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, 1999
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, 1999, there were issued and outstanding 64,746,423 shares
of the registrant's Class A Common Stock, par value $0.10 per share,
and 98,719,202 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 8
Report of Independent Public Accountants 9
Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
Part II. Other Information 20
Signature 21
Exhibit Index E-1
<PAGE> 2
FREEPORT-McMoRan COPPER & GOLD INC.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
<TABLE>
FREEPORT-McMoRan COPPER & GOLD INC.
CONDENSED BALANCE SHEETS (Unaudited)
<CAPTION>
June 30, December 31,
1999 1998
---------- ----------
(In Thousands)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 4,562 $ 5,877
Accounts receivable 186,868 228,502
Inventories 323,675 301,404
Prepaid expenses and other 11,251 10,111
---------- ----------
Total current assets 526,356 545,894
Property, plant and equipment, net 3,401,662 3,474,451
Investment in PT Smelting 68,357 80,822
Other assets 90,311 91,467
---------- ----------
Total assets $4,086,686 $4,192,634
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 323,456 $ 344,906
Current portion of long-term debt
and short-term borrowings 145,027 127,804
Accrued income taxes 39,666 45,777
---------- ----------
Total current liabilities 508,149 518,487
Long-term debt, less current portion:
FCX and PT-FI credit facilities 660,000 658,000
Senior notes 570,000 570,000
Infrastructure asset financings 463,156 486,616
Rio Tinto loan 170,894 255,320
Atlantic Copper debt 229,608 283,472
Other notes payable 70,109 75,581
Accrued postretirement benefits
and other liabilities 115,573 124,073
Deferred income taxes 506,228 471,178
Minority interests 160,612 146,484
Redeemable preferred stock 500,007 500,007
Stockholders' equity 132,350 103,416
---------- ----------
Total liabilities and stockholders' equity $4,086,686 $4,192,634
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial
statements.
<PAGE> 3
<TABLE>
FREEPORT-McMoRan COPPER & GOLD INC.
STATEMENTS OF INCOME (Unaudited)
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------- -------------------
1999 1998 1999 1998
-------- -------- -------- --------
(In Thousands, Except Per Share Amounts)
<S> <C> <C> <C> <C>
Revenues $470,335 $433,858 $886,171 $829,990
Cost of sales:
Production and delivery 243,411 210,690 433,298 396,080
Depreciation and amortization 72,384 63,978 143,125 122,253
-------- -------- -------- --------
Total cost of sales 315,795 274,668 576,423 518,333
Exploration expenses 2,158 4,919 5,106 7,566
Equity in PT Smelting losses 4,942 225 12,465 693
General and administrative expenses 17,251 19,108 32,908 38,656
-------- -------- -------- --------
Total costs and expenses 340,146 298,920 626,902 565,248
-------- -------- -------- --------
Operating income 130,189 134,938 259,269 264,742
Interest expense, net (47,904) (53,262) (98,223) (101,842)
Other expense, net (1,204) (789) (3,345) (2,088)
-------- -------- -------- --------
Income before income taxes
and minority interests 81,081 80,887 157,701 160,812
Provision for income taxes (42,216) (38,726) (82,292) (75,882)
Minority interests in net income of
consolidated subsidiaries (11,322) (7,423) (21,422) (14,565)
-------- -------- -------- --------
Net income 27,543 34,738 53,987 70,365
Preferred dividends (8,582) (8,936) (17,316) (17,971)
-------- -------- -------- --------
Net income applicable to
common stock $ 18,961 $ 25,802 $ 36,671 $ 52,394
======== ======== ======== ========
Net income per share of common stock:
Basic $.12 $.14 $.22 $.29
---- ---- ---- ----
Diluted $.12 $.14 $.22 $.29
---- ---- ---- ----
Average common shares outstanding:
Basic 163,465 180,561 163,741 180,906
======== ======== ======== ========
Diluted 164,406 180,772 164,355 181,040
======== ======== ======== ========
Dividends paid per common share $ - $.05 $ - $.10
=== ==== === ====
</TABLE>
The accompanying notes are an integral part of these financial
statements.
<PAGE> 4
<TABLE>
FREEPORT-McMoRan COPPER & GOLD INC.
STATEMENTS OF CASH FLOW (Unaudited)
<CAPTION>
Six Months Ended June 30,
-------------------------
1999 1998
-------- --------
(In Thousands)
<S> <C> <C>
Cash flow from operating activities:
Net income $ 53,987 $ 70,365
Adjustments to reconcile net income
to net cash provided by
operating activities:
Depreciation and amortization 143,125 122,253
Deferred income taxes 35,050 24,313
Equity in PT Smelting losses 12,465 693
Minority interests' share of net income 21,422 14,565
Other 12,310 (10,415)
(Increase) decrease in working capital:
Accounts receivable 32,604 (51,338)
Inventories (20,173) 17,193
Prepaid expenses and other (1,139) 3,423
Accounts payable and accrued liabilities (4,983) (18,455)
Accrued income taxes (6,112) 7,517
-------- --------
(Increase) decrease in working capital 197 (41,660)
-------- --------
Net cash provided by operating activities 278,556 180,114
-------- --------
Cash flow from investing activities:
PT-FI capital expenditures (72,841) (207,840)
Atlantic Copper capital expenditures (3,728) (4,306)
Investment in PT Smelting - (2,606)
Other (833) (4,623)
-------- --------
Net cash used in investing activities (77,402) (219,375)
-------- --------
Cash flow from financing activities:
Net repayment to Rio Tinto (107,515) (27,500)
Proceeds from other debt 131,027 279,301
Repayment of other debt (182,247) (99,139)
Purchase of FCX common shares (7,921) (66,885)
Cash dividends paid:
Common stock - (18,128)
Preferred stock (19,204) (19,771)
Minority interests (7,367) (3,955)
Other (9,242) (8,398)
-------- --------
Net cash provided by (use in)
financing activities (202,469) 35,525
-------- --------
Net decrease in cash and cash equivalents (1,315) (3,736)
Cash and cash equivalents at beginning of year 5,877 8,959
-------- --------
Cash and cash equivalents at end of period $ 4,562 $ 5,223
======== ========
</TABLE>
The accompanying notes are an integral part of these financial
statements.
<PAGE> 5
FREEPORT-McMoRan COPPER & GOLD INC.
NOTES TO FINANCIAL STATEMENTS
1. EARNINGS PER SHARE
Freeport-McMoRan Copper & Gold Inc.'s (FCX) basic net income per
share of common stock was calculated by dividing net income
applicable to common stock by the weighted-average number of common
shares outstanding during the period. Diluted net income per share
of common stock was calculated by dividing net income applicable to
common stock by the weighted-average number of common shares
outstanding during the period plus the net effect of dilutive stock
options. Dilutive stock options represented 0.9 million shares in
the second quarter of 1999, 0.2 million shares in the second
quarter of 1998, 0.6 million shares in the 1999 six-month period
and 0.1 million in the 1998 six-month period.
Options excluded from the computation of diluted net income
per share of common stock, because their exercise prices were
greater than the average market price of the common stock during
the period, totaled options for 11.1 million shares (average
exercise price of $21.78 per share) in each of the 1999 periods,
10.0 million shares (average price of $23.05 per share) in the
second quarter of 1998 and 10.1 million shares (average exercise
price of $22.99 per share) in the 1998 six-month period.
Convertible preferred stock outstanding was not included in the
computation of diluted net income per share of common stock because
doing so would have increased diluted net income per share of
common stock. The preferred stock was convertible into 11.7
million shares of common stock, and accrued dividends totaled $5.3
million in the second quarters of 1999 and 1998, and $10.5 million
in the six-month periods of 1999 and 1998.
2. FINANCIAL CONTRACTS
At times, FCX has entered into financial contracts to manage
certain risks resulting from fluctuations in commodity prices
(primarily copper and gold), foreign currency exchange rates and
interest rates by creating offsetting exposures. Costs or premiums
and gains or losses on the contracts, including closed contracts,
are recognized with the hedged transaction. Also, gains or losses
are recognized if the hedged transaction is no longer expected to
occur or if deferral criteria are not met. FCX monitors its credit
risk on an ongoing basis and considers this risk to be minimal
because its contracts are with a diversified group of financially
strong counterparties. FCX currently has no copper or gold price
protection contracts relating to its mine production.
At June 30, 1999, FCX had outstanding redeemable preferred
stock indexed to commodity prices, foreign currency forward
contracts, forward copper sales and purchase contracts related to
its smelter operations and interest rate swap contracts.
Redeemable preferred stock indexed to commodity prices is treated
as a hedge of future production and is carried at its original
issue value. As principal payments occur, differences between the
carrying value and the payment are recorded as an adjustment to
revenues.
Atlantic Copper, S.A., a wholly owned subsidiary of FCX
(Atlantic), hedges a portion of its anticipated Spanish peseta cash
outflows, and P.T. Freeport Indonesia Company, FCX's majority-owned
subsidiary (PT-FI), hedges a portion of its anticipated Indonesian
rupiah and Australian dollar cash outflows with foreign currency
forward contracts. Changes in market value of foreign currency
forward contracts that hedge anticipated transactions are
recognized in the period incurred. Atlantic enters into futures
contracts to hedge its copper price risk whenever its physical
purchases and sales pricing periods do not match, and whenever it
extends the pricing terms on its copper sales. Gains and losses on
these contracts are recognized with the hedged transaction. PT-FI
and Atlantic use interest rate swap contracts to limit the effect
of increases in interest rates on variable-rate debt. The costs
associated with these contracts are amortized to interest expense
over the terms of the agreements.
In June 1998, the Financial Accounting Standards Board (FASB)
issued Statement of Financial Accounting Standards No. 133,
"Accounting for Derivative Instruments and Hedging Activities"
(SFAS 133), which establishes accounting and reporting standards
requiring that every derivative instrument (including certain
derivative instruments embedded in other contracts) be recorded in
the balance sheet as either an asset or liability measured at its
fair value. In June 1999, the FASB delayed SFAS 133's effective
date by one year to fiscal years beginning after June 15, 2000,
with earlier application permitted. FCX has not determined when it
will adopt SFAS 133; however, adoption is not expected to have a
material impact on its financial position.
3. INTEREST COST
Interest expense excludes capitalized interest of $0.8 million in
the second quarter of 1999, $4.8 million in the second quarter of
1998, $1.3 million in the first six months of 1999 and $14.9
million in the first six months of 1998.
<PAGE> 6
4. BUSINESS SEGMENTS
FCX has two operating segments: "mining and exploration" and
"smelting and refining." The mining and exploration segment
includes PT-FI's copper and gold mining operations in Indonesia and
FCX's Indonesian exploration activities. The smelting and refining
segment includes Atlantic's operations in Spain and PT-FI's equity
investment in P.T. Smelting (PT Smelting) in Gresik, Indonesia.
The segment data presented below were prepared on the same basis as
the consolidated FCX financial statements.
<TABLE>
<CAPTION>
Mining Smelting
and and Eliminations FCX
Exploration Refining and Other Total
---------- -------- --------- ----------
(In Thousands)
<S> <C> <C> <C> <C>
Three months ended June 30, 1999
Revenues $ 347,480a $196,025 $ (73,170)b $ 470,335
Production and delivery 132,204 184,659 (73,452)b 243,411
Depreciation and amortization 63,950 7,317 1,117 72,384
Exploration expenses 2,265 - (107) 2,158
Equity in PT Smelting losses - 4,942c - 4,942
General and administrative
expenses 13,111 2,332 1,808 17,251
---------- -------- --------- ----------
Operating income $ 135,950 $ (3,225) $ (2,536) $ 130,189
========== ======== ========= ==========
Three months ended June 30, 1998
Revenues $ 310,959 $199,484 $ (76,585)b $ 433,858
Production and delivery 116,118 178,321 (83,749)b 210,690
Depreciation and amortization 54,629 8,259 1,090 63,978
Exploration expenses 4,449 - 470 4,919
Equity in PT Smelting losses - 225 - 225
General and administrative
expenses 14,848 2,325 1,935 19,108
---------- -------- --------- ----------
Operating income $ 120,915 $ 10,354 $ 3,669 $ 134,938
========== ======== ========= ==========
Six months ended June 30, 1999
Revenues $ 664,355a $378,226 $(156,410)b $ 886,171
Production and delivery 262,524 349,019 (178,245)b 433,298
Depreciation and amortization 126,280 14,611 2,234 143,125
Exploration expenses 4,749 - 357 5,106
Equity in PT Smelting losses - 12,465c - 12,465
General and administrative
expenses 24,713 4,491 3,704 32,908
---------- -------- --------- ----------
Operating income $ 246,089 $ (2,360) $ 15,540 $ 259,269
========== ======== ========= ==========
Capital expenditures $ 72,687 $ 3,728 $ 154 $ 76,569
========== ======== ========= ==========
Total assets $3,372,126d $682,987 $ 31,573 $4,086,686
========== ======== ========= ==========
Six months ended June 30, 1998
Revenues $ 602,271 $387,996 $(160,277)b $ 829,990
Production and delivery 220,133 344,249 (168,302)b 396,080
Depreciation and amortization 103,629 16,474 2,150 122,253
Exploration expenses 6,758 - 808 7,566
Equity in PT Smelting losses - 693 - 693
General and administrative
expenses 29,886 4,800 3,970 38,656
---------- -------- --------- ----------
Operating income $ 241,865 $ 21,780 $ 1,097 $ 264,742
========== ======== ========= ==========
Capital expenditures $ 207,304 $ 6,912 $ 536 $ 214,752
========== ======== ========= ==========
Total assets $3,466,143 $726,412 $ 25,602 $4,218,157
========== ======== ========= ==========
</TABLE>
a.Includes PT-FI sales to PT Smelting totaling $64.3 million in
the second quarter of 1999 and $88.5 million in the first six
months of 1999.
b.Primarily represents elimination of intersegment sales from
PT-FI to Atlantic and the change in deferred profits on
intersegment sales remaining in Atlantic's inventories.
c.Includes deferrals of intercompany profits on 25 percent of
PT-FI's sales to PT Smelting, for which the final sale has not
occurred, totaling $1.9 million in the three months ended June
30, 1999 and $4.3 million in the six months ended June 30,
1999.
d.Includes a $33.1 million trade receivable from PT Smelting for
concentrate purchases.
