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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
--- THE SECURITIES EXCHANGE ACT OF 1934
For the year ended December 31, 1998
Commission file number 1-9164
Phosphate Resource Partners Limited Partnership
(Exact name of registrant as specified in its charter)
Delaware 72-1067072
(State or other jurisdiction of (I.R.S. Employer
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
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
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Depositary Units New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.
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State the aggregate market value of the voting units held by non-affiliates
of the Registrant: $603,940,365 as of March 15, 1999. Market value is based
on the March 15, 1999 closing price of the Registrants depositary units as
reported on the New York Stock Exchange Composite Transactions for such date.
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Phosphate Resource Partners Limited Partnership
1998 FORM 10-K CONTENTS
Item Page
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Part I:
1. Business 1
Partnership Profile 1
Business Operations Information 2
Factors Affecting Demand 7
Other Matters 7
2. Properties 11
3. Legal Proceedings 11
4. Submission of Matters to a Vote of Security Holders 12
Part II:
5. Market for the Registrant's Partnership Units and
Related Unitholder Matters 12
6. Selected Financial Data 14
7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 14
7a. Quantitative and Qualitative Disclosures about
Market Risk 25
8. Financial Statements and Supplementary Data 25
9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 48
Part III:
10. Directors and Executive Officers of the Registrant 48
11. Executive Compensation 49
12. Security Ownership of Certain Beneficial Owners
and Management 49
13. Certain Relationships and Related Transactions 50
Part IV:
14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K 50
Signatures S-1
Exhibit Index E-1
Index to Financial Statements F-1
PART I.
Item 1. Business.
PARTNERSHIP PROFILE
Phosphate Resource Partners Limited Partnership (PLP),
through its joint venture operation in IMC-Agrico Company
(IMC-Agrico), is one of the world's largest and lowest cost
producers, marketers and distributors of phosphate crop
nutrients and animal feed ingredients, with operations in
central Florida and on the Mississippi River in Louisiana.
PLP also participates in the exploration and production of
oil and gas (Exploration Program) primarily through its
agreement with McMoRan Exploration Company (MMR), formerly
McMoRan Oil & Gas Co. (MOXY).
IMC-Agrico's business includes the mining and sale of
phosphate rock and the production, marketing and distribution
of phosphate crop nutrients and animal feed ingredients.
IMC-Agrico was formed as a joint venture partnership in July
1993 when PLP and IMC Global Inc. (IMC) contributed their
respective phosphate crop nutrients businesses to IMC-Agrico.
IMC-Agrico is 41.5 percent owned by PLP and 58.5 percent by
IMC.
In November 1998, MOXY and Freeport-McMoRan Sulphur Inc.
(FSC) merged and became wholly-owned subsidiaries of a newly
formed holding company, MMR (MMR Merger). MOXY stockholders
received 0.2 MMR shares for each common share of MOXY held at
the time of the MMR Merger which resulted in PLP owning 0.8
million shares, or approximately six percent, of outstanding
MMR common stock.
Through its involvement in the Exploration Program, PLP is a
partner in a multi-year $210.0 million oil and gas
exploration program to explore and develop prospects
primarily offshore in the Gulf of Mexico (Gulf) with MMR and
an individual investor (Investor). See "Oil and Gas," for
further detail.
Until December 22, 1997, PLP also owned certain sulphur
mining, transportation, terminaling and marketing assets.
These assets included a 58.3 percent interest in the Main
Pass 299 sulphur and oil and gas joint venture (Main Pass),
for which PLP served as manager and operator and in which IMC
owned a 25.0 percent interest. On December 22, 1997,
Freeport-McMoRan Inc. (FTX), the former administrative
managing general partner and owner of a 51.6 percent interest
in PLP, merged into IMC (FTX Merger). In connection with the
FTX Merger, IMC became administrative managing general
partner (General Partner) of PLP. Immediately prior to the
FTX Merger, PLP contributed certain assets to FSC, including
PLP's interest in Main Pass, the Culberson sulphur mine in
Texas and various related sulphur terminaling and
transportation assets in the onshore coastal area of the Gulf
(Gulf Coast Area). In connection with the FTX Merger, IMC
also contributed its 25.0 percent interest in Main Pass to
FSC. PLP immediately thereafter distributed its FSC shares
to PLP unitholders, including FTX. FTX then, in turn,
distributed FSC shares to its shareholders. As a result,
prior to the MMR Merger, PLP did not own any direct or
indirect interest in FSC. However, subsequent to the MMR
Merger, PLP now owns an indirect interest in FSC as a result
of its six percent interest in MMR.
PLP's business operations now consist of: (i) its joint
venture interest in IMC-Agrico; (ii) its interest in the
Exploration Program with MMR; and (iii) certain other oil and
gas operations. All references herein to PLP refer to PLP's
business activities as executed through its ownership
interest in IMC-Agrico, its interest in the Exploration
Program and certain other oil and gas operations.
PLP is a publicly traded Delaware limited partnership. As of
December 31, 1998, IMC, the General Partner, held partnership
units representing an approximate 51.6 percent interest in
PLP. The remaining interests are publicly owned and traded
on the New York Stock Exchange (NYSE). See "Other Matters -
Relationship Between PLP and IMC," for further detail.
BUSINESS OPERATIONS INFORMATION
The following business operations discussion should be read
in conjunction with the information contained in Part II,
Item 7, "Management's Discussion and Analysis of Financial
Condition and Results of Operations," of this Annual Report
on Form 10-K.
IMC-Agrico Company
(The amounts included in the IMC-Agrico discussion are shown
in total for the joint venture, unless otherwise noted. IMC-
Agrico is 41.5 percent owned by PLP.)
In July 1993, PLP and IMC contributed to IMC-Agrico their
respective phosphate crop nutrients businesses, including the
mining and sale of phosphate rock and the production,
marketing and distribution of phosphate crop nutrients.
IMC, as the General Partner, is responsible for the operation
of IMC-Agrico. Subject to the terms of the IMC-Agrico
Partnership Agreement (Partnership Agreement) IMC has the
sole authority to make certain decisions affecting IMC-
Agrico, including authorizing certain capital expenditures
for expansion; incurring certain indebtedness; approving
significant acquisitions and dispositions; and determining
certain other matters.
PLP's share of IMC-Agrico's net sales were $687.1
million, $683.8 million and $781.1 million for the years
ended December 31, 1998, 1997 and 1996, respectively. IMC-
Agrico's operations consist of its phosphate crop nutrients
business (IMC-Agrico Phosphates) and its animal feed
ingredients business (IMC-Agrico Feed Ingredients).
IMC-Agrico Phosphates
Net sales for IMC-Agrico Phosphates (Phosphates) were
$1,572.8 million, $1,484.8 million and $1,661.3 million for
the years ended December 31, 1998, 1997 and 1996,
respectively. Phosphates is a leading United States miner of
phosphate rock, one of the primary raw materials used in the
production of concentrated phosphates, with 20.0 million tons
of annual capacity. Phosphates is also a leading United
States producer of concentrated phosphates with an annual
capacity of approximately four million tons of phosphoric
acid (P2O5). P2O5 is an industry term indicating a product's
phosphate content measured chemically in units of phosphorous
pentoxide. Phosphate's concentrated phosphate products are
marketed worldwide to crop nutrient manufacturers,
distributors and retailers.
Phosphates' facilities, which produce concentrated phosphate,
are located in central Florida and Louisiana. Its annual
capacity represents approximately 32 percent of total United
States concentrated phosphate production capacity and
approximately ten percent of world capacity. The Florida
concentrated phosphate facilities consist of three plants:
New Wales, Nichols and South Pierce. The New Wales complex
is the largest concentrated phosphate plant in the world with
an estimated annual capacity of 1.8 million tons of
phosphoric acid (P2O5 equivalent). New Wales primarily
produces four forms of concentrated phosphates: diammonium
phosphate (DAP), monoammonium phosphate (MAP), granular
triple superphosphate (GTSP) and merchant grade phosphoric
acid. The Nichols facility manufactures phosphoric acid, DAP
and granular MAP (GMAP). The South Pierce plant produces
phosphoric acid and GTSP. The Louisiana concentrated
phosphate facilities consist of three plants: Uncle Sam,
Faustina and Taft. The Uncle Sam plant produces phosphoric
acid which is then shipped to the Faustina and Taft plants
where it is used to produce DAP and GMAP. The Faustina plant
manufactures phosphoric acid, DAP, GMAP and ammonia. The
Taft facility manufactures DAP and GMAP. Concentrated
phosphate operations are managed in order to balance
Phosphates' output with customer needs. Phosphates suspended
phosphoric acid production at its Nichols facility in October
1998 and suspended production at its Taft facility in
November 1998 in response to reduced market demands. The
Taft facility subsequently resumed production in January
1999.
Summarized below are descriptions of the principal raw
materials used in the production of concentrated phosphates:
phosphate rock, sulphur and ammonia.
Phosphate Rock
All six of Phosphates' phosphate mines and related mining
operations are located in central Florida. Phosphates
extracts phosphate ore through surface mining after removal
of a ten to 50 foot layer of sandy overburden and then
processes the ore at one of its beneficiation plants where
the ore goes through washing, screening, sizing and flotation
procedures designed to separate it from sands, clays and
other foreign materials. Currently, four of Phosphates'
phosphate mines are operating while one was idled in November
1998 and another was idled in January 1999. One of the
operating mines will permanently close in mid-1999 pursuant
to the restructuring of operations initiated by IMC
(Restructuring Plan). See "Restructuring Charges," in Part
II, Item 7, "Management's Discussion and Analysis of
Financial Condition and Results of Operations," of this
Annual Report on Form 10-K for further detail. The present
mining plan, developed in conjunction with the Restructuring
Plan, anticipates the re-start of the two idle mines in the
second half of 1999. The mining plan was developed to
maximize the available resources, lower the cost of producing
rock and manage the level of phosphate rock inventory.
Phosphates' phosphate rock production volume for the years
ended December 31, 1998, 1997 and 1996 totaled 20.0 million,
20.0 million and 22.5 million tons, respectively. Anticipated
production in 1999 will be less than the prior years as
Phosphates reduces its level of rock inventory through the
temporary idling of the two mines. Although Phosphates sells
phosphate rock to other crop nutrient and animal feed
ingredient manufacturers, it primarily uses phosphate rock
internally in the production of concentrated phosphates.
Tons used internally, primarily in the manufacture of
concentrated phosphates, totaled 14.8 million, 14.1 million
and 14.3 million for the years ended December 31, 1998, 1997
and 1996, respectively, representing 74 percent, 70 percent
and 64 percent, respectively, of total tons produced.
Product shipments to customers totaled 5.0 million, 4.6
million and 6.5 million tons for the years ended December 31,
1998, 1997 and 1996, respectively. Customer shipments have
been reduced in order to maximize relative values of rock and
concentrated phosphates by utilizing high-quality reserves
for internal upgrading.
Phosphates estimates its proven reserves to be 530.0 million
tons of phosphate rock as of December 31, 1998. These
reserves are controlled by Phosphates through ownership,
long-term lease, royalty or purchase option agreements.
Reserve grades range from 58 percent to 78 percent bone
phosphate of lime (BPL), with an average grade of 66 percent
BPL. BPL is the standard industry term used to grade the
quality of phosphate rock. The phosphate rock mined by
Phosphates in the last three years averaged 65 percent BPL,
which management believes is typical for phosphate rock mined
in Florida during this period. Phosphates estimates its
reserves based upon the performance of exploration core
drilling as well as technical and economic analyses to
determine that reserves so classified can be economically
mined at market prices estimated to prevail during the next
five years.
Phosphates also owns or controls phosphate rock resources in
the southern extension of the central Florida phosphate
district (Resources). Resources are mineralized deposits
which may be economically recoverable; however, additional
geostatistical analyses, including further explorations,
permitting and mining feasibility studies, are required
before such deposits may be classified as reserves. Based
upon its preliminary analyses of these Resources, Phosphates
believes that these mineralized deposits differ in physical
and chemical characteristics from those historically mined by
Phosphates but are similar to certain of the reserves being
mined in current operations. These Resources contain
estimated recoverable phosphate rock of approximately 114.0
million tons. Some of these Resources are located in what
may be classified as preservational wetland areas under
standards set forth in current county, state and federal
environmental protection laws and regulations, and
consequently, Phosphates' ability to mine these Resources
may be restricted.
Sulphur
A significant portion of Phosphates' sulphur requirements is
provided by the sulphur subsidiary of MMR under a supply
agreement with Phosphates. Phosphates' remaining sulphur
requirements are provided by market contracts.
Ammonia
Phosphates' ammonia needs are supplied by its Faustina
ammonia production facility and by world suppliers, primarily
under annual and multi-year contracts. Production from the
Faustina plant, which has an estimated annual capacity of
560,000 tons of anhydrous ammonia, is used internally to
produce certain concentrated phosphates.
Sales and Marketing
Domestically, Phosphates sells its concentrated phosphates to
crop nutrient manufacturers, distributors and retailers.
Phosphates also uses concentrated phosphates internally for
the production of animal feed ingredients (see IMC-Agrico
Feed Ingredients). Virtually all of Phosphates' export sales
of phosphate crop nutrients are marketed through the
Phosphate Chemicals Export Association (PhosChem), a Webb-
Pomerene Act organization, which Phosphates administers on
behalf of three other member companies. PhosChem believes
that its sales represent approximately 53 percent of total
United States exports of concentrated phosphates. The
countries which account for the largest amount of PhosChem's
sales of concentrated phosphates include China, Australia,
India, Japan and Brazil. In 1998, Phosphates' exports to
Asia and China were 48 percent and 27 percent,
respectively, of total shipments.
The table below shows Phosphates' shipments of concentrated
phosphates in thousands of dry product tons, primarily DAP:
1998 1997 1996
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Tons % Tons % Tons %
---- - ---- - ---- -
Domestic
Customers 2,373 32 2,065 29 2,350 32
Captive, to other
business units 563 8 615 9 581 8
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2,936 40 2,680 38 2,931 40
Export 4,377 60 4,425 62 4,451 60
----- --- ----- --- ----- ---
Total shipments 7,313 100 7,105 100 7,382 100
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As of December 31, 1998, Phosphates had contractual
commitments from non-affiliated customers for the shipment of
concentrated phosphates and phosphate rock amounting to
approximately 2.7 million tons and 5.2 million tons,
respectively, in 1999.
Competition
Phosphates operates in a highly competitive global market.
Among the competitors in the global phosphate crop nutrient
market are domestic and foreign companies, as well as foreign
government-supported producers. Phosphate crop nutrient
producers compete primarily based on price and, to a lesser
extent, product quality and innovation.
IMC-Agrico Feed Ingredients
Net sales for IMC-Agrico Feed Ingredients (Feed Ingredients)
were $164.4 million, $163.5 million and $154.6 million for
the years ended December 31, 1998, 1997 and 1996,
respectively.
Feed Ingredients is one of the world's foremost producers and
marketers of phosphate-based animal feed ingredients with an
annual capacity in excess of 700,000 tons. In the first
quarter of 1998, Feed Ingredients started construction on the
expansion of its deflourinated phosphate [Multifos(Registered
Trademark)] capacity at its manufacturing operations at the
New Wales facility located in central Florida. The project
will increase the annual capacity for Multifos(Registered
Trademark) to 200,000 tons and will increase Feed Ingredients
total annual production to approximately 770,000 tons. The
principal production facilities of Feed Ingredients are
located adjacent to, and utilize raw materials from,
Phosphates' concentrated phosphate complex at New Wales.
Sales and Marketing
Feed Ingredients supplies phosphate and potassium-based feed
ingredients for poultry and livestock to markets in North
America, Latin America and Asia. Feed Ingredients sources
phosphate and potassium raw materials from IMC's respective
production facilities. Feed Ingredients has a strong brand
position in the $1.0 billion global market with products such
as Biofos(Registered Trademark), Dynafos(Registered
Trademark), Multifos(Registered Trademark), Dyna-K(Registered
Trademark) and Dynamate(Registered Trademark).
Competition
Feed Ingredients operates in a competitive global market.
Major integrated producers of feed phosphates and feed grade
potassium are located in the United States and Europe. Many
smaller producers are located in emerging markets around the
world. Many of these smaller producers are not manufacturers
of phosphoric acid and are required to purchase this raw
material on the open market. Competition in this global
market is driven by quality, service and price.
Oil and Gas
All information concerning MMR or its subsidiaries is
derived, unless the context otherwise suggests, from either
publicly available information concerning MMR and/or
its subsidiaries or information otherwise provided to PLP by
MMR or its subsidiaries. PLP has made no independent
investigation as to the reliability or accuracy of such
information.
MMR, through a subsidiary, is an independent oil and gas
company engaged in the exploration, development and
production of oil and natural gas. MMR operations are
conducted offshore in the Gulf and onshore in the Gulf Coast
Area. MMR manages and operates the Exploration Program,
selecting all prospects and drilling opportunities, as well
as serving as operator. Under the Exploration Program, which
was amended in December 1997 to include the Investor, most
exploration expenditures will be shared 56.4 percent by PLP,
37.6 percent by MMR and six percent by the Investor, with all
other costs and revenues shared 47.0 percent by PLP, 48.0
percent by MMR and five percent by the Investor. Exploration
expenditures consist of all costs associated with leasehold
acquisition and maintenance, geological and geophysical
studies, seismic surveys, drilling exploratory wells,
overhead reimbursements and all other aspects of identifying
prospects and drilling exploratory wells. PLP and MMR
received credits against their program commitment for an
aggregate of $8.3 million for certain exploratory costs. As
of December 31, 1998, PLP's total exploration spending to
date was approximately $70.0 million. The Exploration
Program will terminate after initial exploration program
expenditures of $210.0 million, of which PLP's share is
$120.0 million, have been committed or on March 31, 2002,
whichever is earlier.
When successful wells are drilled, PLP has the opportunity to
invest in development activities designed to allow the wells
to produce and sell oil and gas. At December 31, 1998, PLP
had invested approximately $15.0 million in development
activities, substantially all of which was invested during
1998. No oil and gas properties owned by PLP were materially
producing and selling oil or gas at the end of 1998. IMC, on
behalf of the PLP public unitholders, 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. See Part I, Item 3, "Legal
Proceedings," of this Annual Report on Form 10-K.
