-----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, BPGC6R7vng3FWxcxuGBj5N+YNLaNaSOhZUWMYJ4NcJa4uH6uj9cy1Yxsj9cswX5G GhmSnrlFKUg6EERh6xy0Qg== 0000950134-96-006205.txt : 19961118 0000950134-96-006205.hdr.sgml : 19961118 ACCESSION NUMBER: 0000950134-96-006205 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960930 FILED AS OF DATE: 19961114 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: ARCADIAN PARTNERS L P CENTRAL INDEX KEY: 0000883906 STANDARD INDUSTRIAL CLASSIFICATION: AGRICULTURE CHEMICALS [2870] IRS NUMBER: 621500798 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-11028 FILM NUMBER: 96664122 BUSINESS ADDRESS: STREET 1: 6750 POPLAR AVE STE 600 CITY: MEMPHIS STATE: TN ZIP: 38138-7419 BUSINESS PHONE: 9017585200 MAIL ADDRESS: STREET 1: 6750 POPLAR AVE STE 600 STREET 2: 6750 POPLAR AVE STE 600 CITY: MEMPHIS STATE: TN ZIP: 38138-7419 10-Q 1 FORM 10-Q FOR QUARTER ENDED SEPTEMBER 30, 1996 1 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (MARK ONE) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1996 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO ------------ ---------- COMMISSION FILE NUMBER 1-11028 ARCADIAN PARTNERS, L.P. (Exact name of registrant as specified in its charter) DELAWARE 62-1500798 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 6750 POPLAR AVENUE, SUITE 600 MEMPHIS, TENNESSEE 38138-7419 (Address of principal executive offices) (Zip Code) (901) 758-5200 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 ARCADIAN PARTNERS, L.P. TABLE OF CONTENTS FOR QUARTERLY REPORT ON FORM 10-Q
PAGE ---- PART I -- FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS (UNAUDITED) Independent Auditors' Report........................................................ 3 Condensed Consolidated Balance Sheet as of September 30, 1996, and December 31, 1995............................................................................. 4 Condensed Consolidated Statements of Operations for -- Nine Months Ended September 30, 1996 and 1995.................................... 5 Three Months Ended September 30, 1996 and 1995................................... 6 Condensed Consolidated Statements of Cash Flows for -- Nine Months Ended September 30, 1996 and 1995.................................... 7 Three Months Ended September 30, 1996 and 1995................................... 8 Notes to Condensed Consolidated Financial Statements................................ 9 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.................................................................... 12 PART II -- OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.............................................. 15 SIGNATURE............................................................................. 16
1 3 PART I FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS (UNAUDITED) See next page. 2 4 INDEPENDENT AUDITORS' REPORT The Partners Arcadian Partners, L.P.: We have reviewed the condensed consolidated balance sheet of Arcadian Partners, L.P. as of September 30, 1996, and the related condensed consolidated statements of operations and cash flows for the three and nine-month periods ended September 30, 1996 and 1995, in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of obtaining an understanding of the system for the preparation of interim financial information, applying analytical review procedures to financial data, and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our review, we are not aware of any material modifications that should be made to the condensed consolidated financial statements referred to above for them to be in conformity with generally accepted accounting principles. We have previously audited, in accordance with generally accepted auditing standards, the consolidated balance sheet of Arcadian Partners, L.P. as of December 31, 1995, and the related consolidated statements of operations, partners' capital, and cash flows for the year then ended (not presented herein); and in our report dated February 9, 1996, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of December 31, 1995, is fairly presented, in all material respects, in relation to the consolidated balance sheet from which it has been derived. KPMG PEAT MARWICK LLP Memphis, Tennessee November 14, 1996 3 5 ARCADIAN PARTNERS, L.P. CONDENSED CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1996 DECEMBER 31, (UNAUDITED) 1995 ($000) ($000) ------------- ------------ ASSETS Cash and Cash Equivalents.......................................... $ 111,518 $ 195,809 Restricted Reserve Accounts........................................ 57,801 50,450 Accounts Receivable, Net........................................... 124,192 108,910 Inventories........................................................ 118,342 136,623 Other.............................................................. 12,083 6,539 ---------- ---------- Total Current Assets..................................... 423,936 498,331 Property, Plant and Equipment, Net................................. 557,768 561,979 Other, Net......................................................... 68,889 61,374 ---------- ---------- $1,050,593 $1,121,684 ========== ========== LIABILITIES AND PARTNERS' CAPITAL Accounts Payable and Accrued Liabilities........................... $ 132,537 $ 154,272 Current Portion of Long-Term Debt.................................. 15,000 15,000 ---------- ---------- Total Current Liabilities................................ 147,537 169,272 ---------- ---------- Long-Term Debt, Less Current Portion............................... 510,000 525,000 Deferred Foreign Income Taxes...................................... 44,128 51,566 Other Long-Term Liabilities........................................ 19,692 20,881 ---------- ---------- 573,820 597,447 ---------- ---------- Partners' Capital.................................................. 329,236 354,965 ---------- ---------- $1,050,593 $1,121,684 ========== ==========
