-----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, FU2obSbFrli2V8fuIpndaTOxpwZZ0vgQ0qWll0DEvAn62t/fBqMYgGyGtasCtR/H DVt7iKWwnCno3eF03ff6Ww== 0000950147-99-001242.txt : 19991115 0000950147-99-001242.hdr.sgml : 19991115 ACCESSION NUMBER: 0000950147-99-001242 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19990930 FILED AS OF DATE: 19991112 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: SEC FILE NUMBER: 001-00082 FILM NUMBER: 99749529 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 QTRLY REPORT FOR THE PERIOD ENDED 09/30/99 ================================================================================ 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 September 30, 1999 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 November 10, 1999: 74,779,977 shares. ================================================================================ PHELPS DODGE CORPORATION QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 1999 Table of Contents
Page ---- Part I. Financial Information Item 1. Financial Statements Statement of Consolidated Operations .............................. Consolidated Balance Sheet ........................................ Consolidated Statement of Cash Flows .............................. Consolidated Statement of Common Shareholders' Equity ............. Financial Data by Business Segment ................................ Notes to Consolidated Financial Information ....................... Review by Independent Accountants ................................. Report of Independent Accountants on Review of Interim Financial Information ........................................... Item 2. Management's Discussion and Analysis Results of Operations ............................................. Results of Phelps Dodge Mining Company ............................ Results of Phelps Dodge Industries ................................ Other Matters Relating to the Statement of Consolidated Operations Changes in Financial Condition .................................... Part II. Other Information Item 6. Exhibits and Reports on Form 8-K ............................ Signatures .......................................................... Index to Exhibits ...................................................
-1- PHELPS DODGE CORPORATION AND SUBSIDIARIES Part I. Financial Information ITEM 1. FINANCIAL STATEMENTS
Third Quarter First Nine Months ------------------- -------------------- 1999 1998 1999 1998 -------- -------- -------- -------- STATEMENT OF CONSOLIDATED OPERATIONS (Unaudited; in millions except per share data) SALES AND OTHER OPERATING REVENUES ........................ $ 742.7 764.0 2,096.9 2,356.7 -------- -------- -------- -------- OPERATING COSTS AND EXPENSES Cost of products sold ................................. 579.6 594.7 1,652.8 1,790.8 Depreciation, depletion and amortization .............. 68.4 74.0 212.7 218.5 Selling and general administrative expense ............ 29.8 27.4 89.6 91.6 Exploration and research expense ...................... 12.3 15.2 33.4 41.5 Non-recurring charges and provision for asset disposition (see Notes 4 and 5) ............... 1.1 (12.6) 84.1 (198.7) -------- -------- -------- -------- 691.2 698.7 2,072.6 1,943.7 -------- -------- -------- -------- OPERATING INCOME .......................................... 51.5 65.3 24.3 413.0 Interest expense ...................................... (20.3) (23.3) (68.4) (67.9) Capitalized interest .................................. -- 0.5 0.1 1.7 Miscellaneous income and expense, net ................. 2.9 7.1 (3.5) 29.4 -------- -------- -------- -------- INCOME (LOSS) BEFORE TAXES, MINORITY INTERESTS, EQUITY IN NET EARNINGS OF AFFILIATED COMPANIES AND CUMULATIVE EFFECT OF ACCOUNTING CHANGE .............. 34.1 49.6 (47.5) 376.2 Provision for taxes on income ......................... (17.4) (19.0) 1.3 (138.5) Minority interests in consolidated subsidiaries ....... (0.6) (2.9) (0.1) (6.7) Equity in net earnings of affiliated companies ........ (0.7) 0.9 4.7 1.7 -------- -------- -------- -------- INCOME (LOSS) BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGE 15.4 28.6 (41.6) 232.7 Cumulative effect of accounting change (see Note 6) ... -- -- (3.5) -- -------- -------- -------- -------- NET INCOME (LOSS) ......................................... $ 15.4 28.6 (45.1) 232.7 ======== ======== ======== ======== AVERAGE NUMBER OF SHARES OUTSTANDING - BASIC .............. 57.8 58.3 57.8 58.4 BASIC EARNINGS (LOSS) PER SHARE BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGE .................................... $ 0.27 0.49 (0.72) 3.98 Cumulative effect of accounting change (see Note 6) ... -- -- (0.06) -- -------- -------- -------- -------- BASIC EARNINGS (LOSS) PER SHARE ........................... $ 0.27 0.49 (0.78) 3.98 ======== ======== ======== ======== AVERAGE NUMBER OF SHARES OUTSTANDING - DILUTED ............ 58.1 58.5 57.8 58.6 DILUTED EARNINGS (LOSS) PER SHARE BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGE .................................... $ 0.27 0.49 (0.72) 3.97 Cumulative effect of accounting change (see Note 6) ... -- -- (0.06) -- -------- -------- -------- -------- DILUTED EARNINGS (LOSS) PER SHARE ......................... $ 0.27 0.49 (0.78) 3.97 ======== ======== ======== ========
See Notes to Consolidated Financial Information. -2- CONSOLIDATED BALANCE SHEET (Unaudited; in millions)
September 30, December 31, 1999 1998 -------- -------- ASSETS Cash and cash equivalents ......................... $ 165.0 221.7 Accounts receivable, net .......................... 407.9 321.1 Inventories ....................................... 269.5 266.0 Supplies .......................................... 104.6 110.9 Prepaid expenses .................................. 17.1 16.5 Deferred income taxes ............................. 48.9 43.8 -------- -------- Current assets .................................. 1,013.0 980.0 Investments and long-term accounts receivable ..... 91.7 85.6 Property, plant and equipment, net ................ 3,455.7 3,587.2 Other assets and deferred charges ................. 328.9 383.7 -------- -------- $4,889.3 5,036.5 ======== ======== LIABILITIES Short-term debt ................................... $ 229.8 116.1 Current portion of long-term debt ................. 54.7 68.5 Accounts payable and accrued expenses ............. 467.3 451.3 Accrued income taxes .............................. 2.9 15.2 -------- -------- Current liabilities ............................. 754.7 651.1 Long-term debt .................................... 806.5 836.4 Deferred income taxes ............................. 499.7 508.6 Other liabilities and deferred credits ............ 373.1 359.7 -------- -------- 2,434.0 2,355.8 -------- -------- MINORITY INTERESTS IN CONSOLIDATED SUBSIDIARIES ..... 78.5 93.3 -------- -------- COMMON SHAREHOLDERS' EQUITY Common shares, 58.0 outstanding (12/31/98 - 57.9) . 362.5 362.1 Capital in excess of par value .................... 5.8 1.8 Retained earnings ................................. 2,212.9 2,345.0 Accumulated other comprehensive income (loss) ..... (197.1) (113.9) Other ............................................. (7.3) (7.6) -------- -------- 2,376.8 2,587.4 -------- -------- $4,889.3 5,036.5 ======== ========
See Notes to Consolidated Financial Information. -3- CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited; in millions)
