-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, QZdlbfADTQIsj2D82o/lkP5iDV6ub3XxQoS9i1CJVK+2JBnWbPnY7gAN4le/KSMP P7lP+tBKdiXs7IY8DArmfg== 0000950147-96-000322.txt : 19960812 0000950147-96-000322.hdr.sgml : 19960812 ACCESSION NUMBER: 0000950147-96-000322 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960809 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: PHELPS DODGE CORP CENTRAL INDEX KEY: 0000078066 STANDARD INDUSTRIAL CLASSIFICATION: PRIMARY SMELTING & REFINING OF NONFERROUS METALS [3330] IRS NUMBER: 131808503 STATE OF INCORPORATION: NY FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-00082 FILM NUMBER: 96607162 BUSINESS ADDRESS: STREET 1: 2600 NORTH CENTRAL AVE CITY: PHOENIX STATE: AZ ZIP: 85004 BUSINESS PHONE: 6022348100 MAIL ADDRESS: STREET 1: 2600 NORTH CENTRAL AVENUE CITY: PHOENIX STATE: AZ ZIP: 85004-3089 10-Q 1 FORM 10-Q ================================================================================ 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 June 30, 1996 Commission file number 1-82 PHELPS DODGE CORPORATION (a New York corporation) 13-1808503 (I.R.S. Employer Identification No.) 2600 N. Central Avenue, Phoenix, AZ 85004-3089 Registrant's telephone number: (602) 234-8100 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 . --- --- Number of Common Shares outstanding at August 7, 1996: 65,570,699 shares. ================================================================================ PHELPS DODGE CORPORATION Quarterly Report on Form 10-Q For the Quarter Ended June 30, 1996 TABLE OF CONTENTS Statement of Consolidated Income Consolidated Balance Sheet Consolidated Statement of Cash Flows Statement of Common Shareholders' Equity Notes to Consolidated Financial Information Review by Independent Accountants Report of Independent Accountants on Review of Interim Financial Information Management's Discussion and Analysis Legal Proceedings Submission of Matters to a Vote of Security Holders Exhibits and Reports on Form 8-K Signatures Index to Exhibits PHELPS DODGE CORPORATION AND SUBSIDIARIES Part I. Financial Information Item 1. Financial Statements STATEMENT OF CONSOLIDATED INCOME (Unaudited; in millions except per share data) First Six Second Quarter Months -------------- ------------- 1996 1995 1996 1995 ---- ---- ---- ---- SALES AND OTHER OPERATING REVENUES $ 957.7 1,024.2 1,962.4 2,057.7 ------- ------- ------- ------- OPERATING COSTS AND EXPENSES Cost of products sold 646.9 682.2 1,311.4 1,369.3 Depreciation, depletion and amortization 62.7 56.9 123.9 111.4 Selling and general administrative expense 31.2 30.9 61.7 61.6 Exploration and research expense 21.4 15.1 40.1 31.8 Gain on asset dispositions - - - (26.8) ------- ------- ------- ------- 762.2 785.1 1,537.1 1,547.3 ------- ------- ------- ------- OPERATING INCOME 195.5 239.1 425.3 510.4 Interest expense (10.3) (19.4) (27.5) (34.8) Capitalized interest 0.3 1.1 0.5 1.5 Miscellaneous income and expense, net 2.2 7.5 17.2 18.4 ------- ------- ------- ------- INCOME BEFORE TAXES, MINORITY INTERESTS AND EQUITY IN NET EARNINGS OF AFFILIATED COMPANIES 187.7 228.3 415.5 495.5 Provision for taxes on income (62.2) (68.5) (135.1) (148.7) Minority interests in consolidated subsidiaries (3.0) (2.5) (6.4) (5.3) Equity in net earnings of affiliated companies 3.8 2.2 5.4 3.3 ------- ------- ------- ------- NET INCOME $ 126.3 159.5 279.4 344.8 ======= ======= ======= ======= EARNINGS PER SHARE $ 1.90 2.28 4.16 4.90 ======= ======= ======= ======= AVERAGE NUMBER OF SHARES OUTSTANDING 66.6 69.9 67.1 70.4 See Notes to Consolidated Financial Information. BUSINESS SEGMENTS (Unaudited; in millions) SALES AND OTHER OPERATING REVENUES Phelps Dodge Mining Company $ 529.3 589.7 1,113.9 1,196.1 Phelps Dodge Industries 428.4 434.5 848.5 861.6 ------- ------- ------- ------- $ 957.7 1,024.2 1,962.4 2,057.7 ======= ======= ======= ======= OPERATING INCOME (LOSS) Phelps Dodge Mining Company $ 146.3 187.9 330.9 390.0 Phelps Dodge Industries 60.1 60.0 114.5 138.0 Corporate and other (10.9) (8.8) (20.1) (17.6) ------- ------- ------- ------- $ 195.5 239.1 425.3 510.4 ======= ======= ======= ======= See Notes to Consolidated Financial Information. CONSOLIDATED BALANCE SHEET (Unaudited; in millions) June 30, Dec. 31, 1996 1995 ---- ---- ASSETS Cash and short-term investments, at cost $ 541.0 608.5 Accounts receivable, net 485.0 483.7 Inventories 289.2 