================================================================================
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, 1998
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 12, 1998: 58,671,000 shares.
================================================================================
<PAGE>
PHELPS DODGE CORPORATION
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 1998
Table of Contents
-----------------
Part I. Financial Information
Item 1. Financial Statements
Statement of Consolidated Income
Consolidated Balance Sheet
Consolidated Statement of Cash Flows
Consolidated Statement of Common Shareholders' Equity
Notes to Consolidated Financial Information
Review by Independent Accountants
Report of Independent Accountants on Review of Interim
Financial Information
Item 2. Management's Discussion and Analysis
Results of Operations
Results of Phelps Dodge Mining Company
Results of Phelps Dodge Industries
Other Matters Relating to the Statement of Consolidated Income
Changes in Financial Condition
Part II. Other Information
Item 6. 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)
<TABLE>
<CAPTION>
First Quarter
----------------
1998 1997
---- ----
<S> <C> <C>
SALES AND OTHER OPERATING REVENUES $ 798.3 1,021.7
-------- --------
OPERATING COSTS AND EXPENSES
Cost of products sold 590.4 695.9
Depreciation, depletion and amortization 73.5 68.9
Selling and general administrative expense 33.8 33.7
Exploration and research expense 12.9 17.2
Gain on asset disposition (186.2) --
-------- --------
524.4 815.7
-------- --------
OPERATING INCOME 273.9 206.0
Interest expense (21.7) (16.4)
Capitalized interest 0.5 2.5
Miscellaneous income and expense, net 6.3 9.9
-------- --------
INCOME BEFORE TAXES, MINORITY INTERESTS AND
EQUITY IN NET EARNINGS OF AFFILIATED COMPANIES 259.0 202.0
Provision for taxes on income (93.9) (64.6)
Minority interests in consolidated
subsidiaries (2.4) (2.3)
Equity in net earnings of affiliated
companies 1.0 2.4
-------- --------
NET INCOME $ 163.7 137.5
======== ========
BASIC EARNINGS PER SHARE $ 2.80 2.14
======== ========
DILUTED EARNINGS PER SHARE $ 2.79 2.13
======== ========
AVERAGE NUMBER OF SHARES OUTSTANDING - BASIC 58.4 64.2
AVERAGE NUMBER OF SHARES OUTSTANDING - DILUTED 58.7 64.6
</TABLE>
See Notes to Consolidated Financial Information.
<PAGE>
BUSINESS SEGMENTS
(Unaudited; in millions)
<TABLE>
<CAPTION>
First Quarter
---------------------
1998 1997
-------- --------
<S> <C> <C>
SALES AND OTHER OPERATING REVENUES
Phelps Dodge Mining Company $ 441.2 590.3
Phelps Dodge Industries 357.1 431.4
-------- --------
$ 798.3 1,021.7
======== ========
OPERATING INCOME (LOSS)
Phelps Dodge Mining Company $ 54.6 171.8
Phelps Dodge Industries (see Note 4) 231.2 45.3
Corporate and other (11.9) (11.1)
-------- --------
$ 273.9 206.0
======== ========
</TABLE>
See Notes to Consolidated Financial Information.
<PAGE>
CONSOLIDATED BALANCE SHEET
(Unaudited; in millions)
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
---- ----
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 392.9 157.9
Accounts receivable, net 411.1 420.5
Inventories 279.5 297.8
Supplies 114.7 115.1
Prepaid expenses 12.5 7.8
Deferred income taxes 51.3 52.0
-------- --------
Current assets 1,262.0 1,051.1
Investments and long-term accounts receivable 105.0 131.8
Property, plant and equipment, net 3,530.4 3,445.1
Other assets and deferred charges 244.5 337.2
-------- --------
$5,141.9 4,965.2
======== ========
LIABILITIES
Short-term debt $ 86.2 91.4
Current portion of long-term debt 63.9 54.8
Accounts payable and accrued expenses 476.7 553.2
Income taxes 78.7 1.7
-------- --------
Current liabilities 705.5 701.1
Long-term debt 846.0 857.1
Deferred income taxes 492.9 439.2
Other liabilities and deferred credits 328.6 344.1
-------- --------
2,373.0 2,341.5
-------- --------
MINORITY INTERESTS IN CONSOLIDATED SUBSIDIARIES 117.6 113.3
-------- --------
COMMON SHAREHOLDERS' EQUITY
Common shares, 58.7 outstanding
(12/31/97 - 58.6) 366.7 366.5
Capital in excess of par value 1.2 --
Retained earnings 2435.1 2,301.0
Accumulated other comprehensive income (loss) (142.5) (146.9)
Other (9.2) (10.2)
-------- --------
2,651.3 2,510.4
-------- --------
$5,141.9 4,965.2
======== ========
</TABLE>
See Notes to Consolidated Financial Information.