FACTORS AFFECTING DEMAND
PLP's results of operations historically have reflected the
effects of several external factors which are beyond its
control and have in the past produced significant downward
and upward swings in operating results. Revenues are highly
dependent upon conditions in the North American agriculture
industry and can be affected by crop failure, changes in
agricultural production practices, government policies and
weather. Furthermore, IMC-Agrico's business is seasonal to
the extent North American farmers and agricultural
enterprises purchase more crop nutrient products during the
spring and fall.
PLP's export sales to foreign customers are subject to
numerous risks, including fluctuations in foreign currency
exchange rates and controls; expropriation and other
economic, political and regulatory policies of local
governments; and laws and policies of the United States
affecting foreign trade and investment. Due to economic and
political factors, customer needs can change dramatically
from year to year. While management does not believe the
current economic conditions in Asia and Latin America will
have a material adverse effect on PLP's results, there can be
no assurance that a continuation of such economic conditions
would not materially impact results. See Note 13,
"Operating Segments," of Notes to Financial Statements in
Part II, Item 8, "Financial Statements and Supplementary
Data," of this Annual Report on Form 10-K.
In 1998, sales to China accounted for approximately 21
percent of PLP net sales. No single customer or group of
affiliated customers accounted for more than ten percent of
PLP net sales.
OTHER MATTERS
Environmental Health and Safety Matters
PLP's Program
PLP's Environmental, Health and Safety (EHS) Plan (EHS Plan)
is a comprehensive plan designed to achieve sustainable,
predictable, measurable and verifiable EHS performance.
Through the EHS Plan, PLP endeavors to ensure that it
satisfies its obligations. As a producer and distributor of
phosphate crop nutrients and a participant in oil and gas
activities, PLP is subject to a myriad of international,
federal, state, and local environmental, health and safety
laws. These ever-evolving standards regulate, or propose to
regulate: (i) the content and use of PLP's products; (ii) the
conduct of PLP's exploration, mining, development and
production operations, including employee safety procedures;
(iii) the management and handling of raw materials; (iv) air
and water quality; (v) disposal of hazardous and solid
wastes; and (vi) post-mining land reclamation or post-
production well closure. For new regulatory programs, it is
difficult to ascertain future compliance obligations or
estimate future costs until implementing regulations have
been finalized and definitive regulatory interpretations have
been adopted. PLP believes that the EHS Plan allows PLP to
respond to these regulatory requirements while minimizing EHS
risk and associated costs. Nevertheless, there can be no
assurance that unexpected or additional costs, penalties, or
liabilities will not be incurred.
PLP has expended, and anticipates that it will continue to
expend, substantial resources, both financial and managerial,
to comply with EHS standards. In 1999, environmental capital
expenditures for IMC-Agrico will total approximately $49.0
million, primarily related to the construction of wastewater
treatment areas in Florida, modification and construction
projects associated with phosphogypsum stacks at IMC-Agrico's
three concentrates plants in Florida and in Louisiana, and
remediation of contamination at current or former operations.
Additional expenditures for land reclamation activities will
total approximately $19.0 million. In 2000, IMC-Agrico
expects environmental capital expenditures will be
approximately $44.0 million and expenditures for land
reclamation activities to be approximately $20.0 million.
Based on current information, it is the opinion of management
that PLP's contingent liability arising from EHS matters
including matters related to oil and gas activities, taking
into account established reserves, will not have a material
adverse effect on PLP's financial position or results of
operations. However, no assurance can be given that greater-
than-anticipated EHS expenditures will not be required in
1999 or in the future.
Product Requirements and Impacts
PLP's primary business is the production and sale of
phosphate crop nutrients. International, federal and state
standards: (i) require registration of all crop nutrients
before those products can be sold; (ii) impose labeling
requirements on those products; and (iii) require producers
to manufacture the products to formulations set forth on the
labels. Various environmental, natural resource and public
health agencies at all regulatory levels have begun
evaluating alleged environmental and health effects that
might arise from the handling and use of products such as
those manufactured by PLP. Most of these evaluations are in
the initial stages. Some agencies have implemented or are
considering standards that may restrict customers' use of
PLP's products because of the alleged impacts; however, it is
unclear whether the evaluations will result in additional
regulatory requirements for the industry, including PLP. At
this preliminary stage, PLP cannot estimate the potential
impact of these standards on the market for PLP's products or
on the expenditures that may be necessary to meet new
requirements.
Operating Requirements and Impacts
Permitting
PLP, through IMC-Agrico, holds numerous environmental and
other permits authorizing operations at each of its
facilities. A decision by a government agency to deny an
application for a new or renewed permit, or to revoke or
substantially modify an existing permit, could have a
material adverse effect on PLP's ability to continue
operations at the affected facility. Expansion of PLP's
operations also is predicated upon securing the necessary
environmental or other permits. The United States
Environmental Protection Agency has recently proposed
guidance that would allow organizations or communities to
challenge federally authorized permits on the basis that
those permits would have a disproportionate impact on
minority or low-income communities. This guidance could
impact the ability of PLP's phosphate operations to obtain
timely permits, particularly in Louisiana.
In addition, over the next two to six years, IMC-Agrico will
be continuing its efforts to obtain permits in support of its
anticipated Florida mining operations at the Ona and Pine
Level properties. These properties contain in excess of 100
million tons of phosphate rock reserves. For years, IMC-
Agrico has successfully permitted mining properties in
Florida and anticipates that it will be able to permit these
properties. Nevertheless, a denial of these permits or the
issuance of permits with cost-prohibitive conditions would
adversely impact PLP by preventing it from mining at Ona or
Pine Level.
Mining Operations
A significant number of EHS standards govern PLP's phosphate
mining and oil well development and production activities.
PLP and its affiliated entities like MMR are in substantial
compliance with these standards. In October 1997, however,
IMC-Agrico received three notices from the United States Army
Corps of Engineers (Corps) alleging that IMC-Agrico had
violated the permits authorizing phosphate mining in certain
wetland areas. After an internal audit of its Corps permits,
IMC-Agrico notified the Corps that IMC-Agrico had
inadvertently disturbed, without permits, additional wetlands
over which the Corps had asserted jurisdiction. IMC-Agrico
has had discussions with the Corps to resolve these issues.
A settlement agreement is pending and IMC-Agrico does not
expect that the settlement will have a material adverse
effect on IMC-Agrico's financial condition or operations.
Management of Residual Materials
Phosphate mining and processing and oil and gas operations
generate residual materials that must be managed. Phosphate
mining residuals such as overburden and sand tailings are
used in reclamation, while clay residuals are deposited in
clay ponds. Phosphate processing produces phosphogypsum
which is stored in phosphogypsum stack systems. Oil and gas
operations generate drilling muds and other wastes associated
with well exploration and development. PLP has incurred and
will continue to incur significant costs to manage its
residual materials in accordance with environmental laws,
regulations and permit requirements.
Florida law may require IMC-Agrico to close one or more of
its unlined phosphogypsum stacks and/or associated cooling
ponds after March 25, 2001 if the stack system or pond is
demonstrated to cause a violation of Florida's groundwater
quality standards. IMC-Agrico has already begun closure
activities at its unlined gypsum stack at its New Wales
facility in central Florida. IMC-Agrico cannot predict at
this time whether Florida will require closure of any of its
other stack systems. The costs of such closure could be
significant. In addition, IMC-Agrico currently operates an
unlined cooling pond at New Wales. Monitoring indicates that
discharges from the unlined cooling pond are within Florida
goundwater standards. As a result, IMC-Agrico is seeking a
permit to continue operating this pond. IMC-Agrico
anticipates that the permit will be granted during the second
quarter of 1999. However, if IMC-Agrico does not receive the
permit, it will need to line or relocate the cooling pond
which is estimated to cost approximately $50.0 million.
On-Site Remedial Activities
Many of PLP's currently, and formerly, owned facilities, as
well as facilities owned by IMC-Agrico, have been in
operation for many years. The historical use and handling of
regulated chemical substances and crop nutrients at these
facilities by PLP, IMC-Agrico and predecesssor operators has
resulted in soil and groundwater contamination. Spills or
other unintended releases of regulated substances have
occurred previously at these facilities, and potentially
could occur in the future, possibly requiring PLP to
undertake or fund cleanup efforts. At some locations, PLP
has agreed, pursuant to consent orders with the appropriate
governmental agencies, to undertake certain investigations,
which currently are in progress, to determine whether
remedial action may be required to address contamination.
Material expenditures could be required by PLP in the future
to remediate the contamination at these current or former
sites. It is PLP's policy to accrue environmental
investigatory and non-capital remediation costs for
identified sites when litigation has commenced or a claim or
assessment has been asserted or is probable and the
likelihood of an unfavorable outcome is probable. PLP cannot
determine the cost of any remedial action that ultimately may
be required at unknown sites, sites currently under
investigation, sites for which investigations have not been
performed, or at which unanticipated conditions are
discovered.
PLP believes that, pursuant to several indemnification
agreements, it is entitled to at least partial, and in many
instances complete, indemnification for a portion of the
costs that may be expended by PLP to remedy environmental
issues at certain facilities. These agreements address
issues that resulted from activities occurring prior to PLP's
acquisition of facilities or businesses from parties
including ARCO; Conoco; the Williams Companies; Kerr-McGee
Inc.; and certain other private parties. PLP has already
received and anticipates receiving amounts pursuant to the
indemnification agreements for certain of its expenses
incurred to date as well as future anticipated expenditures.
Superfund
The Comprehensive Environmental Response Compensation and
Liability Act (Superfund), imposes liability without regard
to fault or to the legality of a party's conduct, on certain
categories of persons that are considered to have contributed
to the release of "hazardous substances" into the
environment. Currently, PLP is involved or concluding
involvement at less than ten Superfund sites. PLP's
liability at these sites, either alone or in the aggregate,
is not currently expected to be material. As more
information is obtained regarding the sites and the
potentially responsible parties involved, this expectation
could change.
Employees
PLP has no employees. At December 31, 1998, IMC-Agrico had
approximately 4,284 employees. The work force consisted of
1,092 salaried and 3,192 hourly employees.
Labor Relations
IMC-Agrico has three collective bargaining agreements with
three international unions or their affiliated local
chapters. At December 31, 1998, approximately 86 percent of
the hourly work force were covered under collective
bargaining agreements. One agreement covering 48 percent of
the hourly work force was negotiated during 1997. Resulting
wage and benefit increases were consistent with competitive
industry and community standards. Two agreements covering
approximately 38 percent of the hourly work force were
negotiated during 1998. IMC-Agrico has not experienced a
significant work stoppage in recent years and considers its
employee relations to be good.
Relationship Between PLP and IMC
Management and Ownership
IMC serves as the General Partner of PLP and the directors
and officers of IMC perform all PLP management functions and
carry out the activities of PLP. As of December 31, 1998,
IMC held partnership interests that represented an
approximate 51.6 percent interest in PLP. As a result of
IMC's position as General Partner and of its ownership
interest, IMC has the ability to control all matters relating
to the management of PLP, including any determination with
respect to the acquisition or disposition of PLP assets,
future issuance of additional debt or other securities of PLP
and any distributions payable in respect of PLP's partnership
interests. In addition to such other obligations as it may
assume, IMC has the general duty to act in good faith and to
exercise its rights of control in a manner that is fair and
reasonable to the public unitholders of partnership
interests.
During 1998, PLP distributed $0.22 per unit to the public
unitholders. On January 29, 1999, PLP announced that it
would make a cash distribution of $0.10 per unit to public
unitholders for the quarter ended December 31, 1998. Total
unpaid distributions due to IMC of $431.3 million existed as
of December 31, 1998. PLP's distributable cash is shared
ratably by PLP's public unitholders and IMC, except that IMC
is entitled to recover its unpaid cash distributions on a
quarterly basis from one half of any excess of future
quarterly distributions over $0.60 cents per unit for all
units.
Financing Arrangements
Reference is made to the information set forth in Note 9,
"Financing Arrangements," of Notes to Financial Statements in
Part II, Item 8, "Financial Statements on Supplementary
Data," of this Annual Report on Form 10-K.
Conflicts of Interest
The nature of the respective businesses of PLP and IMC and
its affiliates may give rise to conflicts of interest between
PLP and IMC. Conflicts could arise, for example, with
respect to transactions involving potential acquisitions of
businesses or mineral properties, the issuance of additional
partnership interests, the determination of distributions to
be made by PLP, the allocation of general and administrative
expenses between IMC and PLP and other business dealings
between PLP and IMC and its affiliates. Except in cases where
a different standard may have been provided for, IMC has a
general duty to act in good faith and to exercise rights of
control in a manner that is fair and reasonable to the public
unitholders. In resolving conflicts of interest, PLP's
limited partnership agreement (PLP Agreement) permits IMC to
consider the relative interest of each party to a potential
conflict situation which, under certain circumstances, could
include the interest of IMC and its other affiliates.
Item 2. Properties.
Information regarding the plant and properties of PLP is
included in Part I, Item 1, "Business," of this Annual Report
on Form 10-K.
Item 3. Legal Proceedings.
FTX Merger Litigation
In August 1997, five identical class action lawsuits were
filed in Chancery Court in Delaware by unitholders of PLP.
Each case named the same defendants and broadly alleged that
FTX and FMRP Inc. (FMRP) had breached fiduciary duties owed
to the public unitholders of PLP. IMC was alleged to have
aided and abetted these breaches of fiduciary duty.
In November 1997, an amended class action complaint was filed
with respect to all cases. The amended complaint named the
same defendants and raised the same broad allegations of
breaches of fiduciary duty against FTX and FMRP for allegedly
favoring the interests of FTX and FTX's common stockholders
in connection with the FTX Merger. The plaintiffs claimed
specifically that, by virtue of the FTX Merger, the public
unitholders' interests in PLP's ownership of IMC-Agrico would
become even more subject to the dominant interest of IMC.
The amended complaint seeks certification as a class action
and an injunction against the proposed FTX Merger or, in the
alternative, rescissionary damages. The defendants' moved
the court to dismiss the amended complaint in November 1998.
The plaintiffs have until March 1999 to file their response.
IMC and PLP intend to defend this action vigorously.
In May 1998, IMC and PLP (collectively, Plaintiffs) filed a
lawsuit (IMC Action) in Delaware Chancery Court against
certain former directors of FTX (Director Defendants) and
MOXY. The Plaintiffs allege that the Director Defendants, as
the directors of PLP's administrative managing general
partner FTX, owed duties of loyalty to PLP and its limited
partnership unitholders. The Plaintiffs further allege that
the Director Defendants breached their duties by causing PLP
to enter into a series of interrelated non-arm's-length
transactions with MOXY, an affiliate of FTX.
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. No trial date has been scheduled.
IMC intends to pursue this action vigorously.
In May 1998, Jacob Gottlieb filed an action (Gottlieb Action)
on behalf of himself and all other PLP unitholders against
the Director Defendants, MOXY and IMC asserting the same
claims that IMC asserts in the IMC Action. Because IMC and
PLP had already asserted these claims, IMC has filed a motion
to dismiss the Gottlieb Action. The court has not set a
briefing schedule for IMC's motion to dismiss. IMC and PLP
intend to defend this action vigorously.
Other
PLP is involved from time to time in various legal
proceedings of a character normally incident to its
businesses. PLP believes that its potential liability in any
such pending or threatened proceedings will not have a
material adverse effect on the financial condition or results
of operations of PLP. PLP, through IMC and IMC-Agrico,
maintains liability insurance to cover some, but not all,
potential liabilities normally incident to the ordinary
course of its businesses with such coverage limits as
management of IMC deems prudent.
Item 4. Submission of Matters to a Vote of Security Holders.
Not applicable.
PART II.
Item 5. Market for Registrant's Partnership Units and Related
Unitholder Matters.
PLP's partnership units trade on the NYSE under the symbol
PLP. The PLP unit price is reported daily in the financial
press under "PLP" in most listings of NYSE securities. At
March 15, 1999 the number of holders of record of the
partnership's units was 8,867. Under federal law, ownership
of PLP units is limited to "United States citizens." A
United States citizen is defined as a person who is eligible
to own interests in federal mineral leases, which generally
includes: (i) United States citizens; (ii) domestic entities
owned by United States citizens; and (iii) domestic
corporations owned by United States citizens and/or certain
foreign persons. The following table sets forth, for the
periods indicated, the range of high and low sales prices, as
reported by the NYSE.
1998 1997
--------------- ----------------
High Low High Low
---- --- ---- ---
First Quarter $ 8.75 $ 6.63 $18.75 $16.50
Second Quarter 7.38 5.44 17.13 14.38
Third Quarter 9.25 6.25 14.81 12.06
Fourth Quarter 10.81 7.88 12.81 8.56
Ownership at December 31, 1998:
Units Percent
----------- -------
Public unitholders 50,080,645 48.4
IMC 53,385,133(a) 51.6
----------- -----
103,465,778 100.0
=========== =====
(a) Includes 1,036,983 of partnership interests beneficially
owned by IMC.
Cash distributions declared and paid to public unitholders
during 1998 totaled $0.22 per unit. Cash distributions to
public unitholders are determined by available distributable
cash resulting from operations of the partnership and the
terms of the PLP Agreement. Distributable cash is shared
ratably by PLP's public unitholders and IMC, except that IMC
will be entitled to receive the unpaid cash distributions,
totaling $431.3 million at December 31, 1998, from one-half
of the quarterly distributable cash after the payment of
$0.60 per unit to all unitholders. Cash and property
distributions paid during 1998 and 1997 are shown below:
1998
---------------------------------------------------
Distribution
Per Unit Record Date Payment Date
------------ ------------ -------------
$0.13 Aug. 7, 1998 Aug. 14, 1998
0.09 Nov. 5, 1998 Nov. 13, 1998
1997
Distribution
Per Unit Record Date Payment Date
------------ ------------ -------------
$ 0.31 Apr. 30, 1997 May 15, 1997
0.33 Jul. 31, 1997 Aug. 15, 1997
0.10 Oct. 31, 1997 Nov. 15, 1997
0.1 FSC share(b) Dec. 22, 1997 Dec. 22, 1997
(b) The December 22, 1997 distribution was a special
distribution made in connection with the FTX Merger
whereby PLP distributed its ownership in FSC. Each
unitholder's basis for each PLP unit requires adjustment
as a result of PLP's distribution of FSC. Further
information regarding such adjustment was included with
1997 unitholder tax information.
