SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended September 30, 1993
Commission File Number: 1-9916
FREEPORT-MCMORAN COPPER & GOLD INC.
Incorporated in Delaware 74-2480931
(IRS Employer Identification No.)
First Interstate Bank Building, One East First Street, Suite 1600,
Reno, Nevada 89501
Registrant's telephone number, including area code:
(702) 688-3000
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___
On September 30, 1993, there were issued and outstanding 57,077,926 shares of
the registrant's Class A Common Stock, par value $0.10 per share, and
142,129,602 shares of its Class B Common Stock, par value $0.10 per share.
The registrant hereby amends its form 10-Q for the quarter ended
September 30, 1993, as set forth in the pages attached hereto and as discussed
below.
After discussions with the staff of the Securities and Exchange
Commission (SEC), Freeport-McMoRan Copper & Gold Inc. (FCX) reclassified
certain expenses and accruals previously recorded in 1993 as restructuring and
valuation of assets. In response to inquiries, FCX advised the SEC staff that
$15.5 million originally reported as restructuring and valuation of assets
represented the cumulative effect of changes in accounting principle resulting
from the adoption of the new accounting policies that FCX considered
preferable. FCX also informed the SEC staff of the components of other
charges included in the amount originally reported as restructuring and
valuation of assets. FCX concluded that the reclassification and the related
supplemental disclosures more accurately reflect the nature of these charges
to 1993 net income in accordance with generally accepted accounting
principles. These reclassifications had no impact on net income or net income
per share.
FCX previously reported its investment in Rio Tinto Minera, S.A. (RTM)
using the equity method of accounting because FCX anticipated reducing its
interest below 50% within one year of the initial investment in RTM. FCX is
now considering alternative forms of financing, accordingly, FCX hereby amends
its report on Form 10-Q for the quarter ended September 30, 1993 as attached
hereto to reflect its investment in RTM on a fully consolidated basis.
FREEPORT-McMoRan COPPER & GOLD INC.
TABLE OF CONTENTS
Page
----
Part I. Financial Information
Financial Statements:
Condensed Balance Sheets........................... 3
Statements of Operations........................... 4
Statements of Cash Flow............................ 5
Notes to Financial Statements...................... 6
Remarks................................................ 7
Management's Discussion and Analysis
of Financial Condition and
Results of Operations.............................. 8
FREEPORT-McMoRan COPPER & GOLD INC.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
FREEPORT-McMoRan COPPER & GOLD INC.
CONDENSED BALANCE SHEETS (Unaudited)
September 30, December 31,
1993 1992
------------- ------------
(in thousands)
ASSETS
Current assets:
Cash and short-term investments $ 26,399 $ 371,842
Accounts receivable:
Customers 102,864 130,587
Other 54,100 20,249
Inventories:
Product 65,532 13,911
Materials and supplies 130,716 118,347
Prepaid expenses 8,900 6,178
---------- ----------
Total current assets 388,511 661,114
Property, plant and equipment, net 1,478,402 993,412
Other assets 61,443 39,479
---------- ----------
Total assets $1,928,356 $1,694,005
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 208,302 $ 90,005
Current portion of long-term debt 34,590 78,571
---------- ----------
Total current liabilities 242,892 168,576
Long-term debt, less current portion 31,523 471,429
Zero coupon exchangeable notes due 2011 116,461 173,583
Accrued postretirement benefits and
other liabilities 168,202 15,558
Deferred income taxes 197,097 196,953
Minority interest 4,256 21,449
Mandatory redeemable gold denominated
preferred stock 232,620 -
Stockholders' equity 935,305 646,457
---------- ----------
Total liabilities and stockholders' equity $1,928,356 $1,694,005
========== ==========
The accompanying notes are an integral part of these financial statements.
FREEPORT-McMoRan COPPER & GOLD INC.
