SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended June 30, 1993
Commission File Number: 1-8124
FREEPORT-MCMORAN INC.
Incorporated in Delaware 13-3051048
(IRS Employer Identification No.)
1615 Poydras Street, New Orleans, Louisiana 70112
Registrant's telephone number, including area code:
(504) 582-4000
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___
On June 30, 1993, there were issued and outstanding 141,211,811 shares of the
registrant's Common Stock, par value $1 per share.
The registrant hereby amends its Form 10-Q for the quarter ended June 30,
1993, as set forth in the pages attached hereto and as discussed below.
After discussions with the staff of the Securities and Exchange
Commission (SEC), Freeport-McMoRan Inc. (FTX) reclassified certain expenses
and accruals previously recorded in 1993 as restructuring and valuation of
assets. In response to inquiries, FTX advised the SEC staff that $27.4
million originally reported as restructuring and valuation of assets
represented the cumulative effect of changes in accounting principle resulting
from the adoption of the new accounting policies that FTX considered
preferable. FTX also informed the SEC staff of the components of other
charges included in the amount originally reported as restructuring and
valuation of assets. FTX concluded that the reclassification and the related
supplemental disclosures more accurately reflect the nature of these charges
to 1993 net income in accordance with generally accepted accounting
principles. These reclassifications had no impact on net income or net income
per share for the six-month period ended June 30, 1993.
Freeport-McMoRan Copper & Gold Inc. (FCX), a subsidiary of FTX,
previously reported its investment in Rio Tinto Minera, S.A. (RTM) using the
equity method of accounting because FCX anticipated reducing its interest
below 50% within one year of the initial investment in RTM. FCX is now
considering alternative forms of financing, accordingly, FTX hereby amends its
report on Form 10-Q for the quarter ended June 30, 1993 as attached hereto to
reflect its investment in RTM on a fully consolidated basis.
FREEPORT-McMoRan INC.
TABLE OF CONTENTS
Page
Part I. Financial Information
Financial Statements:
Condensed Balance Sheets........................... 4
Statements of Operations........................... 5
Statements of Cash Flow............................ 6
Notes to Financial Statements...................... 8
Remarks.............................................. 9
Management's Discussion and Analysis
of Financial Condition and
Results of Operations.............................. 10
Signature
FREEPORT-McMoRan INC.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
FREEPORT-McMoRan INC. AND CONSOLIDATED SUBSIDIARIES
CONDENSED BALANCE SHEETS (Unaudited)
June 30, December 31,
1993 1992
---------- ------------
(in thousands)
ASSETS
Current assets:
Cash and short-term investments.................. $ 7,000 $ 381,002
Accounts receivable.............................. 244,362 261,401
Inventories...................................... 352,575 302,589
Prepaid expenses and other....................... 8,104 38,515
---------- ----------
Total current assets........................... 612,041 983,507
Property, plant and equipment, net............... 2,631,783 2,276,857
Investment in geothermal assets.................. 10,450 114,374
Long-term receivables............................ 91,479 53,896
Other assets..................................... 157,072 118,077
---------- ----------
Total assets..................................... $3,502,825 $3,546,711
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities......... $ 365,453 $ 321,377
Long-term debt due within one year............... 43,436 80,146
---------- ----------
Total current liabilities...................... 408,889 401,523
Long-term debt, less current portion............. 1,557,673 1,430,546
Accrued postretirement benefits and pension
costs.......................................... 231,199 144,161
Reclamation and mine shutdown reserves........... 86,163 62,360
Other liabilities and deferred credits........... 161,356 87,382
Deferred income taxes............................ 203,778 196,953
Deferred gain on sale of subsidiary interests.... 65,204 94,861
Minority interests in consolidated subsidiaries.. 659,739 782,904
Stockholders' equity............................. 128,824 346,021
---------- ----------
Total liabilities and stockholders' equity....... $3,502,825 $3,546,711
========== ==========
The accompanying notes are an integral part of these financial statements.
FREEPORT-McMoRan INC. AND CONSOLIDATED SUBSIDIARIES
STATEMENTS OF OPERATIONS (Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
------------------- ---------------------
1993 1992 1993 1992
-------- -------- --------- --------
(in thousands, except per share amounts)
Revenues...................... $421,818 $511,438 $ 722,639 $874,923
Cost of sales:
Production and delivery....... 347,159 280,379 558,823 509,865
Depreciation and
amortization................ 63,196 61,983 98,093 113,475
-------- -------- --------- --------
Total cost of sales......... 410,355 342,362 656,916 623,340
Exploration expenses.......... 16,573 11,325 28,318 21,837
Provision for restructuring
charges..................... 59,794 - 67,145 -
Loss on valuation and sale
of assets, net.............. 45,050 - 85,050 -
General and
administrative expenses..... 53,045 47,442 91,117 90,960
-------- -------- --------- --------
Total costs and expenses.... 584,817 401,129 928,546 736,137
-------- -------- --------- --------
Operating income (loss)....... (162,999) 110,309 (205,907) 138,786
Interest expense, net......... (16,282) (12,685) (31,203) (30,975)
Gain on conversion of
FCX notes................... 25,275 - 33,296 -
Other income, net............. 4,782 (5,833) 3,035 (2,592)
-------- -------- --------- --------
Income (loss) before
income taxes and
minority interests.......... (149,224) 91,791 (200,779) 105,219
Provision for income taxes.... 32,701 (34,952) 31,878 (31,826)
Minority interests in net.....
