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, 1996
Commission File Number: 1-9916
Freeport-McMoRan Copper & Gold Inc.
Incorporated in Delaware 74-2480931
(IRS Employer
Identification No.)
1615 Poydras Street, New Orleans, Louisiana 70112
Registrant's telephone number, including area code: (504)582-4000
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, 1996, there were issued and outstanding 76,595,087 shares
of the registrant's Class A Common Stock, par value $0.10 per share,
and 118,813,528 shares of its Class B Common Stock, par value $0.10
per share.
FREEPORT-McMoRan COPPER & GOLD INC.
TABLE OF CONTENTS
Page
Part I. Financial Information
Financial Statements:
Condensed Balance Sheets 3
Statements of Income 4
Statements of Cash Flow 5
Notes to Financial Statements 6
Remarks 6
Management's Discussion and Analysis of Financial Condition
and Results of Operations 7
Part II. Other Information 13
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)
June 30, December 31,
1996 1995
---------- ----------
(In Thousands)
ASSETS
Current assets:
Cash and short-term investments $ 45,035 $ 26,883
Accounts receivable 189,634 256,121
Inventories 386,310 354,728
Prepaid expenses and other 14,527 15,542
---------- ----------
Total current assets 635,506 653,274
Property, plant and equipment, net 2,889,903 2,845,625
Other assets 98,546 82,847
---------- ----------
Total assets $3,623,955 $3,581,746
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 326,886 $ 351,485
Current portion of long-term debt and
short-term borrowings 111,325 86,943
Accrued income taxes 41,906 88,357
---------- ----------
Total current liabilities 480,117 526,785
Long-term debt, less current portion 1,360,650 1,080,289
Accrued postretirement benefits and
other liabilities 161,533 186,342
Deferred income taxes 320,300 305,490
Minority interests 94,938 101,159
Mandatory redeemable preferred stock 500,007 500,007
Stockholders' equity 706,410 881,674
---------- ----------
Total liabilities and stockholders'
equity $3,623,955 $3,581,746
========== ==========
The accompanying notes are an integral part of these financial
statements.
FREEPORT-McMoRan COPPER & GOLD INC.
STATEMENTS OF INCOME (Unaudited)
Three Months Six Months
Ended June 30, Ended June 30,
------------------------ ------------------------
1996 1995 1996 1995
---------- ---------- ---------- ----------
(In Thousands, Except Per Share Amounts)
Revenues $ 424,348 $ 421,469 $ 812,740 $ 830,275
Cost of sales:
Production and delivery 238,886 221,534 443,728 445,736
Depreciation and
amortization 43,415 28,211 78,576 50,108
---------- ---------- ---------- ----------
Total cost of sales 282,301 249,745 522,304 495,844
Exploration expenses - 11,654 - 19,610
General and
administrative expenses 30,420 29,354 73,266 62,204
---------- ---------- ---------- ----------
Total costs and
expenses 312,721 290,753 595,570 577,658
---------- ---------- ---------- ----------
Operating income 111,627 130,716 217,170 252,617
Interest expense, net (29,545) (11,799) (53,075) (11,799)
Other income (expense),
net 2,965 (920) 3,872 (1,638)
---------- ---------- ---------- ----------
Income before income
taxes and minority
interests 85,047 117,997 167,967 239,180
Provision for income
taxes (36,733) (50,528) (75,354) (101,923)
Minority interests in
net income of
consolidated
subsidiaries (5,643) (13,285) (13,806) (25,677)
---------- ---------- ---------- ----------
Net income 42,671 54,184 78,807 111,580
Preferred dividends (13,626) (13,559) (27,312) (26,962)
---------- ---------- ---------- ----------
Net income applicable
to common stock $ 29,045 $ 40,625 $ 51,495 $ 84,618
========== ========== ========== ==========
Net income per primary
and fully diluted share
of common stock $.15 $.20 $.26 $.41
========== ========== ========== ==========
Average common shares
outstanding 197,169 205,157 197,768 205,555
========== ========== ========== ==========
Dividends paid per
common share $.225 $.15 $.45 $.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,
--------------------------
1996 1995
---------- ----------
(In Thousands)
Cash flow from operating activities:
Net income $ 78,807 $ 111,580
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 78,576 50,108
Deferred income taxes 14,810 28,404
Recognition of unearned income - (36,207)
Minority interests' share of net income 13,806 25,677
Other (10,057) (1,893)
(Increase) decrease in working capital:
Accounts receivable 68,515 (7,537)
Inventories (12,052) (30,817)
Prepaid expenses and other 5,481 (1,229)
Accounts payable and accrued
liabilities 21,148 (28,527)