281.5 Supplies 118.3 121.4 Prepaid expenses 38.1 15.5 Deferred income taxes 43.4 44.6 -------- ------- Current assets 1,515.0 1,555.2 Investments and long-term accounts receivable 78.4 79.0 Property, plant and equipment, net 2,841.2 2,728.7 Other assets and deferred charges 294.8 283.0 -------- -------- $ 4,729.4 4,645.9 ======== ======== LIABILITIES Short-term debt $ 72.6 66.6 Current portion of long-term debt 30.2 16.8 Accounts payable and accrued expenses 493.3 504.8 Income taxes 15.4 16.8 -------- -------- Current liabilities 611.5 605.0 Long-term debt 599.9 613.1 Deferred income taxes 409.4 358.1 Other liabilities and deferred credits 321.3 318.7 -------- -------- 1,942.1 1,894.9 -------- -------- MINORITY INTERESTS IN CONSOLIDATED SUBSIDIARIES 76.4 73.3 -------- -------- COMMON SHAREHOLDERS' EQUITY Common shares, 66.0 outstanding (12/31/95 - 68.6) 412.2 428.7 Retained earnings 2,413.2 2,360.1 Cumulative translation adjustments (98.6) (93.9) Other (15.9) (17.2) -------- -------- 2,710.9 2,677.7 -------- -------- $ 4,729.4 4,645.9 ======== ======== See Notes to Consolidated Financial Information. CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited; in millions) Six months ended June 30, ------------- 1996 1995 ---- ---- OPERATING ACTIVITIES Net income $ 279.4 344.8 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation, depletion and amortization 123.9 111.4 Deferred income taxes 43.7 44.6 Equity earnings net of dividends received (4.9) (3.0) Changes in current assets and liabilities: (Increase) decrease in accounts receivable (5.3) (6.3) (Increase) decrease in inventories (0.6) (20.9) (Increase) decrease in supplies 2.1 (8.1) (Increase) decrease in prepaid expenses (22.3) (3.2) (Increase) decrease in deferred income taxes 1.3 (1.8) Increase (decrease) in interest payable 0.8 0.3 Increase (decrease) in other accounts payable (7.1) (32.1) Increase (decrease) in income taxes (1.6) (24.2) Increase (decrease) in other accrued expenses (10.7) 5.0 Gain on asset dispositions - (26.8) Other adjustments, net 6.8 (1.3) -------- -------- Net cash provided by operating activities 405.5 378.4 -------- -------- INVESTING ACTIVITIES Capital outlays (209.0) (180.3) Capitalized interest (0.5) (1.5) Proceeds from asset dispositions 2.0 39.6 Investment in subsidiaries (30.0) - -------- -------- Net cash used in investing activities (237.5) (142.2) -------- -------- FINANCING ACTIVITIES Increase in debt 15.6 29.7 Payment of debt (6.6) (14.4) Common dividends (63.5) (63.1) Purchase of common shares (191.3) (76.4) Other 10.3 2.8 -------- -------- Net cash used in financing activities (235.5) (121.4) -------- -------- INCREASE (DECREASE) IN CASH AND SHORT-TERM INVESTMENTS (67.5) 114.8 CASH AND SHORT-TERM INVESTMENTS AT BEGINNING OF PERIOD 608.5 286.9 -------- -------- CASH AND SHORT-TERM INVESTMENTS AT END OF PERIOD $ 541.0 401.7 ======== ======== See Notes to Consolidated Financial Information. STATEMENT OF COMMON SHAREHOLDERS' EQUITY (Unaudited; in millions) Common Shares Cumulative ---------------- Translation Number Adjustments Common of At Par Retained and Shareholders' shares Value Earnings Other Equity ------ ----- -------- ----- ------- Balance at December 31, 1995 68.6 $ 428.7 $ 2,360.1 $ (111.1) $ 2,677.7 Stock options exercised 0.4 2.1 9.9 12.0 Common shares purchased (3.0) (18.6) (172.7) (191.3) Net income 279.4 279.4 Dividends on common shares (63.5) (63.5) Translation adjustment (4.7) (4.7) Other 1.3 1.3 ----- ------ ------- ------- ------- Balance at June 30, 1996 66.0 $ 412.2 $ 2,413.2 $ (114.5) $ 2,710.9 ===== ====== ======= ======= ======= See Notes to Consolidated Financial Information. NOTES TO CONSOLIDATED FINANCIAL INFORMATION (Unaudited) 1. The unaudited consolidated financial information presented herein has been prepared in accordance with the instructions to Form 10-Q and does not include all of the information and note disclosures required by generally accepted accounting principles. Therefore, this information should be read in conjunction with the consolidated financial statements and notes thereto included in the Corporation's Form 10-K for the year ended December 31, 1995. This information reflects all adjustments that are, in the opinion of management, necessary to a fair statement of the results for the interim periods reported. 