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 March 31, 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 March 31, 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 98,717,277 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 7
Report of Independent Public Accountants 8
Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
Part II. Other Information 18
Signature 20
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>
March 31, December 31,
1999 1998
---------- ----------
(In Thousands)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 5,357 $ 5,877
Accounts receivable 137,008 228,502
Inventories 339,523 301,404
Prepaid expenses and other 11,359 10,111
---------- ----------
Total current assets 493,247 545,894
Property, plant and equipment, net 3,437,487 3,474,451
Investment in PT-SC 73,385 80,822
Other assets 88,790 91,467
---------- ----------
Total assets $4,092,909 $4,192,634
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and
accrued liabilities $ 323,257 $ 344,906
Current portion of long-term debt
and short-term borrowings 125,092 127,804
Accrued income taxes 36,017 45,777
---------- ----------
Total current liabilities 484,366 518,487
Long-term debt, less current portion:
FCX and PT-FI credit facilities 637,000 658,000
Senior notes 570,000 570,000
Infrastructure asset financings 475,770 486,616
Rio Tinto loan 221,718 255,320
Atlantic Copper debt 258,173 283,472
Other notes payable 72,588 75,581
Accrued postretirement benefits
and other liabilities 115,882 124,073
Deferred income taxes 490,913 471,178
Minority interests 153,130 146,484
Redeemable preferred stock 500,007 500,007
Stockholders' equity 113,362 103,416
---------- ----------
Total liabilities and
stockholders' equity $4,092,909 $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
March 31,
------------------
1999 1998
-------- --------
(In Thousands, Except
Per Share Amounts)
<S> <C> <C>
Revenues $415,836 $396,132
Cost of sales:
Production and delivery 189,887 185,390
Depreciation and amortization 70,741 58,275
-------- --------
Total cost of sales 260,628 243,665
Exploration expenses 2,948 2,647
Equity in PT-SC losses 7,523 468
General and administrative
expenses 15,657 19,548
-------- --------
Total costs and expenses 286,756 266,328
-------- --------
Operating income 129,080 129,804
Interest expense, net (50,319) (48,580)
Other expense, net (2,141) (1,299)
-------- --------
Income before income taxes
and minority interests 76,620 79,925
Provision for income taxes (40,076) (37,156)
Minority interests in net
income of consolidated
subsidiaries (10,100) (7,142)
-------- --------
Net income 26,444 35,627
Preferred dividends (8,734) (9,035)
-------- --------
Net income applicable to
common stock $ 17,710 $ 26,592
======== ========
Net income per share of common stock:
Basic $.11 $.15
==== ====
Diluted $.11 $.15
==== ====
Average common shares outstanding:
Basic 164,017 181,251
======= =======
Diluted 164,017 181,374
======= =======
Dividends paid per common share $ - $.05
=== ====
</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>
Three Months Ended
March 31,
---------------------
1999 1998
-------- --------
(In Thousands)
<S> <C> <C>
Cash flow from operating activities:
Net income $ 26,444 $ 35,627
Adjustments to reconcile net income
to net cash provided by
operating activities:
Depreciation and amortization 70,741 58,275
Deferred income taxes 19,735 14,465
Equity in PT-SC losses 7,523 468
Minority interests'
share of net income 10,100 7,142
Other 7,827 (9,782)
(Increase) decrease in working capital:
Accounts receivable 82,908 (32,878)
Inventories (36,681) (240)
Prepaid expenses and other (1,248) 1,707
Accounts payable and
accrued liabilities (22,219) 12,003
Accrued income taxes (9,760) 4,265
-------- --------
(Increase) decrease in
working capital 13,000 (15,143)
-------- --------
Net cash provided by operating
activities 155,370 91,052
-------- --------
Cash flow from investing activities:
PT-FI capital expenditures (33,091) (94,741)
Atlantic Copper capital expenditures (1,882) (2,294)
Investment in PT-SC - (2,553)
-------- --------
Net cash used in investing activities (34,973) (99,588)
-------- --------
Cash flow from financing activities:
Net proceeds from (repayment
to) Rio Tinto (69,631) 3,600
Proceeds from other debt 59,118 127,863
Repayment of other debt (85,445) (45,270)
Purchase of FCX common shares (7,765) (49,485)
Cash dividends paid:
Common stock - (9,083)
Preferred stock (9,592) (9,810)
Minority interests (2,990) (2,026)
Other (4,612) (4,362)
-------- --------
Net cash provided by (used in)
financing activities (120,917) 11,427
-------- --------
Net increase (decrease)
in cash and cash equivalents (520) 2,891
Cash and cash equivalents
at beginning of year 5,877 8,959
-------- --------
Cash and cash equivalents
at end of period $ 5,357 $ 11,850
======== ========
</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
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, which represented
0.1 million shares in the first quarter of 1998. There were no
dilutive stock options during the first quarter of 1999.
