================================================================================
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 June 30, 1996
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 August 7, 1996: 65,570,699 shares.
================================================================================
<PAGE>
PHELPS DODGE CORPORATION
Quarterly Report on Form 10-Q
For the Quarter Ended June 30, 1996
TABLE OF CONTENTS
Statement of Consolidated Income
Consolidated Balance Sheet
Consolidated Statement of Cash Flows
Statement of Common Shareholders' Equity
Notes to Consolidated Financial Information
Review by Independent Accountants
Report of Independent Accountants on Review of Interim Financial Information
Management's Discussion and Analysis
Legal Proceedings
Submission of Matters to a Vote of Security Holders
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 INCOME
(Unaudited; in millions except per share data)
First Six
Second Quarter Months
-------------- -------------
1996 1995 1996 1995
---- ---- ---- ----
SALES AND OTHER OPERATING
REVENUES $ 957.7 1,024.2 1,962.4 2,057.7
------- ------- ------- -------
OPERATING COSTS AND EXPENSES
Cost of products sold 646.9 682.2 1,311.4 1,369.3
Depreciation, depletion
and amortization 62.7 56.9 123.9 111.4
Selling and general
administrative expense 31.2 30.9 61.7 61.6
Exploration and research
expense 21.4 15.1 40.1 31.8
Gain on asset dispositions - - - (26.8)
------- ------- ------- -------
762.2 785.1 1,537.1 1,547.3
------- ------- ------- -------
OPERATING INCOME 195.5 239.1 425.3 510.4
Interest expense (10.3) (19.4) (27.5) (34.8)
Capitalized interest 0.3 1.1 0.5 1.5
Miscellaneous income and
expense, net 2.2 7.5 17.2 18.4
------- ------- ------- -------
INCOME BEFORE TAXES, MINORITY
INTERESTS AND EQUITY IN NET
EARNINGS OF AFFILIATED
COMPANIES 187.7 228.3 415.5 495.5
Provision for taxes on
income (62.2) (68.5) (135.1) (148.7)
Minority interests in
consolidated subsidiaries (3.0) (2.5) (6.4) (5.3)
Equity in net earnings
of affiliated companies 3.8 2.2 5.4 3.3
------- ------- ------- -------
NET INCOME $ 126.3 159.5 279.4 344.8
======= ======= ======= =======
EARNINGS PER SHARE $ 1.90 2.28 4.16 4.90
======= ======= ======= =======
AVERAGE NUMBER OF SHARES
OUTSTANDING 66.6 69.9 67.1 70.4
See Notes to Consolidated Financial Information.
<PAGE>
BUSINESS SEGMENTS
(Unaudited; in millions)
SALES AND OTHER OPERATING
REVENUES
Phelps Dodge Mining
Company $ 529.3 589.7 1,113.9 1,196.1
Phelps Dodge Industries 428.4 434.5 848.5 861.6
------- ------- ------- -------
$ 957.7 1,024.2 1,962.4 2,057.7
======= ======= ======= =======
OPERATING INCOME (LOSS)
Phelps Dodge Mining
Company $ 146.3 187.9 330.9 390.0
Phelps Dodge Industries 60.1 60.0 114.5 138.0
Corporate and other (10.9) (8.8) (20.1) (17.6)
------- ------- ------- -------
$ 195.5 239.1 425.3 510.4
======= ======= ======= =======
See Notes to Consolidated Financial Information.
