Item 3. Legal Proceedings. - ---------------------------
Although FCX may be from time to time involved in various legal proceedings of a character normally incident to the ordinary course of its business, the management of FCX believes that potential liability in any such pending or threatened proceedings would not have a material adverse effect on the financial condition or results of operations of FCX. FCX, through FTX, 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 coverages customary in its business, with such coverage limits as management deems prudent.
Item 4.
Item 4. Submission of Matters to a Vote of Security Holders. - -------------------------------------------------------------
Not applicable.
Executive Officers of the Registrant. - -------------------------------------
In addition to the elected executive officers of FCX (the "Elected FCX Executive Officers"), certain employees of affiliates of FCX are deemed by FCX to be executive officers of FCX (the "Designated FCX Executive Officers") for purposes of the federal securities laws. Listed below are the names and ages, as of March 15, 1994, of each of the Elected FCX Executive Officers and the Designated FCX Executive Officers, together with the principal positions and offices with FCX, FTX, and PT-FI held by each. All officers of FCX, FTX, and PT-FI are elected or appointed for one year terms, subject to death, resignation or removal.
Name Age Position or Office ---- --- ------------------
Richard C. Adkerson 47 Senior Vice President of FCX. Senior Vice President of FTX. Commissioner of PT-FI.
John G. Amato 50 General Counsel of FCX. General Counsel of FTX. Commissioner of PT-FI.
Richard H. Block* 43 Senior Vice President of FTX.
Thomas J. Egan* 49 Senior Vice President of FTX.
Charles W. Goodyear 36 Senior Vice President of FCX. Senior Vice President of FTX. Commissioner of PT-FI.
Hoediatmo Hoed* 54 President Director of PT-FI.
W. Russell King* 44 Senior Vice President of FTX.
Rene L. Latiolais* 51 Director of FCX. Director, President, and Chief Operating Officer of FTX. Commissioner of PT-FI.
George A. Mealey 60 Director, President, and Chief Executive Officer of FCX. Executive Vice President of FTX. Director and Executive Vice President of PT-FI.
James R. Moffett 55 Director and Chairman of the Board of FCX. Director, Chairman of the Board, and Chief Executive Officer of FTX. President Commissioner of PT-FI.
- -------------------- * This individual is a Designated FCX Executive Officer and not an Elected FCX Executive Officer. He is deemed by FCX to be a Designated FCX Executive Officer solely for purposes of the federal securities laws in view of his position and responsibilities as an officer of FTX or PT- FI, as applicable; he holds no actual position as an officer of FCX.
The individuals listed above, with the exceptions of Messrs. Adkerson, Amato, and Goodyear, have served FCX, FTX, or PT-FI in various executive capacities for at least the last five years. Until 1989, Mr. Adkerson was a partner in Arthur Andersen & Co., an independent public accounting firm, and Mr. Goodyear was a Vice President of Kidder, Peabody & Co. Incorporated, an investment banking firm. During the past five years and prior to that period, Mr. Amato has been engaged in the private practice of law and has served as outside counsel to FCX, FTX, and PT-FI.
PART II -------
Item 5.
Item 5. Market for Registrant's Common Equity and Related Stockholder - ----------------------------------------------------------------------------- Matters. --------
The information set forth under the caption "FCX Class A Common Shares" and "Class A Common Share Dividends", on the inside back cover of FCX's 1993 Annual Report to stockholders, is incorporated herein by reference. As of March 15, 1994, there were 2,355 record holders of FCX's Class A common stock.
Item 6.
Item 6. Selected Financial Data. - ---------------------------------
The Information set forth under the caption "Selected Financial and Operating Data", on page 17 of FCX's 1993 Annual Report to stockholders, is incorporated herein by reference.
FCX's ratio of earnings to fixed charges for each of the years 1989 through 1993, inclusive, was 27.6x, 9.2x, 4.5x, 6.5x and 3.6x respectively. For this calculation, earnings consist of income from continuing operations before income taxes, minority interest and fixed charges. Fixed charges include interest and that portion of rent deemed representative of interest.
Item 7.
Item 7. Management's Discussion and Analysis of Financial - ----------------------------------------------------------------- Condition and Results of Operations. -----------------------------------
ORE RESERVE ADDITIONS AND ONGOING EXPLORATION PROGRAM Total estimated proved and probable recoverable reserves at P.T. Freeport Indonesia Company (PT-FI), Freeport-McMoRan Copper & Gold Inc.'s (FCX or the Company) principal operating unit, have increased since December 31, 1992, by 5.9 billion pounds of copper (a 28 percent increase), 7.0 million ounces of gold (a 22 percent increase), and 32.0 million ounces of silver (a 72 percent increase), bringing PT-FI's total year-end 1993 estimated proved and probable recoverable reserves to 26.8 billion pounds of copper, 39.1 million ounces of gold and 76.7 million ounces of silver. The increases, net of production during the year, were added primarily at the Grasberg deposit, but also include additions at the Company's underground mine at the DOZ (Deep Ore Zone) deposit and the recently discovered Big Gossan deposit.
In addition to continued delineation of the Grasberg deposit and other deposits including Big Gossan, PT-FI is proceeding with its ongoing exploration program for mineralization within the original mining area. During 1993, PT-FI initiated helicopter-supported surface drilling of the Wanagon gold/silver/copper prospect, located 1.5 miles northwest of Big Gossan and 2 miles southwest of Grasberg, where seven holes were drilled. Significant copper mineralization has been encountered below the 2,900 meter elevation.
Preliminary exploration of the new contract of work area (New COW Area) has indicated numerous promising targets. Extensive stream sediment sampling within the new acreage has generated analytical results which are being evaluated. This sampling program, when coupled with regional mapping completed on the ground and from aerial photographs, has led to the outlining of over 50 exploration targets. PT-FI has also completed a fixed-wing air-magnetometer survey of the entire New COW Area. Detailed follow-up exploration of these anomalies by additional mapping and sampling and through the use of both aerial and ground magnetic surveys is now in progress. Systematic drilling of these targets has already commenced with significant mineralization being discovered at several prospects. Additional drilling is required to determine if any of these are commercially viable. Initial surface and stream sampling began on an additional 2.5 million acres, just north and west of our existing COW area, on which an affiliate has an exploration permit and a pending COW.