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 14.2 million shares (average
exercise price of $19.36 per share) in the first quarter of 1999
and options for 10.1 million shares (average exercise price of
$22.99 per share) in the first quarter of 1998. Convertible
preferred stock outstanding was not included in the computation
of diluted net income per share of common stock because including
the conversion of these shares 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 first quarter of both 1999
and 1998.
2. FINANCIAL CONTRACTS
At times, Freeport-McMoRan Copper & Gold Inc. (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 and gold price
protection contracts relating to its mine production.
At March 31, 1999, FCX had entered into redeemable preferred
stock indexed to commodities, open foreign currency forward
contracts, open forward copper sales and purchase contracts
related to its smelter operations and interest rate swap
contracts. Redeemable preferred stock indexed to commodities 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 will be recorded as an
adjustment to revenues.
FCX hedges a portion of its anticipated Spanish peseta,
Indonesian rupiah and Australian dollar cash outflows with
foreign currency forward contracts. Changes in market value of
foreign currency forward contracts which protect anticipated
transactions are recognized in the period incurred. Atlantic
Copper, S.A., a wholly owned subsidiary of FCX (Atlantic), enters
into futures contracts to hedge its 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. P.T. Freeport Indonesia Company, FCX's majority-
owned subsidiary (PT-FI), and Atlantic have interest rate swap
contracts to limit the effect of increases in the 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. SFAS 133 requires that
changes in the derivative's fair value be recognized currently in
earnings unless specific hedge accounting criteria are met.
Special accounting for qualifying hedges allows a derivative's
gains and losses to offset related results on the hedged item in
the income statement, and requires that a company must formally
document, designate and assess the effectiveness of transactions
that receive hedge accounting treatment. SFAS 133 is effective
for fiscal years beginning after June 15, 1999, 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.
<PAGE> 6
3. INTEREST COST
Interest expense excludes capitalized interest of $0.5 million in
the first quarter of 1999 and $10.1 million in the first quarter
of 1998.
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 Co. (PT-SC) 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>
First Quarter of 1999
Revenues $ 316,875a $182,201 $(83,240)b $ 415,836
Production and delivery 130,320 164,360 (104,793)b 189,887
Depreciation and
amortization 62,330 7,294 1,117 70,741
Exploration expenses 2,483 - 465 2,948
Equity in PT-SC losses - 7,523 - 7,523
General and
administrative expenses 11,602 2,159 1,896 15,657
---------- -------- -------- ----------
Operating income $ 110,140 $ 865 $ 18,075 $ 129,080
========== ======== ======== ==========
Capital expenditures $ 33,034 $ 1,882 $ 57 $ 34,973
========== ======== ======== ==========
Total assets $3,368,222 $707,285 $ 17,402 $4,092,909
========== ======== ======== ==========
First Quarter of 1998
Revenues $ 291,312 $188,512 $(83,692)b $ 396,132
Production and delivery 104,015 165,928 (84,553)b 185,390
Depreciation and
amortization 49,000 8,215 1,060 58,275
Exploration expenses 2,309 - 338 2,647
Equity in PT-SC losses - 468 - 468
General and
administrative expenses 15,038 2,475 2,035 19,548
---------- -------- -------- ----------
Operating income $ 120,950 $ 11,426 $ (2,572) $ 129,804
========== ======== ======== ==========
Capital expenditures $ 94,532 $ 4,847 $ 209 $ 99,588
========== ======== ======== ==========
Total assets $3,469,806 $740,769 $ 10,821 $4,221,396
========== ======== ======== ==========
</TABLE>
a. Includes $24.2 million of PT-FI sales to PT-SC.
