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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

 

FORM 10-Q

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2002

 Commission file number 333-71510-06

 

IMC Phosphates Company
(Exact name of Registrant as specified in its charter)

  

Delaware
(State or other jurisdiction of
incorporation or organization)

36-3892806
(I.R.S. Employer Identification No.)

100 S. Saunders Road
Lake Forest, Illinois 60045
(847) 739-1200
(Address and telephone number, including area code, of Registrant's principal executive offices)

  

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  Ö    . No     .

 

 

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Table of Contents

 

Part I

Financial Information

Page

 

Item 1

Financial Statements

1

 

 

  -  Condensed Consolidated Statement of Operations

1

 

 

  -  Condensed Consolidated Balance Sheet

2

 

 

  -  Condensed Consolidated Statement of Cash Flows

3

 

 

  -  Notes to Condensed Consolidated Financial Statements

4

 

Item 2

Management's Discussion and Analysis of Financial Condition and Results of Operations

6

 

 

   - Results of Operations

6

 

 

   - Capital Resources and Liquidity

7

 

Item 3

Quantitative and Qualitative Disclosures About Market Risk

8

 

 

 

 

Part II

Other Information

Page

 

Item 6

Exhibits and Reports on Form 8-K

9

 

Signatures

9

 

Exhibit Index

E-1

 

 

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements.

The accompanying interim condensed consolidated financial statements of IMC Phosphates Company (IMC Phosphates) do not include all disclosures normally provided in annual financial statements. These financial statements, which should be read in conjunction with the financial statements contained in IMC Phosphates' Annual Report on Form 10-K for the year ended December 31, 2001, are unaudited but include all adjustments which the management of IMC Phosphates MP Inc., the managing general partner of IMC Phosphates, considers necessary for fair presentation. These adjustments consist of normal recurring accruals. Interim results are not necessarily indicative of the results expected for the full year.

 

IMC PHOSPHATES COMPANY
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(In millions)
(Unaudited)

 

 

Three months ended
June 30

Six months ended
June 30

 

2002

2001

2002

2001

Net sales

$ 336.6

$ 273.2 

$ 632.0

$ 572.5 

Cost of goods sold

   321.9

   272.6 

   598.1

   561.5 

Gross margins

14.7

0.6 

33.9

11.0 

 

 

 

 

 

Selling, general and administrative expenses

11.5

10.6 

22.3

21.4 

Restructuring charges

           -

           - 

           -

       2.8 

      Operating earnings (loss)

3.2

(10.0)

11.6

(13.2)

 

 

 

 

 

Interest expense

4.7

5.0 

8.9

8.3 

Other expense, net

       0.7

       3.2 

       1.8

       5.6 

 

 

 

 

 

      Earnings (loss)

$   (2.2)

$   (18.2)

$     0.9

 (27.1)

(See Notes to Condensed Consolidated Financial Statements)

-1-


 

IMC PHOSPHATES COMPANY
CONDENSED CONSOLIDATED BALANCE SHEET
(In millions)

 

(Unaudited)
June 30, 2002


December 31, 2001

Assets

 

 

Current assets:

 

 

    Cash and cash equivalents

$         0.8

$         0.9

    Receivables, net

116.1

138.9

    Inventories, net

194.9

178.2

    Other current assets

           8.4

            4.6

           Total current assets

320.2

322.6

 

 

 

Property, plant and equipment, net

1,382.7

1,377.0

Due from Partner, net

        11.1

        11.1

Other assets

         56.6

         44.9

           Total assets

$  1,770.6

$  1,755.6

 

 

 

Liabilities and Partners' Capital

 

 

Current liabilities:

 

 

    Accounts payable

$     139.0

$     101.0

    Accrued liabilities

69.1

84.9

    Due to Partners, net

117.4

151.2

    Current maturities of long-term debt (including $9.5
      due to IMC Global Inc. as of June 30, 2002 and
      December 31, 2001)