<PAGE> 7
5. RATIO OF EARNINGS TO FIXED CHARGES
The ratio of earnings to fixed charges for the first six months of
1999 and 1998 was 2.6 to 1 and 2.2 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.
----------------------
Remarks
The information furnished herein should be read in conjunction with
FCX's financial statements contained in its 1998 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.
<PAGE> 8
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To The Board of Directors and Stockholders of
Freeport-McMoRan Copper & Gold Inc.:
We have reviewed the accompanying condensed balance sheet of
Freeport-McMoRan Copper & Gold Inc. (a Delaware corporation) as of
June 30, 1999, the related statements of income for the three and
six-month periods ended June 30, 1999 and 1998, and the statements
of cash flow for the six-month periods ended June 30, 1999 and
1998. These financial statements are the responsibility of the
Company's management.
We conducted our reviews in accordance with standards
established by the American Institute of Certified Public
Accountants. A review of interim financial information consists
principally of applying analytical procedures to financial data and
making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit
conducted in accordance with generally accepted auditing standards,
the objective of which is the expression of an opinion regarding
the financial statements taken as a whole. Accordingly, we do not
express such an opinion.
Based on our reviews, we are not aware of any material
modifications that should be made to the financial statements
referred to above for them to be in conformity with generally
accepted accounting principles.
We have previously audited, in accordance with generally
accepted auditing standards, the balance sheet of Freeport-McMoRan
Copper & Gold Inc. as of December 31, 1998, and the related
statements of income, stockholders' equity and cash flow for the
year then ended (not presented herein), and, in our report dated
January 19, 1999, we expressed an unqualified opinion on those
financial statements. In our opinion, the information set forth in
the accompanying condensed balance sheet as of December 31, 1998,
is fairly stated, in all material respects, in relation to the
balance sheet from which it has been derived.
ARTHUR ANDERSEN LLP
New Orleans, Louisiana
July 20, 1999
<PAGE> 9
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 Atlantic Copper, S.A. (Atlantic), 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 worldwide marketing of concentrates containing those
metals. PT-FI also owns a 25 percent interest in P.T. Smelting (PT
Smelting), an Indonesian company which operates a copper smelter and
refinery in Gresik, Indonesia. Eastern Mining conducts mineral
exploration activities in Irian Jaya. Atlantic's operations involve
the smelting and refining of copper concentrates in Spain and the
marketing of refined copper products. In addition to the PT-FI and
Eastern Mining exploration activities, FCX conducts other mineral
exploration activities in Irian Jaya pursuant to joint venture and
other arrangements. The results of operations reported and summarized
below are not necessarily indicative of future operating results.
Summary FCX comparative results for the second-quarter and six-
month periods follow (in millions, except per share amounts):
<TABLE>
<CAPTION>
Second Quarter Six Months
-------------- --------------
1999 1998 1999 1998
------ ------ ------ ------
<S> <C> <C> <C> <C>
Revenues $470.3 $433.9 $886.2 $830.0
Operating income 130.2 134.9 259.3 264.7
Net income applicable to common stock 19.0 25.8 36.7 52.4
Diluted net income per share
of common stock .12 .14 .22 .29
</TABLE>
FCX's revenues include PT-FI's sale of copper concentrates, which
also contain significant amounts of gold, and the sale of copper
cathodes and wire rod by Atlantic. FCX's revenues and net income vary
significantly with fluctuations in the market prices of copper and
gold and other factors. At times, in response to market conditions,
FCX has entered into copper and gold price protection contracts for
some portion of its expected future mine production to mitigate the
risk of adverse price fluctuations. FCX currently has no copper or
gold price protection contracts relating to its mine production.
Based on PT-FI's projected 1999 sales volumes, a $0.01 per pound
change in the average price realized on annual copper sales would have
an approximate $14 million impact on revenues and an approximate $7
million impact on net income. A $10 per ounce change in the average
price realized on PT-FI annual gold sales would have an approximate
$21 million impact on revenues and an approximate $10 million impact
on net income.
Higher 1999 revenues primarily reflect significantly higher
copper and gold sales volumes because of increased production from the
"fourth concentrator mill expansion," which began its start-up in the
first quarter of 1998, partially offset by lower copper and gold price
realizations. Second-quarter 1999 revenues benefited by $11.7 million
($5.7 million to net income or $0.03 per share) from adjustments to
March 31, 1999 "open" concentrate sales, while second-quarter 1998
revenues benefited by $6.8 million ($3.3 million to net income or
$0.02 per share) from adjustments to March 31, 1998 open concentrate
sales. Six-months 1999 revenues benefited by $6.2 million ($3.0
million to net income or $0.02 per share) from adjustments to December
31, 1998 open concentrate sales, while six-months 1998 revenues
benefited by $23.3 million ($11.4 million to net income or $0.06 per
share) from adjustments to December 31, 1997 open concentrate sales.
Cost of sales for the 1999 periods were higher compared with the
1998 periods primarily because of higher copper sales volumes and
higher depreciation and amortization expense associated with a higher
unit depreciation rate at PT-FI. Exploration costs in all joint
venture areas with Rio Tinto plc (Rio Tinto) are now being shared 60
percent by FCX and 40 percent by Rio Tinto. The final $1.2 million of
Rio Tinto's $100 million exploration funding received in 1996 was
expended in early 1999. The equity in PT Smelting losses reflects the
start-up of its operations and elimination of profits on 25 percent of
PT-FI's copper concentrate sales to PT Smelting until PT Smelting
makes the final sale. General and administrative expenses in the 1999
period were lower primarily because of corporate initiatives to reduce
costs. Lower net interest expense primarily reflects lower average
interest rates and debt levels partially offset by less capitalized
interest in 1999 following the completion of the fourth concentrator
mill expansion in 1998. An increase in the effective rate for income
taxes in 1999 compared with 1998 primarily reflects
<PAGE> 10
an increase in Atlantic's net losses and PT-FI's equity in PT Smelting
losses for which there is no tax benefit. Higher minority interest
charges in 1999 primarily reflect the consolidation of certain PT-FI
infrastructure joint ventures.
RESULTS OF OPERATIONS
FCX has two operating segments: "mining and exploration" and
"smelting and refining." The mining and exploration segment includes
PT-FI's copper and gold mining operations in Indonesia and FCX's
Indonesian exploration activities. The smelting and refining segment
includes Atlantic's operations in Spain and PT-FI's 25 percent equity
investment in PT Smelting. Summary comparative operating income
(loss) by segment for the second-quarter and six-month periods
follows (in millions):
<TABLE>
<CAPTION>
Second Quarter Six Months
--------------- ----------------
1999 1998 1999 1998
------ ------ ------ ------
<S> <C> <C> <C> <C>
Mining and exploration $136.0a $120.9 $246.1a $241.9
Smelting and refining (3.2) 10.4 (2.4) 21.8
Intercompany eliminations and other b (2.6) 3.6 15.6 1.0
------ ------ ------ ------
FCX operating income $130.2 $134.9 $259.3 $264.7
====== ====== ====== ======
</TABLE>
a.Includes deferrals of intercompany profits on 25 percent of PT-FI's
sales to PT Smelting, for which the final sale has not occurred,
totaling $1.9 million in the second quarter and $4.2 million in the
six month period.
b.Profits on PT-FI sales to Atlantic that remain in Atlantic's
inventory are deferred until the final sale to third parties. FCX
recognized operating income from the change in deferred profits on
intercompany sales from PT-FI to Atlantic totaling $0.4 million in
the second quarter of 1999, $7.2 million in the second quarter of
1998, $22.3 million in the 1999 six-month period and $8.2 million
in the 1998 six-month period. FCX's consolidated quarterly
earnings fluctuate depending on the timing of shipments to Atlantic
and prices of these sales.
MINING AND EXPLORATION
A summary of increases (decreases) in PT-FI revenues between the
periods follows (in millions):
<TABLE>
<CAPTION>
Second Six
Quarter Months
------- ------
<S> <C> <C>
PT-FI revenues - 1998 periods $311.0 $602.3
Increases (decreases):
Sales volumes:
Copper 25.8 70.7
Gold 34.1 86.6
Price realizations:
Copper (27.8) (65.6)
Gold (14.0) (19.4)
Adjustments, primarily for copper pricing on
prior period open sales 11.1 (20.2)
Treatment charges, royalties and other 7.3 10.0
------ ------
PT-FI revenues - 1999 periods $347.5 $664.4
====== ======
</TABLE>
PT-FI's second-quarter 1999 revenues, compared with the 1998
second quarter, benefited from an 11 percent increase in copper sales
volumes and a 24 percent increase in gold sales volumes, partially
offset by an 11 percent decline in copper realizations and an 8
percent decline in gold realizations. Six-months 1999 revenues also
benefited from increases in copper and gold sales volumes of 15
percent and 33 percent, respectively, but again these were partly
offset by declines in realizations of 12 percent for copper and 6
percent for gold. The copper portion of PT-FI's sales are generally
priced based on prices in a future specified month (See "PT-FI Sales
Outlook"). During the second quarter of 1999, copper prices rose
resulting in a benefit from repricing prior period open sales compared
with the 1999 quarter, when prices were relatively unchanged. For the
six-month period, repricing of year-end 1998 open copper sales
resulted in a decrease in revenues compared with the 1998 period when
higher copper prices early in the year resulted in increases to
revenues. Although sales volumes were higher in the 1999 periods,
treatment charges in total were lower because treatment rates for a
significant portion of PT-FI's 1999 projected sales were negotiated in
the fourth quarter of 1998 when rates were lower than in the prior
year. Additionally, royalties and a portion of treatment charges vary
with the price of copper.
<PAGE> 11
PT-FI Sales Outlook
PT-FI has commitments from various parties, including Atlantic and PT
Smelting, to purchase virtually all of its estimated 1999 production
at market prices. PT-FI is providing 100 percent of PT Smelting's
copper concentrate requirements at market prices; however, for the
first 15 years of operations the treatment and refining charges will
not fall below a specified minimum rate. PT-FI's share of sales for
1999, net of Rio Tinto's interest, is projected to approximate 1.4
billion pounds of copper and 2.2 million ounces of gold. Sales of
copper and gold are expected to be spread evenly over the remainder of
the year. PT-FI will continue to assess its mine plans and will
develop its annual plan for 2000 during the later part of 1999. PT-FI
currently projects on a preliminary basis that its share of sales for
2000 will total approximately 1.4 billion pounds of copper and 1.9
million ounces of gold. Projected 1999 and 2000 copper and gold sales
reflect the expectation of producing at higher average mill throughput
rates than in 1998 because of the fourth concentrator mill expansion,
offset by expected lower average ore grades compared to 1998. The
lower projected ore grades for 1999 and 2000 reflect the capability of
the expanded mill facilities to process large volumes of ore,
including lower grade material.
PT-FI's concentrate sales agreements, with regard to copper,
provide for provisional billings at the time of shipment with final
pricing settlement generally based on the average London Metal
Exchange (LME) price for a specified future month. Copper revenues on
provisionally priced open pounds are adjusted monthly based on then-
current prices. At June 30, 1999, FCX had consolidated copper sales
totaling 166.0 million pounds recorded at an average price of $0.70
per pound, the closing LME spot sales price on June 30, 1999,
remaining to be finally priced. Approximately 85 percent of these open
pounds are expected to be finally priced during the third quarter of
1999 with the remaining pounds to be priced during the fourth quarter
of 1999. Recent movements in the copper price have been volatile,
with the LME closing spot price for copper at approximately $0.75 per
pound on July 19, 1999. A one cent movement in the average price used
for these open pounds would have an approximate $0.8 million impact on
FCX's 1999 net income.
Gold sales are priced according to individual contract
terms, generally the average London Bullion Market Association price
for the month of shipment. Gold prices have also been volatile,
falling to 20-year lows and closing at approximately $253 per ounce on
July 19, 1999. At times PT-FI has entered into financial contracts to
manage certain risks resulting from fluctuations in commodity prices.
As of June 30, 1999, PT-FI does not have any price protection
programs in place for its copper or gold sales but, as conditions
warrant, PT-FI may enter into new contracts for its future sales.