1993 RESULTS OF OPERATIONS COMPARED WITH 1992
After discussions with the staff of the Securities and Exchange Commission (SEC), FCX is reclassifying certain expenses and accruals previously recorded in 1993 as restructuring and valuation of assets. In response to inquiries, the Company advised the SEC staff that $15.5 million originally reported as restructuring and valuation of assets represented the cumulative effect of changes in accounting principle resulting from the adoption of the new accounting policies that the Company considered preferable, as described in Note 1 to the financial statements. The Company also informed the SEC staff of the components of other charges included in the amount originally reported as restructuring and valuation of assets. The Company concluded that the reclassification and the related supplemental disclosures more accurately reflect the nature of these charges to 1993 net income in accordance with generally accepted accounting principles. These reclassifications had no impact on net income or net income per share.
FCX reported 1993 net income applicable to common stock of $21.9 million ($.11 per share) compared with net income of $122.9 million ($.66 per share) for 1992. The results for 1993 reflect (a) a $15.7 million loss for Rio Tinto Minera, S.A. (RTM) since its acquisition (Note 3) and (b) charges totaling $52.6 million ($30.4 million to net income or $.15 per share), of which $28.3 million was noncash, related to (1) restructuring the administrative organization at Freeport-McMoRan Inc. (FTX), the parent company of FCX, (2) adjustments to general and administrative expenses and site production and delivery costs discussed below, and (3) changes in accounting principle, discussed further in Note 1 to the financial statements. Operating income was lower in 1993 due to a lower gross margin resulting primarily from lower copper realizations; higher exploration expenses; administrative restructuring costs (Note 1); and higher general and administrative costs. Also impacting net income were lower interest expense resulting from reduced debt levels, a higher effective tax rate, and an increase in preferred dividends (Notes 4 and 5).
Revenues in 1993 increased as a result of the acquisition of RTM, adding sales of copper cathodes and anodes ($204.9 million), gold bullion ($57.4 million), and other products ($26.1 million). Excluding RTM, revenues declined 4 percent when compared to 1992. Copper price realizations, taking into account PT-FI's $.90 per pound price protection program, were 12 percent lower than in 1992, but gold price realizations were up 6 percent. Although ore production averaged 62,300 metric tons of ore milled per day (MTPD) in 1993 (8 percent higher than in 1992), copper sales volumes decreased slightly from 1992 primarily because of sales from inventory in 1992. Gold sales volumes in 1993 benefited from significantly higher fourth-quarter 1993 gold grades (a 46 percent increase over fourth- quarter 1992 and a 38 percent increase over third-quarter 1993), which are not anticipated to continue in 1994, and an increase in gold recovery rates for the year which improve with higher gold grades. See Selected Financial and Operating Data.
A reconciliation of revenues from 1992 to 1993 is presented below (in millions):
Revenues - 1992 ........................................... $714.3 RTM revenues ........................................... 288.4 Elimination of intercompany sales.......................... (47.7) Concentrate: Price realizations: Copper ............................................... (84.7) Gold ............................................... 14.7 Sales volumes: Copper ............................................... (5.5) Gold ............................................... 30.2 Treatment charges 23.6 Adjustments to prior year concentrate sales ............. (13.0) Other ............................................... 5.6 ------ Revenues - 1993 $925.9 ======
Revenues also benefited from a decline in treatment charges of 3.4 cents per pound from 1992, resulting from a tightening in the concentrate market, as the industry's inventories were reduced for much of 1993. Additionally, lower copper prices led to lower treatment charges since these charges vary with the price of copper.
Adjustments to prior year concentrate sales include changes in prices on all metals for prior year open sales as well as the related impact on treatment charges. Open copper sales at the beginning of 1993 were recorded at an average price of $1.04 per pound, but subsequently were adjusted downward as copper prices fell during the year, negatively impacting 1993 revenues. As of December 31, 1993, 213.4 million pounds of copper remained to be contractually priced during future quotational periods. As a result of PT-FI's price protection program, discussed below, these pounds are recorded at $.90 per pound. The copper price on the London Metal Exchange (LME) was $.84 per pound on February 1, 1994.
In June 1993, two of PT-FI's four mill level ore passes caved, resulting in a blockage of a portion of the ore pass delivery system. The blockage's primary effect was to limit mill throughput to approximately 40,700 MTPD for approximately eight weeks. The impact of the blockage was minimized by using an ore stockpile adjacent to the mill and installing conveyors to alternative ore pass systems. The ore pass blockage has been rectified through the temporary use of alternative delivery systems and by- passes. A permanent delivery system is expected to be in service by mid- 1994. The copper recovery rate for 1993 was adversely affected because the ore milled from the stockpile contained higher than normal oxidized copper, which yields lower copper recoveries. The Company's insurance policies are expected to cover the property damage and business interruption claims relative to the blockage.
PT-FI's unit site production and delivery costs, excluding the $10.0 million charge discussed below, increased slightly from 1992 primarily as a result of costs incurred in connection with the ore pass blockage and an increase in production overhead costs related to expansion activities. Unit cash production costs declined significantly to 31.1 cents per pound in 1993 from 40.7 cents per pound in 1992, benefiting from higher gold and silver credits, lower treatment charges, and reduced royalties primarily due to lower copper prices on which such royalties are based. PT-FI's depreciation rate increased from 7.4 cents per recoverable pound during 1992 to 8.3 cents in 1993, reflecting the increased cost relating to the 66,000 MTPD expansion. As a result of the reserve additions discussed earlier, PT-FI's depreciation rate is expected to decrease to 7.5 cents per recoverable pound for 1994, absent any other significant changes in ore reserves. In addition, FCX is amortizing costs in excess of book value ($2.4 million of amortization in 1993) relating to certain capital stock transactions with PT-FI. Amortization of these excess costs is expected to be $3.6 million per year starting in 1994.
