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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 September 30, 1999
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 November 10, 1999: 74,779,977 shares.
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<PAGE>
PHELPS DODGE CORPORATION
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 1999
Table of Contents
<TABLE>
<CAPTION>
Page
----
<S> <C>
Part I. Financial Information
Item 1. Financial Statements
Statement of Consolidated Operations ..............................
Consolidated Balance Sheet ........................................
Consolidated Statement of Cash Flows ..............................
Consolidated Statement of Common Shareholders' Equity .............
Financial Data by Business Segment ................................
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 Operations
Changes in Financial Condition ....................................
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K ............................
Signatures ..........................................................
Index to Exhibits ...................................................
</TABLE>
<PAGE>
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PHELPS DODGE CORPORATION AND SUBSIDIARIES
Part I. Financial Information
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Third Quarter First Nine Months
------------------- --------------------
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
STATEMENT OF CONSOLIDATED OPERATIONS
(Unaudited; in millions except per share data)
SALES AND OTHER OPERATING REVENUES ........................ $ 742.7 764.0 2,096.9 2,356.7
-------- -------- -------- --------
OPERATING COSTS AND EXPENSES
Cost of products sold ................................. 579.6 594.7 1,652.8 1,790.8
Depreciation, depletion and amortization .............. 68.4 74.0 212.7 218.5
Selling and general administrative expense ............ 29.8 27.4 89.6 91.6
Exploration and research expense ...................... 12.3 15.2 33.4 41.5
Non-recurring charges and provision for
asset disposition (see Notes 4 and 5) ............... 1.1 (12.6) 84.1 (198.7)
-------- -------- -------- --------
691.2 698.7 2,072.6 1,943.7
-------- -------- -------- --------
OPERATING INCOME .......................................... 51.5 65.3 24.3 413.0
Interest expense ...................................... (20.3) (23.3) (68.4) (67.9)
Capitalized interest .................................. -- 0.5 0.1 1.7
Miscellaneous income and expense, net ................. 2.9 7.1 (3.5) 29.4
-------- -------- -------- --------
INCOME (LOSS) BEFORE TAXES, MINORITY INTERESTS,
EQUITY IN NET EARNINGS OF AFFILIATED COMPANIES
AND CUMULATIVE EFFECT OF ACCOUNTING CHANGE .............. 34.1 49.6 (47.5) 376.2
Provision for taxes on income ......................... (17.4) (19.0) 1.3 (138.5)
Minority interests in consolidated subsidiaries ....... (0.6) (2.9) (0.1) (6.7)
Equity in net earnings of affiliated companies ........ (0.7) 0.9 4.7 1.7
-------- -------- -------- --------
INCOME (LOSS) BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGE 15.4 28.6 (41.6) 232.7
Cumulative effect of accounting change (see Note 6) ... -- -- (3.5) --
-------- -------- -------- --------
NET INCOME (LOSS) ......................................... $ 15.4 28.6 (45.1) 232.7
======== ======== ======== ========
AVERAGE NUMBER OF SHARES OUTSTANDING - BASIC .............. 57.8 58.3 57.8 58.4
BASIC EARNINGS (LOSS) PER SHARE BEFORE CUMULATIVE EFFECT
OF ACCOUNTING CHANGE .................................... $ 0.27 0.49 (0.72) 3.98
Cumulative effect of accounting change (see Note 6) ... -- -- (0.06) --
-------- -------- -------- --------
BASIC EARNINGS (LOSS) PER SHARE ........................... $ 0.27 0.49 (0.78) 3.98
======== ======== ======== ========
AVERAGE NUMBER OF SHARES OUTSTANDING - DILUTED ............ 58.1 58.5 57.8 58.6
DILUTED EARNINGS (LOSS) PER SHARE BEFORE CUMULATIVE EFFECT
OF ACCOUNTING CHANGE .................................... $ 0.27 0.49 (0.72) 3.97
Cumulative effect of accounting change (see Note 6) ... -- -- (0.06) --
-------- -------- -------- --------
DILUTED EARNINGS (LOSS) PER SHARE ......................... $ 0.27 0.49 (0.78) 3.97
======== ======== ======== ========
</TABLE>
See Notes to Consolidated Financial Information.
<PAGE>
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CONSOLIDATED BALANCE SHEET
(Unaudited; in millions)
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
-------- --------
<S> <C> <C>
ASSETS
Cash and cash equivalents ......................... $ 165.0 221.7
Accounts receivable, net .......................... 407.9 321.1
Inventories ....................................... 269.5 266.0
Supplies .......................................... 104.6 110.9
Prepaid expenses .................................. 17.1 16.5
Deferred income taxes ............................. 48.9 43.8
-------- --------
Current assets .................................. 1,013.0 980.0
Investments and long-term accounts receivable ..... 91.7 85.6
Property, plant and equipment, net ................ 3,455.7 3,587.2
Other assets and deferred charges ................. 328.9 383.7
-------- --------
$4,889.3 5,036.5
======== ========
LIABILITIES
Short-term debt ................................... $ 229.8 116.1
Current portion of long-term debt ................. 54.7 68.5
Accounts payable and accrued expenses ............. 467.3 451.3
Accrued income taxes .............................. 2.9 15.2
-------- --------
Current liabilities ............................. 754.7 651.1
Long-term debt .................................... 806.5 836.4
Deferred income taxes ............................. 499.7 508.6
Other liabilities and deferred credits ............ 373.1 359.7
-------- --------
2,434.0 2,355.8
-------- --------
MINORITY INTERESTS IN CONSOLIDATED SUBSIDIARIES ..... 78.5 93.3
-------- --------
COMMON SHAREHOLDERS' EQUITY
Common shares, 58.0 outstanding (12/31/98 - 57.9) . 362.5 362.1
Capital in excess of par value .................... 5.8 1.8
Retained earnings ................................. 2,212.9 2,345.0
Accumulated other comprehensive income (loss) ..... (197.1) (113.9)
Other ............................................. (7.3) (7.6)
-------- --------
2,376.8 2,587.4
-------- --------
$4,889.3 5,036.5
======== ========
</TABLE>
See Notes to Consolidated Financial Information.
