UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended March 31, 2003
Commission file number 1-82
PHELPS DODGE CORPORATION
(a New York corporation)
13-1808503
(I.R.S. Employer Identification No.)
One North Central Avenue, Phoenix, AZ 85004
Registrant’s telephone number: (602) 366-8100
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 a check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes [X] No [ ].
Number of Common Shares outstanding at May 9, 2003: 88,986,243 shares.
-i-
PHELPS DODGE CORPORATION
Quarterly Report on Form 10-Q
For the Quarter Ended March 31, 2003
Table of Contents
| Page | ||||||
Part I. Financial Information |
||||||
Item 1. Financial Statements (unaudited) |
||||||
Statement of Consolidated Operations |
1 | |||||
Consolidated Balance Sheet |
2 | |||||
Consolidated Statement of Cash Flows |
3 | |||||
Consolidated Statement of Shareholders’ Equity |
4 | |||||
Financial Data by Business Segment |
5 | |||||
Notes to Consolidated Financial Information |
6 | |||||
Review by Independent Accountants |
19 | |||||
Report of Independent Accountants |
20 | |||||
Item 2. Management’s Discussion and Analysis |
||||||
Results of Operations |
21 | |||||
Results of Phelps Dodge Mining Company |
24 | |||||
Results of Phelps Dodge Industries |
37 | |||||
Other Matters Relating to the Statement of Consolidated Operations |
39 | |||||
Changes in Financial Condition |
40 | |||||
Item 3. Quantitative and Qualitative Disclosure About Market Risk |
42 | |||||
Item 4. Controls and Procedures |
42 | |||||
Part II. Other Information |
||||||
Item 1. Legal Proceedings |
43 | |||||
Item 6. Exhibits and Reports on Form 8-K |
43 | |||||
Signatures |
43 | |||||
Certifications |
43 | |||||
Index to Exhibits |
45 | |||||
-1-
PHELPS DODGE CORPORATION AND SUBSIDIARIES
Part I. Financial Information
Item 1. Financial Statements
STATEMENT OF CONSOLIDATED OPERATIONS
| First Quarter | |||||||||
| 2003 | 2002 | ||||||||
| (As Restated)* | |||||||||
Sales and other operating revenues |
$ | 978.0 | 918.5 | ||||||
Operating costs and expenses |
|||||||||
Cost of products sold (exclusive of items shown separately below) |
807.3 | 765.8 | |||||||
Depreciation, depletion and amortization |
101.6 | 102.9 | |||||||
Selling and general administrative expense |
32.7 | 32.2 | |||||||
Exploration and research expense |
9.6 | 8.7 | |||||||
Special items and provisions, net (see Note 4) |
(1.9 | ) | (3.8 | ) | |||||
| 949.3 | 905.8 | ||||||||
Operating income |
28.7 | 12.7 | |||||||
Interest expense |
(36.0 | ) | (52.8 | ) | |||||
Capitalized interest |
0.1 | — | |||||||
Miscellaneous income (expense), net |
0.9 | 2.0 | |||||||
Loss before taxes, minority interests, equity in net earnings of
affiliated companies and cumulative effect of accounting change |
(6.3 | ) | (38.1 | ) | |||||
Benefit (provision) for taxes on income (see Note 9) |
(15.4 | ) | 37.0 | ||||||
Minority interests in consolidated subsidiaries |
(2.1 | ) | (1.3 | ) | |||||
Equity in net earnings of affiliated companies |
0.4 | 0.5 | |||||||
Loss before cumulative effect of accounting change |
(23.4 | ) | (1.9 | ) | |||||
Cumulative effect of accounting change, net of tax of $(1.3) in 2003 and $10.1 in 2002 |
8.4 | (22.9 | ) | ||||||
Net loss |
$ | (15.0 | ) | (24.8 | ) | ||||
Preferred stock dividends |
(3.4 | ) | — | ||||||
Loss applicable to common shares |
$ | (18.4 | ) | (24.8 | ) | ||||
Average number of common shares outstanding – basic |
