FORM 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
( X ) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1995
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 1-10122
Magma Copper Company
(Exact name of registrant as specified in its charter)
Delaware 86-0219794
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
7400 N. Oracle Rd., Suite 200
Tucson, Arizona 85704
(Address of Principal executive offices) (Zip Code)
(520) 575-5600
(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
______ ______
Number of shares of common stock outstanding
at November 6, 1995: 46,376,384
<PAGE>
MAGMA COPPER COMPANY
Form 10-Q
For the Quarter Ended September 30, 1995
INDEX
Page
Number
Part I - Financial Information
Item 1 - Financial Statements
Introduction to the Financial Statements 1
Consolidated Balance Sheets -
September 30, 1995 and December 31, 1994 2
Consolidated Statements of Operations-
Three months and nine months ended
September 30, 1995 and 1994 3
Consolidated Statements of Cash Flows -
Nine months ended September 30, 1995 and 1994 4
Notes to Consolidated Financial Statements 5
Report of Independent Public Accountants 10
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results
of Operations 11
Part II - Other Information
Item 5 - Other Matters 16
Item 6 - Exhibits and Reports on Form 8-K 16
Signature 17
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
The financial statements for the three months and nine months ended
September 30, 1995 and 1994 include, in the opinion of the Company, all
adjustments (which consist only of normal recurring adjustments) necessary to
present fairly the results of operations for such periods. Results of
operations for the three months and nine months ended September 30, 1995, are
not necessarily indicative of results of operations which will be realized
for the year ending December 31, 1995. The financial statements should be
read in conjunction with the Company's Form 10-K for the year ended December
31, 1994.
The financial statements included herein have been subjected to a
review, in accordance with the standards established by the American
Institute of Certified Public Accountants, by Arthur Andersen LLP, the
registrant's independent public accountants.
<PAGE>
<TABLE>
MAGMA COPPER COMPANY
Consolidated Balance Sheets
(In thousands)
<CAPTION>
September 30, December 31,
Assets 1995 1994
------ ------------ ------------
<S> <C> <C>
Current Assets:
Cash $ 61,950 $ 72,849
Marketable securities -- 15,388
Accounts receivable 132,446 101,058
Inventories:
Metals 137,410 96,186
Materials and supplies 40,726 40,814
Prepaid expenses 23,927 15,045
--------- ---------
Total current assets 396,459 341,340
--------- ---------
Net Property, Plant and Mine
Development 1,509,956 1,217,220
--------- ---------
Other 28,040 18,076
--------- ---------
Total Assets $1,934,455 $1,576,636
========= =========
Liabilities and Stockholders' Equity
------------------------------------
Current Liabilities:
Accounts payable $ 40,527 $ 34,101
Accrued liabilities 197,892 168,516
Short-term borrowings and
current portion of long-term debt 5,394 20,641
Income taxes payable (2,393) 3,218
--------- ---------
Total current liabilities 241,420 226,476
--------- ---------
Accrued Pension, Retirement and
Other Liabilities 67,830 67,934
Deferred Income Taxes 160,373 135,356
Long-Term Debt 582,057 386,802
Commitments and Contingencies
Stockholders' Equity:
Cumulative convertible preferred
stock 40 40
Common stock 463 460
Capital in excess of par value 597,614 625,849
Retained earnings 287,185 137,833
Unearned stock grant compensation (2,527) (4,032)
Unrealized loss on marketable
securities -- (82)
--------- ---------
Total stockholders' equity 882,775 760,068
--------- ---------
Total Liabilities and
Stockholders' Equity $1,934,455 $1,576,636
========= =========
The accompanying notes are an integral part of these
consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
MAGMA COPPER COMPANY
Consolidated Statements of Operations
(In thousands, except per share amounts)
<CAPTION>
Three Months Nine months
ended September 30, ended September 30,
-------------------- ---------------------
1995 1994 1995 1994
-------- -------- --------- ---------
<S> <C> <C> <C> <C>
Sales $392,598 $227,074 $1,051,656 $622,140
Cost of sales:
Cost of products sold (277,917) (165,175) (710,931) (464,964)
Depreciation, depletion
and amortization (25,086) (18,993) (69,123) (53,859)
Selling, general and
administrative (8,865) (5,416) (26,837) (16,353)
Exploration, research
and development (5,750) (3,184) (15,862) (9,533)
------- ------- --------- -------
Income from operations 74,980 34,306 228,903 77,431
Other income (expense):
Interest expense (6,294) (6,715) (16,985) (18,778)
Interest income 1,435 1,334 3,690 8,211
Other (698) (204) (219) 525
------- ------- --------- -------
Income before income taxes 69,423 28,721 215,389 67,389
Income tax provision (17,543) (6,400) (57,320) (16,847)
------- ------- --------- -------