<PAGE>
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CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited; in millions)
<TABLE>
<CAPTION>
Nine months ended
Sept. 30,
----------------
1999 1998
------ ------
<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss) ................................................... $(45.1) 232.7
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation, depletion and amortization ........................ 212.7 218.5
Deferred income taxes ........................................... (3.8) 40.8
Equity earnings (loss) net of dividends received ................ (4.6) (0.1)
Changes in current assets and liabilities:
(Increase) decrease in accounts receivable ................... (104.0) (34.8)
(Increase) decrease in inventories ............................ (12.4) (17.3)
(Increase) decrease in supplies ............................... 3.5 (3.0)
(Increase) decrease in prepaid expenses ....................... (1.0) (3.5)
(Increase) decrease in deferred income taxes .................. (5.2) 6.7
Increase (decrease) in interest payable ....................... 9.2 17.3
Increase (decrease) in other accounts payable ................. (14.2) (44.8)
Increase (decrease) in accrued income taxes ................... (11.6) 28.8
Increase (decrease) in other accrued expenses ................. (1.6) (6.9)
Asset dispositions and non-recurring charges (see Notes 4 and 5) 85.8 (198.7)
Other adjustments, net .......................................... 8.9 (7.8)
------ ------
Net cash provided by operating activities ................... 116.6 227.9
------ ------
INVESTING ACTIVITIES
Capital outlays ..................................................... (101.2) (248.8)
Capitalized interest ................................................ (0.1) (1.7)
Investment in subsidiaries .......................................... (75.4) (135.4)
Proceeds from asset dispositions and other, net (see Notes 4 and 5) 7.3 466.5
------ ------
Net cash provided by (used in) investing activities ......... (169.4) 80.6
------ ------
FINANCING ACTIVITIES
Increase in debt .................................................... 136.3 16.0
Payment of debt ..................................................... (49.0) (54.0)
Common dividends .................................................... (87.0) (88.3)
Purchase of common shares ........................................... -- (31.5)
Other, net .......................................................... (4.2) 0.9
------ ------
Net cash used in financing activities ....................... (3.9) (156.9)
------ ------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ...................... (56.7) 151.6
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD ...................... 221.7 157.9
------ ------
CASH AND CASH EQUIVALENTS AT END OF PERIOD ............................ $165.0 309.5
====== ======
</TABLE>
See Notes to Consolidated Financial Information.
<PAGE>
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CONSOLIDATED STATEMENT OF COMMON SHAREHOLDERS' EQUITY
(Unaudited; in millions)
<TABLE>
<CAPTION>
Common Shares Accumulated
-------------------- Capital in Other Common
Number At Par Excess of Retained Comprehensive Shareholders'
of Shares Value Par Value Earnings Income (loss) Other Equity
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1998 ............ 57.9 $ 362.1 $ 1.8 $2,345.0 $ (113.9) $ (7.6) $2,587.4
Stock options exercised ............... 0.1 0.3 2.0 -- 2.3
Restricted shares issued, net ......... -- 0.1 1.0 -- 0.3 1.4
Other investment adjustments .......... 1.0 -- 1.0
Dividends on common shares ............ (87.0) (87.0)
Comprehensive income (loss):
Net income (loss) ................... (45.1) (45.1)
Other comprehensive income (loss),
net of tax:
Reclassification adjustment * ... 11.8 11.8
Translation adjustment .......... (95.0) (95.0)
-------- --------
Other comprehensive income (loss) (83.2) (83.2)
-------- --------
Comprehensive income (loss) ......... (128.3)
-------- -------- -------- -------- -------- -------- --------
BALANCE AT SEPTEMBER 30, 1999 ........... 58.0 $ 362.5 $ 5.8 $2,212.9 $ (197.1) $ (7.3) $2,376.8
======== ======== ======== ======== ======== ======== ========
</TABLE>
DISCLOSURE OF RECLASSIFICATION AMOUNT:
* The 1999 reclassification adjustment represents the write-off of cumulative
translation adjustments as a result of the sale of PD Mining Ltd.
See Notes to Consolidated Financial Information.
<PAGE>
-5-
FINANCIAL DATA BY BUSINESS SEGMENT
(Unaudited; in millions)
<TABLE>
<CAPTION>
PD Industries
Phelps ----------------------------------------
Dodge Specialty Wire & Other * Segment Corp. Reconciling
Mining Chemicals Cable Segments Total Subtotal & Other Elims. Totals
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
THIRD QUARTER 1999
Sales & other operating revenues:
Unaffiliated customers ........ $ 406.9 132.9 202.9 -- 335.8 742.7 -- -- 742.7
Intersegment .................. 62.2 -- 0.1 -- 0.1 62.3 -- (62.3) --
Non-recurring charges ........... -- -- 1.1 -- 1.1 1.1 -- -- 1.1
Operating income (loss) ......... 36.2 21.9 4.9 -- 26.8 63.0 (11.5) -- 51.5
Assets at September 30 .......... 3,175.3 761.4 805.6 -- 1,567.0 4,742.3 1,109.5 (962.5) 4,889.3
- ------------------------------------------------------------------------------------------------------------------------------------
THIRD QUARTER 1998
Sales & other operating revenues:
Unaffiliated customers ........ $ 421.9 104.6 237.5 -- 342.1 764.0 -- -- 764.0
Intersegment .................. 63.8 -- 0.3 -- 0.3 64.1 -- (64.1) --
Gain on asset disposition ....... -- -- -- 12.6 12.6 12.6 -- -- 12.6
Operating income (loss) ......... 27.2 17.7 17.0 12.6 47.3 74.5 (9.7) 0.5 65.3
Assets at September 30 .......... 3,262.9 492.4 934.9 -- 1,427.3 4,690.2 836.9 (496.1) 5,031.0
- ------------------------------------------------------------------------------------------------------------------------------------
FIRST NINE MONTHS 1999
Sales & other operating revenues:
Unaffiliated customers ........ $1,102.3 398.8 595.8 -- 994.6 2,096.9 -- -- 2,096.9
Intersegment .................. 170.7 -- 0.2 -- 0.2 170.9 -- (170.9) --
Non-recurring charges ........... 34.5 19.9 29.5 -- 49.4 83.9 0.2 -- 84.1
Operating income (loss) ......... 8.2 62.7 (11.0) -- 51.7 59.9 (34.5) (1.1) 24.3
Assets at September 30 .......... 3,175.3 761.4 805.6 -- 1,567.0 4,742.3 1,109.5 (962.5) 4,889.3
- ------------------------------------------------------------------------------------------------------------------------------------
FIRST NINE MONTHS 1998
Sales & other operating revenues:
Unaffiliated customers ........ $1,303.5 326.9 726.3 -- 1,053.2 2,356.7 -- -- 2,356.7
Intersegment .................. 197.1 -- 1.7 -- 1.7 198.8 -- (198.8) --
Gain on asset disposition ....... -- -- -- 198.7 198.7 198.7 -- -- 198.7
Operating income (loss) ......... 119.2 61.3 66.2 198.7 326.2 445.4 (30.8) (1.6) 413.0
Assets at September 30 .......... 3,262.9 492.4 934.9 -- 1,427.3 4,690.2 836.9 (496.1) 5,031.0
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Other segments include Accuride Corporation which was sold effective
January 1, 1998. (See Note 5 for a further discussion of this sale.)
<PAGE>
- 6 -
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 our Form 10-K for the year ended December 31, 1998. 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 nine-month periods ended
September 30, 1999, are not necessarily indicative of the results to be
expected for the full year.
3. Depending on market circumstances, we may periodically purchase or
liquidate various copper price protection contracts for a portion of our
expected future mine production to mitigate the risk of adverse price
fluctuations. With respect to 2000 production, as of September 30, 1999, we
had entered into annual contracts with several financial institutions that
effectively ensure minimum (approximately 72 cents) and maximum
(approximately 95 cents) prices per pound for approximately 110 million
pounds of copper cathode. The minimum and maximum prices are based on the
annual average LME price.