STATEMENTS OF OPERATIONS (Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
------------------- -------------------
1993 1992 1993 1992
-------- -------- -------- --------
(in thousands, except per share amounts)
Revenues $261,504 $157,114 $610,052 $505,547
Cost of sales:
Site production and delivery 157,204 66,963 394,042 212,214
Depreciation and amortization 17,457 10,923 45,156 34,360
-------- -------- -------- --------
Total cost of sales 174,661 77,886 439,198 246,574
Exploration expenses 9,321 1,872 25,037 6,274
Provision for restructuring
charges - - 20,795 -
General and
administrative expenses 18,060 18,698 58,569 49,568
-------- -------- -------- --------
Total costs and expenses 202,042 98,456 543,599 302,416
-------- -------- -------- --------
Operating income 59,462 58,658 66,453 203,131
Interest expense, net (3,390) (5,146) (15,327) (15,480)
Other income, net (1,128) 3,240 573 4,787
-------- -------- -------- --------
Income before income
taxes and minority interest 54,944 56,752 51,699 192,438
Provision for income taxes (21,770) (23,559) (30,396) (75,604)
Minority interest (4,099) (6,716) (1,204) (23,329)
-------- -------- --------- --------
Income before changes in
accounting principle 29,075 26,477 20,099 93,505
Cumulative effect of changes
in accounting principle, net
of taxes and minority interest - - (9,854) -
-------- -------- -------- --------
Net income 29,075 26,477 10,245 93,505
Preferred dividends (9,887) (3,098) (17,741) (3,098)
-------- -------- -------- --------
Net income (loss)
applicable to common stock $ 19,188 $ 23,379 $ (7,496) $ 90,407
======== ======== ======== ========
Net income (loss) per
share of common stock:
Before changes in accounting
principle $.10 $.12 $.01 $.49
Cumulative effect of changes
in accounting principle - - (.05) -
---- ---- ----- ----
$.10 $.12 $(.04) $.49
==== ==== ===== ====
Average common shares
outstanding 199,165 189,982 197,460 184,750
======= ======= ======= =======
Dividends per common share $.15 $.15 $.45 $.45
==== ==== ==== ====
The accompanying notes are an integral part of these financial statements.
FREEPORT-McMoRan COPPER & GOLD INC.
STATEMENTS OF CASH FLOW (Unaudited)
Nine Months Ended
September 30,
---------------------
1993 1992
-------- --------
(in thousands)
Cash flow from operating activities:
Net income $ 10,245 $ 93,505
Adjustments to reconcile net income to net
cash provided by operating activities:
Cumulative effect of changes in
accounting principle 9,854 -
Depreciation and amortization 45,156 34,360
Provision for restructuring charges,
net of payments 4,842 -
Deferred income taxes 4,056 26,176
Amortization of discount on zero coupon notes 8,543 13,831
Minority interest's share of net income 1,204 23,329
(Increase) decrease in working capital,
net of acquisition:
Amount due from FTX - 20,000
Accounts receivable 23,286 (111,916)
Inventories (30,360) (18,847)
Prepaid expenses (5,342) (4,372)
Accounts payable and accrued liabilities (4,769) 17,176
Other (2,614) 14,442
-------- --------
Net cash provided by operating activities 64,101 107,684
-------- --------
Cash flow from investing activities:
Capital expenditures (310,718) (234,525)
Acquisition of Rio Tinto Minera, S.A.,
net of cash acquired (1,354) -
-------- --------
Net cash used in investing activities (312,072) (234,525)
-------- --------
Cash flow from financing activities:
Cash dividends paid:
Common stock (88,690) (82,098)
Preference Stock (11,781) -
Minority interest (14,408) (10,770)
Proceeds from debt 215,785 -
Repayment of debt (759,468) -
Net proceeds from sale of:
Step-Up Preferred Stock 340,700 -
Mandatory Redeemable Gold Denominated
Preferred Stock 220,390 -
Class A common stock - 174,142
Special Preference Stock - 217,867
Subsidiary interest - 212,485
Conversion of zero coupon notes - (7,848)
-------- --------
Net cash provided by (used in) financing activities (97,472) 503,778
-------- --------
Net increase (decrease) in cash and
short-term investments (345,443) 376,937
Cash and short-term investments at beginning of year 371,842 80,776
-------- --------
Cash and short-term investments at end of period $ 26,399 $457,713
======== ========
The accompanying notes are an integral part of these financial statements.
FREEPORT-McMoRan COPPER & GOLD INC.
