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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended March 31, 1994
Commission file number 1-82
PHELPS DODGE CORPORATION
(a New York corporation)
13-1808503
(I.R.S. Employer Identification No.)
2600 N. Central Avenue, Phoenix, AZ 85004-3089
Registrant's telephone number: (602) 234-8100
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 Common Shares outstanding at May 6, 1994: 70,603,950 shares.
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<PAGE>
PHELPS DODGE CORPORATION
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 1994
Table of Contents
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Statement of Consolidated Operations
Consolidated Balance Sheet
Consolidated Statement of Cash Flows
Notes to Consolidated Financial Information
Review by Independent Accountants
Accountant's Report on Review of Interim Financial Information
Management's Discussion and Analysis
Legal Proceedings
Exhibits and Reports on Form 8-K
Signatures
Index to Exhibits
<PAGE>
PHELPS DODGE CORPORATION AND SUBSIDIARIES
Part I. Financial Information
Item 1. Financial Statements
STATEMENT OF CONSOLIDATED OPERATIONS
(Unaudited; in millions except per share data)
First Quarter
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1994 1993
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SALES AND OTHER OPERATING REVENUES $ 694.3 666.7
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OPERATING COSTS AND EXPENSES
Cost of products sold 529.6 484.7
Depreciation, depletion and amortization 47.1 45.7
Selling and general administrative expense 25.5 26.9
Exploration and research expense 11.0 11.3
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613.2 568.6
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OPERATING INCOME 81.1 98.1
Interest expense less amount capitalized (8.0) (9.4)
Miscellaneous income and expense, net - 2.8
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INCOME BEFORE TAXES, MINORITY INTERESTS AND
EQUITY IN NET EARNINGS OF AFFILIATED COMPANIES 73.1 91.5
Provision for taxes on income (24.9) (28.3)
Minority interest in consolidated subsidiary
companies (see Note 3) (1.9) (2.4)
Equity in net earnings (losses) of affiliated
companies 2.3 (0.5)
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NET INCOME $ 48.6 60.3
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EARNINGS PER SHARE $ 0.69 0.85
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AVERAGE NUMBER OF SHARES OUTSTANDING 70.9 70.7
See Notes to Consolidated Financial Information.
<PAGE>
BUSINESS SEGMENTS
(Unaudited; in millions)
First Quarter
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1994 1993
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SALES AND OTHER OPERATING REVENUES
Phelps Dodge Mining Company $ 354.9 356.6
Phelps Dodge Industries 339.4 310.1
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$ 694.3 666.7
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OPERATING INCOME
Phelps Dodge Mining Company $ 52.6 80.0
Phelps Dodge Industries 36.1 26.1
Corporate and other (7.6) (8.0)
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$ 81.1 98.1
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See Notes to Consolidated Financial Information.
<PAGE>
CONSOLIDATED BALANCE SHEET
(In millions)
March 31, December 31,
1994 1993
---- ----
(unaudited)
ASSETS
Cash and short-term investments, at cost $ 159.6 255.8
Receivables, net 391.1 354.4
Inventories 250.4 225.4
Supplies 99.4 103.3
Prepaid expenses 13.7 13.1
Deferred income taxes 35.4 35.4
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Current assets 949.6 987.4
Investments and long-term receivables 121.9 115.4
Property, plant and equipment, net 2,431.4 2,340.2
Other assets and deferred charges 281.5 277.9
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$3,784.4 3,720.9
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LIABILITIES
Short-term debt $ 76.7 82.7
Current portion of long-term debt 18.9 17.2
Accounts payable and accrued expenses 447.9 425.8
Income taxes 20.8 14.3
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Current liabilities 564.3 540.0
Long-term debt 553.7 547.3
Deferred income taxes 290.6 286.0
Other liabilities and deferred credits 268.3 263.3
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1,676.9 1,636.6
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MINORITY INTEREST IN SUBSIDIARIES 64.1 62.2
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COMMON SHAREHOLDERS' EQUITY
Common shares, 70.6 outstanding (1993 - 70.5) 441.2 440.8
Capital in excess of par value 83.4 83.1
Retained earnings 1,638.0 1,618.5
Cumulative translation adjustments and other (119.2) (120.3)
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2,043.4 2,022.1
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$3,784.4 3,720.9
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See Notes to Consolidated Financial Information.