4. On June 30, 1999, we announced a plan to reduce costs and improve operating
performance at all three of our business segments by (i) curtailing
higher-cost copper production by temporarily closing our Hidalgo smelter in
New Mexico and the smaller of two concentrators at our Morenci mining
operations in Arizona, as well as curtailing production by 50 percent at
our copper refinery in El Paso, Texas; (ii) selling a non-core South
African fluorspar mining unit; (iii) restructuring certain wire and cable
assets to respond to changing market conditions; and (iv) suspending
operations at Columbian Chemicals Company's carbon black plant in the
Philippines. These actions resulted in a total non-recurring, pre-tax
charge of $84.7 million (or $58.7 million, $1.01 per share, after taxes and
minority interests) in the 1999 second quarter and a pre-tax charge of $1.1
million (or $0.7 million, 1 cent per share, after taxes) in the 1999 third
quarter.
Our mining segment had non-recurring, pre-tax charges of $34.5 million in
the 1999 second quarter from the restructuring plan. That amount included
$7 million resulting from a loss on the sale of our fluorspar mining
operation in South Africa. Also included in the restructuring plan were
charges associated with employee severance ($8.2 million), pension and
other post-retirement obligations ($5.6 million), environmental cleanup
($7.3 million) and mothballing and take-or-pay contracts ($6.4 million).
The current liability components of the restructuring plan related to
employee severance, mothballing and take-or-pay contracts during the third
quarter of 1999 were as follows:
(in millions)
<TABLE>
<CAPTION>
Mothballing/
Take-or-
Employee Pay
Severance Contracts Total
------ ------ ------
<S> <C> <C> <C>
Opening balance $ 8.2 6.4 14.6
Payments made (5.3) (0.9) (6.2)
------ ------ ------
Closing balance $ 2.9 5.5 8.4
====== ====== ======
</TABLE>
Our specialty chemicals segment had non-recurring, pre-tax charges of $19.9
million in the 1999 second quarter from the restructuring plan. Included in
that amount were costs associated with asset and investment write-offs
($14.9 million), environmental and other clean-up ($3 million), and
employee severance ($2 million). There were no payments for current
liability components of the restructuring plan related to employee
severance and environmental and other clean-up costs during the third
quarter of 1999.
Our wire and cable segment had non-recurring, pre-tax charges of $30.1
million in the 1999 second quarter and $1.1 million in the 1999 third
quarter from the restructuring plan. Included in the 1999 second quarter
restructuring plan charges were asset write-offs ($21.4 million), employee
severance ($5 million), disposal, dismantling and relocation ($2 million),
and the write-off of an equity basis investment ($1.7 million). The
<PAGE>
-7-
components of the restructuring plan related to employee severance, and
disposal and dismantling costs during the third quarter of 1999 were as
follows:
(in millions)
<TABLE>
<CAPTION>
Disposal
Employee and
Severance Dismantling Total
------ ------ ------
<S> <C> <C> <C>
Opening balance $ 5.0 1.0 6.0
Reclassification
of restructure * (1.5) 0.0 (1.5)
Payments made (1.4) (0.0) (1.4)
------ ------ ------
Closing balance $ 2.1 1.0 3.1
====== ====== ======
</TABLE>
* Reclassified to pension and post-retirement benefit obligations.
The third quarter 1999 charges of $1.1 million were principally for
expenses to relocate equipment.
5. Effective January 1, 1998, we sold a 90 percent interest in our wheel and
rim manufacturing business, Accuride Corporation and related subsidiaries
(Accuride), to an affiliate of Kohlberg Kravis Roberts and Co. (KKR) and
the existing management of Accuride. That sale resulted in a pre-tax gain
of $186.1 million ($122.8 million after taxes, or $2.09 per common share).
The remaining 10 percent interest in Accuride was sold to RSTW Partners
III, L.P., on September 30, 1998, resulting in a pre-tax gain of $12.6
million ($8.3 million after taxes, or 14 cents per common share). Under the
terms of the sales agreements, we received total proceeds of $465.9 million
from the two transactions, less $16.4 million in working capital
adjustments and transaction costs.
6. In the 1999 first quarter, we adopted SOP 98-5, "Reporting on the Costs of
Start-Up Activities." The implementation resulted in a $3.5 million
after-tax charge, or 6 cents per common share, representing the write-off
of previously unamortized start-up costs at our Candelaria mining operation
in Chile and our magnet wire operation in Monterrey, Mexico.
7. In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." This
statement requires recognition of all derivatives as either assets or
liabilities on the balance sheet and measurement of those instruments at
fair value. Changes in the fair value of derivatives are recorded each
period in current earnings or other comprehensive income (loss). Proper
accounting for changes in fair value of derivatives held is dependent on
whether the derivative transaction qualifies as an accounting hedge and on
the classification of the hedge transaction. The statement was originally
required to be adopted in the first quarter of 2000. Citing concerns about
companies' ability to modify their information systems and educate their
managers in time to apply SFAS No.133, the Financial Accounting Standards
Board has delayed its effective date for one year. We are evaluating the
effect this statement will have on our financial reporting and disclosures
as well as on our derivative and hedging activities.
8. As of December 31, 1998, we had a reserve balance of $106.0 million for
estimated future costs associated with environmental matters. During the
first nine months of 1999, net spending against that reserve totaled $8.4
million. During the second quarter of 1999, we recorded an additional $8.3
million provision for estimated future costs associated with environmental
matters as part of our restructuring plan announced on June 30, 1999. This
$8.3 million increase in the environmental reserve balance was directly
related to the indefinite suspension of operations at our Hidalgo smelter
($7.3 million) and our Philippine carbon black facility ($1.0 million). As
of September 30, 1999, the reserve balance was $105.9 million.
9. On October 22, 1999, we announced the completion of our offer to exchange
$7.61 in cash and 0.2203 Phelps Dodge shares for each share of Cyprus Amax
Minerals Company (Cyprus Amax) on a fully prorated basis. The exchange
offer expired at 12:00 midnight, eastern time, October 15, 1999.
We were informed by ChaseMellon Shareholder Services, the exchange agent
for the offer, that based on a final count, 81.5 million shares of Cyprus
Amax stock were tendered, representing 89.6 percent of the outstanding
shares of Cyprus Amax. Of the 81.5 million shares tendered, 51.3 million
elected cash, 29.8 million elected stock and 351,000 made no election. All
shares of Cyprus Amax tendered were accepted for
<PAGE>
-8-
exchange by Phelps Dodge according to the terms of the exchange offer.
The October 15, 1999, exchange offer resulted in the exchange of 16.7
million shares of Phelps Dodge stock and $693 million in cash. We expect
the acquisition of Cyprus Amax to be 100 percent complete by December 2,
1999, with the remaining Cyprus Amax shares to be acquired in exchange for
approximately 3.3 million shares of Phelps Dodge stock. The total purchase
price including acquired debt, net of cash, is expected to be approximately
$2.6 billion for 100 percent of the shares of Cyprus Amax.
