UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended June 30, 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 [ ].
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 in the Exchange Act). Yes [x] No [ ] .
Number of Common Shares outstanding at July 23, 2004: 93,999,634 shares.
PHELPS DODGE CORPORATION
Quarterly Report on Form 10-Q
For the Quarter Ended June 30, 2004
Table of Contents
- i -
PHELPS DODGE CORPORATION AND SUBSIDIARIES
Item 1. Financial Statements
PHELPS DODGE CORPORATION
| Six Months Ended | ||||||||||||||||
| Second Quarter |
June 30, |
|||||||||||||||
| 2004 |
2003 |
2004 |
2003 |
|||||||||||||
| (see Note 4) | (see Note 4) | |||||||||||||||
Sales and other operating revenues |
$ | 1,650.9 | 962.2 | 3,247.9 | 1,940.2 | |||||||||||
Operating costs and expenses
|
||||||||||||||||
Cost of products sold (exclusive of items shown separately below) |
1,133.6 | 787.0 | 2,232.0 | 1,594.3 | ||||||||||||
Depreciation, depletion and amortization |
124.4 | 107.2 | 249.3 | 208.8 | ||||||||||||
Selling and general administrative expense |
34.2 | 35.8 | 72.7 | 68.5 | ||||||||||||
Exploration and research expense |
15.5 | 12.9 | 29.1 | 22.5 | ||||||||||||
Special items and provisions, net (see Note 3) |
(11.5 | ) | 2.1 | (4.7 | ) | 0.2 | ||||||||||
| 1,296.2 | 945.0 | 2,578.4 | 1,894.3 | |||||||||||||
Operating income |
354.7 | 17.2 | 669.5 | 45.9 | ||||||||||||
Interest expense |
(32.3 | ) | (37.0 | ) | (71.3 | ) | (73.0 | ) | ||||||||
Capitalized interest |
0.2 | 0.1 | 0.3 | 0.2 | ||||||||||||
Early debt extinguishment costs (see Note 11) |
(15.2 | ) | — | (37.6 | ) | — | ||||||||||
Miscellaneous income and expense, net |
1.3 | 12.3 | 3.5 | 13.2 | ||||||||||||
Income (loss) before taxes, minority interests, equity in net earnings of
affiliated companies and cumulative effect of accounting change |
308.7 | (7.4 | ) | 564.4 | (13.7 | ) | ||||||||||
Provision for taxes on income (see Note 8) |
(40.7 | ) | (6.5 | ) | (46.9 | ) | (21.9 | ) | ||||||||
Minority interests in consolidated subsidiaries |
(42.0 | ) | (1.9 | ) | (105.6 | ) | (4.0 | ) | ||||||||
Equity in net earnings of affiliated companies |
0.6 | 0.6 | 0.4 | 1.0 | ||||||||||||
Income (loss) before cumulative effect of accounting change |
226.6 | (15.2 | ) | 412.3 | (38.6 | ) | ||||||||||
Cumulative effect of accounting change, net of tax of $(1.3) in 2003 (see Note 4) |
— | — | — | 8.4 | ||||||||||||
Net income (loss) |
226.6 | (15.2 | ) | 412.3 | (30.2 | ) | ||||||||||
Preferred stock dividends |
(3.4 | ) | (3.4 | ) | (6.8 | ) | (6.8 | ) | ||||||||
Net income (loss) applicable to common shares |
$ | 223.2 | (18.6 | ) | 405.5 | (37.0 | ) | |||||||||
Weighted average number of common shares outstanding – basic |
92.9 | 88.6 | 92.3 | 88.6 | ||||||||||||
Basic earnings (loss) per common share before cumulative effect of accounting change |
$ | 2.40 | (0.21 | ) | 4.39 | (0.51 | ) | |||||||||
Cumulative effect of accounting change |
— | — | — | 0.09 | ||||||||||||
Basic earnings (loss) per common share |
$ | 2.40 | (0.21 | ) | 4.39 | (0.42 | ) | |||||||||
Weighted average number of common shares outstanding – diluted* |
98.4 | 88.6 | 98.2 | 88.6 | ||||||||||||
Diluted earnings (loss) per common share before cumulative effect of accounting change* |
$ | 2.30 | (0.21 | ) | 4.20 | (0.51 | ) | |||||||||
Cumulative effect of accounting change |
— | — | — | 0.09 | ||||||||||||
Diluted earnings (loss) per common share* |
$ | 2.30 | (0.21 | ) | 4.20 | (0.42 | ) | |||||||||
| * | Diluted earnings (loss) per common share would have been anti-dilutive for the quarter and six months ended June 30, 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.