<PAGE>
CONSOLIDATED BALANCE SHEET
(Unaudited; in millions)
June 30, Dec. 31,
1996 1995
---- ----
ASSETS
Cash and short-term investments, at cost $ 541.0 608.5
Accounts receivable, net 485.0 483.7
Inventories 289.2 281.5
Supplies 118.3 121.4
Prepaid expenses 38.1 15.5
Deferred income taxes 43.4 44.6
-------- -------
Current assets 1,515.0 1,555.2
Investments and long-term
accounts receivable 78.4 79.0
Property, plant and equipment, net 2,841.2 2,728.7
Other assets and deferred charges 294.8 283.0
-------- --------
$ 4,729.4 4,645.9
======== ========
LIABILITIES
Short-term debt $ 72.6 66.6
Current portion of long-term debt 30.2 16.8
Accounts payable and accrued expenses 493.3 504.8
Income taxes 15.4 16.8
-------- --------
Current liabilities 611.5 605.0
Long-term debt 599.9 613.1
Deferred income taxes 409.4 358.1
Other liabilities and deferred credits 321.3 318.7
-------- --------
1,942.1 1,894.9
-------- --------
MINORITY INTERESTS IN CONSOLIDATED
SUBSIDIARIES 76.4 73.3
-------- --------
COMMON SHAREHOLDERS' EQUITY
Common shares, 66.0 outstanding
(12/31/95 - 68.6) 412.2 428.7
Retained earnings 2,413.2 2,360.1
Cumulative translation adjustments (98.6) (93.9)
Other (15.9) (17.2)
-------- --------
2,710.9 2,677.7
-------- --------
$ 4,729.4 4,645.9
======== ========
See Notes to Consolidated Financial Information.
<PAGE>
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited; in millions)
Six months
ended
June 30,
-------------
1996 1995
---- ----
OPERATING ACTIVITIES
Net income $ 279.4 344.8
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation, depletion and
amortization 123.9 111.4
Deferred income taxes 43.7 44.6
Equity earnings net of dividends
received (4.9) (3.0)
Changes in current assets and
liabilities:
(Increase) decrease in accounts
receivable (5.3) (6.3)
(Increase) decrease in inventories (0.6) (20.9)
(Increase) decrease in supplies 2.1 (8.1)
(Increase) decrease in prepaid
expenses (22.3) (3.2)
(Increase) decrease in deferred
income taxes 1.3 (1.8)
Increase (decrease) in interest
payable 0.8 0.3
Increase (decrease) in other accounts
payable (7.1) (32.1)
Increase (decrease) in income taxes (1.6) (24.2)
Increase (decrease) in other accrued
expenses (10.7) 5.0
Gain on asset dispositions - (26.8)
Other adjustments, net 6.8 (1.3)
-------- --------
Net cash provided by operating
activities 405.5 378.4
-------- --------
INVESTING ACTIVITIES
Capital outlays (209.0) (180.3)
Capitalized interest (0.5) (1.5)
Proceeds from asset dispositions 2.0 39.6
Investment in subsidiaries (30.0) -
-------- --------
Net cash used in investing activities (237.5) (142.2)
-------- --------
FINANCING ACTIVITIES
Increase in debt 15.6 29.7
Payment of debt (6.6) (14.4)
Common dividends (63.5) (63.1)
Purchase of common shares (191.3) (76.4)
Other 10.3 2.8
-------- --------
Net cash used in financing activities (235.5) (121.4)
-------- --------
INCREASE (DECREASE) IN CASH AND
SHORT-TERM INVESTMENTS (67.5) 114.8
CASH AND SHORT-TERM INVESTMENTS AT
BEGINNING OF PERIOD 608.5 286.9
-------- --------
CASH AND SHORT-TERM INVESTMENTS AT END
OF PERIOD $ 541.0 401.7
======== ========
See Notes to Consolidated Financial Information.
<PAGE>
STATEMENT OF COMMON SHAREHOLDERS' EQUITY
(Unaudited; in millions)
Common Shares Cumulative
---------------- Translation
Number Adjustments Common
of At Par Retained and Shareholders'
shares Value Earnings Other Equity
------ ----- -------- ----- -------
Balance at
December 31, 1995 68.6 $ 428.7 $ 2,360.1 $ (111.1) $ 2,677.7
Stock options
exercised 0.4 2.1 9.9 12.0
Common shares
purchased (3.0) (18.6) (172.7) (191.3)
Net income 279.4 279.4
Dividends on common
shares (63.5) (63.5)
Translation
adjustment (4.7) (4.7)
Other 1.3 1.3
----- ------ ------- ------- -------
Balance at
June 30, 1996 66.0 $ 412.2 $ 2,413.2 $ (114.5) $ 2,710.9
===== ====== ======= ======= =======
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
statements and notes thereto included in the Corporation's Form 10-K
for the year ended December 31, 1995. This information reflects all
adjustments 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 and six-month periods
ended June 30, 1996, are not necessarily indicative of the results to
be expected for the full year.