b. Represents elimination of intersegment sales from PT-FI to
Atlantic and the change in deferred profits on intersegment
sales remaining in Atlantic's concentrate inventories.
5. RATIO OF EARNINGS TO FIXED CHARGES
The ratio of earnings to fixed charges for the first three months
of 1999 and 1998 was 2.5 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> 7
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 March 31, 1999, and the related statements of income and cash
flow for the three-month periods ended March 31, 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.
/s/ARTHUR ANDERSEN LLP
New Orleans, Louisiana
April 20, 1999
<PAGE> 8
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 has a 25
percent interest in P.T. Smelting Co. (PT-SC), an Indonesian
company that 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 marketing 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 first-quarter
periods follow (in millions, except per share amounts):
<TABLE>
<CAPTION>
First Quarter
----------------
1999 1998
------ ------
<S> <C> <C>
Revenues $415.8 $396.1
Operating income 129.1 129.8
Net income applicable to common stock 17.7 26.6
Diluted net income per share of
common stock .11 .15
</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 various 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 (see "PT-FI Outlook and Price Protection Program").
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 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 first-quarter 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 price realizations.
First-quarter 1999 revenues were reduced by $1.2 million ($0.6
million to net income or less than $0.01 per share) for
adjustments to December 31, 1998 "open" concentrate sales, while
first-quarter 1998 revenues benefited by $18.0 million ($8.8
million to net income or $0.05 per share) from adjustments to
December 31, 1997 open concentrate sales.
Cost of sales for 1999 were $17.0 million higher compared
with the 1998 quarter primarily because of higher depreciation
and amortization expense associated with a higher unit
depreciation rate and higher copper sales volumes 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.
PT-SC began its start-up operations in the fourth quarter of
1998 and PT-FI records its share of PT-SC's operating losses
under the equity method. PT-FI is also eliminating profits on 25
percent of its copper concentrate sales to PT-SC until PT-SC
makes the final sale. General and administrative expenses in the
1999 period were lower primarily because of corporate
initiatives to reduce costs. Increased net interest expense
primarily reflects less capitalized interest in 1999 following
the completion of the fourth concentrator mill expansion in 1998.
The higher provision for income taxes in first-quarter 1999
compared with the 1998 period primarily reflects an increase in
interest costs at the parent company level for which there is
significantly limited tax benefit. Higher minority interest
charges in 1999 primarily reflect the consolidation of certain
PT-FI infrastructure joint ventures.
<PAGE> 9
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-SC. Summary comparative
operating income by segment for the first-quarter periods
follows (in millions):
<TABLE>
<CAPTION>
First Quarter
-----------------
1999 1998
------- -------
<S> <C> <C>
Mining and exploration $ 110.1 $ 121.0
Smelting and refining 0.9 11.4
Intercompany eliminations and other a 18.1 (2.6)
------- -------
FCX operating income $ 129.1 $ 129.8
======= =======
</TABLE>
a. Profits on intercompany sales remaining in Atlantic's
concentrate inventories are deferred. FCX recognized income
from prior period intercompany sales from PT-FI to Atlantic
totaling $21.9 million in the first quarter of 1999 and
$1.0 million in the first quarter of 1998. 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>
First
Quarter
-------
<S> <C>
PT-FI revenues - prior year period $291.3
Increases (decreases):
Sales volumes:
Copper 45.5
Gold 52.1
Price realizations:
Copper (50.7)
Gold (3.1)
Adjustments to prior period open sales (19.4)
Treatment charges, royalties and other 1.2
------
PT-FI revenues - current year period $316.9
======
</TABLE>
PT-FI's first-quarter 1999 revenues benefited from a 20
percent increase in copper sales volumes and a 43 percent
increase in gold sales volumes, partially offset by an 18 percent
decline in copper realizations. PT-FI's 1999 revenues included
net downward adjustments on prior period open concentrate sales
of $0.8 million compared with net upward adjustments of $18.6
million in 1998. Although sales volumes were higher in the 1999
first quarter, 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.
