-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, CQpH/mzucnX/9qh60xcPzy51UUt4hSsPMya9EbQYkC0vxYV4SF39hB4P9/2hlSeT q+8n4M4DMr4gc8wYoT42Ew== 0000820626-99-000030.txt : 19990816 0000820626-99-000030.hdr.sgml : 19990816 ACCESSION NUMBER: 0000820626-99-000030 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990630 FILED AS OF DATE: 19990813 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PHOSPHATE RESOURCE PARTNERS LIMITED PARTNERSHIP CENTRAL INDEX KEY: 0000793421 STANDARD INDUSTRIAL CLASSIFICATION: AGRICULTURE CHEMICALS [2870] IRS NUMBER: 721067072 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-09164 FILM NUMBER: 99688698 BUSINESS ADDRESS: STREET 1: 2100 SANDERS ROAD CITY: NORTHBROOK STATE: IL ZIP: 60062 BUSINESS PHONE: 847-272-92 MAIL ADDRESS: STREET 1: 2100 SANDERS ROAD CITY: NORTHBROOK STATE: IL ZIP: 60062 FORMER COMPANY: FORMER CONFORMED NAME: FREEPORT MCMORAN RESOURCE PARTNERS LIMITED PARTNERSHIP DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: FREEPORT MCMORAN RESOURCE PARTNERS LP DATE OF NAME CHANGE: 19860618 10-Q 1 FOR QUARTER ENDED 06/30/99 =========================================================================== SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 1999 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 Identification No.) incorporation or organization) 2100 Sanders Road Northbrook, Illinois 60062 (Address of principal executive (Zip Code) offices) Registrant's telephone number, including area code: (847) 272-9200 Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X . No . ------ ------- ========================================================================== PART I.FINANCIAL INFORMATION Item 1.Financial Statements. The accompanying interim condensed financial statements of Phosphate Resource Partners Limited Partnership (PLP) do not include all disclosures normally provided in annual financial statements. These financial statements, which should be read in conjunction with the financial statements contained in PLP's Annual Report on Form 10-K for the year ended December 31, 1998, are unaudited but include all adjustments which the management of IMC Global Inc. (IMC), the managing general partner of PLP, considers necessary for a fair presentation. These adjustments consist of normal recurring accruals. Certain 1998 amounts have been reclassified to conform to the 1999 presentation. Interim results are not necessarily indicative of the results expected for the full year. CONDENSED STATEMENT OF EARNINGS (In millions, except per unit amounts)
Three months ended Six months ended June 30, June 30, 1999 1998 1999 1998 Net sales $174.2 $196.0 $341.6 $354.8 Cost of goods sold 131.8 142.6 255.4 266.0 ------ ------ ------ ------ Gross margins 42.4 53.4 86.2 88.8 Selling, general and administrative expenses 6.7 7.7 14.2 15.9 Exploration expenses 1.9 9.4 3.4 18.9 ------ ------ ------ ------ Operating earnings 33.8 36.3 68.6 54.0 Interest expense 9.8 10.0 19.7 19.6 Other (income) expense, net (0.2) (0.6) (2.7) (1.3) ------ ------ ------ ------ Earnings before cumulative effect of a change in accounting principle 24.2 26.9 51.6 35.7 Cumulative effect of a change in accounting principle - - (2.6) - ------ ------ ------ ------ Earnings $ 24.2 $ 26.9 $ 49.0 $ 35.7 ====== ====== ====== ====== Earnings per unit: Earnings before cumulative effect of a change in accounting principle $ 0.23 $ 0.26 $ 0.49 $ 0.35 Cumulative effect of a change in accounting principle - - (0.02) - ------ ------ ------ ------ Earnings per unit $ 0.23 $ 0.26 $ 0.47 $ 0.35 ====== ====== ====== ====== Average units outstanding 103.5 103.5 103.5 103.5 Distributions paid per publicly held unit $ 0.03 $ - $ 0.13 $ - (See Notes to Condensed Financial Statements)
CONDENSED BALANCE SHEET (In millions)
June 30, December 31, Assets 1999 1998 - --------------------------------------------------------------------- Current assets: Cash and cash equivalents $ 21.0 $ 10.8 Receivables, net 53.4 65.0 Inventories, net 97.4 122.2 Other current assets 0.2 0.9 -------- -------- Total current assets 172.0 198.9 Property, plant and equipment, net 499.9 477.5 Other assets 22.5 43.4 -------- -------- Total assets $ 694.4 $ 719.8 ======== ======== Liabilities and Partners' Deficit - ------------------------------------------------------------------ Current liabilities: Accounts payable and accrued liabilities $ 45.5 $ 59.5 Short-term debt and current maturities of long-term debt 4.3 4.4 -------- -------- Total current liabilities 49.8 63.9 Long-term debt, less current maturities 530.9 556.9 Other noncurrent liabilities 237.2 258.0 Partners' deficit (123.5) (159.0) -------- -------- Total liabilities and partners' deficit $ 694.4 $ 719.8 ======== ======== (See Notes to Condensed Financial Statements)