Net income $ 51,880 $ 22,321 $ 158,069 $ 50,542
======= ======= ========= =======
Preferred stock dividends (2,906) (2,906) (8,718) (8,718)
------- ------- --------- -------
Net income available for
common stock $ 48,974 $ 19,415 $ 149,351 $ 41,824
======= ======= ========= =======
Earnings per share of common
stock, primary:
Net income $ 1.08 $ .45 $ 3.24 $ 1.03
Preferred stock dividends (.06) (.06) (.18) (.18)
------- ------- --------- -------
Earnings per share of common
stock $ 1.02 $ .39 $ 3.06 $ .85
======= ======= ========= =======
Average common shares
outstanding, primary 47,807 49,313 48,858 49,095
Earnings per share of common
stock, fully diluted:
Net income $ .84 $ .35 $ 2.50 $ .80
======= ======= ========= =======
Average common shares
outstanding, fully diluted 61,914 63,409 63,190 63,444
Common shares outstanding 46,355 46,011 46,355 46,011
The accompanying notes are an integral part of these
consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
MAGMA COPPER COMPANY
Consolidated Statements of Cash Flows
(In thousands)
<CAPTION>
Nine months
ended September 30,
-------------------
1995 1994
-------- --------
<S> <C> <C>
Net income $158,069 $ 50,542
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation, depletion and amortization 69,123 53,859
Gain (loss) on sale of assets 170 26
Other 2,360 1,873
------- -------
229,722 106,300
------- -------
Change in certain assets and liabilities:
(Increase) decrease in:
Accounts receivable (31,418) (14,359)
Inventories (39,163) (20,909)
Prepaid expenses (8,633) (3,778)
Increase (decrease) in:
Accounts payable and accrued expenses 35,802 34,192
Income taxes payable (5,611) 320
Accrued pension, retirement
and other liabilities 1,377 972
Deferred income taxes 11,821 1,307
------- -------
Net change in certain assets and liabilities (35,825) (2,255)
------- -------
Net cash provided by operating activities 193,897 104,045
------- -------
Cash flows from investing activities:
Capital expenditures (347,763) (99,345)
Acquisition of Tintaya (5,197) --
Marketable securities 15,331 (94,748)
Proceeds from sale of assets 910 362
Other (6,235) (8,107)
------- -------
Net cash used by investing activities (342,954) (201,838)
------- -------
Cash flows from financing activities:
Short-term financing 28,500 --
Long-term debt repayment (43,500) --
Long-term debt borrowings 199,464 --
Long-term debt repayment (1,000) (7,151)
Long-term lease financing (3,471) (3,960)
Debt issuance costs (4,581) (402)
Issuance of common stock under stock plans 1,662 1,254
Issuance of common stock from warrants exercised 164 935
Issuance of preferred stock -- (85)
Warrant redemption costs (30,362) --
Preferred stock dividend (8,718) (8,718)
------- -------
Net cash provided (used) by financing activities 138,158 (18,127)
------- -------
Net increase (decrease) in cash (10,899) (115,920)
Cash at the beginning of the period 72,849 230,414
------- -------
Cash at the end of the period $ 61,950 $114,494
======= =======
Marketable securities -- 203,639
------- -------
Total cash and marketable securities $ 61,950 $318,133
======= =======
Supplemental disclosure of cash flow information:
Cash paid during the period for -
Interest, net of amounts capitalized $ 7,508 $ 17,344
Income taxes $ 47,368 $ 14,963
The accompanying notes are an integral part of these
consolidated financial statements.
</TABLE>
<PAGE>
MAGMA COPPER COMPANY
Notes to Consolidated Financial Statements
Note 1 -- Basis of Consolidation
The accompanying consolidated financial statements include the accounts
of Magma Copper Company and its subsidiaries ("Magma" or the "Company"). All
material intercompany activity has been eliminated. Certain amounts
previously reported have been reclassified to conform to the current
presentation in the accompanying consolidated financial statements.
Note 2 -- Inventories
Copper concentrate is a product that can be readily purchased or sold to
third parties. Typically it is the practice of the Company to classify its
concentrate inventories as "in process" rather than "finished goods" as this
material is subject to further processing at the Company's smelting and
refining complex. However, at September 30, 1995 and December 31, 1994, $5.2
million and $4.7 million, respectively, of copper concentrate from the
Company's Tintaya, Peru property was classified as finished goods because
this material is expected to be sold to third parties.
The components of inventories are as follows (in thousands):
September 30, December 31,
1995 1994
------------- ------------
Metals in process, net $115,758 $ 70,817
Finished goods 21,652 25,369
------- -------
Metals 137,410 96,186
Materials and supplies, net 40,726 40,814
------- -------
$178,136 $137,000
======= =======
Note 3 -- Income Taxes
SFAS 109, "Accounting for Income Taxes", requires use of the liability
method for providing deferred income taxes, which generally records deferred
taxes for transactions reported in different years for financial reporting
and tax purposes.