-1-
PHELPS DODGE CORPORATION
| June 30, | December 31, | |||||||
| 2004 |
2003 |
|||||||
| (see Note 4) | ||||||||
Assets |
||||||||
Current assets: |
||||||||
Cash and cash equivalents |
$ | 830.8 | 683.8 | |||||
Accounts receivable, less allowance for doubtful
accounts (2004 - $12.7; 2003 - $10.1) |
631.0 | 461.3 | ||||||
Mill and leach stockpiles |
21.7 | 22.4 | ||||||
Inventories |
414.5 | 379.7 | ||||||
Supplies |
174.4 | 150.7 | ||||||
Prepaid expenses and other current assets |
52.4 | 31.0 | ||||||
Deferred income taxes |
58.0 | 61.1 | ||||||
Current assets |
2,182.8 | 1,790.0 | ||||||
Investments and long-term receivables |
102.8 | 150.3 | ||||||
Property,
plant and equipment, net (see Note 13) |
5,319.6 | 4,962.2 | ||||||
Long-term mill and leach stockpiles |
125.5 | 89.2 | ||||||
Deferred income taxes |
35.5 | 7.6 | ||||||
Goodwill |
95.3 | 98.4 | ||||||
Intangible assets, net (see Note 13) |
5.5 | 5.6 | ||||||
Other assets and deferred charges |
194.3 | 169.6 | ||||||
| $ | 8,061.3 | 7,272.9 | ||||||
Liabilities |
||||||||
Current liabilities: |
||||||||
Short-term debt |
$ | 35.4 | 50.5 | |||||
Current portion of long-term debt |
207.7 | 204.6 | ||||||
Accounts payable and accrued expenses |
828.6 | 700.7 | ||||||
Dividends payable |
26.8 | 3.4 | ||||||
Accrued income taxes |
52.9 | 56.1 | ||||||
Current liabilities |
1,151.4 | 1,015.3 | ||||||
Long-term debt |
1,395.3 | 1,703.9 | ||||||
Deferred income taxes |
435.5 | 410.2 | ||||||
Other liabilities and deferred credits |
1,015.3 | 1,009.5 | ||||||
| 3,997.5 | 4,138.9 | |||||||
Commitments and contingencies (see Notes 5, 6 and 8)
|
||||||||
Minority interests in consolidated subsidiaries |
459.1 | 70.2 | ||||||
Shareholders’ equity |
||||||||
Common shares, par value $6.25; 200.0 shares authorized;
93.8 outstanding in 2004 and 91.0 outstanding in 2003 after
deducting 12.0 and 17.1 shares held in treasury in 2004
and 2003, respectively |
586.0 | 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 |
1,793.0 | 1,642.5 | ||||||
Retained earnings |
1,636.7 | 1,254.6 | ||||||
Accumulated other comprehensive loss |
(388.1 | ) | (393.5 | ) | ||||
Other |
(24.9 | ) | (10.3 | ) | ||||
| 3,604.7 | 3,063.8 | |||||||
| $ | 8,061.3 | 7,272.9 | ||||||
See Notes to Consolidated Financial Information.