Accrued income taxes (50,918) 29,030
---------- ----------
(Increase) decrease in working capital 32,174 (39,080)
---------- ----------
Net cash provided by operating activities 208,116 138,589
---------- ----------
Cash flow from investing activities:
Capital expenditures:
PT-FI (140,296) (240,245)
RTM (51,893) (67,854)
Investment in Gresik smelter (17,131) -
---------- ----------
Net cash used in investing activities (209,320) (308,099)
---------- ----------
Cash flow from financing activities:
Proceeds from debt, net 307,790 81,339
Net proceeds from infrastructure financing - 228,899
Purchase of FCX common shares (156,899) (52,841)
Cash dividends paid:
Common stock (88,366) (61,774)
Preferred stock (25,569) (25,124)
Minority interests (20,028) (15,461)
Other 2,428 1,374
---------- ----------
Net cash provided by financing activities 19,356 156,412
---------- ----------
Net increase (decrease) in cash and
short-term investments 18,152 (13,098)
Cash and short-term investments at
beginning of year 26,883 44,252
---------- ----------
Cash and short-term investments at end
of period $ 45,035 $ 31,154
========== ============
The accompanying notes are an integral part of these financial
statements.
FREEPORT-McMoRan COPPER & GOLD INC.
NOTES TO FINANCIAL STATEMENTS
1. CREDIT FACILITIES
In July 1996, the Freeport-McMoRan Copper & Gold Inc. (FCX) and P.T.
Freeport Indonesia Company (PT-FI) credit facilities were amended to
increase the availability under the FCX/PT-FI facility by $250
million, lower the interest rates and release the collateral securing
the FCX borrowing and guaranty. Consequently, PT-FI retains its $550
million facility ($195.0 million of additional borrowings available at
July 26, 1996) and FCX and PT-FI now have a separate $450 million
facility ($251.0 million of additional borrowings available at July
26, 1996). All other significant terms of the facilities were
unaffected.
2. INTEREST COSTS
Interest expense excludes capitalized interest of $5.9 million and
$11.2 million in the second quarter of 1996 and 1995, respectively,
and $15.3 million and $29.1 million in the first six months of 1996
and 1995, respectively.
3. RATIO OF EARNINGS TO FIXED CHARGES
The ratio of earnings to fixed charges for the first six months of
1996 and 1995 was 3.2 to 1 and 6 to 1, respectively. For this
calculation, earnings consist of income from continuing operations
before income taxes, minority interests and fixed charges. Fixed
charges include interest and that portion of rent deemed
representative of interest.
4. RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform to the
1996 presentation.
----------------------
Remarks
The information furnished herein should be read in conjunction with
FCX's financial statements contained in its 1995 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.
OVERVIEW
Freeport-McMoRan Copper & Gold Inc. (FCX) operates through its
majority-owned subsidiaries P.T. Freeport Indonesia Company (PT-FI)
and P.T. IRJA Eastern Minerals Corporation (Eastern Mining) and
through Rio Tinto Minera, S.A. (RTM), a wholly owned subsidiary. PT-
FI's operations involve mineral exploration and development, mining
and milling of ore containing copper, gold and silver in Irian Jaya,
Indonesia and the marketing of concentrates containing these metals
worldwide. PT-FI also has a 25 percent interest in a joint venture to
construct and operate a copper smelter and refinery in Indonesia.
Eastern Mining conducts mineral exploration activities in Irian Jaya.
RTM is engaged in the smelting and refining of copper concentrates in
Spain.
Summary comparative results for the second-quarter and six-month
periods follow (in millions, except per share amounts):
Second Quarter Six Months
------------------------ ------------------------
1996 1995 1996 1995
---------- ---------- ---------- ---------
Revenues $ 424.3 $ 421.5 $ 812.7 $ 830.3
Operating income 111.6 130.7a 217.2b 252.6a
Net income applicable
to common stock 29.0 40.6a 51.5b 84.6a
Net income per
common share .15 .20a .26b .41a
Operating income (loss) by subsidiary:
PT-FI $ 114.1 $ 146.3 $ 218.1 $ 276.3
RTM 4.5 (6.4) 0.3 (9.0)
Eastern Mining - (3.0) - (6.1)
Intercompany
eliminations and
other c (7.0) (6.2) (1.2) (8.6)
---------- ---------- ---------- ----------
$ 111.6 $ 130.7 $ 217.2 $ 252.6
========== ========== ========== ==========
a. Includes a $12.5 million charge ($6.8 million to net income or
$0.03 per share) for a materials and supplies inventory reserve
adjustment in connection with the completion of PT-FI's 118,000 metric
tons of ore per day (MTPD) expansion program.