In calculating income taxes, the Company has benefited from deductions
for percentage depletion. In general, the Company's cumulative percentage
depletion deductions exceed cost basis of depletable properties, resulting in
current percentage depletion being treated as a permanent difference. The
effect of this permanent difference causes the effective tax rate to be
generally lower than the statutory tax rate.
The Company has recorded a provision for income taxes of $57,320,000 in
the first nine months of 1995. Included in this provision is an accrual for
foreign taxes. Additionally, U.S. taxes net of anticipated foreign tax
credits have been provided on foreign earnings as management does not have
specific plans for reinvestment of foreign earnings nor do they plan to
postpone remittance indefinitely. The provision for income taxes differs
<PAGE>
from the amounts computed by applying the federal statutory tax rate to the
net income before taxes, as follows:
For the nine months ended
September 30, 1995
---------------------------
Dollars Tax Rate
(In millions) (percentage)
------------ -----------
Income tax provision
at federal
statutory rate $(75,386) (35)%
Percentage depletion 23,333 11
State tax (5,267) (3)
Effect of foreign tax rates -- --
------- ---
Total provision $(57,320) (27)%
======= ===
Note 4 -- Commitments and Contingencies
The Company is from time to time involved in various legal proceedings
of a character normally incident to its business, including various claims
and pending actions against the Company seeking damages in large amounts or
clarifications of legal rights. Although there can be no assurance in this
regard, the Company does not believe that adverse decisions in any pending or
threatened proceedings, or any amounts which it may be required to pay by
reason thereof, would have a material adverse effect on the financial
condition or results of operations of the Company.
Note 5 -- Capitalized Interest
During the first nine months of 1995 and 1994, $22,224,000 and
$13,115,000, respectively, of interest cost was capitalized on certain long-
term projects. The total amount of interest cost incurred was $39,209,000
and $31,893,000 for the first nine months of 1995 and 1994, respectively.
Note 6 -- Capitalized Exploration
During the first nine months of 1995, $7,431,000 of exploration cost was
capitalized on projects in the feasibility stage. No exploration costs were
capitalized during 1994.
Note 7 -- Disclosure About Fair Value of Financial Instruments
The following methods and assumptions were used to estimate the fair
value of each class of financial instruments for which it is practicable to
estimate that value:
Cash and Short-Term Borrowing. The carrying amounts approximate fair
value.
<PAGE>
Marketable Securities. In the first quarter of 1994 the Company adopted
SFAS 115, "Accounting for Certain Investments in Debt and Equity Securities".
Accordingly, certain of the Company's investments with an average maturity of
less than one year have been classified as available-for-sale securities and
are reported at their estimated fair value, based on quoted market prices for
those or similar investments. The Company utilizes the specific
identification method in computing realized gains and losses.
During the three and nine month period ended September 30, 1995, the
Company received $0.4 and $7.4 million, respectively, in proceeds from
maturities of available-for-sale securities resulting in no realized gains or
losses.
Long-Term Debt. The fair value of the Company's long-term debt is
estimated based on the quoted market prices for the same or similar issues or
on the current rates offered to the Company for debt of the same remaining
maturities.
Price Protection Contracts. From time to time the Company enters into
options and futures contracts or fixed price forward sales agreements as a
hedge against lower copper prices. The carrying amount of these contracts
reflects the cost of the option premiums which will be amortized ratably as
the contracts expire. The fair value of these contracts is estimated based
on quotes from brokers and market prices at September 30, 1995.
The estimated fair values of the Company's financial instruments as of
September 30, 1995 are as follows (in thousands):
Carrying Fair
Amount Value
-------- -------
Cash $ 61,950 $ 61,950
Marketable securities -- --
Long-term debt (includes
current portion) 587,451 613,462
Copper price protection
contracts 30,359 14,256
Gold swap contracts -- 4,220
The fair value estimates are made at discrete points in time based on
relevant market information and information about the financial instruments.
These estimates may be subjective in nature and involve uncertainties and
significant judgment and therefore cannot be determined with precision.
<PAGE>
Note 8 -- Acquisition of Tintaya
On October 6, 1994, the government of Peru declared the consortium of
Magma Copper Company and its wholly-owned subsidiary, Global Magma, Ltd., the
winning bidder in the privatization of Empresa Minera Especial Tintaya S.A.
("Tintaya"), which owns one of the largest operating mining projects in Peru.
The consortium acquired 98.43% of the common stock of Tintaya on November 29,
1994.
The following unaudited pro-forma combined financial data give effect to
the acquisition as if it had occurred on the first day of the period. This
pro-forma financial data is provided for comparative purposes only and does
not purport to be indicative of the results which would have been obtained if
the acquisition had been effected during the period presented. The pro-forma
financial information is based on the purchase method of accounting and
reflects adjustments to record the profits of acquired inventories,
conversion from Peruvian GAAP to U.S. GAAP, depreciation, depletion and
amortization of mine development costs on the adjusted asset basis and
adjusts income taxes for the pro-forma adjustments.