<PAGE>
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited; in millions)
<TABLE>
<CAPTION>
Three months
ended
March 31,
--------------
1998 1997
---- ----
<S> <C> <C>
OPERATING ACTIVITIES
Net income $163.7 137.5
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation, depletion and amortization 73.5 68.9
Deferred income taxes 12.5 18.2
Equity earnings net of dividends received (1.0) (2.0)
Changes in current assets and liabilities:
(Increase) decrease in accounts receivable (48.3) (37.4)
(Increase) decrease in inventories (7.0) (6.1)
(Increase) decrease in supplies (3.5) (2.6)
(Increase) decrease in prepaid expenses (5.0) (14.0)
(Increase) decrease in deferred income taxes 0.8 (0.1)
Increase (decrease) in interest payable 13.6 3.6
Increase (decrease) in other accounts
payable (43.3) 15.2
Increase (decrease) in income taxes 78.4 41.5
Increase (decrease) in other accrued
expenses 8.3 (0.6)
Gain on asset disposition (186.2) --
Other adjustments, net (11.0) 1.3
------ ------
Net cash provided by operating activities 45.5 223.4
------ ------
INVESTING ACTIVITIES
Capital outlays (99.6) (122.7)
Capitalized interest (0.5) (2.5)
Investment in subsidiaries (116.0) 0.3
Proceeds from asset dispositions and other 440.5 1.1
------ ------
Net cash provided by (used in)
investing activities 224.4 (123.8)
------ ------
FINANCING ACTIVITIES
Increase in debt 12.6 --
Payment of debt (19.0) (11.6)
Common dividends (29.6) (32.3)
Purchase of common shares -- (109.3)
Other, net 1.1 5.5
------ ------
Net cash used in financing activities (34.9) (147.7)
------ ------
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 235.0 (48.1)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 157.9 470.1
------ ------
CASH AND CASH EQUIVALENTS AT END
OF PERIOD $392.9 422.0
====== ======
</TABLE>
See Notes to Consolidated Financial Information.
<PAGE>
CONSOLIDATED STATEMENT OF COMMON SHAREHOLDERS' EQUITY
(Unaudited; in millions)
<TABLE>
<CAPTION>
Common Shares Accumulated
------------------- Other
Number Capital in Comprehensive Common
of At Par Excess of Retained Income Shareholders'
shares Value Par Value Earnings (Loss) Other Equity
-------- -------- ------------ -------- ------------ -------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT
DECEMBER 31, 1997 58.6 $ 366.5 $ -- $2,301.0 $ (146.9) $ (10.2) $ 2,510.4
Stock options
exercised 0.1 0.2 1.5 1.7
Restricted shares
issued, net -- -- (0.5) 1.0 0.5
Other investment
adjustments 0.2 0.2
Dividends on common
shares (29.6) (29.6)
Comprehensive
income:
Net income 163.7 163.7
Other
comprehensive
income, net of
tax:
Translation
adjustment 4.3 4.3
Unrealized
gains on
securities 0.1 0.1
------------ ------------
Other
comprehensive
income 4.4 4.4
------------ ------------
Comprehensive
income 168.1
-------- -------- ------------ -------- ------------ -------- ------------
BALANCE AT
MARCH 31, 1998 58.7 $ 366.7 $ 1.2 $2,435.1 $ (142.5) $ (9.2) $ 2,651.3
======== ======== ============ ======== ============ ======== ============
</TABLE>
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, 1997. 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 period ended March 31,
1998, are not necessarily indicative of the results to be expected for
the full year.