b. Includes charges totaling $17.4 million ($8.0 million to net
income or $0.04 per share) consisting of $12.7 million for costs of
stock appreciation rights caused by the increase in FCX's common stock
price during the period, $3.0 million for costs related to a civil
disturbance (discussed below) and $1.7 million ($1.2 million to
production cost and $0.5 million to general and administrative
expenses) for an early retirement program.
c. Profit on PT-FI sales to RTM is not reflected in FCX's
consolidated results until completion of the smelting and refining
process. The increased level of PT-FI concentrate sales to RTM
resulting from the expanded smelter capacity causes fluctuations in
FCX's consolidated quarterly earnings because of the timing of the
shipments and prices.
FCX's second-quarter and six-month 1996 operating results reflected
excellent performance from PT-FI's mining and milling operations and
significantly lower copper realizations. FCX's second-quarter 1996
revenues were slightly higher than second-quarter 1995 because of
higher PT-FI sales volumes and RTM revenues partially offset by lower
PT-FI copper realizations. RTM's revenues increased because of its
expansion. Cost of sales for 1996 was affected by higher sales
volumes and depreciation while the 1995 periods include the materials
and supplies inventory reserve adjustment. Exploration expenses were
lower because of the May 1995 agreement with The RTZ Corporation PLC
(RTZ) under which RTZ agreed to pay the next $100 million of
exploration costs. General and administrative expenses in the second
quarter of 1996 were comparable to the 1995 period and higher in the
six-month period of 1996 compared with the 1995 period because of the
expense resulting from stock appreciation rights. Net income
applicable to common stock for the 1996 periods was also reduced by
higher interest expense. The provision for income taxes and minority
interests in net income were lower primarily because of lower net
income at PT-FI.
RESULTS OF OPERATIONS
PT-FI Financial Results. PT-FI's revenues for the second quarter and
six-month period of 1996 were below the comparable 1995 periods.
Higher sales volumes were offset by a decline in copper realizations
from $1.27 per pound in the 1995 quarter to $0.91 per pound in the
1996 quarter, and higher treatment charges of $0.22 per pound in the
1996 quarter compared to $0.20 per pound in the 1995 quarter.
Treatment charges increased because of higher rates negotiated with
customers based on market conditions. Despite higher sales volumes,
royalties were only slightly higher because of lower copper prices.
Second-quarter 1996 revenues include downward adjustments of $27.4
million on open copper sales from March 31, 1996 while six-month 1996
revenues also include $9.8 million of downward adjustments on open
copper sales from December 31, 1995. A reconciliation of PI-FI
revenues between the periods follows (in millions):
Second Quarter Six Months
-------------- ----------
Revenues -1995 $ 332.7 $ 633.9
Increases (decreases):
Sales volumes:
Copper 63.2 100.3
Gold 63.7 74.6
Price realizations:
Copper (96.1) (159.1)
Gold 2.2 6.8
Prior period adjustments (39.1) (4.7)
Treatment charges, royalties and other (14.5) (36.6)
---------- ----------
Revenues -1996 $ 312.1 $ 615.2
========== ==========
A March 1996 civil disturbance, in which Irianese tribes people
engaged in acts of vandalism to PT-FI property, resulted in an
approximate three day closure of the mine and mill as a precautionary
measure. Full production was promptly restored after the Government of
Indonesia (GOI) increased its military presence in the area.
Concentrate shipments to customers were not interrupted. There have
been no further disruptions since the March 1996 event. PT-FI and the
GOI have launched a comprehensive economic and social development plan
for the area around PT-FI's operations in a series of open meetings
with the local indigenous leaders. The plan, which represents the
culmination of many months of effort including extensive interviews
with local indigenous people, had actually been completed several days
prior to the civil disturbance. PT-FI has dedicated one percent of
its revenues over the next ten years to fund the plan which will
include establishing a job skill and vocational training center and
the continued enhancement of direct benefits to those tribes whose
original tribal lands have been impacted by PT-FI's operations. FCX
believes that its historical commitment to the area, improved dialogue
with the indigenous population, coordinated development activities
with the GOI and the local people and increased military presence
should serve to avoid future disruptions of mine and mill operations.
