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 September 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 September 30, 1994, there were issued and outstanding 64,410,024 shares of
the registrant's Class A Common Stock, par value $.10 per share, and
141,522,891 shares of its Class B Common Stock, par value $.10 per share.<PAGE>
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 14
Signature 15
Exhibit Index E-1
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,
1994 1993
------------- ------------
ASSETS (In Thousands)
Current assets:
Cash and short-term investments $ 22,589 $ 13,798
Accounts receivable 186,442 188,729
Inventories 275,003 211,928
Prepaid expenses and other 15,772 13,787
---------- ----------
Total current assets 499,806 428,242
Property, plant and equipment, net 2,223,858 1,646,603
Other assets 48,144 41,808
---------- ----------
Total assets $2,771,808 $2,116,653
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 339,325 $ 238,948
Current portion of long-term debt and
short-term borrowings 102,004 48,791
---------- ----------
Total current liabilities 441,329 287,739
Long-term debt, less current portion 313,675 211,868
Accrued postretirement benefits and other
liabilities 213,357 188,165
Deferred income taxes 244,122 201,553
Minority interests 74,177 46,781
Mandatory redeemable preferred stock 500,007 232,620
Stockholders' equity 985,141 947,927
---------- ----------
Total liabilities and stockholders' equity $2,771,808 $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 Nine Months Ended
September 30, September 30,
-------------------- --------------------
1994 1993 1994 1993
-------- -------- -------- --------
(In Thousands, Except Per Share Amounts)
Revenues $313,384 $261,504 $860,989 $610,052
Cost of sales:
Site production
and delivery 192,292 157,716 529,430 394,622
Depreciation and
amortization 18,387 17,457 53,827 45,156
-------- -------- -------- --------
Total cost of sales 210,679 175,173 583,257 439,778
Exploration expenses 9,941 9,321 29,525 25,037
Provision for
restructuring charges - - - 20,795
General and
administrative
expenses 29,403 18,060 78,844 58,569
-------- -------- -------- --------
Total costs and
expenses 250,023 202,554 691,626 544,179
-------- -------- -------- --------
Operating income 63,361 58,950 169,363 65,873
Interest expense, net - (3,390) - (15,327)
Other income
(expense), net 216 (616) (685) 1,153
-------- -------- -------- --------
Income before income
taxes and minority
interests 63,577 54,944 168,678 51,699
Provision for income
taxes (30,157) (21,770) (77,658) (30,396)
Minority interests (6,592) (4,099) (16,027) (1,204)
-------- -------- -------- --------
Income before changes
in accounting
principle 26,828 29,075 74,993 20,099
Cumulative effect of
changes in accounting
principle - - - (9,854)
-------- -------- -------- --------
Net income 26,828 29,075 74,993 10,245
Preferred dividends (13,365) (9,887) (38,253) (17,741)
-------- -------- -------- --------
Net income (loss)
applicable to common
stock $ 13,463 $ 19,188 $ 36,740 $ (7,496)
======== ======== ======== ========
Net income (loss) per
share of common stock:
Before changes in
accounting
principle $.07 $.10 $.18 $ .01
Cumulative effect of
changes in
accounting
principle - - - (.05)
---- ---- ---- -----
$.07 $.10 $.18 $(.04)
==== ==== ==== =====
Average common shares
outstanding 205,933 199,165 205,692 197,460
======= ======= ======= =======
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,
----------------------
1994 1993
-------- --------
(In Thousands)
Cash flow from operating activities:
Net income $ 74,993 $ 10,245
Adjustments to reconcile net income to net
cash provided by operating activities:
Cumulative effect of changes in accounting
principle - 9,854
Depreciation and amortization 53,827 45,156
Provision for restructuring charges,
net of payments - 4,842
Deferred income taxes 29,049 4,056
Amortization of discount on zero coupon
exchangeable notes 352 8,543
Minority interests' share of net income 16,027 1,204
(Increase) decrease in working capital,
net of effect of acquisition:
Accounts receivable 8,283 23,286
Inventories (36,969) (30,360)
Prepaid expenses and other (1,950) (5,342)
Accounts payable and accrued liabilities 27,336 (4,769)
Other (8,000) (2,614)
-------- --------
Net cash provided by operating activities 162,948 64,101
-------- --------
Cash flow from investing activities:
Capital expenditures:
PT-FI (481,840) (308,768)
RTM (45,857) (1,950)
Acquisition of RTM, net of cash acquired (5,756) (1,354)
-------- --------
Net cash used in investing activities (533,453) (312,072)
-------- --------
Cash flow from financing activities:
Cash dividends paid:
Common stock (92,612) (88,690)
Preferred stock (33,930) (11,781)
Minority interests (18,282) (14,408)
Proceeds from (repayments of) debt, net 137,540 (543,683)
Proceeds from infrastructure financing, net 17,319 -
Proceeds from issuance of:
Preferred stock 252,985 561,090
9 3/4% senior notes 116,276 -
-------- --------
Net cash provided by (used in) financing
activities 379,296 (97,472)
-------- --------
Net increase (decrease) in cash and
short-term investments 8,791 (345,443)
Cash and short-term investments at
beginning of year 13,798 371,842
-------- --------
Cash and short-term investments at
end of period $ 22,589 $ 26,399
======== ========
The accompanying notes are an integral part of these financial statements.