income of consolidated
subsidiaries................ 44,737 (28,110) 68,087 (39,149)
-------- -------- --------- --------
Income (loss) before changes
in accounting principle..... (71,786) 28,729 (100,814) 34,244
Cumulative effect of
changes in accounting
principle, net of taxes
of $11,096 and minority
interests of $16,070........ - - (20,717) -
-------- -------- --------- --------
Net income (loss)............. (71,786) 28,729 (121,531) 34,244
Preferred dividends........... (5,593) (5,627) (11,194) (7,444)
-------- -------- --------- --------
Net income (loss) applicable
to common stock............. $(77,379) $ 23,102 $(132,725) $ 26,800
======== ======== ========= ========
Net income (loss) per share:
Primary-before changes in
accounting principle...... $(.54) $.16 $(.78) $.18
Cumulative effect of changes
in accounting principle... - - (.15) -
----- ---- ----- ----
$(.54) $.16 $(.93) $.18
===== ==== ===== ====
Fully diluted-before changes
in accounting principle... $(.54) $.16 $(.78) $.18
Cumulative effect of changes
in accounting principle... - - (.15) -
----- ---- ----- ----
$(.54) $.16 $(.93) $.18
===== ==== ===== ====
Average common and common
equivalent shares
outstanding:
Primary................... 142,230 145,369 142,039 146,143
======= ======= ======= =======
Fully diluted............. 142,230 145,369 142,560 146,159
======= ======= ======= =======
Dividends per common share.... $.3125 $.3125 $.625 $.625
====== ====== ===== =====
The accompanying notes are an integral part of these financial statements.
FREEPORT-McMoRan INC. AND CONSOLIDATED SUBSIDIARIES
STATEMENTS OF CASH FLOW (Unaudited)
Six Months Ended
June 30,
-----------------------
1993 1992
--------- --------
Cash flow from operating activities: (in thousands)
Net income (loss).............................. $(121,531) $ 34,244
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Cumulative effect of changes in
accounting principle........................ 20,717 -
Depreciation and amortization................. 102,602 113,475
Provision for restructuring charges,
net of payments............................. 56,688 -
Other noncash charges to net loss............. 33,194 -
Loss on valuation and sale of assets, net..... 85,050 -
Oil and gas exploration expenses.............. 10,696 14,865
Amortization of debt discount
and financing costs......................... 21,090 24,847
Gain on conversion of FCX notes............... (33,296) -
Deferred income taxes......................... (32,137) 1,578
Minority interests' share of
net income (loss)........................... (68,087) 39,149
(Increase) decrease in working capital, net
of effect of acquisitions and dispositions:.
Accounts receivable....................... 39,715 (66,663)
Inventories............................... 3,354 (2,369)
Prepaid expenses and other................ 7,311 (11,615)
Accounts payable and accrued liabilities.. (101,644) (57,830)
Reclamation and mine shutdown expenditures.... (7,387) (10,649)
Other......................................... (9,093) 218
--------- --------
Net cash provided by operating activities....... 7,242 79,250
--------- --------
Cash flow from investing activities:
Capital expenditures:
Metals........................................ (199,673) (144,831)
Main Pass..................................... (36,542) (82,300)
Agricultural minerals......................... (10,152) (59,936)
Oil and gas................................... (23,725) (29,922)
Other......................................... (16,058) (34,131)
Acquisition of Rio Tinto Minera, S.A., net of
cash acquired.................................. (1,354) -
Proceeds from sale of geothermal assets......... 23,000 -
Other........................................... 4,375 170
--------- --------
Net cash used in investing activities........... (260,129) (350,950)
========= ========
FREEPORT-McMoRan INC. AND CONSOLIDATED SUBSIDIARIES
STATEMENTS OF CASH FLOW (Unaudited)
(Continued)
Six Months Ended
June 30,
------------------------
1993 1992
--------- --------
(in thousands)
Cash flow from financing activities:
Proceeds from issuance of:
Convertible Exchangeable Preferred Stock..... $ - $245,700
FRP depositary units......................... - 425,996
Proceeds from sale of PT-FI common shares...... - 212,485
Purchase of Freeport-McMoRan Inc. common
shares....................................... (757) (69,998)
Distributions paid to minority interests:
FCX.......................................... (33,862) (17,181)
FRP.......................................... (60,589) (48,865)
Distribution to FM Properties Inc.............. - (28,019)
Proceeds from debt............................. 221,860 543,800
Repayment of debt.............................. (150,745) (747,312)
Cash dividends paid:
Common stock................................. (88,093) (90,867)
Preferred stock.............................. (11,207) (5,637)
Other.......................................... 2,278 3,869
--------- --------
Net cash provided by (used in) financing
activities................................... (121,115) 423,971
--------- --------
Net increase (decrease) in cash and short-term
investments.................................. (374,002) 152,271
Cash and short-term investments at beginning of
year......................................... 381,002 89,603
--------- --------
Cash and short-term investments at end of year $ 7,000 $241,874
========= ========
The accompanying notes are an integral part of these financial statements.
FREEPORT-McMoRan INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
1. FRP DISTRIBUTIONS
On July 20, 1993, Freeport-McMoRan Resource Partners, Limited Partnership
(FRP) declared a second quarter distribution of 60 cents per publicly held
unit, payable August 14, 1993. To enable FRP to make the distribution,
Freeport-McMoRan Inc. (FTX) will defer receipt of $31.9 million in
distributions (60 cents for each FRP unit that it owns), bringing FTX's total
deferral to $181.6 million. Deferrals by FTX are recoverable from a portion
of any future quarterly distributable cash in excess of 60 cents per unit.