NOTES TO FINANCIAL STATEMENTS
1. ACQUISITION OF RIO TINTO MINERA, S.A. (RTM)
In March 1993, Freeport-McMoRan Copper & Gold Inc. (FCX) acquired a 65%
interest in the Spanish company RTM, the metal/mining subsidiary of Ercros,
S.A., for approximately $52 million (excluding transaction costs), of which
$31.3 million will be paid over the next two years. The acquisition was
accounted for under the purchase method, and accordingly, the operating
results of RTM have been included in the consolidated operating results
since the date of acquisition.
2. RESTRUCTURING CHARGES
FCX recorded 1993 expense of $20.8 million for restructuring of the
administrative organization (including primarily personnel related costs
and a write-off of excess office facilities) of Freeport-McMoRan Inc.
(FTX), the parent company of FCX, the cost to downsize PT-FI's computing
and management information systems (MIS) structure, and a write-off of
costs associated with PT-FI's previous credit agreement.
3. CHANGES IN ACCOUNTING PRINCIPLE
Effective January 1, 1993, FCX adopted the following changes to accounting
policies:
Periodic Scheduled Maintenance Costs - Costs related to periodic scheduled
maintenance (turnarounds) were previously capitalized when incurred and
amortized generally over six months to two years. Effective January 1, 1993,
the method of accounting was changed to expense these costs when incurred.
Deferred Charges - The accounting for deferred charges was changed to provide
for deferral of only those costs that directly relate to the acquisition,
construction, and development of assets and to the issuance of debt and
related instruments. Previously, certain other costs that benefitted future
periods were amortized over the periods benefitted.
Management Information Systems - Costs of MIS equipment and software that have
a material impact on periodic measurement of net income are capitalized and
amortized over their estimated productive lives. Other MIS costs, including
equipment and purchased software that involve relatively immaterial amounts
(currently individual expenditures of less than $.5 million) and short
estimated productive lives (currently less than three years) are charged to
expense when incurred. Previously, most expenditures for MIS equipment and
purchased software were capitalized. The accounting for MIS costs was changed
to recognize the rapid rate of technology change in MIS which results in short
productive lives of equipment and software and a need for continuing
investments.
The changes in accounting policy were adopted to improve the measurement
of operating results by reporting cash expenditures as expenses when incurred
unless they are directly related to long-lived asset additions. In addition,
the administrative costs of accounting for assets will be reduced by not
capitalizing and amortizing relatively insignificant expenditures that do not
have a material effect on measuring periodic net income.
4. INTEREST COSTS
Interest expense excludes capitalized interest of $5 million and $5.3 million
in the third quarter of 1993 and 1992, respectively, and $16.3 million and
$17.7 million in the first nine months of 1993 and 1992, respectively.
5. PREFERRED STOCK OFFERINGS
In July 1993, FCX sold publicly 14 million depositary shares representing its
Step-Up Convertible Preferred Stock (Step-Up Preferred Stock). Each
depositary share is entitled to a cumulative annual cash dividend payment of
$1.25 through August 1, 1996 and thereafter $1.75 (recoverable quarterly), has
a $25 liquidation preference, and is convertible at the option of the holder
into 0.813 shares of FCX Class A common stock. Beginning in 1996, the
depositary shares are redeemable, solely at FCX's option, under certain
circumstances.
In August 1993, FCX sold publicly 6 million depositary shares
representing its Gold Denominated Preferred Stock (Gold Preferred Stock).
Each depositary share is entitled to a cumulative quarterly cash dividend
equal to the value of 0.000875 ounces of gold and is subject to mandatory cash
redemption in August 2003 for the value of 0.1 ounces of gold.
6. RATIO OF EARNINGS TO FIXED CHARGES
The ratio of earnings to fixed charges for the first nine months of 1993 and
1992 was 2.1 to 1 and 6.1 to 1, respectively. For this calculation, earnings
are income from continuing operations (including the restructuring charges
discussed above) before income taxes, minority interest, and fixed charges.
Fixed charges are interest and that portion of rent deemed representative of
interest.
_______________________
Remarks
The information furnished herein should be read in conjunction with FCX's
financial statements contained in its 1992 Annual Report to stockholders and
incorporated by reference in its Annual Report on Form 10-K.