3. The Corporation enters into price protection arrangements from time to
time, depending on market circumstances, to ensure a minimum price for
a portion of the copper it expects from its future mine production. As
of August 7, 1996, the Corporation has entered into contracts with
several financial institutions that provide for specified minimum
copper prices or a combination of minimum and maximum copper prices
based on the quarterly average London Metal Exchange (LME) price.
Remaining contracts are summarized in the following table:
================================================================================
Contracts Providing Contracts Providing Minimum
Minimum Prices and Maximum Prices
-------------- -------------------
Copper Cathode Copper Price (LME) Cathode
Price Pounds ---------------- Pounds
(LME) (millions) Minimum Maximum (millions)
----- ---------- ------- ------- ----------
1996:
Third Quarter $ 0.95 40 $ 0.90 $ 1.40 145
Fourth Quarter $ 0.95 $ 1.36 190
1997:
First Quarter $ 0.90 170
- ---------------------
NOTE: If average quarterly LME prices exceed the maximum prices, Phelps
Dodge will be obligated to pay the difference to the financial
institutions involved; if average quarterly LME prices fall below
the minimum prices, the financial institutions will be obligated to
pay Phelps Dodge the difference.
================================================================================
Similar contracts covering 600 million pounds of 1996 first half copper
production expired without payment.
4. The Corporation's net income for the first six months of 1996 included
a second quarter after-tax charge of approximately $12.0 million, or 18
cents per common share, resulting from adjustments during June to mark
to market copper concentrate transactions that had been recorded in
prior months at provisional forward prices. These adjustments primarily
reflected a sharp drop in copper futures prices in the month of June.
The loss on these adjustments before taxes was $18.0 million. The
Corporation's net income for the first six months of 1995 included a
first quarter after-tax gain of $16.6 million, or 24 cents per common
share, from the sale of Columbian Chemicals Company's MAPICO division
(MAPICO). MAPICO produces synthetic iron oxides at a plant in St.
Louis, Missouri, and was peripheral to Columbian's core business. The
gain on the sale of these assets before taxes was $26.8 million.
REVIEW BY INDEPENDENT ACCOUNTANTS
The financial information as of June 30, 1996, and for the three-month
and six-month periods ended June 30, 1996 and 1995, included in Part I pursuant
to Rule 10-01 of Regulation S-X has been reviewed by Price Waterhouse LLP (Price
Waterhouse), the Corporation'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 "report" 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.
<PAGE>
<AUDIT-REPORT>
PRICE WATERHOUSE LLP
REPORT OF INDEPENDENT ACCOUNTANTS
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 June 30, 1996, and the consolidated
statement of income for the three-month and six-month periods ended June 30,
1996 and 1995, and the consolidated statements of cash flows and of common
shareholders' equity for the six-month periods ended June 30, 1996 and 1995.
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 opinion.
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 standards,
the consolidated balance sheet as of December 31, 1995, and the related
consolidated statements of income, of cash flows and of common shareholders'
equity for the year then ended (not presented herein), and in our report dated
January 22, 1996 we expressed an unqualified opinion on those consolidated
financial statements. In our opinion, the information set forth in the
accompanying consolidated balance sheet information as of December 31, 1995, is
fairly stated in all material respects in relation to the consolidated balance
sheet from which it has been derived.
Price Waterhouse LLP
Phoenix, Arizona
July 11, 1996
</AUDIT-REPORT>
<PAGE>
Item 2. Management's Discussion and Analysis
RESULTS OF OPERATIONS
Phelps Dodge Corporation had consolidated net income of $126.3 million,
or $1.90 per common share, in the second quarter of 1996, compared with $159.5
million, or $2.28 per common share, in the 1995 second quarter. Net income for
the six months ended June 30, 1996, was $279.4 million, or $4.16 per common
share, compared with $344.8 million, or $4.90 per common share in the
corresponding 1995 period. Net income in the 1996 six-month period included a
second quarter after-tax charge of approximately $12.0 million, or 18 cents per
common share, resulting from adjustments during June to mark to market copper
concentrate transactions that had been recorded in prior months at provisional
forward prices. Net income in the 1995 six-month period included a first quarter
after-tax gain of $16.6 million, or 24 cents per common share, from the sale of
Columbian Chemicals Company's MAPICO division.