2. RESTRUCTURING AND VALUATION CHARGES
RESTRUCTURING CHARGES. FTX recorded second-quarter 1993 expense of $59.8
million for the restructuring of its administrative organization (including
personnel related costs, the cost to downsize its computing and management
information systems (MIS) structure, and a write-off of excess facilities and
other miscellaneous assets), principally resulting from the formation of the
phosphate fertilizer joint venture between FRP and IMC Fertilizer, Inc.
consummated on July 1, 1993. See Management's Discussion and Analysis of
Financial Condition and Results of Operations for information about a
reclassification of restructuring charges from those previously reported
resulting from views expressed by the Securities and Exchange Commission
staff. During the first quarter of 1993, FTX recorded expense of $7.4 million
related primarily to the outsourcing of its research and engineering,
environmental, and safety functions.
ASSET SALES/RECOVERABILITY. FTX recorded a second-quarter 1993 charge to
expense of $45.1 million for the recoverability of certain assets, of which a
significant portion related to FRP's investment in certain sulphur related
assets, including the Caminada sulphur mine. Persistent weak market
conditions for sulphur resulted in an estimate by management that book values
of these assets will not be recovered in future operations. In April 1993,
FRP sold its remaining interests in producing geothermal properties for $63.5
million, consisting of $23 million in cash and interest-bearing notes totaling
$40.5 million (included in other assets). FRP also determined that the book
carrying value of its undeveloped geothermal properties should be reduced to
provide for impairment of capitalized costs. A $40 million first-quarter 1993
charge to expense was recognized, $31 million for producing and $9 million for
undeveloped geothermal properties.
3. INVESTMENT IN RIO TINTO MINERA, S.A. (RTM)
In March 1993, Freeport-McMoRan Copper & Gold Inc. (FCX) acquired a 65%
interest in the Spanish company RTM, the metal/mining subsidiary of Ercros,
S.A., for approximately $52 million (excluding transaction costs), of which
$31.3 million will be paid over the next two years. The acquisition was
accounted for under the purchase method, and accordingly, the operating
results of RTM have been included in the consolidated operating results since
the date of acquisition.
4. INTEREST COSTS
Interest expense excludes capitalized interest of $19.6 million and $22.2
million in the second quarter of 1993 and 1992, respectively, and $38 million
and $43 million in the first six months of 1993 and 1992, respectively.
5. RATIO OF EARNINGS TO FIXED CHARGES
The ratio of earnings to fixed charges for the first six months of 1993
resulted in a shortfall of $252.3 million compared with a ratio of 1.8 to 1
for the 1992 period. For this calculation, earnings are income from
continuing operations (including the restructuring and valuation charges
discussed above) before income taxes, minority interests, and fixed charges.
Fixed charges are interest, that portion of rent deemed representative of
interest, and the preferred stock dividend requirements of majority-owned
subsidiaries.
6. CHANGES IN ACCOUNTING PRINCIPLE
Effective January 1, 1993, FTX adopted the following changes to accounting
policies:
Periodic Scheduled Maintenance Costs - Costs related to periodic scheduled
maintenance (turnarounds) were previously capitalized when incurred and
amortized generally over six months to two years. Effective January 1, 1993,
the method of accounting was changed to expense these costs when incurred.
Deferred Charges - The accounting for deferred charges was changed to provide
for deferral of only those costs that directly relate to the acquisition,
construction, and development of assets and to the issuance of debt and
related instruments. Previously, certain other costs that benefitted future
periods were amortized over the periods benefitted.
Management Information Systems - Costs of MIS equipment and software that have
a material impact on periodic measurement of net income are capitalized and
amortized over their estimated productive lives. Other MIS costs, including
equipment and purchased software that involve relatively immaterial amounts
(currently individual expenditures of less than $.5 million) and short
estimated productive lives (currently less than three years) are charged to
expense when incurred. Previously, most expenditures for MIS equipment and
purchased software were capitalized. The accounting for MIS costs was changed
to recognize the rapid rate of technology change in MIS which results in short
productive lives of equipment and software and a need for continuing
investments.
The changes in accounting policy were adopted to improve the measurement
of operating results by reporting cash expenditures as expenses when incurred
unless they are directly related to long-lived asset additions. In addition,
the administrative costs of accounting for assets will be reduced by not
capitalizing and amortizing relatively insignificant expenditures that do not
have a material effect on measuring periodic net income.
__________________
Remarks
The information furnished herein should be read in conjunction with FTX's
financial statements contained in its 1992 Annual Report to stockholders and
incorporated by reference in its Annual Report on Form 10-K.
The information furnished herein reflects all adjustments which are, in the
opinion of management, necessary for a fair statement of the results for the
periods. All such adjustments are, in the opinion of management, of a normal
recurring nature.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
FREEPORT-McMoRan INC. AND CONSOLIDATED SUBSIDIARIES
EARNINGS BY SOURCES
Three Months Ended June 30,
---------------------------------------------
1993 1992
------------------- --------------------
(in thousands)
Metals a
FCX-operations.......... $ 8,790 $111,738
-exploration......... (9,303) $ (513) (2,868) $108,870
------- --------
Agricultural minerals
FRP-operations.......... (21,731) 16,512
-exploration......... (771) (22,502) (1,002) 15,510
------- --------
Energy
Oil and gas:
FRP................... 928 2,644
FTX................... (14,607) (13,679) (13,190) (10,546)
Other income, net......... ------- (16,679) ------ (9,358)
------ ------
Income from segment
operations b............ $(53,373) $104,476
======== ========
Six Months Ended June 30,
---------------------------------------------
1993 1992
------------------- --------------------
(in thousands)
Metalsa
FCX-operations.......... $45,203 $150,422
-exploration......... (15,716) $ 29,487 (4,402) $146,020
------- --------
Agricultural minerals
FRP-operations.......... (36,012) 30,212
-exploration......... (1,341) (37,353) (1,811) 28,401
------- --------
Energy
Oil and gas:
FRP................... (770) (631)
FTX................... (19,872) (20,642) (25,489) (26,120)
Other income, net......... ------- (22,169) ------- (12,107)
------- -------
Income from segment
operations b............ $(50,677) $136,194
======== ========
a. Includes a loss of $4.3 million attributable to RTM for the three-month
period and six-month period ended June 30, 1993.
b. Operating income (loss) plus other income, less provision for
restructuring charges and loss on valuation and sale of assets from the
Statements of Operations.