CONDENSED STATEMENT OF CASH FLOWS (In millions)
Six months ended June 30, 1999 1998 - ------------------------------------------------------------------------- Cash Flows from Operating Activities Earnings $ 49.0 $ 35.7 Adjustments to reconcile earnings to net cash provided by operating activities: Depreciation, depletion and amortization 11.5 12.5 Oil and gas exploration expenses - 14.3 Other charges and credits, net (16.5) (4.5) Changes in: Receivables 11.6 (0.2) Inventories 24.8 8.3 Other current assets 0.6 1.5 Accounts payable and accrued liabilities (13.1) (19.9) ------- ------- Net cash provided by operating activities 67.9 47.7 ------- ------- Cash Flows from Investing Activities Capital expenditures (30.1) (48.9) Proceeds from sale of investment 12.8 - Proceeds from sales of property, plant and equipment 0.5 1.6 ------- ------- Net cash used in investing activities (16.8) (47.3) ------- ------- Net cash provided before financing activities 51.1 0.4 ------- ------- Cash Flows from Financing Activities Cash distributions to unitholders (13.5) - Payments of long-term debt (27.8) (11.1) Proceeds from issuance of long-term debt 0.4 10.5 Change in short-term debt, net - 0.1 ------- ------- Net cash used in financing activities (40.9) (0.5) ------- ------- Net change in cash and cash equivalents 10.2 (0.1) Cash and cash equivalents - beginning of period 10.8 17.4 ------- ------- Cash and cash equivalents - end of period $ 21.0 $ 17.3 ======= ======= (See Notes to Condensed Financial Statements)
NOTES TO CONDENSED FINANCIAL STATEMENTS (Dollars in millions) 1.Sale of Investment in MMR During the second quarter of 1999, PLP sold its entire investment in McMoRan Exploration Co. (MMR) stock. In connection with the sale, PLP received proceeds of $12.8 million and recorded a loss of $0.7 million. 2.Cumulative Effect of a Change in Accounting Principle In April 1998, the American Institute of Certified Public Accountants issued Statement of Position (SOP) 98-5, "Reporting on the Costs of Start-Up Activities," which requires that costs related to start-up activities be expensed as incurred, effective January 1, 1999. Prior to 1999, PLP capitalized its start-up activity costs. PLP adopted the provisions of SOP 98-5 in its financial statements for the year beginning January 1, 1999. The effect of the adoption of SOP 98-5 was to record a charge during the first quarter for the cumulative effect of a change in accounting principle of $2.6 million to expense start-up costs that had been capitalized prior to 1999. The future impact of SOP 98-5 is not expected to be material to the Company's operating results. 3.Operating Segments Segment information for 1999 and 1998 was as follows:
IMC-Agrico IMC-Agrico Phosphates Feed Ingredients Oil & Gas Other(a) Total ---------- ---------------- --------- -------- ----- Three months ended June 30, 1999 Net sales $ 153.2 $ 17.4 $ 3.6 $ - $ 174.2 Intersegment net sales 8.7 - - - 8.7 Gross margins 32.9 3.9 2.7 2.9 42.4 Exploration expenses - - 1.9 - 1.9 Operating earnings 29.2 3.3 0.8 0.5 33.8 Six months ended June 30, 1999 Net sales $ 301.0 $ 35.4 $ 5.2 $ - $ 341.6 Intersegment net sales 17.1 - - - 17.1 Gross margins 68.9 7.7 3.8 5.8 86.2 Exploration expenses - - 3.4 - 3.4 Operating earnings 61.5 6.5 0.4 0.2 68.6 IMC-Agrico IMC-Agrico Phosphates Feed Ingredients Oil & Gas Other(a) Total ---------- ---------------- --------- -------- ----- Three months ended June 30, 1999 Net sales $ 180.2 $ 15.7 $ 0.1 $ - $ 196.0 Intersegment net sales 7.6 - - - 7.6 Gross margins 48.0 2.5 - 2.9 53.4 Exploration expenses - - 9.4 - 9.4 Operating earnings 43.9 1.9 (9.4) (0.1) 36.3 Six months ended June 30, 1999 Net sales $ 322.3 $ 32.4 $ 0.1 $ - $ 354.8 Intersegment net sales 15.6 - - - 15.6 Gross margins 77.4 5.6 - 5.8 88.8 Exploration expenses - - 18.9 - 18.9 Operating earnings 69.1 4.3 (18.9) (0.5) 54.0 (a) Segment information below the quantitative thresholds is attributable to PLP corporate headquarters. PLP's 1998 Form 10- K included IMC-Agrico Feed Ingredients (Feed Ingredients) in Other as its segment information was below the quantitative thresholds. In 1999, Feed Ingredients segment information met the quantitative thresholds and, accordingly, is disclosed as a separate segment.
4.Restructuring Charge The following footnote discloses amounts in total for IMC-Agrico Company (IMC-Agrico). During the fourth quarter of 1998, IMC-Agrico developed and began execution of a plan to improve profitability (Restructuring Plan). The Restructuring Plan was comprised of four major initiatives: (i) the combination of the potash and phosphates business units of IMC 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 following table summarizes the activity during the period January 1, 1999 to June 30, 1999 of the accruals recorded in conjunction with the Restructuring Plan.