Item 6. Selected Financial Data.
Five Year Comparison
(In millions, except per unit amounts)
Years ended December 31,
1998(a) 1997(b) 1996(c) 1995(d) 1994(e)
-------- -------- -------- -------- --------
Statement of Operations Data:
Net sales $ 687.3 $ 842.5 $ 957.0 $ 995.1 $ 765.3
Operating earnings
(loss) 69.5 (300.4) 211.8 194.6 120.6
Earnings (loss) 32.3 (355.1) 177.3 161.4 84.0
Earnings (loss)
per unit 0.31 (3.43) 1.71 1.56 0.81
Distributions per publicly held unit:
Cash 0.22 1.34 2.44 2.42 2.40
Property - 1.21 - - -
Average units
outstanding 103.5 103.5 103.5 103.5 103.7
Balance Sheet Data (at end of period):
Property, plant
and equipment,
net $ 477.5 $ 432.5 $ 919.2 $ 949.1 $ 910.4
Total assets 719.8 665.5 1,199.8 1,229.1 1,147.0
Long-term debt,
including
current
portion 561.3 519.8 403.4 384.6 369.0
Partners' capital
(deficit) (159.0) (168.4) 359.7 404.5 447.7
(a) Includes charges of $62.6 million, or $0.61 per unit,
resulting from the profit-improvement program initiated
by IMC (Profit Improvement Program). See "Restructuring
Charges," in Part II, Item 7, "Management's Discussion
and Analysis of Financial Condition and Results of
Operations," of this Annual Report on Form 10-K for
further detail.
(b) Includes charges totaling $406.0 million, or $3.92 per
unit, consisting of $384.5 million for an impairment
assessment of sulphur assets and $21.5 million related to
the FTX Merger. Also includes a $14.5 million
extraordinary loss, or $0.14 per unit, relating to early
extinguishment of debt.
(c) Includes a gain of $11.9 million, or $0.12 per unit,
resulting from the increase in PLP's ownership of IMC-
Agrico and non-recurring charges of $3.0 million, or
$0.03 per unit, for asset valuations at IMC-Agrico.
(d) Includes charges totaling $18.1 million, or $0.18 per
unit, primarily related to costs associated with stock
appreciation rights resulting from the significant rise
in FTX's common stock price during the year.
(e) Includes a charge of $10.9 million, or $0.11 per unit,
primarily for certain remediation costs.
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations.
INTRODUCTION
Management's Discussion and Analysis of Financial Condition
and Results of Operations should be read in conjunction with
PLP's financial statements and the accompanying notes. PLP's
business operations now consist of: (i) its 41.5 percent
joint venture interest in IMC-Agrico; (ii) its interest in
the Exploration Program; and (iii) certain other oil and gas
operations. IMC-Agrico's operations consist of its phosphate
crop nutrients business (IMC-Agrico Phosphates) and its
animal feed ingredients business (IMC-Agrico Feed
Ingredients). The amounts included for the Phosphates and
Feed Ingredients discussion are shown in total for each
segment.
RESULTS OF OPERATIONS
Overview
1998 Compared to 1997
PLP's 1998 net sales of $687.3 million decreased 18 percent
from net sales of $842.5 million in 1997. Gross margins for
1998 of $179.5 million, excluding non-recurring charges of
$8.0 million, increased from comparable 1997 margins of
$177.0 million, excluding a non-recurring charge of $384.5
million. The non-recurring charges are discussed more fully
below.
Earnings in 1998, excluding non-recurring charges of $62.6
million, or $0.61 per unit, related to the Profit Improvement
Program, were $94.9 million, or $0.92 per unit. Including
the non-recurring charges, earnings were $32.3 million, or
$0.31 per unit. See "Restructuring Charges." In
1997, earnings, excluding: (i) a non-recurring charge of
$384.5 million or $3.71 per unit, related to a sulphur asset
impairment (see Note 4, "Non-Recurring Charges," of Notes to
Financial Statements in Part II, Item 8, "Financial
Statements and Supplementary Data," of this Annual Report on
Form 10-K); (ii) a non-recurring charge of $21.5 million, or
$0.21 per unit, related to the FTX Merger; and (iii) an
extraordinary charge of $14.5 million, or $0.14 per unit,
related to the early extinguishment of high-cost debt, were
$65.4 million, or $0.63 per unit. Including the non-
recurring and extraordinary charges, losses were $355.1
million, or $3.43 per unit.
The decrease in sales was primarily driven by the absence of
PLP's sulphur business and its 58.3 percent interest in Main
Pass both of which were transferred to FSC as a result of the
FTX Merger in December 1997. The increase in earnings,
excluding non-recurring charges, was primarily a result of
the absence of certain general and administrative expenses as
a result of the FTX Merger.
1997 Compared to 1996
PLP's 1997 net sales of $842.5 million decreased 12 percent
from net sales of $957.0 million in 1996. Gross margins for
1997 of $177.0 million, excluding the non-recurring charges
discussed above, decreased from comparable 1996 margins of
$260.6 million, excluding non-recurring charges of $3.0
million, discussed in more detail below.
Earnings for 1997, excluding the non-recurring charges
discussed above, were $65.4 million, or $0.63 per unit.
Including the non-recurring and extraordinary charges
discussed above, losses were $355.1 million, or $3.43 per
unit. In 1996, earnings, excluding non-recurring charges of
$3.0 million, or $0.03 per unit, relating to asset valuations
at IMC-Agrico, totaled $180.3 million, or $1.74 per unit.
Including the non-recurring charges, earnings were $177.3
million, or $1.71 per unit.
The decreases in sales was primarily driven by decreases in
sales volumes and realizations from both the concentrated
phosphate and phosphate rock operations. The decrease in
earnings, excluding non-recurring charges, primarily resulted
from the following: (i) decreases in sales discussed above;
(ii) an increase in oil and gas exploration expenses related
to the Exploration Program; and (iii) increased sulphur
production costs.
IMC-Agrico Phosphates
(Dollars in millions)
Years ended December 31, % Increase(Decrease)
----------------------------------------------
1998 1997 1996 1998 1997
---- ---- ---- ---- ----
Net sales $1,572.8 $1,484.8 $1,661.3 6 (11)
Gross margins $375.6(c) $298.7 $411.4(d) 26 (27)
As a percentage of
net sales 24% 20% 25%
Sales volumes
(000 tons)(a) 7,313 7,105 7,382 3 (4)
Average DAP price
per short ton(b $ 178 $ 176 $ 186 1 (5)
(a) Sales volumes include tons sold captively and represent
dry product tons, primarily DAP.
(b) FOB plant.
(c) Before non-recurring charges of $17.2 million.
(d) Before non recurring charges of $6.9 million.
1998 Compared to 1997
Phosphates' net sales of $1,572.8 million in 1998 increased
six percent from $1,484.8 million in 1997. Increased
shipments of concentrated phosphates contributed an
additional $57.7 million to net sales. The majority of the
volume growth came from increased domestic shipments of DAP
and GMAP, which each increased 17 percent, partially offset
by decreased GTSP volumes of 13 percent. The increase in DAP
and GMAP was primarily a result of a strong spring season, an
increase in the number of supply contracts and spot sales to
certain larger co-ops. The decrease in GTSP was primarily
the result of the availability in the marketplace of
aggressively priced imports. International sales volumes
rose slightly compared to the prior year as increased
shipments of GMAP and merchant acid were partially offset by
decreased shipments of DAP. In addition, average sales
realizations of concentrated phosphates, particularly DAP,
favorably impacted net sales by $20.5 million. Net sales
were also favorably impacted by $6.6 million due to higher
domestic phosphate rock sales volumes.
Gross margins of $375.6 million in 1998, excluding non-
recurring charges of $17.2 million, climbed 26 percent from
$298.7 million in 1997, primarily as a result of the
increased volumes and prices discussed above as well as
favorable raw material costs.
1997 Compared to 1996
Phosphates' net sales of $1,484.8 million in 1997 decreased
11 percent from $1,661.3 million in 1996. Decreased sales
volumes of concentrated phosphates caused a decline in net
sales of $45.0 million. The majority of the decline came
from reduced domestic shipments of DAP and GTSP, which
declined 17 and 11 percent, respectively, offset by increased
GMAP volumes of 18 percent. The decline in DAP and GTSP
volumes was primarily due to overall weakened demand and a
focus on higher margin GMAP opportunities. International
sales volumes were relatively flat in 1997 compared to 1996,
as decreased shipments of DAP and GTSP were offset by
increased shipments of GMAP. In addition, average sales
realizations of concentrated phosphates, particularly DAP,
unfavorably impacted net sales by $49.2 million. Net sales
were also unfavorably impacted by $56.7 million due to lower
phosphate rock sales volumes as a result of Phosphates'
strategic decision to phase out third-party sales of
phosphate rock. This action was taken to maximize relative
values of rock and concentrated phosphates by utilizing
high-quality reserves for internal upgrading.
Gross margins declined 27 percent in 1997 to $298.7 million
from $411.4 million, excluding non-recurring charges of $6.9
million in 1996, primarily due to the lower volumes and
prices discussed above. In addition, gross margins reflected
the benefit of a change to market-based acid pricing to Feed
Ingredients.
IMC-Agrico Feed Ingredients
1998 Compared to 1997
Net sales of $164.4 million increased one percent from $163.5
million in 1997. Gross margins of $30.6 million decreased 24
percent from $40.3 million in 1997. The decrease in margins
was primarily attributable to an increase in the price of
acid purchased from Phosphates.
1997 Compared to 1996
Net sales of $163.5 million increased six percent from $154.6
million in 1996 due to slightly higher domestic volumes and
prices. Gross margins of $40.3 million decreased two percent
from $41.2 million in 1996. The decrease in margins was
primarily due to increased costs as a result of a change in
the price of acid purchased from Phosphates.
Sulphur
1998 Compared to 1997
There were no sulphur sales in 1998 as a result of the
contribution of PLP's sulphur businesses to FSC in
conjunction with the FTX Merger.
1997 Compared to 1996
Sulphur sales volumes through December 22, 1997 were flat
compared with 1996, as PLP continued to operate its Main Pass
and Culberson mines at reduced rates. Unit production costs
in 1997 increased 12 percent from 1996 levels due to higher
maintenance costs and natural gas usage.
Oil and Gas Operations
1998 Compared to 1997
Exploration expenses incurred in conjunction with the
Exploration Program were $20.9 million for 1998, an increase
of 32 percent from $15.8 million in 1997. Current year
expenses were primarily attributable to dry hole costs which
largely resulted from unsuccessful drilling at West Cameron
157, Atchafalaya Bay and Grand Isle 54, as well as geological
and geophysical expenses.
Recent operational activities are as follows:
- At year-end, approximately half of the exploration capital
under the Exploration Program had been expended, and PLP's
share was approximately $70.0 million through 1998
compared to less than $30.0 million at the end of 1997.
PLP's share of the development costs was approaching $15.0
million at year-end 1998. Development capital is in
addition to the committed exploration capital. The
majority of the development work to date was performed in
1998.
- In 1998, PLP participated with MMR in the drilling of
eight exploratory wells and one development well as
defined by the Exploration Program. Four of the
exploration wells and the development well were
successful. In 1997, PLP participated with MMR in the
drilling of seven exploration wells of which three were
successful.
- Currently, two fields in the Gulf, south of the Louisiana
coast, are developed and capable of production. Vermilion
159 has a platform with one well and two separate
completion intervals. Production began in January 1999,
and test rates in February exceeded 15 million cubic feet
of gas per day and 600 barrels of condensate per day.
West Cameron 616 has a platform with three wells and five
separate completion intervals. While there was no
production prior to year-end, preliminary testing in
February 1999 exceeded 70 million cubic feet of gas per
day from all five completions.
- PLP participated in a successful exploration well at West
Cameron Block 492 (West Cameron) during 1997 and
participated in a second successful well at West Cameron
during 1998. Additional work will be required to
determine the potential for West Cameron; the Exploration
Program owns a 50 percent working interest in this well.
- PLP participated in a successful exploration well at
Brazos Block A-19 (Brazos) in 1998. The Exploration
Program owns a 35 percent working interest in Brazos
located about 100 miles southwest of Galveston, Texas. At
this time the owners are discussing plans for additional
development.
1997 Compared to 1996
Main Pass oil operating results were as follows prior to
the FTX Merger:
1997 1996
--------- ---------
Sales (barrels) 1,578,600 1,895,500
Average realized price $18.22 $19.49
Operating income (in millions) $2.0 $10.3
PLP did not participate in exploration activities with MMR
in 1996. However, in 1997 PLP participated in the
drilling of seven wells. Three of these were successful
and four were unsuccessful (dry holes). Two of the three
successful wells helped delineate the West Cameron 616
field and one was a discovery well for West Cameron. One
of the dry holes was a well at Vermilion 159 which
provided additional information and helped support the
drilling of the Vermilion well in Block 159 that was
successfully drilled in 1998.
Selling, General and Administrative Expenses
(In millions)
% Increase
Years Ended December 31, (Decrease)
------------------------ ----------
1998 1997 1996 1998 1997
---- ---- ---- ---- ----
Selling, general
and administrative
expenses $ 26.5 $ 54.5(a) $ 55.2 (51) (1)
(a) Before special non-recurring merger charges of $22.6
million related to the FTX Merger.
1998 Compared to 1997
In 1998, selling, general and administrative expenses
decreased as compared to 1997 primarily as a result of the
absence of the sulphur operations and allocated FTX general
and administrative expenses which were eliminated as a result
of the FTX Merger.
1997 Compared to 1996
Selling, general and administrative expenses for 1997
remained consistent with 1996.
Restructuring Charges
(The following discussion discloses amounts in total for IMC-
Agrico.)
During the fourth quarter of 1998, IMC-Agrico developed and
began execution of a plan to improve profitability. 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
function synergies; (ii) restructuring of the phosphate rock
mining and concentrated phosphate production/distribution
operations and processes in an effort to reduce costs; (iii)
simplification of the current business activities by
eliminating businesses not deemed part of IMC-Agrico's core
competencies; and (iv) reduction of operational and
administrative headcount. In conjunction with the
Restructuring Plan, IMC-Agrico recorded pre-tax charges
totaling $148.8 million in the fourth quarter of 1998.
As a result of the specific plans described below, IMC-Agrico
expects to increase operating earnings by an estimated $100.0
million over the next two years, with approximately half of
that amount expected to be realized in 1999. The increase in
earnings is anticipated to result from simplification of the
business, shut-down of high-cost operations, exit from low-
margin businesses and headcount reductions. The
Restructuring Plan (shown below in tabular format) primarily
relates to the following:
Asset impairments
The Restructuring Plan included the removal of property,
plant and equipment, as well as the write-down to fair value
of those assets made obsolete due to the decision to close
certain facilities and forego or abandon certain mineral
properties. In order to determine the write-down of assets
affected by the Restructuring Plan, and in accordance with
Statement of Financial Accounting Standard (SFAS) No. 121,
"Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of," IMC-Agrico performed an
assessment of future cash flows and, accordingly, adjusted
the assets to their appropriate fair values.
The majority of the impairment occurred at Phosphates'
Florida production facilities where property, plant and
equipment was written down by approximately $48.8 million to
fair value. Phosphates developed a new strategic mine plan
(Mine Plan) which identified asset reductions, lower
operating costs and optimal phosphate rock management as key
drivers in the restructuring of operations. The write-down
of impaired assets in connection with the Mine Plan primarily
consisted of facilities, production equipment, operating
supplies, land and mineral reserves. The remaining $0.4
million of asset impairments was recorded at Feed Ingredients
for the permanent closure of a limestone rock production
facility.
The $49.2 million in asset impairment charges included $13.3
million pertaining to assets which will continue to be
utilized until their respective disposal dates, primarily
within the first nine months of 1999. The estimated fair
value of these assets, which will be depreciated over their
respective remaining periods of service, reflected estimated
operating net cash flows until disposition.
Non-employee exit costs
In accordance with the objective of the Mine Plan, to
optimize phosphate rock management, Phosphates decided to
permanently close a high-cost phosphate rock mine. As a
result of this decision, IMC-Agrico recorded a charge of
$18.4 million for the demolition and other incremental costs
of closure of the mine. The closure costs included
approximately $15.5 million for incremental environmental
land reclamation of the surrounding mined-out areas. IMC-
Agrico expects the demolition and closure activities to be
essentially completed by the end of the third quarter of
1999.
IMC-Agrico also decided to close certain production
operations in connection with the Restructuring Plan,
principally the uranium and urea operations of Phosphates.
This decision was based on an analysis of the future outlook
for these products, taking into consideration whether the
operations were part of IMC-Agrico's core businesses. These
operations were determined to be non-core businesses and IMC-
Agrico recorded charges of approximately $12.8 million for
demolition and closure, including environmental costs, of the
uranium and urea production facilities. IMC-Agrico expects
the demolition and closure activities to be completed by
late-1999. Other various exit costs totaled $6.4 million.
In connection with the Restructuring Plan, IMC-Agrico decided
to discontinue its transportation of ammonia from Louisiana
to its phosphate operations in Florida. This decision was
based on current market conditions which secured the
availability of ammonia to IMC-Agrico and which made the
high-cost transportation of ammonia from Louisiana to Florida
unnecessary. As a result, IMC-Agrico recorded a charge of
$13.2 million for the net present value of costs associated
with permanently idling leased equipment used in the
transportation of ammonia from Louisiana.