Exploration expenditures in Irian Jaya totaled $31.7 million in 1993, compared to $12.2 million in 1992 and are projected to be approximately $35 million in 1994. Exploration expenditures in Spain are expected to be approximately $6 million in 1994.
FCX's general and administrative expenses increased from $68.5 million in 1992 to $81.4 million in 1993 primarily because of the additional personnel and facilities needed due to the expansion at PT-FI and the acquisition of RTM. Included in the 1993 expense is $5.0 million for RTM (since its acquisition in March 1993) and charges of $6.3 million primarily consisting of a write-off of deferred charges incurred in 1992 related to a planned securities offering that was withdrawn ($2.0 million) and costs to downsize FCX's computing and management information systems (MIS) structure ($4.0 million).
Further increases in general and administrative expenses by FCX are anticipated in conjunction with continuing expansion at PT-FI. General and administrative expenses, including those of RTM, are currently expected to increase by approximately 25 percent in 1994.
During the second quarter of 1993, FTX undertook a restructuring of its administrative organization. This restructuring represented a major step by FTX to lower its costs of operating and administering its businesses in response to weak market prices of the commodities produced by its operating units. As part of this restructuring, FTX significantly reduced the number of employees engaged in administrative functions, changed its MIS environment to achieve efficiencies, reduced its needs for office space, outsourced a number of administrative functions, and implemented other actions to lower costs. As a result of this restructuring process, the level of FCX's administrative cost has been reduced substantially over what it would have been otherwise, which benefit will continue in the future. However, the restructuring process entailed incurring certain one-time costs by FTX, portions of which were allocated to FCX pursuant to its management services agreement with FTX.
FCX's restructuring costs totaled $20.8 million, including $10.7 million allocated from FTX based on historical allocations, consisting of the following: $8.3 million for personnel related costs; $3.2 million relating to excess office space and furniture and fixtures resulting from the staff reduction; $6.1 million relating to the cost to downsize its computing and MIS structure; and $3.2 million of deferred charges relating to PT-FI's 1989 credit facility which was substantially revised in June 1993. As of December 31, 1993, the remaining accrual for these restructuring costs totaled $1.5 million relating to excess office space.
In connection with the restructuring project, FCX changed its accounting systems and undertook a detailed review of its accounting records. As a result of this process, FCX recorded a $10.0 million charge to site production and delivery costs comprised of the following: $5.0 million for materials and supplies inventory obsolescence; $2.5 million for revised estimates of value added taxes and import duties related to prior years; and $2.5 million of adjustments for various items identified in converting its accounting system.
Interest expense was $15.3 million during 1993 compared with $18.9 million in 1992, excluding $24.5 million and $24.0 million of capitalized interest, respectively.
The New COW provides a 35 percent corporate income tax rate for PT-FI and a 15 percent withholding tax on interest for debt incurred after the signing of the New COW and on dividends paid to FCX by PT-FI. The additional withholding required on interest and on dividends paid to FCX by PT-FI, and a $15.7 million loss by RTM for which no tax benefit is recorded, results in a 1993 effective tax rate of 52 percent (Note 6).
TRENDS AND OUTLOOK - MARKETING
PT-FI's copper concentrates, which contain significant amounts of recoverable gold and silver, are sold primarily under long-term sales agreements which accounted for virtually all of PT-FI's 1993 sales. PT-FI has commitments from various parties to purchase virtually all of its estimated 1994 production. Concentrate sales agreements provide for provisional billings based on world metals prices, primarily the LME, generally at the time of loading. As is customary within the industry, sales under these long-term contracts usually "final-price" within a few months of shipment. Certain terms of the long-term contracts, including treatment charges, are negotiated annually on a portion of the tonnage to reflect current market conditions. Treatment charges have declined during 1993 as a result of the tightening in the concentrate market and are expected to remain at or below 1993 levels. RTM has commitments from most of its suppliers for 1994 treatment charge rates in excess of current spot market rates.
The increased production at PT-FI has required it to market its concentrate globally. Its principal markets include Japan, Asia, Europe and North America. PT-FI's mill throughput is currently forecast to be approximately 67,000 MTPD for 1994 as it continues to integrate new mill equipment for the expansion to 115,000 MTPD. Current estimates for 1994 production are approximately 700 million pounds of copper and 780,000 ounces of gold for PT-FI and 165,000 ounces of gold at RTM. RTM, whose smelter can be expanded, was acquired to provide low-cost smelter capacity for a portion of PT-FI's concentrate and to improve PT-FI's competitive position in marketing concentrate to other parties.
During 1993, copper prices dropped to their lowest levels since 1987, reflecting lower demand caused by the continuing global recession, but recovered to a level in excess of $.80 per pound. Prices for copper, gold, and silver are influenced by many factors beyond the Company's control and can fluctuate sharply. PT-FI has a price protection program for virtually all of its estimated copper sales to be priced in 1994 at an average floor price of $.90 per pound of copper, while allowing full benefit from prices above this amount. Based on projected 1994 PT-FI copper sales of approximately 720 million pounds, a 1 cent per pound change in the average annual copper price received over $.90 per pound would have an approximately $6 million effect on pretax operating income and cash flow. Based on projected 1994 gold sales of approximately 800,000 ounces by PT- FI, a $10 per ounce change in the average annual gold price received would have an approximately $8 million effect on 1994 pretax operating income and cash flow.
CAPITAL RESOURCES AND LIQUIDITY
Cash flow from operations decreased to $158.5 million during 1993 compared with $252.6 million for 1992, due primarily to lower net income and an increase in inventories. Materials and supplies increased over year-end 1992 as additional explosives, reagents and chemicals, fuel, and spare parts are required for the expanding PT-FI operations. For the year ended December 31, 1993, consolidated working capital decreased by $352.0 million from December 31, 1992, primarily as a result of a $358.0 million decrease in cash and short-term investments, which was used to reduce long- term debt and fund capital expenditures, and the negative working capital position of RTM.