PT-FI Sales Outlook and Price Protection Program
PT-FI has commitments from various parties, including Atlantic
and PT-SC, to purchase virtually all of its estimated 1999
production at market prices. PT-FI is providing 100 percent of
PT-SC'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.
Net of Rio Tinto's interest, PT-FI's share of sales for the
second quarter of 1999 is projected to approximate 340 million
pounds of copper and 525,000 ounces of gold. PT-FI's share of
sales for 1999 is projected to approximate 1.4 billion pounds of
copper and 2.1 million ounces of gold. Projected 1999 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
reflect the capability of the expanded mill facilities to process
large volumes of ore including lower grade material.
<PAGE> 10
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 March 31, 1999, FCX had
consolidated copper sales totaling 199.4 million pounds recorded
at an average price of $0.63 per pound remaining to be finally
priced. Approximately 84 percent of these open pounds are
expected to be finally priced during the second quarter of 1999
with the remaining pounds to be priced during the third quarter
of 1999. A one cent movement in the average price used for these
open pounds would have an approximate $1.0 million impact on
FCX's 1999 net income.
At times PT-FI has entered into financial contracts to
manage certain risks resulting from fluctuations in commodity
prices. As of March 31, 1999, PT-FI does not have any price
protection programs in place for its copper and gold sales but,
as conditions warrant, PT-FI may enter into new contracts for its
future sales.
<TABLE>
PT-FI Operating Results
<CAPTION>
First Quarter
-----------------
1999 1998
------- -------
<S> <C> <C>
Ore milled (metric tons per day, 221,700 166,000
MTPD)
Copper grade (%) 1.14 1.26
Gold grade (grams per metric ton) 1.31 1.41
Recovery rate (%)
Copper 82.3 86.9
Gold 84.9 82.8
Copper
Production (000s of recoverable pounds) 354,300a 288,900a
Sales (000s of recoverable pounds) 346,300b 288,200b
Average realized price $.64 $.78
Gold
Production (recoverable ounces) 609,800a 433,000a
Sales (recoverable ounces) 599,400b 419,800b
Average realized price $284.99 $290.12
Gross profit per pound of copper
(cents):
Average realized price 63.7 78.3
----- -----
Production costs:
Site production and delivery 37.6 35.7
Gold and silver credits (48.1) (42.1)
Treatment charges 19.6 24.6
Royalty on metals 1.5 1.1
----- -----
Cash production costs 10.6 19.3
Depreciation and amortization 18.0 17.0
----- -----
Total production costs 28.6 36.3
----- -----
Revenue adjustments c 0.1 6.4
----- -----
Gross profit per pound of copper 35.2 48.4
===== =====
</TABLE>
a. Amounts are PT-FI's share, net of Rio Tinto's interest, of
aggregate production totaling 396.7 million pounds of copper
and 731,400 ounces of gold in 1999 and 347.4 million pounds
of copper and 543,400 ounces of gold in 1998.
b. Amounts are PT-FI's share, net of Rio Tinto's interest, of
aggregate sales totaling 391.0 million pounds of copper and
722,900 ounces of gold in 1999 and 341.5 million pounds of
copper and 516,500 ounces of gold in 1998.
c. Reflects adjustments to PT-FI revenues for prior period
concentrate sales.