2. The results of operations for the three-month and six-month periods ended June 30, 1996, are not necessarily indicative of the results to be expected for the full year. 3. The Corporation enters into price protection arrangements from time to time, depending on market circumstances, to ensure a minimum price for a portion of the copper it expects from its future mine production. As of August 7, 1996, the Corporation has entered into contracts with several financial institutions that provide for specified minimum copper prices or a combination of minimum and maximum copper prices based on the quarterly average London Metal Exchange (LME) price. Remaining contracts are summarized in the following table: ================================================================================ Contracts Providing Contracts Providing Minimum Minimum Prices and Maximum Prices -------------- ------------------- Copper Cathode Copper Price (LME) Cathode Price Pounds ---------------- Pounds (LME) (millions) Minimum Maximum (millions) ----- ---------- ------- ------- ---------- 1996: Third Quarter $ 0.95 40 $ 0.90 $ 1.40 145 Fourth Quarter $ 0.95 $ 1.36 190 1997: First Quarter $ 0.90 170 - --------------------- NOTE: If average quarterly LME prices exceed the maximum prices, Phelps Dodge will be obligated to pay the difference to the financial institutions involved; if average quarterly LME prices fall below the minimum prices, the financial institutions will be obligated to pay Phelps Dodge the difference. ================================================================================ Similar contracts covering 600 million pounds of 1996 first half copper production expired without payment. 4. The Corporation's net income for the first six months of 1996 included a second quarter after-tax charge of approximately $12.0 million, or 18 cents per common share, resulting from adjustments during June to mark to market copper concentrate transactions that had been recorded in prior months at provisional forward prices. These adjustments primarily reflected a sharp drop in copper futures prices in the month of June. The loss on these adjustments before taxes was $18.0 million. The Corporation's net income for the first six months of 1995 included a first quarter after-tax gain of $16.6 million, or 24 cents per common share, from the sale of Columbian Chemicals Company's MAPICO division (MAPICO). MAPICO produces synthetic iron oxides at a plant in St. Louis, Missouri, and was peripheral to Columbian's core business. The gain on the sale of these assets before taxes was $26.8 million. REVIEW BY INDEPENDENT ACCOUNTANTS The financial information as of June 30, 1996, and for the three-month and six-month periods ended June 30, 1996 and 1995, included in Part I pursuant to Rule 10-01 of Regulation S-X has been reviewed by Price Waterhouse LLP (Price Waterhouse), the Corporation's independent accountants, in accordance with standards established by the American Institute of Certified Public Accountants. Price Waterhouse's report is included in this quarterly report. Price Waterhouse does not carry out any significant or additional audit tests beyond those that would have been necessary if its report had not been included in this quarterly report. Accordingly, such report is not a "report" or "part of a registration statement" within the meaning of Sections 7 and 11 of the Securities Act of 1933 and the liability provisions of Section 11 of such Act do not apply. PRICE WATERHOUSE LLP REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Shareholders of Phelps Dodge Corporation We have reviewed the accompanying consolidated balance sheet of Phelps Dodge Corporation and its subsidiaries as of June 30, 1996, and the consolidated statement of income for the three-month and six-month periods ended June 30, 1996 and 1995, and the consolidated statements of cash flows and of common shareholders' equity for the six-month periods ended June 30, 1996 and 1995. These financial statements are the responsibility of the Corporation's management. We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our review, we are not aware of any material modifications that should be made to the consolidated financial statements referred to above for them to be in conformity with generally accepted accounting principles. We previously audited in accordance with generally accepted auditing standards, the consolidated balance sheet