SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended June 30, 1994
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 June 30, 1994, there were issued and outstanding 63,803,313 shares of the
registrant's Class A Common Stock, par value $.10 per share, and 142,129,602
shares of its Class B Common Stock, par value $.10 per share.
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
Part II. Other Information 15
Signature 17
FREEPORT-McMoRan COPPER & GOLD INC.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
FREEPORT-McMoRan COPPER & GOLD INC.
CONDENSED BALANCE SHEETS (Unaudited)
June 30, December 31,
1994 1993
---------- ------------
ASSETS (In Thousands)
Current assets:
Cash and short-term investments $ 21,983 $ 13,798
Accounts receivable:
Customers 109,785 122,527
Other 59,541 66,202
Inventories:
Product 103,895 58,247
Materials and supplies 171,760 153,681
Prepaid expenses and other 22,878 13,787
---------- ----------
Total current assets 489,842 428,242
Property, plant and equipment, net 2,040,873 1,646,603
Other assets 51,915 41,808
---------- ----------
Total assets $2,582,630 $2,116,653
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 334,884 $ 238,948
Current portion of long-term debt and
short-term borrowings 66,873 48,791
---------- ----------
Total current liabilities 401,757 287,739
Long-term debt, less current portion 275,193 109,829
Zero coupon exchangeable notes - 102,039
Accrued postretirement benefits and other
liabilities 210,464 188,165
Deferred income taxes 231,307 201,553
Minority interests 56,327 46,781
Mandatory redeemable preferred stock 399,999 232,620
Stockholders' equity 1,007,583 947,927
---------- ----------
Total liabilities and stockholders' equity $2,582,630 $2,116,653
========== ==========
The accompanying notes are an integral part of these financial statements.
FREEPORT-McMoRan COPPER & GOLD INC.
STATEMENTS OF OPERATIONS (Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
-------------------- --------------------
1994 1993 1994 1993
-------- -------- -------- --------
(In Thousands, Except Per Share Amounts)
Revenues $281,452 $215,033 $547,605 $348,548
Cost of sales:
Site production
and delivery 172,668 167,525 337,469 236,838
Depreciation
and amortization 18,319 15,636 35,440 27,699
-------- -------- -------- --------
Total cost of sales 190,987 183,161 372,909 264,537
Exploration expenses 11,564 9,303 19,584 15,716
Provision for
restructuring charges - 17,380 - 20,795
General and
administrative
expenses 26,361 23,652 49,441 40,509
-------- -------- -------- --------
Total costs and
expenses 228,912 233,496 441,934 341,557
-------- -------- -------- --------
Operating income (loss) 52,540 (18,463) 105,671 6,991
Interest expense, net - (6,308) - (11,937)
Other income
(expense), net (454) 570 (570) 1,701
-------- -------- -------- --------
Income (loss) before
income taxes and
minority interests 52,086 (24,201) 105,101 (3,245)
(Provision) benefit for
income taxes (24,359) 2,311 (47,501) (8,626)
Minority interests (5,426) 4,293 (9,435) 2,895
-------- -------- -------- --------
Income (loss) before
changes in accounting
principle 22,301 (17,597) 48,165 (8,976)
Cumulative effect of
changes in accounting
principle - - - (9,854)
-------- -------- -------- --------
Net income (loss) 22,301 (17,597) 48,165 (18,830)
Preferred dividends (12,583) (3,927) (24,888) (7,854)
-------- -------- -------- --------
Net income (loss)
applicable to common
stock $ 9,718 $(21,524) $ 23,277 $(26,684)
======== ======== ======== ========
Net income (loss) per
share of common stock:
Before changes in
accounting principle $.05 $(.11) $.11 $(.09)
Cumulative effect of
changes in accounting
principle - - - (.05)
---- ----- ---- -----
$.05 $(.11) $.11 $(.14)
==== ===== ==== =====
Average common shares
outstanding 205,933 197,550 205,572 196,608
======= ======= ======= =======
Dividends per common
share $.15 $.15 $.30 $.30
==== ==== ==== ====
The accompanying notes are an integral part of these financial statements.
FREEPORT-McMoRan COPPER & GOLD INC.