<TABLE>
PT-FI Operating Results
<CAPTION>
Second Quarter Six Months
---------------- --------------------
1999 1998 1999 1998
------- ------- --------- ---------
<S> <C> <C> <C> <C>
PT-FI, net of Rio Tinto's interest
Copper
Production (000s of recoverable pounds)358,900 314,900 713,200 603,800
Sales (000s of recoverable pounds) 355,300 321,400 701,600 609,600
Average realized price $.68 $.76 $.68 $.77
Gold
Production (recoverable ounces) 590,800 447,700 1,200,600 880,700
Sales (recoverable ounces) 593,900 478,800 1,193,300 898,600
Average realized price $272.17 $295.81 $277.71 $293.96
Gross profit per pound of copper (cents):
Average realized price 68.3 76.1 67.6 76.9
----- ----- ----- -----
Production costs:
Site production and delivery 37.1 35.7 37.3 35.7
Gold and silver credits (46.5) (45.5) (48.3) (44.5)
Treatment charges 19.0 23.6 19.1 24.1
Royalty on metals 1.4 1.3 1.5 1.2
----- ----- ----- -----
Cash production costs 11.0 15.1 9.6 16.5
Depreciation and amortization 18.0 17.0 18.0 17.0
----- ----- ----- -----
Total production costs 29.0 32.1 27.6 33.5
----- ----- ----- -----
Revenue adjustments a 3.4 - (1.0) 2.7
----- ----- ----- -----
Gross profit per pound of copper 42.7 44.0 39.0 46.1
===== ===== ===== =====
<PAGE> 12
100% Operating Statistics
Ore milled (metric tons per day, MTPD) 216,800 201,200 219,500 183,700
Copper grade (%) 1.16 1.13 1.15 1.19
Gold grade (grams per metric ton) 1.39 1.18 1.35 1.28
Recovery rate (%)
Copper 84.6 85.7 83.5 86.3
Gold 82.7 83.0 83.7 83.1
Copper
Production (000s of recoverable pounds)412,400 378,700 809,100 726,100
Sales (000s of recoverable pounds) 407,600 386,400 798,600 727,900
Gold
Production (recoverable ounces) 739,300 561,900 1,470,700 1,105,300
Sales (recoverable ounces) 740,800 596,100 1,463,700 1,112,600
</TABLE>
a. Reflects adjustments to PT-FI revenues for prior period copper
sales.
PT-FI's average mill throughput rate increased to 216,800 MTPD
for the second quarter of 1999, as a result of its fourth concentrator
mill expansion completed in early 1998. Higher throughput and ore
grades in the 1999 periods resulted in higher copper and gold
production compared with the 1998 periods. Mill throughput rates vary
based on the characteristics of the ore being processed as PT-FI
manages its operations to optimize metal production. Unit site
production and delivery costs averaged $0.37 per pound of copper in
the second quarter of 1999 and the 1999 six-month period, slightly
higher than the $0.36 per pound reported in the second-quarter and
six-month periods of 1998. Higher gold sales volumes partly offset by
lower gold realizations helped to improve gold credits in the 1999
periods compared with the 1998 periods. Unit treatment charges were
lower in the 1999 periods because treatment charge rates for a
significant portion of PT-FI's 1999 projected sales were negotiated in
the fourth quarter of 1998 when rates were lower than in the prior
year and because of contractual price participation, whereby a portion
of the charge varies with the price of copper.
The copper royalty rate payable by PT-FI under its Contact of
Work (COW) varies from 1.5 percent of copper net revenue at a copper
price of $0.90 or less per pound to 3.5 percent at a copper price of
$1.10 or more per pound. The COW royalty rate for gold and silver
sales is 1.0 percent. In connection with the substantial expansion of
its production capabilities, PT-FI agreed to pay the Government of the
Republic of Indonesia (GOI) voluntary additional royalties on metal
from production above 200,000 MTPD in amounts for copper equal to the
COW royalty and for gold and silver equal to twice the COW royalties.
Therefore, the total of royalties paid on copper net revenues from
production above 200,000 MTPD are double the amount of the COW
royalty; and the total of royalties paid on gold and silver sales from
production above 200,000 MTPD are triple the amount of the COW
royalties. The additional royalties became effective January 1, 1999.
Because mineral royalties under GOI regulations are remitted, in large
part, to the provinces from which the minerals are extracted, PT-FI
offered the voluntary additional royalties to provide additional
support to the local governments and the people of Irian Jaya.
The royalties totaled $4.9 million in the second quarter of 1999, $4.2
million in the second quarter of 1998, $10.2 million in the first six
months of 1999 and $7.4 million in the first six months of 1998.
PT-FI's depreciation rate of 18.0 cents per pound for 1999
reflects an increase over the 1998 rate for a full year of
depreciation on the fourth concentrator mill expansion assets and
other capital additions. PT-FI has a labor agreement covering its
hourly paid Indonesian employees, the key provisions of which are
renegotiated biannually. PT-FI's labor agreement was scheduled to
expire on September 30, 1999. PT-FI and its workers have agreed to
terms for a new labor agreement which became effective June 1, 1999.
PT-FI's relations with the workers' union have generally been
positive.
FCX conducts the majority of its operations in Indonesia and
Spain where its functional currency is the U.S. dollar. All of FCX's
revenues are denominated in U.S. dollars; however, some costs and
certain asset and liability accounts are denominated in Indonesian
rupiah, Australian dollars or Spanish pesetas. Generally, FCX's
results are positively affected when the U.S. dollar strengthens
against these foreign currencies and adversely affected when the U.S.
dollar weakens against these foreign currencies.
Since 1997, the Indonesian rupiah exchange rate has been
extremely volatile, severely weakening initially and partly recovering
later against the U.S. dollar. PT-FI recorded losses totaling $0.2
million during the second quarter of 1999, $5.1 million during the
second quarter of 1998, $0.9 million during the first six months of
1999 and $10.5 million during the first six months of 1998 related to its
<PAGE> 13
rupiah-denominated net assets. Operationally PT-FI has benefited
from a weakened rupiah currency, primarily through lower labor costs.
During the first quarter of 1998, PT-FI began a currency hedging
program to reduce its exposure to changes in the Indonesian rupiah and
Australian dollar by entering into foreign currency forward contracts
to hedge a portion of its anticipated payments in these currencies.
At June 30, 1999, these contracts hedged 30.0 billion of rupiah
payments through August 1999 and 26.4 million of Australian dollar
payments through September 1999. PT-FI currently does not expect to
extend its currency hedging program once these contracts expire;
however, it may enter into new contracts in the future. The rupiah
contracts are at an average exchange rate of 21,160 rupiah to one U.S.
dollar and hedge approximately 30 percent of the projected rupiah
payments during the period covered. The Australian dollar contracts
are at an average exchange rate of 1.66 Australian dollars to one U.S.
dollar and hedge approximately 80 percent of the projected Australian
dollar payments during the period covered. PT-FI recorded net gains
(losses) to production costs totaling $3.2 million in the second
quarter of 1999, $(7.2) million in the second quarter of 1998, $4.1
million in the first six months of 1999 and $(5.9) million in the
first six months of 1998 related to these contracts under its current
accounting for such contracts (see Note 2).
Assuming estimated annual aggregate rupiah payments of 800
billion and a June 30, 1999 exchange rate of 6,600 rupiah to one U.S.
dollar, a one-thousand-rupiah increase in the exchange rate would
result in an approximate $16 million decrease in annual operating costs
and a one-thousand-rupiah decrease in the exchange rate would result in
an approximate $22 million increase in annual operating costs, before
any hedging effects. See "Developments in Indonesia."
Rio Tinto Joint Venture
Pursuant to the Rio Tinto joint venture, Rio Tinto has a 40 percent
interest in certain assets and production exceeding specified annual
amounts of copper, gold and silver through 2021 and 40 percent of all
production thereafter. Rio Tinto provided a $450 million nonrecourse
loan to PT-FI for PT-FI's share of the cost of the fourth concentrator
mill expansion. PT-FI and Rio Tinto began sharing incremental cash
flow attributable to the expansion effective January 1, 1998 on the
basis of 60 percent to PT-FI and 40 percent to Rio Tinto. PT-FI has
assigned its share of incremental cash flow to Rio Tinto until Rio
Tinto receives an amount of funds equal to the funds loaned to PT-FI
plus interest based on Rio Tinto's cost of borrowing. Through June
30, 1999, PT-FI's share of incremental cash flow totaled $327.1
million, of which $303.0 million has been paid to Rio Tinto and $24.1
million will be paid in the third quarter of 1999. The incremental
production from the expansion and production from PT-FI's previously
existing operations share proportionately in operating, nonexpansion
capital and administrative costs. PT-FI will continue to receive 100
percent of the cash flow from specified annual amounts of copper, gold
and silver through 2021 calculated by reference to its proved and
probable reserves as of December 31, 1994 and 60 percent of all
remaining cash flow.
Exploration Activities
FCX's exploration program in Irian Jaya includes the Block A and Block
B areas of PT-FI's COW, the Eastern Mining COW area and the PT Nabire
Bakti Mining (PT-NBM) COW area. FCX's exploration field activities in
the Block B, Eastern Mining and PT-NBM areas have been voluntarily
suspended for a three-month period from May 15th through August 15th,
as a precaution during the Indonesian national election period. FCX
expects to resume field activities on August 15. See "Developments in
Indonesia" for further discussion.
In Block A, which contains PT-FI's mining and milling operations,
second-quarter exploration efforts concentrated on potential expansion
of reserves at Kucing Liar, Grasberg Underground and DOZ. Delineation
drilling is ongoing at Kucing Liar, focusing on testing indicated
extensions to the known deposit. At Grasberg Underground, drilling is
directed towards defining the deeper extents of mineralization.
Drilling at DOZ continues to indicate excellent potential for
significant additions to the existing DOZ block cave reserve.
Even though not currently in the field, FCX's exploration
activities in the Block B and Eastern Mining areas continue and are
focused on mapping and evaluating prospects that potentially could
lead to the discovery of significant porphyry and/or skarn-type
copper-gold deposits.
<PAGE> 14
Exploration is ongoing on several blocks contiguous to PT-FI's
Block B and Eastern Mining's Block I areas in Irian Jaya in PT-NBM's
COW area covering a total of approximately 1.0 million acres. Rio
Tinto has elected to participate in 40 percent of FCX's interest and
costs in this exploration joint venture. To earn up to a 62 percent
interest, FCX and Rio Tinto must spend a total of up to $21 million on
exploration and other activities in the joint venture areas ($7.1
million of which was incurred through June 30, 1999). Exploration
drilling will continue with four to six rigs on several identified
geological anomalies on this acreage once field activities are
resumed.
SMELTING AND REFINING
<TABLE>
Atlantic Operating Results
<CAPTION>
Second Quarter Six Months
---------------- ----------------
1999 1998 1999 1998
------- ------- ------- -------
<S> <C> <C> <C> <C>
Revenues (in millions) $196.0 $199.5 $378.2 $388.0
Operating income (in millions) $1.7 $10.6 $10.1 $22.5
Concentrate treated (metric tons) 225,100 255,800 463,700 505,700
Anode production (000s of pounds) 153,700 169,000 317,700 333,000
Cathode and wire rod sales (000s of pounds) 138,100 133,400 276,500 264,500
Gold sales in anodes and slimes (ounces) 265,000 175,000 451,000 348,900
</TABLE>
Atlantic reported slightly lower revenues in the 1999 periods
because of lower copper and gold prices partly offset by higher sales
volumes. Second-quarter 1999 operating income decreased by $8.9
million compared with the 1998 quarter. Six-months 1999 operating
income decreased by $12.4 million compared with the 1998 six-month
period, reflecting lower treatment and refining rates and higher unit
costs compared with the 1998 periods. Concentrate treated and anode
production in the 1999 periods were also lower primarily because of
shutdowns during the second quarter of 1999 resulting from problems
experienced with a waste heat boiler. Atlantic's treatment and
refining rates were significantly lower in the second quarter of 1999
($0.19 per pound) compared with the second quarter of 1998 ($0.25 per
pound) and for the 1999 six-month period ($0.21 per pound) compared
with the 1998 six-month period ($0.26 per pound), reflecting market
conditions. Excess smelter capacity, as compared with copper
concentrates availability, has caused long-term treatment and refining
rates to decline since early 1998. Spot rates throughout 1999 have
fallen sharply and soft long-term treatment and refining rates are
expected to continue. Lower treatment charges, which negatively
affect Atlantic, benefit PT-FI and vice versa. Cathode cash
production costs of $0.15 per pound in the second quarter of 1999 and
$0.14 per pound in the 1999 six-month period were higher than the
$0.12 per pound reported for both 1998 periods primarily because of
lower net margins on gold slimes sales. The higher gold sales volumes
in the 1999 periods reflect higher gold content in PT-FI concentrate
treated by Atlantic.
A portion of Atlantic's operating costs and certain of its asset
and liability accounts are denominated in Spanish pesetas. Based on
estimated annual peseta payments of 15 billion and a June 30, 1999
exchange rate of 161.1 pesetas to one U.S. dollar, a ten-peseta
increase in the exchange rate would result in an approximate $5
million decrease in costs, before any hedging effects. A ten-peseta
decrease in the exchange rate would result in an approximate $6
million increase in costs, before any hedging effects. Atlantic had
peseta-denominated net monetary liabilities at June 30, 1999 totaling
$78.2 million recorded at an exchange rate of 161.1 pesetas to one
U.S. dollar. Adjustments to these net liabilities to reflect changes
in the exchange rate are recorded as currency transaction gains or
losses in other income and totaled gains (losses) of $2.2 million in
the second quarter of 1999, $(0.8) million in the second quarter of
1998, $7.9 million in the first six months of 1999 and $1.4 million in
the first six months of 1998.
Atlantic has a currency hedging program using foreign currency
forward contracts to reduce its exposure to changes in the U.S. dollar
and Spanish peseta exchange rate. At June 30, 1999, Atlantic had
contracts to purchase 9.5 billion Spanish pesetas at an average
exchange rate of 145.6 pesetas to one U.S. dollar through June 2000.
These contracts currently hedge approximately 70 percent of Atlantic's
projected net peseta cash outflows during the period covered. In
addition to the currency transaction gains and losses noted above,
Atlantic recorded gains (losses) to other income related to its
forward currency contracts totaling $(2.5) million in the second
quarter of 1999, $1.7 million in the second quarter of 1998, $(9.0)
million in the first six months of 1999 and $(0.3) million in the
first six months of 1998.
