SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended June 30, 2000
Commission File Number: 001-07791
McMoRan Exploration Co.
Incorporated in Delaware 72-1424200
(IRS Employer Identification No.)
1615 Poydras Street, New Orleans, Louisiana 70112
Registrant's telephone number, including area code: (504) 582-4000
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 _
On June 30, 2000, there were issued and outstanding 15,822,000
shares of the registrant's Common Stock, par value $0.01 per share.
NOTE:
- ------
McMoRan Exploration Co. hereby amends its report on Form 10-Q for the quarterly
period ended June 30, 2000, filed with the Securities and Exchange Commission
on August 14, 2000. The purpose of this amendment is to reflect the proper
classification of our reclamation and mine shutdown reserve in our condensed
December 31, 1999 balance sheet. The correct line items are as follows:
Sulphur reclamation and mine shutdown reserves 44,150
Oil and gas reclamation and shutdown reserves 10,976
The above presentation replaces the following as filed on August 14, 2000:
Sulphur reclamation and mine shutdown reserves -
Oil and gas reclamation and shutdown reserves 55,126
There were no other changes to the Form 10-Q as filed on August 14, 2000.
Item 1. "Financial Statements" has been re-issued in its entirety to
reflect these changes.
McMoRan EXPLORATION CO.
TABLE OF CONTENTS
Page
Part I. Financial Information
Financial Statements:
Condensed Balance Sheets 3
Statements of Operations 4
Statements of Cash Flow 5
Notes to Financial Statements 6
Remarks 8
Report of Independent Public Accountants 9
Signature 10
2
McMoRan EXPLORATION CO.
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements.
McMoRan EXPLORATION CO.
CONDENSED BALANCE SHEETS (Unaudited)
June 30, December 31,
2000 1999
-------- --------
(In Thousands)
ASSETS
Cash and cash equivalents $ - $ -
Accounts receivable 8,819 6,462
Inventories 269 349
Net current assets from discontinued operations - 9,545
Prepaid expenses 1,460 3,099
--------- ---------
Total current assets 10,548 19,455
Property, plant and equipment, net 139,680 98,091
Assets of discontinued operations 73,153 114,026
Deferred tax asset - 32,370
Other assets 10,900 10,287
--------- ---------
Total assets $ 234,281 $ 274,229
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable $ 9,687 $ 9,023
Accrued liabilities 10,381 8,722
Current portion of reclamation and mine
shutdown reserves and other 21,260 4,818
Discontinued operations debt (Note 2) 34,102 -
Net current liabilities from discontinued
operations 2,724 -
--------- ---------
Total current liabilities 78,154 22,563
Sulphur reclamation and mine shutdown reserves 58,544 44,150
Oil and Gas reclamation and shutdown reserves 17,635 10,976
Long-term debt (Note 2) 17,000 14,000
Other long-term liabilities 27,002 27,469
Stockholders' equity 35,946 155,071
--------- ---------
Total liabilities and stockholders' equity $ 234,281 $ 274,229
========= =========
The accompanying notes are an integral part of these financial
statements.
3
McMoRan EXPLORATION CO.