Nine months ended Sept. 30, ---------------- 1999 1998 ------ ------ OPERATING ACTIVITIES Net income (loss) ................................................... $(45.1) 232.7 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation, depletion and amortization ........................ 212.7 218.5 Deferred income taxes ........................................... (3.8) 40.8 Equity earnings (loss) net of dividends received ................ (4.6) (0.1) Changes in current assets and liabilities: (Increase) decrease in accounts receivable ................... (104.0) (34.8) (Increase) decrease in inventories ............................ (12.4) (17.3) (Increase) decrease in supplies ............................... 3.5 (3.0) (Increase) decrease in prepaid expenses ....................... (1.0) (3.5) (Increase) decrease in deferred income taxes .................. (5.2) 6.7 Increase (decrease) in interest payable ....................... 9.2 17.3 Increase (decrease) in other accounts payable ................. (14.2) (44.8) Increase (decrease) in accrued income taxes ................... (11.6) 28.8 Increase (decrease) in other accrued expenses ................. (1.6) (6.9) Asset dispositions and non-recurring charges (see Notes 4 and 5) 85.8 (198.7) Other adjustments, net .......................................... 8.9 (7.8) ------ ------ Net cash provided by operating activities ................... 116.6 227.9 ------ ------ INVESTING ACTIVITIES Capital outlays ..................................................... (101.2) (248.8) Capitalized interest ................................................ (0.1) (1.7) Investment in subsidiaries .......................................... (75.4) (135.4) Proceeds from asset dispositions and other, net (see Notes 4 and 5) 7.3 466.5 ------ ------ Net cash provided by (used in) investing activities ......... (169.4) 80.6 ------ ------ FINANCING ACTIVITIES Increase in debt .................................................... 136.3 16.0 Payment of debt ..................................................... (49.0) (54.0) Common dividends .................................................... (87.0) (88.3) Purchase of common shares ........................................... -- (31.5) Other, net .......................................................... (4.2) 0.9 ------ ------ Net cash used in financing activities ....................... (3.9) (156.9) ------ ------ INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ...................... (56.7) 151.6 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD ...................... 221.7 157.9 ------ ------ CASH AND CASH EQUIVALENTS AT END OF PERIOD ............................ $165.0 309.5 ====== ======
See Notes to Consolidated Financial Information. -4- CONSOLIDATED STATEMENT OF COMMON SHAREHOLDERS' EQUITY (Unaudited; in millions)
Common Shares Accumulated -------------------- Capital in Other Common Number At Par Excess of Retained Comprehensive Shareholders' of Shares Value Par Value Earnings Income (loss) Other Equity -------- -------- -------- -------- -------- -------- -------- BALANCE AT DECEMBER 31, 1998 ............ 57.9 $ 362.1 $ 1.8 $2,345.0 $ (113.9) $ (7.6) $2,587.4 Stock options exercised ............... 0.1 0.3 2.0 -- 2.3 Restricted shares issued, net ......... -- 0.1 1.0 -- 0.3 1.4 Other investment adjustments .......... 1.0 -- 1.0 Dividends on common shares ............ (87.0) (87.0) Comprehensive income (loss): Net income (loss) ................... (45.1) (45.1) Other comprehensive income (loss), net of tax: Reclassification adjustment * ... 11.8 11.8 Translation adjustment .......... (95.0) (95.0) -------- -------- Other comprehensive income (loss) (83.2) (83.2) -------- -------- Comprehensive income (loss) ......... (128.3) -------- -------- -------- -------- -------- -------- -------- BALANCE AT SEPTEMBER 30, 1999 ........... 58.0 $ 362.5 $ 5.8 $2,212.9 $ (197.1) $ (7.3) $2,376.8 ======== ======== ======== ======== ======== ======== ========
DISCLOSURE OF RECLASSIFICATION AMOUNT: * The 1999 reclassification adjustment represents the write-off of cumulative translation adjustments as a result of the sale of PD Mining Ltd. See Notes to Consolidated Financial Information. -5- FINANCIAL DATA BY BUSINESS SEGMENT (Unaudited; in millions)
PD Industries Phelps ---------------------------------------- Dodge Specialty Wire & Other * Segment Corp. Reconciling Mining Chemicals Cable Segments Total Subtotal & Other Elims. Totals - ------------------------------------------------------------------------------------------------------------------------------------ THIRD QUARTER 1999 Sales & other operating revenues: Unaffiliated customers ........ $ 406.9 132.9 202.9 -- 335.8 742.7 -- -- 742.7 Intersegment .................. 62.2 -- 0.1 -- 0.1 62.3 -- (62.3) -- Non-recurring charges ........... -- -- 1.1 -- 1.1 1.1 -- -- 1.1 Operating income (loss) ......... 36.2 21.9 4.9 -- 26.8 63.0 (11.5) -- 51.5 Assets at September 30 .......... 3,175.3 761.4 805.6 -- 1,567.0 4,742.3 1,109.5 (962.5) 4,889.3 - ------------------------------------------------------------------------------------------------------------------------------------ THIRD QUARTER 1998 Sales & other operating revenues: Unaffiliated customers ........ $ 421.9 104.6 237.5 -- 342.1 764.0 -- -- 764.0 Intersegment .................. 63.8 -- 0.3 -- 0.3 64.1 -- (64.1) -- Gain on asset disposition ....... -- -- -- 12.6 12.6 12.6 -- -- 12.6 Operating income (loss) ......... 27.2 17.7 17.0 12.6 47.3 74.5 (9.7) 0.5 65.3 Assets at September 30 .......... 3,262.9 492.4 934.9 -- 1,427.3 4,690.2 836.9 (496.1) 5,031.0 - ------------------------------------------------------------------------------------------------------------------------------------ FIRST NINE MONTHS 1999 Sales & other operating revenues: Unaffiliated customers ........ $1,102.3 398.8 595.8 -- 994.6 2,096.9 -- -- 2,096.9 Intersegment .................. 170.7 -- 0.2 -- 0.2 170.9 -- (170.9) -- Non-recurring charges ........... 34.5 19.9 29.5 -- 49.4 83.9 0.2 -- 84.1 Operating income (loss) ......... 8.2 62.7 (11.0) -- 51.7 59.9 (34.5) (1.1) 24.3 Assets at September 30 .......... 3,175.3 761.4 805.6 -- 1,567.0 4,742.3 1,109.5 (962.5) 4,889.3 - ------------------------------------------------------------------------------------------------------------------------------------ FIRST NINE MONTHS 1998 Sales & other operating revenues: Unaffiliated customers ........ $1,303.5 326.9 726.3 -- 1,053.2 2,356.7 -- -- 2,356.7 Intersegment .................. 197.1 -- 1.7 -- 1.7 198.8 -- (198.8) -- Gain on asset disposition ....... -- -- -- 198.7 198.7 198.7 -- -- 198.7 Operating income (loss) ......... 119.2 61.3 66.2 198.7 326.2 445.4 (30.8) (1.6) 413.0 Assets at September 30 .......... 3,262.9 492.4 934.9 -- 1,427.3 4,690.2 836.9 (496.1) 5,031.0 - ------------------------------------------------------------------------------------------------------------------------------------
* Other segments include Accuride Corporation which was sold effective January 1, 1998. (See Note 5 for a further discussion of this sale.) - 6 - 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 our Form 10-K for the year ended December 31, 1998. 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 nine-month periods ended September 30, 1999, are not necessarily indicative of the results to be expected for the full year. 3. Depending on market circumstances, we may periodically purchase or liquidate various copper price protection contracts for a portion of our expected future mine production to mitigate the risk of adverse price fluctuations. With respect to 2000 production, as of September 30, 1999, we had entered into annual contracts with several financial institutions that effectively ensure minimum (approximately 72 cents) and maximum (approximately 95 cents) prices per pound for approximately 110 million pounds of copper cathode. The minimum and maximum prices are based on the annual average LME price. 