-2-
PHELPS DODGE CORPORATION
| Six Months Ended | ||||||||
| June 30, |
||||||||
| 2004 |
2003 |
|||||||
| (see Note 4) | ||||||||
Operating activities |
||||||||
Net income
(loss) |
$ | 412.3 | (30.2 | ) | ||||
Adjustments to reconcile net income (loss) to net cash
provided by operating activities: |
||||||||
Depreciation, depletion and amortization |
249.3 | 208.8 | ||||||
Deferred income tax provision (benefit) |
(21.1 | ) | 3.5 | |||||
Equity earnings, net of dividends received |
1.9 | (0.3 | ) | |||||
Special items and provisions |
6.2 | (6.2 | ) | |||||
Early debt extinguishment costs |
37.6 | — | ||||||
Minority interests in consolidated subsidiaries |
105.6 | 4.0 | ||||||
Cumulative effect of accounting change |
— | (9.7 | ) | |||||
Changes in current assets and liabilities: |
||||||||
Accounts receivable |
(161.1 | ) | (86.8 | ) | ||||
Repayment from sale of accounts receivable |
— | (5.3 | ) | |||||
Mill and leach stockpiles |
5.5 | 16.3 | ||||||
Inventories |
(31.2 | ) | 18.8 | |||||
Supplies |
(6.7 | ) | 1.6 | |||||
Prepaid expenses |
(20.7 | ) | (2.7 | ) | ||||
Interest payable |
(4.0 | ) | 0.5 | |||||
Other accounts payable |
115.9 | (9.2 | ) | |||||
Accrued income taxes |
(6.6 | ) | 13.9 | |||||
Other accrued expenses |
14.2 | (47.9 | ) | |||||
Other operating, net |
(17.5 | ) | (32.1 | ) | ||||
Net cash provided by operating activities |
679.6 | 37.0 | ||||||
Investing activities |
||||||||
Capital outlays |
(96.4 | ) | (76.7 | ) | ||||
Capitalized interest |
(0.3 | ) | (0.2 | ) | ||||
Investment in subsidiaries |
(0.2 | ) | (0.6 | ) | ||||
Proceeds from asset dispositions |
1.7 | 13.1 | ||||||
Other
investing, net |
2.8 | 3.4 | ||||||
Net cash used in investing activities |
(92.4 | ) | (61.0 | ) | ||||
Financing activities |
||||||||
Proceeds from issuance of debt |
149.8 | 23.2 | ||||||
Payment of debt |
(714.1 | ) | (78.3 | ) | ||||
Preferred dividends |
(6.8 | ) | (6.8 | ) | ||||
Issuance of shares, net |
167.1 | — | ||||||
Debt issue costs |
(7.2 | ) | — | |||||
Other financing, net |
(57.3 | ) | 34.3 | |||||
Net cash used in financing activities |
(468.5 | ) | (27.6 | ) | ||||
Increase (decrease) in cash and cash equivalents |
118.7 | (51.6 | ) | |||||
Increase at beginning of 2004 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 |
$ | 830.8 | 298.2 | |||||
See Notes to Consolidated Financial Information.
-3-
PHELPS DODGE CORPORATION
| Common Shares |
Preferred Shares |
Capital in | Accumulated 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 |
2.6 | 16.0 | 134.0 | 150.0 | ||||||||||||||||||||||||||||||||
Restricted shares issued/cancelled, net |
0.2 | 1.5 | 17.1 | (14.6 | ) | 4.0 | ||||||||||||||||||||||||||||||
Common shares purchased |
(0.6 | ) | (0.6 | ) | ||||||||||||||||||||||||||||||||
Dividends on preferred shares |
(6.8 | ) | (6.8 | ) | ||||||||||||||||||||||||||||||||
Dividends on common shares |
(23.4 | ) | (23.4 | ) | ||||||||||||||||||||||||||||||||
Comprehensive income (loss): |
||||||||||||||||||||||||||||||||||||
Net income |
412.3 | 412.3 | ||||||||||||||||||||||||||||||||||
Other comprehensive income (loss), net of tax: |
||||||||||||||||||||||||||||||||||||
Translation adjustment |
(6.8 | ) | (6.8 | ) | ||||||||||||||||||||||||||||||||
Net gain on derivative instruments |
12.5 | 12.5 | ||||||||||||||||||||||||||||||||||
Other investment adjustments |
0.1 | 0.1 | ||||||||||||||||||||||||||||||||||
Unrealized loss on securities |
(0.5 | ) | (0.5 | ) | ||||||||||||||||||||||||||||||||
Minimum pension liability |
0.1 | 0.1 | ||||||||||||||||||||||||||||||||||
Other comprehensive income |
5.4 | 5.4 | ||||||||||||||||||||||||||||||||||
Comprehensive income |
417.7 | |||||||||||||||||||||||||||||||||||
Balance at June 30, 2004 |
93.8 | $ | 586.0 | 2.0 | $ | 2.0 | $ | 1,793.0 | $ | 1,636.7 | $ | (388.1 | ) | $ | (24.9 | ) | $ | 3,604.7 | ||||||||||||||||||
See Notes to Consolidated Financial Information.