<PAGE> 15
On January 1, 1999, a new common currency
(the Euro) was introduced to member states of the European Union,
including Spain. A transition period will extend until January 1,
2002. Only a few of Atlantic's customers and none of its suppliers are
using the Euro as the currency for commercial transactions. Atlantic
has not yet decided when it will adopt the Euro as its currency for
commercial transactions. Atlantic does not expect conversion to the
Euro currency to have a material impact on revenues or expenses. A
single European currency is expected to improve Atlantic's
competitiveness with other European copper smelters and refiners by
eliminating exchange rate differences. Atlantic's current management
information systems are designed to accommodate multiple currencies
and would not require major modifications to process transactions
involving the Euro. Atlantic's peseta hedging contracts would be set
at a fixed exchange rate to the Euro.
PT Smelting Operating Results
PT-FI accounts for its 25 percent interest in PT Smelting under the
equity method. PT Smelting completed construction of its copper
smelter and refinery complex in Gresik, Indonesia during the third
quarter of 1998 on schedule and on budget. The smelter furnace began
operations on October 12, 1998 with second production of copper
cathode in December 1998 and first sales of LME quality copper cathode
in the second quarter of 1999. Production is expected to increase
gradually to design capacity of 200,000 metric tons of copper metal
per year over an approximate two-year period. PT-FI's second-quarter
and six-months 1999 revenues include $64.3 million and $88.5 million,
respectively, from sales to PT Smelting. PT-FI's share of PT
Smelting's net operating losses, which are recorded as equity in PT
Smelting losses in the Statements of Income, totaled $3.0 million in
the second quarter of 1999, $0.2 million in the second quarter of
1998, $8.2 million in the first six months of 1999 and $0.7 million in
the first six months of 1998. The deferral of intercompany profits on
25 percent of PT-FI sales to PT Smelting, for which the final sale has
not occurred, is also recorded as equity in PT Smelting losses in the
Statements of Income and totaled $1.9 million in the second quarter of
1999 and $4.3 million in the first six months of 1999. PT Smelting
treated 98,300 metric tons of concentrate in the second quarter of
1999 and 139,900 metric tons in the first six months of 1999. PT
Smelting is expected to continue to incur operating losses as it
gradually increases production to design capacity.
OTHER FINANCIAL RESULTS
The FCX/Rio Tinto joint ventures incurred $3.9 million of exploration
costs in the 1999 second quarter, compared with $8.7 million in the
1998 quarter. Joint venture costs totaled $9.2 million for the 1999
six-month period and $17.4 million for the 1998 six-month period.
Exploration expense in the Statements of Income reflects FCX's share
of these joint venture costs plus the cost of other non-joint venture
exploration activities. Substantially all costs in the joint venture
areas are now being shared 60 percent by FCX and 40 percent by Rio
Tinto.
Second-quarter and six-months 1999 general and administrative
expenses of $17.3 million and $32.9 million, respectively, were 10
percent and 15 percent lower, respectively than the 1998 second-
quarter and six-months amounts, primarily because of corporate
initiatives to reduce costs. The second-quarter and six-months 1999
amounts included a $1.2 million charge for a voluntary severance/early
retirement program and a $0.5 million charge for costs of stock
appreciation rights related to the increase in FCX's stock price
during the second quarter of 1999.
FCX's total interest cost (before capitalization) decreased by
$17.3 million from $116.8 million for the first six months of 1998 to
$99.5 million in the first six months of 1999 primarily because of
lower average interest rates and debt levels. FCX capitalized $1.3
million of interest costs in the first six months of 1999 and $14.9
million in the first six months of 1998, primarily for the fourth
concentrator mill expansion project.
FCX's effective tax rate was 52 percent for the first six months
of 1999 and 47 percent for the first six months of 1998. The increase
in FCX's effective tax rate results primarily from an increase in
Atlantic's net losses and PT-FI's equity in PT Smelting losses for
which there is no tax benefit. PT-FI's COW provides a 35 percent
income tax rate and a 10 percent withholding on dividends paid to FCX
by PT-FI and on interest for debt incurred after the signing of the
COW. No income taxes are recorded at Atlantic, which is subject to
taxation in Spain, because it has not generated significant taxable
income in recent years and has a substantial tax loss carryforward for
which no financial statement benefit has been provided.
<PAGE> 16
CAPITAL RESOURCES AND LIQUIDITY
FCX's primary sources of cash are operating cash flows and borrowings,
while its primary cash outflows include capital expenditures,
repayments of debt, dividends on preferred stock and purchases of its
common stock. Net cash provided by operating activities was $278.6
million for the first six months of 1999, compared with $180.1 million
for the 1998 period. Net cash used in investing activities totaled
$77.4 million in the 1999 period, compared with $219.4 million in the
1998 period, primarily for PT-FI capital expenditures. Net cash used
in financing activities totaled $202.5 million in 1999, primarily to
repay debt, compared with net cash provided by financing activities of
$35.5 million in 1998.
Operating Activities
Lower net income in the first six months of 1999 was offset by
increases in noncash charges and working capital changes which
resulted in 1999 net cash provided by operating activities increasing
by $98.5 million over the year-ago period. Working capital changes in
the first six months of 1999 primarily include the collection of
accounts receivable partially offset by an increase in inventories,
while during the first six months of 1998 there was an increase in
accounts receivable and a reduction in inventories. Working capital
accounts can fluctuate significantly depending on the timing and
pricing of sales by PT-FI and Atlantic.
Investing Activities
FCX's 1999 capital expenditures were lower compared to the 1998 period
primarily because of the completion of PT-FI's fourth concentrator
mill expansion in 1998. PT-FI's capital expenditures for 1999 are
expected to approximate $140 million, representing primarily mine and
mill sustaining capital and long-term enhancement projects. Funding
is expected to be provided by operating cash flow and PT-FI's bank
credit facilities ($336.0 million commitment available at July 19,
1999).
Financing Activities
Net repayments to Rio Tinto totaled $107.5 million in the first six
months of 1999 from PT-FI's share of incremental cash flow
attributable to the fourth concentrator mill expansion, compared with
$27.5 million in the first six months of 1998 when the fourth
concentrator mill expansion first became operational. Net repayments
of other debt totaled $51.2 million in the first six months of 1999,
compared with net proceeds of $180.2 million in the first six months
of 1998.
On August 1, 1999, FCX will pay $11.9 million for the initial
mandatory partial redemption of FCX's Silver-Denominated Preferred
Stock.
In August 1998, FCX announced a new open market share purchase
program for an additional 20 million shares of its Class A and Class B
common shares bringing the total shares approved for purchase under
the open market share purchase programs to 60 million. During the
first six months of 1999, FCX acquired 0.8 million of its shares for
$7.8 million (an average of $9.20 per share), all in the first quarter
of 1999, under its open market share purchase programs. During the
first six months of 1998, FCX acquired 4.4 million of its shares for
$66.9 million (an average of $15.09 per share). From inception of
these programs through July 19, 1999, FCX has purchased a total of
51.0 million shares for $1.04 billion (an average of $20.31 per share)
and approximately 9.0 million shares remain available under the
programs. The timing of future 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.
FCX remains focused on effectively managing its operations in the
current environment of low copper and gold prices. Through its cost
reduction and production enhancement efforts commenced in early 1998,
PT-FI has directed its efforts toward optimizing performance of its
expanded milling facilities to achieve higher sales levels at low cost
levels. In addition to the favorable effects of foreign currency
movements, PT-FI realized significantly lower operating costs, capital
and exploration expenditures and general and administrative expenses
in 1998 and the first half of 1999. These savings are expected to
continue throughout the remainder of 1999. With these savings and the
elimination of the regular quarterly cash dividend announced in
December 1998, FCX believes it will have the overall financial
flexibility to continue to invest in operations and maintain its
exploration program while still reducing its overall debt levels.
Because of the economic and political issues affecting Indonesia and
the low current prices for copper and gold, the availability of any
capital which may be required for FCX and its subsidiaries is limited
and the cost of new capital, if available, would be high.
<PAGE> 17
DEVELOPMENTS IN INDONESIA
Indonesia's national parliamentary election was held peacefully in
June 1999, although delays in tabulating the vote led to periodic
protests, some of which ended in violence. The process of electing a
president is expected to be completed over the next several months.
Indonesia's currency has improved during 1999; however, Indonesia
continues to face economic and political uncertainties. This
situation has a continuing negative impact on FCX's access to capital.
For a further discussion, see FCX's Form 10-K for the year ended
December 31, 1998 filed with the Securities and Exchange Commission.
PT-FI's and Eastern Mining's operations, all of which are in
Indonesia, are conducted through the PT-FI and Eastern Mining COWs.
Both COWs have 30-year terms, provide for two 10-year extensions under
certain conditions, and govern PT-FI's and Eastern Mining's rights and
obligations relating to taxes, exchange controls, repatriation and
other matters. Both COWs were concluded pursuant to the 1967 Foreign
Capital Investment Law, which expresses Indonesia's foreign investment
policy and provides basic guarantees of remittance rights and
protection against nationalization, a framework for economic
incentives and basic rules regarding other rights and obligations of
foreign investors. Specifically, the COWs provide that the GOI will
not nationalize or expropriate PT-FI's or Eastern Mining's mining
operations. Any disputes regarding the provisions of the COWs are
subject to international arbitration.
IMPACT OF YEAR 2000 COMPLIANCE
The Year 2000 (Y2K) issue is the result of computerized systems being
written to store and process the year portion of dates using two
digits rather than four. Date-aware systems (i.e., any system or
component that performs calculations, comparisons, sequencing or other
operations involving dates) may fail or produce erroneous results on
or before January 1, 2000 because the year 2000 will be interpreted as
the year 1900.
FCX's State of Readiness
FCX has been pursuing a strategy to ensure all its significant
computer systems will be able to process dates from and after January
1, 2000, including leap years, without critical systems failure (Y2K
Compliant or Y2K Compliance). Computerized systems are integral to the
operations of FCX, particularly for plant and equipment process
control at its mining, milling and smelting production facilities.
Certain services are provided to FCX and its subsidiaries by FM
Services Company (FMS), which is responsible for ensuring Y2K
Compliance for the systems it manages. FMS has separately prepared a
plan for its Y2K Compliance. Certain PT-FI infrastructure assets
within PT-FI's area of operations are operated by third parties. Each
respective third party is responsible for its own Y2K Compliance,
although PT-FI is coordinating their activities and providing
oversight. Progress of the Y2K Compliance plan is being monitored by
FCX executive management and reported to the Audit Committee of the
FCX Board of Directors. In addition, the independent accounting firm
functioning as FCX's internal auditors is assisting management in
monitoring the progress of the Y2K Compliance plan.
As of June 30, 1999, FCX's Y2K Compliance project is on schedule,
with contingency planning work well under way and scheduled for
completion in the third quarter. Like other companies, FCX cannot,
however, make Y2K Compliance certifications because the ability of any
organization's systems to operate reliably after midnight on December
31, 1999 is dependent upon factors that may be outside the control of,
or unknown to, the organization.
Information Technology (IT) Systems - The bulk of FCX computerized
business systems processing is provided through commercial third party
software licensed by FCX. Remediation and testing of critical FCX and
FMS business systems is largely complete. Certain tasks are still in
process with completion scheduled for the third quarter.
Non-IT Systems - FCX is heavily dependent upon computerized systems in
its mining, milling and smelting production facilities. In addition,
computerized systems are used extensively for exploration, reserve and
production modeling functions. Y2K remediation and compliance testing
work is largely complete for FCX process control systems. Some
limited work remains and is scheduled for completion in the third
quarter.
Third Party Risks - FCX computer systems are not widely integrated
with the systems of its suppliers or customers. The primary potential
Y2K risk attributable to third parties would be from a temporary
disruption in certain materials and services provided by third
parties. The mining operations of PT-FI, the largest FCX subsidiary,
are located in Irian Jaya, a province of Indonesia. Because of its remote
<PAGE> 18
operating location, PT-FI has identified contingency needs for
critical operating supplies and materials to help mitigate the impact
of a disruption in its supply and logistics chain. In addition, every
FCX supplier has been contacted regarding Y2K Compliance, and
effective August 1998, Y2K Compliance requirements have been included
in all FCX purchasing contracts. Compliance statements have been
received for critical FCX suppliers, customers, transportation
providers and business partners, and FCX will continue to monitor Y2K
readiness plans for critical third parties.
The Costs to Address FCX's Y2K Issues. Expenditures for the necessary
Y2K-related modifications will largely be funded by routine software
and hardware maintenance fees paid by FCX or FMS. Based on current
information, FCX believes that the estimated incremental cost of Y2K
Compliance not covered by routine software and hardware maintenance
fees will not exceed $3 million, most of which is expected to be
incurred in 1999. If the software modifications and conversions
referred to above are not made, or are delayed, the Y2K issue could
have a material impact on FCX operations. Additionally, cost estimates
are based on management's best estimates, which are derived using
numerous assumptions of future events including the continued
availability of certain resources, third party modification plans and
other factors. There also can be no assurance that the systems of
other companies will be converted on a timely basis or that their
failure to convert will not have a material adverse effect on FCX.
The Risks of FCX's Y2K Issues
Based on its Y2K risk assessment work, FCX believes the most likely
Y2K-related failures would probably be temporary disruption in certain
materials and services provided by third parties, which would not be
expected to have a material adverse effect on FCX's financial
condition or results of operations. FCX believes that these third-
party risks will be mitigated through its contingency plans for
critical purchased commodities and close monitoring of compliance for
other third parties that are important to its operations.
FCX's Contingency Plans
Although FCX believes the likelihood of any or all of the above risks
occurring is low, specific contingency plans to address certain risk
areas are being developed. These areas include critical operations,
key customers and suppliers, and air and marine transportation
providers. Integrated recovery plans for critical operations will
address Y2K-related failure scenarios for FCX production facilities.