Employee headcount reductions
As part of the Restructuring Plan, IMC-Agrico implemented
headcount reductions. Certain of these reductions were a
result of the closing and/or exiting of production
operations, as discussed above. To facilitate headcount
reductions, IMC-Agrico offered a voluntary retirement program
for eligible employees. In addition, certain involuntary
eliminations of positions, which were communicated prior to
December 31, 1998, were necessary in order to achieve desired
staffing levels. A total of 168 employees accepted the
voluntary retirement plan by December 31, 1998, with 106 of
those employees having left as of that date. The remaining
voluntarily terminated employees will leave by June 1999.
Additionally, a total of 396 employees were involuntarily
terminated and had left IMC-Agrico by the end of February
1999. Virtually all severance payments were disbursed
subsequent to December 31, 1998.
As a result of the employee terminations necessitated by the
Restructuring Plan, settlement, curtailment and special
termination charges of $8.6 million were recorded in
accordance with SFAS No. 88, "Employers' Accounting for
Settlements and Curtailments of Defined Benefit Pension Plans
and for Termination Benefits." The related liabilities have
been classified in Other noncurrent liabilities in the
Consolidated Balance Sheet. See Note 10, "Other Noncurrent
Liabilities" and Note 11, "Pensions and Other Postretirement
Benefits," of Notes to Financial Statements in Part II, Item
8, "Financial Statements and Supplementary Data," of this
Annual Report on Form 10-K.
Inventories and spare parts of exited businesses
Phosphates recorded charges of approximately $17.2 million to
reduce the carrying value of finished goods inventories on-
hand to net realizable value at December 31, 1998, as a
result of the decision to exit certain businesses.
The Restructuring Plan included a major reduction in
production assets. The reduction was accomplished through
the permanent shut-down of select mining facilities as well
as a cut-back in concentrate facilities. Given the reduction
in facilities and the resulting decrease in production,
historical levels of spare parts inventory that had been
maintained by IMC-Agrico were no longer necessary or
warranted. Therefore, IMC-Agrico recorded a charge of $8.7
million for the write-off of spare parts inventory.
Details of the restructuring charges were as follows:
Activity
----------------
Restructuring Cash Remaining
Charges Paid Non-Cash Accrual
------- ------ --------- -------
Asset impairments:
Facilities closed prior
to December 31, 1998 $ 35.9 $ - $ 35.9 $ -
Facilities to be
closed in 1999 13.3 - 13.3 -
Non-employee exit costs:
Demolition and closure
costs 31.2 - - 31.2
Idled leased
transportation equipment 13.2 - - 13.2
Other 6.4 0.6 1.2 4.6
Employee headcount reductions:
Severance benefits 14.3 0.2 14.1 -
Settlement, curtailment
and special termination
benefits 8.6 - 8.6 -
Inventories and spare parts of exited businesses:
Finished goods
inventories 17.2 - 17.2 -
Spare parts inventories 8.7 - 8.7 -
------ ------ ------ ------
Total $148.8 $ 0.8 $ 99.0 $ 49.0
====== ====== ====== ======
All restructuring charges have been recorded as a separate
line item on the Consolidated Statement of Operations, except
for the finished goods inventory write-down which was
recorded in Cost of goods sold.
Interest Expense
(In millions)
% Increase
Years ended December 31, (Decrease)
------------------------ ------------
1998 1997 1996 1998 1997
---- ---- ---- ---- ----
Interest expense $ 40.2 $ 35.7 $ 33.7 13 6
The increase in interest expense in 1998 as compared to 1997
was due to higher average borrowings for 1998 as compared to
1997. These funds were utilized to fund the oil and gas
expenditures primarily related to the Exploration Program.
CAPITAL RESOURCES AND LIQUIDITY
PLP generates cash through distributions from its joint
venture operations in IMC-Agrico and has sufficient borrowing
capacity to meet its operating and discretionary spending
requirements. Net cash provided by operating activities
totaled $79.5 million for 1998 versus $103.4 million for
1997. This decrease in net cash provided by operating
activities of $23.9 million was mainly attributable to the
absence of PLP's share of cash distributions from IMC-Agrico
in excess of interest in capital.
Net cash used in investing activities for 1998, which
consisted primarily of capital expenditures, remained
consistent with 1997. Capital expenditures increased $10.9
million from the prior year primarily due to an increase in
oil and gas outlays of $8.9 million related to the
Exploration Program. Capital expenditures related to the
Exploration Program totaled $44.4 million for 1998 and
included $29.8 million of exploration costs and $14.6 million
for well development costs.
Net cash used in financing activities for 1998 was $5.2
million which decreased $19.6 million as compared to 1997.
This decrease was primarily the result of a $96.7 million
reduction in distributions to unitholders, which was the
result of increased Exploration Program funding requirements,
along with the absence of $23.3 million in cash transferred
to FSC as a result of the FTX Merger. This decrease was
partially offset by lower net debt proceeds of $100.4 million
as additional debt was issued in the third and fourth
quarters of 1997 in anticipation of the additional capital
requirements for the Exploration Program and the rights
offering by MMR.
CONTINGENCIES
Reference is made to Note 12, "Commitments and
Contingencies," of Notes to Financial Statements in Part II,
Item 8, "Financial Statements and Supplementary Data," of
this Annual Report on Form 10-K.
ENVIRONMENTAL
Reference is made to "Other Matters - Environmental, Health
and Safety Matters," in Part I, Item 1 of this Annual Report
on Form 10-K.
YEAR 2000 READINESS DISCLOSURE
All references herein to PLP refer to PLP's business
activities as executed through its ownership interest in IMC-
Agrico. Like other businesses dependent on modern
technology, PLP must address potential Year 2000-related
issues. PLP and IMC (as General Partner) are progressing
through a comprehensive program (Year 2000 Program) to
evaluate and address the impact of Year 2000-related issues
on PLP's operational systems, business application software,
computer hardware, facilities infrastructure and equipment
with embedded technology and Year 2000-related risks
associated with its vendors and customers.
PLP's Year 2000-related effort is a cooperative venture
coordinated among all of the business units of IMC and
appropriate members of IMC's senior management. Progress
reviews are held regularly with senior management and the
Board of Directors of IMC. IMC has also created the
position of Year 2000 Risk Manager to provide leadership,
oversight and coordination of its Year 2000 project.
State of Readiness
PLP is using both internal and external resources to
implement its Year 2000 Program, which includes the following
overlapping phases: (i) system inventory and analysis; (ii)
remediation, testing and implementation; and (iii) vendor and
customer review. PLP expects that its Year 2000 Program
will be substantially complete by the end of the third
quarter of 1999.
System Inventory and Analysis Phase The system inventory and
analysis phase consists of compiling a detailed inventory of
all of PLP's systems and platforms to determine which items
are date sensitive, affected by the Year 2000, and therefore,
require remediation. PLP has focused specifically on the
following seven target areas: (i) business application
software; (ii) mainframe hardware and software; (iii)
network servers; (iv) desktop environment; (v) network and
telephone systems; (vi) non-information technology assets and
facilities; and (vii) major suppliers and service providers.
This analysis has involved both an internal assessment
conducted by PLP engineers, technicians and managers, as well
as contact with the manufacturers of computer systems and
equipment used by PLP in its operations. PLP has
substantially completed its system inventory and analysis
phase. The principal business application systems requiring
remediation that were identified by PLP during this stage
include the following systems: (i) equipment maintenance;
(ii) spare parts inventory; (iii) purchasing; (iv) mine
simulation; (v) payroll/human resource; and (vi)
financial/accounting. In addition, certain PLP plants have
identified production control systems that will require Year
2000-related remediation in order to remain operative.
Remediation, Testing and Implementation Phase The
remediation, testing and implementation phase involves
determining and implementing a remediation method (upgrade,
replace or discontinue) that is most appropriate for each
specific date-sensitive item. The remediated item is then
tested and returned to normal operations when Year 2000-
related issues have been addressed. Testing includes
functional testing of remedial measures and regression
testing to validate that changes have not altered existing
functionality. System manufacturers have provided testing
procedures for their equipment and have been available for
consultations about Year 2000-related testing.
As a separate initiative, IMC is implementing its Global
Vision Project, an enterprise-wide resource planning (ERP)
software package. Its scope includes accounts payable,
inventory, purchasing, general ledger, payroll, human
resources and plant maintenance. This new ERP software and
the improvements to the infrastructure hardware required to
support the Global Vision Project should further remediate
issues associated with the Year 2000. PLP expects to have
substantially completed the remediation testing and
implementation phase in the second quarter of 1999.
Vendor and Customer Review Phase Vendor reviews consist of
assessing vendor readiness, and if necessary, identifying
alternate channels to receive critical materials and/or
supplies. PLP has developed a questionnaire that has been
submitted to its primary suppliers and vendors to determine
their Year 2000-related status. PLP currently is analyzing
the information provided in these responses, and will
determine the best way to address any specific issues. As an
additional precaution, PLP's purchase orders now contain a
Year 2000-related clause to help ensure that any newly
purchased equipment adequately addresses Year 2000-related
issues.
Although PLP is attempting to monitor and validate the
efforts of other parties, it may not have control over the
success of these efforts. If satisfactory commitments from
key suppliers are not received, PLP is forming plans for the
continuing availability of critical materials and supplies
through alternate channels. In general, however, PLP is
satisfied with the progress made by key vendors to date and
no critical issues have been identified.
In addition to investigating its key suppliers, PLP will be
contacting key customers to explain its Year 2000-related
efforts and to solicit certain information about each
customer's Year 2000-related efforts to assess potential Year
2000-related problems that could affect future orders from
such customers.
MMR Review
PLP is assessing Year 2000-related issues with respect to the
Exploration Program. PLP is monitoring the public
disclosures of MMR with respect to its progress toward
remediation of its Year 2000-related issues and, as
appropriate, has discussions with MMR personnel regarding
MMR's Year 2000-related issues.
Costs
PLP does not currently expect that the costs of addressing
its Year 2000-related issues will have a material effect on
its financial position, results of operations or liquidity.
Modification costs related to Year 2000-related issues are
expensed as incurred and are funded through operating cash
flows. PLP estimates its total Year 2000-related technology
and non-information technology systems remediation costs to
be approximately $0.7 million, of which $0.2 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 PLP's Year 2000 Program are presented
regularly to IMC's Board of Directors and senior management.
As the program continues, PLP may discover additional Year
2000-related challenges, including that remediation plans are
not feasible or that the cost of such plans exceed current
expectations. In many cases, PLP is relying on written
assurances from vendors that the current systems are, or that
new or upgraded systems acquired by PLP will, adequately
address Year 2000-related issues. PLP believes that one of
its principal Year 2000-related risks is the effect Year
2000-related issues will have on its vendors, especially its
utilities vendors. A substantial part of PLP's day-to-day
operations is dependent on power, transportation systems and
telecommunication services, as to which alternative sources
of service may not be available. PLP will continue to
investigate the readiness of its suppliers, including
utilities, and pursue the availability of alternatives to
further diminish the extent of any impact Year 2000-related
issues may have on PLP. Although there can be no assurance
that PLP will be able to complete all of the modifications in
the required time frame or that no unanticipated events will
occur, it is management's belief that PLP is taking adequate
action to address Year 2000-related issues. However, because
of the range of possible issues and the large number of
variables involved, it is impossible to quantify the
potential cost of problems should PLP's remediation efforts
or the efforts of those it does business with not be
successful. If either PLP or its vendors fail to adequately
address Year 2000-related issues, PLP may suffer business
interruptions. If such interruptions cause PLP to be unable
to fulfill its obligations to third parties, PLP may
potentially be exposed to third-party liability.
Contingency Planning
PLP is planning to develop contingency measures to address
the possibility that it will not have fully addressed Year
2000-related issues by December 31, 1999. PLP is currently
developing a contingency plan based upon templates and
suggested procedures that have been provided by IMC's Year
2000 Manager. PLP's contingency plan will identify the risk
and document the steps that need to be taken to allow PLP to
continue to meet the needs of its customers in the event of a
Year 2000-related failure. PLP expects to complete its
contingency plan by the end of the second 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.
RECENTLY ISSUED ACCOUNTING GUIDANCE
In June 1998, the Financial Accounting Standards Board (FASB)
issued SFAS No. 133, "Accounting for Derivative Instruments
and Hedging Activities," which PLP is required to adopt
effective January 1, 2000. SFAS No. 133 will require PLP to
recognize all derivatives on the Balance Sheet at fair value.
Additionally, changes in derivative fair values will either:
(i) be recognized in earnings as offsets to the changes in
fair value of related hedged assets, liabilities and firm
commitments; or (ii) for forecasted transactions, deferred
and recorded as a component of Accumulated other
comprehensive income in partners' deficit until the hedged
transactions occur and then are recognized in earnings. The
ineffective portion of a derivative's change in fair value
will be immediately recognized in earnings. PLP does not
believe the effect of adopting SFAS No. 133 will be material
to its results of operations or financial position.
Item 7a. Quantitative and Qualitative Disclosures about Market Risk.
PLP is exposed to the impact of interest rate changes and the
impact of fluctuations in the purchase price of natural gas
consumed in operations, as well as changes in the fair value
of its financial instruments. PLP periodically enters into
derivatives in order to minimize these risks, but not for
trading purposes.
PLP prepared sensitivity analyses of its derivatives and
other financial instruments assuming the following: (i) a one
percentage point adverse change in interest rates; and (ii) a
ten percent adverse change in the purchase price of natural
gas, all from their levels at December 31, 1998. Holding all
other variables constant, the hypothetical adverse changes
would not materially affect PLP's financial position. These
analyses did not consider the effects of the reduced level of
economic activity that could exist in such an environment and
certain other factors. Further, in the event of a change of
such magnitude, management would likely take actions to
further mitigate its exposure to possible changes. However,
due to the uncertainty of the specific actions that would be
taken and their possible effects, the sensitivity analyses
assume no changes in PLP's financial structure.
Item 8. Financial Statements and Supplementary Data.
Page
Report of Independent Auditors 26
Report of Independent Public Accountants 27
Statement of Operations 28
Balance Sheet 29
Statement of Cash Flows 30
Statement of Partners' Capital 31
Notes to Financial Statements 32
REPORT OF INDEPENDENT AUDITORS
To the Partners of Phosphate Resource Partners Limited Partnership:
We have audited the accompanying balance sheet of Phosphate Resource
Partners Limited Partnership (the Partnership), a Delaware Limited
Partnership, as of December 31, 1998 and 1997 and the related statement
of operations, cash flows and partners' capital for each of the years
then ended. Our audits also included the financial statement schedules
listed in the Index at Item 14(a) as of December 31, 1998 and 1997 and
for the years then ended. These financial statements and schedules
are the responsibility of the General Partner's management. Our
responsibility is to express an opinion on these financial statements
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of the
Partnership at December 31, 1998 and 1997 and the results of its
operations and its cash flows for the years then ended, in conformity
with generally accepted accounting principles. Also, in our opinion,
the related financial statement schedules, when considered in relation
to the basic financial statements taken as a whole, present fairly in
all material respects the information set forth therein.
Ernst & Young LLP
Chicago, Illinois
January 28, 1999
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Partners of Phosphate Resource Partners Limited Partnership:
We have audited the accompanying balance sheets of Phosphate Resource
Partners Limited Partnership, formerly Freeport-McMoRan Resource
Partners, Limited Partnership (the Partnership), a Delaware Limited
Partnership, as of December 31, 1996 (not presented herein), and the
related statements of income, cash flow and partners' capital for the
year then ended. These financial statements are the responsibility of
the General Partner's management. Our responsibility is to express an
opinion on these financial statements based on our audit. We did not
audit the financial statements of IMC-Agrico Company (the Joint
Venture). The Partnership's share of the Joint Venture constitutes 49
percent of assets as of December 31, 1996, and 82 percent of the
Partnership's total revenues for the year ended December 31, 1996.
Those statements were audited by other auditors whose report has been
furnished to us, and our opinion, insofar as it relates to the amounts
included for the Partnership's interest in the Joint Venture, is based
solely on the report of the other auditors. In addition, the 1996
pension and other post-employment and post-retirement benefits
information reflected in Note 11 has been derived from the audited
financial statements of IMC-Agrico MP, Inc. which were audited by other
auditors whose report with respect to those financial statements has
been furnished to us, and our opinion, insofar as it relates to such
information is based solely on the report of other auditors.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe
that our audit and the reports of other auditors provide a reasonable
basis for our opinion.
In our opinion, based on our audit and the reports of other auditors,
the financial statements referred to above present fairly, in all
material respects, the financial position of the Partnership as of
December 31, 1996 and the results of its operations and its cash flow
for the year then ended in conformity with generally accepted
accounting principles.