PT-FI's mill throughput averaged a record 221,700 MTPD for
the first quarter of 1999, as a result of its fourth concentrator
mill expansion completed in early 1998. However, as expected,
higher throughput was partly offset by lower ore grades and
copper recoveries. The lower ore grades reflect the capability
of the expanded mill facilities to process large volumes of ore
including lower grade material.
<PAGE> 11
Mill throughput rates will vary
in the future 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 in the first
quarter of 1999 averaged $0.38 per pound of copper, slightly
higher than the $0.36 per pound reported in the first quarter of
1998 primarily because of processing lower ore grades. Higher
gold volumes helped to improve gold credits compared with 1998.
Unit treatment charges were lower in the 1999 period 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, at a copper price of $0.90
or less, to 3.5 percent, at a copper price of $1.10 or more, of
copper net revenue. 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.
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.
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 $0.6 million during the first quarter of 1999
and $5.4 million during the first quarter of 1998 related to
its 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 March 31, 1999, these contracts
hedged 75.0 billion of rupiah payments through August 1999 and
52.8 million of Australian dollar payments through September
1999. The rupiah contracts are at an average exchange rate of
20,328 rupiah to one U.S. dollar and hedge approximately 40
percent of the projected rupiah payments during the period
covered. The Australian dollar contracts are at an average
exchange rate of 1.6 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 to
production costs totaling $0.9 million in the first quarter of
1999 and $1.3 million in the first quarter of 1998 related to
these contracts under its current accounting for such contracts
(see Note 2).
Assuming estimated 1999 rupiah payments of 470 billion and a
March 31, 1999 exchange rate of 8,825 rupiah to one U.S. dollar,
a one-thousand-rupiah increase in the exchange rate could result
in an approximate $5 million decrease in costs and a one-
thousand-rupiah decrease in the exchange rate could result in an
approximate $7 million increase in costs, before any hedging
effects.
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
<PAGE> 12
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 March 31, 1999,
PT-FI's share of incremental cash flow totaled $273.4 million, of
which $262.1 has been paid to Rio Tinto and $11.3 million will be
paid in the second 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 continues its exploration program in Irian Jaya, in 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.
In Block A, which contains PT-FI's mining and milling
operations, first 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.
FCX's exploration activities in the Block B and Eastern
Mining areas continue and are focused on prospects that
potentially could lead to the discovery of significant porphyry
and/or skarn-type copper-gold deposits.
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 54 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 ($5.3 million of which was incurred
through March 31, 1999). Exploration drilling is ongoing with
four to six rigs on several identified geological anomalies on
this acreage.
SMELTING AND REFINING
<TABLE>
Atlantic Operating Results
<CAPTION>
First Quarter
-----------------
1999 1998
------- -------
<S> <C> <C>
Revenues (in millions) $182.2 $188.5
Operating income (in millions) $8.4 $11.9
Concentrate treated (metric tons) 238,600 249,900
Anode production (000s of pounds) 164,000 164,000
Cathode and wire rod sales
(000s of pounds) 138,400 131,100
Gold sales in anodes and
slimes (ounces) 186,000 173,900
</TABLE>
Atlantic reported lower revenues in the 1999 period because
of lower copper and gold prices. Operating income decreased by
$3.5 million compared with the 1998 quarter, reflecting lower
treatment and refining rates and higher unit costs compared with
the 1998 quarter. Atlantic's treatment and refining rates were
significantly lower in the first quarter of 1999 ($0.22 per
pound) compared with the first-quarter of 1998 ($0.26 per pound),
reflecting current market conditions. Cathode cash production
costs of $0.13 per pound in the 1999 quarter were slightly higher
than the $0.12 per pound reported in the 1998 quarter because of
foreign currency exchange rates. Lower treatment charges, which
negatively affect Atlantic, benefit PT-FI and vice versa.
A portion of Atlantic's operating costs and certain Atlantic
asset and liability accounts are denominated in Spanish pesetas.