STATEMENTS OF CASH FLOW (Unaudited)
Six Months Ended
June 30,
----------------------
1994 1993
-------- --------
(In Thousands)
Cash flow from operating activities:
Net income (loss) $ 48,165 $(18,830)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Cumulative effect of changes in accounting
principle - 9,854
Depreciation and amortization 35,440 27,699
Provision for restructuring charges,
net of payments - 16,652
Deferred income taxes 16,234 10,737
Amortization of discount on zero coupon
exchangeable notes 352 6,136
Minority interests' share of net income 9,435 (2,895)
(Increase) decrease in working capital,
net of effect of acquisition:
Accounts receivable 23,773 26,316
Inventories (43,563) (3,251)
Prepaid expenses and other (9,065) (137)
Accounts payable and accrued liabilities 22,394 (28,606)
Other (7,239) (12,139)
-------- --------
Net cash provided by operating activities 95,926 31,536
-------- --------
Cash flow from investing activities:
Capital expenditures (323,906) (199,673)
Acquisition of RTM, net of cash acquired (5,756) (1,354)
Other - (358)
-------- --------
Net cash used in investing activities (329,662) (201,385)
-------- --------
Cash flow from financing activities:
Cash dividends paid:
Common stock (61,723) (58,834)
Preferred stock (22,221) (7,854)
Minority interests (12,107) (10,037)
Proceeds from debt 309,325 36,768
Repayment of debt (246,105) (157,358)
Net proceeds from sale of:
Preferred stock 158,476 -
9 3/4% senior notes 116,276 -
-------- --------
Net cash provided by (used in) financing
activities 241,921 (197,315)
-------- --------
Net increase (decrease) in cash and
short-term investments 8,185 (367,164)
Cash and short-term investments at
beginning of year 13,798 371,842
-------- --------
Cash and short-term investments at
end of period $ 21,983 $ 4,678
======== ========
The accompanying notes are an integral part of these financial statements.
FREEPORT-McMoRan COPPER & GOLD INC.
NOTES TO FINANCIAL STATEMENTS
1. PROPOSED DISTRIBUTION BY FTX OF FCX COMMON STOCK
In May 1994, Freeport-McMoRan Inc. (FTX), the parent company of Freeport-
McMoRan Copper & Gold Inc. (FCX), announced that it intends to pursue a plan
to separate its two principal businesses, copper/gold and agricultural
minerals, into two independent financial and operating entities. To
accomplish this plan, FTX would make a pro rata distribution of its common
stock ownership in FCX (which totaled 69.5 percent at June 30, 1994) to the
FTX shareholders. As a result of this distribution, which will require a
series of steps to implement over the next six to twelve months, FTX would no
longer own any interest in FCX. In connection with this restructuring plan,
the existing revolving credit agreement of FTX and P.T. Freeport Indonesia
Company (PT-FI), FCX's principal mining subsidiary, will be replaced with a
new separate facility for both FCX and PT-FI. No debt of FTX or its other
subsidiaries will be assumed by FCX or PT-FI in connection with this plan.
The proposed restructuring is contingent on a number of factors including
changing the voting rights of FCX so that the Class B stockholders elect 80
percent of the FCX directors and the Class A stockholders and preferred
stockholders elect the balance. This change in voting rights will be subject
to approval of the Class A shareholders.
2. REDEEMABLE PREFERRED STOCK OFFERINGS
In January 1994, FCX sold publicly 4.3 million depositary shares representing
215,279 shares of its Gold-Denominated Preferred Stock, Series II. Each
depositary share has a cumulative quarterly cash dividend equal to the value
of 0.0008125 ounces of gold and is subject to mandatory cash redemption in
February 2006 for the value of 0.1 ounces of gold. The net proceeds ($158.5
million) were loaned to PT-FI for general corporate purposes, including
continued expansion of mining and milling operations. The Gold-Denominated
Preferred Stock, Series II and the Gold-Denominated Preferred Stock,
originally sold in August 1993, are recorded at their offering price and are
being reflected as a hedge of future gold sales for accounting purposes.
Based on the June 30, 1994 closing market price, these shares had a market
value of $400.1 million.
In July 1994, FCX sold publicly 4.8 million depositary shares
representing 119,000 shares of its Silver-Denominated Preferred Stock for net
proceeds of approximately $95 million, excluding the over-allotment option.
Each depositary share has a cumulative quarterly cash dividend equal to the
value of 0.04125 ounces of silver. Annually, beginning on August 1, 1999, FCX
will redeem in eight equal installments a portion of the underlying Silver-
Denominated Preferred Stock, such that it will be fully redeemed by August 1,
2006. The net proceeds will be loaned to PT-FI for general corporate purposes,
including continued expansion of mining and milling operations.