See accompanying notes to condensed consolidated financial statements. 4 6 ARCADIAN PARTNERS, L.P. CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30, --------------------- 1996 1995 ($000) ($000) -------- -------- Net Sales.............................................................. $935,164 $961,176 Cost of Sales.......................................................... 680,415 684,569 -------- -------- Gross Profit......................................................... 254,749 276,607 Selling, General and Administrative Expenses........................... 39,711 45,270 -------- -------- Operating Income..................................................... 215,038 231,337 Interest Expense, Net.................................................. 31,000 37,373 Other, Net............................................................. 1,419 137 -------- -------- Income Before Income Taxes and Minority Interest....................... 182,619 193,827 Income Tax Provision................................................... 11,392 17,854 -------- -------- Income Before Minority Interest........................................ 171,227 175,973 Minority Interest...................................................... (1,362) (1,370) -------- -------- Net Income............................................................. $169,865 $174,603 ======== ========
See accompanying notes to condensed consolidated financial statements. 5 7 ARCADIAN PARTNERS, L.P. CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
THREE MONTHS ENDED SEPTEMBER 30, --------------------- 1996 1995 ($000) ($000) -------- -------- Net Sales.............................................................. $293,482 $269,479 Cost of Sales.......................................................... 231,402 196,600 -------- -------- Gross Profit......................................................... 62,080 72,879 Selling, General and Administrative Expenses........................... 15,318 16,570 -------- -------- Operating Income..................................................... 46,762 56,309 Interest Expense, Net.................................................. 10,963 11,802 Other, Net............................................................. 710 (186) -------- -------- Income Before Income Taxes and Minority Interest....................... 35,089 44,693 Income Tax Provision................................................... 1,784 5,785 -------- -------- Income Before Minority Interest........................................ 33,305 38,908 Minority Interest...................................................... (268) (272) -------- -------- Net Income............................................................. $ 33,037 $ 38,636 ======== ========
See accompanying notes to condensed consolidated financial statements. 6 8 ARCADIAN PARTNERS, L.P. CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30, ----------------------- 1996 1995 ($000) ($000) --------- --------- Cash Flows From Operating Activities: Net Income......................................................... $ 169,865 $ 174,603 Adjustments to Reconcile Net Income to Cash from Operating Activities: Depreciation and Amortization................................... 45,906 46,228 Amortization of Deferred Financing Costs........................ 1,663 1,916 Minority Interest............................................... 1,362 1,370 Deferred Foreign Income Taxes................................... (7,438) 5,804 Net Change in Operating Assets and Liabilities: Short-Term Investments........................................ -- 8,751 Accounts Receivable........................................... (15,282) 18,915 Inventories................................................... 18,281 26,039 Other Current Assets.......................................... (5,544) (3,946) Accounts Payable, Accrued Expenses and Other Liabilities...... (22,252) (17,525) Other, Net.................................................... (6,160) (5,514) --------- --------- Cash Provided by (Used for) Operating Activities........... 180,401 256,641 --------- --------- Cash Flows from Investing Activities: Purchase of Property, Plant and Equipment, Net..................... (30,634) (13,747) Rotational Plant Maintenance Costs................................. (14,294) (1,603) --------- --------- Cash Provided by (Used for) Investing Activities........... (44,928) (15,350) --------- --------- Cash Flows from Financing Activities: Restricted Reserve Accounts........................................ (7,351) 25,931 Cash Distributions................................................. (197,628) (92,408) Proceeds from (Repayment of) Debt, Net............................. (15,000) (63,218) Financing Fees..................................................... 215 (1,287) --------- --------- Cash Provided by (Used for) Financing Activities........... (219,764) (130,982) --------- --------- Increase (Decrease) in Cash and Cash Equivalents..................... (84,291) 110,309 Cash and Cash Equivalents at Beginning of Period..................... 195,809 42,738 --------- --------- Cash and Cash Equivalents at End of Period........................... $ 111,518 $ 153,047 ========= =========
See accompanying notes to condensed consolidated financial statements. 7 9 ARCADIAN PARTNERS, L.P. CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