<PAGE>
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited; in millions)
Three months
ended
March 31,
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1994 1993
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OPERATING ACTIVITIES
Net income $ 48.6 60.3
Adjustments to reconcile net income to
cash flow from operations:
Depreciation, depletion and amortization 47.1 45.7
Deferred income taxes 4.4 6.2
Equity earnings net of dividends received (2.3) 0.5
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Cash flow from operations 97.8 112.7
Adjustments to reconcile cash flow from
operations to net cash provided by
operating activities:
Changes in current assets and liabilities:
(Increase) decrease in receivables (38.9) (39.7)
(Increase) decrease in inventories (21.9) 18.8
(Increase) decrease in supplies 4.6 3.5
(Increase) decrease in prepaid expenses (0.4) (4.1)
(Increase) decrease in deferred income taxes (0.1) (0.3)
Increase (decrease) in interest payable 0.8 (2.8)
Increase (decrease) in other accounts
payable 16.9 (2.4)
Increase (decrease) in income taxes 6.5 (4.0)
Increase (decrease) in other accrued
expenses 8.7 13.3
Other adjustments, net 2.2 (10.9)
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Net cash provided by operating activities 76.2 84.1
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INVESTING ACTIVITIES
Capital outlays (83.5) (99.9)
Capitalized interest (5.8) (3.3)
Investment in subsidiaries (52.1) (1.3)
Other (0.5) 0.5
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Net cash used in investing activities (141.9) (104.0)
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FINANCING ACTIVITIES
Increase in debt 95.9 132.3
Payment of debt (94.6) (103.4)
Common dividends (29.1) (29.0)
Purchase of common shares (2.1) -
Other (0.6) 3.1
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Net cash provided by (used in)
financing activities (30.5) 3.0
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DECREASE IN CASH AND SHORT-TERM INVESTMENTS (96.2) (16.9)
CASH AND SHORT-TERM INVESTMENTS AT
BEGINNING OF PERIOD 255.8 251.2
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CASH AND SHORT-TERM INVESTMENTS AT END
OF PERIOD $ 159.6 234.3
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See Notes to Consolidated Financial Information.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL INFORMATION
(Unaudited)
1. The unaudited consolidated financial information presented herein has
been prepared in accordance with the instructions to Form 10-Q and does
not include all of the information and note disclosures required by
generally accepted accounting principles. Therefore, this information
should be read in conjunction with the consolidated financial state-
ments and notes thereto included in the Corporation's Form 10-K for the
year ended December 31, 1993. This information reflects all adjust-
ments that are, in the opinion of management, necessary to a fair
statement of the results for the interim periods reported.
2. The results of operations for the three-month period ended March 31,
1994, are not necessarily indicative of the results to be expected for
the full year.
3. Prior to 1994, minority interest in the income of consolidated subsid-
iaries was included in cost of products sold. For comparative purpos-
es, prior period amounts have been reclassified in this report to con-
form with the current year presentation.
4. On January 19, 1994, the Corporation sold $81.1 million of 5.45 percent
obligations due in 2009. The proceeds from the issue were used to
retire the Corporation's 5.75 percent to 6.25 percent Series A and B
notes due in the years 1994 through 2004.
REVIEW BY INDEPENDENT ACCOUNTANTS
The financial information as of March 31, 1994, and for the three-month
periods ended March 31, 1994 and 1993, included in Part I pursuant to Rule
10-01 of Regulation S-X has been reviewed by Price Waterhouse, the Corpora-
tion's independent accountants, in accordance with standards established by
the American Institute of Certified Public Accountants. Price Waterhouse's
report is included in this quarterly report.
Price Waterhouse does not carry out any significant or additional audit
tests beyond those that would have been necessary if its report had not been
included in this quarterly report. Accordingly, such report is not a "re-
port" or "part of a registration statement" within the meaning of Sections 7
and 11 of the Securities Act of 1933 and the liability provisions of Section
11 of such Act do not apply.
<AUDIT-REPORT>
PRICE WATERHOUSE
INDEPENDENT ACCOUNTANT'S REPORT
To the Board of Directors and Shareholders of
Phelps Dodge Corporation
We have reviewed the accompanying consolidated balance sheet of Phelps Dodge
Corporation and its subsidiaries as of March 31, 1994, and the consolidated
statements of operations and of cash flows for the three-month periods ended
March 31, 1994 and 1993. These financial statements are the responsibility
of the Corporation's management.