FREEPORT-McMoRan COPPER & GOLD INC.
NOTES TO FINANCIAL STATEMENTS
1. DISTRIBUTION OF FCX COMMON STOCK BY FTX
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 68.8 percent at September 30, 1994) to
the FTX stockholders. As a result of this distribution, which will require a
series of steps to implement over several 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. The spinoff of FCX will provide greater
access to credit markets and reduce financing costs for FCX and PT-FI. The
proposed restructuring is contingent on a number of factors including changing
the voting rights of FCX stockholders so that the Class B stockholders elect
80 percent of the FCX directors and the Class A stockholders and preferred
stockholders elect the balance. The change in voting rights is subject to FCX
Class A stockholder approval.
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. Additionally, in July
1994, FCX sold publicly 4.8 million depositary shares representing 119,000
shares of its Silver-Denominated Preferred Stock. 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 the underlying
Silver-Denominated Preferred Stock in eight equal installments. The net
proceeds from these offerings ($253.0 million) were loaned to PT-FI for
general corporate purposes, including the expansion of its mining and milling
operations.
The Gold-Denominated Preferred Stock, Series II; the Gold-Denominated
Preferred Stock sold in August 1993; and the Silver-Denominated Preferred
Stock are being reflected as a hedge of future gold and silver sales for
accounting purposes. Based on closing commodity market prices, these shares
had an aggregate market value of $513.9 million at September 30, 1994.
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 exchanged 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 14,490
shares of its stock to FCX, bringing FCX's direct ownership in PT-FI to 81.3
percent at September 30, 1994.
4. DEBT OFFERING
In April 1994, a wholly owned subsidiary of FCX sold publicly $120 million of
9 3/4% Senior Notes due 2001. The net proceeds were loaned to a joint venture
in which PT-FI owns a minority interest. The joint venture was formed to
purchase and manage certain infrastructure assets from PT-FI to be used in
support of PT-FI's operations. The management agreement results in the joint
venture being reported as a consolidated entity.
5. INTEREST COSTS
Interest expense excludes capitalized interest of $8.5 million and $5.0
million in the third quarter of 1994 and 1993, respectively, and $21.3 million
and $16.3 million in the first nine months of 1994 and 1993, respectively.
PT-FI has an 8.3 percent interest rate exchange agreement entered into in
1991 on $78.6 million of financing at September 30, 1994, reducing $14.3
million annually through 1999. PT-FI entered into this 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 4.0
percent and 3.4 percent during the first nine months of 1994 and 1993,
respectively, based on the London Interbank Offering Rate (LIBOR), resulting
in an additional interest cost of $.7 million and $1.2 million in the third
quarter of 1994 and 1993, respectively, and $2.7 million and $3.6 million in
the first nine months of 1994 and 1993, respectively. Based on market
conditions at September 30, 1994, unwinding this interest swap would require
an estimated $2.3 million.