PT-FI Operating Results.
Second Quarter Six Months
---------------------- ----------------------
1996 1995 1996 1995
-------- -------- -------- --------
Ore milled (MTPD) 128,000 113,100 126,900 99,100
Copper grade (%) 1.34 1.26 1.28 1.31
Gold grade (grams per MT) 1.54 1.28 1.41 1.35
Recovery rate (%)
Copper 85.7 86.0 83.6 84.1
Gold 78.2 72.7 74.9 72.7
Copper (000s of recoverable pounds)
Production 284,600 237,200 527,500 420,100
Sales 269,200 219,300 494,200 415,600
Average realized price a $.91 $1.27 $.95 $1.28
Gold (recoverable ounces)
Production 434,000 295,800 754,100 545,300
Sales 436,000 269,500 737,100 540,500
Average realized price $387.38 $382.41 $388.62 $379.39
Gross profit per pound of copper (cents):
Average realized price a 91.0 126.7 95.4 127.6
---- ----- ---- -----
Production costs:
Site production and delivery 51.0 54.8b 54.5c 58.9b
Gold and silver credits (62.5) (47.9) (58.2) (50.3)
Treatment charges 21.9 19.9 22.5 19.7
Royalty on metals 3.7 4.1 3.8 4.3
---- ----- ---- -----
Cash production costs 14.1 30.9 22.6 32.6
Depreciation and
amortization 13.0 11.0 13.0 9.6
---- ----- ---- -----
Total production costs 27.1 41.9 35.6 42.2
---- ----- ---- -----
Revenue adjustments d (11.9)e 1.1 (2.8) (1.4)
---- ----- ---- -----
Gross profit per pound
of copper 52.0 85.9 57.0 84.0
==== ===== ==== =====
a. Amounts were $0.90 for the 1996 quarter, $1.36 for the 1995
quarter, $0.95 for the 1996 six-month period and $1.35 for the 1995
six-month period before hedging adjustments.
b. Excludes the materials and supplies inventory reserve adjustment
discussed earlier (5.7 cents per pound for the second quarter and 3.0
cents per pound for the six-month period).
c. Includes $4.2 million (0.9 cents per pound) for costs related to
the civil disturbance and an early retirement program.
d. Reflects adjustments for prior period concentrate sales and
amortization of the price protection program cost.
e. Includes a $27.4 million downward adjustment (10.2 cents per
pound) for the impact of lower copper prices on provisionally priced
"open" copper sales at March 31, 1996.
Average mill throughput in the second quarter of 1996 reached a
record of 128,000 MTPD, 13 percent higher than the 1995 second
quarter during which the 118,000 MTPD expansion was completed. PT-FI's
excellent operating performance resulted in record copper and gold
production in the 1996 second quarter.
Cash production costs per pound of copper for the second-quarter
and six-month periods of 1996 were considerably lower than the
comparable 1995 periods. Efficiencies generated by the 118,000 MTPD
expansion and PT-FI's cost reduction efforts have lowered unit site
production costs. Additionally, higher gold and silver credits because
of the expansion, higher grade ore and improved gold recoveries
lowered unit cash production costs. The higher treatment charges
reflect market conditions. Higher treatment charges, which negatively
affect PT-FI, benefit RTM. With completion of RTM's expansion, the
effects of changes in treatment charges on PT-FI and RTM will largely
offset in FCX's consolidated financial results, taking into account
income tax and minority interests. PT-FI's copper royalty rate varies
from 1.5 percent, at a copper price of $0.90 or less, to 3.5 percent
at a copper price over $1.10 on copper net revenue (after freight
costs and treatment charges); the gold and silver royalty rate is 1.0
percent.
PT-FI's 1996 depreciation rate of 13.0 cents per pound of copper
reflects depreciation for the expanded operations and the first phase
of an enhanced infrastructure program (EIP). The EIP is designed to
provide the infrastructure needed for PT-FI's current and anticipated
expanded future operations, to enhance the living conditions of PT-
FI's employees, and to develop and promote the growth of local and
third party activities and enterprises in Irian Jaya. The 118,000
MTPD expansion was completed in the second quarter of 1995 and the
first phase of the EIP is expected to be completed in 1996. The
second-quarter 1995 rate of 11.0 cents per pound did not include the
EIP costs.