IMC-AGRICO COMPANY
Freeport-McMoRan Resource Partners, Limited Partnership (FRP) and IMC
Fertilizer Inc. (IMC) through subsidiaries formed a joint venture (IMC-Agrico
Company), effective July 1, 1993, which includes their respective phosphate
fertilizer businesses, including phosphate rock and uranium. IMC-Agrico
Company is governed by a policy committee which has equal representation from
each company and is managed by IMC through a subsidiary. Combined annual
savings of at least $95 million in production, marketing, and general and
administrative costs are expected to result from this transaction, the full
effect beginning with the second year of operations. As discussed below,
significant restructuring charges were recorded in connection with this
transaction.
As a result of the formation of the joint venture, FRP is engaged in the
phosphate rock mining, fertilizer production and uranium oxide extraction
business only through IMC-Agrico Company. FRP will continue to operate its
sulphur and oil businesses. FRP's "Current Interest", reflecting cash
distributions from ongoing operations, initially is 58.6% and declines in
annual increments ultimately to 40.6% for the fiscal year ending June 30, 1998
and remains constant thereafter. FRP's "Capital Interest", reflecting the
purchase or sale of long-term assets or capital contributions to IMC-Agrico
Company, if required, is 46.5% initially and declines in annual increments
ultimately to 40.6% for the fiscal year ending June 30, 1998 and remains
constant thereafter. The sharing ratios were based on the projected
contributions of FRP and IMC to the cash flow of the joint venture and on an
equal sharing of the anticipated savings.
SECOND-QUARTER AND SIX-MONTHS 1993 RESULTS OF OPERATIONS COMPARED WITH SECOND-
QUARTER AND SIX-MONTHS 1992
After discussions with the staff of the Securities and Exchange Commission
(SEC), Freeport-McMoRan Inc. (FTX) is reclassifying certain expenses and
accruals previously recorded in 1993 as restructuring and valuation of assets.
In response to inquiries, FTX advised the SEC staff that $27.4 million
originally reported as restructuring and valuation of assets represented the
cumulative effect of changes in accounting principle resulting from the
adoption of the new accounting policies that FTX considered preferable, as
described in Note 6 to the financial statements. FTX also informed the SEC
staff of the components of other charges included in the amount originally
reported as restructuring and valuation of assets. FTX concluded that the
reclassification and the related supplemental disclosures more accurately
reflect the nature of these charges to 1993 net income in accordance with
generally accepted accounting principles. These reclassifications had no
impact on net income or net income per share for the six-month period ended
June 30, 1993.
FTX reported a second-quarter 1993 net loss applicable to common stock of
$77.4 million ($.54 per share) compared with earnings of $23.1 million ($.16
per share) for the 1992 period. For the six months ended June 30, 1993, which
included a noncash charge of $20.7 million ($.15 per share), after taxes and
minority interests, to reflect the changes in accounting principle (Note 6),
FTX reported a net loss of $132.7 million ($.93 per share) compared with
earnings of $26.8 million ($.18 per share) for the year-ago period. The
second-quarter and six-month periods of 1993 were negatively impacted by
charges totaling $74.6 million ($.52 per share) and $93.1 million ($.65 per
share), respectively, after taxes and minority interests, related to
administrative restructuring costs caused primarily by formation of IMC-
Agrico Company, the sale of FRP's producing geothermal assets, the
recoverability of certain assets (Note 2), and adjustments to general and
administrative expenses and production and delivery costs discussed below.
FTX's effective tax rate for operations (excluding credits attributable to the
provision for restructuring charges and loss on valuation and sale of assets)
during the 1993 periods is greater than during the 1992 periods due to the
higher pro rata income from FTX's metals operations, which has a higher
effective tax rate.
FTX recognized a loss of $40.8 million and $73.8 million, before income
taxes, for the second-quarter and six-month periods of 1993, respectively,
which represents its proportionate share of FRP's net loss. This included
recognition of $14.8 million and $29.7 million, respectively, of the gain
deferred by FTX in connection with the public sale of FRP units in February
1992. The remaining deferred gain will be recognized by FTX to the extent
that it defers receipt of its future distributions on FRP units, discussed
below. As of June 30, 1993, FTX can defer approximately $130 million of its
future FRP distributions, which equals a 100% deferral through the
distribution for the first quarter of 1994, and continue to recognize its
proportionate share of FRP net income/loss. Subsequent to the full
recognition of the deferred gain, deferral of FRP distributions by FTX will
cause FTX to recognize a reduction in its proportionate share of FRP net
income or an increase in its proportionate share of any FRP net loss.
RESTRUCTURING ACTIVITIES. During the second quarter of 1993, FTX undertook a
restructuring of its administrative organization. This restructuring
represented a major step by FTX to lower its costs of operating and
administering its businesses in response to weak market prices of the
commodities produced by its operating units. As part of this restructuring,
FTX significantly reduced the number of employees engaged in administrative
functions, changed its management information systems (MIS) environment to
achieve efficiencies, reduced its needs for office space, outsourced a number
of administrative functions, and implemented other actions to lower costs. As
a result of this restructuring process, the level of FTX's administrative cost
has been reduced substantially over what it would have been otherwise, which
benefit will continue in the future. However, the restructuring process
entailed incurring certain one-time costs by FTX.