We conducted our review 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 opin-
ion.
Based on our review, we are not aware of any material modifications that
should be made to the consolidated financial statements referred to above
for them to be in conformity with generally accepted accounting principles.
We previously audited, in accordance with generally accepted auditing stan-
dards, the consolidated balance sheet as of December 31, 1993, and the re-
lated consolidated statements of operations, retained earnings and cash
flows for the year then ended (not presented herein), and in our report
dated January 24, 1994, we expressed an unqualified opinion on those consol-
idated financial statements. In our opinion, the information set forth in
the accompanying consolidated balance sheet as of December 31, 1993, is
fairly stated in all material respects in relation to the consolidated bal-
ance sheet from which it has been derived.
Price Waterhouse
Phoenix, Arizona
April 21, 1994
</AUDIT-REPORT>
Item 2. Management's Discussion and Analysis
RESULTS OF OPERATIONS
Phelps Dodge Corporation had consolidated net income of $48.6 million,
or 69 cents per common share, in the first quarter of 1994, compared with
$60.3 million, or 85 cents per common share, in the 1993 first quarter. The
lower 1994 first quarter earnings principally resulted from an 11 percent
decrease in the average price of copper, the Corporation's principal prod-
uct. This price-related decrease was offset in part by lower copper produc-
tion costs, better earnings from Phelps Dodge Industries compared with the
corresponding 1993 period, and the ongoing control of administrative expens-
es. Per share amounts reflect average shares outstanding for the respective
periods.
Any material change in the price the Corporation receives for copper,
or in its unit production costs, has a significant effect on the
Corporation's results. The Corporation's present share of annual production
is approximately 1.1 billion pounds of copper. Accordingly, each 1 cent per
pound change in the average annual copper price received by the Corporation,
or in average annual unit production costs, causes a variation in annual
operating income before taxes of approximately $11 million. The New York
Commodity Exchange (COMEX) spot price per pound of copper cathode, upon
which the Corporation bases its selling price, averaged 87 cents in the 1994
first quarter, compared with 98 cents in the corresponding 1993 period.
From April 1 to May 6, 1994, the COMEX price averaged 89 cents, closing at
96 cents on May 6, 1994.
The Corporation enters into price protection arrangements from time to
time, depending on market circumstances, to ensure a minimum price for a
portion of its expected future mine production. With respect to 1994 pro-
duction, the Corporation has entered into contracts with several financial
institutions that provide for minimum average quarterly prices of approxi-
mately 75 cents per pound for 244 million pounds of copper cathode, approx-
imately 22 percent of the Corporation's anticipated production for the year.
These contracts are based on the average London Metal Exchange price each
quarter. The remainder of the Corporation's expected mine production for
1994 is not subject to any such arrangements.
Sales were $694.3 million in the 1994 first quarter, compared with
$666.7 million in the corresponding 1993 period. Increases for the 1994
first quarter resulted from higher sales volumes of copper purchased for
resale, wheels and rims, and wire and cable products.
PHELPS DODGE MINING COMPANY
Phelps Dodge Mining Company is an international business comprising a
group of companies involved in vertically integrated copper operations in-
cluding mining, concentrating, electrowinning, smelting and refining, rod
production, marketing and sales, and related activities. Copper is sold
primarily to others as rod, cathode or concentrates, and to the Phelps Dodge
Industries segment. In addition, Phelps Dodge Mining Company at times
smelts and refines copper and produces copper rod for others on a toll ba-
sis. Phelps Dodge Mining Company also produces gold, silver, molybdenum and
copper chemicals, principally as by-products, and sulfuric acid from its air
quality control facilities. This segment also includes the Corporation's
other mining operations and investments (including gold, fluorspar, silver,
lead and zinc operations) and its worldwide exploration and development
programs.
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First Quarter
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1994 1993
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Copper from own mines * (short tons)
Production 139,200 134,300
Deliveries 123,500 140,400
New York Commodity Exchange
average spot price per
pound - copper cathodes $ 0.87 0.98
(in millions)
Sales and other operating revenues $ 354.9 356.6
Operating income $ 52.6 80.0
- - ---------------------
* The Corporation's worldwide copper production and deliveries shown
in the above table exclude the amounts attributable to (i) the 15
percent undivided interest in the Morenci, Arizona, copper mining
complex held by Sumitomo Metal Mining Arizona, Inc. and (ii) the
one-third partnership interest in Chino Mines Company in New Mexi-
co held by Heisei Minerals Corporation.