September 30, 1994
--------------------------------
Quarter ended Year to Date
------------- ------------
Total revenue $239,954 $691,438
Income before extraordinary items 23,796 63,042
Net income 23,796 63,042
Primary earnings per share .42 1.11
Earnings per share assuming full dilution .38 .99
Note 9 -- Issuance of Senior Subordinated Notes and Repurchase of Outstanding
Common Stock Warrants
On May 15, 1995, the Company issued $200 million of 8.70% Senior
Subordinated Notes due May 15, 2005 ("the Notes"). The Notes have no call
provision. Interest on the Notes is payable on May 15 and November 15 of
each year commencing on November 15, 1995. A portion of the net proceeds
from the sale of the Notes was used to repurchase approximately 3.7 million
of its outstanding publicly traded Common Stock Warrants, $8.50 exercise
price ( the Warrants ). The Warrants purchased represented 5.6% of the fully
diluted shares that would have been outstanding had all the Warrants been
exercised. The Company paid $8.25 per Warrant which resulted in an aggregate
purchase price for the Warrants of approximately $30.2 million. Proceeds
were also used to repay short-term debt. Remaining proceeds will be used for
general corporate purposes.
Note 10 -- Revolving Credit Facility
On June 21, 1995, the Company completed renegotiation of its revolving
credit agreement ( the Revolver ), increasing the available credit from $300
million to $500 million. The Revolver, which expires June 20, 1999, is
provided by a consortium of seventeen banks and is available for general
corporate purposes. Amounts outstanding under the Revolver bear interest at
the London InterBank Offered Rate ("LIBOR"), the Certificate of Deposit or
the prime rate, as defined, plus a margin which may vary depending on the
credit rating of the Company. Currently, borrowings would bear an all-in
drawn cost of LIBOR plus 0.50%, which includes a facility fee of 0.1875%.
The facility fee is payable on the full amount of the Revolver, regardless of
whether there are any outstanding borrowings.
<PAGE>
Under the terms of the Revolver, the Company must: (i) maintain a
consolidated net worth of not less that the sum of $450 million plus 50% of
consolidated net income for each fiscal year beginning with fiscal 1995 and
(ii) not permit the ratio of its consolidated debt to total capitalization
(debt and equity) to exceed 60%.
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Magma Copper Company:
We have reviewed the accompanying condensed consolidated balance sheet of
MAGMA COPPER COMPANY (a Delaware corporation) and subsidiaries as of
September 30, 1995, and the related condensed consolidated statements of
operations for the three-month and nine-month periods ended September 30,
1995 and 1994, and the condensed consolidated statements of cash flows for
the nine-month periods ended September 30, 1995 and 1994. These financial
statements are the responsibility of the Company's management.
We conducted our reviews in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures
to financial data and making inquiries of persons responsible for financial
and accounting matters. It is substantially less in scope than an audit
conducted 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 reviews, we are not aware of any material modifications that
should be made to the 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 Magma Copper Company and
subsidiaries as of December 31, 1994 (not presented herein), and in our
report dated January 27, 1995, we expressed an unqualified opinion on that
balance sheet. In our opinion, the information set forth in the accompanying
condensed consolidated balance sheet as of December 31, 1994, is fairly
stated, in all material respects, in relation to the balance sheet from which
it has been derived.
ARTHUR ANDERSEN LLP
Tucson, Arizona,
October 13, 1995.
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
MATERIAL CHANGES IN FINANCIAL POSITION
Net income for the nine months ended September 30, 1995 was $158
million compared to $51 million for the same period in 1994. Earnings before
interest, taxes, depreciation, depletion and amortization (EBITDA) were $298
million for the nine months ended September 30, 1995 and $132 million for the
same period in 1994. These increases were primarily due to increased copper
prices and increased sales volume, largely as a result of production from the
Tintaya mine acquired in November 1994. The Company realized a copper price
of $1.30 per pound for the nine months ended September 30, 1995, a $.36 per
pound increase from the same period last year. Net cash provided by
operating activities was $194 million during the first nine months of 1995.
Working capital at September 30, 1995 was $155 million (including $62 million
in cash and marketable securities) compared to $115 million (including $88
million in cash and marketable securities) at December 31, 1994. This
increase in working capital is largely attributable to increased inventories
as a result of the Tintaya acquisition in November 1994.
The Company's cash position and cash flow from operations were used to
fund capital expenditures of $353 million for the nine months ended September
30, 1995 as compared to $99 million for the same period in 1994. The nature
of these capital expenditures is described below.