        12.7



        13.2

           Total current liabilities

338.2

350.3

 

 

 

Long-term debt, less current maturities (including $258.1 and
  $244.5 due to IMC Global Inc. as of June 30, 2002 and   December 31, 2001, respectively)



292.7



280.7

Due to Partners, net

122.7

116.1

Other noncurrent liabilities

115.5

118.8

Partners' capital

      901.5

      889.7

           Total liabilities and partners' capital

$ 1,770.6

$  1,755.6

(See Notes to Condensed Consolidated Financial Statements)

-2-


 

IMC PHOSPHATES COMPANY
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(In millions)
(Unaudited)

 

Six months ended
June 30

 

2002

2001

Cash Flows from Operating Activities

 

 

   Earnings (loss)

$     0.9 

$   (27.1)

   Adjustments to reconcile earnings (loss) to net cash provided by (used in)
     operating activities:

 

 

        Depreciation, depletion and amortization

45.4 

42.7 

        Other charges and credits, net

-

(18.6)

        Changes in:

 

 

            Receivables, net

22.8 

(77.4)

            Inventories, net

(16.7)

(42.9)

            Other current assets

(3.8)

(15.0)

            Accounts payable and accrued liabilities

32.9 

(44.8)

            Due to Partners, net

     (33.8)

       (3.2)

        Net cash provided by (used in) operating activities

47.7 

(186.3)

 

Cash Flows from Investing Activities

 

 

   Capital expenditures

(51.0)

(42.0)

   Investment in joint venture

(10.0)

-

   Other

         0.1 

         1.0 

        Net cash used in investing activities

(60.9)

(41.0)

 

 

 

Cash Flows from Financing Activities

 

 

   Proceeds from IMC Global Inc. Promissory Notes, net

18.3 

225.8 

   Proceeds from long-term debt

1.5 

-

   Payments of long-term debt

       (6.7)

       (5.2)

        Net cash provided by financing activities

      13.1 

    220.6 

 

 

 

Net change in cash and cash equivalents

(0.1)

(6.7)

Cash and cash equivalents-beginning of period

        0.9 

        7.0 

Cash and cash equivalents-end of period

$      0.8 

$       0.3 

(See Notes to Condensed Consolidated Financial Statements)

-3-


 

IMC PHOSPHATES COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions)
(Unaudited)

1.   RESTRUCTURING CHARGES

In the first quarter of 2001, IMC Global Inc. (IMC), which has a direct and indirect 78.9 percent interest in IMC Phosphates, announced a new organizational structure (Reorganization Plan) designed to fully maximize its global leadership position in phosphate and potash crop nutrients and animal feed ingredients while reducing costs, streamlining the organization and improving productivity. The Reorganization Plan was primarily comprised of a shift to a more functional organization structure, which resulted in business unit and corporate headcount reductions. As a result, IMC Phosphates recorded a restructuring charge of $2.8 million in the first quarter of 2001.

Activity related to accruals for restructuring activity during the period January 1, 2002 to June 30, 2002 was as follows:

 

Accrual as of
January 1, 2002


Cash Paid

Accrual as of
June 30, 2002

Non-employee exit costs:

 

 

 

  Demolition and closure costs

$  31.7

$   (2.8)

$  28.9

  Other

1.2

(0.4)

0.8

Employee headcount reductions:

 

 

 

  Severance benefits

       1.5

           - 

      1.5

Total

$  34.4

$   (3.2)

$  31.2

The timing and costs of the restructuring activities are generally on schedule with the time and dollar estimates disclosed in IMC Phosphates' 2001 Annual Report on Form 10-K.

2.   RECENTLY ISSUED ACCOUNTING GUIDANCE

Accounting for the Impairment or Disposal of Long-Lived Assets

On January 1, 2002, IMC Phosphates adopted Statement of Financial Accounting Standards (SFAS) No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. The adoption of SFAS No. 144 had no material impact on IMC Phosphates' financial statements.

