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 March 31, 2005
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 þ No o.
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 in
the Exchange Act).
Yes þ No o.
Number of Common Shares outstanding at April 27, 2005: 96,882,340 shares.
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PHELPS DODGE CORPORATION
Quarterly Report on Form 10-Q
For the Quarter Ended March 31, 2005
Table of Contents
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| Exhibit 4.1 | ||||||||
| Exhibit 11 | ||||||||
| Exhibit 12 | ||||||||
| Exhibit 15 | ||||||||
| Exhibit 31 | ||||||||
| Exhibit 32 | ||||||||
- 1 -
PHELPS DODGE CORPORATION AND SUBSIDIARIES
Item 1. Financial Statements
PHELPS DODGE CORPORATION
| First Quarter | ||||||||
| 2005 | 2004 | |||||||
Sales and other operating revenues |
$ | 2,066.5 | 1,597.0 | |||||
Operating costs and expenses |
||||||||
Cost of products sold (exclusive of items shown separately below) |
1,322.9 | 1,098.4 | ||||||
Depreciation, depletion and amortization |
129.4 | 124.9 | ||||||
Selling and general administrative expense |
47.3 | 38.5 | ||||||
Exploration and research expense |
18.8 | 13.6 | ||||||
Special items and provisions, net (see Note 3) |
(0.9 | ) | 6.8 | |||||
| 1,517.5 | 1,282.2 | |||||||
Operating income |
549.0 | 314.8 | ||||||
Interest expense |
(23.7 | ) | (39.0 | ) | ||||
Capitalized interest |
0.8 | 0.1 | ||||||
Early debt extinguishment costs |
— | (22.4 | ) | |||||
Miscellaneous income and expense, net |
18.1 | 2.2 | ||||||
Income before taxes, minority interests in consolidated subsidiaries and
equity in net earnings (losses) of affiliated companies |
544.2 | 255.7 | ||||||
Provision for taxes on income |
(131.2 | ) | (6.2 | ) | ||||
Minority interests in consolidated subsidiaries |
(27.0 | ) | (63.6 | ) | ||||
Equity in net earnings (losses) of affiliated companies |
0.7 | (0.2 | ) | |||||
Net income |
386.7 | 185.7 | ||||||
Preferred stock dividends |
(3.4 | ) | (3.4 | ) | ||||
Net income applicable to common shares |
$ | 383.3 | 182.3 | |||||
Weighted average number of common shares outstanding – basic |
95.7 | 91.7 | ||||||
Basic earnings per common share |
$ | 4.00 | 1.99 | |||||
Weighted average number of common shares outstanding – diluted |
100.9 | 97.9 | ||||||
Diluted earnings per common share |
$ | 3.83 | 1.90 | |||||
See Notes to Consolidated Financial Information.
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PHELPS DODGE CORPORATION
| March 31, | December 31, | |||||||
| 2005 | 2004 | |||||||
Assets |
||||||||
Current assets: |
||||||||
Cash and cash equivalents |
$ | 1,398.0 | 1,200.1 | |||||
Accounts receivable, less allowance for doubtful
accounts (2005 - $16.4; 2004 - $17.4) |
978.1 | 761.5 | ||||||
Mill and leach stockpiles |
28.0 | 26.2 | ||||||
Inventories |
406.7 | 392.1 | ||||||
Supplies |
200.1 | 192.7 | ||||||
Prepaid expenses and other current assets |
63.5 | 46.0 | ||||||
Deferred income taxes |
44.5 | 43.1 | ||||||
Current assets |
3,118.9 | 2,661.7 | ||||||
Investments and long-term receivables |
135.5 | 120.7 | ||||||
Property, plant and equipment, net |
5,285.5 | 5,318.9 | ||||||
Long-term mill and leach stockpiles |
132.0 | 131.0 | ||||||
Deferred income taxes |
47.2 | 61.8 | ||||||
Goodwill |
103.5 | 103.5 | ||||||
Intangible assets, net |
5.3 | 5.3 | ||||||
Other assets and deferred charges |
195.3 | 191.2 | ||||||
| $ | 9,023.2 | 8,594.1 | ||||||
Liabilities |
||||||||
Current liabilities: |
||||||||
Short-term debt |
$ | 30.3 | 78.8 | |||||
Current portion of long-term debt |
45.8 | 45.9 | ||||||
Accounts payable and accrued expenses |
961.1 | 972.1 | ||||||