THREE MONTHS ENDED SEPTEMBER 30, ---------------------- 1996 1995 ($000) ($000) --------- -------- Cash Flows From Operating Activities: Net Income.......................................................... $ 33,037 $ 38,636 Adjustments to Reconcile Net Income to Cash from Operating Activities: Depreciation and Amortization.................................... 15,300 15,184 Amortization of Deferred Financing Costs......................... 584 597 Minority Interest................................................ 268 272 Deferred Foreign Income Taxes.................................... (1,934) (919) Net Change in Operating Assets and Liabilities: Accounts Receivable............................................ (20,989) (7,799) Inventories.................................................... (14,601) (3,397) Other Current Assets........................................... (6,682) 1,925 Accounts Payable, Accrued Expenses and Other Liabilities....... 10,077 26,368 Other, Net..................................................... (2,428) (4,469) --------- -------- Cash Provided by (Used for) Operating Activities............ 12,632 66,398 --------- -------- Cash Flows from Investing Activities: Purchase of Property, Plant and Equipment, Net...................... (13,357) (5,580) Rotational Plant Maintenance Costs.................................. (13,633) (1,126) --------- -------- Cash Provided by (Used for) Investing Activities............ (26,990) (6,706) --------- -------- Cash Flows from Financing Activities: Restricted Reserve Accounts......................................... (10,718) 31,887 Cash Distributions.................................................. (152,607) (59,313) Proceeds from (Repayment of) Debt, Net.............................. -- (6) Financing Fees...................................................... (20) (232) --------- -------- Cash Provided by (Used for) Financing Activities............ (163,345) (27,664) --------- -------- Increase (Decrease) in Cash and Cash Equivalents...................... (177,703) 32,028 Cash and Cash Equivalents at Beginning of Period...................... 289,221 121,019 --------- -------- Cash and Cash Equivalents at End of Period............................ $ 111,518 $153,047 ========= ========
See accompanying notes to condensed consolidated financial statements. 8 10 ARCADIAN PARTNERS, L.P. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. BASIS OF PRESENTATION The accompanying condensed consolidated financial statements of Arcadian Partners, L.P. ("Partners") and its subsidiaries (collectively "Partnership") are unaudited and have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to the Quarterly Report on Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and the notes thereto included in the Partnership's Annual Report on Form 10-K for the fiscal year ended December 31, 1995. In the opinion of Arcadian Corporation ("Corporation"), the general partner of the Partnership, the accompanying condensed consolidated financial statements contain all adjustments (consisting of only normal, recurring adjustments) necessary to present fairly the financial position, results of operations, and cash flows of the Partnership as of the dates and for the periods presented. Because of the seasonal nature of the Partnership's business, the results of operations for the periods presented are not necessarily indicative of the results of operations for a full fiscal year. The accompanying condensed consolidated financial statements of the Partnership include the results of operations of Partners and its subsidiaries, including Arcadian Fertilizer, L.P. ("Fertilizer"), on a consolidated basis. All intercompany balances and transactions have been eliminated in consolidation. 2. SUPPLEMENTAL CASH FLOW INFORMATION The Partnership considers highly liquid investments with an original maturity of three months or less to be cash equivalents, except for those which are part of the restricted reserve accounts. The following is supplemental cash flow information:
NINE MONTHS ENDED THREE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ------------------ ------------------- 1996 1995 1996 1995 ($000) ($000) ($000) ($000) ------- ------- ------ ------ Interest Paid......................................... $32,281 $33,740 $8,947 $4,830 Income Taxes Paid..................................... 13,750 2,151 3,097 121
3. INVENTORIES Inventories consist of the following:
SEPTEMBER 30, 1996 DECEMBER 31, (UNAUDITED) 1995 ($000) ($000) ------------- ------------ Finished Products.................................................. $ 46,872 $ 70,459 Raw Materials and Supplies......................................... 71,470 66,164 -------- -------- $118,342 $136,623 ======== ========
9 11 ARCADIAN PARTNERS, L.P. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (UNAUDITED) 4. DEBT Debt consists of the following:
SEPTEMBER 30, 1996 DECEMBER 31, (UNAUDITED) 1995 ($000) ($000) ------------- ------------ First Mortgage Notes....................................... $185,000 $200,000 Senior Notes............................................... 340,000 340,000 Revolving Credit Facility.................................. -- -- -------- -------- 525,000 540,000 Less Current Portion of Long Term Debt..................... 15,000 15,000 -------- -------- $510,000 $525,000 ======== ========