Earnings in the three-month and six-month periods ended June 30, 1996,
were lower than those reported in the corresponding 1995 periods principally as
a result of lower average copper prices. Average spot prices per pound of
cathode copper on the New York Commodity Exchange (COMEX) fell approximately 17
cents and 18 cents in the second quarter and first six months of 1996,
respectively, from the average prices in the corresponding 1995 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
1.5 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 $15 million.
The COMEX spot price per pound of copper cathode, upon which the
Corporation bases its selling price for a majority of its production, averaged
$1.16 in the second quarter and $1.17 in the first six months of 1996, compared
with $1.33 and $1.35 in the corresponding 1995 periods. From July 1 to August 7,
1996, the COMEX price averaged 91 cents per pound, closing at 93 cents on August
7, 1996.
The Corporation enters into price protection arrangements from time to
time, depending on market circumstances, to ensure a minimum price for a portion
of the copper it expects from future mine production. For further discussion of
the Corporation's copper price protection arrangements for 1996 and 1997
production, see Note 3 to Consolidated Financial Information.
Sales were $957.7 million in the 1996 second quarter and $1,962.4
million in the first six months of 1996, compared with $1,024.2 million and
$2,057.7 million in the corresponding 1995 periods. The 1996 decreases resulted
principally from lower average copper prices and lower sales volumes of wheels
and rims, largely offset by greater sales volumes of copper and higher sales
volumes of wire and cable products.
<PAGE>
PHELPS DODGE MINING COMPANY
Phelps Dodge Mining Company is an international business comprising a
group of companies involved in vertically integrated copper operations including
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 as rod 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 basis. 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 fluorspar, silver, lead and zinc operations) and its worldwide
mineral exploration and development programs.
================================================================================
First Six
Second Quarter Months
-------------- --------------
1996 1995 1996 1995
---- ---- ---- ----
Copper production (short tons):
Total production 236,000 211,100 467,400 402,800
Less minority participants'
shares * 40,800 37,700 82,000 72,100
------- ------- ------- -------
Net Phelps Dodge share 195,200 173,400 385,400 330,700
======= ======= ======= =======
Copper sales (short tons):
Net Phelps Dodge share from
own mines 189,000 157,700 379,400 315,700
Purchased copper 57,500 65,700 119,600 130,600
------- ------- ------- -------
Total copper sales 246,500 223,400 499,000 446,300
======= ======= ======= =======
New York Commodity Exchange
average spot price per
pound - copper cathodes $ 1.16 1.33 1.17 1.35
(in millions)
Sales and other operating
revenues $ 529.3 589.7 1,113.9 1,196.1
Operating income $ 146.3 187.9 330.9 390.0
- -------------------------
* Minority participant interests include (i) a 15 percent undivided
interest in the Morenci, Arizona, copper mining complex held by
Sumitomo Metal Mining Arizona, Inc., (ii) a one-third partnership
interest in Chino Mines Company in New Mexico held by Heisei Minerals
Corporation, and (iii) a 20 percent interest in Candelaria held by SMMA
Candelaria, Inc., a jointly owned subsidiary of Sumitomo Metal Mining
Co., Ltd. and Sumitomo Corporation.
================================================================================
Phelps Dodge Mining Company's sales of copper from its own mine
production increased by 31,300 tons or 20 percent in the second quarter of 1996
and by 63,700 tons or 20 percent in the first six months of 1996 compared with
the corresponding 1995 periods. The primary contributor to production and sales
volume increases was the Morenci mine, which included production from its
Southside solution extraction/electrowinning (SX/EW) project that commenced
operations in the third quarter of 1995. The sales volume increases partially
offset the impact of average copper prices that were lower in the second quarter
and first six months of 1996 than in the year-earlier periods. Resulting sales
in the second quarter of 1996 were $529.3 million, 10 percent lower than the
corresponding 1995 period, while sales in the first six months of 1996 were 7
percent lower than the same 1995 period.