Results of Operations for the Nine months Ended September 30, 1995
As Compared with the Nine months Ended September 30, 1994
Total sales increased 69% to $1,052 million in 1995 from $622 million
in 1994. Sales of copper increased in 1995 to $942 million from $556 million
in 1994 due to higher realized copper prices and increased sales volume of
copper purchased from third parties and also from Magma source copper. The
increase in Magma source copper relates to production from the Tintaya mine
acquired in November 1994.
Sales of other metal by-products and acid increased $44 million due
primarily to sharply higher prices for molybdenum during January and
February. The sharp market price increase for molybdenum contributed $15
million in increased sales. Other revenue increases resulted from a greater
volume of gold and silver sold, due primarily to production from the Tintaya
mine and from third party concentrates, along with higher volume and prices
for acid.
Cost of products sold increased by 53% to $711 million in 1995 from
$465 million in 1994 due to increased sales volume and a higher market price
for copper concentrates and scrap purchased from third parties for subsequent
processing. The Company's cost per pound before credits of producing Magma
source concentrates increased by 6 cents as compared to the same period in
1994. This was largely due to the scheduled completion of open-pit mining
operations at San Manuel (which had produced lower unit cost electrowon
copper cathode) and the mining of lower grade ore at the San Manuel
underground mine. In addition, at current price and profitability levels,
the Company incurs incremental costs related to employee profit sharing and
local taxes that are included in net cash operating costs. The following
table sets forth the volume of copper sold in relation to the components that
make up cost of products sold:
<PAGE>
Nine months ended
September 30,
(In millions)
1995 1994
-------- --------
Pounds sold from:
Magma sources 506.1 443.3
Purchased 201.5 129.2
----- -----
Total pounds of copper sold 707.6 572.5
===== =====
Toll Processing Pounds:
Returned as cathode 54.5 52.5
Returned as anode 15.3 20.4
Cost of Products Sold:
Magma sources $381.4 $307.7
Purchased copper 271.9 123.0
Tolling 9.3 10.4
Purchased by-products 38.7 13.7
Other 9.6 10.2
----- -----
Total cost of products sold $710.9 $465.0
===== =====
Per Pound Cost of Products Sold:
Magma Sources
Before credits $ .75 $ .69
Credits (1) (.12) (.11)
----- -----
Net $ .63 $ .58
===== =====
(1) Deductions for rod premiums, profit on by-products and custom
processing.
Depreciation, depletion and amortization expense increased $15 million
to $69 million in 1995 from 1994 as a result of the depreciation of new
assets, including those of the Tintaya mine.
Selling, general and administrative expenses increased $10 million due
primarily to higher insurance and other costs related to the Tintaya
acquisition.
Exploration, research and development costs increased $6 million as
a result of the Company's efforts to increase its proven and probable mineral
reserves. These activities are presently conducted at the Company's existing
minesites and new areas in Chile and Mexico.
Interest expense decreased $1.8 million to $17 million in 1995 due to
interest capitalized on the Company's expansion projects.
Interest income decreased $4.5 million to $3.7 million in 1995 as a
result of smaller average balances of cash and marketable securities brought
about by the Company's purchase of the Tintaya mine and its capital spending
projects.
The Company's provision for income taxes of $57 million for 1995 and
$17 million for 1994 reflects higher income in the current period as well as
the higher overall rate due to the Tintaya acquisition.
<PAGE>
Net income in 1995 was $158 million, or $2.50 per share fully diluted,
compared to $51 million, or $.80 per share in 1994. After dividends on
preferred stock, $149 million in 1995 was available for common stockholders,
or $3.06 per share, compared to $42 million or $.85 per common share in 1994.
Results of Operations for the Three Months Ended September 30, 1995
As Compared with the Three Months Ended September 30, 1994
Total sales increased 73% to $393 million in 1995 from $227 million
in 1994. Sales of copper increased in 1995 to $351 million from $203 million
in 1994 due to higher realized copper prices and increased sales volume of
copper purchased from third parties and also from Magma-source copper, due to
production from the Tintaya mine acquired in November 1994.
Sales of other metal by-products and acid increased $17 million due
primarily to a greater volume of gold and silver sold as a result of
production from the Tintaya mine and from third party concentrates, and as a
result of higher prices for acid.
Cost of products sold increased by 68% to $278 million in 1995 from
$165 million in 1994 due to increased sales volume and a higher market price
for copper concentrates and scrap purchased from third parties for subsequent
processing. Additionally, the Company's cost per pound before credits of
producing Magma source concentrates increased by five cents as compared to
the same period in 1994. This was largely due to the scheduled completion of
open-pit mining operations at San Manuel (which had produced lower unit cost
electrowon copper cathode) and the mining of lower grade ore at the San
Manuel underground mine. In addition, at current price and profitability
levels, the Company incurs incremental costs related to employee profit
sharing and local taxes that are included in net cash operating costs.