Based on estimated 1999 peseta payments of 15 billion and a
March 31, 1999 exchange rate of 154.9 pesetas to one U.S. dollar,
a ten-peseta increase in the exchange rate could result in an
approximate $6 million decrease in costs, before any hedging
effects. A ten-peseta decrease in the exchange rate could result
in an approximate $7 million increase in costs, before any
hedging effects. Atlantic had peseta-denominated net monetary
liabilities at March 31, 1999 totaling $85.0
<PAGE> 13
million recorded at an exchange rate of 154.9 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 of $5.7 million in the
first quarter of 1999 and $2.2 million in the first quarter 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 March 31,
1999, Atlantic had contracts, to purchase 11.1 billion Spanish
pesetas at an average exchange rate of 145.1 pesetas to one U.S.
dollar through April 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 noted above, Atlantic recorded losses to other
income related to its forward currency contracts totaling $6.5
million in the first quarter of 1999 and $2.0 million in the
first quarter of 1998.
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-SC Operating Results
PT-FI accounts for its 25 percent interest in PT-SC under the
equity method. PT-SC 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 was ignited on October 12, 1998 with first production of
copper cathode in December 1998 and first sales of copper cathode
in the first 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
first-quarter 1999 revenues include $24.2 million from sales to
PT-SC. PT-FI's share of PT-SC's net operating losses, which are
recorded as equity in PT-SC losses in the Statements of Income,
totaled $5.2 million in the first quarter of 1999 and $0.5
million in the first quarter of 1998. The deferral of
intercompany profits on 25 percent of PT-FI sales to PT-SC, for
which the final sale has not occurred, is also recorded as equity
in PT-SC losses in the Statements of Income and totaled $2.3
million in the first quarter of 1999. PT-SC 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 $5.3 million of
exploration costs in the 1999 first quarter, compared with $8.7
million in the 1998 quarter. FCX reported $2.9 million of
exploration expense in the first quarter of 1999 for its share of
exploration costs. Substantially all costs in the joint venture
areas are now being shared 60 percent by FCX and 40 percent by
Rio Tinto.
First-quarter 1999 general and administrative expenses of
$15.7 million were 19 percent lower than the $19.5 million
reported in the 1998 quarter, primarily because of corporate
initiatives to reduce costs.
FCX's total interest cost (before capitalization) decreased
by $7.9 million from $58.7 million for the 1998 quarter to $50.8
million in the 1999 quarter primarily because of lower average
interest rates. FCX capitalized $0.5 million of interest costs
in the first quarter of 1999 and $10.1 million of interest costs
in the first quarter of 1998, primarily for the fourth
concentrator mill expansion project.
FCX's effective tax rate was 52 percent for the first
quarter of 1999 and 46 percent for the first quarter of 1998.
The increase in FCX's effective tax rate results primarily from
an increase in interest expense at the parent company level for
which there is significantly limited 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
<PAGE> 14
years and has a substantial tax loss carryforward for which no
financial statement benefit has been provided.
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 $155.4 million for the first quarter of
1999, compared with $91.1 million for the 1998 period. Net cash
used in investing activities totaled $35.0 million in the 1999
period, compared with $99.6 million in the 1998 period, primarily
for PT-FI capital expenditures. Net cash used in financing
activities totaled $120.9 million in 1999 compared with net cash
provided by financing activities of $11.4 million in 1998.
Operating Activities
Lower net income in the first quarter of 1999 was offset by
working capital changes that resulted in first-quarter 1999 net
cash provided by operating activities increasing by $64.3 million
over the year-ago quarter. The net decrease in working capital
for the first quarter of 1999 primarily reflects the collection
of accounts receivable, while the net increase in working capital
for the first quarter of 1998 primarily reflects an increase in
accounts receivable.
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 $185 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 April 19, 1999).
Financing Activities
Net repayments to Rio Tinto totaled $69.6 million in the first
quarter of 1999 from PT-FI's share of incremental cash flow
attributable to the fourth concentrator mill expansion, compared
with net borrowings from Rio Tinto of $3.6 million in the first
quarter of 1998 when the fourth concentrator mill expansion first
became operational. Net repayments of other debt totaled $26.3
million in the first quarter of 1999, compared with net proceeds
of $82.6 million in the first quarter of 1998.
