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, 2004
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 [ ].
- i -
PHELPS DODGE CORPORATION
Quarterly Report on Form 10-Q
For the Quarter Ended March 31, 2004
Table of Contents
- 1 -
PHELPS DODGE CORPORATION AND SUBSIDIARIES
Item 1. Financial Statements
STATEMENT OF CONSOLIDATED OPERATIONS
(Unaudited; in millions except per share data)
| First Quarter |
||||||||
| 2004 |
2003 |
|||||||
| (See Note 4) | ||||||||
Sales and other operating revenues |
$ | 1,597.0 | 978.0 | |||||
Operating costs and expenses |
||||||||
Cost of product sold (exclusive of items shown separately below) |
1,098.4 | 807.3 | ||||||
Depreciation, depletion and amortization |
124.9 | 101.6 | ||||||
Selling and general administrative expense |
38.5 | 32.7 | ||||||
Exploration and research expense |
13.6 | 9.6 | ||||||
Special items and provisions, net (see Note 3) |
6.8 | (1.9 | ) | |||||
| 1,282.2 | 949.3 | |||||||
Operating income |
314.8 | 28.7 | ||||||
Interest expense |
(39.0 | ) | (36.0 | ) | ||||
Capitalized interest |
0.1 | 0.1 | ||||||
Early debt extinguishment costs (see Note 11) |
(22.4 | ) | — | |||||
Miscellaneous income and expense, net |
2.2 | 0.9 | ||||||
Income (loss) before taxes, minority interests, equity in net earnings (losses) of
affiliated companies and cumulative effect of accounting change |
255.7 | (6.3 | ) | |||||
Provision for taxes on income (see Note 8) |
(6.2 | ) | (15.4 | ) | ||||
Minority interests in consolidated subsidiaries |
(63.6 | ) | (2.1 | ) | ||||
Equity in net earnings (losses) of affiliated companies |
(0.2 | ) | 0.4 | |||||
Income (loss) before cumulative effect of accounting change |
185.7 | (23.4 | ) | |||||
Cumulative effect of accounting change, net of tax of $(1.3) in 2003 (see Note 4) |
— | 8.4 | ||||||
Net income (loss) |
185.7 | (15.0 | ) | |||||
Preferred stock dividends |
(3.4 | ) | (3.4 | ) | ||||
Net income (loss) applicable to common shares |
$ | 182.3 | (18.4 | ) | ||||
Weighted average number of common shares outstanding – basic |
91.7 | 88.6 | ||||||
Basic earnings (loss) per common share before cumulative effect of accounting change |
$ | 1.99 | (0.30 | ) | ||||
Cumulative effect of accounting change |
— | 0.09 | ||||||
Basic earnings (loss) per common share |
$ | 1.99 | (0.21 | ) | ||||
Weighted average number of common shares outstanding – diluted* |
97.9 | 88.6 | ||||||
Diluted earnings (loss) per common share before cumulative effect of accounting change |
$ | 1.90 | (0.30 | ) | ||||
Cumulative effect of accounting change |
— | 0.09 | ||||||
Diluted earnings (loss) per common share |
$ | 1.90 | (0.21 | ) | ||||
| * | Diluted earnings (loss) per common share would have been anti-dilutive for the quarter ended March 31, 2003, if based on fully diluted shares adjusted to reflect the conversion of mandatory convertible preferred shares to common shares and stock option exercises. |
See Notes to Consolidated Financial Information.