PT-FI Exploration Activities. PT-FI continues to encounter
encouraging results from its exploration drilling activities at the
previously announced "Golden Triangle" area within its original Block
A area. In June 1996, FCX announced that one of the latest drill
holes had intercepted over 520 meters of 2.8 percent copper
equivalents at the Kucing Liar/Amole prospect representing the longest
mineralized intercept drilled to date since PT-FI's initial drilling
at Grasberg in 1988. A second drill hole from the Amole tunnel
encountered an 83 meter intercept of 2.1 percent copper equivalents.
These two holes are the latest of 21 holes drilled to date which have
been focusing on a one square kilometer area on the southeast side of
the Grasberg ore body at the 2,500-3,000 meter elevation within access
of the Amole tunnel. Exploration drilling continues to indicate that
an extensive skarn-type copper/gold mineralization could exist as a
mantle of copper and gold around the base of the prolific Grasberg ore
body. Delineation of this mineralized area continues with drilling
from the Amole and other associated drifts so that the configuration
of this mineral resource and eventually the estimated reserves can be
determined. The mineralization encountered to date continues to
suggest that a significant underground high-grade ore body exists in
close proximity to the Grasberg which could feed high-grade ore to
PT-FI's expanding facilities.
PT-FI Outlook and Price Protection Program. PT-FI has commitments
from various parties, including RTM, to purchase virtually all of its
expected 1996 production at market prices. Sales for 1996 are
estimated to total approximately 1.1 billion pounds of copper and 1.65
million ounces of gold. Strong 1996 estimated gold sales reflect the
expectation of producing greater than mine life gold grades during the
year. Third-quarter 1996 sales are projected to approximate 285
million pounds of copper and 385,000 ounces of gold.
The recent significant decline in copper prices increased the
value of PT-FI's put option contracts which it had purchased to
provide a floor price of $0.90 per pound for essentially all copper
sales through 1997's second quarter. In response to these conditions,
PT-FI through July 22, 1996, has sold approximately 57 percent of its
put option contracts covering approximately 690 million pounds of
copper for $56.3 million cash. As a result, PT-FI will recognize
additional revenues from copper sales in the following amounts: $18.0
million in 1996's third quarter, $10.2 million in 1996's fourth
quarter, $14.4 million in 1997's first quarter and $13.7 million in
1997's second quarter. Therefore, PT-FI will report future copper
revenues through June 30, 1997 at a higher price than will be realized
under its copper concentrate sales contracts, but PT-FI will not have
a floor price except to the extent that it retains put option
contracts. As of July 22, 1996, PT-FI owned put option contracts at
$0.90 per pound for the following volumes: 176 million pounds for
1996's third quarter, 137 million pounds for 1996's fourth quarter,
101 million pounds for 1997's first quarter and 111 million pounds for
1997's second quarter totaling 525 million pounds of copper. PT-FI
may sell an additional portion or all of its put option contracts.
FCX's revenues include net reductions totaling $0.9 million for the
1996 quarter, $19.6 million for the 1995 quarter, $0.1 million for the
1996 six-month period and $31.8 million for the 1995 six-month period
recognized under PT-FI's copper price protection program.
PT-FI's concentrate sales agreements, with regard to copper,
provide for provisional billings at the time of shipment with actual
settlement generally final-priced based on the average London Metals
Exchange price for a specified future month. Copper revenues on
provisionally priced _open_ pounds are adjusted monthly based on then
current prices and the impact of PT-FI's hedging program. At June 30,
1996, copper sales totaling 287 million pounds, which were recorded at
an average price of $0.90 per pound, remained to be contractually
final-priced. Approximately 60 percent of these pounds are expected
to be final-priced during 1996's third quarter, with substantially all
remaining pounds priced during 1996's fourth quarter.
RTM Results.
Second Quarter Six Months
----------------- ------------------
1996 1995 1996 1995
-------- ------- -------- --------
Revenues (in millions) $207.3 $113.4 $369.0 $251.4
Concentrate treated (MT) 200,800 55,900 365,500 174,300
Anode production (000s of pounds) 135,800 39,200 244,600 123,100
Cathode production (000s of pounds) 119,400 55,100 221,700 130,500
RTM has completed the expansion of its smelter to 270,000 metric
tons of metal per year, reaching its full production capacity in June
1996. RTM reported higher revenues and cost of sales in the 1996
periods than the comparable 1995 periods because of increases in
production from its newly expanded facilities coupled with the shut-
down for approximately half of the 1995 quarter to tie-in expansion
equipment and to perform maintenance turnarounds. RTM's second-
quarter 1996 operating income totaled $4.5 million compared to $6.4
million operating loss in the 1995 period. RTM is benefiting from
higher treatment and refining rates, $0.25 per pound in the second
quarter of 1996 compared with $0.22 per pound in the second quarter
of 1995.