Credits per pound of copper sold decreased due to lower market prices
for custom smelting and refining and one lower priced TCRC contract that will
expire at the end of the second quarter 1996. The following table sets forth
the volume of copper sold in relation to the components that make up cost of
products sold:
<PAGE>
Three months ended
September 30,
(In millions)
1995 1994
-------- --------
Pounds sold from:
Magma sources 174.8 145.2
Purchased 86.7 47.3
----- -----
Total pounds of copper sold 261.5 192.5
===== =====
Toll Processing Pounds:
Returned as cathode 18.6 24.3
Returned as anode 1.7 7.3
Cost of Products Sold:
Magma sources $131.9 $101.9
Purchased copper 118.8 51.1
Tolling 2.9 4.6
Purchased by-products 21.0 4.5
Other 3.3 3.1
----- -----
Total cost of products sold $277.9 $165.2
===== =====
Per Pound Cost of Products Sold:
Magma Sources
Before credits $ .75 $ .70
Credits (1) (.09) (.12)
----- -----
Net $ .66 $ .58
===== =====
(1) Deductions for rod premiums, profit on by-products and custom
processing.
Depreciation, depletion and amortization expense increased $6 million
to $25 million in 1995 from 1994 as a result of including depreciation of the
Tintaya mine.
Selling, general and administrative expenses increased $3.4 million
due primarily to higher insurance and other costs related to the Tintaya
acquisition.
Exploration, research and development costs increased $2.6 million as
a result of the Company's efforts to increase its proven and probable mineral
reserves. These activities are presently conducted at the Company's existing
minesites and new areas in Chile and Mexico.
Interest expense decreased $0.4 million to $6.3 million in 1995 due
to interest capitalized on the Company's expansion projects.
The Company's provision for income taxes of $18 million for 1995 and
$6 million for 1994 reflects higher income in the current period as well as
the higher overall rate due to the Tintaya acquisition.
Net income in 1995 was $52 million, or $.84 per share fully diluted,
compared to $22 million, or $.35 per share in 1994. After dividends on
preferred stock, $49 million in 1995 was available for common stockholders,
or $1.02 per share, compared to $19 million or $.39 per common share in 1994.
<PAGE>
CAPITAL RESOURCES AND LIQUIDITY
The Company anticipates spending approximately $700 million between
1995 and 1997 on capital projects, $480 million of which is scheduled to be
spent during calendar year 1995, $150 million during 1996 and the remainder
in 1997. These projects include the development of the Robinson Mining
District, the continued development of the Lower Kalamazoo orebody, upgrading
mining equipment at Tintaya and in-situ expansion at San Manuel. Capital
expenditures for the nine months ended September 30, 1995 were $353 million.
During the first nine months of 1995, the Company funded its
development projects through internally generated cash flow, new borrowings,
short-term borrowing and existing cash balances. The Company s cash flow
available for capital expenditures (net income plus depreciation, depletion
and amortization) was $227 million at a realized copper price of $1.30 per
pound. Cash at September 30, 1995 was $62 million. Earnings before
interest, taxes, depreciation, depletion and amortization (EBITDA) were $298
million.
On June 21, 1995 the Company completed renegotiation of its revolving
credit agreement (the Revolver ), increasing the available credit from $300
million to $500 million. The Revolver, which expires on June 20, 1999 is
provided by a consortium of seventeen banks and is available for general
corporate purposes. As of September 30, 1995, there were no amounts
outstanding.
On June 22, 1995 the Company filed a Form S-3 Registration Statement
which, together with an existing filing, provides Magma with the flexibility
to issue up to $300 million in debt and/or equity securities from time to
time.
In light of the historic volatility of copper prices, the Company uses
a combination of put options, futures, swap contracts and forward commitments
to assure cash flow from operations to facilitate its capital spending
program. The Company's price protection program creates floor prices of
$1.08 for the fourth quarter of 1995 and $.95 for 1996. For 1997, the
Company has purchased put options covering 547 million pounds of first,
second and third quarter production, creating a minimum realized price of
approximately $.93 per pound for the first and second quarters and $.86 per
pound for the third quarter. Additionally, for the fourth quarter of 1997,
the Company has put options on 88 million pounds at a realized price of $.83
per pound. The Company believes that even if prices were to fall below these
levels, because of its price protection program, it would be able to fund a
substantial portion of the capital expenditures scheduled for these periods
from cash balances and operating cash flow, with the remainder to be funded
by its existing credit facilities, or alternative sources of borrowings that
the Company may seek.
The decision to complete ongoing projects or to undertake new projects
is subject to a variety of factors, which may include (depending on the
project), the price of copper, the completion of favorable feasibility
studies and permitting. There can be no assurance that the Company will
undertake all of these opportunities or that, if undertaken, they will prove
successful.