Arthur Andersen LLP
New Orleans, Louisiana,
January 21, 1997 (except
with respect to Note 11
as to which the date is
January 26, 1998)
PHOSPHATE RESOURCE PARTNERS LIMITED PARTNERSHIP
Statement of Operations
(In millions, except per unit amounts)
Years Ended December 31,
--------------------------------
1998 1997 1996
---- ---- ----
Net sales $ 687.3 $ 842.5 $ 957.0
Cost of goods sold 515.8 1,050.0 699.4
-------- -------- --------
Gross margins 171.5 (207.5) 257.6
Gain on IMC-Agrico investment - - (11.9)
Selling, general and
administrative expenses 26.5 77.1 55.2
Exploration expenses 20.9 15.8 2.5
Restructuring charges 54.6 - -
-------- -------- --------
Operating earnings (loss) 69.5 (300.4) 211.8
Interest expense 40.2 35.7 33.7
Other (income) expense, net (3.0) 4.5 0.8
-------- -------- --------
Earnings (loss) before
extraordinary item 32.3 (340.6) 177.3
Extraordinary charge -
debt retirement - (14.5) -
-------- -------- --------
Earnings (loss) $ 32.3 $ (355.1) $ 177.3
======== ======== ========
Earnings (loss) per unit:
Earnings (loss) before
extraordinary charge $ 0.31 $ (3.29) $ 1.71
Extraordinary charge -
debt retirement - (0.14) -
-------- -------- --------
Earnings (loss) $ 0.31 $ (3.43) $ 1.71
======== ======== ========
Average units outstanding 103.5 103.5 103.5
Distribution paid per publicly held unit:
Cash $ 0.22 $ 1.34 $ 2.44
Property $ -.2- $ 1.21 $ -
See Notes to Financial Statements
PHOSPHATE RESOURCE PARTNERS LIMITED PARTNERSHIP
Balance Sheet
(In millions)
At December 31,
--------------------
1998 1997
------- -------
Assets
Current assets:
Cash and cash equivalents $ 10.8 $ 17.4
Receivables, net 65.0 47.3
Inventories, net 122.2 126.0
Other current assets 0.9 2.4
------- -------
Total current assets 198.9 193.1
Property, plant and equipment, net 477.5 432.5
Other assets 43.4 39.9
------- -------
Total assets $ 719.8 $ 665.5
======= =======
Liabilities and Partners' Deficit
Current liabilities:
Accounts payable and accrued liabilities $ 78.8 $ 94.7
Short-term debt and current maturities
of long-term debt 4.4 14.3
------- -------
Total current liabilities 83.2 109.0
Long-term debt, less current maturities 556.9 505.5
Other noncurrent liabilities 238.7 219.4
Partners' deficit (159.0) (168.4)
------- -------
Total liabilities and partners' deficit $ 719.8 $ 665.5
======= =======
See Notes to Financial Statements
PHOSPHATE RESOURCE PARTNERS LIMITED PARTNERSHIP
Statement of Cash Flows
(In millions)
Years Ended December 31,
---------------------------
1998 1997 1996
---- ---- ----
Cash flows from operating activities:
Earnings (loss) $ 32.3 $(355.1) $ 177.3
Adjustments to reconcile earnings
(loss) to net cash provided by operating activities:
Restructuring charges 61.4 - -
Sulphur asset impairment charge - 384.5 -
Depreciation, depletion and
amortization 25.2 43.1 37.0
Gain on IMC-Agrico investment - - (11.9)
Oil and gas exploration expenses 14.7 15.8 2.5
Cash distributions from IMC-Agrico
in excess of interest in capital - 34.3 49.3
Other (2.4) 15.7 5.9
Changes in:
Receivables (17.7) (14.8) 13.7
Inventories (6.9) (16.9) (23.4)
Other current assets 1.5 1.2 (1.2)
Accounts payable and accrued
liabilities (28.6) (4.4) 2.7
------- ------- -------
Net cash provided by operating
activities 79.5 103.4 251.9
------- ------- -------
Cash flows from investing activities:
Capital expenditures (83.3) (72.4) (53.6)
Other 2.4 (8.2) 4.0
------- ------- -------
Net cash used in investing activities (80.9) (80.6) (49.6)
------- ------- -------
Cash flows from financing activities:
Cash distributions to unitholders (22.9) (119.6) (222.1)
Proceeds from issuance of long-term
debt, net 53.5 560.5 255.3
Payments of long-term debt (21.9) (442.4) (386.4)
Change in short-term debt, net (13.9) - -
Cash transferred to FSC - (23.3) -
Proceeds from sale of notes - - 147.8
------- ------- -------
Net cash used in financing activities (5.2) (24.8) (205.4)
------- ------- -------
Net decrease in cash and cash
equivalents (6.6) (2.0) (3.1)
Cash and cash equivalents at
beginning of year 17.4 19.4 22.5
------- ------- -------
Cash and cash equivalents at
end of year $ 10.8 $ 17.4 $ 19.4
======= ======= =======
Supplemental cash flow disclosure:
Interest paid $ 41.0 $ 38.8 $ 28.3
======= ======== ========
See Notes to Financial Statements
PHOSPHATE RESOURCE PARTNERS LIMITED PARTNERSHIP
Statement of Partners' Capital (Deficit)
(In millions)
Units Outstanding Partners' Capital (Deficit)
------------------------ ---------------------------
General Limited Total General Limited Total
------- ------- ----- ------- ------- -----
Balance at
December 31,
1995 53.3 50.2 103.5 $ 208.4 $ 196.1 $ 404.5
Earnings - - - 91.5 85.8 177.3
Unitholder
distributions - - - (100.1) (122.0) (222.1)
FTX purchase of
PLP units 0.1 (0.1) - 0.2 (0.2) -
Reallocation
caused by
disproportionate
distributions - - - (14.4) 14.4 -
---- ---- ----- ------- ------- -------
Balance at
December 31,
1996 53.4 50.1 103.5 185.6 174.1 359.7
Loss - - - (183.2) (171.9) (355.1)
Unitholder
distributions - - - (52.5) (67.1) (119.6)
Distribution of
FSC shares - - - (30.1) (28.3) (58.4)
Other - - - 2.5 2.5 5.0
Reallocation
caused by
disproportionate
distributions - - - (9.2) 9.2 -
---- ---- ----- ------- ------- -------
Balance at
December 31,
1997 53.4 50.1 103.5 (86.9) (81.5) (168.4)
Earnings - - - 16.7 15.6 32.3
Unitholder
distributions - - - (11.9) (11.0) (22.9)
---- ---- ----- ------- ------- -------
Balance at
December 31,
1998 53.4 50.1 103.5 $ (82.1) $ (76.9) $(159.0)
See Notes to Financial Statements
PHOSPHATE RESOURCE PARTNERS LIMITED PARTNERSHIP
Notes to Financial Statements
(Dollars in millions, except per unit amounts)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation and Ownership
The financial statements of PLP, a Delaware limited partnership,
include all majority-owned subsidiaries. Investments in less than
20.0 percent-owned affiliates are reflected using the cost method.
Investments in joint ventures and partnerships, including IMC-
Agrico and the Exploration Program, are reflected using the
proportionate consolidation method as consistent with industry
practice. The Exploration Program is proportionately
consolidated at a rate of 56.4 percent of the exploration costs
and 47.0 percent of the profits derived from oil and gas producing
properties. The activities of IMC-Agrico, 41.5 percent owned by
PLP, include: (i) the mining and sale of phosphate rock; and (ii)
the production, distribution and sale of concentrated phosphates,
animal feed ingredients, and related products. Through its joint
venture with IMC-Agrico and its participation in the Exploration
Program, PLP operates in two reportable operating segments. See
Note 13, "Operating Segments." All significant intercompany
transactions have been eliminated. Certain prior year amounts
have been reclassified to conform to the current year
presentation.
Use of Estimates
Management is required to make estimates and assumptions that
affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those
estimates.
Revenue Recognition
Revenue is recognized by PLP upon the transfer of title to the
customer, which is generally at the time product is shipped.
Cash and Cash Equivalents
PLP considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents which are
reflected at their approximate fair value. IMC-Agrico's cash and
cash equivalents are not available to PLP until a distribution is
paid by IMC-Agrico.
Concentration of Credit Risk
Domestically, IMC-Agrico sells its products to crop nutrient
manufacturers, distributors and retailers primarily in the
midwestern and southeastern United States. Internationally, IMC-
Agrico's products are sold primarily through a United States
export association. In 1998, sales of phosphate crop nutrients to
China accounted for approximately 21 percent of PLP's net sales.
No single customer or group of affiliated customers accounted for
more than ten percent of PLP's net sales.
Inventories
Inventories are valued at the lower-of-cost-or-market (net
realizable value). Cost for substantially all inventories is
calculated on a cumulative annual-average cost basis.
Property, Plant and Equipment
Property (including mineral deposits), plant and equipment are
carried at cost. Cost of significant assets includes capitalized
interest incurred during the construction and development period.
Expenditures for replacements and improvements are capitalized;
maintenance and repair expenditures, except for repair and
maintenance overhauls (Turnarounds), are charged to operations
when incurred. Expenditures for Turnarounds are deferred when
incurred and amortized into cost of goods sold on a straight-line
basis, generally over an 18-month period. Turnarounds are large-
scale maintenance projects that are performed regularly, usually
every 18 to 24 months, on average. Turnarounds are necessary to
maintain the operating capacity and efficiency rates of the
production plants. The deferred portion of the Turnaround
expenditures is classified in Other assets in the Balance Sheet.
Depreciation and depletion expenses for mining operations,
including mineral interests, are determined using the unit-of-
production method based on estimates of recoverable reserves.
Other asset classes or groups are depreciated or amortized on a
straight-line basis over their estimated useful lives as follows:
buildings, 17 to 32 years; machinery and equipment, five to 32
years; and leasehold improvements, over the lesser of the
remaining useful life of the asset or the remaining term of the
lease. Using the methodology prescribed in SFAS No. 121, PLP
reviews long-lived assets and any related intangible assets for
impairment whenever events or changes in circumstances indicate
the carrying amounts of such assets may not be recoverable. Once
evidence of a potential impairment exists, recoverability of the
respective assets is determined by comparing the forecasted
undiscounted net cash flows of the operation to which the assets
relate, to the carrying amount, including associated intangible
assets, of such operation. If the operation is determined to be
unable to recover the carrying amount of its assets, then
intangible assets are written down first, followed by the other
long-lived assets of the operation, to fair value. Fair value is
determined based on discounted cash flows or appraised values,
depending upon the nature of the assets.
Oil and Gas Exploration and Development
Oil and gas exploration and development costs are accounted for
using the successful efforts method of accounting.
- Property Acquisition Costs
Oil and gas leasehold acquisition costs are capitalized.
Leasehold impairment is recognized based on exploratory
experience and the General Partner's judgment. Upon discovery
of commercial reserves, leasehold costs are transferred to
proved properties.
- Exploratory Costs
Geological and geophysical costs as well as the costs of
carrying and retaining undeveloped properties are expensed as
incurred. Exploratory drilling costs are capitalized when
incurred. If, based on the General Partner's judgment,
exploratory wells are determined to be commercially
unsuccessful or dry holes, applicable costs are expensed.
- Development Costs
Costs incurred to drill and equip development wells, including
unsuccessful development wells, are capitalized.
- Depletion and Amortization
Capitalized acquisition costs of proved properties and
capitalized exploration and development costs are depleted
using the unit-of-production method based on estimated proved
developed oil and gas reserves.
Accrued Environmental Costs
As a producer and distributor of crop nutrients, PLP is subject to
a myriad of international, federal, state, and local EHS laws.
These standards regulate: (i) the content and use of PLP's
products; (ii) the conduct of PLP's mining and production
operations including employee safety procedures; (iii) the
management and handling of raw materials; (iv) air and water
quality; (v) disposal of hazardous and solid wastes; and (vi)
post-mining land reclamation. Compliance with these laws often
requires PLP to incur costs. PLP also has incurred contingent
environmental liabilities arising from three sources: facilities
currently or formerly owned by PLP or its predecessors; facilities
adjacent to currently or formerly owned facilities; and third-
party Superfund sites. At facilities currently or formerly owned
by PLP or its corporate predecessors, the historical use and
handling of regulated chemical substances and crop nutrient
products has resulted in soil and groundwater contamination,
sometimes requiring PLP to undertake or fund cleanup efforts.
Similarly, disposal of PLP's waste at third-party sites may result
in liability for remedial costs.
Of the environmental costs discussed above, the following
environmental costs are charged to PLP's operating expense: fines,
penalties, and certain remedial action to address violations of
the law; remediation of properties that are currently or were
formerly owned or operated by PLP, when those properties do not
contribute to current or future revenue generation; and liability
for remediation of facilities adjacent to currently or formerly
owned facilities or for third-party Superfund sites. Contingent
environmental liabilities are recorded for environmental
investigatory and non-capital remediation costs at identified
sites when litigation has commenced or a claim or assessment has
been asserted or is probable and the likelihood of an unfavorable
outcome is probable.
Income Taxes
PLP is not a taxable entity; therefore, no income taxes are
reported in its financial statements.
Recently issued Accounting Standards
In June 1998, the FASB issued SFAS No. 133, which PLP is required
to adopt effective January 1, 2000. SFAS No. 133 will require PLP
to recognize all derivatives on the Balance Sheet at fair value.
Additionally, changes in derivative fair values will either: (i)
be recognized in earnings as offsets to the changes in fair value
of related hedged assets, liabilities and firm commitments; or
(ii) for forecasted transactions, deferred and recorded as a
component of Accumulated other comprehensive income in partners'
deficit until the hedged transactions occur and then are
recognized in earnings. The ineffective portion of a derivative's
change in fair value will be immediately recognized in earnings.
PLP does not believe the effect of adopting SFAS No. 133 will be
material to its results of operations or financial position.
2. MERGERS
FTX
In December 1997, FTX, the administrative managing general partner
and owner of a 51.6 percent interest in PLP, merged into IMC,
PLP's joint venture partner in IMC-Agrico. The FTX Merger
resulted in the dissolution of FTX with IMC becoming the General
Partner of PLP. In connection with the FTX Merger, PLP's sulphur
business and certain oil and gas operations, including its 58.3
percent interest in Main Pass, together with IMC's 25.0
percent interest in Main Pass, were transferred to FSC, a newly
formed public entity whose common stock was distributed pro rata
to PLP's unitholders, including FTX.
MMR
In November 1998, MOXY and FSC merged and became wholly-owned
subsidiaries of a newly formed holding company, MMR. MOXY
stockholders received 0.2 MMR shares for each common share of MOXY
held at the time of the MMR Merger which resulted in PLP owning
0.8 million shares, or approximately six percent, of outstanding
MMR common stock.
3. DISTRIBUTIONS
IMC-Agrico Cash Sharing
IMC-Agrico makes cash distributions to each partner based on
formulas and sharing ratios as defined in the Partnership
Agreement. For the year ended December 31, 1998, the total amount
of cash generated by IMC-Agrico was $333.3 million, of which $80.8
million was distributed to PLP during the year and $57.0 million
will be distributed to PLP in 1999. PLP's distributable cash is
shared ratably by PLP's public unitholders and IMC, except that
IMC will be entitled to receive unpaid cash distributions from
previous quarters ($431.3 million unpaid at December 31, 1998)
from one-half of the quarterly distributable cash after the
payment of $0.60 cents per unit to all PLP unitholders.
4. NON-RECURRING CHARGES
(The following discussion discloses amounts in total for IMC-
Agrico.)
Restructuring Plan
During the fourth quarter of 1998, IMC-Agrico developed and began
execution of a plan to improve profitability. 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 function synergies; (ii)
restructuring of the phosphate rock mining and concentrated
phosphate production/distribution operations and processes in an
effort to reduce costs; (iii) simplification of the current
business activities by eliminating businesses not deemed part of
IMC-Agrico's core competencies; and (iv) reduction of operational
and administrative headcount. In conjunction with the
Restructuring Plan, IMC-Agrico recorded pre-tax charges totaling
$148.8 million in the fourth quarter of 1998. The Restructuring
Plan (shown below in tabular format) primarily relates to the
following:
Asset impairments
The Restructuring Plan included the removal of property, plant and
equipment, as well as the write-down to fair value of those assets
made obsolete due to the decision to close certain facilities and
forego or abandon certain mineral properties. In order to
determine the write-down of assets affected by the Restructuring
Plan, and in accordance with SFAS No. 121, IMC-Agrico performed an
assessment of future cash flows and, accordingly, adjusted the
assets to their appropriate fair values.
The majority of the impairment occurred at Phosphates' Florida
production facilities where property, plant and equipment was
written down by approximately $48.8 million to fair value.
Phosphates developed a Mine Plan which identified asset
reductions, lower operating costs and optimal phosphate rock
management as key drivers in the restructuring of operations. The
write-down of impaired assets in connection with the Mine Plan
primarily consisted of facilities, production equipment, operating
supplies, land and mineral reserves. The remaining $0.4 million
of asset impairments was recorded at Feed Ingredients for the
permanent closure of a limestone rock production facility.
The $49.2 million in asset impairment charges included $13.3
million pertaining to assets which will continue to be utilized
until their respective disposal dates, primarily within the first
nine months of 1999. The estimated fair value of these assets,
which will be depreciated over their respective remaining periods
of service, reflected estimated operating net cash flows until
disposition.
Non-employee exit costs
In accordance with the objective of the Mine Plan, to optimize
phosphate rock management, Phosphates decided to permanently close
a high-cost phosphate rock mine. As a result of this decision,
IMC-Agrico recorded a charge of $18.4 million for the demolition
and other incremental costs of closure of the mine. The closure
costs included approximately $15.5 million for incremental
environmental land reclamation of the surrounding mined-out areas.
IMC-Agrico expects the demolition and closure activities to be
essentially completed by the end of the third quarter of 1999.
IMC-Agrico also decided to close certain production operations in
connection with the Restructuring Plan, principally the uranium
and urea operations of Phosphates. This decision was based on an
analysis of the future outlook for these products, taking into
consideration whether the operations were part of IMC-Agrico's
core businesses. These operations were determined to be non-core
businesses and IMC-Agrico recorded charges of approximately $12.8
million for demolition and closure, including environmental costs,
of the uranium and urea production facilities. IMC-Agrico
expects the demolition and closure activities to be completed by
late-1999. Other various exit costs totaled $6.4 million.
In connection with the Restructuring Plan, IMC-Agrico decided to
discontinue its transportation of ammonia from Louisiana to its
phosphate operations in Florida. This decision was based on
current market conditions which secured the availability of
ammonia to IMC-Agrico and which made the high-cost transportation
of ammonia from Louisiana to Florida unnecessary. As a result,
IMC-Agrico recorded a charge of $13.2 million for the net present
value of costs associated with permanently idling leased equipment
used in the transportation of ammonia from Louisiana.
Employee headcount reductions
As part of the Restructuring Plan, IMC-Agrico implemented
headcount reductions. Certain of these reductions were a result
of the closing and/or exiting of production operations, as
discussed above. To facilitate headcount reductions, IMC-Agrico
offered a voluntary retirement program for eligible employees. In
addition, certain involuntary eliminations of positions, which
were communicated prior to December 31, 1998, were necessary in
order to achieve desired staffing levels. A total of 168
employees accepted the voluntary retirement plan by December 31,
1998, with 106 of those employees having left as of that date.
The remaining voluntarily terminated employees will leave by June
1999. Additionally, a total of 396 employees were involuntarily
terminated and had left IMC-Agrico by the end of February 1999.
Virtually all severance payments were disbursed subsequent to
December 31, 1998.