6. RATIO OF EARNINGS TO FIXED CHARGES
The ratio of earnings to fixed charges for the first nine months of 1994 and
1993 was 7.2 to 1 and 2.1 to 1, respectively. 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
Third Quarter Nine Months
----------------- ---------------
1994 1993 1994 1993 a
------ ------ ------ ------
(In Millions, Except Per Share Amounts)
Revenues $313.4 $261.5 $861.0 $610.1
Operating income 63.4 59.0 169.4 65.9 b
Net income (loss) applicable
to common stock 13.5 19.2 36.7 (7.5)b,c
Net income (loss) per share .07 .10 .18 (.04)b,c
a. Excludes Rio Tinto Minera, S.A. (RTM) results prior to its March 1993
acquisition.
b. Includes charges totaling $37.1 million ($20.5 million to net income or
$.10 per share) for 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 RTM. Results for
the 1994 periods benefited primarily from higher sales prices and volumes for
copper and gold. A reconciliation of revenues between the periods is
presented below (in millions):
Third Nine
Quarter Months
------- ------
Revenues - 1993 $261.5 $610.1
Increases (decreases):
RTM revenues, net of eliminations 16.4 92.0 *
PT-FI sales:
Price realizations:
Copper 25.4 54.3
Gold 1.6 15.1
Volumes:
Copper 3.4 45.7
Gold 8.0 49.7
Treatment charges (1.5) (12.8)
Adjustments to prior period
concentrate sales 3.0 10.3
Other (4.4) (3.4)
------ ------
Revenues - 1994 $313.4 $861.0
====== ======
* The 1993 period includes only six months of RTM revenues.
Contributing to higher revenues were significantly higher copper prices
and improved gold realizations. Additionally, copper and gold sales volumes
increased due to higher production resulting from expanded mill throughput,
partially offset by lower grades and recoveries when compared to 1993 levels.
Although lower than the unusually high levels of the third quarter of 1993,
third-quarter 1994 copper and gold grades were significantly higher than in
the prior quarter. Copper grades are expected to be higher in the fourth
quarter of 1994. Recovery rates for copper and gold vary depending on quality
of the ore mined. Treatment charges increased primarily due to higher copper
volumes and prices, as certain charges vary with the price of copper.
Treatment charges, which are negotiated annually with our customers, are
expected to decline significantly on a per pound basis in 1995 as a result of
the overall tightness in the copper concentrates market currently being
experienced. Adjustments to prior period concentrate sales for the current
quarter and nine-month period resulted in positive adjustments primarily
caused by favorable copper pricing adjustments, compared to the 1993 periods
when falling copper prices resulted in negative adjustments.
PT-FI OPERATIONS Third Quarter Nine Months
------------------ ------------------
1994 1993 1994 1993
------- ------- ------- -------
Ore milled (metric tons per
day, MTPD) 69,900 59,700 71,500 59,200
Copper grade (%) 1.56 1.68 1.44 1.53
Gold grade (grams per MT) 1.37 1.51 1.28 1.21
Recovery rate (%)
Copper 83.5 87.9 83.6 87.2
Gold 73.5 75.9 72.0 75.5
Copper (000s of recoverable pounds)
Production 178,300 172,400 499,800 456,500
Sales 169,400 165,600 493,900 443,700
Average realized price a $1.05 $.90 $1.02 $.91
Gold (recoverable ounces)
Production 200,700 194,900 557,200 458,600
Sales 194,200 172,900 580,900 440,400
Average realized price $381.89 $373.72 $380.21 $354.15
Gross profit per pound of copper (cents):
Average realized price a 105.0 90.0 101.8 90.8
----- ---- ----- ----
Production costs:
Site production and delivery 54.9 44.6 58.5 49.2
Gold and silver credits (44.6) (40.6) (45.2) (35.7)
Treatment charges 24.2 23.9 23.9 23.7
Royalty on metals 3.4 1.3 2.3 1.6
----- ---- ----- ----
Cash production costs 37.9 29.2 39.5 38.8
Depreciation and
amortization 8.0 8.7 8.1 8.7
----- ---- ----- ----
Total production costs 45.9 37.9 47.6 47.5
----- ---- ----- ----
Revenue adjustments b (0.3) (2.2) (0.5) (3.2)
----- ---- ----- ----
Gross profit per pound 58.8 49.9 53.7 40.1
===== ==== ===== ====
a. Excluding amounts recognized under PT-FI's copper price protection
program, realizations would have been $1.13 and $.80 for the third
quarter of 1994 and 1993, respectively, and $1.04 and $.85 for the nine-
month periods of 1994 and 1993, respectively.
b. Reflects adjustments for prior period concentrate sales and amortization
of the cost of the price protection program.