Phelps Dodge Mining Company recorded operating income of $146.3 million
in the 1996 second quarter and $330.9 million in the first six months of 1996,
compared with $187.9 million and $390.0 million in the corresponding 1995
periods. These decreases resulted from the lower average copper prices,
partially offset by the higher sales volumes already discussed and lower copper
production costs. Decreased 1996 unit production costs resulted principally from
the favorable costs of the Southside SX/EW project. The 1996 amounts also
reflected an $18.0 million reduction of pre-tax earnings for adjustments during
June to mark to market concentrate transactions that had been recorded in prior
months at provisional forward prices. These adjustments primarily reflected a
sharp drop in copper futures prices in the month of June.
On May 1, 1996, the Corporation announced plans to expand concentrator
throughput at its Candelaria copper mining complex in northern Chile (the
Corporation owns an 80 percent interest in Candelaria). At full capacity, the
$337 million expansion will result in copper production of more than 400 million
pounds in each of the first two years of operations, although, under the current
operating plan, annual copper production will average approximately 380 million
pounds during the post-expansion mine life. The expansion will include increased
mining activity, the installation of a second semi-autogenous (SAG) mill and new
and expanded concentrating facilities, and the addition of more than 200
employees. Construction will begin in 1996, with new production scheduled to
come on line in mid-1998. As a result of the expansion, the estimated mine life
of Candelaria will be reduced from 35 years of production to 19 years.
The collective bargaining agreements covering approximately 700
employees at Phelps Dodge Mining Company's Chino operations in New Mexico
expired on June 30, 1996. As of August 7, 1996, employees who were covered by
the agreements have continued to work without a contract.
<PAGE>
PHELPS DODGE INDUSTRIES
Phelps Dodge Industries is a business segment comprising a group of
companies that manufacture engineered products principally for the
transportation, energy and telecommunications sectors worldwide. Its operations
are characterized by products with significant market share, internationally
competitive cost and quality, and specialized engineering capabilities. This
business segment includes the Corporation's specialty chemical operations
through Columbian Chemicals Company and its subsidiaries; its wheel and rim
operations through Accuride Corporation and its subsidiaries; and its wire and
cable and specialty conductor operations through Phelps Dodge International
Corporation and Phelps Dodge Magnet Wire Company and their subsidiaries and
affiliates.
================================================================================
First Six
Second Quarter Months
-------------- -------------
1996 1995 1996 1995
---- ---- ---- ----
(in millions)
Sales and other operating revenues:
Specialty chemicals $ 109.9 112.8 222.3 219.7
Wheels and rims 81.1 95.8 163.9 192.6
Wire and cable 237.4 225.9 462.3 449.3
------- ------- ------- -------
$ 428.4 434.5 848.5 861.6
======= ======= ======= =======
Operating income: *
Specialty chemicals $ 23.7 24.1 44.9 69.6
Wheels and rims 13.2 13.4 24.2 27.5
Wire and cable 23.2 22.5 45.4 40.9
------- ------- ------- -------
$ 60.1 60.0 114.5 138.0
======= ======= ======= =======
- -------------------------
* Operating income in the first six months of 1995 included a pre-tax
gain of $26.8 million in the specialty chemicals division from the sale
of a synthetic iron oxide facility in the first quarter.
================================================================================
During the 1996 second quarter, Phelps Dodge Industries recorded
operating income of $60.1 million, compared with $60.0 million in the
corresponding 1995 period. Operating income in the first six months of 1996 was
$114.5 million, compared with $111.2 million in the first six months of 1995
before a pre-tax gain of $26.8 million from the sale of Columbian Chemicals
Company's MAPICO division in the first quarter. Primarily as a result of
benefits from certain manufacturing cost reduction programs instituted during
1995, earnings in the second quarter and first six months of 1996 were higher
than in the 1995 periods (excluding the MAPICO gain) despite an overall decrease
in sales.