<PAGE>
PART II - OTHER INFORMATION
- ---------------------------
Item 5. OTHER MATTERS
On July 13, 1995 the Board of Directors elected Pedro Pablo Kuczynski
to serve as a Class III director of the Company.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
Exhibit 3 - Amended By-Laws of Magma Copper Company.
Exhibit 11 - Statement re computation of per share
earnings.
Exhibit 27.1 - Financial Data Schedule for the nine
months ended September 30, 1995.
Exhibit 27.2 - Amended Financial Data Schedule for the
six months ended June 30, 1995.
(b) Reports on Form 8-K:
The Company filed no reports on Form 8-K during the three
months ended September 30, 1995.
<PAGE>
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.
MAGMA COPPER COMPANY
Date: November 14, 1995
By: /s/ Douglas J. Purdom
-----------------------------
Douglas J. Purdom
Vice President and
Chief Financial Officer
(Principal Accounting
and Financial Officer)
EXHIBIT 3
AMENDMENT TO BYLAWS
OF MAGMA COPPER COMPANY
(A DELAWARE CORPORATION)
Pursuant to the authority granted in the Bylaws, as amended July 22,
1992, of Magma Copper Company, a Delaware corporation, the same are hereby
amended as follows, having been duly approved by the affirmative vote of at
least a majority of all directors of the corporation at a regular meeting of
the Board of Directors held on July 13, 1995.
Section 2, "Number, Qualification and Term of Office," of Article
III, "Board of Directors, of the Bylaws is hereby amended in its entirety as
follows:
SECTION 2. Number, Qualification and Term of Office. The
number of directors which shall constitute the whole
Board shall be not less than three nor more than twelve.
The exact number of directors within the minimum and
maximum limitations specified in the preceding sentence
is hereby set at 12, and thereafter shall be fixed from
time to time by the Board of Directors pursuant to a
resolution adopted by a majority of the Continuing
Directors (as such term is defined in the restated
certificate of incorporation). The Board of Directors
shall be and is divided into three classes, Class I,
Class II and Class III. No one class shall have more
than one director more than any other class. If a
fraction is contained in the quotient arrived at by
dividing the authorized number of directors by three,
then if such fraction is one-third, the extra director
shall be a member of Class II, and if such fraction is
two-thirds, one of the extra directors shall be a member
of Class II, and one of the extra directors shall be a
member of Class I, unless otherwise provided for from
time to time by resolution of the Board of Directors.
Each director shall serve for a term ending on the date
of the third annual meeting following the annual meeting
at which such director was elected; provided, however,
that each initial director in Class I shall serve for a
term ending on the date of the annual meeting next
following the end of calendar year 1987; each initial
director in Class II shall serve for a term ending on the
date of the annual meeting next following the end of
calendar year 1988; and each initial director in Class
III shall serve for a term ending on the date of the
annual meeting next following the end of calendar year
1989. In the event of any increase or decrease in the
authorized number of directors, the newly created or
eliminated directorships resulting from such increase or
decrease shall be apportioned by the Board of Directors
among the three classes of directors so as to ensure that
no one class has more than one director more than any
other class. Notwithstanding any provisions to the
contrary contained herein, each director shall serve
until a successor is elected and qualified or until his
earlier death, resignation or removal. Directors need
not be stockholders. Unless approved by unanimous vote
of the Board of Directors, no person shall be qualified
for nomination, election or appointment to the Board of
Directors if such person will have attained the age of 70
prior to the completion of his term in office.
<PAGE>
CERTIFICATE OF SECRETARY
I, Andrew A. Brodkey, do hereby certify that:
1. I am the duly elected and acting secretary of Magma Copper
Company, a Delaware corporation (the Corporation ).
2. The foregoing Amendment to Bylaws of Magma Copper Company
was duly adopted by the Board of Directors of the Corporation at a regular
meeting held on July 13, 1995.
3. The foregoing Amendment to Bylaws, and the Bylaws as
amended to and including July 22, 1992 (previously filed as Exhibit 3.4 to
the Corporation s 1992 Form 10-K), together constitute the Bylaws of the
Corporation.
IN WITNESS WHEREOF, I have hereunto subscribed my name and
affixed the seal of the corporation this 13th day of November, 1995.