Third-party risks will be addressed through commercial contingency
plans; examples of risk mitigation strategies include increased safety
stock levels, alternative sources of critical supplies, and changes to
inbound and outbound shipping schedules. While there can be no
assurance that FCX will not be materially adversely affected by Y2K
problems, it is committed to ensuring that it is fully Y2K ready and
believes its plans adequately address the above-mentioned risks.
CAUTIONARY STATEMENT
Management's discussion and analysis of financial condition and
results of operations contains forward-looking statements regarding
copper and gold sales volumes, treatment charge rates, exploration
activities, capital expenditures, introduction of the Euro, PT
Smelting operating losses, the availability of financing, developments
in Indonesia and Y2K Compliance. Important factors that may cause
future results to differ from FCX's expectations include unanticipated
declines in the average grades of ore mined, unanticipated milling and
other processing problems, the speculative nature of mineral
exploration, fluctuations in interest rates and other adverse
financial market conditions, political and economic conditions in
Indonesia, and other factors described in more detail under the
heading "Cautionary Statements" in FCX's Form 10-K for the year ended
December 31, 1998.
<PAGE> 19
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). In March 1998,
the U. S. District Court for the Eastern District of Louisiana
dismissed with prejudice the plaintiff's third amended complaint. The
court held that the plaintiff failed to plead facts underlying his
claims against FCX. The plaintiff has appealed the court's decision.
The plaintiff alleges environmental, human rights and social/cultural
violations in Indonesia and seeks $6 billion in monetary damages and
other equitable relief. FCX will continue to defend this action
vigorously.
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). The plaintiff alleges substantially similar violations as
those alleged in the Beanal suit and seeks unspecified monetary
damages and other equitable relief. In February 1997, the Civil
District Court of the Parish of Orleans, State of Louisiana dismissed
this purported class action for lack of subject matter jurisdiction
because the alleged conduct and damages occurred in Indonesia. In
March 1998, the Louisiana Fourth Circuit Court of Appeal reversed the
trial court's dismissal and found that subject matter jurisdiction
existed over some claims. After remand, the trial court ordered
plaintiff to amend her complaint which she did for the third time.
FCX has filed exceptions to the latest amended petition, which are
pending at this time. FCX will continue to defend this action
vigorously.
In addition to the foregoing proceedings, FCX may be from time to time
involved in various legal proceedings of a character normally incident
to the ordinary course of its business. Management believes that
potential liability in any proceedings would not have a material
adverse effect on the financial condition or results of operations of
FCX. FCX maintains liability insurance to cover some, but not all,
potential liabilities normally incident to the ordinary course of its
business as well as other insurance coverage customary in its
business, with coverage limits as management deems prudent.
Item 6. Exhibits and Reports on Form 8-K.
(a) The exhibits to this report are listed in the Exhibit
Index beginning on Page E-1 hereof.
(b) During the quarter for which this report is filed, the
registrant did not file any Current Reports on Form 8-
K.
<PAGE> 20
FREEPORT-McMoRan COPPER & GOLD INC.
SIGNATURE
Pursuant to the requirements of the Securities 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\ C. Donald Whitmire, Jr.
-------------------------------
C. Donald Whitmire, Jr.
Vice President and
Controller-Financial Reporting
(authorized signatory and
Principal Accounting Officer)
Date: August 5, 1999
<PAGE> 21
Freeport-McMoRan Copper & Gold Inc.
EXHIBIT INDEX
Exhibit
Number Description
- ----- -----------
2.1 Agreement, dated as of May 2, 1995 by and between Freeport-
McMoRan Inc. (FTX) and FCX and The RTZ Corporation PLC, RTZ
Indonesia Limited, and RTZ America, Inc. (the Rio Tinto
Agreement). Incorporated by reference to Exhibit 2.1 to the
Current Report on Form 8-K of FTX dated as of May 26, 1995.
2.2 Amendment dated May 31, 1995 to the Rio Tinto Agreement.
Incorporated by reference to Exhibit 2.1 to the Quarterly Report
on Form 10-Q of FTX for the quarter ended June 30, 1995.
2.3 Distribution Agreement dated as of July 5, 1995 between FTX and
FCX. Incorporated by reference to Exhibit 2.1 to the Quarterly
Report on Form 10-Q of FTX for the quarter ended September 30,
1995 (the FTX 1995 Third Quarter Form 10-Q).
3.1 Composite copy of the Certificate of Incorporation of FCX.
Incorporated by reference to Exhibit 3.1 to the Quarterly Report
on Form 10-Q of FCX for the quarter ended June 30, 1995 (the FCX
1995 Second Quarter Form 10-Q).
3.2 Amended By-Laws of FCX dated as of March 12, 1999. Incorporated
by reference to Exhibit 3.2 to the Annual Report on Form 10-K of
FCX for the fiscal year ended December 31, 1998 (the 1998 FCX
Form 10-K).
4.1 Certificate of Designations of the Step-Up Convertible Preferred
Stock of FCX. Incorporated by reference to Exhibit 4.2 to the
FCX 1995 Second Quarter Form 10-Q.
4.2 Deposit Agreement dated as of July 1, 1993 among FCX, ChaseMellon
Shareholder Services, L.L.C. (ChaseMellon), as Depositary, and
holders of depositary receipts (Step-Up Depositary Receipts)
evidencing certain Depositary Shares, each of which, in turn,
represents 0.05 shares of Step-Up Convertible Preferred Stock.
Incorporated by reference to Exhibit 4.5 to the Annual Report on
Form 10-K of FCX for the fiscal year ended December 31, 1993 (the
FCX 1993 Form 10-K).
4.3 Form of Step-Up Depositary Receipt. Incorporated by reference to
Exhibit 4.6 to the FCX 1993 Form 10-K.
4.4 Certificate of Designations of the Gold-Denominated Preferred
Stock of FCX. Incorporated by reference to Exhibit 4.3 to the
FCX 1995 Second Quarter Form 10-Q.
4.5 Deposit Agreement dated as of August 12, 1993 among FCX,
ChaseMellon, as Depositary, and holders of depositary receipts
(Gold-Denominated Depositary Receipts) evidencing certain
Depositary Shares, each of which, in turn, represents 0.05 shares
of Gold-Denominated Preferred Stock. Incorporated by reference
to Exhibit 4.8 to the FCX 1993 Form 10-K.
4.6 Form of Gold-Denominated Depositary Receipt. Incorporated by
reference to Exhibit 4.9 to the FCX 1993 Form 10-K.
4.7 Certificate of Designations of the Gold-Denominated Preferred
Stock, Series II (the Gold-Denominated Preferred Stock II) of
FCX. Incorporated by reference to Exhibit 4.4 to the FCX 1995
Second Quarter Form 10-Q.
4.8 Deposit Agreement dated as of January 15, 1994, among FCX,
ChaseMellon, as Depositary, and holders of depositary receipts
(Gold-Denominated II Depositary Receipts) evidencing certain
Depositary Shares, each of which, in turn, represents 0.05 shares
of Gold-Denominated Preferred Stock II. Incorporated by
reference to Exhibit 4.2 to the Quarterly Report on Form 10-Q of
FCX for the quarter ended March 31, 1994 (the FCX 1994 First
Quarter Form 10-Q).
<PAGE> E-1
4.9 Form of Gold-Denominated II Depositary Receipt. Incorporated by
reference to Exhibit 4.3 to the FCX 1994 First Quarter Form 10-Q.
4.10 Certificate of Designations of the Silver-Denominated Preferred
Stock of FCX. Incorporated by reference to Exhibit 4.5 to the
FCX 1995 Second Quarter Form 10-Q.
4.11 Deposit Agreement dated as of July 25, 1994 among FCX,
ChaseMellon, as Depositary, and holders of depositary receipts
(Silver-Denominated Depositary Receipts) evidencing certain
Depositary Shares, each of which, in turn, initially represents
0.025 shares of Silver-Denominated Preferred Stock. Incorporated
by reference to Exhibit 4.2 to the July 15, 1994 Form 8-A.
4.12 Form of Silver-Denominated Depositary Receipt. Incorporated by
reference to Exhibit 4.1 to the July 15, 1994, Form 8-A.
4.13 $550 million Composite Restated Credit Agreement dated as of July
17, 1995 (the PT-FI Credit Agreement) among PT-FI, FCX, the
several financial institutions that are parties thereto, First
Trust of New York, National Association, as PT-FI Trustee,
Chemical Bank, as administrative agent and FCX collateral agent,
and The Chase Manhattan Bank (National Association), as
documentary agent. Incorporated by reference to Exhibit 4.16 to
the Annual Report of FCX on Form 10-K for the year ended December
31, 1995 (the FCX 1995 Form 10-K).
4.14 Amendment dated as of July 15, 1996 to the PT-FI Credit Agreement
among PT-FI, FCX, the several financial institutions that are
parties thereto, First Trust of New York, National Association,
as PT-FI Trustee, Chemical Bank, as administrative agent and FCX
collateral agent, and The Chase Manhattan Bank (National
Association), as documentary agent. Incorporated by reference to
Exhibit 4.2 to the Quarterly Report of FCX on Form 10-Q for the
quarter ended September 30, 1996 (the FCX 1996 Third Quarter Form
10-Q).
4.15 Amendment dated as of October 9, 1996 to the PT-FI Credit
Agreement among PT-FI, FCX, the several financial institutions
that are parties thereto, First Trust of New York, National
Association, as PT-FI Trustee, The Chase Manhattan Bank (formerly
Chemical Bank), as administrative agent, security agent and JAA
security agent, and The Chase Manhattan Bank (as successor to The
Chase Manhattan Bank (National Association)), as documentary
agent. Incorporated by reference to Exhibit 10.2 to the Current
Report on Form 8-K of FCX dated and filed November 13, 1996 (the
FCX November 13, 1996 Form 8-K).
4.16 Amendment dated as of March 7, 1997 to the PT-FI Credit Agreement
among PT-FI, FCX, the several financial institutions that are
parties thereto, First Trust of New York, National Association,
as PT-FI Trustee, The Chase Manhattan Bank, as administrative
agent, security agent and JAA security agent, and The Chase
Manhattan Bank, as documentary agent. Incorporated by reference
to Exhibit 4.16 to the Annual Report of FCX on Form 10-K for the
year ended December 31, 1997 (the FCX 1997 Form 10-K).
4.17 Amendment dated as of July 24, 1997 to the PT-FI Credit Agreement
among PT-FI, FCX, the several financial institutions that are
parties thereto, First Trust of New York, National Association,
as PT-FI Trustee, The Chase Manhattan Bank, as administrative
agent, security agent and JAA security agent, and The Chase
Manhattan Bank, as documentary agent. Incorporated by reference
to Exhibit 4.17 to the FCX 1997 Form 10-K.
4.18 $200 million Credit Agreement dated as of June 30, 1995 (the CDF)
among PT-FI, FCX, the several financial institutions that are
parties thereto, First Trust of New York, National Association,
as PT-FI Trustee, Chemical Bank, as administrative agent and FCX
collateral agent, The Chase Manhattan Bank (National
Association), as documentary agent. Incorporated by reference to
Exhibit 4.2 to the FCX 1995 Third Quarter Form 10-Q.
4.19 Amendment dated as of July 15, 1996 to the CDF among PT-FI, FCX,
the several financial institutions that are parties thereto,
First Trust of New York, National Association, as PT-FI Trustee,
Chemical Bank, as administrative agent and FCX collateral agent,
and The Chase
<PAGE> E-2
Manhattan Bank (National Association), as
documentary agent. Incorporated by reference to Exhibit 4.1 to
the FCX 1996 Third Quarter Form 10-Q.
4.20 Amendment dated as of October 9, 1996 to the CDF among PT-FI,
FCX, the several financial institutions that are parties thereto,
First Trust of New York, National Association, as PT-FI Trustee,
The Chase Manhattan Bank (formerly Chemical Bank), as
administrative agent, security agent and JAA security agent, and
The Chase Manhattan Bank (as successor to The Chase Manhattan
Bank (National Association)), as documentary agent. Incorporated
by reference to Exhibit 10.1 to the FCX November 13, 1996 Form 8-
K.
4.21 Amendment dated as of March 7, 1997 to the CDF among PT-FI, FCX,
the several financial institutions that are parties thereto,
First Trust of New York, National Association, as PT-FI Trustee,
The Chase Manhattan Bank, as administrative agent, security agent
and JAA security agent, and The Chase Manhattan Bank, as
documentary agent. Incorporated by reference to Exhibit 4.21 to
the FCX 1997 Form 10-K.
4.22 Amendment dated as of July 24, 1997 to the CDF among PT-FI, FCX,
the several financial institutions that are parties thereto,
First Trust of New York, National Association, as PT-FI Trustee,
The Chase Manhattan Bank, as administrative agent, security agent
and JAA security agent, and The Chase Manhattan Bank, as
documentary agent. Incorporated by reference to Exhibit 4.22 to
the FCX 1997 Form 10-K.
4.23 Senior Indenture dated as of November 15, 1996 from FCX to The
Chase Manhattan Bank, as Trustee. Incorporated by reference to
Exhibit 4.1 to the Current Report on Form 8-K of FCX dated
November 13, 1996 and filed November 15, 1996.
4.24 First Supplemental Indenture dated as of November 18, 1996 from
FCX to The Chase Manhattan Bank, as Trustee, providing for the
issuance of the Senior Notes and supplementing the Senior
Indenture dated November 15, 1996 from FCX to such Trustee,
providing for the issuance of Debt Securities. Incorporated by
reference to Exhibit 4.20 to the FCX 1996 Form 10-K.