The primary assets of Cyprus Amax include the wholly owned Sierrita, Bagdad
and Miami copper mining operations in Arizona, the wholly owned smelter,
refinery and rod plant in Miami, Arizona, a wholly owned rod plant in
Chicago, Illinois, the 51 percent owned El Abra copper operation in Chile
and the 82 percent owned Cerro Verde copper operation in Peru. Cyprus Amax
also owns two molybdenum mining operations (Henderson and Climax) in
Colorado and molybdenum conversion plants at Sierrita; Ft. Madison, Iowa;
Rotterdam, the Netherlands; and Stowmarket, U.K.
Pro forma financial information for this transaction will be provided in
the required Form 8-K filing toward the end of December. The acquisition of
Cyprus Amax will be completed using the purchase method, and accordingly
the assets and liabilities will be adjusted to reflect their fair value.
REVIEW BY INDEPENDENT ACCOUNTANTS
The financial information as of September 30, 1999, and for the
three-month and nine-month periods ended September 30, 1999 and 1998,
included in Part I pursuant to Rule 10-01 of Regulation S-X has been
reviewed by PricewaterhouseCoopers LLP (PricewaterhouseCoopers), our
independent accountants, in accordance with standards established by the
American Institute of Certified Public Accountants. PricewaterhouseCoopers'
report is included in this quarterly report.
PricewaterhouseCoopers 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>
-9-
<AUDIT-REPORT>
REPORT OF INDEPENDENT ACCOUNTANTS
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 September 30, 1999, and the related
consolidated statements of operations, for each of the three-month and
nine-month periods ended September 30, 1999 and 1998 and the consolidated
statement of cash flows and of common shareholders' equity for the nine-month
periods ended September 30, 1999 and 1998. 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 accompanying 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, 1998, 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 14, 1999, 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, 1998, is
fairly stated in all material respects in relation to the consolidated balance
sheet from which it has been derived.
PricewaterhouseCoopers LLP
Phoenix, Arizona
October 11, 1999, except as to Note 9, which is as of October 18, 1999
</AUDIT-REPORT>
<PAGE>
-10-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
The U.S. securities laws provide a "safe harbor" for certain
forward-looking statements. This quarterly report contains "forward-looking
statements" that express expectations of future events or results. All
statements based on future expectations rather than historical facts are
forward-looking statements that involve a number of risks and uncertainties, and
Phelps Dodge Corporation (the company, which may be referred to as Phelps Dodge,
we, us or ours) cannot give assurance that such statements will prove to be
correct. Please refer to the Management's Discussion and Analysis sections of
the company's report on Form 10-K for the year ended December 31, 1998.
RESULTS OF OPERATIONS
EARNINGS
The company had consolidated earnings in the 1999 third quarter of $16.1
million, or 28 cents per common share, before non-recurring, after-tax charges
of $0.7 million, or 1 cent per common share from the company's restructuring
plan announced on June 30, 1999 (please refer to Note 4 to the Consolidated
Financial Information). Our third quarter net income after the restructuring
charges was $15.4 million, or 27 cents per common share. By comparison, earnings
in the 1998 third quarter were $20.3 million, or 35 cents per common share,
excluding a non-recurring, after-tax gain of $8.3 million, or 14 cents per
common share, from the completion of the disposition of Accuride Corporation
(please refer to Note 5 to the Consolidated Financial Information).
Earnings for the nine months ended September 30, 1999, were $17.8 million,
or 31 cents per common share, before after-tax charges of $59.4 million, or
$1.03 per common share from the restructuring plan, and an after-tax charge of
$3.5 million, or 6 cents per common share, recognized in the first quarter for
the cumulative effect of an accounting change associated with unamortized
start-up costs (please refer to Note 6 to the Consolidated Financial
Information). The net loss for the nine months ended September 30, 1999, after
the non-recurring charges was $45.1 million, or 78 cents per common share.
Earnings for the first nine months of 1998 were $101.6 million, or $1.73 per
common share, before a non-recurring, after-tax gain of $131.1 million, or $2.24
per common share, from the sale of Accuride Corporation.
Earnings before non-recurring items were less in the nine-month period
ended September 30, 1999, than in the corresponding 1998 period principally as a
result of lower average copper prices and reduced earnings from our wire and
cable segment. The average spot price per pound of cathode copper on the New
York Commodity Exchange (COMEX) for the first nine months was approximately 7
cents per pound (9 percent) lower than the average price for the first nine
months of 1998. The effect of this price decrease was somewhat mitigated by
decreased copper production costs and increased earnings at our specialty
chemicals segment.
The COMEX spot price per pound of copper cathode, upon which we base our
selling price, averaged 78 cents in the third quarter and 70 cents in the first
nine months of 1999, compared with 75 cents and 77 cents in the corresponding
1998 periods. From October 1 through November 10, 1999, the COMEX price averaged
80 cents per pound, closing at 79 cents on November 10, 1999.
Any material change in the price we receive for copper, or in our unit
production costs, has a significant effect on our results. As of September 30,
1999, our share of annual production was approximately 1.5 billion pounds of
copper. Accordingly, each 1-cent per pound change in our average annual realized
copper price, or in our average annual unit production costs, might cause a
variation in annual pre-tax operating income levels of approximately $15
million.
Depending on market circumstances, we may periodically purchase or
liquidate various copper price protection contracts for a portion of our
expected future mine production to mitigate the risk of adverse price
fluctuations. With respect to 2000 production, as of September 30, 1999, we had
entered into annual contracts with several financial institutions that
effectively ensure minimum (approximately 72 cents) and maximum (approximately
95 cents) prices per pound for approximately 110 million pounds of copper
cathode. The minimum and maximum prices are based on the annual average LME
price.
SALES
Sales were $742.7 million in the 1999 third quarter and $2,096.9 million in
the first nine months of 1999, compared with $764.0 million and $2,356.7 million
in the corresponding 1998 periods. The 1999 decrease for the first nine months
principally resulted from lower average copper prices, lower sales volumes of
copper and lower sales of wire and cable products, partially offset by higher
sales volumes of carbon black.
<PAGE>
-11-
BUSINESS SEGMENTS
Results for 1999 and 1998 can be meaningfully compared by separate
reference to our reporting divisions, Phelps Dodge Mining Company and Phelps
Dodge Industries. Phelps Dodge Mining Company is a business segment that
includes our worldwide copper operations from mining through rod production,
marketing and sales, other mining operations and investments, and worldwide
mineral exploration and development programs. Through December 31, 1997, Phelps
Dodge Industries included our specialty chemicals segment, our wire and cable
segment, and our wheel and rim operations (see Note 5 to the Consolidated
Financial Information for a discussion of the sale of our wheel and rim
operations effective January 1, 1998).
RESULTS OF PHELPS DODGE MINING COMPANY
Phelps Dodge Mining Company (PD Mining) 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 our wire
and cable segment. We also, at times, smelt and refine copper and produce copper
rod for others on a toll basis. We also produce gold, silver, molybdenum and
copper chemicals as by-products, and sulfuric acid from our air quality control
facilities. This business segment also includes our other mining operations and
investments (including silver and zinc operations) and our worldwide mineral
exploration and development programs.