Accrual at Accrual at January 1, 1999 Cash Paid June 30, 1999 --------------- --------- ------------- Non-employee exit costs: Demolition and closure costs $ 31.2 $ 2.3 $ 28.9 Idled leased transportation equipment 13.2 2.2 11.0 Other 4.6 2.8 1.8 Employee headcount reductions: Severance benefits 14.1 7.7 6.4 ------ ------ ------ Total $ 63.1 $ 15.0 $ 48.1 ====== ====== ======
The timing and costs of the Restructuring Plan are generally on schedule with the original time and dollar estimates disclosed in the fourth quarter of 1998. During the first six months of 1999, 51 employees who had accepted a voluntary retirement plan as of December 31, 1998 left IMC-Agrico in accordance with their target retirement date. An additional $5.7 million of severance benefits was paid during the period by IMC, which will be reimbursed by IMC-Agrico during the third quarter of 1999. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.(1) Results of Operations Three months ended June 30, 1999 vs. three months ended June 30, 1998 Overview PLP, through its joint venture operation in 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. IMC-Agrico is 41.5 percent owned by PLP and 58.5 percent owned by IMC. PLP also participates in the exploration and production of oil and gas (Exploration Program) primarily through its agreement with MMR. PLP's second quarter net sales of $174.2 million decreased 11 percent from $196.0 million in the year-earlier period principally due to a decrease in IMC-Agrico's net sales of 13 percent. PLP's gross margins of $42.4 million in the second quarter of 1999 represented a 21 percent decrease from gross margins of $53.4 million in the second quarter of 1998. A decrease of 27 percent in IMC-Agrico's gross margins was the primary reason for this decrease. Earnings for the second quarter of 1999 were $24.2 million, or $0.23 per unit, while earnings for the second quarter of 1998 were $26.9 million, or $0.26 per unit. IMC-Agrico Company IMC-Agrico's operations consist of its phosphate crop nutrients business (Phosphates) and its animal feed ingredients business. The amounts included in the following Phosphates and Feed Ingredients discussions are shown in total for the respective operations, unless otherwise indicated. Phosphates Phosphates' net sales for the second quarter of 1999 declined 14 percent to $394.4 million compared to $456.6 million for the same period last year largely due to decreased sales volumes and lower average sales realizations. Decreased shipments of granular monoammonium phosphate (GMAP) and granular triple superphosphate (GTSP), partially offset by a slight increase in shipments of diammonium phosphate (DAP) reduced sales by $35.3 million. These decreased volumes were mainly attributable to lower international shipments to certain countries as well as lower domestic shipments resulting from cutbacks in overall application rates coupled with aggressively priced imports. Lower average concentrate sales prices, driven by lower average DAP realizations, reduced sales by $16.2 million. Additionally, sales of uranium, ammonia and urea decreased $3.7 million, $2.2 million and $1.9 million, respectively. Gross margins decreased 31 percent to $80.3 million for the second quarter of 1999 compared to $116.0 million last year, mainly due to higher production costs as well as the lower volumes and prices discussed above. Production costs increased compared to the prior year's second quarter primarily as a result of higher idle plant costs, partially offset by reduced spending and lower raw material prices. The following table summarizes Phosphates' sales volumes and average selling prices for the three months ended June 30: 1999 1998 ---- ---- Sales volumes (in thousands of short tons)(a): 1,973 2,161 Average DAP price per ton(b): $168 $178 (a)Sales volumes include tons sold captively and represent dry product tons, primarily DAP. (b)Average prices represent sales made FOB plant. Feed Ingredients Feed Ingredients' net sales increased 10 percent to $41.9 million for the second quarter of 1999 from $38.0 million in the prior year quarter, primarily created by increases in domestic and international sales volumes, which favorably impacted net sales by $4.8 million. Gross margins increased 52 percent to $9.4 million for the second quarter of 1999 from $6.2 million in the same quarter one year ago. This was largely because of the higher volumes discussed above coupled with positive leveraging of lower production costs. Oil and Gas Operations The Exploration Program had net sales of $3.6 million and gross margins of $2.7 million for the second quarter of 1999 as production has