Dividends payable |
3.4 | 3.4 | ||||||
Accrued income taxes |
104.7 | 67.8 | ||||||
Current liabilities |
1,145.3 | 1,168.0 | ||||||
Long-term debt |
970.7 | 972.2 | ||||||
Deferred income taxes |
457.4 | 448.4 | ||||||
Other liabilities and deferred credits |
1,115.5 | 1,107.3 | ||||||
| 3,688.9 | 3,695.9 | |||||||
Commitments and contingencies (see Notes 5, 6 and 8) |
||||||||
Minority interests in consolidated subsidiaries |
581.8 | 555.1 | ||||||
Shareholders’ equity |
||||||||
Common shares, par value $6.25; 200.0 shares authorized;
96.8 outstanding (2004 - 95.9) after deducting 9.0 shares
(2004 - 9.9) held in treasury, at cost |
605.1 | 599.5 | ||||||
Cumulative preferred shares, par value $1.00; 6.0 shares authorized;
2.0 outstanding in 2005 and 2004 |
2.0 | 2.0 | ||||||
Capital in excess of par value |
1,961.4 | 1,906.4 | ||||||
Retained earnings |
2,599.2 | 2,239.9 | ||||||
Accumulated other comprehensive loss |
(377.4 | ) | (384.2 | ) | ||||
Other |
(37.8 | ) | (20.5 | ) | ||||
| 4,752.5 | 4,343.1 | |||||||
| $ | 9,023.2 | 8,594.1 | ||||||
See Notes to Consolidated Financial Information.
- 3 -
PHELPS DODGE CORPORATION
| Three Months Ended | ||||||||
| March 31, | ||||||||
| 2005 | 2004 | |||||||
Operating activities |
||||||||
Net income |
$ | 386.7 | 185.7 | |||||
Adjustments to reconcile net income to net cash
provided by operating activities: |
||||||||
Depreciation, depletion and amortization |
129.4 | 124.9 | ||||||
Deferred income tax provision |
24.4 | (32.3 | ) | |||||
Equity in net earnings (losses) of affiliated companies,
net of dividends received |
(0.1 | ) | 1.3 | |||||
Special items and provisions |
(0.9 | ) | 11.3 | |||||
Early debt extinguishment costs |
— | 22.4 | ||||||
Minority interests in consolidated subsidiaries |
27.0 | 63.6 | ||||||
Changes in current assets and liabilities: |
||||||||
Accounts receivable |
(137.0 | ) | (216.3 | ) | ||||
Sale (repayment) of securitized accounts receivable |
(85.0 | ) | — | |||||
Mill and leach stockpiles |
(1.8 | ) | 5.1 | |||||
Inventories |
(17.3 | ) | 9.4 | |||||
Supplies |
(8.0 | ) | (1.3 | ) | ||||
Prepaid expenses |
(17.7 | ) | (25.3 | ) | ||||
Interest payable |
15.2 | 20.0 | ||||||
Other accounts payable |
(2.8 | ) | 67.5 | |||||
Accrued income taxes |
38.0 | 29.2 | ||||||
Other accrued expenses |
(30.1 | ) | (8.1 | ) | ||||
Other operating, net |
(5.9 | ) | (0.5 | ) | ||||
Net cash provided by operating activities |
314.1 | 256.6 | ||||||
Investing activities |
||||||||
Capital outlays |
(68.2 | ) | (46.5 | ) | ||||
Capitalized interest |
(0.8 | ) | (0.1 | ) | ||||
Investments in subsidiaries and other,
net of cash received and acquired |
(0.1 | ) | (0.2 | ) | ||||
Proceeds from asset dispositions |
1.2 | 1.1 | ||||||
Other investing, net |
(3.2 | ) | 3.3 | |||||
Net cash used in investing activities |
(71.1 | ) | (42.4 | ) | ||||
Financing activities |
||||||||
Proceeds from issuance of debt |
— | 149.8 | ||||||
Payment of debt |
(49.0 | ) | (499.2 | ) | ||||
Common dividends |
(24.0 | ) | — | |||||
Preferred dividends |
(3.4 | ) | (3.4 | ) | ||||
Issuance of shares, net |
31.3 | 151.6 | ||||||
Debt issue costs |
— | (1.6 | ) | |||||
Other financing, net |
— | (38.4 | ) | |||||
Net cash used in financing activities |
(45.1 | ) | (241.2 | ) | ||||
Increase (decrease) in cash and cash equivalents |
197.9 | (27.0 | ) | |||||
Increase at beginning of 2004 from fully consolidating
El Abra and Candelaria |
— | 28.3 | ||||||
Cash and cash equivalents at beginning of period |
1,200.1 | 683.8 | ||||||
Cash and cash equivalents at end of period |
$ | 1,398.0 | 685.1 | |||||
See Notes to Consolidated Financial Information.