3. Depending on market circumstances, the Corporation may periodically
purchase or liquidate various copper price protection contracts for a
portion of its expected future mine production to mitigate the risk of
adverse price fluctuations. The Corporation currently has no such
copper price protection contracts in place.
4. Effective January 1, 1998, the Corporation sold Accuride Corporation
and its subsidiaries, its wheel and rim manufacturing business, to an
affiliate of Kohlberg Kravis Roberts and Co. (KKR) and the existing
management of Accuride. The Corporation retained a 10 percent interest
in Accuride. Under the terms of the sales agreement, the Corporation
received proceeds of $453.2 million from KKR resulting in a pre-tax
gain of approximately $186.2 million ($122.9 million after taxes, or
$2.09 per common share).
5. On February 3, 1998, the Corporation acquired the stock of Cobre Mining
Company Inc. (Cobre) for $113.3 million including acquisition costs.
The Corporation also assumed Cobre's outstanding debt of $14.8 million.
The acquisition was at a price of $3.85 per common share for
substantially all of Cobre's 27 million common shares, including shares
issuable upon the exercise of outstanding warrants and options. The
primary assets of Cobre include the Continental Mine, which comprises
an open-pit copper mine, two underground copper mines, two mills, and
the surrounding 11,000 acres of land located in southwestern New Mexico
adjacent to the Corporation's Chino operations.
6. In the 1998 first quarter, the Corporation adopted Statement of
Financial Accounting Standards (SFAS) No. 130, "Reporting Comprehensive
Income." The Corporation has presented the required information in the
Consolidated Statement of Common Shareholders' Equity. SFAS No. 130 has
no effect on the Corporation's results of operations, financial
position, capital resources or liquidity.
7. On March 4, 1998, and April 3, 1998, respectively, the Accounting
Standards Executive Committee issued Statement of Position (SOP) 98-1,
"Accounting for the Costs of Computer Software Developed or Obtained
for Internal Use" and SOP 98-5, "Reporting on the Costs of Start-Up
Activities." These statements become effective for fiscal periods
beginning after December 15, 1998. The Corporation will adopt both SOPs
in 1999. The Corporation does not expect either SOP to have a material
effect on its results of operations or financial position.
REVIEW BY INDEPENDENT ACCOUNTANTS
The financial information as of March 31, 1998, and for the three-month
periods ended March 31, 1998 and 1997, 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
April 13, 1998
To the Board of Directors and Shareholders of the
Phelps Dodge Corporation
We have reviewed the accompanying consolidated balance sheet of Phelps Dodge
Corporation and its subsidiaries as of March 31, 1998, and the consolidated
statements of income, of cash flows and of common shareholders' equity for the
three-month periods ended March 31, 1998 and 1997. This financial information is
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 information referred to above for it 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, 1997, 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 15, 1998, except as to Note 2, which is as of February 3, 1998, 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, 1997, 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
</AUDIT-REPORT>
<PAGE>
Item 2. Management's Discussion and Analysis
RESULTS OF OPERATIONS
Phelps Dodge Corporation had consolidated earnings for the 1998 first
quarter of $40.8 million, or 70 cents per common share, before a non-recurring,
after-tax gain of $122.9 million, or $2.09 per common share, from the sale of
Accuride Corporation, Phelps Dodge's wheel and rim business. Net income after
the non-recurring gain was $163.7 million, or $2.79 per common share. Net income
for the 1997 first quarter was $137.5 million, or $2.13 per common share.
Earnings before non-recurring items were less in the 1998 first quarter
than in the corresponding 1997 period principally as a result of lower average
copper prices. The average spot price per pound of cathode copper on the New
York Commodity Exchange (COMEX) was approximately 34 cents per pound, or 31
percent, lower in the first quarter of 1998 than the average price in the
corresponding 1997 period. The effect of this price decrease was offset in part
by an insurance claim recovery of $11.5 million before taxes ($6.7 million, or
11 cents per share, after taxes), increased volumes of copper sold from mine
production and decreased copper production costs.