10.1 Contract of Work dated December 30, 1991 between the Government
of the Republic of Indonesia and PT-FI. Incorporated by
reference to Exhibit 10.2 to the FCX 1995 Form 10-K.
10.2 Contract of Work dated August 15, 1994 between the Government of
the Republic of Indonesia and P.T. Irja Eastern Minerals
Corporation. Incorporated by reference to Exhibit 10.2 to the
FCX 1995 Form 10-K.
10.3 Agreement dated as of October 11, 1996 to Amend and Restate Trust
Agreement among PT-FI, FCX, the RTZ Corporation PLC, P.T. RTZ-CRA
Indonesia, RTZ Indonesian Finance Limited and First Trust of New
York, National Association, and The Chase Manhattan Bank, as
Administrative Agent, JAA Security Agent and Security Agent.
Incorporated by reference to Exhibit 10.3 to the FCX November 13,
1996 Form 8-K.
10.4 Credit Agreement dated October 11, 1996 between PT-FI and RTZ
Indonesian Finance Limited. Incorporated by reference to Exhibit
10.4 to the FCX November 13, 1996 Form 8-K.
10.5 Participation Agreement dated as of October 11, 1996 between PT-
FI and P.T. RTZ-CRA Indonesia with respect to a certain contract
of work. Incorporated by reference to Exhibit 10.5 to the FCX
November 13, 1996 Form 8-K.
10.6 Second Amended and Restated Joint Venture and Shareholders'
Agreement dated as of December 11, 1996 among Mitsubishi
Materials Corporation, Nippon Mining and Metals Company, Limited
and PT-FI. Incorporated by reference to Exhibit 10.3 of the FCX
1996 Form 10-K.
10.7 Put and Guaranty Agreement dated as of March 21, 1997 between FCX
and The Chase Manhattan Bank. Incorporated by reference to
Exhibit 10.7 to the FCX 1997 Form 10-K.
<PAGE> E-3
10.8 Subordinated Loan Agreement dated as of March 21, 1997 between
FCX and PT Nusamba Mineral Industri. Incorporated by reference
to Exhibit 10.8 to the FCX 1997 Form 10-K.
10.9 Amended and Restated Power Sales Agreement dated as of December
18, 1997 between PT-FI and P.T. Puncakjaya Power. Incorporated by
reference to Exhibit 10.9 to the FCX 1997 Form 10-K.
10.10 Option, Mandatory Purchase and Right of First Refusal
Agreement dated as of December 19, 1997 among PT-FI, P.T.
Puncakjaya Power, Duke Irian Jaya, Inc., Westcoast Power, Inc.
and P.T. Prasarana Nusantara Jaya. Incorporated by reference to
Exhibit 10.10 to the FCX 1997 Form 10-K.
Executive Compensation Plans and Arrangements (Exhibits 10.11
through 10.30)
10.11 Annual Incentive Plan of FCX as amended effective February
2, 1999. Incorporated by reference to Exhibit 10.11 to the 1998
FCX Form 10-K.
10.12 1995 Long-Term Performance Incentive Plan of FCX.
Incorporated by reference to Exhibit 10.9 to the FCX 1996 Form
10-K.
10.13 FCX Performance Incentive Awards Program as amended
effective February 2, 1999. Incorporated by reference to Exhibit
10.13 to the 1998 FCX Form 10-K.
10.14 FCX President's Award Program. Incorporated by reference to
Exhibit 10.8 to the FCX 1995 Form 10-K.
10.15 FCX Adjusted Stock Award Plan, as amended. Incorporated by
reference to Exhibit 10.15 to the 1997 FCX Form 10-K.
10.16 FCX 1995 Stock Option Plan. Incorporated by reference to
Exhibit 10.13 to the FCX 1996 Form 10-K.
10.17 FCX 1995 Stock Option Plan for Non-Employee Directors, as
amended. Incorporated by reference to Exhibit 10.17 to the FCX
1997 Form 10-K.
10.18 FCX 1999 Stock Incentive Plan.
10.19 Financial Counseling and Tax Return Preparation and
Certification Program of FCX. Incorporated by reference to
Exhibit 10.12 to the FCX 1995 Form 10-K.
10.20 FM Services Company Performance Incentive Awards Program as
amended effective February 2, 1999. Incorporated by reference to
Exhibit 10.19 to the 1998 FCX Form 10-K.
10.21 FM Services Company Financial Counseling and Tax Return
Preparation and Certification Program. Incorporated by reference
to Exhibit 10.14 to the FCX 1995 Form 10-K.
10.22 Consulting Agreement dated as of December 22, 1988 between
FTX and Kissinger Associates, Inc. (Kissinger Associates).
Incorporated by reference to Exhibit 10.21 to the FCX 1997 Form
10-K.
10.23 Letter Agreement dated May 1, 1989 between FTX and Kent
Associates, Inc. (Kent Associates, predecessor in interest to
Kissinger Associates). Incorporated by reference to Exhibit 10.22
to the FCX 1997 Form 10-K.
10.24 Letter Agreement dated January 27, 1997 among Kissinger
Associates, Kent Associates, FTX, FCX and FMS. Incorporated by
reference to Exhibit 10.20 to the FCX 1996 Form 10-K.
10.25 Agreement for Consulting Services between FTX and B. M.
Rankin, Jr. effective as of January 1, 1991 (assigned to FMS as
of January 1, 1996). Incorporated by reference to Exhibit 10.24
to the FCX 1997 Form 10-K.
<PAGE> E-4
10.26 Supplemental Agreement between FMS and B. M. Rankin Jr.
dated December 15, 1997. Incorporated by reference to Exhibit
10.25 to the FCX 1997 Form 10-K.
10.27 Supplemental Agreement between FMS and B.M. Rankin Jr. dated
December 7, 1998. Incorporated by reference to Exhibit 10.26 to
the 1998 FCX Form 10-K.
10.28 Letter Agreement effective as of January 4, 1997 between
Senator J. Bennett Johnston, Jr. and FCX. Incorporated by
reference to Exhibit 10.25 of the FCX 1996 Form 10-K.
10.29 Letter Agreement dated December 22, 1997 between FMS and
Rene L. Latiolais. Incorporated by reference to Exhibit 10.28 to
the FCX 1997 Form 10-K.
10.30 Letter Agreement dated January 25, 1999 between FMS and Rene
L. Latiolais. Incorporated by reference to Exhibit 10.30 to the
1998 FCX Form 10-K.
15.1 Letter dated July 20, 1999 from Arthur Andersen LLP regarding
unaudited interim financial statements.
27.1 FCX Financial Data Schedule.
<PAGE> E-5
Exhibit 10.18
FREEPORT-McMoRan COPPER & GOLD INC.
1999 STOCK INCENTIVE PLAN
SECTION 1
Purpose. The purpose of the Freeport-McMoRan Copper & Gold Inc. 1999 Stock
Incentive Plan (the "Plan") is to motivate officers, key employees, consultants
and advisers by giving them an opportunity to acquire a proprietary interest in
the Company and reward them for the successful future performance of the
Company.
SECTION 2
Definitions. As used in the Plan, the following terms shall have the
meanings set forth below:
"Award" shall mean any Option, Stock Appreciation Right, Limited Right,
Restricted Stock or Other Stock-Based Award.
"Award Agreement" shall mean any notice of grant, written agreement,
contract or other instrument or document evidencing any Award, which may, but
need not, be executed or acknowledged by a Participant.
"Board" shall mean the Board of Directors of the Company.
"Class A Common Stock" shall mean the Class A Common Stock, $.10 par value
per share of the Company.
"Class B Common Stock" shall mean the Class B Common Stock, $.10 par value
per share of the Company.
"Code" shall mean the Internal Revenue Code of 1986, as amended from time
to time.
"Committee" shall mean, until otherwise determined by the Board, the
Corporate Personnel Committee of the Board.
"Company" shall mean Freeport-McMoRan Copper & Gold Inc.
"Designated Beneficiary" shall mean the beneficiary designated by the
Participant, in a manner determined by the Committee, to receive the benefits
due the Participant under the Plan in the event of the Participant's death. In
the absence of an effective designation by the Participant, Designated
Beneficiary shall mean the Participant's estate.
"Eligible Individual" shall mean (i) any person providing services as an
officer of the Company or a Subsidiary, whether or not employed by such entity,
including any such person who is also a director of the Company, (ii) any
employee of the Company or a Subsidiary, including any director who is also an
employee of the Company or a Subsidiary, (iii) any officer or employee of an
entity with which the Company has contracted to receive executive, management or
legal services who provides services to the Company or a Subsidiary through such
arrangement, (iv) any consultant or adviser to the Company, a Subsidiary or to
an entity described in clause (iii) hereof who provides services to the Company
or a Subsidiary through such arrangement and (v) any person who has agreed in
writing to become a person described in clauses (i), (ii), (iii) or (iv) within
not more than 30 days following the date of grant of such person's first Award
under the Plan.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended
from time to time.
"Incentive Stock Option" shall mean an option granted under Section 6 of
the Plan that is intended to meet the requirements of Section 422 of the Code or
any successor provision thereto.
"Limited Right" shall mean any right granted under Section 8 of the Plan.
"Nonqualified Stock Option" shall mean an option granted under Section 6 of
the Plan that is not intended to be an Incentive Stock Option.
"Offer" shall mean any tender offer, exchange offer or series of purchases
or other acquisitions, or any combination of those transactions, as a result of
which any person, or any two or more persons acting as a group, and all
affiliates of such person or persons, shall beneficially own more than 40% of
all classes and series of the Company's stock outstanding, taken as a whole,
that has voting rights with respect to the election of directors of the Company
(not including any series of preferred stock of the Company that has the right
to elect directors only upon the failure of the Company to pay dividends).
"Offer Price" shall mean the highest price per Share paid in any Offer that
is in effect at any time during the period beginning on the ninetieth day prior
to the date on which a Limited Right is exercised and ending on and including
the date of exercise of such Limited Right. Any securities or property that
comprise all or a portion of the consideration paid for Shares in the Offer
shall be valued in determining the Offer Price at the higher of (i) the
valuation placed on such securities or property by the person or persons making
such Offer, or (ii) the valuation, if any, placed on such securities or property
by the Committee or the Board.
"Option" shall mean an Incentive Stock Option or a Nonqualified Stock
Option.
"Other Stock-Based Award" shall mean any right or award granted under
Section 10 of the Plan.
"Participant" shall mean any Eligible Individual granted an Award under the
Plan.
"Person" shall mean any individual, corporation, partnership, association,
joint-stock company, trust, unincorporated organization, government or political
subdivision thereof or other entity.
"Restricted Stock" shall mean any restricted stock granted under Section 9
of the Plan.
"SAR" shall mean any Stock Appreciation Right.
"SEC" shall mean the Securities and Exchange Commission, including the
staff thereof, or any successor thereto.
"Section 162(m)" shall mean Section 162(m) of the Code and all regulations
promulgated thereunder as in effect from time to time.
"Shares" shall mean the shares of Class A Common Stock and Class B Common
Stock of the Company and such other securities of the Company or a Subsidiary as
the Committee may from time to time designate.
"Stock Appreciation Right" shall mean any right granted under Section 7 of
the Plan.
"Subsidiary" shall mean (i) any corporation or other entity in which the
Company possesses directly or indirectly equity interests representing at least
50% of the total ordinary voting power or at least 50% of the total value of all
classes of equity interests of such corporation or other entity and (ii) any
other entity in which the Company has a direct or indirect economic interest
that is designated as a Subsidiary by the Committee.
SECTION 3
(a) Administration. The Plan shall be administered by the Committee.
Subject to the terms of the Plan and applicable law, and in addition to other
express powers and authorizations conferred on the Committee by the Plan, the
Committee shall have full power and authority to: (i) designate Participants;
(ii) determine the type or types of Awards to be granted to an Eligible
Individual; (iii) determine the number of Shares to be covered by, or with
respect to which payments, rights or other matters are to be calculated in
connection with, Awards; (iv) determine the terms and conditions of any Award;
(v) determine whether, to what extent, and under what circumstances Awards may
be settled or exercised in cash, whole Shares, other whole securities, other
Awards, other property or other cash amounts payable by the Company upon the
exercise of that or other Awards, or canceled, forfeited or suspended and the
method or methods by which Awards may be settled, exercised, canceled, forfeited
or suspended; (vi) determine whether, to what extent, and under what
circumstances cash, Shares, other securities, other Awards, other property, and
other amounts payable by the Company with respect to an Award shall be deferred
either automatically or at the election of the holder thereof or of the
Committee; (vii) interpret and administer the Plan and any instrument or
agreement relating to, or Award made under, the Plan; (viii) establish, amend,
suspend or waive such rules and regulations and appoint such agents as it shall
deem appropriate for the proper administration of the Plan; and (ix) make any
other determination and take any other action that the Committee deems
necessary or desirable for the administration of the Plan. Unless otherwise
expressly provided in the Plan, all designations, determinations,
interpretations and other decisions under or with respect to the Plan or any
Award shall be within the sole discretion of the Committee, may be made at any
time and shall be final, conclusive and binding upon all Persons, including the
Company, any Subsidiary, any Participant, any holder or beneficiary of any
Award, any stockholder of the Company and any Eligible Individual.
(b) Delegation. Subject to the terms of the Plan and applicable law, the
Committee may delegate to one or more officers of the Company the authority,
subject to such terms and limitations as the Committee shall determine, to
grant Awards to, or to cancel, modify or waive rights with respect to, or to
alter, discontinue, suspend, or terminate Awards held by, Eligible Individuals
who are not officers or directors of the Company for purposes of Section 16 of
the Exchange Act, or any successor section thereto, or who are otherwise not
subject to such Section.