STATEMENTS OF OPERATIONS (Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
-------------------- -------------------
2000 1999 2000 1999
--------- -------- --------- --------
(In Thousands, Except
Per Share Amounts)
Revenues $ 15,720 $ 13,850 $ 32,725 $ 24,926
Costs and expenses:
Production and delivery costs 5,619 4,054 12,695 7,228
Depreciation and amortization 5,534 8,622 12,340 16,845
Exploration expenses 14,102 1,303 26,146 3,853
General and administrative expenses 2,669 1,895 5,373 3,441
Gain on sale of oil and gas property - - - (3,090)
--------- -------- --------- --------
Total costs and expenses 27,924 15,874 56,554 28,277
--------- -------- --------- --------
Operating loss (12,204) (2,024) (23,829) (3,351)
Interest expense (1,166) (75) (2,376) (133)
Other income, net 1,450 186 1,466 231
--------- -------- --------- --------
Loss from continuing operations
before provision for income taxes (11,920) (1,913) (24,739) (3,253)
Income tax (provision) benefit (34,941) 670 (34,941) 1,139
--------- -------- --------- --------
Loss from continuing operations (46,861) (1,243) (59,680) (2,114)
Discontinued operations:
Income (loss) from discontinued sulphur
operations (less applicable income
taxes of $1,122 in the three-month
1999 period and $2,310 in the six-
month 1999 period) (83,031) 2,082 (87,216) 4,267
Loss on disposal of sulphur assets (7,500) - (7,500) -
--------- ------- --------- -------
Net income (loss) $(137,392) $ 839 $(154,396) $ 2,153
========= ======= ========= =======
Basic net income (loss) per share of
common stock:
Loss from continuing operations $(3.11) $(0.09) $ (4.33) $(0.15)
Income (loss) from discontinued
sulphur operations (5.50) 0.15 (6.34) 0.31
Loss on disposal of sulphur assets (0.50) - (0.54) -
------ ------ ------- ------
Basic net income (loss) per share $(9.11) $ 0.06 $(11.21) $ 0.16
====== ====== ======= ======
Diluted net income (loss) per share of
common stock:
Loss from continuing operations $(3.11) $(0.09) $(4.33) $(0.15)
Income (loss) from discontinued
sulphur operations (5.50) 0.15 (6.34) 0.30
Loss on disposal of sulphur assets (0.50) - (0.54) -
------ ------ ------- ------
Diluted net Income (loss) per share $(9.11) $ 0.06 $(11.21) $ 0.15
====== ====== ======= ======
Average shares outstanding
Basic 15,078 13,662 13,779 13,878
====== ====== ====== ======
Diluted 15,078 13,901 13,779 14,059
====== ====== ====== ======
The accompanying notes are an integral part of these financial
statements.
4
McMoRan EXPLORATION CO.
STATEMENTS OF CASH FLOW (Unaudited)
Six Months Ended
June 30,
----------------------
2000 1999
---------- --------
(In Thousands)
Cash flow from operating activities:
Net income (loss) $ (154,396) $ 2,153
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
(Income) loss from discontinued operations 94,716 (4,267)
Depreciation and amortization 12,340 16,845
Exploration expenses 26,146 3,853
Gain on sale of oil and gas property - (3,090)
Change in deferred tax asset 34,941 (1,139)
(Increase) decrease in working capital
Accounts receivable (2,864) (2,355)
Accounts payable and accrued liabilities (2,934) 5,663
Inventories and prepaid expense (850) (32)
Other (583) 21
---------- --------
Net cash provided by continuing operations 6,516 17,652
Net cash provided by (used in) discontinued
operations (5,906) 3,709
---------- --------
Net cash provided by operating activities 610 21,361
---------- --------
Cash flow from investing activities:
Exploration and development and other expenditures (33,673) (16,411)
Purchase oil and gas interests (38,650) (3,117)
Proceeds from disposition of assets, net 1,547 8,859
Other - (314)
---------- --------
Net cash used in continuing operations (70,776) (10,983)
Net cash provided by (used in) discontinued
operations (40) 1,973
---------- --------
Net cash used in investing activities (70,816) (9,010)
---------- --------
Cash flow from financing activities:
Net proceeds from long-term debt 31,156 -
Net proceeds from equity offering 50,274 -
Purchase of McMoRan common stock (15,282) (14,765)
Other (1,888) 298
---------- --------
Net cash provided by (used in) continuing
operations 64,260 (14,467)
Net cash provided by discontinued operations 5,946 -
---------- --------
Net cash provided by (used in) financing
operations 70,206 (14,467)
---------- --------
Net decrease in cash and cash equivalents - (2,116)
Net amount attributable to discontinued
operations - (5,682)
Cash and cash equivalents at beginning of year - 17,816
---------- --------
Cash and cash equivalents at end of period $ - $ 10,018
========== ========
The accompanying notes are an integral part of these financial
statements.
5
McMoRan EXPLORATION CO.
NOTES TO FINANCIAL STATEMENTS
1. DISCONTINUED SULPHUR OPERATIONS
In July 2000, McMoRan Exploration Co. (McMoRan) undertook a plan
to discontinue its sulphur mining operations and to sell its
remaining sulphur transportation, logistics and marketing assets.
Drilling operations at the Main Pass mine have ceased.
McMoRan's plan for discontinuing its sulphur segment include the
marketing of its sulphur operations to other third parties that
could potentially benefit from the use of such assets whether
deployed in the business of sulphur related activities or other
alternative uses.