FTX's restructuring costs totaled $67.1 million, consisting of the
following: $30.3 million for personnel related costs; $15.0 million relating
to excess office space and furniture and fixtures resulting from the staff
reduction; $8.2 million relating to the cost to downsize its computing and MIS
structure; $4.8 million of deferred charges relating to FTX's and PT-FI's
credit facilities which were substantially revised in June 1993; and $8.8
million related to costs directly associated with the formation of IMC-Agrico
Company, discussed above.
In connection with the restructuring project, FTX changed its accounting
systems and undertook a detailed review of its accounting records and
valuation of various assets and liabilities. As a result of this process, FTX
recorded charges totaling $60.7 million, comprised of the following: (a) $26.2
million of production and delivery costs consisting of $10.4 million for
revised estimates of prior year costs; $6.3 million for revised estimates of
environmental liabilities; $5.0 for materials and supplies inventory
obsolescence; and $4.5 million of adjustments in converting accounting
systems, (b) $18.7 million of depreciation and amortization costs consisting
of $11.5 million for estimated future abandonment and reclamation costs and
$7.2 million for the write-down of miscellaneous properties, and (c) $15.8
million of general and administrative expenses consisting of $9.4 million to
downsize FTX's computing and MIS structure and $6.4 million for the write-off
of miscellaneous assets.
Metals Operations
FTX's metals operations are conducted through its affiliate Freeport-McMoRan
Copper & Gold Inc. (FCX) and FCX's operating units, P.T. Freeport Indonesia
Company (PT-FI) and Rio Tinto Minera, S.A. (RTM). FCX generated a second-
quarter 1993 loss of $.5 million compared with earnings of $108.9 million for
the 1992 period. For the six months ended June 30, 1993, FCX generated
earnings of $29.5 million compared with $146 million for the year-ago period.
Revenues for the second-quarter and six-month period of 1993, excluding RTM,
were $130.0 million and $264.4 million, respectively, 46% and 24% lower,
respectively, than in year-ago periods. The second-quarter decline is
primarily attributable to a 17% decrease in copper realizations (including
amounts realized from the price protection program, discussed below) and
reduced copper and gold sales volumes (36% and 37%, respectively), due
primarily to a mill level ore pass cave-in discussed below and the high
second-quarter 1992 sales levels achieved due to the drawdown of inventories.
A $7.4 million downward revenue adjustment was made during the second quarter
of 1993 due to falling copper prices, compared with a $1.8 million upward
revenue adjustment in the 1992 period. At June 30, 1993, 127.5 million pounds
of copper remained to be contractually priced during future quotational
periods. As a result of FCX's price protection program, these pounds are
recorded at an average price of $.90 per pound. Revenues were positively
impacted by a 5.7 cents per pound decrease in treatment charges from the year-
ago quarter, when FCX had more spot market sales of its copper/gold
concentrate, which carried higher costs for treatment charges than long-term
contracts. Treatment charges were also favorably impacted by the lower copper
prices, as the charges vary with the price of copper. FCX has obtained sales
commitments from its purchasers for virtually all of its estimated 1993 and
1994 production to be priced at the then current market price under the terms
of the contracts.
In June 1993, one of PT-FI's four mill level ore passes caved, resulting
in a partial blockage of the ore pass and a restriction at an adjacent pass.
The blockage's primary effect was to limit mill throughput to approximately
39,500 metric tons of ore per day (MTPD) for about six weeks; however, the ore
flow system has been repaired and production is expected to reach 66,000 MTPD
by the end of July. The impact of the cave-in was minimized by using an ore
stockpile adjacent to the mill and the installation of conveyors to
alternative ore pass systems. The second-quarter 1993 copper recovery rate
was lower because the ore milled from the stockpile contained higher than
normal oxidized copper, which yields lower copper recoveries. Copper recovery
rates are expected to improve upon completion of the 66,000 MTPD expansion,
and ore grades for 1993 are projected to average 1.59% copper and 1.40 grams
of gold per ton. Annual 1993 sales are estimated at 650 million recoverable
pounds of copper and 755,000 recoverable ounces of gold.
Early in the second quarter of 1993 copper prices dropped to their lowest
levels since 1987, due to lower demand caused by the continued global
recession. Prices subsequently rebounded to $.85 to $.90 per pound. FCX has
in place a price protection program which eliminates exposure to declines in
copper prices below an average $.90 per pound for the estimated copper sales
expected to be priced during 1993 and 1994, and for virtually all of the
estimated gold sales expected to be priced during 1993 at an average floor
price of $320 per payable ounce of gold, while allowing full benefit from
prices above these amounts. FCX recognized $12 million of additional revenues
(excluding $2.7 million in amortized cost) in the second quarter of 1993 as a
result of this program.
Current quarter production and delivery costs, excluding RTM and the
charges related to the restructuring project discussed above, totaled $74.8
million, decreasing 23% over the comparable 1992 period, due primarily to the
decrease in copper sales volumes. Unit site production and delivery costs
increased 9.1 cents per pound primarily as a result of costs incurred in
connection with the ore pass cave-in (including a $2.5 million insurance
deductible), lower production volumes, and lower copper recovery rates.
Operating efficiencies are expected to lower the unit production costs during
the third quarter of 1993 when production reaches the 66,000 MTPD level. In
addition, as more gold is produced from the Grasberg ore body, cash production
costs will benefit from higher gold and silver credits. During the last half
of 1993, these credits are expected to increase significantly.