3. REDEMPTION OF ZERO COUPON EXCHANGEABLE NOTES
In December 1993, FCX called its Zero Coupon Exchangeable Notes (the Notes)
for redemption in January 1994. During January 1994, Notes with a face amount
of $386.0 million were presented for exchange into 5.8 million shares of Class
A common stock and the remaining Notes were redeemed for $.3 million in cash.
As a result of the issuance by FCX of its Class A common stock, PT-FI issued
shares of its stock to FCX, bringing FCX's direct ownership in PT-FI to 81.3
percent at June 30, 1994.
4. DEBT OFFERING
In April 1994, P.T. ALatieF Freeport Finance Company B.V. (AFFC), a wholly
owned subsidiary of FCX, sold publicly $120 million of 9 3/4% Senior Notes Due
2001. Approximately $52 million of the net proceeds are expected to be loaned
to P.T. ALatieF Freeport Infrastructure Corporation and one or more affiliated
infrastructure companies during the third quarter of 1994 for the purchase of
approximately $77 million of infrastructure assets from PT-FI.
5. INTEREST COSTS
Interest expense excludes capitalized interest of $6.9 million and $6.0
million in the second quarter of 1994 and 1993, respectively, and $12.8
million and $11.3 million in the first six months of 1994 and 1993,
respectively.
PT-FI has an 8.3 percent interest rate exchange agreement entered into in
1991 on $75.6 million of financing at June 30, 1994, reducing $14.3 million
annually through 1999. PT-FI entered into this interest rate exchange
agreement to manage exposure to interest rate changes on a portion of its
floating-rate bank debt. Under this interest swap, PT-FI received an average
interest rate of 3.6 percent and 3.5 percent during the first six months of
1994 and 1993, respectively, based on the London Interbank Offering Rate
(LIBOR), resulting in an additional interest cost of $.9 million and $1.2
million in the second quarter of 1994 and 1993, respectively, and $2.0 million
and $2.4 million in the first six months of 1994 and 1993, respectively.
Based on market conditions at June 30, 1994, unwinding this interest swap
would require an estimated $4.4 million.
6. RATIO OF EARNINGS TO FIXED CHARGES
The ratio of earnings to fixed charges for the first six months of 1994 was
7.4 to 1 compared with a shortfall of $14.5 million for the 1993 period. For
this calculation, earnings are income from continuing operations before income
taxes, minority interests, 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 1993 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
Second Quarter Six Months
----------------- ---------------
1994 1993 1994 1993 a
------ ------ ------ ------
(In Millions, Except Per Share Amounts)
Revenues $281.5 $215.0 $547.6 $348.5
Operating income (loss) 52.5 (18.5)b 105.7 7.0 b
Net income (loss) applicable
to common stock 9.7 (21.5)b 23.3 (26.7)b,c
Net income (loss) per share .05 (.11)b .11 (.14)b,c
a. Excludes the results of RTM prior to its March 1993 acquisition.
b. Includes charges totaling $33.7 million ($18.6 million to net income or
$.09 per share) and $37.1 million ($20.5 million to net income or $.10
per share) for the second-quarter and six-month periods of 1993,
respectively, for charges related to restructuring the administrative
organization at Freeport-McMoRan Inc. (FTX), the parent company of
Freeport-McMoRan Copper & Gold Inc. (FCX), and other related charges.
c. Includes a $9.9 million charge ($.05 per share) for the cumulative
effect of changes in accounting principle.
FCX's operations are primarily conducted through its majority owned
subsidiaries, P.T. Freeport Indonesia Company (PT-FI) and Rio Tinto Minera,
S.A. (RTM) which was acquired in March 1993. Results for the second quarter
and first six months of 1994 benefited from higher sales volumes and prices
for copper and gold. A reconciliation of revenues between the periods is
presented below (in millions):
Second Six
Quarter Months
------- ------
Revenues - 1993 $215.0 $348.5
Increases (decreases):
RTM revenues, net of eliminations (11.4) 75.7 *
PT-FI sales:
Price realizations:
Copper 20.3 25.9
Gold 5.6 16.0
Volumes:
Copper 26.0 42.7
Gold 20.2 40.3
Treatment charges (10.2) (11.3)
Adjustments to prior period
concentrate sales 12.1 10.3
Other 3.9 (0.5)
------ ------
Revenues - 1994 $281.5 $547.6
====== ======
* The 1994 period includes six months of RTM revenues compared to only
three months in the 1993 period.