At September 30, 1996, there was no outstanding balance on the Partnership's $100 million revolving credit facility, and the amount available for borrowing in the form of loans and letters of credit, after considering outstanding and committed letters of credit of $40 million, was $60 million. 5. RESTRICTED RESERVE ACCOUNTS At September 30, 1996, restricted reserve accounts of $58 million were comprised of a $28 million Cash Collateral Account maintained by Fertilizer for the benefit of the holders of the First Mortgage Notes, a $20 million Debt Service Reserve Account maintained by Partners for the benefit of the holders of the 10 3/4% Series B Senior Notes due 2005 ("Senior Notes"), and a $10 million Cash Reserve Account maintained by Fertilizer for the benefit of the Second Lessor (as defined in Note 6). 6. COMMITMENTS AND CONTINGENCIES OPERATING LEASE COMMITMENT In March 1996, Fertilizer entered into a lease agreement with an unaffiliated entity ("Second Lessor") with respect to an ammonia plant to be constructed at the Trinidad plant site ("Second Trinidad Plant Lease"). Upon completion of construction, the Second Lessor will lease the plant to Fertilizer. The annual lease payments under the Second Trinidad Plant Lease are expected to be approximately $21 million. The initial seven-year lease term is renewable for an additional five-year term, subject to certain conditions. If the Second Trinidad Plant Lease is not renewed or is otherwise terminated, Fertilizer may be required to make a residual termination payment equal to 85% of the estimated $285 million total cost of the project. In addition, the Corporation has an option to purchase the plant during the term of the Second Trinidad Plant Lease for a price approximating its fair market value at the date of exercise. The plant is expected to be operational in 1998. LAKE CHARLES PLANT In connection with an incident at its Lake Charles plant in 1992, the Partnership is contesting penalties proposed by the United States Occupational Safety and Health Administration ("OSHA") totaling $4 million. The OSHA legal proceeding to date has generally been favorable to the Partnership. While management and legal counsel believe that any civil penalty ultimately paid by the Partnership will be substantially less than the remaining $4 million penalty proposed by OSHA, they cannot predict with certainty the outcome of this proceeding. In September 1996, the Partnership's liability insurers negotiated preliminary settlements of substantially all of the civil litigation arising from the Lake Charles incident. The settlements, which in the aggregate are within the policy limits of the Partnership's liability insurance, are subject to the negotiation and execution of definitive settlement agreements and, with respect to the class action civil litigation, approval as to fairness by 10 12 ARCADIAN PARTNERS, L.P. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (UNAUDITED) the court. There remain three lawsuits against the Partnership arising from the incident, which were brought by former employees at the Lake Charles plant who allege that they were wrongfully terminated by the Partnership following the incident. Management and legal counsel believe that these lawsuits are without merit, and that there will be no material adverse effect on the Partnership upon their resolution. PORT AUTHORITY OF NEW YORK AND NEW JERSEY On March 13, 1996, the Corporation, two other nitrogen producers, and up to 30 unidentified parties were named as defendants in a lawsuit filed in the name of the Port Authority of New York and New Jersey (the "Port Authority") in New Jersey state court. The lawsuit was actually filed by attorneys hired by the Port Authority's subrogated insurance carriers. The Port Authority's insurers are seeking to recover damages allegedly incurred as a result of the explosion at the World Trade Center in New York City on February 26, 1993. The Port Authority's insurers allege in their complaint that the two other named defendants and one or more unidentified parties (as manufacturers of ammonium nitrate), the Corporation and one or more unidentified parties (as producers of urea), and one or more unidentified makers of nitric acid are liable under various tort theories for unspecified property damages, business interruption losses, lost rent and other damages allegedly incurred by the Port Authority as a result of the World Trade Center explosion. The Corporation and the other defendants have removed the case to federal court in New Jersey. Pending the resolution of the Port Authority's motion to disqualify its insurers' counsel, the court stayed substantive proceedings in the lawsuit. That motion was resolved by an order dated September 23, 1996, and substantive proceedings are scheduled to resume on November 26, 1996. Although neither the Port Authority nor its subrogated insurers have alleged or otherwise revealed the amount of damages sought from the Corporation in the lawsuit, the Port Authority stated in an affidavit submitted to the court in support of its motion to disqualify its insurers' counsel that as of April 9, 1996, the Port Authority had submitted to its insurers claims relating to the explosion totaling approximately $340 million, of which the insurers had paid approximately $160 million. The Corporation is unaware of any basis for liability and intends to vigorously defend the lawsuit. 