FREEPORT MCMORAN COPPER & GOLD INC - 10-Q Quarterly Report

Back to GetFilings.com



UNITED STATES
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, 2004



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 __

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Securities Exchange Act of 1934). Yes X No __

On March 31, 2004, there were issued and outstanding 177,050,488 shares of the registrant’s 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 Consolidated Balance Sheets (Unaudited)	3

Consolidated Statements of Operations (Unaudited)	4

Consolidated Statements of Cash Flows (Unaudited)	5

Notes to Consolidated Financial Statements	6

Remarks	10

Independent Accountants’ Review Report	11

Management's Discussion and Analysis of Financial Condition
and Results of Operations	12

Quantitative and Qualitative Disclosures about Market Risks	28

Controls and Procedures	28

Part II. Other Information	28

Signature	29

Exhibit Index	E-1

FREEPORT-McMoRan COPPER & GOLD INC.

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements.

FREEPORT-McMoRan COPPER & GOLD INC.

CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)

	March 31,		December 31,
	2004		2003
	(In Thousands)
ASSETS
Current assets:
Cash and cash equivalents	$	533,530	$	463,652
Restricted cash and investments		2,743		34,964
Accounts receivable		222,194		196,440
Inventories		454,944		397,027
Current taxes, prepaid expenses and other		66,358		8,050
Total current assets		1,279,769		1,100,133
Property, plant, equipment and development costs, net		3,281,406		3,261,697
Deferred mining costs		168,838		142,635
Other assets		152,836		155,722
Investment in PT Smelting		66,753		58,179
Total assets	$	4,949,602	$	4,718,366

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable and accrued liabilities	$	296,572	$	311,948
Current portion of long-term debt and short-term borrowings		87,666		152,396
Accrued interest payable		22,165		49,276
Unearned customer receipts		19,289		35,335
Rio Tinto share of joint venture cash flows		2,383		39,693
Accrued income taxes		2,281		43,134
Total current liabilities		430,356		631,782
Long-term debt, less current portion:
Senior notes		921,041		571,041
Convertible senior notes		641,543		867,604
Redeemable preferred stock		192,381		192,381
Infrastructure asset financings		174,622		187,848
Equipment and other loans		120,226		103,332
Atlantic Copper debt		58,257		153,728
Total long-term debt, less current portion		2,108,070		2,075,934
Accrued postretirement benefits and other liabilities		157,800		161,859
Deferred income taxes		934,378		885,248
Minority interests		185,940		187,559
Stockholders' equity		1,133,058		775,984
Total liabilities and stockholders' equity	$	4,949,602	$	4,718,366

The accompanying notes are an integral part of these financial statements.

FREEPORT-McMoRan COPPER & GOLD INC.

CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)

	Three Months Ended March 31,
	2004			2003
	(In Thousands, Except Per Share Amounts)
Revenues	$	360,185		$	524,596
Cost of sales:
Production and delivery		275,612			247,470
Depreciation and amortization		25,410			67,788
Total cost of sales		301,022			315,258
Exploration expenses		2,227			1,504
General and administrative expenses		15,560			16,508
Total costs and expenses		318,809			333,270
Operating income		41,376			191,326
Equity in PT Smelting earnings (losses)		(358	)		677
Interest expense, net		(33,390	)		(52,509	)
Losses on early extinguishment and conversion of debt		(14,643	)		-
Other income (expense), net		3,542			(1,619	)
Income (loss) before income taxes and minority interests		(3,473	)		137,875
Provision for income taxes		(18,341	)		(77,214	)
Minority interests in net loss (income) of consolidated subsidiaries		2,431			(10,911	)
Net income (loss) before cumulative effect of change in accounting principle		(19,383	)		49,750
Cumulative effect of change in accounting principle, net		-			9,082
Net income (loss)		(19,383	)		58,832
Preferred dividends		(168	)		(9,587	)
Net income (loss) applicable to common stock	$	(19,551	)	$	49,245

Net income (loss) per share of common stock:
Basic:
Before cumulative effect		$(0.10	)		$0.28
Cumulative effect		-			0.06
Net income (loss) per share of common stock		$(0.10	)		$0.34
Diluted:
Before cumulative effect		$(0.10	)		$0.27
Cumulative effect		-			0.06
Net income (loss) per share of common stock		$(0.10	)		$0.33
Average common shares outstanding:
Basic		197,938			145,240
Diluted		197,938			147,264

Dividends paid per common share		$0.20			$ -

The accompanying notes are an integral part of these financial statements.

FREEPORT-McMoRan COPPER & GOLD INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

	Three Months Ended March 31,
	2004			2003
Cash flow from operating activities:	(In Thousands)
Net income (loss)	$	(19,383	)	$	58,832
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation and amortization		25,410			67,788
Cumulative effect of change in accounting principle		-			(9,082	)
Losses on early extinguishment and conversion of debt		14,643			-
Deferred income taxes		50,352			17,892
Equity in PT Smelting losses (earnings)		358			(677	)
Minority interests' share of net income (loss)		(2,431	)		10,911
Increase in deferred mining costs		(26,203	)		(7,245	)
Amortization of deferred financing costs		2,289			4,031
Currency translation loss (gain)		(2,074	)		2,521
Recognition of profit on PT-Freeport Indonesia sales to PT Smelting		(8,319	)		(2,097	)
Provision for inventory obsolescence		1,500			1,500
Other		608			2,223
(Increases) decreases in working capital:
Accounts receivable		(27,294	)		(18,101	)
Inventories		(65,092	)		(7,035	)
Current taxes, prepaid expenses and other		(54,862	)		(6,244	)
Accounts payable and accrued liabilities		(35,397	)		(32,913	)
Rio Tinto share of joint venture cash flows		(38,870	)		651
Accrued income taxes		(40,739	)		(33,797	)
Increase in working capital		(262,254	)		(97,439	)
Net cash provided by (used in) operating activities		(225,504	)		49,158