The information furnished herein reflects all adjustments which are, in the
opinion of management, necessary for a fair statement of the results for the
periods. All such adjustments are, in the opinion of management, of a normal
recurring nature.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
RESULTS OF OPERATIONS
After discussions with the staff of the Securities and Exchange Commission
(SEC), Freeport-McMoRan Copper & Gold Inc. (FCX) reclassified certain
expenses and accruals previously recorded in 1993 as restructuring and
valuation of assets. In response to inquiries, FCX advised the SEC staff
that $15.5 million originally reported as restructuring and valuation of
assets represented the cumulative effect of changes in accounting principle
resulting from the adoption of the new accounting policies that FCX
considered preferable, as described in Note 3 to the financial statements.
FCX also informed the SEC staff of the components of other charges included
in the amount originally reported as restructuring and valuation of assets.
FCX concluded that the reclassification and the related supplemental
disclosures more accurately reflect the nature of these charges to 1993 net
income in accordance with generally accepted accounting principles. These
reclassifications had no impact on net income or net income per share.
The financial statements for the nine months ended September 30, 1993,
reflect the operating results of Rio Tinto Minera, S.A. (RTM) since its
acquisition by FCX in March 1993 (Note 1). FCX reported third-quarter 1993
net income applicable to common stock of $19.2 million ($.10 per share)
compared with $23.4 million ($.12 per share) for the 1992 period. For the
nine months ended September 30, 1993, FCX reported a net loss applicable to
common stock of $7.5 million ($.04 per share) compared with net income of
$90.4 million ($.49 per share) for the 1992 period. Net income for the nine
months ended September 30, 1993 was reduced by $11.5 million ($.06 per share)
related to administrative restructuring costs (Note 2) and by $9.9 million
($.05 per share) for changes in accounting principle discussed above and in
Note 3 to the financial statements.
FCX's effective tax rate for operations during the first nine months of
1993 and 1992 is higher than the Indonesian corporate tax rate of 35% due
to $17.1 million and $8.1 million, respectively of withholding tax on
interest and dividends paid to FCX by its operating unit P.T. Freeport
Indonesia Company (PT-FI). An increase in distributions from PT-FI for
dividends (one additional quarterly dividend) and interest (two new
intercompany loans) resulted in the higher withholding tax for 1993. FCX's
1993 earnings reflect a reduced minority interest ownership of PT-FI as a
result of FCX's purchase in December 1992 of 49% of a publicly traded
Indonesian entity that owns a 10% interest in PT-FI. In addition,
preferred dividends increased as a result of the two offerings discussed
below.
A reconciliation of revenues from the 1992 to the 1993 periods is
presented below:
Third Quarter Nine Months
------------- -----------
(in millions)
Revenues - 1992 $157.1 $505.5
RTM revenues, net of intercompany sales 90.7 174.9
PT-FI concentrate:
Price realizations:
Copper (20.7) (65.2)
Gold 5.2 5.9
Sales volumes:
Copper 16.1 (20.0)
Gold 4.0 (6.9)
Treatment charges 1.0 25.7
Adjustments to prior period concentrate sales 7.0 (12.7)
Other 1.1 2.9
------ ------
Revenues - 1993 $261.5 $610.1
====== ======
Revenues in the 1993 periods benefited from the acquisition of RTM, but
were negatively impacted by a 13% decrease in copper price realizations,
taking into account PT-FI's $.90 per pound price protection program.
Partially offsetting the decrease in copper price realizations was a 9% and
4% increase in third quarter and nine month gold price realizations,
respectively. Copper sales volumes in the current quarter were 12% higher
than in the 1992 period, but nine-month volumes in 1993 were 5% below
comparable 1992 levels reflecting both the impact of the ore pass blockage,
discussed below, during the second quarter of 1993 and the high level of
sales in 1992. Gold sales volumes for the third quarter were 7% higher
than the 1992 period, while the nine-month period reflects a 4% decrease in
gold sales volumes as a result of the ore pass blockage. Revenues
benefited from a decline in treatment charges from the 1992 periods, when
PT-FI had more spot market sales of its copper/gold concentrate, which
carried higher treatment charge costs than long-term contracts. Treatment
charges vary with the price of copper, and consequently were reduced
because of lower copper prices. Adjustments to prior period concentrate
sales includes adjustments for changes in prices and weights on all metals
for all prior period open sales as well as the related impact on treatment
charges. Current quarter adjustments ($1.9 million) were minimized because
of the price protection program compared to the 1992 period when falling
prices resulted in a negative adjustment ($8.9 million). Open copper sales
at the beginning of 1993 were recorded at an average price of $1.04, but
subsequently were adjusted downward as copper prices fell during the
period, negatively impacting 1993 revenues.