PT-FI's third-quarter mill throughput rate rose 17 percent compared with
the 1993 period. Expansion activities continue toward a level of 115,000 MTPD
to be reached during the second half of 1995. Mill throughput rates are
expected to approximate third quarter levels for the near term, even though
significant construction tie-in work is being performed. PT-FI site
production and delivery costs totaled $93.0 million for the third quarter of
1994 compared with $73.8 million for the 1993 period. Unit costs increased
10.3 cents per pound due to lower grades and recoveries, higher jobsite
administrative expenses, expansion related activities, and costs associated
with initial privatization efforts. Unit site production and delivery costs
are expected to fluctuate significantly in the quarters prior to completion of
PT-FI's 115,000 MTPD expansion program because of anticipated variations in
ore grade. Based on present expectations, PT-FI anticipates mining lower
grade ore during the first half of 1995 which is estimated to have a
relatively negative impact on its operating results. Operating results for
PT-FI are expected to improve during the second half of 1995 when improved ore
grades are projected and output volumes increase as the expansion is
completed. Third-quarter 1994 per pound gold and silver credits increased 10
percent over the 1993 period primarily because of higher gold sales.
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.
PT-FI has commitments from various parties to purchase virtually all of
its estimated 1994 and 1995 production at market prices. The price that PT-FI
ultimately receives for its concentrate is subject to the volatility of the
commodity markets.
In order to establish a minimum realization for its copper sales during
the expansion period and to manage the impact of possible unfavorable changes
in copper prices, PT-FI has entered into various hedging contracts. During
1993 and for the first half of 1994, these contracts established a minimum
realization of $.90 per pound. PT-FI entered into forward contracts covering
substantially all of its remaining 1994 copper sales resulting in an expected
realization of $1.04 for the fourth quarter of 1994. Included in the fourth
quarter expected realization is $27.3 million of cash already received from
the settlement of related contracts originally designed to hedge fourth
quarter sales. Net reductions to revenues under these programs totaled $15.5
million ($8.7 million to net income) in the third quarter of 1994 and $15.3
million ($8.6 million to net income) for the nine-month period of 1994. The
comparable 1993 periods included net revenues of $15.3 million ($8.4 million
to net income) and $27.3 million ($15.1 million to net income), respectively,
recognized under the $.90 per pound program.
PT-FI also implemented a price protection program, at a cost of $21.7
million, to cover anticipated copper sales for 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 a minimum average price of $.83 per pound, while allowing full
benefit from prices above that amount. As of September 30, 1994, unwinding
PT-FI's hedging position would require approximately $80 million. As
conditions warrant, PT-FI may modify or extend its existing program.
RTM OPERATIONS Third Quarter Nine Months
------------------ -----------------
1994 1993 1994 1993 a
------- ------- ------- -------
Smelter operations:
Concentrate treated (MT) 120,200 109,200 364,600 224,500
Anode production (000s of
pounds) 86,400 97,000 261,900 199,600
Cathode production (000s of
pounds) 79,200 77,400 233,300 153,700
Gold operations:
Ore milled (MTPD) 18,800 18,000 18,500 18,100
Gold grade (grams per MT) 1.05 1.07 1.04 1.04
Sales (recoverable ounces) 45,900 43,700 126,600 88,200
Average realized price b $368.62 $340.35 $364.06 $335.90
a. RTM results are from March 30, 1993, the date of its acquisition.
b. Excluding hedging adjustments related to RTM's gold loans (9,200 ounces
payable quarterly) and forward sales contracts, realizations would have
been $380.17 and $373.06 for the third quarter of 1994 and 1993,
respectively, and $377.74 and $365.16 for the nine-month periods of 1994
and 1993, respectively.
For the third-quarter of 1994, RTM losses totaled $2.7 million while its
operations were at breakeven for the nine-month 1994 period, compared with
losses of $1.0 million for the third quarter of 1993 and $5.4 million for the
period from acquisition to September 30, 1993. RTM has a hedging program for
its gold sales that includes gold-denominated loans and forward contracts.