<TABLE>
<CAPTION>
Third Quarter
----------------------
1999 1998
------- -------
<S> <C> <C>
Copper production (short tons):
Total production ............................ 227,800 265,400
Less minority participants'
shares (A) ................................ 40,200 44,800
------- -------
Net Phelps Dodge share ...................... 187,600 220,600
======= =======
Copper sales (short tons):
Net Phelps Dodge share
from own mines ............................ 193,000 220,600
Purchased copper ............................ 71,300 73,700
------- -------
Total copper sales .......................... 264,300 294,300
======= =======
New York Commodity Exchange
Average spot price per pound -
copper cathodes ............................. $ 0.78 0.75
(in millions)
Sales and other operating revenues
- unaffiliated customers .................... $ 406.9 421.9
Operating income (B) ............................. $ 36.2 27.2
First Nine Months
----------------------
1999 1998
------- -------
Copper production (short tons):
Total production ............................ 720,600 792,300
Less minority participants'
shares (A) ................................ 125,000 134,100
------- -------
Net Phelps Dodge share ...................... 595,600 658,200
======= =======
Copper sales (short tons):
Net Phelps Dodge share
from own mines ............................ 595,300 650,700
Purchased copper ............................ 205,600 232,700
------- -------
Total copper sales .......................... 800,900 883,400
======= =======
New York Commodity Exchange
Average spot price per pound -
copper cathodes ............................. $ 0.70 0.77
(in millions)
Sales and other operating revenues
- unaffiliated customers .................... $1,102.3 1,303.5
Operating income (B) ............................. $ 8.2 119.2
</TABLE>
- ----------
(A) 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.
(B) Operating income has been presented in compliance with SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information" (with
1998 restated). 1999 includes a second quarter non-recurring, pre-tax
charge of $34.5 million for costs associated with a restructuring (see Note
4 to the Consolidated Financial Information).
<PAGE>
-12-
PD MINING - SALES
Phelps Dodge Mining Company's sales and other operating revenues decreased
by $15.0 million, or 4 percent, in the 1999 third quarter and by $201.2 million,
or 15 percent, in the first nine months of 1999 compared with the corresponding
1998 periods. The variance for the first nine months primarily reflected
decreased average selling prices for copper that resulted in a revenue reduction
of approximately $123 million. The sales and other operating revenue variance
for the third quarter and the first nine months also reflected the effect of
lower copper sales volumes that resulted in approximately $47 million and $115
million in revenue reductions. The lower volumes were primarily a result of the
indefinite suspension of operations at our Cobre copper mine in New Mexico and
our Ojos del Salado copper mine in Chile, and the curtailment of production at
our Chino copper operations in New Mexico that we announced in the 1998 fourth
quarter. The Ojos del Salado suspension occurred on October 21, 1998, while the
suspension of Cobre and the curtailment at Chino were completed in phases
between October 21, 1998, and the 1999 first quarter.
PD MINING - OPERATING INCOME
PD Mining reported operating income of $36.2 million in the 1999 third
quarter. This compares with $27.2 million in the corresponding 1998 period. The
increase primarily reflected the higher average copper price for sales of
PD-mined copper (approximately $13 million) and slightly lower production costs,
partially offset by lower sales volumes of PD-mined copper. (Please refer to the
preceding table.) For the nine-month period ended September 30, 1999, PD Mining
reported operating income of $42.7 million before non-recurring, pre-tax charges
of $34.5 million from a restructuring plan (please refer to Note 4 to the
Consolidated Financial Information). This compares with operating income of
$119.2 million in the corresponding 1998 period. The year-to-date decrease
primarily reflected the lower average copper price for sales of PD-mined copper
(approximately $91 million) and lower sales volumes of PD-mined copper,
partially offset by lower copper production costs. (Please refer to the
preceding table.) Lower 1999 production costs were due in part to the 1998
curtailment and shutdown of certain higher cost operations.
RESULTS OF PHELPS DODGE INDUSTRIES
Phelps Dodge Industries (PD Industries), our manufacturing division,
produces engineered products principally for the global energy,
telecommunications and specialty chemicals sectors. Its operations are
characterized by products with significant market share, internationally
competitive cost and quality, and specialized engineering capabilities. The
manufacturing division includes our specialty chemicals segment and our wire and
cable segment. Our specialty chemicals segment includes Columbian Chemicals
Company and its subsidiaries (Columbian). Our wire and cable segment includes
Phelps Dodge Magnet Wire Company and its subsidiaries (PD Magnet Wire) and
Phelps Dodge International Corporation and its affiliates (PDIC).
<TABLE>
<CAPTION>
Third Quarter
----------------------
1999 1998
------- -------
(in millions)
<S> <C> <C>
Sales and other operating revenues
- unaffiliated customers:
Specialty chemicals ......................... $ 132.9 104.6
Wire and cable .............................. 202.9 237.5
------- -------
$ 335.8 342.1
======= =======
Operating income: (A)
Specialty chemicals (B) ..................... $ 21.9 17.7
Wire and cable (C) .......................... 4.9 17.0
Other (wheels and rims) (D) ................. -- 12.6
------- -------
$ 26.8 47.3
======= =======
First Nine Months
----------------------
1999 1998
------- -------
(in millions)
Sales and other operating revenues
- unaffiliated customers:
Specialty chemicals ......................... $ 398.8 326.9
Wire and cable .............................. 595.8 726.3
------- -------
$ 994.6 1,053.2
======= =======
Operating income (loss): (A)
Specialty chemicals (B) ..................... $ 62.7 61.3
Wire and cable (C) .......................... (11.0) 66.2
Other (wheels and rims) (D) ................. -- 198.7
------- -------
$ 51.7 326.2
======= =======
</TABLE>
- ----------
(A) Operating income has been presented in compliance with SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information" (with
1998 restated).
(B) Includes a pre-tax charge of $19.9 million in the 1999 second quarter for
costs associated with the suspension of operations at a carbon black plant
in the Philippines.
<PAGE>
-13-
(C) Includes a pre-tax charge of $28.4 million in the 1999 second quarter and
$1.1 million in the 1999 third quarter for costs associated with
restructuring of certain wire and cable operations. Another $1.7 million
representing the write-off of a small equity basis investment was charged
to miscellaneous income and expense in the 1999 second quarter.
(D) See Note 5 to the Consolidated Financial Information for a description of
the sale of our wheels and rims business in 1998.
PD INDUSTRIES - SALES
PD Industries reported sales of $335.8 million in the third quarter and
$994.6 million for the first nine months of 1999, compared with $342.1 million
and $1,053.2 million in the corresponding 1998 periods. The year-to-date
decrease principally reflected lower sales in the wire and cable segment as a
result of a downturn in the Brazilian wire and cable market principally caused
by the 1999 first quarter currency devaluation, continuing economic difficulties
in Venezuela and lower demand for conductors in the automotive, heat tracing and
aerospace markets, partially offset by higher sales volumes in the specialty
chemicals segment primarily due to the acquisition of carbon black operations in
Brazil and Korea in late 1998 and early 1999, respectively. (Please refer to the
preceding table.)