During the third quarter of 1993, copper prices dropped to their lowest
levels since 1987, reflecting lower demand caused by the continuing global
recession, and remain below $.75 per pound. PT-FI has in place a price
protection program that eliminates exposure to copper price declines below
an average $.90 per recoverable pound for estimated copper sales priced
during 1993 and 1994. At September 30, 1993, 139.9 million pounds of
copper remained to be contractually priced during future quotational
periods. As a result of PT-FI's price protection program, these pounds are
recorded at an average price of $.90 per pound. RTM has a policy of
eliminating significant exposure to copper price fluctuations by hedging
purchases of concentrate at its smelter. PT-FI has obtained sales
commitments from its purchasers for virtually all of its estimated 1994
production which is to be priced at the then current market price under the
terms of the contracts.
<TABLE>
<CAPTION>
Third Quarter Nine Months
-------------------- ----------------------
1993 1992 1993 1992
PT-FI RESULTS: ------- ------- ------- --------
<S> <C> <C> <C> <C>
Ore milled (metric
tons, MT, per day) 59,700 57,000 59,200 56,800
Copper grade (%) 1.68 1.63 1.53 1.61
Gold grade (grams per MT) 1.51 1.58 1.21 1.32
Recovery rate (%)
Copper 87.9 87.9 87.2 88.6
Gold 75.9 71.9 75.5 73.4
Copper (000s of
recoverable pounds)
Production 172,400 160,100 456,500 463,800
Sales 165,600 147,700 443,700 465,700
Average realized price a $.90 $1.04 $.91 $1.05
Gold (recoverable ounces)
Production 194,900 184,200 458,600 459,600
Sales 172,900 162,200 440,400 460,000
Average realized price $373.72 $341.40 $354.15 $341.31
Gross profit per
pound of copper:
Average realized price 90.0 cents 103.7 cents 90.8 cents 104.8 cents
---- ----- ---- -----
Production costs:
Site production and delivery 44.6 45.3 49.2 45.6
Gold and silver credits (40.6) (38.6) (35.7) (34.5)
Treatment charges 23.9 27.5 23.7 28.1
Royalty on recoverable metal 1.3 3.2 1.6 2.5
---- ----- ---- -----
Cash production costs 29.2 37.4 38.8 41.7
Depreciation and amortization 8.7 7.4 8.7 7.4
---- ----- ---- -----
Total production costs 37.9 44.8 47.5 49.1
---- ----- ---- -----
Revenue adjustments b (2.2) (5.2) (3.2) (.1)
---- ----- ---- -----
Gross profit per pound 49.9 cents 53.7 cents 40.1 cents 55.6 cents
==== ===== ==== =====
RTM RESULTS (SINCE ACQUISITION):
Smelter operations:
Concentrate treated (MT) 109,200 224,500
New Anode production (MT) 44,000 90,500
Cathode production (MT) 35,100 69,700
Gold operations:
Ore milled (MT per day) 18,000 18,100
Grade (grams per MT) 1.07 1.04
Recovery rate (%) 76.7 79.3
Production (recoverable ounces) 43,700 88,200
Average realized price $374.29 $366.94
<FN>
a. FCX recognized $15.3 million and $27.3 million of revenues (excluding
$2.7 million and $8 million, respectively, in amortized cost) in the
third-quarter and nine-month periods of 1993, respectively, as a result
of the price protection program discussed above. Excluding amounts
recognized under this program, the realization for the third-quarter
and nine-month periods of 1993 would have been $.80 and $.85 per pound,
respectively. Excludes the adjustments discussed in Note b.
b. Reflects adjustments primarily for prior period concentrate sales (net
of related amounts recognized under the price protection program) and
amortization of the cost of the price protection program.
</TABLE>
In June 1993, one of PT-FI's four mill level ore passes caved, resulting
in a partial blockage of the ore pass and a restriction at an adjacent pass.