4. On June 30, 1999, we announced a plan to reduce costs and improve operating performance at all three of our business segments by (i) curtailing higher-cost copper production by temporarily closing our Hidalgo smelter in New Mexico and the smaller of two concentrators at our Morenci mining operations in Arizona, as well as curtailing production by 50 percent at our copper refinery in El Paso, Texas; (ii) selling a non-core South African fluorspar mining unit; (iii) restructuring certain wire and cable assets to respond to changing market conditions; and (iv) suspending operations at Columbian Chemicals Company's carbon black plant in the Philippines. These actions resulted in a total non-recurring, pre-tax charge of $84.7 million (or $58.7 million, $1.01 per share, after taxes and minority interests) in the 1999 second quarter and a pre-tax charge of $1.1 million (or $0.7 million, 1 cent per share, after taxes) in the 1999 third quarter. Our mining segment had non-recurring, pre-tax charges of $34.5 million in the 1999 second quarter from the restructuring plan. That amount included $7 million resulting from a loss on the sale of our fluorspar mining operation in South Africa. Also included in the restructuring plan were charges associated with employee severance ($8.2 million), pension and other post-retirement obligations ($5.6 million), environmental cleanup ($7.3 million) and mothballing and take-or-pay contracts ($6.4 million). The current liability components of the restructuring plan related to employee severance, mothballing and take-or-pay contracts during the third quarter of 1999 were as follows: (in millions)
Mothballing/ Take-or- Employee Pay Severance Contracts Total ------ ------ ------ Opening balance $ 8.2 6.4 14.6 Payments made (5.3) (0.9) (6.2) ------ ------ ------ Closing balance $ 2.9 5.5 8.4 ====== ====== ======
Our specialty chemicals segment had non-recurring, pre-tax charges of $19.9 million in the 1999 second quarter from the restructuring plan. Included in that amount were costs associated with asset and investment write-offs ($14.9 million), environmental and other clean-up ($3 million), and employee severance ($2 million). There were no payments for current liability components of the restructuring plan related to employee severance and environmental and other clean-up costs during the third quarter of 1999. Our wire and cable segment had non-recurring, pre-tax charges of $30.1 million in the 1999 second quarter and $1.1 million in the 1999 third quarter from the restructuring plan. Included in the 1999 second quarter restructuring plan charges were asset write-offs ($21.4 million), employee severance ($5 million), disposal, dismantling and relocation ($2 million), and the write-off of an equity basis investment ($1.7 million). The -7- components of the restructuring plan related to employee severance, and disposal and dismantling costs during the third quarter of 1999 were as follows: (in millions)
Disposal Employee and Severance Dismantling Total ------ ------ ------ Opening balance $ 5.0 1.0 6.0 Reclassification of restructure * (1.5) 0.0 (1.5) Payments made (1.4) (0.0) (1.4) ------ ------ ------ Closing balance $ 2.1 1.0 3.1 ====== ====== ======
* Reclassified to pension and post-retirement benefit obligations. The third quarter 1999 charges of $1.1 million were principally for expenses to relocate equipment. 5. Effective January 1, 1998, we sold a 90 percent interest in our wheel and rim manufacturing business, Accuride Corporation and related subsidiaries (Accuride), to an affiliate of Kohlberg Kravis Roberts and Co. (KKR) and the existing management of Accuride. That sale resulted in a pre-tax gain of $186.1 million ($122.8 million after taxes, or $2.09 per common share). The remaining 10 percent interest in Accuride was sold to RSTW Partners III, L.P., on September 30, 1998, resulting in a pre-tax gain of $12.6 million ($8.3 million after taxes, or 14 cents per common share). Under the terms of the sales agreements, we received total proceeds of $465.9 million from the two transactions, less $16.4 million in working capital adjustments and transaction costs. 6. In the 1999 first quarter, we adopted SOP 98-5, "Reporting on the Costs of Start-Up Activities." The implementation resulted in a $3.5 million after-tax charge, or 6 cents per common share, representing the write-off of previously unamortized start-up costs at our Candelaria mining operation in Chile and our magnet wire operation in Monterrey, Mexico. 7. In June 1998, the Financial Accounting Standards Board issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." This statement requires recognition of all derivatives as either assets or liabilities on the balance sheet and measurement of those instruments at fair value. Changes in the fair value of derivatives are recorded each period in current earnings or other comprehensive income (loss). Proper accounting for changes in fair value of derivatives held is dependent on whether the derivative transaction qualifies as an accounting hedge and on the classification of the hedge transaction. The statement was originally required to be adopted in the first quarter of 2000. Citing concerns about companies' ability to modify their information systems and educate their managers in time to apply SFAS No.133, the Financial Accounting Standards Board has delayed its effective date for one year. We are evaluating the effect this statement will have on our financial reporting and disclosures as well as on our derivative and hedging activities. 8. As of December 31, 1998, we had a reserve balance of $106.0 million for estimated future costs associated with environmental matters. During the first nine months of 1999, net spending against that reserve totaled $8.4 million. During the second quarter of 1999, we recorded an additional $8.3 million provision for estimated future costs associated with environmental matters as part of our restructuring plan announced on June 30, 1999. This $8.3 million increase in the environmental reserve balance was directly related to the indefinite suspension of operations at our Hidalgo smelter ($7.3 million) and our Philippine carbon black facility ($1.0 million). As of September 30, 1999, the reserve balance was $105.9 million. 9. On October 22, 1999, we announced the completion of our offer to exchange $7.61 in cash and 0.2203 Phelps Dodge shares for each share of Cyprus Amax Minerals Company (Cyprus Amax) on a fully prorated basis. The exchange offer expired at 12:00 midnight, eastern time, October 15, 1999. We were informed by ChaseMellon Shareholder Services, the exchange agent for the offer, that based on a final count, 81.5 million shares of Cyprus Amax stock were tendered, representing 89.6 percent of the outstanding shares of Cyprus Amax. Of the 81.5 million shares tendered, 51.3 million elected cash, 29.8 million elected stock and 351,000 made no election. All shares of Cyprus Amax tendered were accepted for -8- exchange by Phelps Dodge according to the terms of the exchange offer. The October 15, 1999, exchange offer resulted in the exchange of 16.7 million shares of Phelps Dodge stock and $693 million in cash. We expect the acquisition of Cyprus Amax to be 100 percent complete by December 2, 1999, with the remaining Cyprus Amax shares to be acquired in exchange for approximately 3.3 million shares of Phelps Dodge stock. The total purchase price including acquired debt, net of cash, is expected to be approximately $2.6 billion for 100 percent of the shares of Cyprus Amax. The primary assets of Cyprus Amax include the wholly owned Sierrita, Bagdad and Miami copper mining operations in Arizona, the wholly owned smelter, refinery and rod plant in Miami, Arizona, a wholly owned rod plant in Chicago, Illinois, the 51 percent owned El Abra copper operation in Chile and the 82 percent owned Cerro Verde copper operation in Peru. Cyprus Amax also owns two molybdenum mining operations (Henderson and Climax) in Colorado and molybdenum conversion plants at Sierrita; Ft. Madison, Iowa; Rotterdam, the Netherlands; and Stowmarket, U.K. Pro forma financial information for this transaction will be provided in the required Form 8-K filing toward the end of December. The acquisition of Cyprus Amax will be completed using the