A portion of RTM's operating costs are paid with Spanish pesetas
and certain assets and liabilities are denominated in Spanish pesetas.
During 1996, a one peseta change in the U.S. dollar and Spanish peseta
exchange rate will result in an approximate $2 million change in FCX's
annual net income before any hedging effects. Second-quarter and six-
month 1996 other income includes currency translation gains totaling
$4.3 million and $7.6 million, respectively, on RTM's net peseta
liability position. RTM has implemented a currency hedging program to
reduce its operating cost exposure to changes in the U.S. dollar and
Spanish peseta exchange rate. The program involves foreign currency
contracts which provide hedges for approximately 50 percent of RTM's
net peseta operating cost exposure through September 1997.
Other Financial Results. FCX reported $11.7 million of exploration
costs in the second-quarter of 1995 and $19.6 million in the six-month
1995 period. All 1996 exploration costs ($6.9 million in the second
quarter and $16.3 million in the six-month period) are expected to be
reimbursed by RTZ. FCX's general and administrative expenses were
$30.4 million for the second quarter of 1996 compared with $29.4
million in the 1995 period. Six-month 1996 general and administrative
expenses include charges of $12.7 million for costs of stock
appreciation rights caused by the increase in FCX's common stock
price.
FCX's total interest cost (before capitalization) rose to $68.4
million for the six-month 1996 period from $40.9 million in the 1995
period because of an increase in debt levels associated with the
expansions and the FCX share purchase program. Because of the
significant expansion projects at PT-FI and RTM, most interest was
capitalized during the first six-months of 1995. Interest expense is
expected to be higher throughout 1996 because of the higher debt
levels and completion of the expansions.
FCX's effective tax rate was 45 percent for the first six months of
1996 and 43 percent for the first six months of 1995. PT-FI's
Contract of Work (COW) provides a 35 percent income tax rate and a 15
percent withholding on dividends paid to FCX by PT-FI and on interest
for debt incurred after the signing of the COW. No income tax benefit
is recorded for the losses at RTM, which is subject to taxation in
Spain, because it has not generated taxable income in recent years.
CAPITAL RESOURCES AND LIQUIDITY
Net cash provided by operating activities was $208.1 million for the
first six months of 1996, compared with $138.6 million for the 1995
period. Cash flow used in investing activities reflects a decrease in
PT-FI capital expenditures associated with the completion of the
118,000 MTPD expansion in 1995. RTM expenditures reflect completion
of the smelter expansion. Cash flow provided by financing activities
totaled $19.4 million in 1996 compared with $156.4 million in 1995.
Increases in stock purchases and dividends in 1996 are the primary
reasons for the decrease in financing cash flows.
Operating Activities. Lower copper realizations offset the benefits
of higher sales volumes and resulted in lower net income in the 1996
period. The increase in depreciation and amortization primarily
reflects the higher rate for the completed PT-FI expansion and first
phase of the EIP. Lower accounts receivable reflect the decline in
copper realizations. Accounts receivable also includes $47.0 million
for exploration costs incurred since May 1995 which RTZ has agreed to
reimburse. The decrease in accrued income taxes reflects the March
1996 payment on PT-FI's 1995 income tax liability.
Investing Activities. FCX's capital expenditures have declined from
$308.1 million in 1995 to $209.3 million in the 1996 period because
of the completion of PT-FI's 118,000 MTPD expansion during the second
quarter of 1995, the completion of RTM's smelter expansion during 1996
and the near completion of the first phase of PT-FI's EIP. FCX's cash
expenditures for capital in 1996 include approximately $60 million
for costs incurred in 1995.
PT-FI's capital expenditures for the remainder of 1996 are
expected to approximate $100 million primarily for EIP assets and mine
and mill sustaining capital. Capital expenditures will be funded by
operating cash flow, FCX's and PT-FI's bank credit facilities ($446.0
million available at July 26, 1996) and other financing sources.
Additionally, the FCX/RTZ joint venture is engaged in engineering
activities to complete a feasibility study and for major long-lead-
time component equipment to enable rapid construction for the 190,000
MTPD expansion. The joint venture is applying for approvals from the
GOI, which had previously approved expansion to 160,000 MTPD. The
expansion is expected to be completed by the second half of 1998.