/s/Andrew A. Brodkey
--------------------------
Andrew A. Brodkey
Secretary
[Seal of
Magma Copper Company]
<TABLE>
MAGMA COPPER COMPANY EXHIBIT 11
Computation of Per Share Earnings
(In thousands, except per share amounts)
<CAPTION>
Three Months Nine Months
ended September 30, ended September 30,
------------------- -------------------
1995 1994 1995 1994
Primary ------- ------ ------ -------
- -------
<S> <C> <C> <C> <C>
Weighted average common
shares outstanding 47,807 49,313 48,858 49,095
Earnings used in per common
share computation:
Net income $51,880 $22,321 $158,069 $50,542
Preferred stock dividends (2,906) (2,906) (8,718) (8,718)
------ ------ ------- ------
Net income available
for common stock $48,974 $19,415 $149,351 $41,824
====== ====== ======= ======
Earnings per share:
Net income $ 1.08 $ .45 $ 3.24 $ 1.03
====== ====== ======= ======
Preferred stock dividends (.06) (.06) (.18) (.18)
------ ------ ------- ------
Earnings per share of
common stock $ 1.02 $ .39 $ 3.06 $ .85
====== ====== ======= ======
Assuming full dilution
- ----------------------
Weighted average common
shares outstanding 51,880 22,321 158,069 50,542
Earnings used in per common
share computation:
Net income $54,423 $20,610 $106,189 $28,221
Earnings per share:
Net income $ .84 $ .35 $ 2.50 $ .80
Computation of weighted average
shares outstanding-fully diluted
---------------------------------
Primary weighted average
shares outstanding 47,807 49,313 48,858 49,095
Assuming full dilution:
Conversion of Series D Preferred
Stock (2 million shares at
3.448 conversion rate) 6,896 6,896 6,896 6,896
Conversion of Series E Preferred
Stock (2 million shares at
3.5945 conversion rate) 7,189 7,189 7,189 7,189
Incremental shares 22 11 247 264
------ ------ ------- ------
Fully diluted weighted
average shares outstanding 61,914 63,409 63,190 63,444
====== ====== ======= =======
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AND THE CONSOLIDATED STATEMENTS OF OPERATIONS AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1995
<CASH> 61,950
<SECURITIES> 0
<RECEIVABLES> 132,446
<ALLOWANCES> 0
<INVENTORY> 178,136
<CURRENT-ASSETS> 396,459
<PP&E> 1,770,254
<DEPRECIATION> 260,298
<TOTAL-ASSETS> 1,934,455
<CURRENT-LIABILITIES> 241,420
<BONDS> 582,057<F1>
<COMMON> 463
0
40
<OTHER-SE> 882,272
<TOTAL-LIABILITY-AND-EQUITY> 1,934,455
<SALES> 1,051,656
<TOTAL-REVENUES> 1,051,656
<CGS> 710,931
<TOTAL-COSTS> 780,054<F2>
<OTHER-EXPENSES> 42,699<F3>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 16,985
<INCOME-PRETAX> 215,389
<INCOME-TAX> 57,320
<INCOME-CONTINUING> 158,069
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 158,069
<EPS-PRIMARY> 3.06
<EPS-DILUTED> 2.50
<FN>
<F1>REFLECTS THE COMPANY'S LONG-TERM DEBT.
<F2>TOTAL COSTS REFLECTS THE COMPANY'S COST OF GOODS SOLD AND DEPRECIATION,
DEPLETION AND AMORTIZATION COSTS.
<F3>OTHER EXPENSES REFLECTS SELLING, GENERAL AND ADMINISTRATIVE COMBINED WITH
EXPLORATION RESEARCH AND DEVELOPMENT COSTS.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
AMENDED FINANCIAL DATA SCHEDULE FOR THE SIX MONTH PERIOD ENDED JUNE 30, 1995.
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AND THE CONSOLIDATED STATEMENTS OF OPERATIONS AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> JUN-30-1995
<CASH> 105,069
<SECURITIES> 405
<RECEIVABLES> 97,238
<ALLOWANCES> 0
<INVENTORY> 191,116
<CURRENT-ASSETS> 417,423
<PP&E> 1,646,472
<DEPRECIATION> 235,515
<TOTAL-ASSETS> 1,855,938
<CURRENT-LIABILITIES> 216,670
<BONDS> 583,148<F1>
<COMMON> 461
0
40
<OTHER-SE> 831,370
<TOTAL-LIABILITY-AND-EQUITY> 1,855,938
<SALES> 659,058
<TOTAL-REVENUES> 659,058
<CGS> 433,014
<TOTAL-COSTS> 477,051<F2>
<OTHER-EXPENSES> 28,084<F3>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 10,691
<INCOME-PRETAX> 145,966
<INCOME-TAX> 39,777
<INCOME-CONTINUING> 106,189
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 106,189
<EPS-PRIMARY> 2.05
<EPS-DILUTED> 1.68
<FN>
<F1>REFLECTS THE COMPANY'S LONG-TERM DEBT.
<F2>TOTAL COSTS REFLECTS THE COMPANY'S COST OF GOODS SOLD AND DEPRECIATION,
DEPLETION AND AMORTIZATION COSTS.
<F3>OTHER EXPENSES REFLECTS SELLING, GENERAL AND ADMINISTRATIVE COMBINED WITH
EXPLORATION, RESEARCH AND DEVELOPMENT COSTS.
</FN>
</TABLE>