Contributing to higher revenues in the 1994 periods were improved price
realizations for copper (13 percent and 9 percent, respectively) and gold (9
percent and 12 percent, respectively). Second-quarter and six-month copper
sales volumes rose 21 percent and 17 percent, respectively, between periods as
increased production resulting from increased mill throughput was partially
offset by lower recoveries. Gold sales volumes increased 46 percent and 45
percent over the 1993 periods, respectively, reflecting the higher production
resulting from increased mill throughput and improvements in gold grades (19
percent and 17 percent, respectively) partially offset by lower gold
recoveries. The lower recovery rates for copper and gold result from mining a
harder-to-treat ore. Copper and gold grades and recovery rates are expected
to improve in the second half of 1994. Treatment charges increased primarily
due to higher copper volumes and prices, as certain charges vary with the
price of copper. Adjustments to prior period concentrate sales for the
current quarter and six-month period resulted in positive adjustments of $8.7
million and $3.0 million, respectively, primarily caused by favorable copper
pricing adjustments, compared to the 1993 periods when falling copper prices
resulted in negative adjustments of $3.4 million and $7.3 million,
respectively.
PT-FI OPERATIONS Second Quarter Six Months
-------------------- ------------------
1994 1993 1994 1993
------- ------- ------- -------
Ore milled (metric tons per
day, MTPD) 71,300 56,600 72,300 59,000
Copper grade (%) 1.39 1.40 1.38 1.46
Gold grade (grams per MT) 1.13 .95 1.24 1.06
Recovery rate (%)
Copper 84.0 87.3 83.7 86.7
Gold 73.0 76.7 70.9 74.7
Copper (000s of recoverable pounds)
Production 161,000 133,500 321,500 284,100
Sales 168,800 140,000 324,500 278,100
Average realized price a $1.02 $.90 $1.00 $.92
Gold (recoverable ounces)
Production 165,700 116,900 356,500 263,700
Sales 185,400 127,200 386,700 267,500
Average realized price $378.00 $347.57 $379.53 $338.18
Gross profit per pound of copper (cents):
Average realized price a 102.2 90.3 99.6 91.6
----- ---- ---- ----
Production costs:
Site production and delivery 61.4 53.4 60.4 52.0
Gold and silver credits (42.5) (32.4) (45.6) (32.8)
Treatment charges 24.2 22.0 23.7 23.6
Royalty on metals 2.0 1.3 1.7 1.7
---- ---- ---- ----
Cash production costs 45.1 44.3 40.2 44.5
Depreciation and
amortization 8.0 8.7 8.1 8.7
---- ---- ---- ----
Total production costs 53.1 53.0 48.3 53.2
---- ---- ---- ----
Revenue adjustments b 5.1 (5.9) (0.3) (4.1)
---- ---- ---- ----
Gross profit per pound 54.2 31.4 51.0 34.3
==== ==== ==== ====
a. Excluding amounts recognized under PT-FI's copper price protection
program, realizations for the second-quarter and six-month periods of
1994 and 1993 would have been $.99, $.86, $.98, and $.87, respectively.
Including the adjustments discussed in Note b, realizations for the
second-quarter and six-month periods of 1994 and 1993 would have been
$1.07, $.84, $.99, and $.88, respectively.
b. Reflects adjustments for prior period concentrate sales and amortization
of the cost of the price protection program.
PT-FI's second-quarter mill throughput rate increased 26 percent compared
with the 1993 period as the expansion activities continue toward a level of
115,000 MTPD by year-end 1995. Mill throughput rates are expected to
approximate second quarter levels for the remainder of 1994. PT-FI site
production and delivery costs totaled $103.6 million for the second quarter of
1994, a 40 percent increase over the 1993 period, excluding $10.0 million of
charges in 1993 related to the restructuring. Unit site production and
delivery costs during the second quarter of 1994 increased 15 percent over the
year-ago period, excluding the 1993 charges discussed above, resulting from
lower production per ton mined (because of lower recoveries stemming from
harder-to-treat ore), higher jobsite administrative expenses, and expansion
related activities. Unit site production and delivery costs for the remainder
of 1994 are expected to be lower than in the first six months as a result of
an anticipated improvement in grades and recoveries. Second-quarter 1994 per
pound gold and silver credits increased 31 percent over the 1993 period
because of higher gold grades and realizations.