continued at both Vermilion Block 159 and West Cameron Block 616. Exploration expenses of $1.9 million for the three months ended June 30, 1999 were largely comprised of geological and geophysical expenses. This decrease from prior year expenses of $9.4 million occurred largely because of the absence of dry hole costs during the current quarter compared to $7.1 million of dry hole costs during the same period last year. Selling, General and Administrative Expenses Selling, general and administrative expenses decreased $1.0 million, or 13 percent, to $6.7 million for the second quarter of 1999 as compared to $7.7 million in the second quarter one year ago. This decrease was primarily due to a reduction in spending for consulting, and outside services. Six months ended June 30, 1999 vs. Six months ended June 30, 1998 Overview Net sales for the first six months of 1999 of $341.6 million declined four percent from $354.8 million for the same period one year ago primarily as a result of a decrease in sales by IMC-Agrico of five percent. PLP's gross margins of $86.2 million for the first six months of 1999 represented a three percent decrease versus $88.8 million in the first six months of 1998. A decrease of eight percent in IMC-Agrico's gross margins contributed to the decrease which was partially offset by increased margins from oil and gas operations of $3.8 million for the first six months of 1999 versus none in the prior year. Earnings, before the cumulative effect of a change in accounting principle, were $51.6 million, or $0.49 per unit, for the first six months of 1999 as compared with $35.7 million, or $0.35 per unit, for the same period in 1998. The cumulative effect of a change in accounting principle of $2.6 million, or $0.02 per unit, reduced earnings for the year to $49.0 million, or $0.47 per unit. The increase in earnings resulted primarily from a reduction in exploration expenses related to the Exploration Program. Phosphates Phosphates' net sales for the first six months of 1999 declined six percent to $769.2 million compared to $821.1 million for the same period last year primarily as a consequence of decreased concentrate sales volumes and lower average sales realizations. Decreased shipments of GMAP and GTSP, partially offset by an increase in shipments of DAP reduced sales by $42.3 million. These unfavorable volume variances reflected the following factors: (i) a cutback in overall domestic application rates, (ii) continued availability of aggressively priced GTSP imports, and (iii) lower international shipments. Average sales realizations for the first six months of 1999 decreased as compared to the prior year period primarily as a result of lower domestic and international DAP realizations. Gross margins declined 11 percent to $167.0 million for the first six months of 1999 compared to $187.3 million for the first six months of last year, mainly because of the lower volumes and prices discussed above, partially offset by decreased production costs. Production costs were lower when compared to the prior year's first six months primarily as a result of the following: (i) lower raw material costs for purchased ammonia and natural gas; (ii) favorable variances from phosphate rock operations due to reduced spending; partially offset by (iii) unfavorable variances from concentrated phosphate operations created by lower bone phosphate of lime levels and higher turnaround amortization. The following table summarizes Phosphates' sales volumes and average selling prices for the six months ended June 30: 1999 1998 ---- ---- Sales volumes (in thousands of short tons)(a): 3,663 3,919 Average DAP price per ton(b): $171 $175 (a) Sales volumes include tons sold captively and represent dry product tons, primarily DAP. (b) Average prices represent sales made FOB plant. Feed Ingredients Net sales increased nine percent to $85.3 million for the first six months of 1999 from $78.2 million in the first six months of the prior year, as a consequence of growth in sales volumes. Sales volumes increased as a result of the following: (i) Feed Ingredients' planned increase for domestic volumes caused by the increased capacity from the new kiln start-up in late 1999; and (ii) higher international volumes resulting from spot sales and the improvement of the Asian economy over the prior year. Gross margins increased 36 percent to $18.6 million for the first six months of 1999 from $13.7 million for the first six months one year ago. This was mainly due to the higher volumes discussed above coupled with lower raw material costs. Oil and Gas Operations The Exploration Program posted net sales of $5.2 million and gross margins of $3.8 million for the current year as production occurred at both Vermilion