PD INDUSTRIES - OPERATING INCOME
During the 1999 third quarter, PD Industries recorded operating income of
$27.9 million before non-recurring charges of $1.1 million (please refer to Note
4 to the Consolidated Financial Information). This compares with $34.7 million
in the corresponding 1998 period before a $12.6 million pre-tax gain from the
disposition of Accuride. Operating income in the first nine months of 1999 was
$101.1 million before non-recurring charges, compared with $127.5 million in the
first nine months of 1998 before a $198.7 million pre-tax gain from the sale of
Accuride. PD Industries' 1999 operating income reflected decreased wire and
cable results principally due to South American economic difficulties, a
continued slowdown in aerospace and relevant electronic markets in the United
States and competitive price pressure on our magnet wire business. These effects
were partially offset by strong performances by our carbon black businesses,
which had overall increases in sales volumes in excess of 30 percent compared
with corresponding prior periods. These volume increases reflected the 1998
fourth quarter acquisition of a carbon black facility in Brazil, and the 1999
first quarter acquisition of a carbon black facility in Korea. (Please refer to
the preceding table.)
OTHER MATTERS RELATING TO THE STATEMENT OF CONSOLIDATED OPERATIONS
EXPLORATION AND RESEARCH AND DEVELOPMENT EXPENSE
Our exploration and research and development expense for the first nine
months of 1999 was $33.4 million, compared with $41.5 million in the
corresponding 1998 period. The decrease reflects continuing cutbacks in
exploration programs in view of current market conditions; exploration charges
were $25.4 million in the 1999 first nine months, compared with $30.0 million in
the corresponding period in 1998.
MISCELLANEOUS INCOME AND EXPENSE, NET
Miscellaneous income and expense, net, decreased by $32.9 million in the
first nine months of 1999 compared with the corresponding 1998 period. This
change primarily reflected a 1998 second quarter pre-tax gain of $8.8 million
from the dissolution of joint venture partnerships in the wire and cable
business, 1999 currency exchange losses at our Brazilian operations of $11.2
million, $9.1 million in lower interest income and a $1.7 million pre-tax charge
representing the write-off of an equity basis investment in the 1999 second
quarter.
INCOME TAXES
Our federal income tax returns for the years 1990 through 1997 are either
under examination or review by the Internal Revenue Service (IRS). We have
received proposed assessments for the years 1990 and 1991 and have reached a
settlement with the IRS appeals division on the issues involved. The proposed
settlement results in a refund and must be approved by the Joint Committee on
Taxation. We have also received and accepted assessments for the years 1992
through 1994. These assessments will substantially offset the proposed refunds
from 1990 and 1991. The years 1995 through 1997 are currently being examined and
the IRS has begun its information gathering process.
Our management believes it has made adequate provision so that final
resolution of the issues involved, including application of those determinations
to subsequent years, will not have an adverse effect on our consolidated
financial condition or results of operations.
<PAGE>
-14-
EQUITY EARNINGS
Equity in net earnings of affiliated companies increased in the first nine
months of 1999 by $3.0 million primarily due to the 1999 first quarter sale of
land by our equity basis Philippine wire and cable operation.
YEAR 2000
We continue to review our "Year 2000" readiness. The Year 2000 issue stems
from the predominant use in computer applications of a two-digit field to
capture the year (e.g., "99" for 1999). Because the "19" is assumed in the date,
when computers turn their clocks to the year 2000, the two-digit field will read
"00" and some computer programs will assume the year is 1900. Programs that
calculate, compare or sort on a date field may cause erroneous results and
errors leading to the risk of business interruption or shutdown and other
potential problems. The Year 2000 issue is a global issue that is very complex
because of the many programs that may be impacted in any computer system. These
computer systems are used to support the activities of our businesses including
financial systems, process control technology and other computer-controlled
equipment.
We have identified the scope of the Year 2000 issue as it relates to our
operations and all levels of management are providing leadership to effect
workable solutions. A program office team has been assembled to oversee all
facets of this project including information technology and process control
system conversions, contracts and agreements with vendors, suppliers and
customers, insurance policies, contingency plans and security systems. We are
working with major industry associations and agencies in North America, Europe,
Latin America and Asia Pacific to facilitate the sharing of strategies and
solutions. We have hired PKS Systems Integration LLC, a consulting firm, to
assist us in the assessment and implementation of our Year 2000 conversion.
The conversion project has been structured into four phases:
* inventory phase (100 percent complete);
* assessment phase - the final cost estimation and action plan identification
phase (100 percent complete);
* remediation and testing phase (100 percent complete); and
* field implementation phase (substantially completed for all information
technology (IT) and non-IT systems with the exception of a few mining
process control systems intentionally delayed to match existing maintenance
schedules; these systems are scheduled for completion by the end of the
November 1999).
The process of identifying and prioritizing critical suppliers and
customers has been completed. We have reviewed contracts and agreements with
vendors, suppliers and customers. Appropriate language has been added to all new
contracts and agreements to address our requirements for Year 2000 compliance.
Where possible, existing contracts and agreements were amended for these same
considerations. We prepared an inventory of all existing relationships with
vendors and suppliers. We reviewed the nature of those relationships to
determine whether the loss of service or product would result in a material
impact to us. From that overall list, we identified vendors and suppliers that
are considered key to our individual businesses, and we contacted each of those
554 vendors and suppliers. In special situations, such as suppliers of
transportation, electrical power, communications, and water and sewerage, we
visited the suppliers to review their Year 2000 preparations. We received
responses from all these vendors and suppliers, and we are convinced, based on
the materials and information they supplied to us, that they are or will be
compliant. In a similar approach, we identified key customers and worked with
them to determine compliance and assessed the nature of our relationship. In
each of these cases, the customer was advanced in its Year 2000 preparation and
provided a schedule for its overall compliance.
Our investment in standardizing business system platforms over the past
several years has streamlined and facilitated our Year 2000 conversion
requirements by eliminating redundant technologies and allowing the sharing of
services. These systems, some of which were IT systems and others of which were
non-IT systems (mostly process control devices), were installed to meet other,
non-Year 2000 business needs. As a part of the Year 2000 project, we have
upgraded key financial and manufacturing systems in each operating unit and in
the corporate headquarters by installing updates to purchased application
software systems. These systems have been certified by their vendors to be
compliant and tested in the context in which they will operate. The compliant
versions of these systems currently function in support of day-to-day business.
Non-information technology systems have been remediated where required to
compliant versions. The updated systems have been tested at manufacturers'
laboratories and on-site, and they have
<PAGE>
-15-
been demonstrated to be compliant. These systems also currently function in
support of day-to-day business.