SECTION 4
Eligibility. Any Eligible Individual shall be eligible to be granted an
Award.
SECTION 5
(a) Shares Available for Awards. Subject to adjustment as provided in
Section 5(b):
(i) Calculation of Number of Shares Available.
(A) Subject to the other provisions of this Section 5(a), the
number of Shares with respect to which Awards payable in Shares may be granted
under the Plan shall be 8,000,000, of which 3,200,000 shall be shares of Class
A Common Stock and 4,800,000 shall be shares of Class B Common Stock. Awards
that by their terms may be settled only in cash shall not be counted against
the maximum number of Shares provided herein.
(B) Grants of Stock Appreciation Rights, Limited Rights and
Other Stock-Based Awards not granted in tandem with Options and payable only in
cash may relate to no more than 8,000,000 Shares.
(C) The number of Shares that may be issued pursuant to
Incentive Stock Options may not exceed 8,000,000 Shares.
(D) Subject to the other provisions of this Section 5(a), the
maximum number of Shares with respect to which Awards in the form of Restricted
Stock or Other Stock-Based Awards payable in Shares for which a per share
purchase price that is less than 100% of the fair market value of the
securities to which the Award relates shall be 2,500,000 Shares.
(E) To the extent any Shares covered by an Award are not issued
because the Award is forfeited or canceled or the Award is settled in cash, such
Shares shall again be available for grant pursuant to new Awards under the Plan.
(F) In the event that Shares are issued as Restricted Stock or
Other Stock-Based Awards under the Plan and thereafter are forfeited or
reacquired by the Company pursuant to rights reserved upon issuance thereof,
such Shares shall again be available for grant pursuant to new Awards under the
Plan.
(G) If the exercise price of any Option is satisfied by
tendering Shares to the Company, only the number of Shares issued net of the
Shares tendered shall be deemed issued for purposes of determining the maximum
number of Shares available for issuance under Section 5(a)(i)(A). However, all
of the Shares issued upon exercise shall be deemed issued for purposes of
determining the maximum number of Shares that may be issued pursuant to
Incentive Stock Options.
(ii) Shares Deliverable Under Awards. Any Shares delivered pursuant
to an Award may consist of authorized and unissued Shares or of treasury Shares,
including Shares held by the Company or a Subsidiary and Shares acquired in the
open market or otherwise obtained by the Company or a Subsidiary. The issuance
of Shares may be effected on a non-certificated basis, to the extent not
prohibited by applicable law or the applicable rules of any stock exchange.
(iii) Individual Limit. Any provision of the Plan to the contrary
notwithstanding, no individual may receive in any calendar year Awards under the
Plan, whether payable in cash or Shares, that relate to more than 2,500,000
Shares.
(iv) Use of Shares. Subject to the terms of the Plan and the overall
limitation on the number of Shares that may be delivered under the Plan, the
Committee may use available Shares as the form of payment for compensation,
grants or rights earned or due under any other compensation plans or
arrangements of the Company or a Subsidiary, including, but not limited to, the
Company's Annual Incentive Plan and the plans or arrangements of the Company or
a Subsidiary assumed in business combinations.
(b) Adjustments. In the event that the Committee determines that any
dividend or other distribution (whether in the form of cash, Shares, Subsidiary
securities, other securities or other property), recapitalization, stock split,
reverse stock split, reorganization, merger, consolidation, split-up, spin-off,
combination, repurchase or exchange of Shares or other securities of the
Company, issuance of warrants or other rights to purchase Shares or other
securities of the Company, or other similar corporate transaction or event
affects the Shares such that an adjustment is determined by the Committee to be
appropriate to prevent dilution or enlargement of the benefits or potential
benefits intended to be made available under the Plan, then the Committee may,
in its sole discretion and in such manner as it may deem equitable, adjust any
or all of (i) the number and type of Shares (or other securities or property)
with respect to which Awards may be granted, (ii) the number and type of Shares
(or other securities or property) subject to outstanding Awards, and (iii) the
grant or exercise price with respect to any Award and, if deemed appropriate,
make provision for a cash payment to the holder of an outstanding Award and, if
deemed appropriate, adjust outstanding Awards to provide the rights
contemplated by Section 10(c) hereof; provided, in each case, that with respect
to Awards of Incentive Stock Options no such adjustment shall be authorized to
the extent that such authority would cause the Plan to violate Section
422(b)(1) of the Code or any successor provision thereto and, with respect to
all Awards under the Plan, no such adjustment shall be authorized to the extent
that such authority would be inconsistent with the requirements for full
deductibility under Section 162(m); and provided further, that the number of
Shares subject to any Award denominated in Shares shall always be a whole
number.
SECTION 6
(a) Stock Options. Subject to the provisions of the Plan, the Committee
shall have sole and complete authority to determine the Eligible Individuals to
whom Options shall be granted, the number of Shares to be covered by each
Option, the option price therefor and the conditions and limitations applicable
to the exercise of the Option. The Committee shall have the authority to grant
Incentive Stock Options, Nonqualified Stock Options or both. In the case of
Incentive Stock Options, the terms and conditions of such grants shall be
subject to and comply with such rules as may be required by Section 422 of the
Code, as from time to time amended, and any implementing regulations. Except
in the case of an Option granted in assumption of or substitution for an
outstanding award of a company acquired by the Company or with which the
Company combines, the exercise price of any Option granted under this Plan
shall not be less than 100% of the fair market value of the underlying Shares on
the date of grant.
(b) Exercise. Each Option shall be exercisable at such times and subject
to such terms and conditions as the Committee may, in its sole discretion,
specify in the applicable Award Agreement or thereafter, provided, however,
that in no event may any Option granted hereunder be exercisable after the
expiration of 10 years after the date of such grant. The Committee may impose
such conditions with respect to the exercise of Options, including without
limitation, any condition relating to the application of federal or state
securities laws, as it may deem necessary or advisable.
(c) Payment. No Shares shall be delivered pursuant to any exercise of an
Option until payment in full of the option price therefor is received by the
Company. Such payment may be made in cash, or its equivalent, or, if and to
the extent permitted by the Committee, by applying cash amounts payable by the
Company upon the exercise of such Option or other Awards by the holder thereof
or by tendering, by either actual delivery of Shares or by attestation, whole
Shares owned by such holder (which are not the subject of any pledge or other
security interest), or by a combination of the foregoing, provided that the
combined value of all cash, cash equivalents, cash amounts so payable by the
Company upon exercises of Awards and the fair market value of any such whole
Shares so tendered to the Company, valued (in accordance with procedures
established by the Committee) as of the effective date of such exercise, is at
least equal to such option price.
SECTION 7
(a) Stock Appreciation Rights. Subject to the provisions of the Plan, the
Committee shall have sole and complete authority to determine the Eligible
Individuals to whom Stock Appreciation Rights shall be granted, the number of
Shares to be covered by each Award of Stock Appreciation Rights, the grant
price thereof and the conditions and limitations applicable to the exercise
thereof. Stock Appreciation Rights may be granted in tandem with another
Award, in addition to another Award, or freestanding and unrelated to any other
Award. Stock Appreciation Rights granted in tandem with or in addition to an
Option or other Award may be granted either at the same time as the Option or
other Award or at a later time. Stock Appreciation Rights shall not be
exercisable after the expiration of 10 years after the date of grant. Except
in the case of a Stock Appreciation Right granted in assumption of or
substitution for an outstanding award of a company acquired by the Company or
with which the Company combines, the grant price of any Stock Appreciation
Right granted under this Plan shall not be less than 100% of the fair market
value of the Shares covered by such Stock Appreciation Right on the date of
grant or, in the case of a Stock Appreciation Right granted in tandem with a
then outstanding Option or other Award, on the date of grant of such related
Option or Award.
(b) A Stock Appreciation Right shall entitle the holder thereof to receive
upon exercise, for each Share to which the SAR relates, an amount equal to the
excess, if any, of the fair market value of a Share on the date of exercise of
the Stock Appreciation Right over the grant price. Any Stock Appreciation
Right shall be settled in cash, unless the Committee shall determine at the
time of grant of a Stock Appreciation Right that it shall or may be settled in
cash, Shares or a combination of cash and Shares.
SECTION 8
(a) Limited Rights. Subject to the provisions of the Plan, the Committee
shall have sole and complete authority to determine the Eligible Individuals to
whom Limited Rights shall be granted, the number of Shares to be covered by
each Award of Limited Rights, the grant price thereof and the conditions and
limitations applicable to the exercise thereof. Limited Rights may be granted
in tandem with another Award, in addition to another Award, or freestanding and
unrelated to any Award. Limited Rights granted in tandem with or in addition to
an Award may be granted either at the same time as the Award or at a later time.
Limited Rights shall not be exercisable after the expiration of 10 years after
the date of grant and shall only be exercisable during a period determined at
the time of grant by the Committee beginning not earlier than one day and
ending not more than ninety days after the expiration date of an Offer. Except
in the case of a Limited Right granted in assumption of or substitution for an
outstanding award of a company acquired by the Company or with which the Company
combines, the grant price of any Limited Right granted under this Plan shall
not be less than 100% of the fair market value of the Shares covered by such
Limited Right on the date of grant or, in the case of a Limited Right granted
in tandem with a then outstanding Option or other Award, on the date of grant
of such related Option or Award.
(b) A Limited Right shall entitle the holder thereof to receive upon
exercise, for each Share to which the Limited Right relates, an amount equal to
the excess, if any, of the Offer Price on the date of exercise of the Limited
Right over the grant price. Any Limited Right shall be settled in cash, unless
the Committee shall determine at the time of grant of a Limited Right that it
shall or may be settled in cash, Shares or a combination of cash and Shares.
SECTION 9
(a) Grant of Restricted Stock. Subject to the provisions of the Plan, the
Committee shall have sole and complete authority to determine the Eligible
Individuals to whom Restricted Stock shall be granted, the number of Shares to
be covered by each Award of Restricted Stock and the terms, conditions, and
limitations applicable thereto. An Award of Restricted Stock may be subject to
the attainment of specified performance goals or targets, restrictions on
transfer, forfeitability provisions and such other terms and conditions as the
Committee may determine, subject to the provisions of the Plan. An award of
Restricted Stock may be made in lieu of the payment of cash compensation
otherwise due to an Eligible Individual. To the extent that Restricted Stock
is intended to qualify as "performance- based compensation" under Section
162(m), it must meet the additional requirements imposed thereby.
(b) The Restricted Period. At the time that an Award of Restricted Stock
is made, the Committee shall establish a period of time during which the
transfer of the Shares of Restricted Stock shall be restricted (the "Restricted
Period"). Each Award of Restricted Stock may have a different Restricted
Period. A Restricted Period of at least three years is required, except that
if vesting of the Shares is subject to the attainment of specified performance
goals, a Restricted Period of one year or more is permitted. The expiration of
the Restricted Period shall also occur as provided under Section 12(a) hereof.
(c) Escrow. The Participant receiving Restricted Stock shall enter into
an Award Agreement with the Company setting forth the conditions of the grant.
Certificates representing Shares of Restricted Stock shall be registered in the
name of the Participant and deposited with the Company, together with a stock
power endorsed in blank by the Participant. Each such certificate shall bear a
legend in substantially the following form:
The transferability of this certificate and the shares of Common Stock
represented by it are subject to the terms and conditions (including
conditions of forfeiture) contained in the Freeport-McMoRan Copper &
Gold Inc. 1999 Stock Incentive Plan (the "Plan") and a notice of grant
issued thereunder to the registered owner by Freeport-McMoRan Copper
& Gold Inc. Copies of the Plan and the notice of grant are on file at
the principal office of Freeport-McMoRan Copper & Gold Inc.
(d) Dividends on Restricted Stock. Any and all cash and stock dividends
paid with respect to the Shares of Restricted Stock shall be subject to any
restrictions on transfer, forfeitability provisions or reinvestment
requirements as the Committee may, in its discretion, prescribe in the Award
Agreement.
(e) Forfeiture. In the event of the forfeiture of any Shares of
Restricted Stock under the terms provided in the Award Agreement (including any
additional Shares of Restricted Stock that may result from the reinvestment of
cash and stock dividends, if so provided in the Award Agreement), such
forfeited shares shall be surrendered and the certificates canceled. The
Participants shall have the same rights and privileges, and be subject to the
same forfeiture provisions, with respect to any additional Shares received
pursuant to Section 5(b) or Section 11(b) due to a recapitalization, merger or
other change in capitalization.
(f) Expiration of Restricted Period. Upon the expiration or termination
of the Restricted Period and the satisfaction of any other conditions prescribed
by the Committee or at such earlier time as provided for in Section 9(b) and in
the Award Agreement or an amendment thereto, the restrictions applicable to the
Restricted Stock shall lapse and a stock certificate for the number of Shares
of Restricted Stock with respect to which the restrictions have lapsed shall be
delivered, free of all such restrictions and legends, except any that may be
imposed by law, to the Participant or the Participant's estate, as the case may
be.
(g) Rights as a Shareholder. Subject to the terms and conditions of the
Plan and subject to any restrictions on the receipt of dividends that may be
imposed in the Award Agreement, each Participant receiving Restricted Stock
shall have all the rights of a shareholder with respect to Shares of stock
during any period in which such Shares are subject to forfeiture and
restrictions on transfer, including without limitation, the right to vote such
Shares.