Cash flow used in investing activities totaled $463.5 million compared with $579.7 million in 1992. Capital expenditures increased 23 percent in 1993 due to increased expansion activities. During 1992, FCX acquired an indirect interest in PT-FI for $211.9 million.
Cash flow used in financing activities totaled $53.1 million compared with $618.2 million provided by financing activities in 1992. FCX issued shares of its Step-Up Preferred Stock and its Gold-Denominated Preferred Stock during 1993 for net proceeds totaling $561.1 million. Net proceeds from the two offerings were used in part to reduce borrowings under the PT- FI amended credit agreement by a net $537.0 million, thereby increasing the facility's availability for general corporate purposes and the continued expansion of mining and milling operations. Also in 1993, the Company received net proceeds of $80.0 million from the sale of a portion of PT- FI's infrastructure assets (Note 10). In 1992, $212.5 million was received from the sale of a 10 percent interest in PT-FI to Indonesian investors in December 1991 and $392.0 million was received from the sale of Class A common stock and Special Preference Stock. Dividend payments rose in 1993 due to increased Class A shares outstanding and dividends paid on the Special Preference and Preferred Stock issued in 1992 and 1993. FCX called its Zero Coupon Exchangeable Notes (Note 7) for redemption in January 1994 (substantially all of which were exchanged for Class A common stock) and completed a public offering of its Gold-Denominated Preferred Stock, Series II (Note 4) which yielded net proceeds of $158.5 million to be used primarily for expansion related activities.
Cash flow from operations increased to $252.6 million during 1992 compared with $73.9 million for 1991, due primarily to higher net income. Customer accounts receivable rose by $76.1 million to $130.6 million because of increased sales. Partially offsetting the increase in receivables was an increase in accounts payable and accrued liabilities associated with expansion activities. Cash flow used in investing activities increased to $579.7 million during 1992 compared with $240.0 million for 1991, due to increased capital expenditures for the 57,000 MTPD expansion and the purchase of an indirect interest in PT-FI. Cash flow from financing activities increased $415.8 million in 1992 compared with 1991, primarily due to the sale of Class A common stock, Special Preference Stock, and a 10 percent interest in PT-FI to Indonesian investors. The proceeds from these financing activities were used to purchase an indirect interest in PT-FI and to fund ongoing expansion related expenditures.
RTM's principal operations currently consist of a copper smelter. The FCX purchase proceeds will be used by RTM for working capital requirements and capital expenditures, including funding a portion of the expansion of its smelter production capacity (expected to cost approximately $50 million) from its current 150,000 metric tons of metal per year to 180,000 metric tons of metal per year by mid-1995. RTM is also studying further expansion of the smelter facilities to as much as 270,000 metric tons of metal production per year and is assessing the opportunity to expand its tankhouse operations from 135,000 metric tons per year to 215,000 metric tons per year. RTM's 1993 cash flow from operations was negative ($5.9 million) primarily due to cash requirements related to shut-down costs for RTM's gold mine. RTM has relied on short-term credit facilities and the FCX purchase proceeds to fund this shortfall. RTM is currently evaluating financing alternatives to fund its short-term needs and to provide long- term funding for expansion. RTM's future cash flow is dependent on a number of variables including fluctuations in the exchange rate between the United States dollar and the Spanish peseta, future prices and sales volumes of gold, the size and timing of the smelter and tankhouse expansions, and the supply/demand for smelter capacity and its impact on related treatment and refining charges.
During 1992, the Company established the Enhanced Infrastructure Project (EIP). The full EIP (currently expected to involve aggregate cost of as much as $500 million to $600 million) includes plans for commercial, residential, educational, retail, medical, recreational, environmental and other infrastructure facilities to be constructed during the next 20 years for PT-FI operations. The EIP will develop and promote the growth of local and other third-party activities and enterprises in Irian Jaya through the creation of certain necessary support facilities. The initial phase of the EIP is under construction and is scheduled for completion in 1995. Additional expenditures for EIP assets beyond the initial phase depend on the long-term growth of PT-FI's operations and would be expected to be funded by third-party financing sources, which may include debt, equity or asset sales. As discussed in Note 10, certain portions of the EIP and other existing infrastructure assets are expected to be sold in the near future to provide additional funds for the expansion to 115,000 MTPD.
Through 1995, capital expenditures are expected to be greater than cash flow from operations. Upon completion of the previously announced 115,000 MTPD expansion by year-end 1995, annual production is expected to approach 1.1 billion pounds of copper and 1.5 million ounces of gold. Subsequently, capital expenditures will be determined by the results of FCX's exploration activities and ongoing capital maintenance programs. Estimated capital expenditures for 1994 and 1995 for the expansion to 115,000 MTPD, the initial phase of the EIP, ongoing capital maintenance expenditures, and the expansion of RTM's smelter to 180,000 metric tons of metal per year are expected to range from $850 million to $950 million and will be funded by operating cash flow, sales of existing and to-be- constructed infrastructure assets and a wide range of financing sources the Company believes are available as a result of the future cash flow from PT- FI's mineral reserve asset base. These sources include, but are not limited to, PT-FI's credit facility and the public and private issuances of securities (including the January 1994 public offering of Gold-Denominated Preferred Stock, Series II).
The New COW contains provisions for PT-FI to conduct or cause to be conducted a feasibility study relating to the construction of a copper smelting facility in Indonesia and for the eventual construction of such a facility, if it is deemed to be economically viable by PT-FI and the Government of Indonesia (the Government). PT-FI has participated in a group assessing the feasibility of constructing a copper smelting facility in Indonesia.
PT-FI amended its $550.0 million credit agreement in June 1993. The amended credit agreement, which, among other things eliminated a required debt service reserve and provided a lower interest rate, is guaranteed by FCX and FTX, and is structured as a three year revolving line of credit followed by a 3 1/2 year reducing revolver. As of February 1, 1994, $425.0 million was available to PT-FI under the credit facility. To the extent FTX and its other subsidiaries incur additional debt, the amount available to PT-FI under the credit facility may be reduced (Note 7).