- 2 -
CONSOLIDATED BALANCE SHEET
(Unaudited; in millions except per share prices)
| March 31, | December 31, | |||||||
| 2004 |
2003 |
|||||||
| (see Note 4) | ||||||||
Assets |
||||||||
Current assets: |
||||||||
Cash and cash equivalents |
$ | 685.1 | 683.8 | |||||
Accounts receivable, less allowance for doubtful
accounts (2004 - $13.4; 2003 - $10.1) |
687.7 | 461.3 | ||||||
Mill and leach stockpiles |
22.1 | 22.4 | ||||||
Inventories |
381.3 | 379.7 | ||||||
Supplies |
169.5 | 150.7 | ||||||
Prepaid expenses and other current
assets |
56.5 | 31.0 | ||||||
Deferred income taxes |
54.4 | 61.1 | ||||||
Current assets |
2,056.6 | 1,790.0 | ||||||
Investments and long-term receivables |
111.3 | 150.3 | ||||||
Property, plant and equipment, net |
4,983.7 | 4,646.5 | ||||||
Long-term mill and leach stockpiles |
126.5 | 89.2 | ||||||
Deferred income taxes |
46.2 | 7.6 | ||||||
Goodwill |
98.3 | 98.4 | ||||||
Intangible assets, net (see Note 13) |
418.9 | 321.3 | ||||||
Other assets and deferred charges |
173.7 | 169.6 | ||||||
| $ | 8,015.2 | 7,272.9 | ||||||
Liabilities |
||||||||
Current liabilities: |
||||||||
Short-term debt |
$ | 27.3 | 50.5 | |||||
Current portion of long-term debt |
258.2 | 204.6 | ||||||
Accounts payable and accrued expenses |
796.7 | 700.7 | ||||||
Dividends payable |
3.4 | 3.4 | ||||||
Accrued income taxes |
88.7 | 56.1 | ||||||
Current liabilities |
1,174.3 | 1,015.3 | ||||||
Long-term debt |
1,586.1 | 1,703.9 | ||||||
Deferred income taxes |
427.9 | 410.2 | ||||||
Other liabilities and deferred credits |
1,026.5 | 1,009.5 | ||||||
| 4,214.8 | 4,138.9 | |||||||
Commitments and contingencies (see Notes 5, 6 and 8) |
||||||||
Minority interests in consolidated subsidiaries |
417.9 | 70.2 | ||||||
Shareholders’ equity |
||||||||
Common shares, par value $6.25; 200.0 shares authorized;
93.5 outstanding in 2004 and 91.0 outstanding in 2003 after
deducting 17.1 shares (2004 and 2003) held in treasury |
584.1 | 568.5 | ||||||
Preferred shares, par value $1.00; 6.0 shares authorized;
2.0 outstanding in 2004 and 2003 |
2.0 | 2.0 | ||||||
Capital in excess of par value |
1,778.9 | 1,642.5 | ||||||
Retained earnings |
1,436.9 | 1,254.6 | ||||||
Accumulated other comprehensive loss |
(392.1 | ) | (393.5 | ) | ||||
Other |
(27.3 | ) | (10.3 | ) | ||||
| 3,382.5 | 3,063.8 | |||||||
| $ | 8,015.2 | 7,272.9 | ||||||
See Notes to Consolidated Financial Information.
- 3 -
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited; in millions)
| Three Months Ended | ||||||||
| March 31, |
||||||||
| 2004 |
2003 |
|||||||
| (see Note 4) | ||||||||
Operating activities |
||||||||
Net income (loss) |
$ | 185.7 | (15.0 | ) | ||||
Adjustments to reconcile net income (loss) to net cash
provided by operating activities: |
||||||||
Depreciation, depletion and amortization |
124.9 | 101.6 | ||||||
Deferred income tax provision (benefit) |
(32.3 | ) | 1.2 | |||||
Equity earnings, net of dividends received |
1.3 | 0.2 | ||||||
Special items and provisions |
11.3 | (1.9 | ) | |||||
Early debt extinguishment costs |
22.4 | — | ||||||
Minority interests in consolidated subsidiaries |
63.6 | 2.1 | ||||||
Cumulative effect of accounting change |
— | (9.7 | ) | |||||
Changes in current assets and liabilities: |
||||||||
Accounts receivable |
(216.3 | ) | (65.1 | ) | ||||
Repayment from sale of accounts receivable |
— | (2.4 | ) | |||||
Mill and leach stockpiles |
5.1 | — | ||||||
Inventories |
9.4 | 8.1 | ||||||
Supplies |
(1.3 | ) | 1.7 | |||||
Prepaid expenses |
(25.3 | ) | (4.5 | ) | ||||
Interest payable |
20.0 | 25.7 | ||||||
Other accounts payable |
67.5 | 13.3 | ||||||
Accrued income taxes |
29.2 | 12.9 | ||||||
Other accrued expenses |
(8.1 | ) | (69.5 | ) | ||||
Other operating, net |
(0.5 | ) | 7.3 | |||||
Net cash provided by operating activities |
256.6 | 6.0 | ||||||
Investing activities |
||||||||
Capital outlays |
(46.5 | ) | (26.9 | ) | ||||
Capitalized interest |
(0.1 | ) | (0.1 | ) | ||||
Investment in subsidiaries |
(0.2 | ) | (0.4 | ) | ||||
Proceeds from asset dispositions |
1.1 | 0.1 | ||||||
Other investing, net |
3.3 | (0.7 | ) | |||||
Net cash used in investing activities |
(42.4 | ) | (28.0 | ) | ||||
Financing activities |
||||||||
Proceeds from issuance of debt |
149.8 | 8.8 | ||||||
Payment of debt |
(499.2 | ) | (20.3 | ) | ||||
Preferred dividends |
(3.4 | ) | (3.4 | ) | ||||
Issuance of shares |
151.6 | — | ||||||
Other financing, net |
(40.0 | ) | (0.2 | ) | ||||
Net cash used in financing activities |
(241.2 | ) | (15.1 | ) | ||||
Decrease in cash and cash equivalents |
(27.0 | ) | (37.1 | ) | ||||
Increase at beginning of period from consolidating
El Abra and Candelaria |
28.3 | — | ||||||
Cash and cash equivalents at beginning of period |
683.8 | 349.8 | ||||||
Cash and cash equivalents at end of period |
$ | 685.1 | 312.7 | |||||
See Notes to Consolidated Financial Information.