7. MERGER TERMINATION OF POTENTIAL BUSINESS COMBINATION WITH FREEPORT On September 2, 1996, the Corporation terminated its previously disclosed non-binding letter of intent dated August 5, 1996, with Freeport-McMoRan Inc. regarding their potential business combination. PROPOSED ACQUISITION BY PCS On September 2, 1996, the Corporation, Potash Corporation of Saskatchewan Inc. ("PCS"), and PCS Nitrogen, Inc., a wholly owned subsidiary of PCS ("Merger Sub"), entered into an Agreement and Plan of Merger (the "Merger Agreement"), pursuant to which, subject to the satisfaction or waiver of certain conditions, PCS will acquire the Corporation through the merger of the Corporation with and into Merger Sub (the "Merger"). In the Merger, subject to adjustment and to certain exceptions, each outstanding share of the Company's Common Stock, including each share resulting from the mandatory conversion of the outstanding shares of the Company's Mandatorily Convertible Preferred Stock, Series A ("Preferred Stock") immediately prior to the Merger, will be converted into the right to receive $12.25 in cash and a fraction of a common share of PCS expected to have a market value of between $12.75 and $14.75. The obligations of the Corporation and PCS to consummate the Merger are subject to various conditions, including the condition that the holders of a majority of the outstanding shares of Common Stock and Preferred Stock, voting together as a single class, vote in favor of the approval of the Merger Agreement. The Corporation expects to hold a special meeting of stockholders in January 1997, at which the stockholders will consider and vote upon the Merger Agreement. If the necessary stockholder vote is obtained and all other conditions are satisfied or waived, the Corporation expects that the Merger will be consummated shortly thereafter. 11 13 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS Because of the seasonal nature of the Partnership's business, the results of operations for the periods presented are not necessarily indicative of the results for a full fiscal year. NINE MONTHS ENDED SEPTEMBER 30, 1996, COMPARED TO NINE MONTHS ENDED SEPTEMBER 30, 1995 For the nine months ended September 30, 1996, the Partnership generated net income of $170 million, compared to net income of $175 million, for the same period last year. Operating income decreased $16 million for the nine months ended September 30, 1996, from the prior year period. For the nine months ended September 30, 1996, compared to the same period last year, net sales decreased $26 million or 3%, of which 4% was related to decreased selling prices, partially offset by a 1% increase in sales volumes. Lower ammonia selling prices were partially offset by an increase in the selling prices of nitrogen solutions. Higher sales volumes reflect increased sales tonnage of low margin purchased ammonia for resale. Gross profit decreased $22 million for the reasons noted above. Gross profit as a percentage of net sales decreased from 29% for the nine months ended September 30, 1995, to 27% for the nine months ended September 30, 1996, partially as a result of the lower ammonia selling prices. The per unit natural gas cost included in cost of sales remained relatively flat. Selling, general and administrative expenses as a percentage of net sales decreased from 5% for the nine months ended September 30, 1995, to 4% for the nine months ended September 30, 1996. Net interest expense decreased 17% to $31 million in the nine months ended September 30, 1996, compared to $37 million in the same period in 1995, reflecting the improvement in the Partnership's net debt. THREE MONTHS ENDED SEPTEMBER 30, 1996, COMPARED TO THREE MONTHS ENDED SEPTEMBER 30, 1995 For the three months ended September 30, 1996, the Partnership generated net income of $33 million compared to net income of $39 million for the same period last year. Operating income decreased $10 million for the three months ended September 30, 1996, from the prior year period. For the three months ended September 30, 1996, compared to the same period last year, net sales increased $24 million or 9%, of which 14% was related to increased sales volumes, partially offset by a 5% decrease in selling prices. Higher sales volumes reflect increased sales tonnage of low margin purchased ammonia for resale and increased sales tonnage of nitrogen solutions. Lower ammonia and nitrogen solutions selling prices were partially offset by an increase in the selling prices of urea. Gross profit decreased $11 million for the reasons noted above. Gross profit as a percentage of net sales decreased from 27% in third quarter of 1995 to 21% in the third quarter of 1996 partially as a result of the lower ammonia and nitrogen solutions selling prices. The per unit natural gas cost included in cost of sales increased approximately 5% from 1995. Selling, general and administrative expenses as a percentage of net sales decreased from 6% for the three months ended September 30, 1995, to 5% for the three months ended September 30, 1996. Net interest expense decreased 7% to $11 million in the third quarter of 1996 compared to $12 million for the same period in 1995, reflecting the improvement in the Partnership's net debt. LIQUIDITY AND CAPITAL RESOURCES Operating Activities Net cash provided by operating activities was $180 million and $257 million for the nine months ended September 30, 1996 and 1995, and $13 million and $66 million for the three months ended September 30, 12 14 1996 and 1995, respectively. At September 30, 1996 and 1995, working capital, net of restricted reserve accounts, was $219 million and $256 million, respectively. Investing Activities Net cash used for investing activities of $45 million and $15 million for the nine months ended September 30, 1996 and 1995, and $27 million and $7 million for the three months ended September 30, 1996 and 1995, respectively, reflects primarily capital expenditures and rotational plant maintenance cost. Financing Activities Net cash used for financing activities