As a result of 1993 reserve additions, PT-FI's 1994 depreciation rate
decreased to 7.5 cents per pound compared with 8.3 cents for 1993.
In June 1994, copper prices rose above $1.10 per pound, primarily due to
strengthening global demand and reduced copper stocks, compared with 1993
prices which had dropped to the lowest levels since 1987. Because of the
recent improvement in prices, PT-FI entered into contracts covering
substantially all of its expected remaining 1994 copper sales resulting in
prices of approximately $1.07 per pound for the second quarter (including a
positive adjustment of 5.1 cents primarily related to price increases on
copper pounds that were not final-priced at March 31, 1994), $1.04 per pound
for the third quarter and $1.05 per pound for the fourth quarter. Included in
the fourth quarter expected price is $27.3 million cash received, which will
be recognized in fourth quarter revenues, from the settlement of certain
contracts originally designed to hedge fourth quarter sales. These contracts
were purchased in March and April of 1994 when copper prices were still below
$.90 per pound and were subsequently sold in June. As a result, PT-FI's
average realized copper price is expected to approximate $1.02 per pound for
1994. These actions by PT-FI provide it assured realizations for its 1994
copper sales that reflect the relatively high recent price of copper. Copper
sales in the first quarter of 1994 averaged $.90 per pound, which exceeded the
then current market price, as a result of PT-FI's previous $.90 per pound
price protection program. Revenues for the second-quarter and six-month
periods of 1994 and 1993 include net amounts recognized under the $.90 per
pound price protection program and the contracts referred to above totaling
$3.0 million, $9.4 million, $.4 million, and $6.7 million, respectively. The
impact on earnings totaled $1.7 million, $5.2 million, $.2 million, and $3.7
million, respectively.
In March and April of 1994, PT-FI extended its price protection program,
at a cost of $21.7 million, to cover anticipated copper sales through 1995.
For the first half of 1995, PT-FI's program established a minimum average
selling price of $.875 per pound, with full participation in any price
increase above an average of approximately $.97 per pound. For the second
half of 1995, PT-FI's program established an average floor price of $.83 per
pound, while allowing full benefit from prices above that amount. As of June
30, 1994, unwinding PT-FI's hedging position would require approximately $50
million. As conditions warrant, PT-FI may modify or extend its existing price
protection program. PT-FI has sales commitments from various parties for
virtually all of its estimated 1994 and 1995 production to be priced at the
then current market price under the terms of the contracts.
RTM OPERATIONS Second Quarter Six Months
------------------ ------------------
1994 1993 1994 1993 a
------- ------- ------- -------
Smelter operations:
Concentrate treated (MT) 126,400 115,300 244,400 115,300
Anode production (000s of
pounds) 91,900 102,500 175,500 102,500
Cathode production (000s of
pounds) 77,800 76,300 154,100 76,300
Gold operations:
Ore milled (MTPD) 18,600 18,300 18,400 18,300
Gold grade (grams per MT) 1.03 1.02 1.03 1.02
Sales (recoverable ounces) 43,300 44,500 80,700 44,500
Average realized price b $370.21 $336.10 $367.87 $336.10
a. RTM results are from March 30, 1993, the date of its acquisition.
b. Excluding hedging adjustments primarily related to RTM's gold loans
(9,200 ounces payable quarterly), realizations for the second-quarter and
six-month periods of 1994 and 1993 would have been $381.62, $359.72,
$382.83, and $359.72, respectively.
For the second-quarter and six-month periods of 1994, RTM contributed
earnings of $1.0 million and $2.7 million, respectively, compared with a loss
of $4.4 million for the period from acquisition to June 30, 1993. RTM has a
hedging program for its gold sales that includes gold denominated loans and
forward contracts. As of June 30, 1994, the unrecognized balance of the gold
denominated loans totaled approximately $5 million. Revenues for the second-
quarter and six-month periods of 1994 and 1993 include amounts recognized
under the hedging program totaling $.5 million, $1.1 million, $1.2 million,
and $1.1 million, respectively. Higher operating rates at RTM's smelter
resulted in a 10 percent increase in the amount of concentrate being treated
during the 1994 quarter compared with the 1993 period. RTM has commitments
from most of its suppliers for 1994 treatment charges at rates in excess of
current spot market rates. About one third of the contract terms have been
priced for 1995, when rates are expected to be lower because of changes in
market conditions. Cathode refinery operations continued to maintain high
operating rates. RTM's gold operations realized a mill throughput level
slightly above second-quarter 1993 levels; however, second-quarter 1994 gold
sales were lower than the 1993 period because of lower recoveries. Third-
quarter 1994 RTM earnings and potentially future periods are expected to be
negatively impacted by the recent decline in the value of the U.S. dollar and
planned mining of lower grade ore at RTM's gossan mining operations.