- 4 -
CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY
(Unaudited; in millions)
| 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, 2003 |
91.0 | $ | 568.5 | 2.0 | $ | 2.0 | $ | 1,642.5 | $ | 1,254.6 | $ | (393.5 | ) | $ | (10.3 | ) | $ | 3,063.8 | ||||||||||||||||||
Stock options exercised |
2.2 | 14.0 | 119.2 | 133.2 | ||||||||||||||||||||||||||||||||
Restricted shares issued/cancelled, net |
0.3 | 1.6 | 17.3 | (17.0 | ) | 1.9 | ||||||||||||||||||||||||||||||
Common shares purchased |
(0.1 | ) | (0.1 | ) | ||||||||||||||||||||||||||||||||
Dividends on preferred shares |
(3.4 | ) | (3.4 | ) | ||||||||||||||||||||||||||||||||
Comprehensive income (loss): |
||||||||||||||||||||||||||||||||||||
Net income |
185.7 | 185.7 | ||||||||||||||||||||||||||||||||||
Other comprehensive income (loss), net of tax: |
||||||||||||||||||||||||||||||||||||
Translation adjustment |
(0.2 | ) | (0.2 | ) | ||||||||||||||||||||||||||||||||
Net gain on derivative instruments |
0.6 | 0.6 | ||||||||||||||||||||||||||||||||||
Other investment adjustments |
0.1 | 0.1 | ||||||||||||||||||||||||||||||||||
Unrealized gains on securities |
0.9 | 0.9 | ||||||||||||||||||||||||||||||||||
Other comprehensive income |
1.4 | 1.4 | ||||||||||||||||||||||||||||||||||
Comprehensive income |
187.1 | |||||||||||||||||||||||||||||||||||
Balance at March 31, 2004 |
93.5 | $ | 584.1 | 2.0 | $ | 2.0 | $ | 1,778.9 | $ | 1,436.9 | $ | (392.1 | ) | $ | (27.3 | ) | $ | 3,382.5 | ||||||||||||||||||
See Notes to Consolidated Financial Information.