was $220 million and $131 million for the nine months ended September 30, 1996 and 1995, and $163 million and $28 million for the three months ended September 30, 1996 and 1995, respectively. The nine months ended September 30, 1995, amount reflected a $61 million reduction in the outstanding balance under the revolving credit facility. At September 30, 1996, there was no outstanding balance on the revolving credit facility, and the amount available for borrowing in the form of loans and letters of credit, after considering outstanding and committed letters of credit of $40 million, was $60 million. In February, May, June, July and August 1996, the Partnership made cash distributions to the Corporation totaling $17 million, $16 million, $12 million, $32 million and $121 million, respectively. Management believes that its present working capital position, combined with projected cash flows from operations and available borrowing capacity, will be sufficient to meet the Partnership's remaining 1996 and anticipated 1997 cash requirements for operating needs and projected capital expenditures. From 1997 through 2000, the Partnership's principal long-term liquidity requirements will focus on maturities of long-term debt. Excluding the revolving credit facility, maturities of long-term debt will range from $15 million to $18 million in 1997 through 2000. Cash from operations is expected to be sufficient for the payment of all such maturities of long-term debt. The Partnership's 10 3/4% Series B Senior Notes due 2005, its First Mortgage Notes, and the revolving credit facility contain provisions restricting distributions on the equity interests of Arcadian Partners L.P., Arcadian Fertilizer, L.P., and certain other subsidiaries in the event that certain financial covenants are not met. Management believes that such subsidiaries will continue to meet all such financial covenants for the foreseeable future. Operating Lease Commitment In March 1996, Fertilizer entered into a lease agreement with an unaffiliated entity ("Second Lessor") with respect to an ammonia plant to be constructed at the Trinidad plant site ("Second Trinidad Plant Lease"). Upon completion of construction, the Second Lessor will lease the plant to Fertilizer. The annual lease payments under the Second Trinidad Plant Lease are expected to be approximately $21 million. The initial seven-year lease term is renewable for an additional five-year term, subject to certain conditions. If the Second Trinidad Plant Lease is not renewed or is otherwise terminated, Fertilizer may be required to make a residual termination payment equal to 85% of the estimated $285 million total cost of the project. In addition, the Corporation has an option to purchase the plant during the term of the Second Trinidad Plant Lease for a price approximating its fair market value at the date of exercise. The plant is expected to be operational in 1998. Lake Charles Plant In connection with an incident at its Lake Charles plant in 1992, the Partnership is contesting penalties proposed by the United States Occupational Safety and Health Administration ("OSHA") totaling $4 million. The OSHA legal proceeding to date has generally been favorable to the Partnership. While management and legal counsel believe that any civil penalty ultimately paid by the Partnership will be 13 15 substantially less than the remaining $4 million penalty proposed by OSHA, they cannot predict with certainty the outcome of this proceeding. In September 1996, the Partnership's liability insurers negotiated preliminary settlements of substantially all of the civil litigation arising from the Lake Charles incident. The settlements, which in the aggregate are within the policy limits of the Partnership's liability insurance, are subject to the negotiation and execution of definitive settlement agreements and, with respect to the class action civil litigation, approval as to fairness by the court. There remain three lawsuits against the Partnership arising from the incident, which were brought by former employees at the Lake Charles plant who allege that they were wrongfully terminated by the Partnership following the incident. Management and legal counsel believe that these lawsuits are without merit, and that there will be no material adverse effect on the Partnership upon their resolution. Port Authority of New York and New Jersey On March 13, 1996, the Corporation, two other nitrogen producers, and up to 30 unidentified parties were named as defendants in a lawsuit filed in the name of the Port Authority of New York and New Jersey (the "Port Authority") in New Jersey state court. The lawsuit was actually filed by attorneys hired by the Port Authority's subrogated insurance carriers. The Port Authority's insurers are seeking to recover damages allegedly incurred as a result of the explosion at the World Trade Center in New York City on February 26, 1993. The Port Authority's insurers allege in their complaint that the two other named defendants and one or more unidentified parties (as manufacturers of ammonium nitrate), the Corporation and one or more unidentified parties (as producers of urea), and one or more unidentified makers of nitric acid are liable under various tort theories for unspecified property damages, business interruption losses, lost rent and other damages allegedly incurred by the Port Authority as a result of the World Trade Center explosion. The Corporation and the other defendants have removed the case to federal court in New Jersey. Pending the resolution of the Port Authority's motion to disqualify its insurers' counsel, the court stayed