Net reductions to revenues recognized under the gold hedging program totaled
$.5 million and $1.4 million for the third quarter periods of 1994 and 1993,
respectively, and $1.7 million and $2.6 million for the nine-month periods of
1994 and 1993, respectively. As of September 30, 1994, the unrecognized
balance of the gold-denominated loans totaled $5.1 million.
Higher operating rates at RTM's smelter resulted in increased concentrate
treated during the 1994 quarter compared with the 1993 period. Cathode
refinery operations also continued to maintain high operating rates. Higher
third-quarter 1994 mill throughput and recoveries at RTM's gold operations,
partially offset by lower grades, resulted in an increase in gold sales.
Third-quarter 1994 RTM earnings were negatively impacted by a continuing
decline in the value of the U.S. dollar and planned mining of lower grade ore
at RTM's gossan mining operations. Based on current operating levels, a one
peseta change in the exchange rate has an approximately $1 million impact on
RTM's annual earnings and cash flow. RTM's 1995 results are expected to be
negatively impacted by the significant decline in treatment charge rates
discussed above and are subject to variations based on the relative value of
the U.S. dollar and the Spanish peseta.
EXPLORATION AND OTHER FINANCIAL RESULTS
PT-FI continues its exploration activities within its original 24,700 acre
Contract Of Work (COW) area (Block A), the adjacent 6.5 million acre COW area
(Block B) and a 2.5 million acre area (Eastern Mining blocks). Delineation
and exploratory drilling continues at the Big Gossan and Lembah Tembaga
prospects, both within Block A. Development of the Big Gossan deposit is
expected to begin by early 1995 at a total estimated cost of approximately
$130 million. Exploration activities continue in other locations including
the Wanagon prospect within Block A and the Wabu gold prospect in Block B.
Exploratory drilling with three rigs is also continuing at Etna Bay located
within the Eastern Mining acreage. PT-FI must progressively relinquish its
rights to the COW area in amounts equal to 25 percent of the Block B acreage
at the end of each of three specified periods, the first of which is scheduled
to expire on December 30, 1994, and the last of which is set to expire in the
next two to four years. Similarly, 75 percent of the Eastern Mining blocks
must be relinquished over the next two to seven years. Exploration costs,
currently budgeted at $42 million for 1994, including $4 million for RTM,
totaled $29.5 million in the nine-month 1994 period compared with $25.0
million in the 1993 period.
FCX's general and administrative expenses increased to $78.8 million in
1994 from $58.6 million for the nine months ended September 30, 1993 as a
result of additional personnel and administrative efforts 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 nine
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 nine-
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).
FCX's total interest cost (before capitalization) was reduced to $21.3
million for the nine-month 1994 period from $31.6 million in the 1993 period
due to an overall reduction in debt levels due to the usage of net proceeds
from the sales of preferred stock (Note 2) and conversions of FCX's zero
coupon exchangeable notes (Note 3). Preferred stock dividends totaled $38.3
million in the nine-month 1994 period and $17.7 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 $22.6 million for
the nine-month 1994 period compared with $17.1 million for the 1993 period.
PT-FI also recognizes a tax benefit for interest expense on loans from FCX,
resulting in a consolidated tax benefit totaling $12.1 million and $9.1
million for the nine-month periods of 1994 and 1993, respectively. No income
tax provision or benefit is recorded for RTM, which is subject to a separate
tax jurisdiction (Spain), because it has significant net operating loss
carryforwards and has not generated taxable income in recent years.
CAPITAL RESOURCES AND LIQUIDITY
Cash flow from operations increased to $162.9 million during the first nine
months of 1994, compared with $64.1 million for the 1993 period, primarily
reflecting higher income from operations. PT-FI has agreed upon the framework
of a settlement with its insurers for a property and business interruption
claim for the June 1993 ore pass cave-in. PT-FI anticipates receiving
insurance proceeds in excess of $30 million late this year or early 1995.