As a result of the employee terminations necessitated by the
Restructuring Plan, settlement, curtailment and special
termination charges of $8.6 million were recorded in accordance
with SFAS No. 88. The related liabilities have been classified in
Other noncurrent liabilities in the Consolidated Balance Sheet.
See Note 10, "Other Noncurrent Liabilities" and Note 11,
"Pensions and Other Postretirement Benefits."
Inventories and spare parts of exited businesses
Phosphates recorded charges of approximately $17.2 million to
reduce the carrying value of finished goods inventories on-hand to
net realizable value at December 31, 1998, as a result of the
decision to exit certain businesses.
The Restructuring Plan included a major reduction in production
assets. The reduction was accomplished through the permanent
shut-down of select mining facilities as well as a cut-back in
concentrate facilities. Given the reduction in facilities and the
resulting decrease in production, historical levels of spare parts
inventory that had been maintained by IMC-Agrico were no longer
necessary or warranted. Therefore, IMC-Agrico recorded a charge
of $8.7 million for the write-off of spare parts inventory.
Details of the restructuring charges were as follows:
Activity
--------------------
Restructuring Remaining
Charges Cash Paid Non-Cash Accrual
------- --------- -------- -------
Asset impairments:
Facilities closed
prior to
December 31, 1998 $ 35.9 $ - $ 35.9 $ -
Facilities to be
closed in 1999 13.3 - 13.3 -
Non-employee exit costs:
Demolition and
closure costs 31.2 - - 31.2
Idled leased
transportation
equipment 13.2 - - 13.2
Other 6.4 0.6 1.2 4.6
Employee headcount reductions:
Severance benefits 14.3 0.2 14.1 -
Settlement, curtailment
and special termination
benefits 8.6 - 8.6 -
Inventories and spare parts of exited businesses:
Finished goods
inventories 17.2 - 17.2 -
Spare parts
inventories 8.7 - 8.7 -
------ ------ ------ ------
Total $148.8 $ 0.8 $ 99.0 $ 49.0
====== ====== ====== ======
All restructuring charges have been recorded as a separate line
item on the Consolidated Statement of Operations, except for the
finished goods inventory write-down which was recorded in Cost of
goods sold.
Sulphur Assets Write-Down
As a result of a review of its sulphur assets at September 30,
1997, PLP concluded that the carrying value of its Main Pass
sulphur mine assets exceeded the undiscounted estimated future net
cash flows, such that an impairment writedown of $375.5 million
was required. A similar analysis of the Culberson, Texas sulphur
mine assets, based on a reassessment of recoverable reserves
utilizing recent production history, also indicated an impairment
writedown of $9.0 million was required.
5. RECEIVABLES
Accounts receivable as of December 31 were as follows:
1998 1997
------ ------
Trade accounts $ 57.7 $ 50.5
Non-trade receivables 8.7 11.7
------ ------
66.4 62.2
Less:
Allowances 1.4 1.4
Receivable interests sold - 13.5
------ ------
Receivables, net $ 65.0 $ 47.3
====== ======
The carrying value of accounts receivable was equal to the
estimated fair value of such assets due to their short maturity.
Under an agreement with a financial institution, IMC-Agrico
L.L.C., a special purpose limited liability company of which IMC-
Agrico is the sole equity owner, had transferred, on an ongoing
basis, an undivided percentage interest in a designated pool of
receivables, subject to limited recourse provisions related to the
receivables generated from export transactions, in an amount not
to exceed $65.0 million. This agreement expired in August 1998.
At December 31, 1997, IMC-Agrico L.L.C. had transferred a total of
$61.5 million of such receivable interests, of which $32.5 million
did not meet the criteria to be accounted as a sale under SFAS No.
125, "Accounting for Transfers and Servicing of Financial Assets
and Extinguishments of Liabilities." As a result, short-term debt
of $13.5 million was recorded in PLP's Balance Sheet at December
31, 1997. PLP's related costs, primarily from discount fees,
totaled $0.8 million, $1.4 million and $1.6 million in 1998, 1997
and 1996, respectively.
6. INVENTORIES
Inventories as of December 31 were as follows:
1998 1997
---- ----
Products (principally finished) $100.2 $100.5
Operating materials and supplies 24.4 27.5
------ ------
124.6 128.0
Less: Inventories allowances 2.4 2.0
------ ------
Inventories, net $122.2 $126.0
====== ======
7. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment as of December 31 were as follows:
1998 1997
---- ----
Land $ 25.7 $ 27.3
Mineral properties and rights 227.9 188.5
Buildings 76.4 74.8
Machinery and equipment 652.6 709.6
Construction in progress 19.8 24.5
-------- --------
1,002.4 1,024.7
Accumulated depreciation,
depletion and amortization (524.9) (592.2)
-------- --------
Property, plant and
equipment, net $ 477.5 $ 432.5
======== ========
See Note 4, "Non-Recurring Charges," for detail on the decrease in
machinery and equipment and accumulated depreciation.
In April 1998, PLP purchased mineral reserves from Mississippi
Chemical Corporation for a total purchase price of $23.8
million. The purchase price was financed with a note payable.
As of December 31, 1998, idle facilities of PLP included one
phosphate rock mine and two concentrated phosphate plants, all
of which will remain closed subject to improved market
conditions. The net book value of these facilities totaled
$29.9 million. In the opinion of management, the net book
value of PLP's idle facilities is not in excess of net
realizable value. Subsequent to December 31, 1998, PLP idled
a second phosphate rock mine and resumed production at a
concentrated phosphate plant.
8. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable and accrued liabilities as of December 31 were as
follows:
1998 1997
---- ----
Accounts payable $ 21.6 $ 50.2
Environmental 4.6 6.6
Taxes other than income taxes 5.6 6.1
Restructuring 13.4 -
Interest 4.4 5.2
Other 29.2 26.6
------ ------
Accounts payable and accrued liabilities $ 78.8 $ 94.7
====== ======
See Note 4, "Non-Recurring Charges," for detail on the
restructuring reserve.
9. FINANCING ARRANGEMENTS
Long-term debt as of December 31 consisted of the following:
1998 1997
---- ----
Notes payable to IMC $305.5 $300.1
7.0% Senior notes due 2008 150.0 150.0
8.75% Senior Subordinated notes due 2004 5.7 5.7
7.7% Industrial Revenue bonds, due 2022 11.2 11.2
IMC-Agrico debt 88.9 38.9
------ ------
561.3 505.9
Less: current maturities 4.4 0.4
------ ------
Total long-term debt, less current
maturities $556.9 $505.5
====== ======
Short-term borrowings were $13.9 million as of December 31, 1997.
There are no short-term borrowings outstanding as of December 31,
1998. The 1997 balance primarily consisted of the portion of the
sale of receivables classified as short-term debt as of December
31, 1997, as required by SFAS No. 125. The weighted average
interest rate on short-term borrowings was 5.9 percent for 1997.
In connection with the FTX Merger, PLP entered into two separate
agreements with IMC (IMC Agreements). One agreement is a variable
rate, based on LIBOR plus one percent, demand note for up to
$200.0 million, while the other agreement is an 8.75 percent
demand note for up to $150.0 million. Interest under the IMC
Agreements is payable quarterly. IMC has no intention of
demanding payment on the IMC Agreements, therefore these notes
have been classified as long-term.
In June and August 1998, IMC-Agrico entered into two promissory
notes payable to IMC for borrowings up to $65.0 million (Note
Payable) and $52.3 million (Promissory Note), respectively. The
Note Payable replaced financing available to IMC-Agrico under the
expired $65.0 million sale of receivable interests agreement and
bears interest primarily based on the LIBOR rate. The Promissory
Note financed the repayment of the seller-financed purchase of
reserves from Mississippi Chemical Corporation in April 1998.
This note has a rate of 6.75 percent with quarterly principal
payments through December 2003 as the original note required such
terms.
In 1997, PLP completed a tender offer for $144.3 million of its
outstanding $150.0 million, 8.75 percent senior subordinated
notes due 2004. PLP recorded an extraordinary charge in 1997 of
$14.5 million primarily for the redemption premium incurred and
the write-off of previously deferred finance changes.
In 1997, IMC-Agrico entered into a variable rate demand note
payable to IMC, based primarily on LIBOR interest rates, for
borrowings up to $125.0 million. In addition, IMC entered into
credit facilities with a group of banks which stipulate that IMC
and certain of its subsidiaries may borrow up to $350.0 million
under a revolving credit facility expiring December 1998, which
has been renewed through December 1999, and $650.0 million under a
long-term credit facility expiring December 2002, (collectively,
IMC Credit Facilities). The IMC Credit Facilities have a letter
of credit sublimit of $100.0 million. Borrowings under the IMC
Credit Facilities are unsecured and bear interest at rates based
on LIBOR. In addition, the IMC Credit Facilities have certain
financial ratio and other covenants.
On December 31, 1998, the estimated fair value of long-term debt
described above was approximately the same as the carrying amount
of such debt on the Balance Sheet. The fair value was calculated
in accordance with the requirements of SFAS No. 107, "Disclosures
About the Fair Value of Financial Instruments," and was estimated
by discounting the future cash flows using rates currently
available to PLP for debt instruments with similar terms and
remaining maturities.
Scheduled maturities, excluding the IMC Agreements, for each of
the next five years are as follows:
1999 $ 4.4
2000 3.9
2001 3.9
2002 3.9
2003 and beyond 239.7
10. OTHER NONCURRENT LIABILITIES
Other noncurrent liabilities as of December 31 were as follows:
1998 1997
---- ----
Employee and retiree benefits $ 131.0 $ 144.1
Environmental 37.9 38.3
Restructuring 16.4 -
Other 53.4 37.0
------- -------
Other noncurrent liabilities $ 238.7 $ 219.4
======= =======
See Note 4, "Non-Recurring Charges," for detail on the
restructuring reserve.
11. PENSIONS AND OTHER POSTRETIREMENT BENEFITS
Substantially all individuals who perform services for IMC-Agrico
are employed by IMC-Agrico MP, Inc. (MP Co.). This includes
former employees of PLP and IMC who were transferred to MP Co.
when IMC-Agrico was formed. As a result, on July 1, 1993, MP Co.
established non-contributory pension plans (Plans) that cover
substantially all of its employees who perform services for IMC-
Agrico. Benefits are based on a combination of years of service
and compensation levels, depending on the plan. Generally,
contributions to the Plans are made to meet minimum funding
requirements of the Employee Retirement Income Security Act of
1974. The expense related to such Plans is charged by MP Co. to
IMC-Agrico. Employees whose pension benefits exceeded Internal
Revenue Code limitations are covered by supplementary non-
qualified, unfunded pension plans. The Plans' assets consist
mainly of shares in a bond fund and a mutual fund.
During 1997, MP Co. employees and certain IMC employees who
provide services to IMC-Agrico and PLP, were given the option to
remain in the current pension plan or transfer to a newly created
defined contribution plan, effective January 1, 1998. As a
result, under the provisions of SFAS No. 88 PLP recognized a $4.4
million curtailment loss for the year ended December 31, 1997.
Certain IMC employees also provide services to IMC-Agrico and PLP.
Such employees are covered by pension plans sponsored by IMC. The
cost of providing such services, as well as the related pension
expense, is charged to MP Co. and, in turn, to IMC-Agrico. PLP's
share of pension expense for such employees totaled $2.3 million
for 1998 of which $0.7 million represents curtailment and
settlement loss; $4.3 million, of which $2.3 million represents a
curtailment loss, for 1997; and $2.0 million for 1996. See Note
4, "Non-Recurring Charges."
PLP provides certain health care benefit plans for certain retired
employees. Prior to the FTX Merger, FTX and FMS provided these
benefits for retired employees. MP Co. also provides certain
health care benefit plans for retired employees. Certain plans
are contributory and certain plans are non-contributory and
contain certain other cost sharing features such as deductibles
and coinsurance. The plans are unfunded. Employees are not
vested and such benefits are subject to change. For those
employees who provide services to IMC-Agrico but were included in
health care benefit plans of IMC, the cost of providing such
benefits is charged by IMC to MP Co., and in turn, IMC-Agrico.
In February 1998, the FASB issued SFAS No. 132, "Employers'
Disclosures about Pensions and Other Postreitirement Benefits."
The new standard does not change the measurement or recognition of
costs for pension or other postretirement plans. It standardizes
disclosures and eliminates those that are no longer useful. The
following tables, prepared in accordance with the new standard,
set forth pension and postretirement obligations for defined
benefit plans, plan assets and benefit cost as of and for the
years ended December 31 based on a September 30 measurement date:
Pension Plans Other Benefits
-------------- --------------
1998 1997 1998 1997
---- ---- ---- ----
Change in benefit obligation
Benefit obligation as
of January 1 $ 40.4 $ 17.4 $ 63.9 $ 5.6
Service cost 1.9 2.5 0.6 1.2
Interest cost 2.3 1.4 3.4 4.0
Plan amendment 1.1 3.8 - -
Effect of settlements (2.9) - - -
Actuarial loss 3.8 1.3 8.5 0.6
Benefits paid (10.4) (0.3) (5.4) -
Acquisitions - 14.3 - 52.5
Other - - (4.6) -
Curtailments (0.8) - - -
------ ------ ------ ------
Benefit obligation as
of December 31 $ 35.4 $ 40.4 $ 66.4 $ 63.9
====== ====== ======= =======
Change in plan assets
Fair value as of January 1 $ 15.9 $ 7.1 $ - $ -
Actual return 0.9 1.7 - -
Partnership contribution 13.4 2.4 5.4 -
Effect of settlements (5.2) - - -
Acquisitions - 2.6 - -
Asset transfer 0.7 2.4 - -
Benefits paid (10.4) (0.3) (5.4) -
------ ------ ------- -------
Fair value as
of December 31 $ 15.3 $ 15.9 $ - $ -
====== ====== ======= =======
Funded status of the plan $(20.1) $(24.5) $ (66.4) $ (63.9)
Unrecognized net
(gain) loss 6.5 3.6 (47.9) (56.4)
Unrecognized transition
asset - - (0.7) (0.8)
Unrecognized prior
service cost 4.2 3.5 0.1 0.1
------- ------- ------- -------
Accrued benefit cost $ (9.4) $ (17.4) $(114.9) $(121.0)
======= ======= ======= =======
Amounts recognized in the balance sheet
Prepaid benefit cost $ 0.6 $ 0.3 $ - $ -
Accrued benefit liability (13.0) (19.8) (114.9) (121.0)
Intangible asset 3.0 2.1 - -
------- ------- ------- -------
Total recognized $ (9.4) $ (17.4) $(114.9) $(121.0)
======= ======= ======= =======
The acquisition amounts relate to pension and postretirement
liabilities and assets assumed in conjunction with the FTX Merger
in December 1997. See Note 2, " Mergers." See Note 4, "Non-
Recurring Charges," for details on the curtailments and
settlements.
Actuarial assumptions
Discount rate 7.0% 7.5% 7.0% 7.5%
Expected return on plan assets 8.78% 8.75% - -
Rate of compensation increase 5.0% 5.0% - -
For measurement purposes, a 7.4 percent annual rate of increase in
the per capita cost of covered pre-65 health care benefits was
assumed for 1998 decreasing gradually to 4.7 percent in 2004 and
thereafter; and a 7.5 percent annual rate of increase in the per
capita cost of covered post-65 health care benefits was assumed
for 1998 decreasing gradually to 5.0 percent in 2004.
Amounts applicable to the pension plans with accumulated benefit
obligations in excess of plans assets are as follows:
1998 1997
---- ----
Projected benefit obligation $ 24.7 $ 32.0
Accumulated benefit obligation $ 18.5 $ 26.5
Fair value of plan assets $ 10.7 $ 12.3
The components of net pension and other benefits expense were:
Pension Other Benefits
--------------------- --------------------
1998 1997 1996 1998 1997 1996
---- ---- ---- ---- ---- ----
Service cost for benefits
earned during the year $ 1.9 $ 2.5 $ 2.1 $ 0.6 $ 1.2 $ 1.6
Interest cost on projected
benefit obligation 2.3 1.4 1.0 3.4 4.0 6.1
Return on plan assets (1.4) (0.6) (0.5) - - -
Net amortization and deferral 0.5 0.7 0.6 - - (2.5)
Curtailments and settlements 2.0 2.2 - - - -
----- ----- ----- ----- ----- -----
Net pension and other
benefits expense $ 5.3 $ 6.2 $ 3.2 $ 4.0 $ 5.2 $ 5.2
===== ===== ===== ===== ===== =====
The assumed health care cost trend rate has a significant effect
on the amounts reported. A one-percentage-point change in the
assumed health care cost trend rate would have the following
effects:
One Percentage One Percentage
Point Increase Point Decrease
-------------- --------------
Effect on total service and
interest cost components $ 0.1 $ (0.1)
Effect on postretirement
benefit obligation $ 0.7 $ (0.6)
MP Co. also has defined contribution pension and investment plans
(MP Plans) for certain of its employees. The expense related to
such MP Plans is charged by MP Co. to IMC-Agrico. PLP's expense
for such MP Plans totaled $2.9 million, $1.6 million and $1.5
million for the years ended December 31, 1998, 1997 and 1996.
In addition, MP Co. provides benefits such as workers'
compensation and disability to certain former or inactive
employees after employment but before retirement. The plans are
unfunded. Employees are not vested and the plan benefits are
subject to change.
12. COMMITMENTS AND CONTINGENCIES
IMC-Agrico purchases natural gas and ammonia from third parties
under contracts extending in some cases, for multiple years.
Purchases under these contracts are generally at prevailing market
prices and range from one to three years. IMC-Agrico also
purchases its sulphur requirements under an agreement which
extends over the life of the joint venture. Since the term of the
sulphur purchase commitment is indeterminable, the dollar value of
such commitments has been excluded from the schedule below after
the year 2003.
IMC-Agrico leases various types of properties, including buildings
and structures, railcars and various types of equipment through
operating leases. Lease terms generally range from three to five
years, although some have longer terms.