The COMEX spot price per pound of copper cathode, upon which the
Corporation bases its selling price, averaged 77 cents in the 1998 first
quarter, compared with $1.11 in the corresponding 1997 period. From April 1 to
May 12, 1998, the COMEX price averaged 81 cents per pound, closing at 79 cents
on May 12, 1998.
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 share of current annual production is approximately
1.8 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 $18 million.
Depending on market circumstances, the Corporation may periodically
purchase or liquidate various copper price protection contracts for a portion of
its expected future mine production to mitigate the risk of adverse price
fluctuations. The Corporation currently has no such copper price protection
contracts in place.
Sales were $798.3 million in the 1998 first quarter, compared with
$1,021.7 million in the corresponding 1997 period. This decrease principally
resulted from lower average copper prices and the absence of Accuride
Corporation, partially offset by higher sales volumes of copper, carbon black,
and wire and cable products.
RESULTS OF 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 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.
================================================================================
<TABLE>
<CAPTION>
First Quarter
-------------
1998 1997
---- ----
<S> <C> <C>
Copper production (short tons):
Total production 263,800 235,300
Less minority participants' shares * 44,800 40,700
------- -------
Net Phelps Dodge share 219,000 194,600
======= =======
Copper sales (short tons):
Net Phelps Dodge share from own mines 215,300 192,800
Purchased copper 79,900 73,100
------- -------
Total copper sales 295,200 265,900
======= =======
New York Commodity Exchange
average spot price per
pound - copper cathodes $ 0.77 1.11
(in millions)
Sales and other operating revenues $ 441.2 590.3
Operating income $ 54.6 171.8
</TABLE>
- ---------------------
* 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 in Chile
held by SMMA Candelaria, Inc., a jointly owned subsidiary of Sumitomo
Metal Mining Co., Ltd. and Sumitomo Corporation.
================================================================================
Phelps Dodge Mining Company's sales and other operating revenues
decreased by $149.1 million, or 25 percent, in the 1998 first quarter compared
with the corresponding 1997 period. This variance primarily reflected decreased
average selling prices for copper in the 1998 first quarter that resulted in
revenue reductions of approximately $180 million. Partially offsetting that
price variance was a 29,300 ton, or 11 percent, increase in the volume of copper
sold in the 1998 first quarter. This sales volume increase principally was due
to greater availability of Phelps Dodge mined copper resulting from production
increases at the Candelaria mine in Chile, the February 1998 acquisition of
Cobre Mining Company Inc. (Cobre) (see Note 5 to the Consolidated Financial
Information), and increased amounts of copper purchased for resale.
Phelps Dodge Mining Company reported operating income of $54.6 million
in the 1998 first quarter, compared with $171.8 million in the corresponding
1997 period. This decrease primarily reflected the lower average copper prices,
partially offset by the higher volumes of copper sold from mine production and
also decreases in copper production costs. Copper sold from mine production
increased by 22,500 tons, or 12 percent, over first quarter 1997 production. The
production increase was primarily due to the expansion of the Candelaria mine
completed in the 1997 fourth quarter, and the acquisition of Cobre. Lower 1998
copper production costs were primarily due to the effect of the Candelaria mine
expansion, but also reflected a portion of an insurance claim recovery related
to 1993 flood damage at the Morenci, Arizona, operation.
On May 1, 1998, the Corporation announced a proposal to revise the
mining plan at its Chino Mines Company (Chino) in New Mexico. The revised mine
plan would reduce Chino's total mine production from 430,000 short tons of
material per day to 300,000 short tons per day, and result in the layoff of nine
salaried and 85 hourly (union and non-union) employees. The proposal would
curtail production of copper cathode at Chino by more than 100 million pounds
over a three-year period.
The Kafue Consortium, of which Phelps Dodge is a part, submitted a bid
in 1997 to acquire the Nkana and Nchanga division of Zambia Consolidated Copper
Mines Limited under the Zambian privatization program. On April 2, 1998, Zambia
Consolidated Copper Mines Limited rejected that bid. Since that time,
discussions between the two parties have continued.