-4-
FINANCIAL DATA BY BUSINESS SEGMENT
| U.S. Mines |
South American Mines |
|||||||||||||||||||||||||||||||||||
| Candelaria/ | ||||||||||||||||||||||||||||||||||||
| Bagdad/ | Miami/ | Chino/ | Ojos del | Cerro | Primary | |||||||||||||||||||||||||||||||
| Morenci |
Sierrita |
Bisbee |
Cobre |
Tyrone |
Salado* |
Verde |
El Abra* |
Molybdenum |
||||||||||||||||||||||||||||
Second Quarter 2004 |
||||||||||||||||||||||||||||||||||||
Sales and other operating revenues: |
||||||||||||||||||||||||||||||||||||
Unaffiliated customers |
$ | — | — | — | 0.1 | — | 95.3 | 28.0 | 97.1 | 225.1 | ||||||||||||||||||||||||||
Intersegment |
219.6 | 201.5 | 2.6 | 45.9 | 25.5 | 46.5 | 33.5 | 66.0 | — | |||||||||||||||||||||||||||
Depreciation, depletion and amortization |
19.2 | 8.0 | 1.2 | 2.8 | 3.0 | 12.3 | 8.1 | 30.9 | 7.9 | |||||||||||||||||||||||||||
Operating income (loss) before special
items and provisions |
86.9 | 91.4 | (3.1 | ) | 10.4 | 8.4 | 49.3 | 25.1 | 64.6 | 29.5 | ||||||||||||||||||||||||||
Special items and provisions |
(0.4 | ) | — | — | (0.4 | ) | (1.8 | ) | — | — | — | 0.3 | ||||||||||||||||||||||||
Operating income (loss) |
86.5 | 91.4 | (3.1 | ) | 10.0 | 6.6 | 49.3 | 25.1 | 64.6 | 29.8 | ||||||||||||||||||||||||||
Minority interests in consolidated subsidiaries |
— | — | — | — | — | (7.3 | ) | (3.0 | ) | (30.1 | ) | — | ||||||||||||||||||||||||
Assets at June 30 |
967.0 | 743.3 | 108.4 | 425.8 | 174.2 | 728.4 | 491.4 | 1,080.5 | 814.9 | |||||||||||||||||||||||||||
Expenditures for segment assets |
3.4 | 7.4 | 0.2 | 5.2 | 1.9 | 5.3 | 0.9 | 1.2 | 3.8 | |||||||||||||||||||||||||||
Second Quarter 2003 |
||||||||||||||||||||||||||||||||||||
Sales and other operating revenues: |
||||||||||||||||||||||||||||||||||||
Unaffiliated customers |
$ | — | — | — | 0.1 | — | 60.0 | 9.0 | 30.0 | 93.4 | ||||||||||||||||||||||||||
Intersegment |
138.1 | 119.4 | 9.2 | 8.4 | 21.9 | 7.1 | 28.4 | 20.8 | — | |||||||||||||||||||||||||||
Depreciation, depletion and amortization |
20.3 | 7.8 | 1.5 | 2.0 | 3.5 | 9.7 | 7.3 | 17.1 | 6.8 | |||||||||||||||||||||||||||
Operating income (loss) before special
items and provisions |
4.9 | 18.3 | (2.6 | ) | (2.8 | ) | (4.5 | ) | 13.6 | 8.6 | 5.2 | 0.4 | ||||||||||||||||||||||||
Special items and provisions |
— | — | (0.5 | ) | — | — | — | — | — | — | ||||||||||||||||||||||||||
Operating income (loss) |
4.9 | 18.3 | (3.1 | ) | (2.8 | ) | (4.5 | ) | 13.6 | 8.6 | 5.2 | 0.4 | ||||||||||||||||||||||||
Minority interests in consolidated subsidiaries |
— | — | — | — | — | — | (1.4 | ) | — | — | ||||||||||||||||||||||||||
Assets at June 30 |
1,051.2 | 749.0 | 122.0 | 297.1 | 164.3 | 643.6 | 433.4 | 539.9 | 784.3 | |||||||||||||||||||||||||||
Expenditures for segment assets |
3.8 | 4.6 | 0.1 | 0.6 | — | |||||||||||||||||||||||||||||||