purchase method, and accordingly the assets and liabilities will be adjusted to reflect their fair value. REVIEW BY INDEPENDENT ACCOUNTANTS The financial information as of September 30, 1999, and for the three-month and nine-month periods ended September 30, 1999 and 1998, included in Part I pursuant to Rule 10-01 of Regulation S-X has been reviewed by PricewaterhouseCoopers LLP (PricewaterhouseCoopers), our independent accountants, in accordance with standards established by the American Institute of Certified Public Accountants. PricewaterhouseCoopers' report is included in this quarterly report. PricewaterhouseCoopers 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. -9- REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Shareholders of the Phelps Dodge Corporation We have reviewed the accompanying consolidated balance sheet of Phelps Dodge Corporation and its subsidiaries as of September 30, 1999, and the related consolidated statements of operations, for each of the three-month and nine-month periods ended September 30, 1999 and 1998 and the consolidated statement of cash flows and of common shareholders' equity for the nine-month periods ended September 30, 1999 and 1998. This financial information is 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 accompanying consolidated financial information referred to above for it 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, 1998, 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 14, 1999, 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, 1998, is fairly stated in all material respects in relation to the consolidated balance sheet from which it has been derived. PricewaterhouseCoopers LLP Phoenix, Arizona October 11, 1999, except as to Note 9, which is as of October 18, 1999 -10- ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS The U.S. securities laws provide a "safe harbor" for certain forward-looking statements. This quarterly report contains "forward-looking statements" that express expectations of future events or results. All statements based on future expectations rather than historical facts are forward-looking statements that involve a number of risks and uncertainties, and Phelps Dodge Corporation (the company, which may be referred to as Phelps Dodge, we, us or ours) cannot give assurance that such statements will prove to be correct. Please refer to the Management's Discussion and Analysis sections of the company's report on Form 10-K for the year ended December 31, 1998. RESULTS OF OPERATIONS EARNINGS The company had consolidated earnings in the 1999 third quarter of $16.1 million, or 28 cents per common share, before non-recurring, after-tax charges of $0.7 million, or 1 cent per common share from the company's restructuring plan announced on June 30, 1999 (please refer to Note 4 to the Consolidated Financial Information). Our third quarter net income after the restructuring charges was $15.4 million, or 27 cents per common share. By comparison, earnings in the 1998 third quarter were $20.3 million, or 35 cents per common share, excluding a non-recurring, after-tax gain of $8.3 million, or 14 cents per common share, from the completion of the disposition of Accuride Corporation (please refer to Note 5 to the Consolidated Financial Information). Earnings for the nine months ended September 30, 1999, were $17.8 million, or 31 cents per common share, before after-tax charges of $59.4 million, or $1.03 per common share from the restructuring plan, and an after-tax charge of $3.5 million, or 6 cents per common share, recognized in the first quarter for the cumulative effect of an accounting change associated with unamortized start-up costs (please refer to Note 6 to the Consolidated Financial Information). The net loss for the nine months ended September 30, 1999, after the non-recurring charges was $45.1 million, or 78 cents per common share. Earnings for the first nine months of 1998 were $101.6 million, or $1.73 per common share, before a non-recurring, after-tax gain of $131.1 million, or $2.24 per common share, from the sale of Accuride Corporation. Earnings before non-recurring items were less in the nine-month period ended September 30, 1999, than in the corresponding 1998 period principally as a result of lower average copper prices and reduced earnings from our wire and cable segment. The average spot price per pound of cathode copper on the New York Commodity Exchange (COMEX) for the first nine months was approximately 7 cents per pound (9 percent) lower than the average price for the first nine months of 1998. The effect of this price decrease was somewhat mitigated by decreased copper production costs and increased earnings at our specialty chemicals segment. The COMEX spot price per pound of copper cathode, upon which we base our selling price, averaged 78 cents in the third quarter and 70 cents in the first nine months of 1999, compared with 75 cents and 77 cents in the corresponding 1998 periods. From October 1 through November 10, 1999, the COMEX price averaged 80 cents per pound, closing at 79 cents on November 10, 1999. Any material change in the price we receive for copper, or in our unit production costs, has a significant effect on our results. As of September 30, 1999, our share of annual production was approximately 1.5 billion pounds of copper. Accordingly, each 1-cent per pound change in our average annual realized copper price, or in our average annual unit production costs, might cause a variation in annual pre-tax operating income levels of approximately $15 million. Depending on market circumstances, we may periodically purchase or liquidate various copper price protection contracts for a portion of our expected future mine production to mitigate the risk of adverse price fluctuations. With respect to 2000 production, as of September 30, 1999, we had entered into annual contracts with several financial institutions that effectively ensure minimum (approximately 72 cents) and maximum (approximately 95 cents) prices per pound for approximately 110 million pounds of copper cathode. The minimum and maximum prices are based on the annual average LME price. SALES Sales were $742.7 million in the 1999 third quarter and $2,096.9 million in the first nine months of 1999, compared with $764.0 million and $2,356.7 million in the corresponding 1998 periods. The 1999 decrease for the first nine months principally resulted from lower average copper prices, lower sales volumes of copper and lower sales of wire and cable products, partially offset by higher sales volumes of carbon black. -11- BUSINESS SEGMENTS Results for 1999 and 1998 can be meaningfully compared by separate reference to our reporting divisions, Phelps Dodge Mining Company and Phelps Dodge Industries. Phelps Dodge Mining Company is a business segment that includes our worldwide copper operations from mining through rod production, marketing and sales, other mining operations and investments, and worldwide mineral exploration and development programs. Through December 31, 1997, Phelps Dodge Industries included our specialty chemicals segment, our wire and cable segment, and our wheel and rim operations (see Note 5 to the Consolidated Financial Information for a discussion of the sale of our wheel and rim operations effective January 1, 1998). RESULTS OF PHELPS DODGE MINING COMPANY Phelps Dodge Mining Company (PD Mining) 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 our wire and cable segment. We also, at times, smelt and refine copper and produce copper rod for others on a toll basis. We also produce gold, silver, molybdenum and copper chemicals as by-products, and sulfuric acid from our air quality control facilities. This business segment also includes our other mining operations and investments (including silver and zinc operations) and our worldwide mineral exploration and development programs.