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 quarter of 1999, FCX acquired 0.8
million of its shares for $7.8 million (an average of $9.20 per
share) under its open market share purchase programs. During the
first quarter of 1998, FCX acquired 3.4 million of its shares for
$49.5 million (an average of $14.77 per share). From inception
of these programs through April 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 quarter 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> 15
DEVELOPMENTS IN INDONESIA
Indonesia continues to be impacted by unfavorable economic
conditions including a devalued currency, civil unrest, the
impending national parliamentary elections scheduled for June
1999 and public discussion of the degree of political and
economic autonomy that may be allowed individual provinces,
including Irian Jaya. 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 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 plan. FCX
believes all critical components of the plan are on schedule for
completion by the end of the second quarter of 1999.
The majority of computerized date-sensitive hardware and
software components used by FCX or FMS are covered by maintenance
contracts with the vendors who originally implemented them.
Almost all of these vendors have already been contacted regarding
Y2K Compliance of their products. Where necessary, software
modifications to ensure compliance will be provided by the
appropriate vendors under their maintenance contracts.
Information Technology (IT) Systems - The bulk of FCX
computerized business systems processing is provided through
commercial third party software licensed by FCX. Implementation
of the Y2K Compliant version of its enterprise asset management
and accounting software package was completed in the fourth
quarter of 1998. Modification of other critical FCX business
systems is scheduled for completion in the first half of 1999.
FMS is responsible for making changes to the systems it manages,
and modification work is scheduled for completion in the second
quarter of 1999.
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. A detailed inventory and a preliminary risk analysis
of potentially date-aware components were completed in the third
quarter of 1998. To verify the accuracy and completeness of PT-
FI's inventory, a third party engineering firm assisted in an on-
site audit of the inventory process at its operation in Irian
Jaya. During the fourth quarter, inventory compliance was
assessed using vendor provided Y2K Compliance information. This
work is substantially complete, with the exception of certain
vendors who have not yet provided definitive compliance
information regarding
<PAGE> 16
their products. During the first quarter
of 1999, compliance testing began for most critical systems and
operations regardless of their compliance status. At the same
time, remediation work began for noncompliant items. Compliance
testing and remediation work for critical items are scheduled for
completion in the second quarter of 1999.
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 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.
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
Companies, including FCX, cannot 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. 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. 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-SC operating losses, the availability of financing 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> 17
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders.
(a) The Annual Meeting of Stockholders of the Company was
held May 6, 1999 (the Annual Meeting). Proxies were solicited
pursuant to Regulation 14A under the Securities Exchange Act of
1934, as amended.
(b) At the Annual Meeting, Robert W. Bruce III, Robert A.
Day, Bobby Lee Lackey, Jonathan C. A. Leslie, Gabrielle K.
McDonald and George A. Mealey were elected to serve until the
2002 Annual Meeting of Stockholders. In addition to the
directors elected at the Annual Meeting, the terms of the
following directors continued after the Annual Meeting: Leon A.
Davis, William B. Harrison, Jr., J. Bennett Johnston, Henry A.
Kissinger, Rene L. Latiolais, James R. Moffett, B. M. Rankin, Jr.
and J. Taylor Wharton.
(c) At the Annual Meeting, holders of the Company's Class A
Common Stock and the Company's Preferred Stock, voting as a
class, elected one director with the number of votes cast for or
withheld from the nominee as follows:
<TABLE>
<CAPTION>
Name For Withheld
- ---- --- --------
<S> <C> <C>
Jonathan C. A. Leslie 60,495,505 251,613
</TABLE>
At the Annual Meeting, holders of shares of the Company's Class B
Common Stock elected five directors with the number of votes cast
for or withheld from each nominee as follows:
<TABLE>
<CAPTION>
Name For Withheld
- ---- --- ----------
<S> <C> <C>
Robert W. Bruce III 74,635,051 1,221,550
Robert A. Day 74,646,137 1,210,464
Bobby Lee Lackey 74,608,857 1,247,744
Gabrielle K. McDonald 65,027,902 10,828,699
George A. Mealey 74,636,846 1,219,755
</TABLE>
With respect to the election of directors, there were no abstentions or
broker non-votes.