Summarized below is a schedule of IMC-Agrico's future minimum
long-term purchase commitments and lease payments under non-
cancelable operating leases as of December 31, 1998:
Purchase Lease
Commitments Commitments
----------- -----------
1999 $ 349.4 $ 15.7
2000 194.5 13.2
2001 173.7 12.0
2002 147.9 6.2
2003 147.9 6.2
Subsequent years - 8.2
--------- ---------
$ 1,013.4 $ 61.5
========= =========
IMC-Agrico's rental expense under non-cancelable operating leases
for 1998, 1997 and 1996 amounted $27.3 million, $22.8 million and
$20.3 million, respectively.
IMC-Agrico also sells phosphate rock and concentrated phosphates
to customers and IMC under contracts extending in some cases for
multiple years. Sales under these contracts, except for certain
phosphate rock sales which are at prices based on IMC-Agrico's
cost of production, are generally at prevailing market prices.
In November 1998, PhosChem of which IMC-Agrico is a member,
reached a two-year agreement through the year 2000 to supply DAP
to the China National Chemicals Import and Export Corporation
(Sinochem). This agreement provides Sinochem with an option to
extend the agreement to December 31, 2002. Sinochem is a state
company with government authority for the import of fertilizers
into China. Under the contract's terms, Sinochem will receive
monthly shipments at prices reflecting the market at the time of
shipment.
Property Reserves
In October 1996, IMC-Agrico signed an agreement with Consolidated
Minerals, Inc. (CMI) for the purchase of real property, Pine
Level, containing approximately 100 million tons of phosphate rock
reserves. In connection with the purchase, IMC-Agrico has agreed
to obtain all environmental, regulatory and related permits
necessary to commence mining on the property.
Within five years from the date of this agreement, IMC-Agico is
required to provide notice to CMI regarding one of the following:
(i) whether they have obtained the permits necessary to commence
mining any part of the property; (ii) whether they wish to extend
the permitting period for an additional three years; or (iii)
whether they wish to decline to extend the permitting period. If
the permits necessary to commence mining the property have been
obtained, IMC-Agrico is obligated to pay CMI an initial royalty
payment of $28.9 million. In addition to this initial royalty
payment, IMC-Agrico is required to pay CMI a mining royalty on
phosphate rock mined from the property to the extent the permits
are obtained.
Environmental Matters
PLP's contingent environmental liability arises from three
sources: (i) facilities currently or formerly owned by PLP or its
predecessors; (ii) facilities adjacent to currently or formerly
owned facilities; and (iii) third-party Superfund sites.
At facilities currently or formerly owned by PLP or its corporate
predecesssors, the historical use and handling of regulated
chemical substances, oil and gas and crop nutrient products has
resulted in soil and groundwater contamination. Spills or other
unintended releases of regulated substances have occurred
previously at these facilities, and potentially could occur in the
future, possibly requiring PLP to undertake or fund cleanup
efforts. At some locations, PLP has agreed, pursuant to consent
orders with the appropriate governmental agencies, to undertake
certain investigations (which currently are in progress) to
determine whether remedial action may be required to address
contamination.
Finally, the Superfund, and equivalent state statutes impose
liability without regard to fault or to the legality of a party's
conduct, on certain categories of persons that are considered to
have contributed to the release of "hazardous substances" into the
environment. Currently, PLP is involved or concluding involvement
at less than ten Superfund or equivalent state sites.
With regard to these contingent environmental liabilities, it is
PLP's policy to accrue environmental investigatory and non-capital
remediation costs for identified sites when litigation has
commenced or a claim or assessment has been asserted or is
probable and the likelihood of an unfavorable outcome is probable.
In addition to these accrued amounts, material expenditures could
be required by PLP in the future to remediate contamination at
current or former sites. For other known sites, PLP estimates
that any additional loss in excess of the accrued amounts would
not be material. PLP cannot determine the cost of any remedial
action that ultimately may be required at unknown sites, sites
currently under investigation, sites for which investigations have
not been performed, or sites at which unanticipated conditions are
discovered. PLP's liability at the federal or state Superfund
sites, either alone or in the aggregate, is not currently expected
to be material.
PLP believes that, pursuant to several indemnification agreements,
it is entitled to at least partial, and in many instances
complete, indemnification for a portion of the costs that may be
expended by PLP to remedy environmental issues at certain
facilities. These agreements address issues that resulted from
activities occurring prior to PLP's acquisition of facilities or
businesses from parties including ARCO; Conoco; the Williams
Companies; Kerr-McGee Inc.; and certain other private parties.
PLP has already received and anticipates receiving amounts
pursuant to the indemnification agreements for certain of its
expenses incurred to date.
Exploration Funding
Through the Exploration Program, PLP is committed to expenditures
of approximately $120.0 million, of which approximately $70.0
million has already been contributed through year-end for oil and
gas exploration. IMC, on behalf of the PLP unitholders, seeks to
reform or rescind the contracts that PLP entered with MOXY and to
recoup the monies expended as a result of PLP's participation in
those agreements. See Part I, Item 3, "Legal Proceedings," of
this Annual Report on Form 10-K for further detail.
13. OPERATING SEGMENTS
In June 1997, SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information," was issued effective for
fiscal years ending after December 15, 1998. PLP has two
reportable segments: IMC-Agrico Phosphates and its oil and gas
operations. In 1997 and 1996, PLP had a third reportable segment,
Sulphur, but this segment was spun off as a result of the FTX
Merger.
The accounting policies of the segments are the same as those
described in the summary of significant accounting policies. All
intersegment sales prices are market based. PLP evaluates
performance based on operating earnings of the respective
segments.
Segment information for the years 1998, 1997 and 1996 was as
follows:
1998
---------------------------------------------------
IMC-Agrico
Phosphates Sulphur Oil & Gas Other(a) Total
---------- ------- --------- -------- -----
Net sales from
external customers $ 618.9 $ - $ 0.2 $ 68.2 $ 687.3
Intersegment net sales 32.5 - - - 32.5
Gross margins(b) 155.5 - (0.3) 24.3 179.5
Exploration expenses - - 20.9 - 20.9
Operating earnings(c) 139.5 - (21.3) 13.9 132.1
Depreciation, depletion
and amortization 35.1 - 0.2 (10.1) 25.2
Total assets 731.9 - 50.8 (62.9) 719.8
Capital expenditures 35.6 - 44.4 3.3 83.3
1997
---------------------------------------------------
IMC-Agrico
Phosphates Sulphur Oil & Gas Other(a) Total
---------- ------- --------- -------- -----
Net sales from
external customers $ 614.6 $ 129.1 $ 29.6 $ 69.2 $ 842.5
Intersegment net sales 28.2 47.5 - - 75.7
Gross margins(d) 126.2 (4.4) 2.3 52.9 177.0
Exploration expenses - - 15.8 - 15.8
Operating earnings(e) 108.9 (8.0) (15.1) 20.9 106.7
Depreciation, depletion
and amortization 42.6 21.8 11.2 (32.5) 43.1
Total assets 719.5 - 21.8 (75.8) 665.5
Capital expenditures 34.6 2.3 35.5 - 72.4
1996
---------------------------------------------------
IMC-Agrico
Phosphates Sulphur Oil & Gas Other(a) Total
---------- ------- --------- -------- -----
Net sales from
external customers $ 714.1 $ 138.9 $ 37.0 $ 67.0 $ 957.0
Intersegment net sales 30.4 45.5 - - 75.9
Gross margins(f) 178.9 12.9 11.3 57.5 260.6
Exploration expenses - - 2.5 - 2.5
Operating earnings(f) 162.1 6.2 7.8 38.7 214.8
Depreciation, depletion
and amortization 41.8 21.4 14.8 (41.0) 37.0
Total assets 713.5 566.3 20.8 (100.8) 1,199.8
Capital expenditures 36.3 2.8 6.5 8.0 53.6
(a) Segment information below the quantitative thresholds are
attributable to Feed Ingredients and PLP corporate
headquarters. Feed Ingredients produces and markets animal
feed ingredients through Feed Ingredients. PLP corporate
headquarters includes the elimination of intersegment
transactions.
(b) Before non-recurring charges of $8.0 million related to the
Profit Improvement Program. See Note 4, "Non-Recurring
Charges."
(c) Before non-recurring charges of $62.6 million related to the
Profit Improvement Program. See Note 4, "Non-Recurring
Charges." See Note 4, "Non-Recurring Charges."
(d) Before a non-recurring charge of $384.5 million related to an
impairment assessment of sulphur assets. See Note 4, "Non-
Recurring Charges."
(e) Before non-recurring charges of $22.6 million related to the
FTX Merger and the $384.5 million sulphur asset impairment
discussed above.
(f) Before non-recurring charges of $3.0 million for asset
valuations at IMC-Agrico.
Financial information relating to PLP's operations by geographic
area was as follows:
Net Sales(a)
------------------------------------
1998 1997 1996
---- ---- ----
United States $ 330.9 $ 485.9 $ 549.6
China 146.7 169.0 191.9
Other 209.7 187.6 215.5
-------- --------- ---------
Consolidated $ 687.3 $ 842.5 $ 957.0
======== ========= =========
(a) Revenues are attributed to countries based on location of
customer.
QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
(In millions, except per unit amounts)
Quarter
--------------------------------------------
First Second Third(a) Fourth(b) Year
----- ------ -------- --------- ----
1998
Net sales $158.8 $196.0 $156.4 $176.1 $687.3
Gross margins 35.4 53.4 42.1 40.6 171.5
Operating income
(loss) 17.7 36.3 36.9 (21.5) 69.5
Earnings (loss) 8.8 26.9 27.3 (30.8) 32.3
Earnings (loss)
per unit $ 0.09 $ 0.26 $ 0.26 $(0.30) $ 0.31
1997
Net sales $ 211.8 $228.8 $196.3 $205.6 $842.5
Gross margins 56.9 52.4 (334.8) 18.0 (207.5)
Operating income
(loss) 38.1 39.6 (357.6) (20.5) (300.4)
Earnings (loss)
before extraordinary
item 29.2 30.6 (366.6) (33.8) (340.6)
Earnings (loss) 29.2 30.6 (366.6) (48.3) (355.1)
Earnings (loss)
per unit before
extraordinary item 0.28 0.30 (3.54) (0.33) (3.29)
Earnings (loss)
per unit $ 0.28 $ 0.30 $(3.54) $(0.47) $(3.43)
(a) 1997 includes a $384.5 million non-recurring charge ($3.71
per unit) in 1997 for an impairment assessment of sulphur
assets. See Note 4, "Non-Recurring Charges."
(b) Includes non-recurring charges in 1998 totaling $62.6
million ($0.61 per unit) related to the Profit Improvement
Program. See Note 4, "Non-Recurring Charges." Includes
non-recurring charges in 1997 totaling $21.5 million ($0.21
per unit) related to the merger between FTX and IGL, and an
extraordinary charge of $14.5 million ($0.14 per unit)
primarily for redemption premiums associated with the early
extinguishment of the 8.75 percent senior subordinated
notes.
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.
As of December 22, 1997, PLP filed a Current Report on Form
8-K reporting events under Items 1 and 4 thereof, and
subsequently on February 5, 1998, PLP filed an amendment on
Form 8-K/A. The event reported under Item 1 addressed the
change in control of PLP following the FTX Merger, 51.6
percent owner and administrative managing general partner of
PLP, with IMC as the surviving entity. As a result, IMC
assumed 51.6 percent ownership and became General Partner of
PLP under the PLP Agreement.
The event reported under Item 4 addressed the change in PLP's
independent public accountants. As a result of the FTX
Merger, Arthur Andersen LLP was replaced as the principal
independent auditor of PLP by Ernst & Young LLP effective
December 22, 1997. The report of Arthur Andersen LLP on the
financial statements of PLP for 1996, which expressed
reliance on certain audit work performed by Ernst & Young LLP
relative to PLP's joint venture interest in IMC-Agrico and
relative to certain pension and other post-employment and
post-retirement benefits information related IMC-Agrico MP,
Inc., did not contain an adverse opinion or a disclaimer of
an opinion and was not qualified or modified as to
uncertainty, audit scope or accounting principles. During
1996 and the interim period ended December 22, 1997, the date
of the FTX Merger, (i) there were no disagreements with
Arthur Andersen LLP on any matter of accounting principles or
practices, financial statement disclosure or auditing scope
or procedure; and (ii) there were no "reportable events" (as
defined in Rule 304(a) (1) (v) of Regulation S-K).
PART III.
Item 10. Directors and Executive Officers of the Registrant
As a limited partnership, PLP has no directors. IMC, the
General Partner of PLP, performs comparable functions for
PLP. PLP does not employ any executive officers; however,
certain management functions are provided to PLP by executive
officers and other employees of IMC.
Section 16(a) Beneficial Ownership Reporting Compliance
Because IMC is the General Partner of PLP, certain officers
of IMC who perform policy-making functions for PLP are
subject to the reporting requirements of Section 16 of the
Exchange Act of 1934, as amended. An Initial Statement of
Beneficial Ownership on Form 3 was not timely filed for Mr.
John U. Huber, an officer of IMC. (Mr. Huber did not hold
any units of PLP at the time the Form 3 was required to have
been filed.) A Statement of Changes in Beneficial Ownership
on Form 4 was not timely filed for Mr. Robert W. Bruce III, a
former director of IMC. Two Form 4s were not timely filed
for Mr. Rod F. Dammeyer, a director of IMC.
Item 11. Executive Compensation
PLP does not employ any executive officers and no
compensation was provided by PLP to any executive officer for
services rendered in any capacity in 1998. Prior to the FTX
Merger, the services of executive officers of PLP were
provided to PLP by FTX as provided in the PLP Agreement, for
which PLP reimbursed FTX at its cost, including allocated
overhead. Subsequent to the FTX Merger, IMC provides services
to PLP as provided in the PLP Agreement, for which PLP
reimburses IMC at its cost, including allocated overhead.
Certain services provided by the General Partner are provided
by executive officers and other employees of IMC. In
accordance with the PLP Agreement, IMC is reimbursed on a
monthly basis for expenses incurred on behalf of PLP.
Reference is made to the information set forth in Part I,
Item 1, "Business - Other Matters - Relationship between PLP
and IMC," of this Annual Report on Form 10-K.
Item 12. Security Ownership of Certain Beneficial Owners and
Management
The following table contains certain information concerning
the beneficial ownership of PLP units as of December 31, 1998
by each person known by PLP to be the beneficial owner of
more than five percent of any class of PLP equity security,
determined in accordance with Rule 13d-3 of the SEC and based
on information furnished to PLP by each such person. Unless
otherwise indicated, the securities shown are held with sole
voting and investment power.
Name and Address Number of PLP Units
of Beneficial Owner Beneficially Owned Percent of Class
-------------------------------------------------------------
IMC Global Inc. 53,385,133(a) 51.6%
2100 Sanders Road
Northbrook, Illinois
60062-6146
Alpine Capital, L.P. 11,658,800(b) 11.3%
201 Main Street
Suite 2100
Fort Worth, Texas 76102
Wellington Management 8,973,200(c) 8.7%
Company, LLP
75 State Street
Boston, Massachusetts 02109
(a) Consists of 198,234 PLP Depositary Units, 52,149,916
PLP Unit Equivalents and 1,036,983 of partnership
interests.
(b) Based on the Schedule 13G dated February 8, 1999 that
Alpine Capital, L.P. filed with the SEC, Alpine Capital,
L.P. has sole voting power and dispositive power with
respect to all 11,658,800 units.
(c) Based on the Schedule 13G dated February 10, 1999 that
Wellington Management Company, LLP (Wellington) filed
with the SEC, Wellington has shared dispositive power
and no voting power with respect to the 8,973,200 units.
Wellington is a parent holding company which together
with its affiliates, holds the units in its capacity as
investment adviser to various clients, including
Vanguard/Windsor Fund, Inc. Vanguard Windsor Fund, Inc.
reported on a Schedule 13G dated February 11, 1999 that
it has sole voting power and shared dispositive power
with respect to these 8,973,200 units.
Item 13. Certain Relationships and Related Transactions
Reference is made to the information set forth in Part I,
Item 1, "Business - Other Matters - Relationship between PLP
and IMC" and Item 11, "Executive Compensation," of this
Annual Report on Form 10-K.
PART IV.
Item 14. Exhibits, Financial Statement Schedules and Reports on Form
8-K.
(a)(1). Financial Statements.
Reference is made to the Index to Financial
Statements appearing in Part II, Item 8, "Financial
Statements and Supplementary Data" of this Annual
Report on Form 10-K.
(a)(2). Financial Statement Schedules.
Reference is made to the Index to Financial
Statements Schedules appearing on page F-1 hereof.
(a)(3). Exhibits.
Reference is made to the Exhibit Index beginning on
page E-1 hereof.
(b). Reports on Form 8-K.
During the fourth quarter and through the date of
this filing, the following reports were filed:
None
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
PHOSPHATE RESOURCE PARTNERS
LIMITED PARTNERSHIP
By: IMC GLOBAL INC.
Its Administrative Managing
General Partner
By: /s/ Robert E. Fowler, Jr.
-------------------------
Robert E. Fowler, Jr.
Chairman and Chief Executive
Officer of IMC Global Inc.
Date: March 30, 1999
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of
the Registrant and in the capacities and on the dates indicated:
Signature Title Date
- --------- ----- ----
/s/ Robert E. Fowler, Jr. Chairman and Chief March 30, 1999
Robert E. Fowler, Jr. Executive Officer of
IMC Global Inc.
(principal executive officer)
/s/ Douglas A. Pertz President, Chief March 30, 1999
Douglas A. Pertz Operating Officer and
Director of IMC Global Inc.
(principal operating officer)
/s/ J.Bradford James Senior Vice President and March 30, 1999
J.Bradford James Chief Financial Officer
of IMC Global Inc.
(principal financial officer)
/s/ Anne M. Scavone Vice President and March 30, 1999
Anne M. Scavone Controller of IMC Global Inc.