Exploration expenses, currently budgeted at approximately $30 million for
1993, have increased as FCX aggressively explores promising prospects in both
the 24,700 acre original contract of work area and the contiguous 6.5 million
acre exploration area. In April 1993, a subsidiary of FCX was granted an
exploration permit which gives rights for a limited period to explore for
minerals on 2.5 million acres adjacent to the 6.5 million acre exploration
area. Preliminary exploration of this area is expected to begin later this
year.
Second Quarter Six Months
----------------- -------------------
1993 1992 1993 1992
------- ------- ------- -------
Ore milled (metric tons per
day).......................... 56,600 58,200 59,000 56,600
Copper grade (%)................ 1.40 1.68 1.46 1.60
Gold grade (grams per metric
ton).......................... .95 1.23 1.06 1.20
Recovery rate (%)
Copper........................ 87.3 88.9 86.7 88.9
Gold.......................... 76.7 74.5 74.7 74.2
Copper (000s of recoverable
pounds)
Production.................. 133,500 165,100 284,100 303,700
Sales....................... 140,000 218,200a 278,100 318,000a
Average realized price b.... $.90 $1.08 $.92 $1.07
Gold (recoverable ounces)
Production.................... 116,900 148,800 263,700 275,400
Sales......................... 127,200 202,800a 267,500 297,800a
Average realized price........ $347.57 $337.52 $338.18 $340.32
a. High sales volumes in 1992 resulted from the drawdown of product
inventories.
b. Includes amounts recognized on current period sales under the price
protection program (excluding amounts recognized under this program the
realization for the second-quarter and six-month periods of 1993 would
have been $.86 and $.87 per pound, respectively). Excludes adjustments
of (5.9) cents, .1 cent, (4.1) cents, and .5 cent per payable pound for
the second-quarter and six-month periods of 1993 and 1992, respectively,
for prior period concentrate sales (net of related amounts recognized
under the price protection program) and the cost of the price protection
program.
Agricultural Minerals Operations
FTX's agricultural minerals activities, which consist of FRP's fertilizer and
sulphur businesses, reported a second-quarter 1993 loss of $22.5 million on
revenues of $186.8 million compared with earnings of $15.5 million on revenues
of $220 million for the 1992 period. For the first six months of 1993, a loss
of $37.4 million was generated on revenues of $342.5 million compared with
earnings of $28.4 million on revenues of $434.8 million for the year-ago
period. Earnings during 1993 reflect extremely low market prices for
phosphate fertilizers and sulphur.
FRP's second-quarter 1993 phosphate fertilizer production was 8% greater
than in the year-ago period. Unit production costs, excluding charges related
to the restructuring project discussed above, averaged 7% less than the 1992
period (6% less than the prior quarter) due to reduced raw material costs for
sulphur, lower phosphate rock mining expenses, and previous cost efficiency
programs, partially offset by higher natural gas costs. Phosphate fertilizer
production volumes and unit cost for the six months ended June 30, 1993 were
negatively impacted by FRP temporarily halting production or taking earlier
than planned maintenance turnarounds at its phosphate fertilizer plants during
the first quarter of 1993 due to weak market prices and for inventory control
purposes. FRP's current quarter sales volumes were 13% and 47% higher than
during the 1992 period and previous quarter, respectively. However, the
average realization fell 21% and 9% compared to the year-ago period and
previous quarter, respectively, reflecting the near 20-year low in market
prices. Domestic demand increases were offset by the worst export market
volumes since 1986.
Second Quarter Six Months
-------------------- --------------------
1993 1992 1993 1992
Phosphate fertilizers --------- --------- --------- ---------
(short tons)a
Production.................. 1,543,400 1,427,300 2,718,500 2,913,700
Internal consumption........ 472,100 443,700 837,800 900,800
Sales....................... 1,208,400 1,073,700 2,029,000 2,119,800
Average realized price b.... $181.76 $229.75 $188.75 $231.07
Phosphate rock (short tons)
Production.................. 2,779,400 2,973,800 5,449,200 5,894,800
Internal consumption........ 1,957,900 1,760,800 3,417,600 3,582,700
Sales....................... 807,700 862,600 1,682,200 1,759,700
Sulphur (long tons)
Production.................. 325,400 219,500 595,700 464,800
Purchases................... 242,300 292,900 542,700 601,200
Internal consumption........ 417,300 375,300 731,200 783,100
Sales c..................... 124,900 185,200 248,200 358,600
a. Includes phosphoric acid, diammonium phosphate (DAP), monoammonium
phosphate (MAP), and granular triple superphosphate.
b. Average realized price is per nutrient ton.
c. Excludes capitalized Main Pass start-up sales.
The outlook for the remainder of 1993 is for lower industry volumes and a
possible gradual improvement in prices. Major international buyers, primarily
China, have yet to commit for second half phosphate fertilizer needs.
Meanwhile, torrential rains and widespread flooding in the upper Mississippi
River valley continue to disrupt normal domestic traffic for fertilizers,
dimming the prospects for an immediate turnaround in industry conditions. To
compensate for soft demand, IMC-Agrico Company and other industry participants
have announced various plant shutdowns and curtailments to avoid building
inventories.
Second-quarter 1993 sulphur production rose 48% compared with the 1992
period, with the Caminada and Main Pass mines experiencing increased
production rates. Caminada's unit production cost declined 29% from the
year-ago quarter due to continued high production rates and cost containment
efforts. However, because of the continuing decline in the market price of
sulphur, FRP recorded a noncash charge to earnings (Note 2) for the excess
capitalized cost over expected realization of its non-Main Pass sulphur
assets, primarily the Caminada sulphur mine. Sales volumes for the second
quarter of 1993 declined 33%, primarily because of reduced purchases of
sulphur by phosphate fertilizer producers.