as of December 31, 1995, and the related consolidated statements of income, of cash flows and of common shareholders' equity for the year then ended (not presented herein), and in our report dated January 22, 1996 we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying consolidated balance sheet information as of December 31, 1995, is fairly stated in all material respects in relation to the consolidated balance sheet from which it has been derived. Price Waterhouse LLP Phoenix, Arizona July 11, 1996 Item 2. Management's Discussion and Analysis RESULTS OF OPERATIONS Phelps Dodge Corporation had consolidated net income of $126.3 million, or $1.90 per common share, in the second quarter of 1996, compared with $159.5 million, or $2.28 per common share, in the 1995 second quarter. Net income for the six months ended June 30, 1996, was $279.4 million, or $4.16 per common share, compared with $344.8 million, or $4.90 per common share in the corresponding 1995 period. Net income in the 1996 six-month period included a second quarter after-tax charge of approximately $12.0 million, or 18 cents per common share, resulting from adjustments during June to mark to market copper concentrate transactions that had been recorded in prior months at provisional forward prices. Net income in the 1995 six-month period included a first quarter after-tax gain of $16.6 million, or 24 cents per common share, from the sale of Columbian Chemicals Company's MAPICO division. Earnings in the three-month and six-month periods ended June 30, 1996, were lower than those reported in the corresponding 1995 periods principally as a result of lower average copper prices. Average spot prices per pound of cathode copper on the New York Commodity Exchange (COMEX) fell approximately 17 cents and 18 cents in the second quarter and first six months of 1996, respectively, from the average prices in the corresponding 1995 periods. Any material change in the price the Corporation receives for copper, or in its unit production costs, has a significant effect on the Corporation's results. The Corporation's present share of annual production is approximately 1.5 billion pounds of copper. Accordingly, each 1 cent per pound change in the average annual copper price received by the Corporation, or in average annual unit production costs, causes a variation in annual operating income before taxes of approximately $15 million. The COMEX spot price per pound of copper cathode, upon which the Corporation bases its selling price for a majority of its production, averaged $1.16 in the second quarter and $1.17 in the first six months of 1996, compared with $1.33 and $1.35 in the corresponding 1995 periods. From July 1 to August 7, 1996, the COMEX price averaged 91 cents per pound, closing at 93 cents on August 7, 1996. The Corporation enters into price protection arrangements from time to time, depending on market circumstances, to ensure a minimum price for a portion of the copper it expects from future mine production. For further discussion of the Corporation's copper price protection arrangements for 1996 and 1997 production, see Note 3 to Consolidated Financial Information. Sales were $957.7 million in the 1996 second quarter and $1,962.4 million in the first six months of 1996, compared with $1,024.2 million and $2,057.7 million in the corresponding 1995 periods. The 1996 decreases resulted principally from lower average copper prices and lower sales volumes of wheels and rims, largely offset by greater sales volumes of copper and higher sales volumes of wire and cable products. PHELPS DODGE MINING COMPANY Phelps Dodge Mining Company is an international business comprising a group of companies involved in vertically integrated copper operations including mining, concentrating, electrowinning, smelting and refining, rod production, marketing and sales, and related activities. Copper is sold primarily to others as rod, cathode or concentrates, and as rod to the Phelps Dodge Industries segment. In addition, Phelps Dodge Mining Company at times smelts and refines copper and produces copper rod for others on a toll basis. Phelps Dodge Mining Company also produces gold, silver, molybdenum and copper chemicals, principally as by-products, and sulfuric acid from its air quality control facilities. This segment also includes the Corporation's other mining operations