-4-


 

3.   INVENTORIES

  

June 30, 2002

December 31, 2001

Products (principally finished)

$  154.5

$  140.1

Operating materials and supplies

       44.7

       42.8

  

199.2

182.9

Less: Allowances

         4.3

         4.7

Inventories, net

$  194.9

$  178.2

4.   COMPREHENSIVE INCOME (LOSS)

Comprehensive income (loss) was as follows:

 

Three months ended
June 30

Six months ended
June 30

 

2002

2001

2002

2001

Comprehensive income (loss):

 

 

 

 

   Earnings (loss)

$  (2.2)

$ (18.2)

$    0.9

$ (27.1)

   Net unrealized gain (loss) on derivative instruments

    (1.1)

   (13.7)

    10.8

   (14.7)

      Total comprehensive income (loss) for the period

$  (3.3)

$ (31.9)

$  11.7

$ (41.8)

5.   SULPHUR JOINT VENTURE

In June 2002, IMC Phosphates completed the acquisition of the sulphur transportation and terminaling assets of Freeport-McMoRan Sulphur LLC (FMS) through Gulf Sulphur Services Ltd., LLP (Gulf Services), a 50-50 joint venture with Savage Industries Inc. (Savage). The joint venture financed the acquisition through $10.0 million equity contributions from both IMC Phosphates and Savage as well as a $34.0 million bank loan to Gulf Services that is non-recourse to IMC Phosphates and Savage. IMC Phosphates funded its equity contribution through borrowings from IMC. Concurrently with this acquisition, and instead of purchasing a majority of its annual sulphur tonnage through FMS, IMC Phosphates negotiated new supply agreements to purchase sulphur directly from recovered sulphur producers. IMC Phosphates, Phosphate Resource Partners Limited Partnership and IMC also reached a concurrent agreement with FMS and McMoRan Exploration Co. with respect to certain other transactions, including settlement of outstanding legal disputes. At the closing, FMS received cash of $58.0 million, predominantly for the acquisition of the Freeport sulphur assets.

-5-


 

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.1

Results of Operations

Three months ended June 30, 2002 vs. three months ended June 30, 2001

IMC Phosphates net sales for the second quarter of 2002 increased 23 percent to $336.6 million compared to $273.2 million for the same period last year largely as a result of higher concentrated phosphate sales volumes and prices. Higher shipments of concentrated phosphates, primarily diammonium phosphate (DAP), favorably impacted net sales by $35.4 million. In addition, $5.9 million of the net sales increase was primarily due to average DAP prices increasing two percent to $135 per short ton in the second quarter of 2002 from $132 per short ton in the second quarter of 2001.

Gross margins increased to $14.7 million for the second quarter of 2002 compared to $0.6 million for the second quarter of last year. This increase was mainly the result of lower idle plant costs, lower raw material prices and higher concentrated phosphate sales prices, partially offset by higher phosphate operating costs and increased environmental reserves.

Other expense, net decreased $2.5 million or 78 percent predominantly as a result of the absence of a prior year loss from natural gas forward purchase contracts.

Six months ended June 30, 2002 vs. six months ended June 30, 2001

IMC Phosphates' net sales for the first six months of 2002 increased ten percent to $632.0 million compared to $572.5 million for the same period last year primarily as a result of higher concentrated phosphate sales volumes. Higher shipments of concentrated phosphates, primarily DAP, favorably impacted net sales by $47.4 million. Average DAP prices were the same in the current period compared to the prior year period.

Gross margins increased to $33.9 million for the first six months of 2002 compared to $13.4 million, excluding special charges of $2.4 million related to a write-off of certain deferred costs, for the first six months of last year. This increase was mainly the result of lower idle plant costs and lower raw material prices, partially offset by higher phosphate operating costs and increased environmental reserves.