substantive proceedings in the lawsuit. That motion was resolved by an order dated September 23, 1996, and substantive proceedings are scheduled to resume on November 26, 1996. Although neither the Port Authority nor its subrogated insurers have alleged or otherwise revealed the amount of damages sought from the Corporation in the lawsuit, the Port Authority stated in an affidavit submitted to the court in support of its motion to disqualify its insurers' counsel that as of April 9, 1996, the Port Authority had submitted to its insurers claims relating to the explosion totaling approximately $340 million, of which the insurers had paid approximately $160 million. The Corporation is unaware of any basis for liability and intends to vigorously defend the lawsuit. Termination of Potential Business Combination with Freeport On September 2, 1996, the Corporation terminated its previously disclosed non-binding letter of intent dated August 5, 1996, with Freeport-McMoRan Inc. regarding their potential business combination. Proposed Acquisition by PCS On September 2, 1996, the Corporation, Potash Corporation of Saskatchewan Inc. ("PCS"), and PCS Nitrogen, Inc., a wholly owned subsidiary of PCS ("Merger Sub"), entered into an Agreement and Plan of Merger (the "Merger Agreement"), pursuant to which, subject to the satisfaction or waiver of certain conditions, PCS will acquire the Corporation through the merger of the Corporation with and into Merger Sub (the "Merger"). In the Merger, subject to adjustment and to certain exceptions, each outstanding share of the Company's Common Stock, including each share resulting from the mandatory conversion of the outstanding shares of the Company's Mandatorily Convertible Preferred Stock, Series A ("Preferred Stock") immediately prior to the Merger, will be converted into the right to receive $12.25 in cash and a fraction of a common share of PCS expected to have a market value of between $12.75 and $14.75. The obligations of the Corporation and PCS to consummate the Merger are subject to various conditions, including the condition that the holders of a majority of the outstanding shares of Common Stock and Preferred Stock, voting together as a single class, vote in favor of the approval of the Merger Agreement. The Corporation expects to hold a special meeting of stockholders in January 1997, at which the stockholders will consider and vote upon the Merger Agreement. If the necessary stockholder vote is obtained and all other conditions are satisfied or waived, the Corporation expects that the Merger will be consummated shortly thereafter. 14 16 PART II OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits The following materials are filed as exhibits to this report:
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT ------- ---------------------- 2 -- Agreement and Plan of Merger dated as of September 2, 1996, among Potash Corporation of Saskatchewan Inc., Arcadian Corporation, and PCS Nitrogen, Inc. (incorporated by reference to Exhibit 2 to Arcadian Corporation's Quarterly Report on Form 10-Q for the quarter ended September 30, 1996 ("Arcadian Corporation 09/30/96 Quarterly Report")). 10.1 -- Agreement for Lease dated as of June 29, 1995, between Trinidad Ammonia Company, Limited Partnership, and Arcadian Fertilizer, L.P., as amended by Amendment No. 1 to Agreement for Lease dated as of August 20, 1996, between Trinidad Ammonia Company, Limited Partnership, and Arcadian Fertilizer, L.P. (incorporated by reference to Exhibit 10.21 to the Registration Statement on Form S-4 (Registration No. 33-90290) relating to Arcadian Corporation's offering of Preferred Stock ("Preferred Stock Registration Statement") and Exhibit 10.1 to the Arcadian Corporation 09/30/96 Quarterly Report). 10.2 -- Lease Agreement dated as of June 29, 1995, between Trinidad Ammonia Company, Limited Partnership, and Arcadian Fertilizer, L.P., as amended by Amendment No. 1 to Lease Agreement dated as of August 20, 1996, between Trinidad Ammonia Company, Limited Partnership, and Arcadian Fertilizer, L.P., and Amendment No. 2 to Lease Agreement dated as of August 26, 1996, between Trinidad Ammonia Company, Limited Partnership, and Arcadian Fertilizer, L.P. (incorporated by reference to Exhibit 10.22 to the Preferred Stock Registration Statement and Exhibit 10.2 to the Arcadian Corporation 09/30/96 Quarterly Report). 10.3 -- Agreement for Lease dated as of March 27, 1996, between Nitrogen Leasing Company, Limited Partnership, and Arcadian Fertilizer, L.P., as amended by Amendment No. 1 to Agreement for Lease dated as of May 24, 1996, between Nitrogen Leasing Company, Limited Partnership, and Arcadian Fertilizer, L.P. (incorporated by reference to Exhibit 10.3 to the Arcadian Corporation 09/30/96 Quarterly Report). 10.4 -- Lease Agreement dated as of March 27, 1996, between Nitrogen Leasing Company, Limited Partnership, and Arcadian Fertilizer, L.P., as amended by Amendment No. 1 to Lease Agreement dated as of August 26, 1996, between Nitrogen Leasing Company, Limited Partnership, and Arcadian Fertilizer, L.P. (incorporated by reference to Exhibit 10.4 to the Arcadian Corporation 09/30/96 Quarterly Report). 10.5 -- Purchase Option Agreement dated as of March 27, 1996, between Nitrogen Leasing Company, Limited Partnership, and Arcadian Corporation (incorporated by reference to Exhibit 10.5 to the Arcadian Corporation 09/30/96 Quarterly Report). 10.6 -- Employment Agreement between Arcadian Corporation and certain of its officers (incorporated by reference to Exhibit 10.6 to the Arcadian Corporation 09/30/96 Quarterly Report). 27 -- Financial Data Schedule.