At the Annual Meeting, the stockholders also voted on and
approved a proposal to ratify the appointment of Arthur Andersen
LLP to act as the independent auditors to audit the financial
statements of the Company and its subsidiaries for the year 1999.
Holders of 134,638,423 shares voted for, holders of 300,988
shares voted against and holders of 452,022 shares abstained from
voting on, such proposal. There were no broker non-votes with
respect to such proposal.
At the Annual Meeting, the stockholders voted on and
approved a proposal to adopt the Company's 1999 Stock Incentive
Plan in the form presented in the Company's proxy statement dated
March 18, 1999. Holders of 101,896,102 shares voted for, holders
of 32,418,509 shares voted against and holders of 1,076,254
shares abstained from voting on, such proposal. There were no
broker non-votes with respect to such proposal.
At the Annual Meeting, the stockholders voted on and
approved a proposal to adopt the Company's 1999 Long-Term
Performance Incentive Plan in the form presented in the Company's
proxy statement dated March 18, 1999. Holders of 125,654,716
shares voted for, holders of 8,664,390 shares voted against and
holders of 1,071,697 shares abstained from voting on, such
proposal. There were no broker non-votes with respect to such
proposal.
<PAGE> 18
At the Annual Meeting, the stockholders voted on and
rejected a stockholder proposal to eliminate the classification
of the Company's board of directors. Holders of 48,322,998
shares voted for, holders of 67,503,240 shares voted against and
holders of 1,989,669 shares abstained from voting on, such
proposal. There were broker non-votes consisting of 17,575,526
shares with respect to such proposal.
Item 6. Exhibits and Reports on Form 8-K.
(a) The exhibits to this report are listed in the
Exhibit Index 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> 19
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: May 11, 1999
<PAGE> 20
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 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.
10.19 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.
10.20 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.
10.21 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.
10.22 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.
10.23 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.
10.24 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.
10.25 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.
<PAGE> E-4
10.26 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.
10.27 Letter Agreement dated March 8, 1996 between George A.
Mealey and FCX. Incorporated by reference to Exhibit 10.22
of the FCX 1996 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 April 20, 1999 from Arthur Andersen LLP
regarding unaudited interim financial statements.
27.1 FCX Financial Data Schedule.
<PAGE> E-5
April 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 March 31, 1999, which includes our report dated April
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
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from
Freeport-McMoRan Copper & Gold Inc. unaudited financial statements at March 31,
1999 and for the three months then ended, and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<CIK> 0000831259
<NAME> FREEPORT-MCMORAN COPPER & GOLD INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 5,357
<SECURITIES> 0
<RECEIVABLES> 122,287
<ALLOWANCES> 0
<INVENTORY> 339,523
<CURRENT-ASSETS> 493,247
<PP&E> 4,847,490
<DEPRECIATION> 1,410,003
<TOTAL-ASSETS> 4,092,909
<CURRENT-LIABILITIES> 484,366
<BONDS> 2,235,249
500,007
349,990
<COMMON> 21,852
<OTHER-SE> (258,480)
<TOTAL-LIABILITY-AND-EQUITY> 4,092,909
<SALES> 415,836
<TOTAL-REVENUES> 415,836
<CGS> 260,628
<TOTAL-COSTS> 260,628
<OTHER-EXPENSES> 2,948
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 50,319
<INCOME-PRETAX> 76,620
<INCOME-TAX> 40,076
<INCOME-CONTINUING> 26,444
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 26,444
<EPS-PRIMARY> .11
<EPS-DILUTED> .11
</TABLE>