_____________________________________________

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 and governmental policies affecting the agricultural industry in localities where IMC Phosphates or its customers operate; weather conditions; the terms and interest rates on debt of IMC Phosphates; the willingness of IMC to continue to loan funds to IMC Phosphates; the impact of competitive products; pressure on prices realized by IMC Phosphates for its products; constraints on supplies of raw materials used in manufacturing certain of IMC Phosphates' 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 anticipat ed sales levels; the effects of and change in trade, monetary, environmental 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 IMC Phosphates; success in implementing IMC Phosphates' various initiatives; the uncertain effects upon the global and domestic economies and financial markets of the terrorist attacks in New York City and Washington D.C. on September 11, 2001 and their aftermaths; and other risk factors reported from time to time in IMC Phosphates' Securities and Exchange Commission reports.

-6-


 

For a discussion of restructuring charges, see Note 1 of Notes to Condensed Consolidated Financial Statements.

Other expense, net decreased $3.8 million or 68 percent as a result of the absence of fees related to an accounts receivable securitization entered into by IMC in the third quarter of 2000 and the absence of a prior year loss from natural gas forward purchase contracts.

Capital Resources and Liquidity

Historically, IMC Phosphates has satisfied its borrowing needs through IMC. In June 2002, IMC Phosphates updated its two variable rate Promissory Notes (previously in the principal amounts of up to $200.0 million and $65.0 million) payable to IMC to: (i) increase the maximum revolving borrowings available to IMC Phosphates from IMC under the $200.0 million note to $300.0 million; and (ii) reflect changes, in the definition of the applicable margin over LIBOR that serves as the basis for the interest rate under these notes, that resulted from changes in IMC's credit facilities entered into in May 2001.

IMC's ability to make payments on and to refinance its indebtedness and to fund planned capital expenditures, expansion efforts and strategic acquisitions in the future, if any, will depend on IMC's ability to generate cash in the future. This, to a certain extent, is subject to general economic, financial, competitive and other factors that are beyond IMC's control. IMC believes that its cash, other liquid assets and operating cash flow, together with available borrowings and potential access to credit and capital markets, will be sufficient to meet IMC's operating expenses and capital expenditures and service its debt requirements and other contractual obligations as they become due.

IMC's credit facilities require it to maintain certain financial ratios, including a leverage ratio test and an interest coverage test. In addition, the credit facilities contain certain covenants and customary events of default. IMC's access to funds is dependent upon its product prices and market conditions. If product prices and other market conditions were to return to the low levels of 2001, there is no assurance that IMC will be able to comply with applicable financial covenants. IMC cannot assure that its business will generate sufficient cash flow from operations in the future; that its currently anticipated growth in net sales and cash flow will be realized on schedule; or that future borrowings will be available when needed or in an amount sufficient to enable IMC to repay indebtedness or to fund other liquidity needs. IMC may need to refinance all or a portion of its indebtedness on or before maturity. IMC cannot assure that it will be able to refinance any of its indebtedness o n commercially reasonable terms or at all.

There can be no assurance that IMC will be able to obtain any necessary waivers or amendments from the requisite lenders. Any failure to comply with the restrictions of the credit facilities or any agreement governing its indebtedness may result in an event of default under those agreements. Such default may allow the creditors to accelerate the related debt, which may trigger cross-acceleration or cross-default provisions in other debt. In addition, lenders may be able to terminate any commitments they had made to supply IMC with further funds (including periodic rollovers of existing borrowings).

-7-


 

IMC Phosphates incurs certain non-current liabilities, primarily in its Florida phosphate operations, where to obtain necessary permits, it must either pass a test of financial strength or provide credit support, typically surety bonds. As of June 30, 2002, IMC Phosphates had $88.6 million in surety bonds outstanding which mature over the course of 2002, and met the financial strength test for additional such liabilities. There can be no assurance that IMC Phosphates can continue to pass such tests of financial strength or to purchase surety bonds at the same terms and conditions. IMC Phosphates anticipates that the renewal or obtaining of new surety bonds may require IMC Phosphates to post collateral for a portion of the insured amount. Such collateral may include letters of credit or cash. IMC Phosphates anticipates that it will be able to satisfy applicable credit support requirements without disrupting normal business operations.