Payment of future dividends by FCX will depend on the payment of dividends by PT-FI, which, in turn, depends on PT-FI's economic resources, profitability, cash flow and capital expenditures. It is the policy of PT- FI to maximize its dividend payments to stockholders, taking into account its operational cash needs including debt service requirements. FCX currently pays an annual cash dividend of 60 cents per share to its common shareholders. Management anticipates that this dividend will continue at this level through completion of the expansion in 1995, absent significant changes in the prices of copper and gold. However, FCX's Board of Directors determines its dividend payment on a quarterly basis and in its discretion may change or maintain the dividend payment. In determining dividend policy, the Board of Directors considers many factors, including current and expected future prices and sales volumes, future capital expenditure requirements, and the availability and cost of financing from third parties.
PT-FI has had good relations with the Government since it commenced operations in Indonesia in 1967. The New COW provides that the Government will not nationalize the mining operations of PT-FI or expropriate assets of PT-FI. Disputes under the New COW are to be resolved by international arbitration. The 1967 Foreign Capital Investment Law, which expresses Indonesia's foreign investment policy, provides basic guarantees of remittance rights and protection against nationalization, a framework for incentives and some basic rules as to other rights and obligations of foreign investors.
ENVIRONMENTAL
FTX and affiliates, including FCX, have a history of commitment to environmental responsibility. Since the 1940s, long before public attention focused on the importance of maintaining environmental quality, FTX has conducted preoperational, bioassay, marine ecological, and other environmental surveys to ensure the environmental compatibility of its operations. FTX's Environmental Policy commits FTX's operations to full compliance with local, state, and federal laws and regulations.
The Company believes it is in compliance with Indonesian environmental laws, rules, and regulations. The Company had a team of environmental scientists from a leading Indonesian scientific institution conduct a study to update its 1984 Environmental Impact Assessment that covered expansion to 66,000 MTPD. Subsequently, that document was expanded by other independent scientists to cover all environmental aspects of the current expansion to 115,000 MTPD. The latest study document was submitted to the Government in December 1993. Based on preliminary hearings, the Company believes the study document will be accepted substantially as submitted.
The Company has made, and will continue to make, expenditures at its operations for protection of the environment. Increasing emphasis on environmental matters can be expected to require the Company to incur additional costs, which will be charged against income from future operations. On the basis of its analysis of its operations in relation to current and presently anticipated environmental requirements, management does not anticipate that these investments will have a significant adverse impact on its future operations, liquidity, capital resources, or financial position.
1992 RESULTS OF OPERATIONS COMPARED WITH 1991 FCX reported 1992 net income of $122.9 million ($.66 per share) compared with 1991 net income of $96.2 million ($.53 per share). A reconciliation of revenues from 1991 to 1992 is presented below (in millions):
Revenues - 1991 .............................................. $467.5 Price realizations: Copper ..................................................... 8.8 Gold........................................................ (7.4) Sales volumes: Copper...................................................... 218.5 Gold ....................................................... 95.7 Treatment charges............................................. (73.0) Adjustments to prior year concentrate sales................... 12.5 Other......................................................... (8.3) ------ Revenues - 1992 .............................................. $714.3 ======
Revenues increased 53 percent in 1992, reflecting higher production rates due to the mine/mill expansion, higher gold grades, and the sale of all year-end 1991 inventory. Price realizations were relatively unchanged between years (2 percent increase in copper realizations and 5 percent decrease in gold realizations), but sales volumes benefited significantly from the expansion, higher gold grades, and inventory sales discussed above. Copper sales volumes increased 48 percent and gold sales volumes increased 71 percent. Partially offsetting the benefit from sales volumes increases was a 3.6 cents per pound increase in treatment charges because of tight market conditions in the smelting industry early in 1992 and increased spot market sales attributable to higher than anticipated production due to the early completion of the 57,000 MTPD expansion program. A $5.7 million upward revenue adjustment was made in 1992 compared with a $6.8 million downward revenue adjustment in 1991 for prior year concentrate sales contractually priced during the year.
Cost of sales for 1992 were $357.2 million, an increase of 47 percent from 1991 due primarily to the 48 percent increase in copper sales volumes. Unit site production and delivery costs in 1992 approximated 1991 costs. FCX's depreciation rate declined from an average 8.7 cents per recoverable pound in 1991 to 7.4 cents in 1992 because of the significant increase in ore reserves during 1991.
Interest expense was $18.9 million during 1992 compared with $21.5 million in 1991, excluding $24.0 million and $18.3 million of capitalized interest, respectively.
The 1992 general and administrative expenses rose to $68.5 million from $40.6 million in 1991, because of several financing transactions and operational and environmental studies in 1992 which required additional corporate personnel whose salaries and related overhead, were charged to the Company. General and administrative expenses also increased because of the additional personnel and facilities needed in Indonesia for the expanding operations.
Minority interest share of net income reflects FCX's 80 percent ownership interest in PT-FI for 1992, compared with its 90 percent interest during 1991.
___________________________
The results of operations reported and summarized above are not necessarily indicative of future operating results.
The information set forth under the caption "FCX Class A Common Shares" and "Class A Common Share Dividends", on the inside back cover of FCX's 1993 Annual Report to stockholders, is incorporated herein by reference. As of March 15, 1994, there were 2,355 record holders of FCX's Class A common stock.
Item 8.
Item 8. Financial Statements and Supplementary Data. - -----------------------------------------------------
The financial statements of FCX, the notes thereto, the report of management and the report thereon of Arthur Andersen & Co., appearing on pages 25 through 39, inclusive, of FCX's 1993 Annual Report to stockholders, are incorporated herein by reference.
Item 9.
Item 9. Changes in and Disagreements with Accountants on Accounting - ---------------------------------------------------------------------------- and Financial Disclosure. -------------------------
Not applicable.