Pursuant to the joint venture arrangements, RTZ has agreed to provide
up to $750 million for the expansion.
RTM received $16.4 million of grants from the Spanish government
in the first six months of 1996 for a total of $32.2 million through
June 30, 1996. RTM expects to receive additional grants totaling more
than $18 million through early 1997. All of the grants are contingent
upon RTM satisfying certain conditions. RTM's capital expenditures
for the remainder of 1996, net of grant receipts, are expected to
approximate $10 million.
Construction began in July 1996 on PT-FI's 25 percent-owned,
200,000 metric tons of metal per year copper smelter/refinery complex
in Gresik, Indonesia. The estimated aggregate project cost, before
working capital requirements, is approximately $600 million. The
project will be financed with a $300 million non-recourse term loan
and a $110 million working capital facility from a group of commercial
banks. The remaining funding will be made pro-rata by PT-FI (25
percent) and Mitsubishi Materials Corporation (75 percent). PT-FI
expects its 1996 cash investment in the smelter to total approximately
$40 million. Construction is expected to be completed by mid-1998.
Upon completion of the Gresik smelter and the PT-FI 190,000 MTPD
expansion, FCX anticipates that approximately 50 percent of PT_FI's
annual concentrate production will be sold to RTM and the Gresik
smelter at market prices.
Financing Activities. Net proceeds from debt totaled $307.8 million
in the first six months of 1996 while the 1995 period included $81.3
million of net proceeds from debt and $228.9 million of proceeds from
infrastructure financing. In September 1995, FCX announced an open
market share purchase program for up to a total of 20 million shares
of its Class A and Class B common shares representing approximately 10
percent of its shares outstanding. During the first six months of
1996, FCX acquired 5.4 million of its shares for $156.9 million (an
average of $29.32 per share). From July 1 through July 22, 1996, FCX
purchased 1.3 million shares of its Class A and Class B common stock
for an aggregate $38.7 million (an average of $29.42 per share).
Through July 22, 1996, FCX has purchased a total of 11.0 million
shares under this program. The timing of purchases is dependent upon
many factors, including the price of common shares, the Company's
business and financial position, and general economic and market
conditions. During the six-month 1995 period FCX acquired 2.5 million
of its shares for $52.8 million (an average of $21.04 per share). The
increase in cash dividends paid on common stock results from the
fourth-quarter 1995 increase in the regular quarterly dividend from
$0.15 to $0.225 per share.
SOCIAL PROGRAMS AUDIT
In June 1996, PT-FI received an Interim Results and Status Report from
Labat Anderson, an internationally recognized consulting firm which is
conducting an independent audit of PT-FI's social and community
development activities. The report recognized the positive social and
cultural impacts of PT-FI's efforts in the areas of public health,
education, training, economic and community development, cultural
preservation and agriculture. The report also stated that in the
past, PT-FI had often placed more emphasis on creating and
implementing programs that it thought appropriate rather than
responding exclusively to the local peoples' social, cultural and
community needs. PT-FI has agreed to implement the report's suggested
improvements that are under PT-FI's sole control, and supports all of
the recommendations in the report. The report did not yet address PT-
FI's response to the new social issues raised by certain indigenous
groups in the March 1996 civil disturbance.
----------------------
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 1. Legal Proceedings.
Tom Beanal v. Freeport-McMoRan Inc. and Freeport-McMoRan Copper & Gold
Inc., Civ. No. 96-1474 (E.D. La. filed Apr. 29, 1996) and Yosefa
Alomang v. Freeport-McMoRan Inc. and Freeport-McMoRan Copper & Gold
Inc., Civ. No. 96-9962 (Orleans Civ. Dist. Ct. La. filed June 19,
1996) and Civ. No. 96-2139 (E.D. La. removed June 24, 1996).
In both actions, the plaintiffs allege substantially
identical environmental, human rights and social/cultural violations
in Indonesia. Tom Beanal seeks $6 billion in monetary damages and
other equitable relief and Yosefa Alomang seeks unspecified monetary
damages and other equitable relief. The registrant denies the
allegations, which have been refuted by a series of independent
examinations of the Indonesian mining operations of P.T. Freeport
Indonesia Company, the registrant's subsidiary. The registrant
believes that the actions are baseless and will vigorously defend such
actions.