Third Quarter ---------------------- 1999 1998 ------- ------- Copper production (short tons): Total production ............................ 227,800 265,400 Less minority participants' shares (A) ................................ 40,200 44,800 ------- ------- Net Phelps Dodge share ...................... 187,600 220,600 ======= ======= Copper sales (short tons): Net Phelps Dodge share from own mines ............................ 193,000 220,600 Purchased copper ............................ 71,300 73,700 ------- ------- Total copper sales .......................... 264,300 294,300 ======= ======= New York Commodity Exchange Average spot price per pound - copper cathodes ............................. $ 0.78 0.75 (in millions) Sales and other operating revenues - unaffiliated customers .................... $ 406.9 421.9 Operating income (B) ............................. $ 36.2 27.2 First Nine Months ---------------------- 1999 1998 ------- ------- Copper production (short tons): Total production ............................ 720,600 792,300 Less minority participants' shares (A) ................................ 125,000 134,100 ------- ------- Net Phelps Dodge share ...................... 595,600 658,200 ======= ======= Copper sales (short tons): Net Phelps Dodge share from own mines ............................ 595,300 650,700 Purchased copper ............................ 205,600 232,700 ------- ------- Total copper sales .......................... 800,900 883,400 ======= ======= New York Commodity Exchange Average spot price per pound - copper cathodes ............................. $ 0.70 0.77 (in millions) Sales and other operating revenues - unaffiliated customers .................... $1,102.3 1,303.5 Operating income (B) ............................. $ 8.2 119.2
- ---------- (A) 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 in Chile held by SMMA Candelaria, Inc., a jointly owned subsidiary of Sumitomo Metal Mining Co., Ltd. and Sumitomo Corporation. (B) Operating income has been presented in compliance with SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information" (with 1998 restated). 1999 includes a second quarter non-recurring, pre-tax charge of $34.5 million for costs associated with a restructuring (see Note 4 to the Consolidated Financial Information). -12- PD MINING - SALES Phelps Dodge Mining Company's sales and other operating revenues decreased by $15.0 million, or 4 percent, in the 1999 third quarter and by $201.2 million, or 15 percent, in the first nine months of 1999 compared with the corresponding 1998 periods. The variance for the first nine months primarily reflected decreased average selling prices for copper that resulted in a revenue reduction of approximately $123 million. The sales and other operating revenue variance for the third quarter and the first nine months also reflected the effect of lower copper sales volumes that resulted in approximately $47 million and $115 million in revenue reductions. The lower volumes were primarily a result of the indefinite suspension of operations at our Cobre copper mine in New Mexico and our Ojos del Salado copper mine in Chile, and the curtailment of production at our Chino copper operations in New Mexico that we announced in the 1998 fourth quarter. The Ojos del Salado suspension occurred on October 21, 1998, while the suspension of Cobre and the curtailment at Chino were completed in phases between October 21, 1998, and the 1999 first quarter. PD MINING - OPERATING INCOME PD Mining reported operating income of $36.2 million in the 1999 third quarter. This compares with $27.2 million in the corresponding 1998 period. The increase primarily reflected the higher average copper price for sales of PD-mined copper (approximately $13 million) and slightly lower production costs, partially offset by lower sales volumes of PD-mined copper. (Please refer to the preceding table.) For the nine-month period ended September 30, 1999, PD Mining reported operating income of $42.7 million before non-recurring, pre-tax charges of $34.5 million from a restructuring plan (please refer to Note 4 to the Consolidated Financial Information). This compares with operating income of $119.2 million in the corresponding 1998 period. The year-to-date decrease primarily reflected the lower average copper price for sales of PD-mined copper (approximately $91 million) and lower sales volumes of PD-mined copper, partially offset by lower copper production costs. (Please refer to the preceding table.) Lower 1999 production costs were due in part to the 1998 curtailment and shutdown of certain higher cost operations. RESULTS OF PHELPS DODGE INDUSTRIES Phelps Dodge Industries (PD Industries), our manufacturing division, produces engineered products principally for the global energy, telecommunications and specialty chemicals sectors. Its operations are characterized by products with significant market share, internationally competitive cost and quality, and specialized engineering capabilities. The manufacturing division includes our specialty chemicals segment and our wire and cable segment. Our specialty chemicals segment includes Columbian Chemicals Company and its subsidiaries (Columbian). Our wire and cable segment includes Phelps Dodge Magnet Wire Company and its subsidiaries (PD Magnet Wire) and Phelps Dodge International Corporation and its affiliates (PDIC).