(b) Current Reports on Form 8-K Partners did not file any Current Report on Form 8-K during the quarter ended September 30, 1996. 15 17 SIGNATURE Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Partnership has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on November 14, 1996. ARCADIAN PARTNERS, L.P. By: Arcadian Corporation General Partner By: A. L. WILLIAMS ------------------------------- A. L. Williams Vice President -- Finance and Chief Financial Officer 16 18 INDEX TO EXHIBITS
SEQUENTIALLY EXHIBIT NUMBERED NUMBER DESCRIPTION OF EXHIBIT PAGE ------- ---------------------- ------------ 2 -- Agreement and Plan of Merger dated as of September 2, 1996, among Potash Corporation of Saskatchewan Inc., Arcadian Corporation, and PCS Nitrogen, Inc. (incorporated by reference to Exhibit 2 to Arcadian Corporation's Quarterly Report on Form 10-Q for the quarter ended September 30, 1996 ("Arcadian Corporation 09/30/96 Quarterly Report")). 10.1 -- Agreement for Lease dated as of June 29, 1995, between Trinidad Ammonia Company, Limited Partnership, and Arcadian Fertilizer, L.P., as amended by Amendment No. 1 to Agreement for Lease dated as of August 20, 1996, between Trinidad Ammonia Company, Limited Partnership, and Arcadian Fertilizer, L.P. (incorporated by reference to Exhibit 10.21 to the Registration Statement on Form S-4 (Registration No. 33-90290) relating to Arcadian Corporation's offering of Preferred Stock ("Preferred Stock Registration Statement") and Exhibit 10.1 to the Arcadian Corporation 09/30/96 Quarterly Report). 10.2 -- Lease Agreement dated as of June 29, 1995, between Trinidad Ammonia Company, Limited Partnership, and Arcadian Fertilizer, L.P., as amended by Amendment No. 1 to Lease Agreement dated as of August 20, 1996, between Trinidad Ammonia Company, Limited Partnership, and Arcadian Fertilizer, L.P., and Amendment No. 2 to Lease Agreement dated as of August 26, 1996, between Trinidad Ammonia Company, Limited Partnership, and Arcadian Fertilizer, L.P. (incorporated by reference to Exhibit 10.22 to the Preferred Stock Registration Statement and Exhibit 10.2 to the Arcadian Corporation 09/30/96 Quarterly Report). 10.3 -- Agreement for Lease dated as of March 27, 1996, between Nitrogen Leasing Company, Limited Partnership, and Arcadian Fertilizer, L.P., as amended by Amendment No. 1 to Agreement for Lease dated as of May 24, 1996, between Nitrogen Leasing Company, Limited Partnership, and Arcadian Fertilizer, L.P. (incorporated by reference to Exhibit 10.3 to the Arcadian Corporation 09/30/96 Quarterly Report). 10.4 -- Lease Agreement dated as of March 27, 1996, between Nitrogen Leasing Company, Limited Partnership, and Arcadian Fertilizer, L.P., as amended by Amendment No. 1 to Lease Agreement dated as of August 26, 1996, between Nitrogen Leasing Company, Limited Partnership, and Arcadian Fertilizer, L.P. (incorporated by reference to Exhibit 10.4 to the Arcadian Corporation 09/30/96 Quarterly Report). 10.5 -- Purchase Option Agreement dated as of March 27, 1996, between Nitrogen Leasing Company, Limited Partnership, and Arcadian Corporation (incorporated by reference to Exhibit 10.5 to the Arcadian Corporation 09/30/96 Quarterly Report).
19
SEQUENTIALLY EXHIBIT NUMBERED NUMBER DESCRIPTION OF EXHIBIT PAGE ------- ---------------------- ------------ 10.6 -- Employment Agreement between Arcadian Corporation and certain of its officers (incorporated by reference to Exhibit 10.6 to the Arcadian Corporation 09/30/96 Quarterly Report). 27 -- Financial Data Schedule.
EX-27 2 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FINANCIAL STATEMENTS OF ARCADIAN PARTNER'S, L.P. INCLUDED IN FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1996, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 9-MOS DEC-31-1996 JAN-01-1996 SEP-30-1996 169,319 0 125,726 1,534 118,342 423,936 788,032 230,264 1,050,593 147,537 510,000 0 0 0 329,236 1,050,593 935,164 935,164 680,415 680,415 0 247 31,000 182,619 11,392 169,865 0 0 0 169,865 0 0 CASH INCLUDES $58 MILLION OF RESTRICTED RESERVES.
-----END PRIVACY-ENHANCED MESSAGE-----