Item 4. Submission of Matters to a Vote of Security Holders.
(a) The Annual Meeting of Stockholders of the registrant was
held on April 30, 1996 (the "Annual Meeting"). Proxies were solicited
pursuant to Regulation 14A under the Securities Exchange Act of 1934,
as amended.
(b) At the Annual Meeting J. Taylor Wharton was elected to serve
until the 1997 annual meeting of stockholders and R. Leigh Clifford,
Bobby E. Cooper, Robert W. Bruce III, Robert A. Day, Bobby Lee Lackey,
Gabrielle McDonald and George A. Mealey were elected to serve until
the 1999 annual meeting of stockholders. In addition to the directors
elected at the Annual Meeting, the terms of the following directors
continued after the Annual Meeting: Thomas B. Coleman, Leland O.
Erdahl, William B. Harrison, Jr., Henry A. Kissinger, Rene L.
Latiolais, James R. Moffett, George Putnam, B. M. Rankin, Jr.,
Wolfgang F. Seigel, Eiji Umene and Ward W. Woods, Jr.
(c) At the Annual Meeting holders of shares of the registrant's
Class A Common Stock and the registrant's Preferred Stock, voting as a
class, elected three directors with the number of votes cast for or
withheld from each nominee as follows:
Name For Withheld
- ------------------ ---------- --------
R. Leigh Clifford 64,694,157 253,142
Bobby E. Cooper 64,689,585 257,714
J. Taylor Wharton 64,713,701 233,599
At the Annual Meeting holders of shares of the registrant's Class B
Common Stock elected five directors with the number of votes cast for
or withheld from each nominee as follows:
Name For Withheld
- ----------------------- ----------- ---------
Robert W. Bruce III 101,908,074 2,384,871
Robert A. Day 101,904,766 2,388,179
Bobby Lee Lackey 101,881,813 2,411,132
Gabrielle K. McDonald 101,848,910 2,444,035
George A. Mealey 101,917,736 2,375,209
With respect to the election of directors, there were no abstentions
or broker non-votes.
At the Annual Meeting the stockholders also voted on and approved
a proposal to ratify the appointment of Arthur Andersen LLP to act as
the independent auditors to audit the financial statements of the
registrant and its subsidiaries for the year 1996. Holders of
167,348,281 shares voted for, holders of 346,216 shares voted against
and holders of 317,447 shares abstained from voting on, such proposal.
There were no broker non-votes with respect to such proposal.
At the Annual Meeting the stockholders voted on and approved a
proposal to amend the registrant's Annual Incentive Plan. Holders of
156,614,158 shares voted for, holders of 9,780,869 shares voted
against and holders of 1,616,917 shares abstained from voting on, such
proposal. There were no broker non-votes with respect to such
proposal.
At the Annual Meeting the stockholders voted on and approved a
proposal to amend the registrant's 1995 Long-Term Performance
Incentive Plan. Holders of 156,660,480 shares voted for, holders of
9,766,241 shares voted against and holders of 1,585,223 shares
abstained from voting on, such proposal. There were no broker non-
votes with respect to such proposal.
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) 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/ Michael A. Weaver
----------------------
Michael A. Weaver
Controller-Financial Reporting
(authorized signatory and
Principal Accounting Officer)
Date: August 8, 1996
FREEPORT-McMoRan COPPER & GOLD INC.
EXHIBIT INDEX
Sequentially
Numbered
Number Description Page
- ------ ----------- -----------
11.1 Computation of Net Income per Common and
Common Equivalent Share
27.1 Financial Data Schedule
Exhibit 11.1
FREEPORT-McMoRan COPPER & GOLD INC.
COMPUTATION OF NET INCOME PER COMMON AND
COMMON EQUIVALENT SHARE
Three Months Six Months
Ended June 30, Ended June 30,
------------------------ ------------------------
1996 1995 1996 1995
---------- ---------- ---------- ----------
(In Thousands, Except Per Share Amounts)
Primary:
Net income applicable
to common stock $ 29,045 $ 40,625 $ 51,495 $ 84,618
========== ========== ========== ==========
Average common shares
outstanding 195,239 205,157 195,958 205,555
Common stock equivalents:
Stock options 1,930 - 1,810 -
---------- ---------- ---------- ----------
Common and common
equivalent shares 197,169 205,157 197,768 205,555
========== ========== ========== ==========
Net income per common
and common equivalent
share $.15 $.20 $.26 $.41
==== ==== ==== ====
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