Phelps Dodge Industries' sales of $428.4 million and $848.5 million in
the second quarter and first six months of 1996, respectively, were less than 2
percent lower than in the corresponding 1995 periods as continued strength in
the specialty chemicals business and higher sales volumes in the wire and cable
businesses largely offset a 15 percent decrease in wheel and rim sales. Sales
volumes of wire and cable products benefited from the acquisition in May 1996 of
Nesor Alloy Corporation, a leading manufacturer of high-performance conductors
for the general electronics and aerospace industries. The decrease in wheel and
rim sales was driven by lower sales volumes resulting from decreased demand from
the major North American manufacturers of medium and heavy trucks and trailers.
On August 7, 1996, the Corporation announced plans to construct a
magnet wire manufacturing plant in Monterrey, Mexico. Construction of the $42
million project is scheduled to begin in 1996 with commercial production
expected in early 1998. This new plant, together with the Corporation's recently
expanded facility in El Paso, Texas, is expected to support customer growth in
the region while freeing up capacity at existing U.S. plants to meet growing
demand for magnet wire in the United States.
OTHER MATTERS RELATING TO THE STATEMENT OF CONSOLIDATED INCOME
Interest expense net of capitalized interest was $10.0 million in the
second quarter of 1996 and $27.0 million in the first six months, compared with
$18.3 million and $33.3 million in the corresponding periods in 1995. The 1996
amounts benefited from foreign currency exchange gains of approximately $8.0
million representing the remeasurement of Venezuelan local currency debt after a
major devaluation of the Bolivar. These gains were offset by approximately $7.0
million of similar expenses included in miscellaneous income and expense, net,
principally reflecting the effect of the devaluation on working capital.
Miscellaneous income in the first six months of 1996 also included an increase
of $5.0 million in dividends received from the Corporation's 13.9 percent
minority interest in Southern Peru Copper Corporation.
CHANGES IN FINANCIAL CONDITION
Capital outlays during the first six months of 1996 were $136.4 million
for Phelps Dodge Mining Company and $71.0 million for Phelps Dodge Industries.
Capital outlays in the corresponding 1995 period were $154.4 million for Phelps
Dodge Mining Company and $25.5 million for Phelps Dodge Industries. The
Corporation expects capital outlays for the year 1996 to be approximately $350
million for Phelps Dodge Mining Company, including Phelps Dodge's 80 percent
share of amounts to be spent on the recently announced Candelaria expansion.
Phelps Dodge Industries is expected to spend approximately $150 million during
the year. This amount does not include the $29 million spent in May 1996 for the
previously announced acquisition of Nesor Alloy Corporation.
At June 30, 1996, the Corporation's total debt was $702.7 million,
compared with $696.5 million at year-end 1995. The Corporation's ratio of debt
to total capitalization was 20.1 percent at June 30, 1996, compared with 20.2
percent at December 31, 1995.
An existing revolving credit agreement between the Corporation and
several lenders was amended on June 4, 1996. The agreement, as amended and
restated, permits borrowings of up to $500 million from time to time until its
scheduled maturity on June 4, 2001. The agreement allows for up to two one-year
renewals beyond the scheduled maturity date if the Corporation requests and
receives approval from at least two-thirds of the lenders involved. Interest is
payable at a fluctuating rate based on the agent bank's prime rate or a fixed
rate, based on the Eurodollar Interbank Offered Rate or at fixed rates offered
independently by the several lenders, for maturities of from seven to 360 days.
This agreement provides for an annual facility fee of eight basis points (0.08
percent) on total commitments. The agreement requires the Corporation to
maintain a minimum consolidated tangible net worth of $1.1 billion and limits
indebtedness to 50 percent of total consolidated capitalization. There were no
borrowings under this agreement at either June 30, 1996 or December 31, 1995.
On June 7, 1996, the Corporation paid a regular quarterly dividend of
50 cents per share on its common shares for the 1996 second quarter which
represented an 11 percent increase over the prior quarterly dividend of 45 cents
per share. The amount paid for the second quarter was $33.2 million, bringing
total 1996 dividends paid through June 30 to $63.5 million. On July 26, 1996,
the Board of Directors declared a 1996 third quarter regular dividend of 50
cents per common share to be paid on September 6, 1996, to shareholders of
record at the close of business on August 19, 1996.