EXPLORATION AND OTHER FINANCIAL RESULTS
During the quarter, PT-FI reported results from exploration activities within
its original 24,700 acre Contract Of Work (COW) area (Block A) as well as in
the adjacent 6.5 million acre COW area (Block B) and the 2.5 million acre
exploration permit area (Eastern Mining blocks). Additional mineralization
was discovered at the Big Gossan, Wanagon and Lembah Tembaga prospects, all
within Block A. Mineralization was also discovered at the Wabu prospect in
Block B and exploratory drilling has now begun at Etna Bay located within the
Eastern Mining Blocks. Exploration expenses, currently budgeted at $44
million for 1994, including $6 million for RTM, totaled $19.6 million in the
six-month 1994 period compared with $15.7 million in the 1993 period.
FCX's general and administrative expenses increased from $40.5 million
for the six months ended June 30, 1993 to $49.4 million in 1994 as a result of
additional personnel and administrative effort required to manage the
expanding operations, costs associated with arranging financing for the
expansions at PT-FI and RTM, and the inclusion of RTM results for a full six
months in 1994. Also included in the 1993 period were charges of $6.3 million
primarily consisting of a write-off of certain deferred charges. The six-
month 1994 period benefited from a $1.9 million reduction in the estimated
cost of excess office space (originally estimated in the second quarter of
1993 as part of restructuring FTX's administrative organization). Future
general and administrative expenses are anticipated to approximate those in
the second quarter as FCX continues its expansions at PT-FI and RTM.
FCX's total interest cost (before capitalization) was reduced to $12.8
million for the six-month 1994 period from $23.2 million in the 1993 period
due to a reduction in debt from the sale of preferred stock in the second half
of 1993 and the first quarter of 1994 and conversions of FCX's zero coupon
exchangeable notes, partially offset by $3.0 million of additional interest
cost from RTM (Note 5). Preferred stock dividends totaled $24.9 million in
the six-month 1994 period and $7.9 million in the 1993 period.
PT-FI's COW provides a 35 percent corporate income tax rate for PT-FI and
a 15 percent withholding tax on interest for debt incurred after the signing
of the COW in December 1991 and on dividends paid to FCX by PT-FI. The
additional withholding required on interest and dividends paid to FCX by PT-FI
is included in the provision for income taxes and totaled $14.8 million for
the six-month 1994 period compared with $10.5 million for the 1993 period.
CAPITAL RESOURCES AND LIQUIDITY
Cash flow from operations increased to $95.9 million during the first six
months of 1994, compared with $31.5 million for the 1993 period, reflecting
higher income from operations. Cash flow used in investing activities totaled
$329.7 million during the first six months of 1994, compared with $201.4
million for the 1993 period, reflecting an increase in capital expenditures
for continuing plant expansion at PT-FI, the Enhanced Infrastructure Project
(EIP) discussed below, and $13.7 million of capital expenditures at RTM. Cash
flow provided by financing activities totaled $241.9 million compared with a
use of $197.3 million during the 1993 period. Dividend payments in 1994
increased by $19.3 million because of increased common shares outstanding and
dividends paid on depositary shares issued during the second half of 1993 and
in January 1994 (Note 2). In April 1994, a subsidiary of FCX completed a
public offering of 9 3/4% Senior Notes due 2001 (Note 4), for net proceeds of
$116.3 million to be used to purchase infrastructure assets from PT-FI as
discussed below. In July 1994, FCX will receive approximately $95 million
from the sale of depositary shares representing its Silver-Denominated
Preferred Stock (Note 2).
Through 1995, PT-FI's capital expenditures are expected to exceed cash
flow from its operations. Upon completion of the 115,000 MTPD expansion by
year-end 1995, PT-FI's annual production is expected to be approximately 1.1
billion pounds of copper and 1.5 million ounces of gold. Subsequently,
capital expenditures will be determined by the results of exploration
activities and ongoing capital maintenance programs. Remaining capital
expenditures in 1994 and 1995 for the expansion to 115,000 MTPD, the initial
phase of the EIP, and ongoing capital maintenance expenditures are expected to
range from $600 million to $700 million and will be funded by operating cash
flow, sales of existing and to-be-constructed infrastructure assets and other
financing sources. These sources include, but are not limited to, PT-FI's
credit facility (which had $242.0 million availability at July 22, 1994) and
public and private issuances of securities. PT-FI's long-lived, low-cost
reserve base provides its potential access to a broad range of sources of
capital.