- 4 -
PHELPS DODGE CORPORATION
| Accumulated | |||||||||||||||||||||||||||||||||||||
| Common Shares | Preferred Shares | Capital in | Other | ||||||||||||||||||||||||||||||||||
| Number | At Par | Number | At Par | Excess of | Retained | Comprehensive | Shareholders’ | ||||||||||||||||||||||||||||||
| of Shares | Value | of Shares | Value | Par Value | Earnings | Loss* | Other | Equity | |||||||||||||||||||||||||||||
Balance at December 31, 2004 |
95.9 | $ | 599.5 | 2.0 | $ | 2.0 | $ | 1,906.4 | $ | 2,239.9 | $ | (384.2 | ) | $ | (20.5 | ) | $ | 4,343.1 | |||||||||||||||||||
Stock options exercised |
0.7 | 4.4 | 37.4 | 41.8 | |||||||||||||||||||||||||||||||||
Restricted shares issued/cancelled, net |
0.2 | 1.3 | 18.6 | (17.3 | ) | 2.6 | |||||||||||||||||||||||||||||||
Common shares purchased |
(0.1 | ) | (1.0 | ) | (1.1 | ) | |||||||||||||||||||||||||||||||
Dividends on preferred shares |
(3.4 | ) | (3.4 | ) | |||||||||||||||||||||||||||||||||
Dividends on common shares |
(24.0 | ) | (24.0 | ) | |||||||||||||||||||||||||||||||||
Comprehensive income (loss): |
|||||||||||||||||||||||||||||||||||||
Net income |
386.7 | 386.7 | |||||||||||||||||||||||||||||||||||
Other comprehensive income (loss), net of tax: |
|||||||||||||||||||||||||||||||||||||
Translation adjustment |
(9.5 | ) | (9.5 | ) | |||||||||||||||||||||||||||||||||
Net gain on derivative instruments |
1.0 | 1.0 | |||||||||||||||||||||||||||||||||||
Other investment adjustments |
0.5 | 0.5 | |||||||||||||||||||||||||||||||||||
Unrealized gains on securities |
3.0 | 3.0 | |||||||||||||||||||||||||||||||||||
Minimum pension liability |
11.8 | 11.8 | |||||||||||||||||||||||||||||||||||
Other comprehensive income |
6.8 | 6.8 | |||||||||||||||||||||||||||||||||||
Comprehensive income |
393.5 | ||||||||||||||||||||||||||||||||||||
Balance at March 31, 2005 |
96.8 | $ | 605.1 | 2.0 | $ | 2.0 | $ | 1,961.4 | $ | 2,599.2 | $ | (377.4 | ) | $ | (37.8 | ) | $ | 4,752.5 | |||||||||||||||||||
| * | As of March 31, 2005, this balance comprised $(217.8) million of cumulative minimum pension liability adjustments, $(181.3) million of cumulative translation adjustments and $(0.2) million of cumulative other investment adjustments; partially offset by $19.8 million of cumulative unrealized gains on securities and $2.1 million of cumulative unrealized gains on derivative instruments. |
See Notes to Consolidated Financial Information.
