Assumed Exercise of
Warrants
and Options and Assumed Conversion of
Preferred Stock(a)................... 14,887,912 2,082,434 14,314,537 2,036,277
---------- ---------- ---------- ----------
Weighted Average Common and Common
Equivalent Shares Outstanding........ 46,921,164 16,719,761 46,780,889 16,802,827
========== ========== ========== ==========
Net Income Per Common Share............... $ 1.97 $ 2.11 $ 1.10 $ 1.28
========== ========== ========== ==========
</TABLE>

- ---------------

(a) For purposes of computing net income per common share, the conversion of
13,535,195 and 13,272,729 shares of Preferred Stock for the six months and
three months ended June 30, 1996, respectively, which are common stock
equivalents because of their mandatory conversion feature, is assumed when
such conversion is dilutive.

<PAGE> 1

EXHIBIT 15
<PAGE> 2

EXHIBIT 15

Arcadian Corporation
Memphis, Tennessee

Gentlemen:

Re: Registration Statement No. 33-40323

With respect to the subject registration statement, we acknowledge our
awareness of the use therein of our report dated August 14, 1996 related to our
review of interim financial information.

Pursuant to Rule 436(c) under the Securities Act of 1933, such report is
not considered a part of a registration statement prepared or certified by an
accountant or a report prepared or certified by an accountant within the meaning
of Section 7 and 11 of the Act.

Very truly yours,

KPMG PEAT MARWICK LLP

Memphis, Tennessee
August 14, 1996

<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FINANCIAL
STATEMENTS OF ARCADIAN CORPORATION INCLUDED IN FORM 10-Q FOR THE QUARTERLY
PERIOD ENDED JUNE 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 345,943<F1>
<SECURITIES> 0
<RECEIVABLES> 103,751
<ALLOWANCES> 1,611
<INVENTORY> 103,886
<CURRENT-ASSETS> 557,404
<PP&E> 840,139
<DEPRECIATION> 242,177
<TOTAL-ASSETS> 1,319,458
<CURRENT-LIABILITIES> 161,448
<BONDS> 510,000
<COMMON> 326
0
202,545
<OTHER-SE> 309,855
<TOTAL-LIABILITY-AND-EQUITY> 1,319,458
<SALES> 641,718
<TOTAL-REVENUES> 641,718
<CGS> 452,472
<TOTAL-COSTS> 452,472
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 302
<INTEREST-EXPENSE> 19,701
<INCOME-PRETAX> 143,990
<INCOME-TAX> 51,326
<INCOME-CONTINUING> 92,664
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 92,664
<EPS-PRIMARY> 1.97
<EPS-DILUTED> 1.97
<FN>
<F1>CASH INCLUDES $47 MILLION OF RESTRICTED RESERVES.
</FN>

</TABLE>