Following is a summary of financial information for
McMoRan's discontinued sulphur operations (in thousands):
Second-Quarter Six-Months
------------------- ---------------------
2000 1999 2000 1999
--------- -------- --------- ---------
Net sales $ 36,749 $ 49,439 $ 72,628 $ 100,474
========= ======== ========= =========
Income (loss) from discontinued
operations:
Before income taxes $ (83,031) $ 3,204 $ (87,216) $ 6,577
Income tax provision - (1,122) - (2,310)
--------- -------- --------- ---------
Net $ (83,031) $ 2,082 $ (87,216) $ 4,267
========= ======== ========= =========
Estimated loss on disposal $ (7,500) $ - $ (7,500) $ -
========= ======== ========= =========
The loss from discontinued operations for the second-quarter
and six month periods of 2000 include non-cash charges totaling
$78.1 million to reflect the net realizable value of the sulphur
segment assets and liabilities. These charges include: $20.1
million to write-off the remaining book value of the Main Pass
sulphur mine; $25.2 million for the writedown of the book value
of the mining-related assets, primarily certain specialized
marine equipment utilized in handling mined sulphur, to their
estimated recoverable values; and $32.8 million for the remaining
unaccrued estimated mine reclamation costs. The estimated loss
on disposal of sulphur assets primarily reflects estimated
employee-related charges.
In connection with the decision to discontinue the sulphur
operations, primarily those associated with the sulphur
transportation, logistics and marketing business, McMoRan
recorded a $34.9 million non-cash charge to its deferred tax
valuation allowance, which eliminated its net deferred tax asset.
Although this charge related to the decision to discontinue the
sulphur operations, accounting standards require it to be
included in the loss from continuing operations.
2. EQUITY OFFERING, HALLIBURTON ALLIANCE AND LONG-TERM DEBT
In April 2000, McMoRan Exploration Co. (McMoRan) sold 3.8 million
shares of its common stock for $14.00 per share or $50.3 million
of proceeds, net of underwriting discounts of $2.9 million.
McMoRan used the proceeds to repay outstanding borrowings under
its existing bank credit facilities.
In June 2000, McMoRan executed a definitive agreement with
Halliburton Company to form a strategic alliance that combines
the skills, technologies and resources of both companies'
personnel and technical consultants into an integrated team that
will assist McMoRan in managing its oil and gas activities.
Halliburton, through its business units, will provide integrated
products and services to McMoRan at market rates and McMoRan will
use Halliburton's products and services on an exclusive basis to
the extent practicable.
Halliburton has provided a guarantee that provides up to $50
million of additional borrowings available to McMoRan Oil & Gas
LLC under terms of an amended revolving facility (amended
facility). Under terms of the amended facility, McMoRan has
potential credit availability of up to $75 million, including the
$50 million currently available under the Halliburton guarantee.
The $25 million balance of the commitment is subject to semi-
annual borrowing base re-determinations based on traditional
present value analysis of McMoRan Oil & Gas' proven reserves. At
June 30, 2000, a total of $10 million was available and undrawn
under this portion of the amended facility (see Note 6). This
amount cannot be drawn unless all amounts available under the
Halliburton guaranteed facility are fully drawn. McMoRan pays
Halliburton a fee based on usage and had provided a first
priority lien on its interest in the Brazos A-19 property as
security for its guarantee. As a result of McMoRan's sale of
the Brazos A-19 property,
6
Halliburton agreed to substitute its
lien on this property with a lien on certain other properties
(see Note 6). Halliburton also has the right to elect to
participate in McMoRan's future development opportunities by
providing a portion of the exploration and development costs of
each prospect in which it elects to participate. Amounts paid by
Halliburton representing the reimbursement of exploration costs
will be used to reduce outstanding borrowings and the commitment
under the Halliburton guaranteed portion of the facility. As of
June 30, 2000, $17.0 million was drawn on the amended facility
and the weighted-average interest rate on these borrowings was
8.4 percent. This facility matures no later than December 31, 2003.
The amount of availability under the Halliburton guaranteed
portion of the amended facility is contingent upon McMoRan's
ability to raise additional capital. In the event McMoRan fails
to raise an additional $25 million by December 31, 2000 and an
additional $50 million by December 31, 2001, the $50 million
commitment will be reduced by the amount of the shortfall and
McMoRan will be required to repay any loans outstanding in excess
of the adjusted commitment amount. In addition to traditional
sources of funding such as those offered by the capital markets,
McMoRan can meet its obligations with respect to additional
capital through the sale of program interests in its drilling
prospects or the sale of interests in individual prospects.