- 5 -
FINANCIAL DATA BY BUSINESS SEGMENT
(Unaudited; in millions)
| U.S. Mines |
South American Mines |
|||||||||||||||||||||||||||||||||||
| Candelaria/ | ||||||||||||||||||||||||||||||||||||
| Bagdad/ | Miami/ | Chino/ | Ojos del | Cerro | Primary | |||||||||||||||||||||||||||||||
| Morenci |
Sierrita |
Bisbee |
Cobre |
Tyrone |
Salado* |
Verde |
El Abra* |
Molybdenum |
||||||||||||||||||||||||||||
First Quarter 2004 |
||||||||||||||||||||||||||||||||||||
Sales & other operating revenues: |
||||||||||||||||||||||||||||||||||||
Unaffiliated customers |
— | — | — | 0.1 | — | 86.3 | 16.6 | 99.2 | 150.0 | |||||||||||||||||||||||||||
Intersegment |
210.9 | 170.8 | 8.8 | 36.7 | 27.5 | 72.4 | 51.6 | 74.3 | — | |||||||||||||||||||||||||||
Depreciation, depletion and amortization |
18.1 | 9.2 | 1.2 | 2.5 | 3.0 | 13.1 | 8.2 | 31.6 | 7.3 | |||||||||||||||||||||||||||
Operating income (loss) before special
items and provisions |
77.9 | 54.9 | (0.7 | ) | 15.0 | 2.4 | 68.8 | 37.8 | 74.6 | 15.6 | ||||||||||||||||||||||||||
Special items and provisions |
— | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||
Operating income (loss) |
77.9 | 54.9 | (0.7 | ) | 15.0 | 2.4 | 68.8 | 37.8 | 74.6 | 15.6 | ||||||||||||||||||||||||||
Minority interests in consolidated subsidiaries |
— | — | — | — | — | (8.9 | ) | — | (49.5 | ) | — | |||||||||||||||||||||||||
Assets at March 31 |
990.9 | 731.2 | 108.1 | 422.2 | 162.3 | 922.9 | 464.5 | 1,070.4 | 795.3 | |||||||||||||||||||||||||||
Expenditures for segment assets |
3.6 | 4.5 | — | 0.9 | 0.3 | 5.0 | 0.9 | 1.4 | 2.3 | |||||||||||||||||||||||||||
First Quarter 2003 |
||||||||||||||||||||||||||||||||||||
Sales & other operating revenues: |
||||||||||||||||||||||||||||||||||||
Unaffiliated customers |
— | — | — | 0.1 | — | 59.2 | 9.9 | 31.5 | 75.9 | |||||||||||||||||||||||||||
Intersegment |
136.2 | 95.4 | 9.0 | 9.4 | 26.7 | 23.5 | 27.2 | 21.0 | — | |||||||||||||||||||||||||||
Depreciation, depletion and amortization |
18.7 | 7.3 | 1.9 | 2.0 | 3.3 | 10.8 | 7.3 | 14.5 | 6.1 | |||||||||||||||||||||||||||
Operating income (loss) before special
items and provisions |
12.4 | 6.7 | (0.7 | ) | (2.1 | ) | (4.4 | ) | 23.1 | 7.5 | 5.6 | 0.1 | ||||||||||||||||||||||||
Special items and provisions |
— | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||
Operating income (loss) |
12.4 | 6.7 | (0.7 | ) | (2.1 | ) | (4.4 | ) | 23.1 | 7.5 | 5.6 | 0.1 | ||||||||||||||||||||||||
Minority interests in consolidated subsidiaries |
— | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||
Cumulative effect of accounting change |
3.6 | 2.6 | (2.7 | ) | (4.3 | ) | 2.7 | — | 0.9 | (0.4 | ) | 1.4 | ||||||||||||||||||||||||
Assets at March 31 |
1,076.5 | 762.7 | 119.8 | 292.2 | 149.8 | 660.4 | 432.6 | 549.7 | 787.2 | |||||||||||||||||||||||||||
Expenditures for segment assets |
6.1 | 6.2 | — | 1.0 | 0.2 | 0.6 | 1.0 | 0.2 | 2.5 | |||||||||||||||||||||||||||
| Corporate, | ||||||||||||||||||||||||||||||||||||
| Manufac- | PDMC | Other & | ||||||||||||||||||||||||||||||||||
| turing and | Other | Elimi- | PDMC | Specialty | Wire & | PDI | Elimi- | |||||||||||||||||||||||||||||
| Sales |
Mining |
nations |
Subtotal |
Chemicals |
Cable |
Subtotal |
nations |
Totals |
||||||||||||||||||||||||||||
First Quarter 2004 |
||||||||||||||||||||||||||||||||||||
Sales & other operating revenues: |
||||||||||||||||||||||||||||||||||||
Unaffiliated customers |
857.2 | 5.1 | — | 1,214.5 | 163.9 | 218.6 | 382.5 | — | 1,597.0 | |||||||||||||||||||||||||||
Intersegment |
107.5 | 16.1 | (721.2 | ) | 55.4 | — | — | — | (55.4 | ) | — | |||||||||||||||||||||||||
Depreciation, depletion and amortization |
5.2 | 1.1 | — | 100.5 | 13.1 | 9.0 | 22.1 | 2.3 | 124.9 | |||||||||||||||||||||||||||
Operating income (loss) before special
items and provisions |
3.8 | (19.9 | ) | — | 330.2 | 11.2 | 4.1 | 15.3 | (23.9 | ) | 321.6 | |||||||||||||||||||||||||
Special items and provisions |
— | — | — | — | — | & | ||||||||||||||||||||||||||||||