The full EIP (currently expected to involve an aggregate cost of up to
$500 million to $600 million to be completed in stages) includes commercial,
residential, educational, retail, medical, recreational, environmental and
other infrastructure facilities to be constructed during the next 20 years for
PT-FI operations. The EIP will develop and promote the growth of local and
other third-party activities and enterprises in Irian Jaya through the
creation of certain necessary support facilities. The initial phase of the
EIP is under construction and is scheduled for completion in 1996. Additional
expenditures for EIP assets beyond the initial phase depend on the long-term
growth of PT-FI's operations and would be expected to be funded by third-party
financing sources, which may include debt, equity or asset sales. As
discussed below, certain portions of the EIP and other existing infrastructure
assets are expected to be sold in the near future to provide additional funds
for the expansion to 115,000 MTPD.
PT-FI has a joint venture agreement with P.T. ALatieF Nusakarya
Corporation (ALatieF), an Indonesian investor, which provides for the sale of
certain portions of the to-be-constructed infrastructure assets and certain
existing assets by PT-FI to a joint venture or ventures (the ALatieF Joint
Venture) owned one-third by PT-FI and two-thirds by ALatieF for total
consideration of $270 million. The sale of the first group of assets to the
ALatieF Joint Venture was completed in December 1993 for $90 million. Debt
financing for the remaining sales, which are anticipated for 1994 and later,
was finalized through the issuance of $120 million of 9 3/4% Senior Notes,
which are guaranteed by FCX. The next sale (approximately $77 million) is
expected to be completed in the third quarter of 1994.
PT-FI has also entered into Letters of Intent to sell: (i) existing and
to-be-constructed power generation and transmission assets and certain other
power-related assets; (ii) certain aircraft, airport and related operations;
and (iii) certain construction equipment, port facilities and related marine,
logistics and related assets to other joint ventures. The sales to these
joint ventures are expected to generate approximately $315 million (net of
equity contributions) over the next two years. These Letters of Intent are
not binding and are subject to the execution of definitive agreements,
financing, and certain approvals from the Indonesian Government.
RTM's principal operations currently consist of a copper smelter with an
annual capacity of 150,000 metric tons of metal. In June 1994, RTM signed a
turnkey contract to expand its smelter to 270,000 metric tons of metal per
year by early 1996. The contract requires payments in both deutsche marks and
pesetas, however RTM has hedging arrangements that fix the cost of the
expansion program at approximately $215 million. Project financing of $270
million, which is nonrecourse to FCX, has been arranged, which will also
provide funds for refinancing RTM's gold and silver loans and working capital
loans. The financing arrangement requires an additional equity contribution
of $30 million, which is being sought from third parties. RTM's future cash
flow is dependent on a number of variables including fluctuations in the
exchange rate between the United States dollar and the Spanish peseta (a one
peseta change in the exchange rate has an approximately $1 million impact on
RTM's cash flow and net income), future prices and sales volumes of gold, the
production rates at the smelter during the expansion program and during
anticipated major maintenance turnarounds, and the supply/demand for smelter
capacity and its impact on related treatment and refining charges. PT-FI has
a long-term contract with RTM to provide the smelter with a significant
portion of its copper concentrate requirements.
PT-FI's COW calls for it to conduct a feasibility study for the
construction of a copper smelting facility in Indonesia and for the eventual
construction of such a facility by PT-FI, if it is deemed to be economically
viable by PT-FI and the Government of Indonesia. FCX recently announced that
PT-FI and RTM have now taken the lead role in developing the proposed 150,000
to 200,000 metric tons of metal per year copper smelter in Gresik, Indonesia.
It is contemplated that PT-FI would provide approximately 50 percent of the
annual concentrate requirements of the Gresik smelter. Preliminary
engineering on the proposed smelter has been completed and management is
currently reviewing possible alternatives for financing the estimated $650
million to $700 million construction cost. The smelter could be operational
as early as 1998.
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 (for which PT-FI has instituted a price protection program) 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 expenditure 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.
FREEPORT-McMoRan COPPER & GOLD INC.
PART II. Other Information
Item 4. Submission of Matters to a Vote of Security Holders.