Block 159 and West Cameron Block 616. Exploration expenses of $3.4 million for the first six months of 1999 were primarily comprised of geological and geophysical expenses. The decrease from prior year expenses of $18.9 million occurred largely because of the absence of dry hole costs during the current year compared to $14.3 million of dry hole costs during the same period last year. Selling, General and Administrative Expenses Selling, general and administrative expenses decreased $1.7 million, or 11 percent, to $14.2 million for the first six months of 1999 as compared to $15.9 million for the same period one year ago. This decrease was primarily due to a reduction in spending for consulting and other services. Other (Income) Expense, Net Other income for the first six months of 1999 increased $1.4 million from the prior year primarily as a result of a gain on the sale of an IMC-Agrico investment. Restructuring Plan The timing and costs of the Restructuring Plan are generally on schedule with the original time and dollar estimates disclosed in the fourth quarter of 1998. During the first six months of 1999, 51 employees who had accepted a voluntary retirement plan as of December 31, 1998, left IMC-Agrico in accordance with their target retirement date. See Note 3, "Restructuring Charge," of Notes to Condensed Financial Statements. Capital Resources and Liquidity ------------------------------- PLP generates cash through 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 $67.9 million for the first six months of 1999 versus $47.7 million for the same period one year ago. The increase in net cash provided by operating activities was primarily caused by a decrease in working capital primarily related to the following: (i) a reduction in phosphate rock inventories; (ii) a decrease of uranium inventories due to the permanent shut-down of the uranium plant; (iii) lower DAP inventories resulting from sales outpacing production; and (iv) a reduction in receivables due to lower sales. Net cash used in investing activities for the first six months of 1999 decreased to $16.8 million from $47.3 million in the same period one year ago. This decline was mainly attributable to a reduction in capital expenditures for oil and gas activities and the sale of PLP's investment in MMR. See Note 1, "Sale of Investment in MMR," of Notes to Condensed Financial Statements. Net cash used in financing activities for the six month period was $40.9 million for the current year compared to $0.5 million for the same period in the prior year. The increase in cash used in financing activities was primarily a result of: (i) the cash distributions to partners of $13.5 million in the current period while no payments were made in the prior year; and (ii) an increase in net debt payments of $26.9 million as a consequence of a reduction in working capital loans with IMC. Year 2000 Compliance -------------------- 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 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. Several system manufacturers have provided testing procedures for their equipment and have been available for consultations about Year 2000-related testing. PLP expects to have substantially completed the remediation testing and implementation phase in the third quarter of 1999. 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. 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, when appropriate, 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 has also contacted its 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. While PLP continues to be apprised of the progress made by these key customers in addressing their own Year 2000 issues, no guarantees can be made that these key customers will be Year 2000 compliant by December 31, 1999. If these key customers fail in their attempts to be Year 2000 compliant, PLP could potentially experience a decrease in future orders from such customers. In general, however, PLP is satisfied with the progress made to date by these key 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 $2.1 million, of which $0.6 million was expended in 1998. The remaining costs will be incurred during 1999. A sizable portion of these costs represents the redeployment of existing employee resources rather than incremental expenses. Risks Progress reports on PLP's Year 2000 Program is 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 continues to develop contingency measures to address the possibility that it will not have fully addressed Year 2000- related issues by December 31, 1999. These contingency measures provide PLP with an alternative plan of action in the event PLP experiences a shutdown in one of its mission critical systems, or a failure in the delivery of needed supplies, services, or equipment. 