In addition to the facility discussed above, McMoRan has a
variable rate revolving credit facility that is available to
Freeport-McMoRan Sulphur LLC (Freeport Sulphur) (see Note 9
"Long-Term Debt" included in McMoRan's 1999 Annual Report on Form
10-K). At June 30, 2000, outstanding borrowings under this
facility totaled $34.1 million and the weighted-average interest
rate on these borrowings totaled 6.8 percent. Outstanding
borrowings under the facility totaled $14.0 million at December
31, 1999. Subsequent to June 30, 2000, this facility was amended
(see Note 6).
3. EARNINGS PER SHARE
Basic net income (loss) per share of common stock was calculated
by dividing net income (loss) applicable to common stock by the
weighted-average number of common shares outstanding during the
periods presented. Diluted net income (loss) per share was
calculated by dividing net income by the weighted-average number
of common shares outstanding during the periods presented plus
the net effect of outstanding dilutive stock options. Stock
options representing 270,000 shares during the second quarter of
1999 and 210,000 shares of common stock for the six months ended
June 30, 1999 were included in the diluted net income per share
calculations. Stock options representing 133,000 shares in the
second quarter of 2000 and 190,000 shares for the six month ended
June 30, 2000 were considered anti-dilutive because of these
periods' net losses and were excluded from the diluted net loss
per share calculation.
Outstanding stock options excluded from the computation of
diluted net income (loss) per share of common stock because their
exercise prices were greater than the average market price of the
common stock during the period are as follows (in thousands,
except for average exercise prices):
Second Quarter Six Months
--------------- ---------------
2000 1999 2000 1999
------ ------ ------ ------
Outstanding options 1,282 406 1,153 942
Average exercise price $19.76 $20.26 $20.04 $19.03
4. FINANCIAL INSTRUMENTS AND CONTRACTS
Based on its assessment of market conditions, McMoRan may enter
into financial contracts to manage certain risks resulting from
fluctuations in commodity prices (oil and natural gas). Costs or
premiums and gains or losses on the contracts, including closed
contracts, are recognized with the hedged transactions. Also,
gains or losses are recognized if the hedged transaction is no
longer expected to occur or if deferral criteria are not met.
McMoRan monitors its credit risk on an ongoing basis and
considers this risk to be minimal because its contracts are with
financially strong counterparties.
McMoRan has oil forward sales contracts related to its Main
Pass oil production. During the second quarter of 2000, McMoRan
settled contracts on 0.1 million barrels of oil at an average
price of $20.97 per barrel, which resulted in a realized loss of
$0.7 million. For the six month period ended June 30, 2000 the
settled contracts totaled 0.2 million barrels of oil at an
average price of $21.70 per barrel, which resulted in a
recognized loss of $1.5 million. As of June 30, 2000, McMoRan
had contracts to sell
7
0.2 million barrels of oil at an average
price of $19.23 per barrel through December 2001. These contracts
had a fair value of approximately $(1.8) million as of June 30,
2000.
In June 1998, the Financial Accounting Standards Board
(FASB) issued Statement of Financial Accounting Standards 133,
"Accounting for Derivative Instruments and Hedging Activities"
(SFAS 133), which establishes accounting and reporting standards
that every derivative instrument be recorded in the balance sheet
as either an asset or liability measured at its fair value. In
June 1999, the FASB delayed SFAS 133's effective date by one year
to fiscal years beginning after June 15, 2000, with earlier
application permitted. McMoRan expects to adopt SFAS 133
effective January 1, 2001. Adoption is expected to require
McMoRan to report other comprehensive income or loss for changes
in fair value of the instruments that qualify as hedges.
5. RATIO OF EARNINGS TO FIXED CHARGES
McMoRan's earnings to fixed charges calculation resulted in a
shortfall of $23.6 million in the first six months of 2000 and
$0.8 million in the first six months of 1999. For this
calculation, earnings consist of income from continuing
operations before income taxes and fixed charges. Fixed charges
include interest and that portion of rent deemed representative
of interest.