In 1996 through August 7, the Corporation purchased 3,360,300 of its
common shares at a total cost of $214.1 million. On March 6, 1996, the
Corporation announced that its current share purchase authorization had been
increased from 5 million shares to a total of 10 million shares. Through August
7, 1996, the Corporation had purchased 6,035,900 of its common shares under the
program at a total cost of $372.3 million, leaving an additional 3,964,100
shares authorized for purchase. There were 65,955,800 common shares outstanding
on June 30, 1996.
<PAGE>
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, 1995, 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 its products did not result in significant releases of
airborne asbestos fibers. PDI and the Corporation are collectively referred to
below as PDI.
Since the late 1980s, PDI has been served with complaints in
asbestos-related actions filed on behalf of over 17,200 claimants. In these
proceedings, plaintiffs have alleged bodily injury or death caused by purported
exposure to asbestos and have claimed damages based on theories of strict
liability and negligence. Over 12,500 of those claimants were participants in
the Ingalls Shipyard asbestos litigation filed in Pascagoula, Mississippi. Each
claimant in that litigation sought from $2 million to $20 million in
compensatory and punitive damages from a group of approximately 100 to 150
defendants, which included PDI. Since the beginning of 1993, PDI has obtained
dismissal of all but one of the claims brought against it in Mississippi.
As of June 30, 1996, a total of 3,239 asbestos-related claims were
pending against PDI in 15 jurisdictions. PDI is vigorously contesting and
defending these asbestos-related claims.
<PAGE>
Item 4. Submission of Matters to a Vote of Security Holders
The Corporation's annual meeting was held on May 1, 1996. A total of
55,661,412 common shares, or about 83 percent of the issued and outstanding
common shares of the Corporation, were represented at the meeting. Set forth
below is a description of the matters voted upon at such meeting and a summary
of the voting regarding each such matter:
For Withheld
--- --------
Election of Directors:
Paul W. Douglas 55,541,015 120,397
William A. Franke 55,542,719 118,693
Southwood J. Morcott 55,543,239 118,173
J. Steven Whisler 55,544,435 116,977
For Against Abstain
--- ------- -------
Appointment of
Auditors 55,557,632 45,467 58,313
There were no broker non-votes included in the results for the election
of directors listed above or the appointment of auditors.
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 June 30, 1996.
<PAGE>
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: August 9, 1996 By: Thomas M. Foster
----------------
Thomas M. Foster
Vice President and Controller
(Principal Accounting Officer)
<PAGE>
PHELPS DODGE CORPORATION AND SUBSIDIARIES
INDEX TO EXHIBITS
12 Computation of ratios of total debt to total capitalization.
15 Letter from Price Waterhouse LLP with respect to unaudited interim
financial information.
PHELPS DODGE CORPORATION AND SUBSIDIARIES
Exhibit 12
COMPUTATION OF TOTAL DEBT TO TOTAL CAPITALIZATION
(Unaudited; dollars in thousands)
June 30, December 31,
1996 1995
---- ----
Short-term debt $ 72,600 66,600
Current portion of long-term debt 30,200 16,800
Long-term debt 599,900 613,100
---------- ----------
Total debt 702,700 696,500
Minority interests in subsidiaries 76,400 73,300
Common shareholders' equity 2,710,900 2,677,700
---------- ----------
Total capitalization $ 3,490,000 3,447,500
========== ==========
Ratio of total debt to total
capitalization 20.1% 20.2%
========== ==========
Exhibit 15
PRICE WATERHOUSE LLP
August 8, 1996
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Ladies and Gentlemen:
We are aware that Phelps Dodge Corporation has incorporated by reference our
report dated July 11, 1996 (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 Securities Act of 1933.
Yours very truly,
Price Waterhouse LLP
Phoenix, Arizona
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THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE CONSOLIDATED BALANCE SHEET AT JUNE 30, 1996 AND THE
RELATED CONSOLIDATED STATEMENTS OF INCOME AND OF CASH FLOWS FOR
THE SIX MONTHS ENDED JUNE 30, 1996 OF PHELPS DODGE CORPORATION
AND ITS SUBSIDIARIES AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
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