PART III --------
Items 10, 11, 12, and 13. Directors and Executive Officers of the Registrant, - ------------------------------------------------------------------------------ Executive Compensation, Security Ownership of Certain Beneficial -------------------------------------------------------------------- Owners and Management, and Certain Relationships and Related ----------------------------------------------------------------- Transactions. -------------
The information set forth under the captions "Voting Procedure" and "Election of Directors", beginning on pages 1 and 5, respectively, of the Proxy Statement dated March 31, 1994, submitted to the stockholders of FCX in connection with its 1994 Annual Meeting to be held on May 5, 1994, is incorporated herein by reference.
PART IV -------
Item 14.
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K. - --------------------------------------------------------------------------
(a)(1), (a)(2), and (d). Financial Statements. See Index to Financial Statements appearing on page hereof.
(a)(3) and (c). Exhibits. See Exhibit Index beginning on page E-1 hereof.
(b). Reports on Form 8-K. No reports on Form 8-K were filed by the registrant during the fourth quarter of 1993.
SIGNATURES ----------
Pursuant to the requirements of Section 13 of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on March 29, 1994.
FREEPORT-McMoRan COPPER & GOLD INC.
BY: /s/ James R. Moffett -------------------------------- James R. Moffett Chairman of the Board
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated on March 29, 1994.
/s/ James R. Moffett Chairman of the Board and - ------------------------------ Director James R. Moffett
George A. Mealey* President, Chief Executive Officer and Director (Principal Executive Officer)
Stephen M. Jones* Vice President and Chief Financial Officer (Principal Financial Officer)
C. Donald Whitmire* Controller (Principal Accounting Officer)
Leland 0. Erdahl* Director
Ronald Grossman* Director
Rene L. Latiolais* Director
Wolfgang F. Siegel* Director
Elwin E. Smith* Director
Eiji Umene* Director
*By: /s/ James R. Moffett ------------------------------- James R. Moffett Attorney-in-Fact
------------------------------
The financial statements of FCX, the notes thereto, and the report thereon of Arthur Andersen & Co. appearing on pages 25 through 39, inclusive, of FCX's 1993 Annual Report to stockholders are incorporated by reference.
The financial statement schedules listed below should be read in conjunction with such financial statements contained in FCX's 1993 Annual Report to stockholders.
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Report of Independent Public Accountants........................ II-Amounts Receivable from Employees............................ III-Condensed Financial Information of Registrant............... V-Property, Plant and Equipment................................. VI-Accumulated Depreciation and Amortization.................... X-Supplementary Income Statement Information....................
Schedules other than those schedules listed above have been omitted since they are either not required or not applicable or the required information is included in the financial statements or notes thereof.
* * *
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ----------------------------------------
We have audited, in accordance with generally accepted auditing standards, the financial statements as of December 31, 1993 and 1992 and for each of the three years in the period ended December 31, 1993 included in Freeport-McMoRan Copper & Gold Inc.'s annual report to shareholders incorporated by reference in this Form 10-K, and have issued our report thereon dated January 25, 1994. Our audits were made for the purpose of forming an opinion on those statements taken as a whole. The schedules listed in the index above are the responsibility of the Company's management and are presented for purposes of complying with the Securities and Exchange Commission's rules and are not part of the basic financial statements. These schedules have been subjected to the auditing procedures applied in the audits of the basic financial statements and, in our opinion, fairly state in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole.
Arthur Andersen & Co.
New Orleans, Louisiana January 25, 1994
FREEPORT-McMoRan COPPER & GOLD INC. SCHEDULE II - AMOUNTS RECEIVABLE FROM EMPLOYEES for the years ended December 31, 1993, 1992 and 1991
FREEPORT-McMoRan COPPER & GOLD INC. SCHEDULE III - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
Balance Sheets December 31, ---------------------------- 1993 1992 ---------- -------- (In Thousands) ASSETS Cash and short-term investments $ 427 $174,760 Interest receivable 7,582 1,739 Receivable from Government of Indonesia 2,247 8,535 Notes receivable-PT-FI 1,064,888 458,274 Investment in PT-FI 145,959 106,169 Investment in PTII 75,601 74,401 Investment in RTM 43,254 - Other Assets 2,011 115 ---------- -------- Total assets $1,341,969 $823,993 ========== ========
LIABILITIES AND STOCKHOLDERS' EQUITY Accounts payable & accrued liabilities $ 32,468 $ 3,953 Zero coupon exchangeable notes 102,039 173,583 Amount due to FTX 12,270 - RTM stock subscription payable 12,644 - Other liabilities and deferred credits 2,001 - Mandatory Redeemable Gold-Denominated Preferred Stock 232,620 - Stockholders' equity 947,927 646,457 ------- -------- Total liabilities and stockholders' equity $1,341,969 $823,993 ========== ========
Statements of Income Years Ended December 31, ------------------------------------- 1993 1992 1991 -------- --------- -------- (In Thousands) Income from investment in PT-FI and PTII, net of PT-FI tax provision $ 53,861 $128,220 $100,472 Net loss from investment in RTM (15,666) - - Elimination of intercompany profit (6,610) - - General and administrative expenses (5,207) (4,802) (3,280) Depreciation and amortization (2,397) (200) (1,134) Interest expense (8,017) (16,518) (8,767) Interest income on PT-FI notes receivable: Zero coupon exchangeable notes 19,175 18,326 8,767 Promissory notes 9,292 11,097 - 8.235% convertible 14,036 - - Step-up perpetual convertible 12,785 - - Gold production payment loan 4,055 - - Other income (expense), net (406) 5,561 101 Provision for income taxes (24,085) (11,791) - ------- -------- -------- Net income 50,816 129,893 96,159 Preferred dividends (28,954) (7,025) - ------- -------- -------- 21,862 $122,868 $ 96,159 ======= ======== ========