Cash flow used in investing activities totaled $533.5 million during the first
nine months of 1994, compared with $312.1 million for the 1993 period,
reflecting an increase in capital expenditures for continuing expansion at PT-
FI, the Enhanced Infrastructure Project (EIP) discussed below, and the smelter
expansion at RTM. Cash flow provided by financing activities totaled $379.3
million compared with a use of $97.5 million during the 1993 period,
reflecting a $137.5 million net increase from debt in 1994 compared with net
repayments of $543.7 million in 1993. Dividend payments in 1994 rose by $29.9
million because of increased common shares outstanding and the issuance of
additional preferred shares.
Through 1995, PT-FI's capital expenditures are expected to exceed cash
flow from its operations. Upon completion of the 115,000 MTPD expansion
during the second half of 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 $450 million to $550 million. These expenditures 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 availability of $275.0
million at October 21, 1994) and public and private issuances of securities.
PT-FI's long-lived, low-cost reserve base provides it 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 is helping to 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 have been or 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 first group of assets were sold to the
ALatieF Joint Venture in December 1993 for $90 million and the second group of
assets was sold in August 1994 for $77 million. Another sale of at least $40
million is scheduled for the fourth quarter of 1994 and the remainder in 1995.
FCX has guaranteed the $180 million of debt required to finance the sales to
the ALatieF Joint Venture (Note 4), which is reported as a consolidated
entity.
PT-FI has also entered into Letters of Intent to sell the following: (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 $330
million (net of PT-FI equity contributions), including approximately $200
million in the fourth quarter of 1994 and the remainder in 1995. 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 German deutsche
marks and Spanish pesetas, however RTM has hedging arrangements that fix the
cost of the expansion program at approximately $215 million. Project
financing of $290 million, which is nonrecourse to FCX, has been arranged and
is expected to be closed during the fourth quarter of 1994, which will also
provide funds for refinancing RTM's gold and silver loans and a portion of its
working capital loans. The financing arrangement requires an additional net
equity contribution of $30 million, which will be made by FCX. 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, 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.
FCX recently announced that PT-FI and RTM have 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 concentrate to the Gresik smelter. Management is currently reviewing
possible alternatives for financing the construction cost. The smelter could
be operational as early as 1998.
On October 5, 1994, the FCX Board of Directors declared a cash dividend
of $.15 per share on FCX's Class A common stock and Class B common stock,
payable November 1, 1994, to shareholders of record October 17, 1994. The
declaration and amount of future dividends, if any, will depend upon
appropriate action of the Board of Directors and economic and market factors
which cannot be predicted.
--------------------
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 6. Exhibits and Reports on Form 8-K.
--------------------------------
(a) The exhibits to this report are listed in the Exhibit Index
appearing on Page E-1 hereof.
(b) During the quarter for which this report is filed, the
registrant filed one Current Report on Form 8-K, dated September 29, 1994
(reporting information under Item 5 and Item 7).
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: October 27, 1994
FREEPORT-McMoRan COPPER & GOLD INC.
EXHIBIT INDEX
-------------
Sequentially
Numbered
Number Description Page
- - ------ ----------- ------------
4.1 Form of Certificate of Designations relating to the
Silver-Denominated Preferred Stock of FCX.
Incorporated by reference to Exhibit 4.4 to Form 8-A
of FCX dated July 15, 1994.
27.1 Freeport-McMoRan Copper & Gold Inc. Financial Data
Schedule<PAGE>
FREEPORT-McMoRan COPPER & GOLD INC.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> SEP-30-1994
<CASH> 22,589
<SECURITIES> 0
<RECEIVABLES> 127,774
<ALLOWANCES> 0
<INVENTORY> 275,003
<CURRENT-ASSETS> 499,806
<PP&E> 2,803,333
<DEPRECIATION> 579,475
<TOTAL-ASSETS> 2,771,808
<CURRENT-LIABILITIES> 441,329
<BONDS> 313,675
<COMMON> 20,593
500,007
574,400
<OTHER-SE> 390,148
<TOTAL-LIABILITY-AND-EQUITY> 2,771,808
<SALES> 860,989
<TOTAL-REVENUES> 860,989
<CGS> 583,257
<TOTAL-COSTS> 583,257
<OTHER-EXPENSES> 29,525
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 168,678
<INCOME-TAX> 77,658
<INCOME-CONTINUING> 74,993
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 74,993
<EPS-PRIMARY> .18
<EPS-DILUTED> .18
</TABLE>