and investments (including fluorspar, silver, lead and zinc operations) and its worldwide mineral exploration and development programs. ================================================================================ First Six Second Quarter Months -------------- -------------- 1996 1995 1996 1995 ---- ---- ---- ---- Copper production (short tons): Total production 236,000 211,100 467,400 402,800 Less minority participants' shares * 40,800 37,700 82,000 72,100 ------- ------- ------- ------- Net Phelps Dodge share 195,200 173,400 385,400 330,700 ======= ======= ======= ======= Copper sales (short tons): Net Phelps Dodge share from own mines 189,000 157,700 379,400 315,700 Purchased copper 57,500 65,700 119,600 130,600 ------- ------- ------- ------- Total copper sales 246,500 223,400 499,000 446,300 ======= ======= ======= ======= New York Commodity Exchange average spot price per pound - copper cathodes $ 1.16 1.33 1.17 1.35 (in millions) Sales and other operating revenues $ 529.3 589.7 1,113.9 1,196.1 Operating income $ 146.3 187.9 330.9 390.0 - ------------------------- * Minority participant interests include (i) a 15 percent undivided interest in the Morenci, Arizona, copper mining complex held by Sumitomo Metal Mining Arizona, Inc., (ii) a one-third partnership interest in Chino Mines Company in New Mexico held by Heisei Minerals Corporation, and (iii) a 20 percent interest in Candelaria held by SMMA Candelaria, Inc., a jointly owned subsidiary of Sumitomo Metal Mining Co., Ltd. and Sumitomo Corporation. ================================================================================ Phelps Dodge Mining Company's sales of copper from its own mine production increased by 31,300 tons or 20 percent in the second quarter of 1996 and by 63,700 tons or 20 percent in the first six months of 1996 compared with the corresponding 1995 periods. The primary contributor to production and sales volume increases was the Morenci mine, which included production from its Southside solution extraction/electrowinning (SX/EW) project that commenced operations in the third quarter of 1995. The sales volume increases partially offset the impact of average copper prices that were lower in the second quarter and first six months of 1996 than in the year-earlier periods. Resulting sales in the second quarter of 1996 were $529.3 million, 10 percent lower than the corresponding 1995 period, while sales in the first six months of 1996 were 7 percent lower than the same 1995 period. Phelps Dodge Mining Company recorded operating income of $146.3 million in the 1996 second quarter and $330.9 million in the first six months of 1996, compared with $187.9 million and $390.0 million in the corresponding 1995 periods. These decreases resulted from the lower average copper prices, partially offset by the higher sales volumes already discussed and lower copper production costs. Decreased 1996 unit production costs resulted principally from the favorable costs of the Southside SX/EW project. The 1996 amounts also reflected an $18.0 million reduction of pre-tax earnings for adjustments during June to mark to market concentrate transactions that had been recorded in prior months at provisional forward prices. These adjustments primarily reflected a sharp drop in copper futures prices in the month of June. On May 1, 1996, the Corporation announced plans to expand concentrator throughput at its Candelaria copper mining complex in northern Chile (the Corporation owns an 80 percent interest in Candelaria). At full capacity, the $337 million expansion will result in copper production of more than 400 million pounds in each of the first two years of operations, although, under the current operating plan, annual copper production will average approximately 380 million pounds during the post-expansion mine life. The expansion will include increased mining activity, the installation of a second semi-autogenous (SAG) mill and new and expanded concentrating facilities, and the addition of more than 200 employees. Construction will begin in 1996, with new production scheduled to come on line in mid-1998. As a result of the expansion, the estimated mine life of Candelaria will be reduced from 35 years of production to 19 years. The collective bargaining agreements covering approximately 700 employees at Phelps Dodge Mining Company's Chino operations in New Mexico