Most of IMC Phosphates' export sales of phosphate crop nutrients are marketed through a North American export associations, Phosphate Chemicals Export Association, Inc. (PhosChem), which funds its operations in part through third-party financing facilities. During the second quarter of 2002, PhosChem entered into a new $65.0 million receivable purchase facility with a bank that replaced prior funding facilities. This facility supports PhosChem's funding of its purchases of crop nutrients from IMC Phosphates and other PhosChem members.

Net cash provided by operating activities totaled $47.7 million for the first six months of 2002 versus net cash used in operating activities of $186.3 million for the same period in 2001. The fluctuation of $234.0 million primarily resulted from improved working capital, stronger operating results and the absence of the termination of the accounts receivable securitization in 2001.

Net cash used in investing activities for the first six months of 2002 of $60.9 million increased $19.9 million from $41.0 million for the first six months of 2001. This increase was primarily the result of the $10.0 million investment in Gulf Sulphur Services Ltd., LLP (see Note 5 of Notes to Condensed Consolidated Financial Statements) and higher capital spending. Capital expenditures for the first six months of 2002 increased $9.0 million to $51.0 million from $42.0 million in the prior year period. IMC Phosphates estimates that its capital expenditures for 2002 will approximate $100.0 million and will be financed primarily from operations and borrowings.

Net cash provided by financing activities for the six-month period ending June 30, 2002 was $13.1 million compared to $220.6 million for the same period in 2001. The decrease resulted from improved operations which reduced the amount of funding that was necessary from IMC.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

IMC Phosphates is exposed to the impact of interest rate changes on borrowings and the impact of 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. IMC Phosphates periodically enters into natural gas forward purchase contracts to reduce the risk related to significant price changes in natural gas, but not for trading purposes. As of June 30, 2002, none of IMC Phosphates' exposure to the risk factors discussed above had materially changed from December 31, 2001.

-8-


 

Part II. OTHER INFORMATION

Item 6. Exhibits and Reports on Form 8-K.

 

(a)

Exhibits.

 

 

Reference is made to the Exhibit Index on page E-1 hereof.

 

(b)

Reports on Form 8-K.

 

 

None.

 

 

* * * * * * * * * * * * * * * *

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 PHOSPHATES COMPANY

By:

IMC Phosphates MP Inc.
Its Managing General Partner

 

 

      J. Reid Porter                                                                      

 

J. Reid Porter
Vice President of IMC Phosphates MP Inc.
(on behalf of the Registrant and as principal financial officer)

 

Date: August 14, 2002

-9-


 

Exhibit Index



Exhibit No.



Description


Incorporated Herein by
Reference to

Filed with
Electronic
Submission

4.ii.

Amendment No. 4 dated as of April 3, 2002 to the Credit Agreement dated as of May 17, 2001 among IMC Global Inc., the borrowing subsidiaries party thereto JP Morgan Chase as administrative agent and Goldman Sachs Credit Partners L.P., as syndication agent

Exhibit 4.ii. to the Quarterly Report on Form 10-Q of IMC Global Inc. for the Quarterly Period Ended June 30, 2002 (SEC File No. 9759)

 

10.ii.a.

Promissory Demand Note between IMC Phosphates Company, as borrower, and IMC , as lender, dated May 17, 2001 in the principal sum of $300,000,000

 

X

10.ii.b.

Promissory Demand Note between IMC Phosphates Company, as borrower, and IMC, as lender, dated May 17, 2001 in the principal sum of $65,000,000

 

X

99.1

Certification Pursuant to Section 1350 of Chapter 63 of Title 18 of the United States Code

 

X

99.2

Certification Pursuant to Section 1350 of Chapter 63 of Title 18 of the United States Code

 

X

E-1