88.6 | 78.5 | |||||||
Basic loss per common share before cumulative effect of accounting change |
$ | (0.30 | ) | (0.03 | ) | ||||
Cumulative effect of accounting change |
0.09 | (0.29 | ) | ||||||
Basic loss per common share |
$ | (0.21 | ) | (0.32 | ) | ||||
Average number of common shares outstanding – diluted |
88.6 | 78.5 | |||||||
Diluted loss per common share before cumulative effect of accounting change |
$ | (0.30 | ) | (0.03 | ) | ||||
Cumulative effect of accounting change |
0.09 | (0.29 | ) | ||||||
Diluted loss per common share** |
$ | (0.21 | ) | (0.32 | ) | ||||
| * | Refer to Note 2 to Consolidated Financial Information. | |
| ** | Diluted loss per share would have been anti-dilutive if based on fully diluted shares adjusted to reflect the assumed conversion of mandatory convertible preferred shares to common shares and stock option exercises. |
See Notes to Consolidated Financial Information
-2-
CONSOLIDATED BALANCE SHEET
| March 31, | December 31, | |||||||||
| 2003 | 2002 | |||||||||
Assets |
||||||||||
Current assets: |
||||||||||
Cash and cash equivalents |
$ | 312.7 | 349.8 | |||||||
Accounts receivable, less allowance for doubtful
accounts (2003 - $16.4; 2002 - $14.1) |
458.0 | 391.1 | ||||||||
Mill and leach stockpiles |
48.9 | 48.9 | ||||||||
Inventories |
391.2 | 398.5 | ||||||||
Supplies |
141.4 | 142.8 | ||||||||
Prepaid expenses and other current assets |
30.9 | 26.5 | ||||||||
Deferred income taxes |
71.1 | 70.6 | ||||||||
Current assets |
1,454.2 | 1,428.2 | ||||||||
Investments and long-term receivables |
135.2 | 132.3 | ||||||||
Property, plant and equipment, net |
5,095.5 | 5,159.6 | ||||||||
Long-term mill and leach stockpiles |
64.1 | 64.3 | ||||||||
Deferred income taxes |
10.3 | 11.0 | ||||||||
Goodwill |
92.5 | 90.7 | ||||||||
Other assets and deferred charges |
144.3 | 142.9 | ||||||||
| $ | 6,996.1 | 7,029.0 | ||||||||
Liabilities |
||||||||||
Current liabilities: |
||||||||||
Short-term debt |
$ | 41.2 | 35.2 | |||||||
Current portion of long-term debt |
128.6 | 127.0 | ||||||||
Accounts payable and accrued expenses |
580.2 | 609.1 | ||||||||
Dividends payable |
3.4 | 3.4 | ||||||||
Accrued income taxes |
21.4 | 9.4 | ||||||||
Current liabilities |
774.8 | 784.1 | ||||||||
Long-term debt |
1,935.4 | 1,948.4 | ||||||||
Deferred income taxes |
431.9 | 430.8 | ||||||||
Other liabilities and deferred credits |
986.9 | 986.8 | ||||||||
| 4,129.0 | 4,150.1 | |||||||||
Minority interests in consolidated subsidiaries |
66.9 | 65.3 | ||||||||
Shareholders’ equity |
||||||||||
Common shares, par value $6.25; 200.0 shares authorized; 89.0 outstanding in 2003 and 88.9 outstanding in 2002 |
556.2 | 555.6 | ||||||||
Cumulative preferred shares, par value $1.00; 6.0 shares authorized; |
||||||||||
2.0 outstanding in 2003 and 2002 |
2.0 | 2.0 | ||||||||
Capital in excess of par value |
1,554.5 | 1,552.1 | ||||||||
Retained earnings |
1,154.9 | 1,173.3 | ||||||||
Accumulated other comprehensive loss |
(454.5 | ) | (458.5 | ) | ||||||
Other |
(12.9 | ) | (10.9 | ) | ||||||
| 2,800.2 | 2,813.6 | |||||||||
| $ | 6,996.1 | 7,029.0 | ||||||||
See Notes to Consolidated Financial Information
-3-
CONSOLIDATED STATEMENT OF CASH FLOWS
| Three Months Ended | |||||||||||
| March 31, | |||||||||||
| 2003 | 2002 | ||||||||||
| (As Restated)* | |||||||||||
Operating activities |
|||||||||||
Net loss |
$ | (15.0 | ) | (24.8 | ) | ||||||