(principal accounting officer)
* Director of IMC Global Inc. March 30, 1999
- --------------------
Wendell F. Bueche
* Director of IMC Global Inc. March 30, 1999
- --------------------
Raymond F. Bentele
* Director of IMC Global Inc. March 30, 1999
- --------------------
Rod F. Dammeyer
* Director of IMC Global Inc. March 30, 1999
- --------------------
James M. Davidson
* Director of IMC Global Inc. March 30, 1999
- --------------------
Harold H. MacKay
* Director of IMC Global Inc. March 30, 1999
- --------------------
David B. Mathis
* Director of IMC Global Inc. March 30, 1999
- --------------------
Donald F. Mazankowski
* Director of IMC Global Inc. March 30, 1999
- --------------------
Joseph P. Sullivan
* Director of IMC Global Inc. March 30, 1999
- --------------------
Richard L. Thomas
* Director of IMC Global Inc. March 30, 1999
- --------------------
Billie B. Turner
*By: /s/ Rose Marie Williams
Rose Marie Williams
Attorney-in-fact
PHOSPHATE RESOURCE PARTNERS LIMITED PARTNERSHIP
Exhibit Index
Incorporated Filed with
Exhibit Herein by Electronic
No. Description Reference to Submission
- -----------------------------------------------------------------------
3.1 Amended and Restated Agreement Exhibit B on
of Limited Partnership of PLP the Prospectus
dated as of May 29, 1987 (PLP dated May 29,
Partnership Agreement) among FTX, 1987 included
Freeport Phosphate Rock Company and in PLP's
Geysers Geothermal Company, as Registration
general partners, and Freeport Statement on
Minerals Company (FMC), as general Form S-1, as
partner and attorney-in-fact for amended, as
the limited partners, of PLP. initially filed
with the
Commission on
May 29, 1987
(Registration
No. 33-13513).
3.2 Amendment to the PLP Partnership Exhibit 3.2 to
Agreement dated as of PLP's December 31,
December 16, 1988 effected by FMC, 1994 Annual Report
as Administrative Managing General on Form 10-K.
Partner, and FTX, as General
Partner of PLP.
3.3 Amendment to the PLP Partnership Exhibit 19.2 to
Agreement dated as of March 29, PLP's March 31,
1990 effected by FMC, as 1990 Form 10-Q.
Administrative Managing General
Partner, and FTX, as Managing
General Partner, and FTX, as
Managing General Partner, of PLP.
3.4 Amendment to the PLP Partnership Exhibit 19.3 to
Agreement dated as of April 6, PLP's March 31,
1990 effected by FTX, as 1990 Form 10-Q.
Administrative Managing General
Partner of PLP.
3.5 Amendment to the PLP Partnership Exhibit 3.3 to
Agreement dated as of January 27, PLP's December 31,
1992 between FTX, as Administrative 1991 Annual Report
Managing General Partner, and FMRP, on Form 10-K.
as Managing General Partner, of PLP.
3.6 Amendment to the PLP Partnership Exhibit 3.4 to
Agreement dated as of October 14, PLP's December 31,
1992 between FTX, as Administrative 1992 Annual Report
Managing General Partner, and FMRP, on Form 10-K.
as Managing General Partner, of PLP.
3.7 Amended and Restated Certificate of Exhibit 3.3 to
Limited Partnership of PLP dated PLP's Registration
June 12, 1986 (PLP Partnership Statement on Form
Certificate). S-1, as amended,
as initially filed
with the Commission
on June 20, 1986
(Registration No.
33-5561).
3.8 Amendment dated as of January 9, Exhibit 3.8 to
1998 effected by IMC, as PLP's 1997 Annual
Administrative Managing General Report on Form 10-K.
Partner, and FMRP, as Managing
General Partner of PLP.
3.9 Certificate of Amendment to the Exhibit 3.6 to
PLP Partnership Certificate dated PLP's December 31,
as of January 12, 1989. 1993 Annual Report
on Form 10-K.
3.10 Certificate of Amendment to the Exhibit 19.1 to
PLP Partnership Certificate dated PLP's March 31,
as of December 29, 1989. 1990 Form 10-Q.
3.11 Certificate of Amendment to the Exhibit 19.4 to
PLP Partnership Certificate dated PLP's March 31,
as of April 12, 1990. 1990 Form 10-Q.
3.12 Certificate of Amendment to the X
PLP Partnership Certificate dated
as of January 9, 1998.
4.1 Deposit Agreement dated as of Exhibit 28.4 to
June 27, 1986 (Deposit Agreement) PLP's Report on
among PLP, The Chase Manhattan Form 8-K dated
Bank, N.A. (Chase) and Freeport July 11, 1986.
Minerals Company as attorney-in-
fact of those limited partners
and assignees holding depositary
receipts for units of limited
partnership interest in PLP.
4.2 Resignation dated December 26, Exhibit 4.5 to
1991 of Chase as Depositary under PLP's December 31,
the Deposit Agreement and 1991 Annual Report
appointment dated December 27, on Form 10-K.
1991 of Mellon Bank, N.A. (Mellon)
as successor Depositary, effective
January 1, 1992.
4.3 Service Agreement dated as of Exhibit 4.6 to
January 1, 1992 between PLP and PLP's December 31,
Mellon pursuant to which Mellon 1991 Annual Report
serves as Depositary under the on Form 10-K.
Deposit Agreement and Custodian
under the Custodial Agreement.
4.4 Amendment to the Deposit Agreement Exhibit 4.4 to
dated as of November 18, 1992 PLP's December 31,
between PLP and Mellon. 1992 Annual Report
on Form 10-K.
4.5 Form of Depositary Receipt. Exhibit 4.5 to
PLP's December 31,
1992 Annual Report
on Form 10-K.
4.6 Custodial Agreement regarding Exhibit 19.1 to
the PLP Depositary Unit PLP's June 30,
Reinvestment Plan among FTX, 1987 Form 10-Q.
PLP and Chase, effective as of
April 1, 1987.
4.7 PLP Depositary Unit Reinvestment Exhibit 4.4 to
Plan. PLP's December 31,
1991 Annual Report
on Form 10-K.
4.8 Subordinated Indenture as of Exhibit 4.11 to
October 26, 1990 (Subordinated PLP's December 31,
Indenture) between PLP and 1993 Annual Report
Manufacturers Hanover Trust on Form 10-K.
Company (MHTC) as Trustee.
4.9 First Supplemental Indenture Exhibit 4.12 to
dated as of February 15, 1994 PLP's December 31,
between PLP and Chemical Bank, 1993 Annual Report
as Successor to MHTC, as Trustee, on Form 10-K.
to the Subordinated Indenture
providing for the issuance of
$150,000,000 of aggregate principal
amount of 8 3/4% Senior
Subordinated Notes due 2004.
4.10 Form of Senior Indenture (Senior Exhibit 4.1 to
Indenture) from PLP to Chemical PLP's Report on
Bank, as Trustee. Form 8-K dated
February 13, 1996.
4.11 Form of Supplemental Indenture Exhibit 4.1 to
dated February 14, 1996 from PLP PLP's Report on
to Chemical Bank, as Trustee, to Form 8-K dated
the Senior Indenture providing February 16, 1996.
for the issuance of $150,000,000
aggregate principal amount of 7%
Senior Debentures due 2008.
10.1 Contribution Agreement dated as Exhibit 2.1 to
of April 5, 1993 between PLP and PLP's Report on
IMC. (PLP-IMC Contribution Form 8-K dated
Agreement) July 15, 1993.
10.2 First Amendment dated as of Exhibit 2.2 to
July 1, 1993 to the PLP-IMC PLP's Report on
Contribution Agreement. Form 8-K dated
July 15, 1993.
10.3 Amended and Restated Partnership Exhibit 10.3 to
Agreement dated as of May 26, 1995 PLP's December 31,
among IMC-Agrico GP Company, 1995 Annual Report
Agrico, Limited Partnership and on Form 10-K.
IMC-Agrico MP Inc (Amended and
Restated Partnership Agreement).
10.4 Amendment and Agreement dated Exhibit 10.1 to
as of January 23, 1996 to the PLP's Report on
Amended and Restated Partnership Form 8-K dated
Agreement dated May 26, 1995 by February 13, 1996.
and among IMC-Agrico MP, Inc.,
IMC Global Operations, Inc. and
IMC-Agrico Company.
10.5 Amendment and Agreement dated as X
of December 22, 1997 to the
Amended and Restated Partnership
Agreement dated May 26, 1995 by
and among IMC-Agrico MP, Inc.;
IMC Global Operations, Inc.; and
IMC-Agrico Company.
10.6 Amended and Restated Parent Exhibit 10.5 to
Agreement dated as of May 26, PLP's December 31,
1995 among IMC Global Operations, 1995 Annual Report
Inc.; PLP; FTX; and IMC-Agrico. on Form 10-K.
10.7 Participation Agreement: McMoRan Exhibit 10.6 to
1997 Exploration Program PLP's December 31,
(Participation Agreement) dated 1997 Annual Report
April 1, 1997 between PLP and MOXY. on Form 10-K.
10.8 Amendment to Participation A Exhibit 10.7 to
Agreement dated December 15, PLP's December 31,
1997 between PLP and MOXY. 1997 Annual Report
on Form 10-K.
10.9 Participation Agreement: McMoRan Exhibit 10.8 to
1997 Exploration Program dated PLP's December 31,
December 15, 1997 between PLP and 1997 Annual Report
MOXY. on Form 10-K.
10.10 Promissory Demand Note between PLP, Exhibit 10.9 to
as borrower, and IMC, as lender, PLP's December 31,
dated December 22, 1997 in the 1997 Annual Report
principal sum of $200,000,000. on Form 10-K.
10.11 Promissory Demand Note between PLP, Exhibit 10.10 to
as borrower, and IMC, as lender, PLP's December 31,
dated December 22, 1997 in the 1997 Annual Report
principal sum of $150,000,000. on Form 10-K.
12.1 PLP Computation of Ratio of X
Earnings to Fixed Charges.
16 Letter of Arthur Andersen LLP Exhibit 99.2 to
re: change in certifying PLP's Report on
accountants. Form 8-K dated
December 22, 1997
and Exhibit 99.2
to PLP's Report
on Form 8-K/A dated
February 5, 1998.
21.1 Subsidiaries of the Registrant. X
23.1 Consent of Ernst & Young LLP X
dated March 30, 1999.
23.2 Consent of Arthur Andersen LLP X
dated March 30, 1999.
24.1 Powers of Attorney pursuant to X
which this report has been signed
on behalf of certain directors of
IMC Global Inc.
27.1 PLP Financial Data Schedule. X
99.1 Report of Ernst & Young LLP. X
99.2 Report of Ernst & Young LLP. X
INDEX TO FINANCIAL STATEMENTS SCHEDULES
The financial statement schedules listed below should be read in
conjunction with such financial statements contained in PLP's 1998
Annual Report on Form 10-K.
Page
I. Condensed Financial Information of Registrant F-2 - F-4
II. Valuation and Qualifying Accounts F-5
Schedules other than those listed above have been omitted since they
are either not required, not applicable or the required information is
included in the financial statements or notes thereto.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
We have audited, in accordance with generally accepted auditing
standards, the financial statements as of December 31, 1996 and for the
year ended December 1996 of Phosphate Resource Partners Limited
Partnership (formerly Freeport-McMoRan Resource Partners, Limited
Partnership) included in this Form 10-K, and have issued our report
thereon dated January 21, 1997 (except with respect to Note 11 as to
which the date is January 26, 1998). Our audit was made for the
purpose of forming an opinion on those statements taken as a whole. The
schedules listed in the index above are the responsibility of the
General Partner's management and are presented for purposes of
complying with the Securities and Exchange Commission's rules and are
not part of the basic financial statements. The schedules as of
December 31, 1996 and for the year then ended have been subjected to
the auditing procedures applied in the audit of the basic financial
statements and, in our opinion, fairly state in all material respects
the financial data required to be set forth therein in relation to the
basic financial statements taken as a whole.
Arthur Andersen LLP
New Orleans, Louisiana
January 21, 1997
PHOSPHATE RESOURCE PARTNERS LIMITED PARTNERSHIP
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
STATEMENT OF OPERATIONS
(In millions)
Years Ended December 31,
-------------------------
1998 1997 1996
---- ---- ----
Net sales $ 0.2 $ 158.7 $176.0
Cost of goods sold 0.5 545.0 155.3
------ ------- ------
Gross margins (0.3) (386.3) (20.7)
Exploration expenses 20.9 15.8 2.5
Selling, general and administrative expenses 7.9 57.4 35.5
------ ------- ------
Operating loss (29.1) (459.5) (17.3)
Interest expense, net (35.3) (32.7) (31.8)
Equity in earnings of IMC-Agrico 95.5 154.7 226.0
Other (income) expense, net (1.2) 3.1 (0.4)
------ ------- ------
Earnings (loss) before extraordinary item 32.3 (340.6) 177.3
Extraordinary charge - debt retirement - (14.5) -
------ ------- ------
Earnings (loss) $ 32.3 $(355.1) $177.3
====== ======= ======
See Notes to Financial Statements in PLP's Form 10-K for the year
ended December 31, 1998
PHOSPHATE RESOURCE PARTNERS LIMITED PARTNERSHIP
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
BALANCE SHEET
(In millions)
December 31,
----------------------
1998 1997
---- ----
Assets
Current assets:
Cash and cash equivalents $ 12.4 $ 9.5
Receivables, net 3.9 5.4
Other current assets 0.5 1.1
-------- --------
Total current assets 16.8 16.0
Property, plant and equipment, net 50.7 21.2
Investment in IMC-Agrico 347.2 378.8
Investment in MOXY 13.5 13.5
Other assets 1.2 1.4
-------- --------
Total assets $ 429.4 $ 430.9
======== ========
Liabilities and Partners' Deficit
Accounts payable and accrued liabilities $ 10.3 $ 28.9
Long-term debt 461.2 455.8
Other noncurrent liabilities 116.9 114.6
Partners' deficit (159.0) (168.4)
-------- --------
Total liabilities and partners' deficit $ 429.4 $ 430.9
======== ========
See Notes to Financial Statements in PLP's Form 10-K for the year
ended December 31, 1998
PHOSPHATE RESOURCE PARTNERS LIMITED PARTNERSHIP
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
STATEMENT OF CASH FLOWS
(In millions)
Years Ended December 31,
----------------------------
1998 1997 1996
---- ---- ----
Cash flow from operating activities:
Earnings (loss) $ 32.3 $(355.1) $177.3
Adjustments to reconcile earnings
(loss) to net cash provided by
operating activities:
Sulphur asset impairment charge - 384.5 -
Depreciation and amortization 0.2 33.9 36.2
Oil and gas exploration expenses 14.7 15.8 2.5
Equity in earnings of IMC-Agrico (95.5) (154.7) (226.0)
Cash distributions received from
IMC-Agrico 127.1 187.0 263.1
Other 2.5 (10.3) (0.8)
Changes in:
Receivables 1.5 1.4 (0.8)
Inventories - 2.9 1.7
Other current assets 0.6 0.7 (0.5)
Accounts payable and
accrued liabilities (18.6) (8.2) 6.2
------ ------ ------
Net cash provided by operating
activities 64.8 97.9 258.9
====== ====== ======
Cash flow from investing activities:
Capital expenditures (44.4) (37.8) (9.5)
Investment in IMC-Agrico - (11.0) (7.6)
Investment in MOXY - (8.2) -
Other - - 4.0
------ ------ ------
Net cash used in investing activities (44.4) (57.0) (13.1)
====== ====== ======
Cash flow from financing activities:
Cash distributions to partners (22.9) (119.6) (222.1)
Proceeds from (repayment of) debt, net 5.4 105.1 (171.1)
Cash transferred to FSC - (23.3) -
Proceeds from sale of notes - - 147.8
------ ------ ------
Net cash used in financing activities (17.5) (37.8) (245.4)
------ ------ ------
Net increase in cash and cash equivalents 2.9 3.1 0.4
Cash and cash equivalents at
beginning of year 9.5 6.4 6.0
------ ------ ------
Cash and cash equivalents at end of year $ 12.4 $ 9.5 $ 6.4
====== ====== ======
See Notes to Financial Statements in PLP's Form 10-K for the
year ended December 31, 1998
PHOSPHATE RESOURCE PARTNERS LIMITED PARTNERSHIP
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(In millions)
Col. A Col. B Col. C Col. D Col. E
- --------------- --------- -------------------- --------- ---------
Additions
-------------------
Balance at Charged to Charged to Balance at
Beginning Costs and Other Other-Add End of
Description of Period Expenses Accounts (Deduct) Period
- --------------- --------- --------- -------- -------- ---------
Reclamation and mine shutdown reserves:
1998:
Phosphates $ 38.3 $ 6.8 $ - $ (7.2)(a) $ 37.9
1997:
Sulphur $ 47.6 $ 9.4 $ 4.8(b) $(61.8)(c) $ -
Phosphates 42.3 9.5 - (13.5)(d) 38.3
Oil & Gas 6.2 2.5 3.7(b) (12.4)(c) -
------ ------ ------ ------ ------
$ 96.1 $ 21.4 $ 8.5 $(87.7)(e) $ 38.3
====== ====== ====== ====== ======
1996:
Sulphur $ 71.9 $ 3.9 $ - $(28.2)(f) $ 47.6
Phosphates 36.0 10.1 - (3.8) 42.3
Oil & Gas 4.9 1.3 - - 6.2
------ ------ ------ ------ ------
$112.8 $ 15.3 $ - $(32.0)(e) $ 96.1
====== ====== ====== ====== ======
(a) Includes a reclassification to short-term payables of $7.2
million.
(b) Relates to the transfer of IMC's 25.0 percent interest in Main
Pass to PLP.
(c) Includes a reduction of $63.2 million for sulphur and oil & gas
reserves included in the net assets distributed to FSC. See Note
3, "Distributions," of Notes of Financial Statements in Part II,
Item 8, "Financial Statements and Supplementary Data," of this
Annual Report on Form 10-K for further detail.
(d) Includes a reclassification to short-term payables of $12.0
million.
(e) Includes expenditures of $26.6 million in 1997 and $11.3 million
in 1996.
(f) Includes a reclassification to short-term payables of $17.1
million.