The blockage's primary effect was to limit mill throughput to approximately
40,700 metric tons of ore per day (MTPD) for approximately eight weeks. The
ore pass blockage has been overcome and production reached 66,000 MTPD in
early August. The impact of the blockage was minimized by using an ore
stockpile adjacent to the mill and the installation of conveyors to
alternative ore pass systems. The copper recovery rate for the nine-month
period of 1993 was adversely affected because the ore milled from the
stockpile contained higher than normal oxidized copper, which yields lower
copper recoveries. Full year 1993 sales are estimated to have been in excess
of 640 million recoverable pounds of copper and 745,000 recoverable ounces of
gold. Copper and gold sales volumes for 1994 are expected to be at least
equal to the estimated 1993 volumes.
Unit site production and delivery costs for the current quarter were
slightly lower than the 1992 period. Unit site production and delivery
costs increased 3.6 cents per pound for the nine months of 1993, excluding
the $10.0 million charge discussed below, primarily as a result of costs
incurred in connection with the ore pass blockage, lower production volumes
and lower copper recovery rates. Unit cash production costs benefited from
lower treatment charges and from higher gold and silver credits.
Effective January 1, 1993, the PT-FI depreciation rate increased to 8.3
cents per recoverable pound because of the 66,000 MTPD expansion. FCX is
also amortizing approximately $.6 million a quarter for the cost in excess
of book value relating to the December 1992 purchase of 49% of the publicly
traded Indonesian entity that owns a 10% interest in PT-FI, as discussed
above. RTM depreciation totaled $3.4 million in the second quarter and
$3.1 million in the third quarter of 1993.
Exploration expenses for Irian Jaya are estimated to be $32 million for
the full year 1993 compared to $12.1 million for 1992 as a result of the
aggressive exploration of the 24,700 acre original contract of work area,
the contiguous 6.5 million acre exploration area and the adjacent 2.5
million acre area covered by the exploration permit granted in April 1993.
FCX's general and adminstrative expenses for the nine months ended
September 30, 1993 increased from $49.6 million in 1992 to $58.6 million in
1993 primarily because of the additional personnel and facilities needed due
to the expansion at PT-FI and the acquistion of RTM. Included in the 1993
expense is $2.7 million for RTM (since its acquisition in March 1993) and
charges of $6.3 million primarily consisting of a write-off of deferred
charges incurred in 1992 related to a planned securities offering that was
withdrawn ($2.0 million) and costs to downsize FCX's computing and management
information systems (MIS) structure ($4.0 million).
During 1993, Freeport-McMoRan Inc. (FTX), the parent company of FCX,
undertook a restructuring of its administrative organization. This
restructuring represented a major step by FTX to lower its costs of
operating and administering its businesses in response to weak market
prices of the commodities produced by its operating units. As part of this
restructuring, FTX significantly reduced the number of employees engaged in
administrative functions, changed its MIS environment to achieve
efficiencies, reduced its needs for office space, outsourced a number of
administrative functions, and implemented other actions to lower costs. As
a result of this restructuring process, the level of FCX's administrative
cost has been reduced substantially over what it would have been otherwise,
which benefit will continue in the future. However, the restructuring
process entailed incurring certain one-time costs by FTX, portions of which
were allocated to FCX pursuant to its management services agreement with
FTX.
FCX's restructuring costs totaled $20.8 million, including $10.7 million
allocated from FTX based on historical allocations, consisting of the
following: $8.3 million for personnel related costs; $3.2 million relating
to excess office space and furniture and fixtures resulting from the staff
reduction; $6.1 million relating to the cost to downsize its computing and
MIS structure; and $3.2 million of deferred charges relating to PT-FI's
1989 credit facility which was substantially revised in June 1993.
In connection with the restructuring project, FCX changed its accounting
systems and undertook a detailed review of its accounting records. As a
result of this process, FCX recorded a $10.0 million charge to site
production and delivery costs comprised of the following: $5.0 million for
materials and supplies inventory obsolescence; $2.5 million for revised
estimates of value added taxes and import duties related to prior years;
and $2.5 million of adjustments for various items identified in converting
its accounting system.
ENHANCED INFRASTRUCTURE PROJECT
PT-FI has an agreement with Huarte S.A. (Huarte) to construct the initial
phase of its Enhanced Infrastructure Project (EIP), with an estimated cost of
$200 million. Depending on the success of PT-FI's exploration program, the
total cost of the EIP, including subsequent phases, is currently anticipated
to range between $500 million and $600 million.