FREEPORT-McMoRan COPPER & GOLD INC. SCHEDULE III - CONDENSED FINANCIAL INFORMATION OF REGISTRANT (Continued)
Statements of Cash Flow Years Ended December 31, ----------------------------- 1993 1992 1991 -------- -------- -------- (In Thousands) Cash flow from operating activities: Net income $ 50,816 $129,893 $ 96,159 Adjustments to reconcile net income to net cash provided by operating activities: Income from investment in PT-FI and PTII (53,861) (128,220) (100,472) Net loss from investment in RTM 15,666 - - Elimination of intercompany profit 6,610 - - Dividends received from PT-FI 132,048 78,214 126,330 Accretion of note receivable - PT-FI, net (9,104) (1,808) - Depreciation and amortization 2,397 200 1,134 (Increase) decrease in accounts receivable - 20,000 (20,000) Increase (decrease) in accounts payable (646) 597 (18) Other (5,959) (1,854) - -------- -------- -------- Net cash provided by operating activities 137,967 97,022 103,133 -------- -------- --------
Cash flow from investing activities: Received from Government of Indonesia 6,288 3,911 5,615 Investment in RTM (43,642) - - Investment in PTII - (211,892) - Investment in Freeport Hasa Inc. - (1) - -------- -------- -------- Net cash provided by (used in) investing activities (37,354) (207,982) 5,615 -------- -------- --------
Cash flow from financing activities: Cash dividends paid: Class A common stock (33,298) (26,088) (22,000) Class B common stock (85,277) (85,277) (78,171) Special preference stock (15,708) (4,407) - Step-Up preferred stock (5,590) - - Gold-denominated preferred stock (1,683) - - Net proceeds from issuance of zero coupon notes - - 218,560 Proceeds from Class A common stock offering - 174,142 - Proceeds from Depositary shares offerings 561,090 217,867 - Proceeds from sale of stock to Bakrie - 212,484 - Proceeds from FTX 20,650 - - Repayment to FTX (8,380) - - Loans to PT-FI (706,750) (212,484) (218,560) -------- -------- -------- Net cash provided by (used) in financing activities (274,946) 276,237 (100,171) -------- -------- -------- Net increase (decrease) in cash and short-term investments (174,333) 165,277 8,577 Cash and short-term investments at beginning of year 174,760 9,483 906 -------- -------- -------- Cash and short-term investments at end of year $ 427 $174,760 $ 9,483 ======== ======== ======== Interest paid $ 213 $ - $ - ======== ======== ======== Taxes paid $ 22,723 $ 11,762 $ - ======== ======== ======== a. The footnotes contained in FCX's 1993 Annual Report to stockholders are an integral part of these statements.
b. Effective December 31, 1991, PT-FI issued 21,300 of its shares, representing a 10 percent interest in PT-FI, to a publicly traded entity owned by Indonesian investors for $212.5 million, pursuant to an agreement negotiated in early 1991. FCX guaranteed the buyer's financing for this purchase and accordingly, deferred the gain on the sale.
In December 1992, FCX purchased approximately 49 percent of the capital stock of P.T. Indocopper Investama Corporation (PTII), a publicly traded Indonesian entity which owned 10 percent of the outstanding common stock of PT-FI. PTII acquired the 10 percent of the outstanding common stock of PT-FI from the Indonesian investors who acquired the shares on December 31, 1991. When FCX recorded its investment in PTII it utilized purchase accounting and thus eliminated the deferred gain of $138.6 million on the original sale to the Indonesian investors against the cost of the 4.9 percent indirect interest in PT-FI. The excess cost resulting from the purchase ($69.5 million) is reflected in FCX's consolidated balance sheet as property, plant and equipment and is being amortized over the remaining life of the Contract of Work (approximately 28 years), at a rate of approximately $2.4 million per year. This property, plant and equipment is included in the condensed balance sheet as part of FCX's investment in PTII.
FREEPORT-McMoRan COPPER & GOLD INC. SCHEDULE V - PROPERTY, PLANT AND EQUIPMENT for the years ended December 31, 1993, 1992, and 1991
Col. A Col. B Col. C Col. D Col. E Col. F - --------------------- ------------ --------- ----------- --------- ---------- Balance at Balance at Beginning of Additions Retirements Other-Add End of Description Period at Cost and Sales (Deduct) Period - --------------------- ------------ --------- ----------- --------- --------- (In Thousands) 1993: - ---- Exploration and development costs $ 137,576 $ 9,365 $ - $ - $ 146,941 Plant and equipment 1,306,363 751,131 (2,882) (29,331) 2,025,281 ---------- -------- ------- --------- ---------- $1,443,939 $760,496 $(2,882) $ (29,331) $2,172,222 ========== ======== ======= ========= ========== 1992: - ---- Exploration and development costs $ 135,548 $ 2,028 $ - $ - $ 137,576 Plant and equipment 876,481 365,820 (5,445) 69,507 (a) 1,306,363 ---------- -------- ------- --------- ---------- $1,012,029 $367,848 $(5,445) $ 69,507 $1,443,939 ========== ======== ======= ========= ========== 1991: - ---- Exploration and development costs $ 129,138 $ 6,410 $ - $ - $ 135,548 Plant and equipment 748,851 233,544 (3,729) (102,185)(a) 876,481 ---------- -------- ------- --------- ---------- $ 877,989 $239,954 $(3,729) $(102,185) $1,012,029 ========== ======== ======= ========= ==========
a. See note (b) on Schedule III.
FREEPORT-McMoRan COPPER & GOLD INC. SCHEDULE VI - ACCUMULATED DEPRECIATION AND AMORTIZATION for the years ended December 31, 1993, 1992, and 1991
Col. A Col. B Col. C Col. D Col. E Col. F - ------------------------- ----------- ----------- ---------- --------- ------- Balance at Additions Balance Beginning Charged to Retire- at of Costs and ments Other-Add End of Description Period Expenses(a) and Sales (Deduct) Period - ------------------------- ----------- ----------- --------- --------- ------ (In Thousands) 1993: Accumulated - ---- depreciation and amortization $450,527 $67,906 $(2,732) $ 9,918 $525,619 ======== ======= ======= ======= ========
1992: Accumulated - ---- depreciation and amortization $410,354 $48,272 $(5,438) $(2,661) $450,527 ======== ======= ======= ======= ========
1991: Accumulated - ---- depreciation and amortization $375,818 $38,397 $(3,729) $ (132) $410,354 ======== ======= ======= ======= ========
a. Mine and mill assets, including estimated future capital costs, are depreciated on the unit-of-production method while the remaining assets are depreciated on a straight-line basis.