expired on June 30, 1996. As of August 7, 1996, employees who were covered by the agreements have continued to work without a contract. PHELPS DODGE INDUSTRIES Phelps Dodge Industries is a business segment comprising a group of companies that manufacture engineered products principally for the transportation, energy and telecommunications sectors worldwide. Its operations are characterized by products with significant market share, internationally competitive cost and quality, and specialized engineering capabilities. This business segment includes the Corporation's specialty chemical operations through Columbian Chemicals Company and its subsidiaries; its wheel and rim operations through Accuride Corporation and its subsidiaries; and its wire and cable and specialty conductor operations through Phelps Dodge International Corporation and Phelps Dodge Magnet Wire Company and their subsidiaries and affiliates. ================================================================================ First Six Second Quarter Months -------------- ------------- 1996 1995 1996 1995 ---- ---- ---- ---- (in millions) Sales and other operating revenues: Specialty chemicals $ 109.9 112.8 222.3 219.7 Wheels and rims 81.1 95.8 163.9 192.6 Wire and cable 237.4 225.9 462.3 449.3 ------- ------- ------- ------- $ 428.4 434.5 848.5 861.6 ======= ======= ======= ======= Operating income: * Specialty chemicals $ 23.7 24.1 44.9 69.6 Wheels and rims 13.2 13.4 24.2 27.5 Wire and cable 23.2 22.5 45.4 40.9 ------- ------- ------- ------- $ 60.1 60.0 114.5 138.0 ======= ======= ======= ======= - ------------------------- * Operating income in the first six months of 1995 included a pre-tax gain of $26.8 million in the specialty chemicals division from the sale of a synthetic iron oxide facility in the first quarter. ================================================================================ During the 1996 second quarter, Phelps Dodge Industries recorded operating income of $60.1 million, compared with $60.0 million in the corresponding 1995 period. Operating income in the first six months of 1996 was $114.5 million, compared with $111.2 million in the first six months of 1995 before a pre-tax gain of $26.8 million from the sale of Columbian Chemicals Company's MAPICO division in the first quarter. Primarily as a result of benefits from certain manufacturing cost reduction programs instituted during 1995, earnings in the second quarter and first six months of 1996 were higher than in the 1995 periods (excluding the MAPICO gain) despite an overall decrease in sales. Phelps Dodge Industries' sales of $428.4 million and $848.5 million in the second quarter and first six months of 1996, respectively, were less than 2 percent lower than in the corresponding 1995 periods as continued strength in the specialty chemicals business and higher sales volumes in the wire and cable businesses largely offset a 15 percent decrease in wheel and rim sales. Sales volumes of wire and cable products benefited from the acquisition in May 1996 of Nesor Alloy Corporation, a leading manufacturer of high-performance conductors for the general electronics and aerospace industries. The decrease in wheel and rim sales was driven by lower sales volumes resulting from decreased demand from the major North American manufacturers of medium and heavy trucks and trailers. On August 7, 1996, the Corporation announced plans to construct a magnet wire manufacturing plant in Monterrey, Mexico. Construction of the $42 million project is scheduled to begin in 1996 with commercial production expected in early 1998. This new plant, together with the Corporation's recently expanded facility in El Paso, Texas, is expected to support customer growth in the region while freeing up capacity at existing U.S. plants to meet growing demand for magnet wire in the United States. OTHER MATTERS RELATING TO THE STATEMENT OF CONSOLIDATED INCOME Interest expense net of capitalized interest was $10.0 million in the second quarter of 1996 and $27.0 million in the first six months, compared with $18.3 million and $33.3 million in the corresponding periods in 1995. The 1996 amounts benefited from foreign currency exchange gains of approximately $8.0 million representing the remeasurement of Venezuelan local currency debt after a major devaluation of the Bolivar. These gains were offset by approximately $7.0 million of similar expenses included in miscellaneous income and expense, net, principally reflecting the effect of the devaluation on working capital. Miscellaneous income in the first six months of 1996 also included an increase of $5.0 million in dividends received from the Corporation's 13.9 percent minority interest in Southern Peru Copper Corporation. CHANGES IN FINANCIAL CONDITION Capital outlays during the first six months of 1996 were $136.4 million for Phelps Dodge Mining Company and $71.0 million for Phelps Dodge Industries. Capital outlays in the corresponding 1995 period were $154.4 million for Phelps Dodge Mining Company and $25.5 million for Phelps Dodge Industries. The Corporation expects capital outlays for the year 1996 to be approximately $350 million for Phelps Dodge Mining Company, including Phelps Dodge's 80 percent share of amounts to be spent on the recently announced Candelaria expansion. Phelps Dodge Industries is expected to spend approximately $150 million during the year. This amount does not include the $29 million spent in May 1996 for the previously announced acquisition of Nesor Alloy Corporation. At June 30, 1996, the Corporation's total debt was $702.7 million, compared with $696.5 million at year-end 1995. The Corporation's ratio of debt to total capitalization was 20.1 percent at June 30, 1996, compared with 20.2 percent at December 31, 1995. An existing revolving credit agreement between the Corporation and several lenders was amended on June 4, 1996. The agreement, as amended and restated, permits borrowings of up to $500 million from time to time until its scheduled maturity on June 4, 2001. The agreement allows for up to two one-year renewals beyond the scheduled maturity date if the Corporation requests and receives approval from at least two-thirds of the lenders involved. Interest is payable at a fluctuating rate based on the agent bank's prime rate or a fixed rate, based on the Eurodollar Interbank Offered Rate or at fixed rates offered independently by the several lenders, for maturities of from seven to 360 days. This agreement provides for an annual facility fee of eight basis points (0.08 percent) on total commitments. The agreement requires the Corporation to maintain a minimum consolidated tangible net worth of $1.1 billion and limits indebtedness to 50 percent of total consolidated capitalization. There were no borrowings under this agreement at either June 30, 1996 or December 31, 1995. On June 7, 1996, the Corporation paid a regular quarterly dividend of 50 cents per share on its common shares for the 1996 second quarter which represented an 11 percent increase over the prior quarterly dividend of 45 cents per share. The amount paid for the second quarter was $33.2 million, bringing total 1996 dividends paid through June 30 to $63.5 million. On July 26, 1996, the Board of Directors declared a 1996 third quarter regular dividend of 50 cents per common share to be paid on September 6, 1996, to shareholders of record at the close of business on August 19, 1996. In 1996 through August 7, the Corporation purchased 3,360,300 of its common shares at a total cost of $214.1 million. On March 6, 1996, the Corporation announced that its current share purchase authorization had been increased from 5 million shares to a total of 10 million shares. Through August 7, 1996, the Corporation had purchased 6,035,900 of its common shares under the program at a total cost of $372.3 million, leaving an additional 3,964,100 shares authorized for purchase. There were 65,955,800 common shares outstanding on June 30, 1996. Part II. Other Information Item 1. Legal Proceedings Reference is made to Paragraph III. of Item 3. Legal Proceedings of the Corporation's Form 10-K for the year ended December 31, 1995, regarding the proceedings described below. Prior to the mid-1960s, a predecessor of Phelps Dodge Industries, Inc. (PDI), a subsidiary of the Corporation, manufactured and sold some cable and wire products that were insulated with material containing asbestos. PDI believes that the use of its products did not result in significant releases of airborne asbestos fibers. PDI and the Corporation are collectively referred to below as PDI. Since the late 1980s, PDI has been served with complaints in asbestos-related actions filed on behalf of over 17,200 claimants. In these proceedings, plaintiffs