Under the terms of a March 1993 agreement with ALatieF, an Indonesian
investor, certain portions of the EIP and certain existing assets are to be
sold by PT-FI to a joint venture owned one-third by PT-FI and two-thirds by
ALatieF for total consideration of $270 million. The ALatieF Joint Venture
is expected to purchase approximately $90 million of EIP assets annually
through 1995, with funding provided by equity contributions from the joint
venture partners ($90 million) and debt financing ($180 million), which is
expected to be guaranteed by PT-FI, FCX or both. The acquired assets will
be managed by ALatieF and will be made available to PT-FI and its employees
and designees under arrangements that will provide the ALatieF Joint
Venture with a guaranteed minimum rate of return on its investment.
In December 1993 the ALatieF Joint Venture entered into a $60 million
medium term loan facility (guaranteed by PT-FI) with a syndicate of
international banks which was arranged by Chase Manhattan Bank and American
Express Bank. The purpose of the loan was to partially finance the
acquisition of the first $90 million of EIP assets from PT-FI.
CAPITAL RESOURCES AND LIQUIDITY
Cash flow from operations was $64.1 million for the first nine months of
1993, compared with $107.7 million for the 1992 period. Cash flow from
operations in 1993 was negatively impacted by lower net income, while the
1992 period was negatively impacted by a significant increase in accounts
receivable due to expanding sales volumes. During 1993, other accounts
receivable increased by $18.1 million reflecting the revenues to be
received for the 139.9 million pounds of copper remaining to be
contractually priced which are recorded at $.90 per pound under the price
protection program. Cash flows were decreased by increased funding for
inventories to support the expanding mining and milling operations. The
initial noncash impact of the acquisition of RTM on FCX's consolidated
balance sheet was to decrease working capital by $15.1 million, increase
property, plant and equipment by $243.3 million, and increase long-term
liabilities by $170.3 million.
Cash flow used in investing activities totaled $312.1 million,
reflecting capital expenditures for expansion of operations, the EIP and
the acquisition of RTM (Note 1).
Cash flow used in financing activities totaled $97.5 million compared
with $503.8 million provided by financing activities during the 1992
period. FCX issued shares of its Step-Up Convertible Preferred Stock and
its existing Gold-Denominated Preferred Stock during the third quarter
(Note 5) for net proceeds totaling $561.1 million. Net proceeds from the
two offerings were used in part to reduce borrowings under the PT-FI credit
agreement ($550 million net reduction during the year), thereby increasing
the facility's availability for general corporate purposes and the
continued expansion of mining and milling operations. In 1992, $212.5
million was received from the sale of a 10% interest in PT-FI to Indonesian
investors in December 1991 and $392 million was received from the sale of
Class A common stock and Special Preference Stock. Dividend payments rose
in 1993 due to increased Class A shares outstanding and dividends paid on
the depositary shares issued in 1992.
During the first nine months of 1993 Zero Coupon Exchangeable Notes
(the Notes) with a face value of $259.6 million were exchanged for 3.9
million FCX Class A common shares, leaving Notes with a face value of $449
million outstanding (43% of the original face amount issued). In December
1993 PT-FI issued shares of its stock to FCX upon conversion of PT-FI notes
comparable to the Notes.
At September 30, 1993, FCX had $26.4 million of cash and short-term
investments compared with $371.8 million at December 31, 1992. The
significant reduction reflects the reduction in borrowings under PT-FI's
amended credit agreement as well as capital expenditures and dividends paid
during 1993. PT-FI amended its $550 million credit agreement in June 1993.
The amended credit agreement, which, among other things eliminated a
required debt service reserve and provided a lower interest rate, is
guaranteed by FCX and its parent company, Freeport-McMoRan Inc. (FTX),
expires on December 31, 1999 and is structured as a three year revolving
line of credit followed by a 3 1/2 year reducing revolver. As of October
15, 1993, $460 million was available under the credit facility. To the
extent FTX and its other subsidiaries incur additional borrowings, the
amount available to PT-FI under the credit facility will be reduced.