Third Quarter ---------------------- 1999 1998 ------- ------- (in millions) Sales and other operating revenues - unaffiliated customers: Specialty chemicals ......................... $ 132.9 104.6 Wire and cable .............................. 202.9 237.5 ------- ------- $ 335.8 342.1 ======= ======= Operating income: (A) Specialty chemicals (B) ..................... $ 21.9 17.7 Wire and cable (C) .......................... 4.9 17.0 Other (wheels and rims) (D) ................. -- 12.6 ------- ------- $ 26.8 47.3 ======= ======= First Nine Months ---------------------- 1999 1998 ------- ------- (in millions) Sales and other operating revenues - unaffiliated customers: Specialty chemicals ......................... $ 398.8 326.9 Wire and cable .............................. 595.8 726.3 ------- ------- $ 994.6 1,053.2 ======= ======= Operating income (loss): (A) Specialty chemicals (B) ..................... $ 62.7 61.3 Wire and cable (C) .......................... (11.0) 66.2 Other (wheels and rims) (D) ................. -- 198.7 ------- ------- $ 51.7 326.2 ======= =======
- ---------- (A) Operating income has been presented in compliance with SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information" (with 1998 restated). (B) Includes a pre-tax charge of $19.9 million in the 1999 second quarter for costs associated with the suspension of operations at a carbon black plant in the Philippines. -13- (C) Includes a pre-tax charge of $28.4 million in the 1999 second quarter and $1.1 million in the 1999 third quarter for costs associated with restructuring of certain wire and cable operations. Another $1.7 million representing the write-off of a small equity basis investment was charged to miscellaneous income and expense in the 1999 second quarter. (D) See Note 5 to the Consolidated Financial Information for a description of the sale of our wheels and rims business in 1998. PD INDUSTRIES - SALES PD Industries reported sales of $335.8 million in the third quarter and $994.6 million for the first nine months of 1999, compared with $342.1 million and $1,053.2 million in the corresponding 1998 periods. The year-to-date decrease principally reflected lower sales in the wire and cable segment as a result of a downturn in the Brazilian wire and cable market principally caused by the 1999 first quarter currency devaluation, continuing economic difficulties in Venezuela and lower demand for conductors in the automotive, heat tracing and aerospace markets, partially offset by higher sales volumes in the specialty chemicals segment primarily due to the acquisition of carbon black operations in Brazil and Korea in late 1998 and early 1999, respectively. (Please refer to the preceding table.) PD INDUSTRIES - OPERATING INCOME During the 1999 third quarter, PD Industries recorded operating income of $27.9 million before non-recurring charges of $1.1 million (please refer to Note 4 to the Consolidated Financial Information). This compares with $34.7 million in the corresponding 1998 period before a $12.6 million pre-tax gain from the disposition of Accuride. Operating income in the first nine months of 1999 was $101.1 million before non-recurring charges, compared with $127.5 million in the first nine months of 1998 before a $198.7 million pre-tax gain from the sale of Accuride. PD Industries' 1999 operating income reflected decreased wire and cable results principally due to South American economic difficulties, a continued slowdown in aerospace and relevant electronic markets in the United States and competitive price pressure on our magnet wire business. These effects were partially offset by strong performances by our carbon black businesses, which had overall increases in sales volumes in excess of 30 percent compared with corresponding prior periods. These volume increases reflected the 1998 fourth quarter acquisition of a carbon black facility in Brazil, and the 1999 first quarter acquisition of a carbon black facility in Korea. (Please refer to the preceding table.) OTHER MATTERS RELATING TO THE STATEMENT OF CONSOLIDATED OPERATIONS EXPLORATION AND RESEARCH AND DEVELOPMENT EXPENSE Our exploration and research and development expense for the first nine months of 1999 was $33.4 million, compared with $41.5 million in the corresponding 1998 period. The decrease reflects continuing cutbacks in exploration programs in view of current market conditions; exploration charges were $25.4 million in the 1999 first nine months, compared with $30.0 million in the corresponding period in 1998. MISCELLANEOUS INCOME AND EXPENSE, NET Miscellaneous income and expense, net, decreased by $32.9 million in the first nine months of 1999 compared with the corresponding 1998 period. This change primarily reflected a 1998 second quarter pre-tax gain of $8.8 million from the dissolution of joint venture partnerships in the wire and cable business, 1999 currency exchange losses at our Brazilian operations of $11.2 million, $9.1 million in lower interest income and a $1.7 million pre-tax charge representing the write-off of an equity basis investment in the 1999 second quarter. INCOME TAXES Our federal income tax returns for the years 1990 through 1997 are either under examination or review by the Internal Revenue Service (IRS). We have received proposed assessments for the years 1990 and 1991 and have reached a settlement with the IRS appeals division on the issues involved. The proposed settlement results in a refund and must be approved by the Joint Committee on Taxation. We have also received and accepted assessments for the years 1992 through 1994. These assessments will substantially offset the proposed refunds from 1990 and 1991. The years 1995 through 1997 are currently being examined and the IRS has begun its information gathering process. Our management believes it has made adequate provision so that final resolution of the issues involved, including application of those determinations to subsequent years, will not have an adverse effect on our consolidated financial condition or results of operations. -14- EQUITY EARNINGS Equity in net earnings of affiliated companies increased in the first nine months of 1999 by $3.0 million primarily due to the 1999 first quarter sale of land by our equity basis Philippine wire and cable operation. YEAR 2000 We continue to review our "Year 2000" readiness. The Year 2000 issue stems from the predominant use in computer applications of a two-digit field to capture the year (e.g., "99" for 1999). Because the "19" is assumed in the date, when computers turn their clocks to the year 2000, the two-digit field will read "00" and some computer programs will assume the year is 1900. Programs that calculate, compare or sort on a date field may cause erroneous results and errors leading to the risk of business interruption or shutdown and other potential problems. The Year 2000 issue is a global issue that is very complex because of the many programs that may be impacted in any computer system. These computer systems are used to support the activities of our businesses including financial systems, process control technology and other computer-controlled equipment. We have identified the scope of the Year 2000 issue as it relates to our operations and all levels of management are providing leadership to effect workable solutions. A program office team has been assembled to oversee all facets of this project including information technology and process control system conversions, contracts and agreements with vendors, suppliers and customers, insurance policies, contingency plans and security systems. We are working with major industry associations and agencies in North America, Europe, Latin America and Asia Pacific to facilitate the sharing of strategies and solutions. We have hired PKS Systems Integration LLC, a consulting firm, to assist us in the assessment and implementation of our Year 2000 conversion. The conversion project has been structured into four phases: * inventory phase (100 percent complete); * assessment phase - the final cost estimation and action plan identification phase (100 percent complete); * remediation and testing phase (100 percent complete); and * field implementation phase (substantially completed for all information technology (IT) and non-IT systems with the exception of a few mining process control systems intentionally delayed to match existing maintenance schedules; these systems are scheduled for completion by the end of the November 1999). The process of identifying and prioritizing critical suppliers and customers has been completed. We have reviewed contracts and agreements with vendors, suppliers and customers. Appropriate language has been added to all new contracts and agreements to address our requirements for Year 2000 compliance. Where possible, existing contracts and agreements were amended for these same considerations. We prepared an inventory of