have alleged bodily injury or death caused by purported exposure to asbestos and have claimed damages based on theories of strict liability and negligence. Over 12,500 of those claimants were participants in the Ingalls Shipyard asbestos litigation filed in Pascagoula, Mississippi. Each claimant in that litigation sought from $2 million to $20 million in compensatory and punitive damages from a group of approximately 100 to 150 defendants, which included PDI. Since the beginning of 1993, PDI has obtained dismissal of all but one of the claims brought against it in Mississippi. As of June 30, 1996, a total of 3,239 asbestos-related claims were pending against PDI in 15 jurisdictions. PDI is vigorously contesting and defending these asbestos-related claims. Item 4. Submission of Matters to a Vote of Security Holders The Corporation's annual meeting was held on May 1, 1996. A total of 55,661,412 common shares, or about 83 percent of the issued and outstanding common shares of the Corporation, were represented at the meeting. Set forth below is a description of the matters voted upon at such meeting and a summary of the voting regarding each such matter: For Withheld --- -------- Election of Directors: Paul W. Douglas 55,541,015 120,397 William A. Franke 55,542,719 118,693 Southwood J. Morcott 55,543,239 118,173 J. Steven Whisler 55,544,435 116,977 For Against Abstain --- ------- ------- Appointment of Auditors 55,557,632 45,467 58,313 There were no broker non-votes included in the results for the election of directors listed above or the appointment of auditors. Item 6. Exhibits and Reports on Form 8-K (a) Any exhibits required to be filed by the Corporation are listed in the Index to Exhibits. (b) No reports on Form 8-K were filed by the Corporation during the quarter ended June 30, 1996. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Corporation has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. PHELPS DODGE CORPORATION ------------------------ (Corporation or Registrant) Date: August 9, 1996 By: Thomas M. Foster ---------------- Thomas M. Foster Vice President and Controller (Principal Accounting Officer) PHELPS DODGE CORPORATION AND SUBSIDIARIES INDEX TO EXHIBITS 12 Computation of ratios of total debt to total capitalization. 15 Letter from Price Waterhouse LLP with respect to unaudited interim financial information. EX-12 2 COMPUTATION OF RATIO PHELPS DODGE CORPORATION AND SUBSIDIARIES Exhibit 12 COMPUTATION OF TOTAL DEBT TO TOTAL CAPITALIZATION (Unaudited; dollars in thousands) June 30, December 31, 1996 1995 ---- ---- Short-term debt $ 72,600 66,600 Current portion of long-term debt 30,200 16,800 Long-term debt 599,900 613,100 ---------- ---------- Total debt 702,700 696,500 Minority interests in subsidiaries 76,400 73,300 Common shareholders' equity 2,710,900 2,677,700 ---------- ---------- Total capitalization $ 3,490,000 3,447,500 ========== ========== Ratio of total debt to total capitalization 20.1% 20.2% ========== ========== EX-15 3 LETTER RE: UNAUDITED INTERIM FINANCIAL INFORMATION Exhibit 15 PRICE WATERHOUSE LLP August 8, 1996 Securities and Exchange Commission 450 Fifth Street, N.W. Washington, D.C. 20549 Ladies and Gentlemen: We are aware that Phelps Dodge Corporation has incorporated by reference our report dated July 11, 1996 (issued pursuant to the provisions of Statements on Auditing Standards Nos. 71 and 42) in the Prospectus constituting part of its Registration Statements on Form S-3 (No. 33-44380) and Form S-8 (Nos. 33-26442, 33-6141, 33-26443, 33-29144, 33-19012, 2-67317, 33-34363, 33-34362, 33-62486). We are also aware of our responsibilities under the Securities Act of 1933. Yours very truly, Price Waterhouse LLP Phoenix, Arizona EX-27 4 ART. 5 FDS FOR 2ND QUARTER 10-Q
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEET AT JUNE 30, 1996 AND THE RELATED CONSOLIDATED STATEMENTS OF INCOME AND OF CASH FLOWS FOR THE SIX MONTHS ENDED JUNE 30, 1996 OF PHELPS DODGE CORPORATION AND ITS SUBSIDIARIES AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 U.S. DOLLARS 6-MOS DEC-31-1996 JAN-01-1996 JUN-30-1996 1 541,000 0 485,000 0 289,200 1,515,000 2,841,200 0 4,729,400 611,500 599,900 0 0 412,200 2,298,700 4,729,400 1,962,400 1,962,400 1,311,400 1,311,400 185,600 0 27,000 415,500 135,100 279,400 0 0 0 279,400 4.16 4.16
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