In October 1993 FCX announced an expected addition of almost 4 billion
recoverable pounds of copper and slightly over 2 million recoverable ounces
of gold to its proved and probable reserve base, with most of the reserves
being added in 1993. These expected reserve additions resulted from
delineation drilling at the Big Gossan mineral resource and from the
Grasberg ore body resulting from the 115,000 MTPD expansion discussed
below.
Through 1995, capital expenditures are expected to be greater than
cash flow from operations. Upon completion of the expansion to 115,000
MTPD by year-end 1995, annual production is expected to approach 1.1
billion pounds of copper and 1.5 million ounces of gold. Subsequently,
capital expenditures will be determined by the results of FCX's exploration
activities and ongoing capital maintenance programs. Estimated capital
expenditures through 1995 for the expansion to 115,000 MTPD, the initial
phase of the EIP, and ongoing capital maintenance expenditures are expected
to range from $700 million to $800 million and will be funded by operating
cash flow, sales of existing and to-be-constructed infrastructure assets
and a wide range of financing sources available as a result of the future
cash flow from PT-FI's mineral reserve asset base. These sources include,
but are not limited to, PT-FI's credit facility and the issuances of public
and private securities. Additional expenditures for EIP assets beyond the
initial phase, which could range between $300 million and $400 million,
depend on the success of PT-FI's exploration program. Additional EIP
expenditures, if any, would be expected to be funded largely by third-party
financing sources, which may include debt, equity or asset sales.
The new contract of work contains provisions for PT-FI to conduct or
cause to be conducted a feasibility study relating to the construction of a
copper smelting facility in Indonesia and for the eventual construction of
such a facility, if it is deemed to be economically viable by PT-FI and the
Government of Indonesia. PT-FI is participating in a group assessing the
feasibility of constructing a copper smelting facility in Indonesia. PT-FI
would hold a minority interest in the smelter and supply one-half of the
smelter's copper concentrate requirements at market prices.
In March 1993, FCX acquired a 65% interest in RTM. RTM's operations
currently consist of a copper smelter and a gold mine with an estimated
remaining mine life of less than four years. The FCX purchase proceeds
(approximately $52 million) will be used by RTM for working capital
requirements and capital expenditures, including funding a portion of the
costs of the expansion of its smelter production capacity from its current
150,000 metric tons of metal per year to 180,000 metric tons of metal per
year by April 1995 at a cost of $33 million. RTM is also studying further
expansion of the smelter facilities to as much as 270,000 metric tons of
metal production per year and is assessing the opportunity to expand its
tankhouse operations from 135,000 metric tons per year to 215,000 metric
tons per year. PT-FI has a long-term contract with RTM to provide the
smelter with a significant portion of its copper concentrate requirements.
RTM cash flow from operations for the nine months in 1993 was positive
but cash requirements related to restructuring costs resulted in negative
cash flow. RTM has had to rely on short-term credit facilities and the FCX
purchase proceeds to fund this short-fall. RTM is evaluating financing
alternatives to fund its short-term needs and to provide long-term funding
for the smelter and tankhouse expansions. RTM's ability to generate future
cash flows is dependent on a number of variables including fluctuations in
the exchange rate between the United States dollar and the Spanish peseta,
future prices and sales volumes of gold, the size and timing of the smelter
and tankhouse expansions, and the supply/demand for smelter capacity and
its impact on related treatment and refining charges.
Payment of future dividends by FCX will depend on the payment of
dividends by PT-FI, which, in turn, depends on PT-FI's economic resources,
profitability, cash flow, and capital expenditures. It is the policy of
PT-FI to maximize its dividend payments to stockholders, taking into
account its operational cash needs including debt service requirements.
FCX currently pays an annual cash dividend of 60 cents per share to its
common shareholders. Management anticipates that this dividend will
continue at this level through completion of the expansion in 1995, absent
significant changes in the prices of copper and gold. However, FCX's Board
of Directors determines its dividend payment on a quarterly basis and in
its discretion may change or maintain the dividend payment. In determining
dividend policy, the Board of Directors considers many factors, including
current and expected future prices and sales volumes, future capital
expenditures requirements and the availability and cost of financing from
third parties.
____________________
The results of operations reported and summarized above are not necessarily
indicative of future operating results.
SIGNATURE
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
April 6, 1994
FREEPORT-McMoRan COPPER & GOLD INC.
By: /s/ John T. Eads
--------------------
John T. Eads
Vice President