In the sulphur market, prices remain depressed. Reduced global demand
has forced production cutbacks worldwide. However, a rebound in price is not
expected until demand improves.
At Main Pass, FRP continues to concurrently produce sulphur and oil from
a common reservoir. The rate of progress in heating the orebody to the extent
necessary to achieve planned sulphur production of two million tons per year
(approximately 5500 tons per day) continues to be adversely affected by
actions taken to maximize oil production. Expectations are for production to
continue to increase gradually; however the timing of achieving full
production cannot be predicted. With sulphur prices at their lowest level in
almost 20 years (currently less than $70 per ton in Tampa, Florida), FRP is
maximizing oil production rates. As a result of Main Pass sulphur production
now averaging nearly 1500 tons per day, these activities became operational
for accounting purposes beginning July 1, 1993. Recognizing Main Pass
operations in income and discontinuing associated capitalized interest will
not affect cash flow, but will adversely affect second-half sulphur reported
operating results. Main Pass sulphur operations will have a more positive
effect on FRP's future reported operating results as production increases to
targeted rates of two million tons per year and if sulphur prices improve from
their current low levels. As of June 30, 1993, FTX's investment in its Main
Pass sulphur operation totaled approximately $525 million. The recoverability
of this investment will depend on production rate increases, achieving related
cost efficiencies, and realizing (over the approximately 30 year life of the
mine) somewhat higher than the current depressed sulphur price.
Phosphate rock production and sales volumes for the second quarter of
1993 declined 7% and 6%, respectively, from the 1992 period. For the six
months ended June 30, 1993, FRP's phosphate rock production and sales volumes
were 8% and 4% lower, respectively, than in the year-ago period.
Oil And Gas Operations
Main pass's oil operation generated second-quarter 1993 earnings of $.9
million on sales of .9 million barrels net to FRP at an average realization of
$16.01 per barrel compared with $2.6 million on sales of 1.5 million barrels
at an average realization of $16.63 per barrel in the 1992 period. Operations
for the first six months of 1993 generated a net loss of $.8 million on sales
of 1.4 million barrels at an average realization of $15.86 per barrel compared
with a net loss of $.6 million on sales of 2.5 million barrels at an average
realization of $15.19 per barrel in the year-ago period. Development drilling
was completed in mid-April, which raised oil production from approximately
10,000 barrels per day during the first quarter of 1993 to a current rate of
approximately 23,000 barrels per day. FRP estimates that its share of 1993
oil production will approximate 3 million barrels.
Subsequent to June 30, 1993, the price being received for Main Pass oil
declined to less than $14 per barrel. The ultimate recovery of this asset is
dependent upon future prices realized, costs incurred, and reserves produced.
Low future prices, increases in costs, or negative reserve revisions could
result in a charge to future earnings.
During the second quarter of 1992, FTX transferred substantially all of
its non-Main Pass oil and gas properties to FM Properties Inc. whose shares
were distributed to FTX shareholders. FTX's oil and gas operations (excluding
the Main Pass oil operation) generated a loss of $14.6 million, including
exploration expense of $6.2 million, for the second quarter of 1993 compared
with a loss of $13.2 million, including exploration expense of $7.1 million,
for the 1992 period. For the six months ended June 30, 1993, these operations
generated a loss of $19.9 million compared with a loss of $25.5 million for
the year-ago period.
On July 14, 1993, FTX sold its ownership interest in East Cameron blocks
331/332, offshore Louisiana in the Gulf of Mexico, for approximately $95
million cash, resulting in a third quarter gain of approximately $70 million.
CAPITAL RESOURCES AND LIQUIDITY
Cash flow from operating activities declined during the first six months of
1993 to $7.2 million from $79.3 million for the 1992 period, due to lower
income from operations partially offset by working capital changes. Accounts
receivable are lower primarily because of a decline in FCX trade receivables
resulting from lower second-quarter 1993 sales compared with fourth-quarter
1992 sales. Accounts payable and accrued liabilities are lower because of
efforts to control costs, reduced Main Pass development activities, and the
timing of significant equipment purchases at FCX. Net cash used in investing
activities was $260.1 million compared with $351 million for the 1992 period.
Increased metals capital expenditures were incurred associated with PT-FI's
expansion and investment was made in Rio Tinto Minera, S.A. (RTM) (Note 3).
Lower capital expenditures were incurred at Main Pass as its development was
completed in 1993 and significantly lower capital expenditures were incurred
in agricultural minerals operations. Net cash used in financing activities
was $121.1 million, whereas 1992 provided $424 million of net cash, including
$884.2 million of proceeds from three offerings of public equity securities.
Distributions to minority interest holders of FCX and FRP securities increased
during 1993 as a result of the 1992 sale of equity securities by these
entities.
FCX currently pays an annual cash dividend of 60 cents per share to FTX
and to its public common shareholders. This dividend is anticipated to
continue at this level through completion of the 90,000 MTPD expansion in
1995, absent significant changes in the prices of copper and gold. Publicly
owned FRP units have cumulative rights to receive quarterly distributions of
60 cents per unit through December 31, 1996 (the Preference Period) before any
distributions may be made to FTX. Past distributions to FTX amounting to
$181.6 million, including $31.9 million during the second quarter of 1993,
have been deferred and will be paid to FTX only to the extent of part of the
excess of future quarterly FRP distributions over 60 cents per unit for all
units. At current and expected near-term prices of FRP's commodities, FTX
anticipates receiving no distributions from FRP. FRP's ability to continue to
distribute cash to its public unitholders during the Preference Period is
dependent on the operating results of IMC-Agrico Company which will be
determined primarily by prices of its commodities and the cost reductions
achieved by its combined operations and the future profitability of FRP's
sulphur and oil operations.