The total cost associated with our Year 2000 conversion is not expected to
be material to our financial position and should not exceed $5 million. This
estimate does not include our potential share of Year 2000 costs that may be
incurred at operations that we do not consolidate or those expenditures for
planned system and process control upgrades that are undertaken for other
reasons and also incorporate Year 2000 compliant technology. Spending to date
has been approximately $3 million.
Failure to correct a material Year 2000 problem could result in a potential
disruption to one or more of our operations. Such failures could materially and
adversely affect our results of operations, liquidity and financial condition.
Due to the general uncertainty inherent in the Year 2000 issue, resulting in
part from the uncertainty of the readiness of suppliers and customers, we are
unable to determine with any certainty the consequences of Year 2000 failures
and the materiality of these potential failures. Therefore, we have completed
the development of contingency plans. A team from each operating unit, under the
direction of an assigned project leader in the program office, prepared a
specific plan to address contingencies for that operation. Contingencies include
failure of our own IT and non-IT systems, failure to deliver supplies, lack of
transportation, failure of electrical power, and failure of other utilities. Our
priorities in addressing these contingencies are safety, environment, customer
service, and loss of production. The plans were completed by October 31, 1999.
We have prepared an event management center to oversee activities
world-wide during the actual date change. This center will monitor responses to
contingencies and provide current information to on-site managers at all company
operations.
CHANGES IN FINANCIAL CONDITION
DEBT
At September 30, 1999, our total debt was $1,091.0 million, compared with
$1,021.0 million at year-end 1998. The $70.0 million increase principally
resulted from financing for the purchase of a carbon black business in Korea.
Our ratio of debt to total capitalization was 30.8 percent at September 30,
1999, compared with 27.6 percent at December 31, 1998.
On October 22, 1999, we entered into a loan agreement with Cyprus Amax
Minerals Company whereby they would loan us $175 million at an interest rate of
6 percent per annum. On that date, we drew down the $175 million; the loan
matures on December 15, 1999.
CAPITAL EXPENDITURES AND INVESTMENTS
Capital expenditures and investments during the first nine months of 1999
were $55.4 million for PD Mining and $118.9 million for PD Industries, including
$76.1 million for the acquisition of an 85 percent interest in the Korean carbon
black manufacturing business of Korea Kumho Petrochemical Co., Ltd. Capital
expenditures and investments in the corresponding 1998 period were $279.9
million for PD Mining, including $113.3 million for the acquisition of Cobre
Mining Company, and $105.5 million for PD Industries. The company expects
capital expenditures and investments for the year 1999 to be approximately $100
million for PD Mining and approximately $165 million for PD Industries.
DIVIDENDS
On September 10, 1999, we paid a regular quarterly dividend of 50 cents per
share on our common shares for the 1999 third quarter. The total amount paid was
$29.0 million, bringing total 1999 dividends paid through September 30 to $87.0
million.
SHARE PURCHASES
This year through November 10, we have not purchased any of our shares
under our May 7, 1997, share purchase authorization. Under that program,
1,662,500 shares remain authorized for purchase. There were 57,978,000 common
shares outstanding at September 30, 1999.
<PAGE>
-16-
SUBSEQUENT EVENT
On October 22, 1999, we announced the completion of our offer to exchange
$7.61 in cash and 0.2203 Phelps Dodge shares for each share of Cyprus Amax
Minerals Company (Cyprus Amax) on a fully prorated basis. The exchange offer
expired at 12:00 midnight, eastern time, October 15, 1999.
We were informed by Chase Mellon Shareholder Services, the exchange agent
for the offer, that 81.5 million shares of Cyprus Amax stock were tendered
representing 89.6 percent of the outstanding shares of Cyprus Amax. (Please
refer to Note 9 to the Consolidated Financial Information for further discussion
of this transaction.)
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Any exhibits required to be filed by the company are listed in the
Index to Exhibits.
(b) The company filed six reports on Form 8-K during the quarter ended
September 30, 1999. The following is a list of the filings and the
date they were filed.
Phelps Dodge filed a Current Report on Form 8-K on August 23, 1999,
with respect to a press release issued on August 20, 1999, proposing
the acquisition of Asarco Incorporated and Cyprus Amax Minerals
Company.
Phelps Dodge filed a Current Report on Form 8-K on August 23, 1999,
with respect to a press release issued on August 20, 1999, proposing
the acquisition of Asarco Incorporated and Cyprus Amax Minerals
Company that was posted on Phelps Dodge's internet site.
Phelps Dodge filed a Current Report on Form 8-K on August 26, 1999,
with respect to a press release issued on August 25, 1999, related to
the proposed acquisition of Asarco Incorporated and Cyprus Amax
Minerals Company.
Phelps Dodge filed a Current Report on Form 8-K on September 3, 1999,
with respect to press releases issued on September 2 and 3, 1999, and
an investor slide presentation dated September 3, 1999, related to the
proposed acquisition of Asarco Incorporated and Cyprus Amax Minerals
Company.
Phelps Dodge filed a Current Report on Form 8-K on September 22, 1999,
with respect to a press release issued on September 22, 1999, and an
investor slide presentation dated September 22, 1999, related to the
proposed acquisition of Asarco Incorporated and Cyprus Amax Minerals
Company.
Phelps Dodge filed a Current Report on Form 8-K on September 30, 1999,
with respect to a press release dated September 30, 1999, and an
Agreement and Plan of Merger among Phelps Dodge Corporation, CAV
Corporation and Cyprus Amax Minerals Company dated September 30, 1999.
<PAGE>
-17-
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, we
have duly caused this report to be signed on its behalf by the undersigned duly
authorized officer.
PHELPS DODGE CORPORATION
(Corporation or Registrant)
Date: November 12, 1999
By: /s/ Stanton K. Rideout
--------------------------------
Stanton K. Rideout
Vice President and Controller
(Principal Accounting Officer)
INDEX TO EXHIBITS
10.10 First Amendment to the Phelps Dodge Supplemental Savings Plan,
effective as of January 1, 1999 (SEC File No. 1-82).
12 Computation of ratios of total debt to total capitalization.
15 Letter from PricewaterhouseCoopers LLP with respect to unaudited
interim financial information.
Exhibit 10.10
FIRST AMENDMENT
TO THE
PHELPS DODGE CORPORATION
SUPPLEMENTAL SAVINGS PLAN
Effective as of January 1, 1997, Phelps Dodge Corporation (the "Company")
adopted the Phelps Dodge Corporation Supplemental Savings Plan (the "Plan") as
an amendment and restatement of the Supplemental Savings provisions of the
Comprehensive Executive Nonqualified Retirement and Savings Plan of Phelps Dodge
Corporation.
By this First Amendment, the Company intends to amend the Plan to change
certain election provisions of the Plan.
1. The provisions of this First Amendment shall be effective as of January
1, 1999 unless otherwise specified below. This First Amendment shall amend only
the provisions of the Plan as set forth herein, and those provisions not
expressly amended hereby shall be considered to remain in full force and effect.