Cash flow from investing activities:
PT Freeport Indonesia capital expenditures		(25,575	)		(28,948	)
Atlantic Copper capital expenditures		(8,766	)		(1,134	)
Sale of restricted investments		19,346			23,645
Decrease in Atlantic Copper restricted cash		11,000			-
Investment in PT Smelting		(614	)		-
Other		(4	)		1,931
Net cash used in investing activities		(4,613	)		(4,506	)

Cash flow from financing activities:
Net proceeds from sales of senior notes		344,509			1,046,437
Proceeds from other debt		36,265			11,510
Repayments of debt		(225,556	)		(336,933	)
Net proceeds from sale of convertible perpetual preferred stock		1,067,000			-
Repurchase of shares of common stock from Rio Tinto		(881,868	)		-
Redemption of preferred stock		(1,079	)		-
Cash dividends paid:
Common stock		(39,246	)		-
Preferred stock		-			(9,595	)
Minority interests		(472	)		-
Net proceeds from exercised stock options		2,254			2,033
Bank credit facilities fees and other		(1,812	)		(3,241	)
Net cash provided by financing activities		299,995			710,211
Net increase in cash and cash equivalents		69,878			754,863
Cash and cash equivalents at beginning of year		463,652			7,836
Cash and cash equivalents at end of period	$	533,530		$	762,699

The accompanying notes are an integral part of these financial statements.

FREEPORT-McMoRan COPPER & GOLD INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

EARNINGS PER SHARE

Freeport-McMoRan Copper & Gold Inc.’s (FCX) basic net income (loss) per share of common stock was calculated by dividing net income (loss) applicable to common stock by the weighted-average number of common shares outstanding during the period. The following is a reconciliation of net income (loss) and weighted average common shares outstanding for purposes of calculating diluted net income (loss) per share (in thousands, except per share amounts):

	Three Months Ended March 31,
	2004			2003
Net income (loss) before preferred dividends and cumulative effect of change in accounting principle	$	(19,383	)	$	49,750
Preferred dividends		(168	)		(9,587	)
Net income (loss) before cumulative effect		(19,551	)		40,163
Cumulative effect of change in accounting principle		-			9,082
Net income (loss) applicable to common stock	$	(19,551	)	$	49,245

Weighted average common shares outstanding		197,938			145,240
Add: Dilutive stock options		-			1,807
Restricted stock		-			217
Weighted average common shares outstanding for purposes of calculating diluted net income (loss) per share		197,938			147,264

Diluted net income (loss) per share of common stock:
Before cumulative effect	$	(0.10	)	$	0.27
Cumulative effect		-			0.06
Net income (loss) per share of common stock	$	(0.10	)	$	0.33

Stock options representing 3.4 million shares and unvested restricted stock representing 0.4 million shares in the first quarter of 2004, that otherwise would have been included in the first-quarter 2004 earnings per share calculation, were excluded because of the net loss reported for the period. Outstanding stock options with exercise prices greater than the average market price of the common stock during the period are excluded from the computation of diluted net income per share of common stock. In addition, FCX’s convertible preferred stock and convertible senior notes are excluded from the first three months of 2004 because of the net loss during the period and from the first three months of 2003 because including the conversion of these instruments would have increased reported diluted net income per share. A recap of the excluded amounts follows (in thousands, except exercise prices):

	Three Months Ended March 31,
	2004	2003
Weighted average outstanding options	-	7,706
Weighted average exercise price	-	$23.02

Interest on 7% Convertible Senior Notes, net of taxes^a	$10,357	$5,806
Weighted average shares issuable upon conversion^a	18,625	10,140

Interest on 8¼% Convertible Senior Notes, net of taxes^b	$1,965	$12,652
Weighted average shares issuable upon conversion	6,275	42,220

Dividends on 5½% Convertible Perpetual Preferred Stock^b	$168	-
Weighted average shares issuable upon conversion	445	-

Dividends on Step-Up Convertible Preferred Stock	-	$6,125
Weighted average shares issuable upon conversion	-	11,690

FCX’s 7% Convertible Senior Notes were issued on February 11, 2003, and are convertible into 18.6 million shares of common stock.

See Note 3 for a discussion of these securities.

Stock-Based Compensation Plans. FCX has four stock-based employee compensation plans and one stock-based director compensation plan, which are more fully described in Note 6 of FCX’s 2003 Annual Report on Form 10-K. FCX accounts for these plans under the recognition and measurement principles of Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees,” and related interpretations, which require compensation cost for stock-based employee compensation plans to be recognized based on the difference on the date of grant, if any, between the quoted market price of the stock and the amount an employee must pay to acquire the stock. The following table illustrates the effect on net income and earnings per share if FCX had applied the fair value recognition provisions of Statement of Financial Accounting Standards (SFAS) No. 123, “Accounting for Stock-Based Compensation,” which requires compensation cost for all stock-based employee compensation plans to be recognized based on the use of a fair value method (in thousands, except per share amounts):

	Three Months Ended March 31,
	2004			2003
Net income (loss) applicable to common stock, as reported	$	(19,551	)	$	49,245
Add: Stock-based employee compensation expense included in reported net income (loss) for stock option conversions and stock appreciation rights, net of taxes and minority interests		390			623
Deduct: Total stock-based emp