all existing relationships with vendors and suppliers. We reviewed the nature of those relationships to determine whether the loss of service or product would result in a material impact to us. From that overall list, we identified vendors and suppliers that are considered key to our individual businesses, and we contacted each of those 554 vendors and suppliers. In special situations, such as suppliers of transportation, electrical power, communications, and water and sewerage, we visited the suppliers to review their Year 2000 preparations. We received responses from all these vendors and suppliers, and we are convinced, based on the materials and information they supplied to us, that they are or will be compliant. In a similar approach, we identified key customers and worked with them to determine compliance and assessed the nature of our relationship. In each of these cases, the customer was advanced in its Year 2000 preparation and provided a schedule for its overall compliance. Our investment in standardizing business system platforms over the past several years has streamlined and facilitated our Year 2000 conversion requirements by eliminating redundant technologies and allowing the sharing of services. These systems, some of which were IT systems and others of which were non-IT systems (mostly process control devices), were installed to meet other, non-Year 2000 business needs. As a part of the Year 2000 project, we have upgraded key financial and manufacturing systems in each operating unit and in the corporate headquarters by installing updates to purchased application software systems. These systems have been certified by their vendors to be compliant and tested in the context in which they will operate. The compliant versions of these systems currently function in support of day-to-day business. Non-information technology systems have been remediated where required to compliant versions. The updated systems have been tested at manufacturers' laboratories and on-site, and they have -15- been demonstrated to be compliant. These systems also currently function in support of day-to-day business. The total cost associated with our Year 2000 conversion is not expected to be material to our financial position and should not exceed $5 million. This estimate does not include our potential share of Year 2000 costs that may be incurred at operations that we do not consolidate or those expenditures for planned system and process control upgrades that are undertaken for other reasons and also incorporate Year 2000 compliant technology. Spending to date has been approximately $3 million. Failure to correct a material Year 2000 problem could result in a potential disruption to one or more of our operations. Such failures could materially and adversely affect our results of operations, liquidity and financial condition. Due to the general uncertainty inherent in the Year 2000 issue, resulting in part from the uncertainty of the readiness of suppliers and customers, we are unable to determine with any certainty the consequences of Year 2000 failures and the materiality of these potential failures. Therefore, we have completed the development of contingency plans. A team from each operating unit, under the direction of an assigned project leader in the program office, prepared a specific plan to address contingencies for that operation. Contingencies include failure of our own IT and non-IT systems, failure to deliver supplies, lack of transportation, failure of electrical power, and failure of other utilities. Our priorities in addressing these contingencies are safety, environment, customer service, and loss of production. The plans were completed by October 31, 1999. We have prepared an event management center to oversee activities world-wide during the actual date change. This center will monitor responses to contingencies and provide current information to on-site managers at all company operations. CHANGES IN FINANCIAL CONDITION DEBT At September 30, 1999, our total debt was $1,091.0 million, compared with $1,021.0 million at year-end 1998. The $70.0 million increase principally resulted from financing for the purchase of a carbon black business in Korea. Our ratio of debt to total capitalization was 30.8 percent at September 30, 1999, compared with 27.6 percent at December 31, 1998. On October 22, 1999, we entered into a loan agreement with Cyprus Amax Minerals Company whereby they would loan us $175 million at an interest rate of 6 percent per annum. On that date, we drew down the $175 million; the loan matures on December 15, 1999. CAPITAL EXPENDITURES AND INVESTMENTS Capital expenditures and investments during the first nine months of 1999 were $55.4 million for PD Mining and $118.9 million for PD Industries, including $76.1 million for the acquisition of an 85 percent interest in the Korean carbon black manufacturing business of Korea Kumho Petrochemical Co., Ltd. Capital expenditures and investments in the corresponding 1998 period were $279.9 million for PD Mining, including $113.3 million for the acquisition of Cobre Mining Company, and $105.5 million for PD Industries. The company expects capital expenditures and investments for the year 1999 to be approximately $100 million for PD Mining and approximately $165 million for PD Industries. DIVIDENDS On September 10, 1999, we paid a regular quarterly dividend of 50 cents per share on our common shares for the 1999 third quarter. The total amount paid was $29.0 million, bringing total 1999 dividends paid through September 30 to $87.0 million. SHARE PURCHASES This year through November 10, we have not purchased any of our shares under our May 7, 1997, share purchase authorization. Under that program, 1,662,500 shares remain authorized for purchase. There were 57,978,000 common shares outstanding at September 30, 1999. -16- SUBSEQUENT EVENT On October 22, 1999, we announced the completion of our offer to exchange $7.61 in cash and 0.2203 Phelps Dodge shares for each share of Cyprus Amax Minerals Company (Cyprus Amax) on a fully prorated basis. The exchange offer expired at 12:00 midnight, eastern time, October 15, 1999. We were informed by Chase Mellon Shareholder Services, the exchange agent for the offer, that 81.5 million shares of Cyprus Amax stock were tendered representing 89.6 percent of the outstanding shares of Cyprus Amax. (Please refer to Note 9 to the Consolidated Financial Information for further discussion of this transaction.) PART II. OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Any exhibits required to be filed by the company are listed in the Index to Exhibits. (b) The company filed six reports on Form 8-K during the quarter ended September 30, 1999. The following is a list of the filings and the date they were filed. Phelps Dodge filed a Current Report on Form 8-K on August 23, 1999, with respect to a press release issued on August 20, 1999, proposing the acquisition of Asarco Incorporated and Cyprus Amax Minerals Company. Phelps Dodge filed a Current Report on Form 8-K on August 23, 1999, with respect to a press release issued on August 20, 1999, proposing the acquisition of Asarco Incorporated and Cyprus Amax Minerals Company that was posted on Phelps Dodge's internet site. Phelps Dodge filed a Current Report on Form 8-K on August 26, 1999, with respect to a press release issued on August 25, 1999, related to the proposed acquisition of Asarco Incorporated and Cyprus Amax Minerals Company. Phelps Dodge filed a Current Report on Form 8-K on September 3, 1999, with respect to press releases issued on September 2 and 3, 1999, and an investor slide presentation dated September 3, 1999, related to the proposed acquisition of Asarco Incorporated and Cyprus Amax Minerals Company. Phelps Dodge filed a Current Report on Form 8-K on September 22, 1999, with respect to a press release issued on September 22, 1999, and an investor slide presentation dated September 22, 1999, related to the proposed acquisition of Asarco Incorporated and Cyprus Amax Minerals Company. Phelps Dodge filed a Current Report on Form 8-K on September 30, 1999, with respect to a press release dated September 30, 1999, and an Agreement and Plan of Merger among Phelps Dodge Corporation, CAV Corporation and Cyprus Amax Minerals Company dated September 30, 1999. -17- SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, we have duly caused this report to be signed on its behalf by the undersigned duly authorized officer. PHELPS DODGE CORPORATION (Corporation or Registrant) Date: November 12, 1999 By: /s/ Stanton K. Rideout -------------------------------- Stanton K. Rideout Vice President and Controller (Principal Accounting Officer) INDEX TO EXHIBITS 10.10 First Amendment to the Phelps Dodge Supplemental Savings Plan, effective as of January 1, 1999 (SEC File No. 1-82). 12 Computation of ratios of total debt to total capitalization. 