2. Section 3.3 of the Plan is hereby amended and restated in its entirety
to provide as follows:
3.3 REVISED ELECTIONS.
A Participant must file a new election form prior to the beginning of each
Plan Year which shall set forth the amount or rate of his Deferral Contributions
for the new Plan Year and also shall characterize the Deferral Contributions as
either Regular or Special Purpose Deferral
<PAGE>
Contributions. If Special Purpose Deferral Contributions are being made, the new
election form also shall set forth the Distribution Date or Distribution Dates
for such Contributions. The new amount or rate of Deferral Contributions will
only apply to Deferral Contributions made for the relevant Plan Year and the new
form must be filed at least 30 days (or such other period specified by the Plan
Administrator pursuant to rules of uniform application) before the first day of
such Plan Year. Effective for Plan Years commencing on or after January 1, 1998,
a Participant may change the method of distributions or the timing of the
commencement of distributions of Regular Deferral Contributions at any time by
filing the appropriate form as prescribed by the Plan Administrator. The new
election will be honored only if the appropriate form is filed at least one (1)
year prior to the Participant's termination of employment. A Participant may not
change the Distribution Date for Special Purpose Deferral Contributions that are
made prior to the date on which a new election form is effective. In a new
election form, however, the Participant may designate a different or additional
Distribution Date for Special Purpose Deferral Contributions to be made in the
future.
3. Section 8.1(a) of the Plan is hereby amended and restated in its
entirety to provide as follows:
(a) GENERAL. With the exception of the distribution or withdrawal of
amounts pursuant to Article V and the distribution of amounts pursuant to
Section 8.1(b), no distributions will be made to a Participant prior to the
Participant's death or termination of employment with the Company and all
Affiliates. Subject to the provisions of Section 5.1, which deals with the
distribution of the Special Purpose Deferral Contributions subaccounts in a
Participant's Deferral Contributions Account, following the Participant's
death or termination of employment, distributions normally will be made as
soon as possible and in any event shall commence within 60 days following
the end of the Plan Year in which the Participant dies or terminates
employment. As provided in Section 3.2 and Section 3.3, a Participant may
elect in his initial or any revised election form to defer the receipt of
distributions until the later of termination of employment or a
<PAGE>
specified date. If such an election has been made (and, if the election was
made in a revised election form, the election form has been in effect for
the requisite period of time provided in Section 3.3), distributions to the
Participant (or the Participant's Beneficiary in case of death) shall be
postponed to the extent necessary to honor such election. Notwithstanding
any other provision of this Section 8.1(a) to the contrary, in the event a
Participant terminates employment with the Company and all Affiliates, and
is subsequently rehired by the Company or any of its Affiliates within the
same Plan Year, then the Participant shall not be eligible, on account of
that termination, for a distribution pursuant to Section 8.1(a) (except for
a distribution or withdrawal of amounts pursuant to Article V and the
distribution of amounts pursuant to Section 8.1(b)). This distribution
restriction in the event of a rehire applies whether or not the Employee is
rehired within a classification eligible for participation in the Plan, or
is otherwise excluded from Plan participation pursuant to Section 3.1.
4. Section 8.2 of the Plan is hereby amended and restated in its entirety
to provide as follows:
8.2 METHOD OF PAYMENT.
Any payments from a Participant's Accounts shall be made either in a lump
sum in cash, or in cash payments in substantially equal annual installments over
a period certain not exceeding 10 years, such method of payment to be elected by
the Participant in his initial election form or in any revised election form
that has been in effect for the requisite period of time specified in Section
3.3. If installment payments are made, the provisions of Sections 6.2 and 6.3
shall continue to apply to the unpaid balance. Unless a Participant has
affirmatively elected to receive payments in installments over a period of 10
years or less, the Participant's Accounts shall be distributed in one lump sum.
If a Participant is married at the time an election form or a revised election
form is filed, an election to receive payments in other than lump sum shall be
ineffective unless the Participant's spouse consents to such election on a form
prescribed by or acceptable to the Plan Administrator for that purpose.
Notwithstanding any
<PAGE>
provision of this Plan to the contrary, if the value of all benefits payable
pursuant to this Plan to a Participant or any Beneficiary, upon the
Participant's termination of employment or death, amounts to the sum of $10,000
or less, the Plan Administrator, regardless of any elections made by the
Participant, shall direct the Trustee to pay the benefits in the form of a
single lump sum distribution.
IN WITNESS WHEREOF, PHELPS DODGE CORPORATION has caused this First
Amendment to be duly executed as of this day of _____________ 1999.
PHELPS DODGE CORPORATION
By:
------------------------------------
Vice President, Human Resources
PHELPS DODGE CORPORATION AND SUBSIDIARIES
Exhibit 12
COMPUTATION OF TOTAL DEBT TO TOTAL CAPITALIZATION
(Unaudited; dollars in millions)
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
-------- --------
<S> <C> <C>
Short-term debt ................................... $ 229.8 116.1
Current portion of long-term debt ................. 54.7 68.5
Long-term debt .................................... 806.5 836.4
-------- --------
Total debt ................................... 1,091.0 1,021.0
Minority interests in subsidiaries ................ 78.5 93.3
Common shareholders' equity ....................... 2,376.8 2,587.4
-------- --------
Total capitalization ......................... $3,546.3 3,701.7
======== ========
Ratio of total debt to total capitalization ....... 30.8% 27.6%
======== ========
</TABLE>
EXHIBIT 15
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Ladies and Gentlemen:
We are aware that our report dated October 11, 1999, except as to Note 9,
which is as of October 18, 1999, on our review of interim financial information
of Phelps Dodge Corporation for the period ended September 30, 1999 and included
in the Corporation's quarterly report on Form 10-Q for the quarter then ended is
incorporated by reference 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).
Your very truly,
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Phoenix, Arizona
November 11, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AT SEPTEMBER 30, 1999 AND THE RELATED CONSOLIDATED
STATEMENTS OF OPERATIONS AND OF CASH FLOWS FOR THE NINE MONTHS ENDED SEPTEMBER
30, 1999 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> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<EXCHANGE-RATE> 1
<CASH> 165,000
<SECURITIES> 0
<RECEIVABLES> 407,900
<ALLOWANCES> 0
<INVENTORY> 269,500
<CURRENT-ASSETS> 1,013,000
<PP&E> 6,141,900
<DEPRECIATION> 2,686,200
<TOTAL-ASSETS> 4,889,300
<CURRENT-LIABILITIES> 754,700
<BONDS> 806,500
0
0
<COMMON> 362,500
<OTHER-SE> 2,014,300
<TOTAL-LIABILITY-AND-EQUITY> 4,889,300
<SALES> 2,096,900
<TOTAL-REVENUES> 2,096,900
<CGS> 1,652,800
<TOTAL-COSTS> 1,652,800
<OTHER-EXPENSES> 330,200
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 68,300
<INCOME-PRETAX> (47,500)
<INCOME-TAX> 1,300
<INCOME-CONTINUING> (41,600)
<DISCONTINUED> 0
<EXTRAORDINARY> (3,500)
<CHANGES> 0
<NET-INCOME> (45,100)
<EPS-BASIC> (0.78)
<EPS-DILUTED> (0.78)
</TABLE>