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Phelps Dodge Mining Company reported sales of $354.9 million in the
first quarter of 1994, compared with $356.6 million in the 1993 first quar-
ter. Sales were virtually unchanged in the 1994 first quarter despite an 11
percent drop in the average copper price because of a net increase of 10
percent in the volume of copper sold. This net increase consisted of a
16,900 ton decrease in copper sales from mine production offset by a 34,800
ton increase in the sale of copper purchased for resale. The reduced sales
of copper from mine production reflected a managed build-up of anode inven-
tories in anticipation of a scheduled two-week maintenance shutdown of the
Hidalgo smelter in Playas, New Mexico, in April 1994.
During the 1994 first quarter, Phelps Dodge Mining Company recorded
operating income of $52.6 million, a 34 percent decrease from the $80.0
million recorded in the corresponding 1993 period. Decreased 1994 operating
income reflected lower average copper prices and lower volumes of copper
sold from mine production, partially offset by lower copper production
costs. The lower 1994 production costs principally resulted from increased
production of cathode copper at the solvent extraction/electrowinning
(SX/EW) plants.
PHELPS DODGE INDUSTRIES
Phelps Dodge Industries is a business segment comprising a group of
international companies that manufacture engineered products principally for
the transportation and electrical sectors worldwide. Its operations are
characterized by products with significant market share, internationally
competitive cost and quality, and specialized engineering capabilities.
This business includes the Corporation's carbon black and synthetic iron ox-
ide operations through Columbian Chemicals Company and its subsidiaries, its
truck wheel and rim operations through Accuride Corporation and its subsid-
iaries, its magnet wire operations through Phelps Dodge Magnet Wire Company
and its subsidiaries, its U.S. specialty conductor operations through Hudson
International Conductors, and its international wire and cable manufacturers
through Phelps Dodge International Corporation.
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First Quarter
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1994 1993
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(in millions)
Sales and other operating revenues $ 339.4 310.1
Operating income $ 36.1 26.1
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Phelps Dodge Industries reported sales of $339.4 million in the first
quarter of 1994, compared with sales of $310.1 million in the corresponding
1993 period. This increase resulted principally from higher sales volumes
of wheels and rims and wire and cable products.
During the 1994 first quarter, Phelps Dodge Industries recorded operat-
ing income of $36.1 million, a 38 percent increase over the $26.1 million
recorded in the corresponding 1993 period. Increased 1994 operating income
reflected improved sales volumes in the wheel and rim business, improved
volumes and margins in the magnet wire business, and improved earnings in
the specialty conductor and international wire and cable businesses.
Accuride and Phelps Dodge Magnet Wire Company experienced improved business
conditions in North America. The Columbian Chemicals carbon black business
also was good in the United States, but was less strong in Europe.
In March 1994, Phelps Dodge Magnet Wire Company acquired for approxi-
mately $52.0 million a fine wire manufacturing plant in Laurinburg, North
Carolina, from Rea Magnet Wire Company, Inc., (Rea) and a magnet wire manu-
facturing plant in El Paso, Texas, from Rea and Fujikura International, Inc.
CHANGES IN FINANCIAL CONDITION
Capital outlays during the 1994 first quarter were $70.8 million for
Phelps Dodge Mining Company including $38.5 million for La Candelaria, and
$12.6 million for Phelps Dodge Industries. Capital outlays in the corre-
sponding 1993 period were $86.9 million for Phelps Dodge Mining Company
including $68.2 million for La Candelaria, and $12.8 million for Phelps
Dodge Industries. The Corporation expects capital outlays in 1994 to be
approximately $210.0 million for Phelps Dodge Mining Company including
$110.0 million for the Corporation's 80 percent share of the La Candelaria
project, and approximately $75.0 million for Phelps Dodge Industries.
At March 31, 1994, the Corporation's total debt was $649.3 million,
compared with $647.2 million at year-end 1993. The Corporation's ratio of
debt to total capitalization was 23.6 percent at March 31, 1994, compared
with 23.7 percent at December 31, 1993. In January 1994, the Corporation
sold $81.1 million of 5.45 percent obligations due in 2009. The proceeds
from the issue were used to retire the Corporation's 5.75 percent to 6.25
percent Series A and B notes due in the years 1994 through 2004.