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. As part of the on-going contingency planning effort, PLP continues to identify alternative channels for receiving critical supplies from alternate vendors. Although PLP expects to complete its contingency plan in the third quarter of 1999, PLP will continue to revise and supplement its contingency plan through December 31, 1999. The above section, even if incorporated by reference into other documents or disclosures, is a Year 2000 Readiness Disclosure as defined under the Year 2000 Information and Readiness Disclosure Act of 1998. Item 3. Market Risk. PLP is exposed to the impact of interest rate changes and the impact of fluctuations in the purchase price of natural gas, ammonia and sulphur 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. At June 30, 1999, PLP's exposure to these market risk factors was not significant and had not materially changed from December 31, 1998. Part II.OTHER INFORMATION Item 1. 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. In May 1999, the plaintiffs agreed to dismiss the action. Final terms of the dismissal have not yet been determined. In May 1998, IMC and PLP (collectively, Plaintiffs) filed a lawsuit (IMC Action) in Delaware Chancery Court against certain former directors of FTX (Director Defendants) and MOXY. 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, which IMC alleges unfairly benefited MOXY and the Director Defendants to PLP's detriment. 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 rescind the contracts that PLP entered into with MOXY and to recoup the monies expended as a result of PLP's participation in those agreements. The Director Defendants and MOXY have filed motions to dismiss the Plaintiffs' claims. The defendants filed their briefs in support of their motions in January 1999. IMC filed its amended complaint, and its responses to the motions to dismiss in February 1999. In response, the Director Defendants filed renewed motions which are awaiting argument. 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 6. Exhibits and Reports on Form 8-K. (a) Exhibits. Exhibit No. Description ----------- ----------------------------------------- 27 Financial Data Schedule (b) Reports on Form 8-K. Up to the date of this report, no reports on Form 8-K were filed. * * * * * * * * * * * * * * * * SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. PHOSPHATE RESOURCE PARTNERS LIMITED PARTNERSHIP By: IMC GLOBAL INC., Its Administrative Managing General Partner By: /s/ Anne M. Scavone ------------------------------ Anne M. Scavone Vice President and Controller (on behalf of the Registrant and as Chief Accounting Officer) Date: August 13, 1999 - ------------------------------ (1) All statements, other than statements of historical fact, appearing under Part I, Item 2, "Management's Discussion and Analysis of Financial Condition and Results of Operations," and Part II, Item 1, "Legal Proceedings," constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Factors that could cause actual results to differ materially from those expressed or implied by the forward-looking statements include, but are not limited to, the following: general business and economic conditions in the agricultural industry, the oil & gas industry or in localities where PLP or its customers operate; weather conditions; the impact of competitive products; pressure on prices realized by PLP for its products; constraints on supplies of raw materials used in manufacturing certain of PLP's products; capacity constraints limiting the production of certain products; difficulties or delays in the development, production, testing and marketing of products; difficulties or delays in receiving required governmental and regulatory approvals; market acceptance issues, including the failure of products to generate anticipated sales levels; difficulties in integrating acquired businesses and in realizing related cost savings and other benefits; the effects of and change in trade, monetary and fiscal policies, laws and regulations; foreign exchange rates and fluctuations in those rates; the costs and effects of legal proceedings, including environmental, and administrative proceedings involving PLP; the completion of PLP's Year 2000 program; and the other risk factors reported from time to time in PLP's Securities and Exchange Commission reports. EX-27.1 2 FINANCIAL DATA SCHEDULE
5 1000 6-MOS Dec-31-1999 Jun-30-1999 600 20,400 54,700 1,300 97,400 172,000 1,040,100 540,200 694,400 49,800 530,900 0 0 0 (123,500) 694,400 341,600 341,600 255,400 273,000 (2,700) 0 19,700 51,600 0 51,600 0 0 (2,600) 49,000 0.47 0.47
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