(h) Performance-Based Restricted Stock. The Committee shall determine at
the time of grant if a grant of Restricted Stock is intended to qualify as
"performance- based compensation" as that term is used in Section 162(m). Any
such grant shall be conditioned on the achievement of one or more performance
measures. The performance measures pursuant to which the Restricted Stock
shall vest shall be any or a combination of the following: earnings per share,
return on assets, an economic value added measure, shareholder return,
earnings, return on equity, return on investment, cash provided by operating
activities, increase in cash flow, or increase in production of the Company, a
division of the Company or a Subsidiary. For any performance period, such
performance objectives may be measured on an absolute basis or relative to a
group of peer companies selected by the Committee, relative to internal goals
or relative to levels attained in prior years. For grants of Restricted Stock
intended to qualify as "performance-based compensation," the grants of
Restricted Stock and the establishment of performance measures shall be made
during the period required under Section 162(m).
SECTION 10
(a) Other Stock-Based Awards. The Committee is hereby authorized to grant
to Eligible Individuals an "Other Stock-Based Award," which shall consist of an
Award, the value of which is based in whole or in part on the value of Shares,
that is not an instrument or Award specified in Sections 6 through 9 of this
Plan. Other Stock-Based Awards may be awards of Shares or may be denominated
or payable in, valued in whole or in part by reference to, or otherwise based
on or related to, Shares (including, without limitation, restricted stock units
or securities convertible or exchangeable into or exercisable for Shares), as
deemed by the Committee consistent with the purposes of the Plan. The Committee
shall determine the terms and conditions of any such Other Stock-Based Award
and may provide that such awards would be payable in whole or in part in cash.
An Other Stock-Based Award may be subject to the attainment of such specified
performance goals or targets as the Committee may determine, subject to the
provisions of the Plan. To the extent that an Other Stock-Based Award is
intended to qualify as "performance-based compensation" under Section 162(m), it
must meet the additional requirements imposed thereby. Except in the case of an
Other Stock- Based Award granted in assumption of or in substitution for an
outstanding award of a company acquired by the Company or with which the
Company combines, the price at which securities may be purchased pursuant to
any Other Stock-Based Award granted under this Plan, or the provision, if any,
of any such Award that is analogous to the purchase or exercise price, shall
not be less than 100% of the fair market value of the securities to which such
Award relates on the date of grant. An Other-Stock Based Award, including an
outright grant of Shares, may be made in lieu of the payment of cash
compensation otherwise due to an Eligible Individual.
(b) Performance-Based Other Stock-Based Awards. The Committee shall
determine at the time of grant if the grant of an Other Stock-Based Award is
intended to qualify as "performance-based compensation" as that term is used in
Section 162(m). Any such grant shall be conditioned on the achievement of one
or more performance measures. The performance measures pursuant to which the
Other Stock-Based Award shall vest shall be any or a combination of the
following: earnings per share, return on assets, an economic value added
measure, shareholder return, earnings, return on equity, return on investment,
cash provided by operating activities, increase in cash flow, or increase in
production of the Company, a division of the Company or a Subsidiary. For any
performance period, such performance objectives may be measured on an absolute
basis or relative to a group of peer companies selected by the Committee,
relative to internal goals or relative to levels attained in prior years. For
grants of Other Stock-Based Awards intended to qualify as "performance-based
compensation," the grants of Other Stock-Based Awards and the establishment of
performance measures shall be made during the period required under Section
162(m).
(c) Dividend Equivalents. In the sole and complete discretion of the
Committee, an Award, whether made as an Other Stock-Based Award under this
Section 10 or as an Award granted pursuant to Sections 6 through 9 hereof, may
provide the holder thereof with dividends or dividend equivalents, payable in
cash, Shares, Subsidiary securities, other securities or other property on a
current or deferred basis.
SECTION 11
(a) Amendments to the Plan. The Board may amend, suspend or terminate the
Plan or any portion thereof at any time, provided that no amendment shall be
made without stockholder approval if such approval is necessary to comply with
any tax or regulatory requirement, including for these purposes any approval
necessary to qualify Awards as "performance based" compensation under Section
162(m) or any successor provision if such qualification is deemed necessary or
advisable by the Committee. Notwithstanding anything to the contrary contained
herein, the Committee may amend the Plan in such manner as may be necessary for
the Plan to conform with local rules and regulations in any jurisdiction
outside the United States.
(b) Adjustment of Awards Upon the Occurrence of Certain Unusual or
Nonrecurring Events. The Committee is hereby authorized to make adjustments in
the terms and conditions of, and the criteria included in, Awards in
recognition of unusual or nonrecurring events (including, without limitation,
the events described in Section 5(b) hereof) affecting the Company, or the
financial statements of the Company or any Subsidiary, or of changes in
applicable laws, regulations, or accounting principles, whenever the Committee
determines that such adjustments are appropriate to prevent dilution or
enlargement of the benefits or potential benefits intended to be made available
under the Plan.
(c) Cancellation. Any provision of this Plan or any Award Agreement to
the contrary notwithstanding, the Committee may cause any Award granted
hereunder to be canceled in consideration of a cash payment or alternative
Award made to the holder of such canceled Award equal in value to such canceled
Award. Notwithstanding the foregoing, no Options granted under the Plan shall
be repriced without the approval of the stockholders of the Company. The
determinations of value under this subparagraph shall be made by the Committee
in its sole discretion.
SECTION 12
(a) Award Agreements. Each Award hereunder shall be evidenced by an
agreement or notice delivered to the Participant (by paper copy or
electronically) that shall specify the terms and conditions thereof and any
rules applicable thereto, including but not limited to the effect on such Award
of the death, retirement or other termination of employment or cessation of
consulting or advisory services of the Participant and the effect thereon, if
any, of a change in control of the Company.
(b) Withholding. (i) A Participant may be required to pay to the
Company, and the Company shall have the right to deduct from all amounts paid to
a Participant (whether under the Plan or otherwise), any taxes required by law
to be paid or withheld in respect of Awards hereunder to such Participant. The
Committee may provide for additional cash payments to holders of Awards to
defray or offset any tax arising from the grant, vesting, exercise or payment
of any Award.
(ii) At any time that a Participant is required to pay to the Company
an amount required to be withheld under the applicable tax laws in connection
with the issuance of shares of Common Stock under the Plan, the Participant
may, if permitted by the Committee, satisfy this obligation in whole or in part
by electing (the "Election") to have the Company withhold from the issuance
shares of Common Stock having a value equal to the amount required to be
withheld. The value of the shares withheld shall be based on the fair market
value of the Common Stock on the date that the amount of tax to be withheld
shall be determined in accordance with applicable tax laws (the "Tax Date").
(iii) Each Election must be made prior to the Tax Date. The
Committee may suspend or terminate the right to make Elections at any time.
(iv) A Participant may also satisfy his or her total tax liability
related to the Award by delivering Shares owned by the Participant. The value
of the Shares delivered shall be based on the fair market value of the Shares
on the Tax Date.
(c) Transferability. No Awards granted hereunder may be transferred,
pledged, assigned or otherwise encumbered by a Participant except: (i) by will;
(ii) by the laws of descent and distribution; (iii) pursuant to a domestic
relations order, as defined in the Code, if permitted by the Committee and so
provided in the Award Agreement or an amendment thereto; or (iv) if permitted
by the Committee and so provided in the Award Agreement or an amendment
thereto, Options and Limited Rights granted in tandem therewith may be
transferred or assigned (a) to Immediate Family Members, (b) to a partnership
in which Immediate Family Members, or entities in which Immediate Family
Members are the owners, members or beneficiaries, as appropriate, are the
partners, (c) to a limited liability company in which Immediate Family Members,
or entities in which Immediate Family Members are the owners, members or
beneficiaries, as appropriate, are the members, or (d) to a trust for the
benefit of Immediate Family Members; provided, however, that no more than a de
minimus beneficial interest in a partnership, limited liability company or
trust described in (b), (c) or (d) above may be owned by a person who is not an
Immediate Family Member or by an entity that is not beneficially owned solely
by Immediate Family Members. "Immediate Family Members" shall be defined as
the spouse and natural or adopted children or grandchildren of the Participant
and their spouses. To the extent that an Incentive Stock Option is permitted to
be transferred during the lifetime of the Participant, it shall be treated
thereafter as a Nonqualified Stock Option. Any attempted assignment, transfer,
pledge, hypothecation or other disposition of Awards, or levy of attachment or
similar process upon Awards not specifically permitted herein, shall be null
and void and without effect. The designation of a Designated Beneficiary shall
not be a violation of this Section 12(c).
(d) Share Certificates. All certificates for Shares or other securities
delivered under the Plan pursuant to any Award or the exercise thereof shall be
subject to such stop transfer orders and other restrictions as the Committee
may deem advisable under the Plan or the rules, regulations, and other
requirements of the SEC, any stock exchange upon which such Shares or other
securities are then listed, and any applicable federal or state laws, and the
Committee may cause a legend or legends to be put on any such certificates to
make appropriate reference to such restrictions.
(e) No Limit on Other Compensation Arrangements. Nothing contained in the
Plan shall prevent the Company from adopting or continuing in effect other
compensation arrangements, which may, but need not, provide for the grant of
options, stock appreciation rights, restricted stock, and other types of Awards
provided for hereunder (subject to stockholder approval of any such arrangement
if approval is required), and such arrangements may be either generally
applicable or applicable only in specific cases.
(f) No Right to Employment. The grant of an Award shall not be construed
as giving a Participant the right to be retained in the employ of or as a
consultant or adviser to the Company or any Subsidiary or in the employ of or
as a consultant or adviser to any other entity providing services to the
Company. The Company or any Subsidiary or any such entity may at any time
dismiss a Participant from employment, or terminate any arrangement pursuant to
which the Participant provides services to the Company or a Subsidiary, free
from any liability or any claim under the Plan, unless otherwise expressly
provided in the Plan or in any Award Agreement. No Eligible Individual or
other person shall have any claim to be granted any Award, and there is no
obligation for uniformity of treatment of Eligible Individuals, Participants or
holders or beneficiaries of Awards.
(g) Governing Law. The validity, construction, and effect of the Plan,
any rules and regulations relating to the Plan and any Award Agreement shall be
determined in accordance with the laws of the State of Delaware.
(h) Severability. If any provision of the Plan or any Award is or becomes
or is deemed to be invalid, illegal, or unenforceable in any jurisdiction or as
to any Person or Award, or would disqualify the Plan or any Award under any law
deemed applicable by the Committee, such provision shall be construed or deemed
amended to conform to applicable laws, or if it cannot be construed or deemed
amended without, in the determination of the Committee, materially altering the
intent of the Plan or the Award, such provision shall be stricken as to such
jurisdiction, Person or Award and the remainder of the Plan and any such Award
shall remain in full force and effect.
(i) No Trust or Fund Created. Neither the Plan nor any Award shall
create or be construed to create a trust or separate fund of any kind or a
fiduciary relationship between the Company and a Participant or any other
Person. To the extent that any Person acquires a right to receive payments
from the Company pursuant to an Award, such right shall be no greater than the
right of any unsecured general creditor of the Company.
(j) No Fractional Shares. No fractional Shares shall be issued or
delivered pursuant to the Plan or any Award, and the Committee shall determine
whether cash, other securities or other property shall be paid or transferred
in lieu of any fractional Shares or whether such fractional Shares or any
rights thereto shall be canceled, terminated, or otherwise eliminated.
(k) Headings. Headings are given to the subsections of the Plan solely as
a convenience to facilitate reference. Such headings shall not be deemed in any
way material or relevant to the construction or interpretation of the Plan or
any provision thereof.
SECTION 13
Term of the Plan. Subject to Section 11(a), the Plan shall remain in
effect until all Awards permitted to be granted under the Plan have either been
satisfied, expired or canceled under the terms of the Plan and any restrictions
imposed on Shares in connection with their issuance under the Plan have lapsed.
Exhibit 15.1
July 20, 1999
Freeport-McMoRan Copper & Gold Inc.
1615 Poydras St.
New Orleans, LA 70112
Gentlemen,
We are aware that Freeport-McMoRan Copper & Gold Inc. has incorporated
by reference in its Registration Statements (File Nos. 33-63271, 33-63269,
33-63267, 33-45787, 33-52503, 33-63376, and 333-02699) its Form 10-Q for
the quarter ended June 30, 1999, which includes our report dated July 20,
1999 covering the unaudited interim financial information contained
therein. Pursuant to Regulation C of the Securities Act of 1933 (the Act),
this report is not considered a part of the registration statements
prepared or certified by our firm or a report prepared or certified by
our firm within the meaning of Sections 7 and 11 of the Act.
Very truly yours,
/s/ Arthur Andersen LLP
Arthur Andersen LLP
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from
Freeport-McMoRan Copper & Gold Inc. unaudited financial statements
at June 30, 1999 and for the six months then ended, and is qualified
in its entirety by refernce to such financial statements.
</LEGEND>
<CIK> 0000831259
<NAME> FREEPORT-MCMORAN COPPER & GOLD INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 4,562
<SECURITIES> 0
<RECEIVABLES> 163,799
<ALLOWANCES> 0
<INVENTORY> 323,675
<CURRENT-ASSETS> 526,356
<PP&E> 4,882,306
<DEPRECIATION> 1,480,644
<TOTAL-ASSETS> 4,086,686
<CURRENT-LIABILITIES> 508,149
<BONDS> 2,163,767
500,007
349,990
<COMMON> 21,853
<OTHER-SE> (239,493)
<TOTAL-LIABILITY-AND-EQUITY> 4,086,686
<SALES> 886,171
<TOTAL-REVENUES> 886,171
<CGS> 576,423
<TOTAL-COSTS> 576,423
<OTHER-EXPENSES> 5,106
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 98,223
<INCOME-PRETAX> 157,701
<INCOME-TAX> 82,292
<INCOME-CONTINUING> 53,987
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 53,987
<EPS-BASIC> .22
<EPS-DILUTED> .22
</TABLE>