---------------------------------------------------
(a) The annual meeting of the security holders (the "Annual
Meeting") of the registrant, for which proxies were solicited pursuant to
Regulation 14A under the Securities Exchange Act of 1934, was held on May 5,
1994. Matters voted upon were (i) the election of directors (there was no
solicitation in opposition to management's nominees, all of whom were
elected); (ii) the ratification of the appointment of independent auditors;
(iii) the amendment of the Certificate of Incorporation of the registrant to
increase the number of authorized shares of Special Stock; and (iv) the
amendment of the Certificate of Incorporation of the registrant to increase
the number of authorized shares of Preferred Stock.
(c) The first matter voted upon at the Annual Meeting was the
election of Leland O. Erdahl, Ronald Grossman, Rene L. Latiolais, George A.
Mealey, James R. Moffett, Wolfgang F. Siegel, Elwin E. Smith and Eiji Umene as
directors, each to serve for one year and until his successor is elected and
qualified. The numbers of votes cast for or withheld from each nominee were
as follows:
FOR WITHHELD
---- --------
Mr. Erdahl 190,740,041 639,179
Mr. Grossman 190,736,191 643,029
Mr. Latiolais 190,737,291 641,929
Mr. Mealey 190,741,668 637,552
Mr. Moffett 190,728,692 650,528
Mr. Siegel 190,606,994 772,226
Mr. Smith 190,733,218 646,002
Mr. Umene 190,596,194 783,026
The second matter voted upon at the Annual Meeting was the
ratification of the appointment of Arthur Andersen & Co. to act as the
independent auditor of the registrant for 1994. The numbers of votes cast for
or against and the number of abstentions as to such matter were as follows:
FOR AGAINST ABSTENTIONS
--- ------- -----------
190,754,849 146,838 477,533
The third matter voted upon at the Annual Meeting was the
amendment of the Certificate of Incorporation to increase the number of
authorized shares of Special Stock. The number of votes cast for or against,
the number of abstentions and the number of broker non-votes as to such matter
by holders of shares of the Class A and Class B Common Stock of the
registrant, voting together as a single class, were as follows:
FOR AGAINST ABSTENTIONS BROKER NON-VOTES
--- --------- ----------- ----------------
175,881,361 5,040,393 590,067 9,867,399
The number of votes cast for or against, the number of abstentions and the
number of shares of broker non-votes as to such matter by holders of shares of
the Class A Common Stock and Special Preference Stock of the Registrant,
voting together as a single class, were as follows:
FOR AGAINST ABSTENTIONS BROKER NON-VOTES
--- ---------- ----------- ----------------
48,016,535 7,451,761 10,313,923 9,867,399
The Special Preference Stock is traded publicly through depositary shares
listed on the New York Stock Exchange ("NYSE"), each depositary share
representing 2 16/17 shares of Special Preference Stock.
The fourth matter voted upon at the Annual Meeting was the
amendment of the Certificate of Incorporation to increase the number of
authorized shares of Preferred Stock. The number of votes cast for or
against, the number of abstentions and the number of broker non-votes as to
such matter by holders of shares of the Class A and Class B Common Stock of
the registrant, voting together as a single class, were as follows:
FOR AGAINST ABSTENTIONS BROKER NON-VOTES
--- ------- ----------- ----------------
171,758,402 9,072,788 680,631 9,867,399
The number of votes cast for or against, the number of abstentions and the
number of shares of broker non-votes as to such matter by holders of shares of
the Preferred Stock of the Registrant were as follows:
FOR AGAINST ABSTENTIONS BROKER NON-VOTES
--- ------- ----------- ----------------
616,714 158,759 439,806 0
On the record date of the Annual Meeting, the Preferred Stock was comprised of
three series. The Step-Up Convertible Preferred Stock, the Gold-Denominated
Preferred Stock and the Gold-Denominated Preferred Stock, Series II, are
traded publicly through depositary shares listed on the NYSE, each depositary
share representing 0.05 shares of the Preferred Stock.
Item 6. Exhibits and Reports on Form 8-K.
--------------------------------
(a) Not applicable
(b) No reports on Form 8-K were filed by the registrant during
the quarter for which this report is filed.
FREEPORT-McMoRan COPPER & GOLD INC.
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.
FREEPORT-McMoRan COPPER & GOLD INC.
By: /s/ John T. Eads
--------------------------------
John T. Eads
Controller - Financial Reporting
Date: August 5, 1994