On March 8, 1994, the Corporation paid a regular quarterly dividend of
41.25 cents per common share for the 1994 first quarter; the total amount
paid was $29.1 million. On May 4, 1994, the Board of Directors declared a
1994 second quarter regular dividend of 41.25 cents per common share to be
paid on June 8, 1994, to shareholders of record at the close of business on
May 20, 1994. There were 70,593,000 common shares outstanding at March 31,
1994.
In the 1994 first quarter, the Corporation purchased 43,000 of its
common shares in connection with an odd-lot buy-back program under the cur-
rent 4 million common share buy-back program initiated in September 1989.
Under this program the Corporation from time to time makes purchases in the
open market and also considers purchasing its common shares in negotiated
transactions. As of March 31, 1994, 1,584,000 shares remained authorized
for purchase under the program.
Part II. Other Information
Item 1. Legal Proceedings
Reference is made to Paragraph III. of Item 3. Legal Proceedings of
the Corporation's Form 10-K for the year ended December 31, 1993, regarding
the proceedings described below.
Prior to the mid-1960s, a predecessor of Phelps Dodge Industries, Inc.
(PDI), a subsidiary of the Corporation, manufactured and sold some cable and
wire products that were insulated with material containing asbestos. PDI
believes that the use of these products did not result in significant re-
leases of airborne asbestos fibers. PDI and the Corporation are collectively
referred to below as PDI.
Since October 1991, PDI has been served with 27 complaints naming it as
a defendant in the Ingalls Shipyard asbestos litigation pending in Pasca-
goula, Mississippi. These cases involved about 12,603 claimants, each seek-
ing from $2 million to $20 million in compensatory and punitive damages from
approximately 100 to 150 defendants. During 1993, 9,806 of these claims
against PDI were dismissed. In the first quarter of 1994, 2,697 additional
claims against PDI in Mississippi were dismissed. In addition, PDI has been
dismissed from a total of 72 other actions in Maryland, California and New
Jersey since January 1, 1994.
PDI has been served with 14 new actions in Delaware, Michigan, New
Jersey, New York, Pennsylvania and Texas during the first quarter of 1994.
Currently, a total of 391 claims are being defended in 14 jurisdictions. In
these various proceedings, plaintiffs allege bodily injury or death from
exposure to asbestos and claim damages based on theories of strict liability
and negligence. PDI is vigorously contesting and defending these cases.
Item 6. Exhibits and Reports on Form 8-K
(a) Any exhibits required to be filed by the Corporation are listed in
the Index to Exhibits.
(b) No reports on Form 8-K were filed by the Corporation during the
quarter ended March 31, 1994.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Corporation has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
PHELPS DODGE CORPORATION
------------------------
(Corporation or Registrant)
Date: May 12, 1994 By: Thomas M. Foster
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Thomas M. Foster
Vice President and Controller
(Principal Accounting Officer)
PHELPS DODGE CORPORATION AND SUBSIDIARIES
Index to Exhibits
12 Computation of ratios of total debt to total capitaliza-
tion.
15 Letter from Price Waterhouse with respect to unaudited
interim financial information.
PHELPS DODGE CORPORATION AND SUBSIDIARIES
Exhibit 12
COMPUTATION OF TOTAL DEBT TO TOTAL CAPITALIZATION
(Dollars in thousands)
March 31, December 31,
1994 1993
---- ----
(unaudited)
Short-term debt $ 76,673 82,718
Current portion of long-term debt 18,908 17,210
Long-term debt 553,659 547,285
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Total debt 649,240 647,213
Minority interest in subsidiaries 64,072 62,217
Common shareholders' equity 2,043,437 2,022,099
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Total capitalization $2,756,749 2,731,529
========== ==========
Ratio of total debt to total
capitalization 23.6% 23.7%
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Exhibit 15
May 9, 1994
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Dear Sirs:
We are aware that Phelps Dodge Corporation has incorporated by reference our
report dated April 21, 1994 (issued pursuant to the provisions of Statements
on Auditing Standards Nos. 71 and 42) in the Prospectus constituting part of
its Registration Statements on Form S-3 (No. 33-44380) and Form S-8 (Nos.
33-26442, 33-6141, 33-26443, 33-29144, 33-19012, 2-67317, 33-34363, 33-
34362, 33-62486). We are also aware of our responsibilities under the Secu-
rities Act of 1933.
Yours very truly,
Price Waterhouse
Phoenix, Arizona