- 5 -
PHELPS DODGE CORPORATION
| U.S. Mines | South American Mines | |||||||||||||||||||||||||||||||||||||||
| Candelaria/ | ||||||||||||||||||||||||||||||||||||||||
| Miami/ | Chino/ | Ojos del | Cerro | Primary | ||||||||||||||||||||||||||||||||||||
| Morenci | Bagdad | Sierrita | Bisbee | Cobre | Tyrone | Salado | Verde | El Abra | Molybdenum | |||||||||||||||||||||||||||||||
First Quarter 2005 |
||||||||||||||||||||||||||||||||||||||||
Sales and
other operating revenues: |
||||||||||||||||||||||||||||||||||||||||
Unaffiliated customers |
— | — | 0.4 | — | — | — | 121.9 | 16.5 | 72.2 | 476.8 | ||||||||||||||||||||||||||||||
Intersegment |
227.0 | 156.5 | 207.9 | 9.5 | 85.7 | 30.1 | 32.0 | 51.6 | 80.6 | — | ||||||||||||||||||||||||||||||
Depreciation, depletion and amortization |
15.1 | 7.8 | 3.9 | 0.9 | 5.3 | 4.0 | 9.9 | 5.9 | 33.4 | 8.9 | ||||||||||||||||||||||||||||||
Operating income (loss) before special
items and provisions |
86.2 | 84.4 | 134.5 | 1.1 | 17.7 | 1.3 | 75.4 | 36.0 | 44.5 | 86.6 | ||||||||||||||||||||||||||||||
Special items and provisions |
(0.3 | ) | — | — | — | (0.6 | ) | (4.2 | ) | — | — | — | — | |||||||||||||||||||||||||||
Operating income (loss) |
85.9 | 84.4 | 134.5 | 1.1 | 17.1 | (2.9 | ) | 75.4 | 36.0 | 44.5 | 86.6 | |||||||||||||||||||||||||||||
Interest income |
— | — | — | — | 0.6 | — | 0.8 | 0.8 | — | 0.1 | ||||||||||||||||||||||||||||||
Interest expense |
— | — | — | — | — | — | — | — | (2.3 | ) | — | |||||||||||||||||||||||||||||
Benefit (provision) for taxes on income |
— | — | — | — | — | — | (18.3 | ) | (6.8 | ) | (14.6 | ) | — | |||||||||||||||||||||||||||
Minority interests in consolidated subsidiaries |
— | — | — | — | — | — | (6.6 | ) | (5.7 | ) | (13.3 | ) | — | |||||||||||||||||||||||||||
Equity in net earnings (losses) of affiliated companies |
— | — | — | (0.1 | ) | — | — | — | — | — | — | |||||||||||||||||||||||||||||
Equity basis investments |
— | — | 0.2 | 0.8 | — | — | 0.3 | — | — | — | ||||||||||||||||||||||||||||||
Assets at March 31 |
921.7 | 437.3 | 318.6 | 101.0 | 482.9 | 225.4 | 953.8 | 560.1 | 964.5 | 876.3 | ||||||||||||||||||||||||||||||
Expenditures for segment assets |
(3.9 | ) | 5.1 | 2.9 | (0.1 | ) | 4.8 | 0.5 | 3.9 | 29.7 | 2.0 | 1.7 | ||||||||||||||||||||||||||||
First Quarter 2004* |
||||||||||||||||||||||||||||||||||||||||
Sales and other operating revenues: |
||||||||||||||||||||||||||||||||||||||||
Unaffiliated customers |
— | — | — | — | 0.1 | — | 86.3 | 16.6 | 99.2 | 150.0 | ||||||||||||||||||||||||||||||
Intersegment |
210.9 | 80.3 | 90.5 | 8.8 | 36.7 | 27.5 | 72.4 | 51.6 | 74.3 | — | ||||||||||||||||||||||||||||||
Depreciation, depletion and amortization |
18.1 | 5.9 | 3.3 | 1.2 | 2.5 | 3.0 | 13.1 | 8.2 | 31.6 | 7.3 | ||||||||||||||||||||||||||||||
Operating income (loss) before special
items and provisions |
77.9 | 24.9 | 30.0 | (0.7 | ) | 15.0 | 2.4 | 68.8 | 37.8 | 74.6 | 15.6 | |||||||||||||||||||||||||||||
Special items and provisions |
— | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||
Operating income (loss) |
77.9 | 24.9 | 30.0 | (0.7 | ) | 15.0 | 2.4 | 68.8 | 37.8 | 74.6 | 15.6 | |||||||||||||||||||||||||||||
Interest income |
— | — | — | — | 0.3 | — | 0.4 | 0.1 | — | — | ||||||||||||||||||||||||||||||