15 Letter from PricewaterhouseCoopers LLP with respect to unaudited interim financial information. EX-10.10 2 1ST AMEND TO SUPP SAVINGS PLAN Exhibit 10.10 FIRST AMENDMENT TO THE PHELPS DODGE CORPORATION SUPPLEMENTAL SAVINGS PLAN Effective as of January 1, 1997, Phelps Dodge Corporation (the "Company") adopted the Phelps Dodge Corporation Supplemental Savings Plan (the "Plan") as an amendment and restatement of the Supplemental Savings provisions of the Comprehensive Executive Nonqualified Retirement and Savings Plan of Phelps Dodge Corporation. By this First Amendment, the Company intends to amend the Plan to change certain election provisions of the Plan. 1. The provisions of this First Amendment shall be effective as of January 1, 1999 unless otherwise specified below. This First Amendment shall amend only the provisions of the Plan as set forth herein, and those provisions not expressly amended hereby shall be considered to remain in full force and effect. 2. Section 3.3 of the Plan is hereby amended and restated in its entirety to provide as follows: 3.3 REVISED ELECTIONS. A Participant must file a new election form prior to the beginning of each Plan Year which shall set forth the amount or rate of his Deferral Contributions for the new Plan Year and also shall characterize the Deferral Contributions as either Regular or Special Purpose Deferral Contributions. If Special Purpose Deferral Contributions are being made, the new election form also shall set forth the Distribution Date or Distribution Dates for such Contributions. The new amount or rate of Deferral Contributions will only apply to Deferral Contributions made for the relevant Plan Year and the new form must be filed at least 30 days (or such other period specified by the Plan Administrator pursuant to rules of uniform application) before the first day of such Plan Year. Effective for Plan Years commencing on or after January 1, 1998, a Participant may change the method of distributions or the timing of the commencement of distributions of Regular Deferral Contributions at any time by filing the appropriate form as prescribed by the Plan Administrator. The new election will be honored only if the appropriate form is filed at least one (1) year prior to the Participant's termination of employment. A Participant may not change the Distribution Date for Special Purpose Deferral Contributions that are made prior to the date on which a new election form is effective. In a new election form, however, the Participant may designate a different or additional Distribution Date for Special Purpose Deferral Contributions to be made in the future. 3. Section 8.1(a) of the Plan is hereby amended and restated in its entirety to provide as follows: (a) GENERAL. With the exception of the distribution or withdrawal of amounts pursuant to Article V and the distribution of amounts pursuant to Section 8.1(b), no distributions will be made to a Participant prior to the Participant's death or termination of employment with the Company and all Affiliates. Subject to the provisions of Section 5.1, which deals with the distribution of the Special Purpose Deferral Contributions subaccounts in a Participant's Deferral Contributions Account, following the Participant's death or termination of employment, distributions normally will be made as soon as possible and in any event shall commence within 60 days following the end of the Plan Year in which the Participant dies or terminates employment. As provided in Section 3.2 and Section 3.3, a Participant may elect in his initial or any revised election form to defer the receipt of distributions until the later of termination of employment or a specified date. If such an election has been made (and, if the election was made in a revised election form, the election form has been in effect for the requisite period of time provided in Section 3.3), distributions to the Participant (or the Participant's Beneficiary in case of death) shall be postponed to the extent necessary to honor such election. Notwithstanding any other provision of this Section 8.1(a) to the contrary, in the event a Participant terminates employment with the Company and all Affiliates, and is subsequently rehired by the Company or any of its Affiliates within the same Plan Year, then the Participant shall not be eligible, on account of that termination, for a distribution pursuant to Section 8.1(a) (except for a distribution or withdrawal of amounts pursuant to Article V and the distribution of amounts pursuant to Section 8.1(b)). This distribution restriction in the event of a rehire applies whether or not the Employee is rehired within a classification eligible for participation in the Plan, or is otherwise excluded from Plan participation pursuant to Section 3.1. 4. Section 8.2 of the Plan is hereby amended and restated in its entirety to provide as follows: 8.2 METHOD OF PAYMENT. Any payments from a Participant's Accounts shall be made either in a lump sum in cash, or in cash payments in substantially equal annual installments over a period certain not exceeding 10 years, such method of payment to be elected by the Participant in his initial election form or in any revised election form that has been in effect for the requisite period of time specified in Section 3.3. If installment payments are made, the provisions of Sections 6.2 and 6.3 shall continue to apply to the unpaid balance. Unless a Participant has affirmatively elected to receive payments in installments over a period of 10 years or less, the Participant's Accounts shall be distributed in one lump sum. If a Participant is married at the time an election form or a revised election form is filed, an election to receive payments in other than lump sum shall be ineffective unless the Participant's spouse consents to such election on a form prescribed by or acceptable to the Plan Administrator for that purpose. Notwithstanding any provision of this Plan to the contrary, if the value of all benefits payable pursuant to this Plan to a Participant or any Beneficiary, upon the Participant's termination of employment or death, amounts to the sum of $10,000 or less, the Plan Administrator, regardless of any elections made by the Participant, shall direct the Trustee to pay the benefits in the form of a single lump sum distribution. IN WITNESS WHEREOF, PHELPS DODGE CORPORATION has caused this First Amendment to be duly executed as of this day of _____________ 1999. PHELPS DODGE CORPORATION By: ------------------------------------ Vice President, Human Resources EX-12 3 COMPUTATION OF TOTAL DEBT PHELPS DODGE CORPORATION AND SUBSIDIARIES Exhibit 12 COMPUTATION OF TOTAL DEBT TO TOTAL CAPITALIZATION (Unaudited; dollars in millions)
September 30, December 31, 1999 1998 -------- -------- Short-term debt ................................... $ 229.8 116.1 Current portion of long-term debt ................. 54.7 68.5 Long-term debt .................................... 806.5 836.4 -------- -------- Total debt ................................... 1,091.0 1,021.0 Minority interests in subsidiaries ................ 78.5 93.3 Common shareholders' equity ....................... 2,376.8 2,587.4 -------- -------- Total capitalization ......................... $3,546.3 3,701.7 ======== ======== Ratio of total debt to total capitalization ....... 30.8% 27.6% ======== ========
EX-15 4 LETTER FROM PRICEWATERHOUSECOOPERS LLP EXHIBIT 15 Securities and Exchange Commission 450 Fifth Street, N.W. Washington, D.C. 20549 Ladies and Gentlemen: We are aware that our report dated October 11, 1999, except as to Note 9, which is as of October 18, 1999, on our review of interim financial information of Phelps Dodge Corporation for the period ended September 30, 1999 and included in the Corporation's quarterly report on Form 10-Q for the quarter then ended is incorporated by reference in the Prospectus constituting part of its Registration Statement and Post-Effective Amendment No. 1 on Form S-3 (Nos. 33-44380 and 333-36415) and in the Registration Statements on Form S-8 (Nos. 33-26442, 33-6141, 33-26443, 33-29144, 33-19012, 2-67317, 33-34363, 33-34362, 33-62648, 333-42231 and 333-52175). Your very truly, /s/ PricewaterhouseCoopers LLP PricewaterhouseCoopers LLP Phoenix, Arizona November 11, 1999 EX-27 5 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEET AT SEPTEMBER 30, 1999 AND THE RELATED CONSOLIDATED STATEMENTS OF OPERATIONS AND OF CASH FLOWS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 OF PHELPS DODGE CORPORATION AND ITS SUBSIDIARIES AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 U.S. DOLLARS 9-MOS DEC-31-1999 JAN-01-1999 SEP-30-1999 1 165,000 0 407,900 0 269,500 1,013,000 6,141,900 2,686,200 4,889,300 754,700 806,500 0 0 362,500 2,014,300 4,889,300 2,096,900 2,096,900 1,652,800 1,652,800 330,200 0 68,300 (47,500) 1,300 (41,600) 0 (3,500) 0 (45,100) (0.78) (0.78)
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