Future capital expenditures are expected to be significant through 1995
when PT-FI's 90,000 MTPD expansion is expected to be completed. Subsequently,
capital expenditures will be determined by the results of FCX's exploration
activities. Estimated capital expenditures for the 66,000 MTPD and 90,000
MTPD expansion programs ($90 million and $545 million, respectively), the
initial phase of the Enhanced Infrastructure Program (EIP) ($200 million) and
the acquisition of RTM ($52 million, excluding transaction costs) will be
funded by operating cash flow, sales of existing and to-be-constructed
infrastructure assets and a wide range of financing sources available as a
result of the future cash flow from PT-FI's mineral reserve asset base. These
sources include, but are not limited to, PT-FI's credit facility and the
issuances of public and private securities. Additional expenditures for EIP
assets beyond the initial phase, which could range between $300 million and
$400 million, depend on the success of PT-FI's exploration program.
Additional EIP expenditures, if any, would be expected to be funded by third-
party financing sources, which may include debt, equity or asset sales.
PT-FI has an agreement with Huarte S.A. (Huarte) to construct the initial
phase of the EIP. Under the terms of a March 1993 agreement with ALatieF, an
Indonesian investor, certain portions of the EIP are to be sold by PT-FI to a
joint venture owned 1/3 by PT-FI and 2/3 by ALatieF for total consideration of
$270 million. The joint venture will purchase $90 million of EIP assets
annually over the period 1993-1995, with funding provided by equity
contributions from the joint venture partners ($90 million) and debt financing
($180 million). The acquired assets will be made available to PT-FI and its
employees and designees under arrangements which will provide the joint
venture with a guaranteed minimum rate of return on its investment. Certain
existing EIP related contracts with Huarte will be assigned to the joint
venture as appropriate. The completion of the transaction is subject to
execution of definitive agreements and obtaining applicable approvals from the
Government of Indonesia. The parties are currently determining the specific
assets to be sold in 1993 and arranging the appropriate debt financing.
During the first six months of 1993 FCX's Zero Coupon Exchangeable Notes
(the Notes) with a face value of $241.8 million were tendered to FCX for
conversion, with FCX issuing approximately 3.6 million Class A shares in
return, leaving Notes with a face value of $466.8 million outstanding (45% of
the original face amount issued). As a result of the issuance by FCX of its
stock, it is contemplated that PT-FI will, subject to receipt of appropriate
approvals, issue shares of its stock to FCX as repayment for Notes converted
for FCX stock. FCX currently anticipates receiving these approvals by year
end.
At June 30, 1993, FTX had $7 million of cash and short-term investments
compared with $381 million at December 31, 1992, with $367.2 million of the
decrease occurring at FCX. The significant reduction at FCX reflects the
capital expenditures and dividends paid during the six month period as well as
a reduction in borrowings under PT-FI's amended credit agreement. The FTX and
PT-FI credit agreements were amended in June 1993, with FTX and FCX
guaranteeing PT-FI borrowings under the agreement. The amended credit
agreements expire on December 31, 1999 and each is structured as a 3 year
revolving line of credit followed by a 3 1/2 year reducing revolving line of
credit. On July 7, 1993 FCX issued 14 million depositary shares (each with an
initial dividend of $1.25 per year) for net proceeds of $340.7 million. These
funds were loaned to PT-FI and were initially used to reduce outstanding
indebtedness. As of July 16, 1993, $488.3 million was available under the
credit facility.
The new contract of work contains provisions for PT-FI to conduct or
cause to be conducted a feasibility study relating to the construction of a
copper smelting facility in Indonesia and for the eventual construction of
such a facility by PT-FI, if such facility is deemed to be economically viable
by PT-FI and the Government of Indonesia and is not constructed by others.
PT-FI is pursuing with another company the feasibility of constructing a
copper smelting facility in Indonesia, in which PT-FI would hold a minority
interest and supply one-half of the smelter's copper concentrate requirements
at market prices.
Over the 1993 to 1995 period, FTX's capital expenditures are expected to
be greater than cash flow from operations. However, upon completion of the
90,000 MTPD expansion, expected to occur by year end 1995, annual production
is expected to approach 1 billion pounds of copper and 1.2 million to 1.5
million ounces of gold thereby allowing projected operating cash flow to
significantly exceed the level of capital expenditures related to producing
its present reserves. Completion of the FCX expansion, along with additional
cash flows generated through savings achieved by IMC-Agrico Company, are
expected to enhance FTX's financial flexibility.
FTX's Board of Directors determines dividend policy and the dividend
payment on a quarterly basis and in its discretion may change or maintain the
dividend payment. In determining dividend policy and payment, the Board of
Directors considers many factors, including current and expected future prices
and sales volumes of commodities produced by FTX and its subsidiaries, future
capital expenditure requirements and the availability and cost of financing
available from third parties.
Management believes that operating cash flow, existing lines of credit,
selected asset sales, third-party financing, and discretion with respect to
capital, exploration and development spending provides FTX with sufficient
financial flexibility and capital resources to meet anticipated requirements.
________________________
The results of operations reported and summarized above are not necessarily
indicative of future operating results.
FREEPORT-McMoRan INC.
SIGNATURE
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.
FREEPORT-McMoRan INC.
By: /s/ John T. Eads
--------------------------------
John T. Eads
Controller - Financial Reporting
(authorized signatory and
Principal Accounting Officer)
Date: April 12, 1994