The collective bargaining agreements covering approximately 625
employees at Phelps Dodge Mining Company's Chino operations in New Mexico
expired on June 30, 1996. As of May 12, 1998, employees who were covered by the
agreements have continued to work without a contract.
RESULTS OF PHELPS DODGE INDUSTRIES
Phelps Dodge Industries is a business segment comprising a group of
companies that manufacture engineered products principally for the global
energy, telecommunications, transportation and specialty chemicals sectors. 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
chemicals operations through Columbian Chemicals Company and its subsidiaries;
its wire and cable and specialty conductor operations through Phelps Dodge
International Corporation and Phelps Dodge Magnet Wire Company and their
subsidiaries and affiliates; and, until its sale, effective January 1, 1998, its
wheel and rim operations through Accuride Corporation and its subsidiaries.
================================================================================
<TABLE>
<CAPTION>
First Quarter
---------------
1998 1997
---- ----
(in millions)
<S> <C> <C>
Sales and other operating revenues:
Specialty chemicals $113.3 108.7
Wheels and rims * -- 81.5
Wire and cable 243.8 241.2
------ ------
$357.1 431.4
====== ======
Operating income:
Specialty chemicals $ 21.3 17.2
Wheels and rims * 186.2 6.1
Wire and cable 23.7 22.0
------ ------
$231.2 45.3
====== ======
</TABLE>
* Accuride Corporation, the Corporation's wheel and rim business was sold
effective January 1, 1998, resulting in a pre-tax gain of $186.2 million (see
Note 4 to the Consolidated Financial Information).
================================================================================
Phelps Dodge Industries' reported sales of $357.1 million in the first
quarter of 1998, compared with $431.4 million in the corresponding 1997 period.
The decrease principally reflected the effect of the sale of Accuride, which
contributed sales of $81.5 million in the 1997 first quarter.
Phelps Dodge Industries reported 1998 first quarter operating income of
$45.0 million before a $186.2 million pre-tax gain from the sale of Accuride,
compared with $45.3 million in the corresponding 1997 period. The 1998 first
quarter operating income approximated the 1997 operating income, despite the
absence of Accuride, principally due to higher sales volumes and lower feedstock
costs in the specialty chemicals business, and higher sales volumes in the wire
and cable business. The new 60 percent owned wire and cable joint venture in
Brazil, which was acquired at the end of 1997, contributed to the 1998 first
quarter performance of Phelps Dodge Industries.
At the end of March of this year, commercial production commenced at
the Corporation's new $42 million magnet wire facility, Phelps Dodge Magnet Wire
de Mexico, located in Monterrey, Mexico. The 20,000 square-meter facility uses
state-of-the-art technology and has the capacity to produce 38,000 metric tons
of magnet wire annually, the insulated conductor used in most electrical
systems.
The collective bargaining agreement covering approximately 360
employees at Phelps Dodge Magnet Wire's Hopkinsville, Kentucky, plant expired on
October 11, 1996. As of May 12, 1998, employees who were covered by the
agreement have continued to work without a contract.
OTHER MATTERS RELATING TO THE STATEMENT OF CONSOLIDATED INCOME
The Corporation's 1998 first quarter exploration and research expense
was $12.9 million, a decrease of 25 percent from that in the 1997 first quarter.
The decrease principally was a result of the closure of the U.S. exploration
offices during the 1997 fourth quarter.
Miscellaneous income and expense, net, decreased by $3.6 million, or 36
percent, in the 1998 first quarter compared with the corresponding 1997 period.
This change principally reflected currency exchange losses and lower dividend
income from the Corporation's 13.9 percent minority interest in Southern Peru
Copper Corporation, an effect of the lower average copper prices. The decrease
was partially offset by an increase in interest income from increased short-term
investments.
CHANGES IN FINANCIAL CONDITION
Capital expenditures and investments during the 1998 first quarter were
$188.2 million for Phelps Dodge Mining Company, including $113.3 million for the
acquisition of the stock of Cobre. Capital expenditures and investments were
$24.9 million for Phelps Dodge Industries. Capital expenditures and investments
in the corresponding 1997 period were $94.5 million for Phelps Dodge Mining
Company and $27.4 million for Phelps Dodge Industries. The Corporation expects
capital expenditures and investments for the year 1998 to be approximately $350
million for Phelps Dodge Mining Company and approximately $125 million for
Phelps Dodge Industries.