Adjustments to reconcile net loss to net cash
provided by operating activities: |
|||||||||||
Depreciation, depletion and amortization |
101.6 | 102.9 | |||||||||
Deferred income taxes |
1.2 | 0.6 | |||||||||
Equity earnings, net of dividends received |
0.2 | (0.5 | ) | ||||||||
Special items and provisions |
(1.9 | ) | (3.3 | ) | |||||||
Cumulative effect of accounting change |
(9.7 | ) | 33.0 | ||||||||
Changes in current assets and liabilities: |
|||||||||||
Accounts receivable |
(65.1 | ) | (50.4 | ) | |||||||
Proceeds from sale of accounts receivable |
(2.4 | ) | 4.7 | ||||||||
Inventories |
8.1 | 34.9 | |||||||||
Supplies |
1.7 | (1.4 | ) | ||||||||
Prepaid expenses |
(4.5 | ) | (10.7 | ) | |||||||
Interest payable |
25.7 | 43.3 | |||||||||
Other accounts payable |
13.3 | (50.4 | ) | ||||||||
Accrued income taxes |
12.9 | 2.9 | |||||||||
Other accrued expenses |
(69.5 | ) | (27.3 | ) | |||||||
Other adjustments, net |
9.4 | 56.7 | |||||||||
Net cash provided by operating activities |
6.0 | 110.2 | |||||||||
Investing activities |
|||||||||||
Capital outlays |
(26.9 | ) | (21.4 | ) | |||||||
Capitalized interest |
(0.1 | ) | — | ||||||||
Investment in subsidiaries, net of cash received |
(0.4 | ) | (1.4 | ) | |||||||
Proceeds from asset dispositions |
0.1 | 1.2 | |||||||||
Other investing |
(0.7 | ) | (2.6 | ) | |||||||
Net cash used in investing activities |
(28.0 | ) | (24.2 | ) | |||||||
Financing activities |
|||||||||||
Proceeds from issuance of debt |
8.8 | 6.8 | |||||||||
Payment of debt |
(20.3 | ) | (24.3 | ) | |||||||
Preferred dividends |
(3.4 | ) | — | ||||||||
Other, net |
(0.2 | ) | (1.1 | ) | |||||||
Net cash used in financing activities |
(15.1 | ) | (18.6 | ) | |||||||
(Decrease) increase in cash and cash equivalents |
(37.1 | ) | 67.4 | ||||||||
Cash and cash equivalents at beginning of period |
349.8 | 386.9 | |||||||||
Cash and cash equivalents at end of period |
$ | 312.7 | 454.3 | ||||||||
| * | Refer to Note 2 to Consolidated Financial Information. |
See Notes to Consolidated Financial Information
-4-
CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY
| Common Shares | Preferred Shares | Accumulated | |||||||||||||||||||||||||||||||||||||
| Capital in | Other | ||||||||||||||||||||||||||||||||||||||
| Number | At Par | Number | At Par | Excess of | Retained | Comprehensive | Shareholders' | ||||||||||||||||||||||||||||||||
| of Shares | Value | of Shares | Value | Par Value | Earnings | Income (Loss) | Other | Equity | |||||||||||||||||||||||||||||||
Balance at December 31, 2002 |
88.9 | $ | 555.6 | 2.0 | $ | 2.0 | $ | 1,552.1 | $ | 1,173.3 | $ | (458.5 | ) | $ | (10.9 | ) | $ | 2,813.6 | |||||||||||||||||||||
Restricted shares issued/cancelled, net |
0.1 | 0.6 | 2.4 | (2.0 | ) | 1.0 | |||||||||||||||||||||||||||||||||
Dividends on preferred shares |
(3.4 | ) | (3.4 | ) | |||||||||||||||||||||||||||||||||||
Comprehensive income (loss): |
|||||||||||||||||||||||||||||||||||||||
Net loss |
(15.0 | ) | (15.0 | ) | |||||||||||||||||||||||||||||||||||
Other comprehensive income (loss), net of tax: |
|||||||||||||||||||||||||||||||||||||||
Translation adjustment |
6.4 | 6.4 | |||||||||||||||||||||||||||||||||||||
Net loss on derivative instruments |
(2.5 | ) | (2.5 | ) | |||||||||||||||||||||||||||||||||||
Other investment adjustments |
(0.2 | ) | (0.2 | ) | |||||||||||||||||||||||||||||||||||
Unrealized gains on securities |
0.3 | 0.3 | |||||||||||||||||||||||||||||||||||||