6. SUBSEQUENT EVENTS
On July 27, 2000, McMoRan sold all of the $210 million
exploration program's interests in Brazos Blocks A-19 and A-26 to
Shell Offshore Inc. for $70 million, $66.5 million net to
McMoRan's interest. McMoRan will recognize a net gain of
approximately $40 million associated with the sale during the
third quarter of 2000. The proceeds were used to repay all
outstanding borrowings under McMoRan's amended facility (Note 2).
McMoRan's 26.4 percent net revenue interest in Brazos Block
A-19 was pledged as security for the $50 million revolving
facility that is guaranteed by Halliburton under the terms of the
amended credit facility (Note 2). The bank group and Halliburton
released the Brazos Block A-19 interest as security for this
revolving facility and accepted as substitute collateral
McMoRan's interests in certain of its other producing fields and
the reserves associated with the recent discovery at Ship Shoal
Block 296. McMoRan's interest in this substitute collateral was
released from the $25 million commitment portion of the amended
facility and pledged to secure the $50 million Halliburton
guaranteed portion of the amended facility. Accordingly,
McMoRan's current credit availability under the amended credit
facility is limited to the $50 million Halliburton guarantee.
However, additional amounts under this facility up to the
remaining $25 million commitment could become available for
borrowing upon discovery of additional proved reserves.
On August 11, 2000, Freeport Sulphur amended its existing
$100 million revolving credit facility that reduced the
commitment to $64.5 million (sulphur facility). This amended
revolving credit facility is secured by substantially all of
the assets of Freeport Sulphur, including its Main Pass oil
interest, and will mature on the earlier of April 30, 2001 or the
receipt of the net proceeds from the sale of McMoRan's sulphur
transportation, logistics and marketing assets.
In August 2000, Freeport Sulphur and Devon Energy Corporation
(Devon), a successor to Pennzoil Company (Pennzoil), agreed in
principle to settle Freeport Sulphur's ongoing liability
associated with its acquisition of Pennzoil's sulphur division
(see Note 10 "Other Liabilities" included in McMoRan's 1999
Annual Report on Form 10-K). Under terms of the proposed
settlement Freeport Sulphur will assume certain Devon sulphur
related environmental liabilities and pay Devon $6.0 million.
The costs associated with this settlement approximate the value
of McMoRan's recorded liability. The terms of the settlement are
subject to renegotiation and execution of a definitive agreement
with Devon.
-----------------
Remarks
The information furnished herein should be read in conjunction
with McMoRan's financial statements contained in its 1999 Annual
Report on Form 10-K. The information furnished herein reflects
all adjustments which are, in the opinion of management,
necessary for a fair statement of the results for the periods.
All such adjustments are, in the opinion of management, of a
normal recurring nature.
8
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of McMoRan Exploration
Co.:
We have reviewed the accompanying condensed balance sheet of
McMoRan Exploration Co. (a Delaware corporation) as of June 30,
2000, the related statements of operations for the three and six-
month periods ended June 30, 2000 and 1999 and the statements of
cash flow for the six-month periods ended June 30, 2000 and 1999.
These financial statements are the responsibility of the
Company's management.
We conducted our reviews 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 auditing standards generally
accepted in the United States, 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 reviews, we are not aware of any material
modifications that should be made to the financial statements
referred to above for them to be in conformity with accounting
principles generally accepted in the United States.
We have previously audited, in accordance with auditing standards
generally accepted in the United States, the balance sheet of
McMoRan Exploration Co. as of December 31, 1999 (not presented herein),
and, in our report dated January 19, 2000, we expressed an unqualified
opinion on that statement. In our opinion, the information set forth
in the accompanying condensed balance sheet as of December 31, 1999,
(which has been restated to conform to the Company's presentation of
discontinued operations as discussed in Note 1), is fairly stated,
in all material respects, in relation to the balance sheet from which
it has been derived.
/s/ ARTHUR ANDERSEN LLP
New Orleans, Louisiana
July 20, 2000 (except with
respect to Note 6 as to
which the date is
August 11, 2000)
9
McMoRan Exploration Co.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
McMoRan Exploration Co.
By: /s/ C. Donald Whitmire,Jr.
------------------------------
C. Donald Whitmire, Jr.
Vice President and Controller-
Financial Reporting
(authorized signatory and
Principal Accounting Officer)
Date: August 15, 2000
10