At March 31, 1998, the Corporation's total debt was $996.1 million,
compared with $1,003.3 million at year-end 1997. The Corporation's ratio of debt
to total capitalization was 26.5 percent at March 31, 1998, compared with 27.7
percent at December 31, 1997.
On March 10, 1998, the Corporation paid a regular quarterly dividend of
50 cents per share on its common shares for the 1998 first quarter; the total
amount paid was $29.6 million. On May 6, 1998, the Board of Directors declared a
1998 second quarter regular dividend of 50 cents per common share. The dividend
is to be paid on June 10, 1998, to shareholders of record at the close of
business on May 20, 1998.
This year through May 12, the Corporation has not purchased any of its
shares under its May 7, 1997, share purchase authorization. Under that program,
2,394,000 shares remain authorized for purchase. There were 58,661,000 common
shares outstanding at March 31, 1998.
<PAGE>
Part II. Other Information
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) The Corporation filed a Current Report on Form 8-K on February 6,
1998, with respect to the issuance of a new Shareholder Rights
Agreement to the stockholders of record on February 24, 1998.
<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: May 13, 1998 By: Gregory W. Stevens
------------------
Gregory W. Stevens
Vice President and Controller
(Principal Accounting Officer)
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)
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
---- ----
<S> <C> <C>
Short-term debt $ 86,200 91,400
Current portion of long-term debt 63,900 54,800
Long-term debt 846,000 857,100
---------- ----------
Total debt 996,100 1,003,300
Minority interests in subsidiaries 117,600 113,300
Common shareholders' equity 2,651,300 2,510,400
---------- ----------
Total capitalization $3,765,000 3,627,000
========== ==========
Ratio of total debt to total
capitalization 26.5% 27.7%
========== ==========
</TABLE>
Exhibit 15
May 13, 1998
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 April 13, 1998 (issued pursuant to the provisions of Statement on
Auditing Standards No. 71) in the Prospectus constituting part of its
Registration Statement and Post-Effective Amendment No. 1 on Form S-3 (Nos.
33-44380 and 333-36415) and in the Registration Statements on Form S-8 (Nos.
33-26442, 33-6141, 33-26443, 33-29144, 33-19012, 2-67317, 33-34363, 33-34362,
33-62648, 333-42231 and 333-52175). We are also aware of our responsibilities
under the Securities Act of 1933.
Yours very truly,
Price Waterhouse LLP
Phoenix, Arizona
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE CONSOLIDATED BALANCE SHEET AT MARCH 31, 1998 AND THE
RELATED CONSOLIDATED STATEMENTS OF INCOME AND OF CASH FLOWS FOR
THE THREE MONTHS ENDED MARCH 31, 1998 OF PHELPS DODGE
CORPORATION AND ITS SUBSIDIARIES AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<EXCHANGE-RATE> 1
<CASH> 392,900
<SECURITIES> 0
<RECEIVABLES> 411,100
<ALLOWANCES> 0
<INVENTORY> 279,500
<CURRENT-ASSETS> 1,262,000
<PP&E> 3,530,400
<DEPRECIATION> 0
<TOTAL-ASSETS> 5,141,900
<CURRENT-LIABILITIES> 705,500
<BONDS> 846,000
0
0
<COMMON> 366,700
<OTHER-SE> 2,284,600
<TOTAL-LIABILITY-AND-EQUITY> 5,141,900
<SALES> 798,300
<TOTAL-REVENUES> 798,300
<CGS> 590,400
<TOTAL-COSTS> 590,400
<OTHER-EXPENSES> (99,800)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 21,200
<INCOME-PRETAX> 259,000
<INCOME-TAX> 93,900
<INCOME-CONTINUING> 163,700
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 163,700
<EPS-PRIMARY> 2.80
<EPS-DILUTED> 2.79
</TABLE>