FREEPORT-McMoRan COPPER & GOLD INC. SCHEDULE X - SUPPLEMENTARY INCOME STATEMENT INFORMATION for the years ended December 31, 1993, 1992, and 1991
Col. A Col. B - -------------------------------------- ------------------------------------ Description Charged to Costs and Expenses - -------------------------------------- ------------------------------------ 1993 1992 1991 ------- ------- ------- (In Thousands) Maintenance and repairs $78,335 $68,623 $52,061 ======= ------- -------
Taxes, other than payroll and income taxes: Value added tax $ 4,164 $ 792 $ 1,371 Shippers tax - - (12) Fiscal 259 263 60 P.I.U.D. 3,050 3,148 2,716 ------- ------- ------- $ 7,473 $ 4,203 $ 4,135 ======= ======= ======= Royalties $ 9,539 $15,708 $10,355 ======= ======= =======
Freeport-McMoRan Copper & Gold Inc.
Exhibit Index Sequentially Exhibit Numbered Number Page ------ ------------
3.1 Composite copy of the Certificate of Incorporation of FCX.
3.2 By-Laws of FCX, as amended. Incorporated by reference to Exhibit 3.2 to the Annual Report on Form 10-K of FCX for the fiscal year ended December 31, 1992 (the "FCX 1992 Form 10-K").
4.1 Certificate of Designations of the 7% Convertible Exchangeable Special Preference Stock (the "Special Preference Stock") of FCX. Incorporated by reference to Exhibit 5 to the Form 8 Amendment No. 1 dated July 16, 1992 (the "Form 8 Amendment") to the Application for Registration on Form 8-A of FCX dated July 2, 1992.
4.2 Deposit Agreement dated as of July 21, 1992 among FCX, Mellon Securities Trust Company, as Depositary, and holders of depositary receipts ("Depositary Receipts") evidencing certain Depositary Shares, each of which, in turn, represents 2-16/17 shares of Special Preference Stock. Incorporated by reference to Exhibit 2 to the Form 8 Amendment.
4.3 Form of Depositary Receipt. Incorporated by reference to Exhibit 1 to the Form 8 Amendment.
4.4 Certificate of Designations of the Step-Up Convertible Preferred Stock (the "Step-Up Convertible Preferred Stock") of FCX.
4.5 Deposit Agreement dated as of July 1, 1993 among FCX, Mellon Securities Trust Company, 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.
4.6 Form of Step-Up Depositary Receipt.
4.7 Certificate of Designations of the Gold-Denominated Preferred Stock (the "Gold-Denominated Preferred Stock") of FCX.
4.8 Deposit Agreement dated as of August 12, 1993 among FCX, Mellon Securities Trust Company, 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.
4.9 Form of Gold-Denominated Depositary Receipt.
4.10 Credit Agreement dated as of June 1, 1993 (the "PT-FI Credit Agreement") among PT-FI, the several banks which are parties thereto (the "PT-FI Banks"), Morgan Guaranty Trust Company of New York, as PT-FI Trustee (the "PT-FI Trustee"), and Chemical Bank, as agent (the "PT-FI Bank Agent").
4.11 First Amendment dated as of February 2, 1994 to the PT-FI Credit Agreement among PT-FI, the PT-FI Banks, the PT- FI Trustee and the PT-FI Bank Agent.
4.12 Second Amendment dated as of March 1, 1994 to the PT-FI Credit Agreement among PT-FI, the PT-FI Banks, the PT- FI Trustee and the PT-FI Bank Agent.
4.13 Agreement dated as of May 1, 1988 between Freeport Minerals Company and FCX assigning certain stockholder rights and obligations. Incorporated by reference to Exhibit 10.13 to Registration No. 33-20807.
10.1 Design, Engineering and Related Services Contract dated as of September 15, 1992 between PT-FI and Fluor Daniel Engineers & Constructors, Ltd. Incorporated by reference to Exhibit 10.1 to the FCX 1992 Form 10-K.
10.2 Site Services Contract dated as of September 15, 1992 between PT-FI and Fluor Daniel Eastern, Inc. Incorporated by reference to Exhibit 10.2 to the FCX 1992 Form 10-K.
10.3 Contract of Work dated December 30, 1991 between The Government of the Republic of Indonesia and PT-FI. Incorporated by reference to Exhibit 10.20 to the FCX 1991 Form 10-K.
10.4 Management Services Agreement dated as of May 1, 1988 among FCX, FII and FTX. Incorporated by reference to Exhibit 10.01 to Registration No. 33- 20807.
10.5 Concentrate Sales Agreement dated as of December 30, 1990 between FII and Dowa Mining Co., Ltd., Furukawa Co., Ltd., Mitsubishi Materials Corporation, Mitsui Mining & Smelting Co., Ltd., Nittetsu Mining Co., Ltd., Nippon Mining Co., Ltd. and Sumitomo Metal Mining Co., Ltd. (Confidential information omitted and filed separately with the Securities and Exchange Commission.) Incorporated by reference to Exhibit 10.3 to the Annual Report on Form 10-K of FCX for the fiscal year ended December 31, 1990.
12.1 FCX Computation of Ratio of Earnings to Fixed Charges.
13.1 Those portions of the 1993 Annual Report to stockholders of FCX which are incorporated herein by reference.
18.1 Letter from Arthur Andersen & Co. concerning changes in accounting principles.
21.1 Subsidiaries of FCX.
23.1 Consent of Arthur Andersen & Co. dated March 25, 1994.
24.1 Certified resolution of the Board of Directors of FCX authorizing this report to be signed on behalf of any officer or director pursuant to a Power of Attorney.
24.2 Powers of Attorney pursuant to which this report has been signed on behalf of certain officers and directors of FCX.