Exhibit 13.1
FREEPORT-McMoRan INC.
SELECTED FINANCIAL DATA
1994 1993 1992 1991 1990
-------- -------- -------- -------- --------
(In Millions, Except Per Share Amounts)
Revenues $1,982.4 $1,610.6 $1,654.9 $1,579.2 $1,580.6
Operating income (loss) 370.8 (88.5) 251.9 223.9 731.5
Net income (loss) from:
Operations $(18.8) $ (68.0) $ 34.4 $90.8 $ 13.4
Nonrecurring gains/(losses),
net a 69.3 (37.5) 134.7 5.0 257.3
Changes in accounting principle
and early extinguishment of
debt (9.1) (20.7) - (55.7) -
------ ------- ------ ----- ------
Net income (loss) applicable to
common stock $ 41.4 $(126.2) $169.1 $40.1 $270.7
====== ======= ====== ===== ======
Net income (loss) per primary share from:
Operations $(.13) $(.48) $ .24 $.65 $ .12
Nonrecurring gains/(losses),
net a .50 (.26) .93 .04 2.23
Changes in accounting principle
and early extinguishment of
debt (.07) (.15) - (.40) -
----- ----- ----- ---- -----
Net income (loss) applicable to
common stock $ .30 $(.89) $1.17 $.29 $2.35
===== ===== ===== ==== =====
Average common shares
outstanding 139.2 141.6 144.5 139.6 115.2
Earnings by sources:b
Metals
Indonesian copper/gold $280.2 $161.7c $276.4 $177.7 $204.5
Spanish copper smelter/gold (.1) (6.4) - - -
North American gold - - - - 316.0d
Agricultural minerals 123.8 (105.0)e 16.6 72.5 236.1f
Energy
Oil and natural gas g (9.1) (41.5) (24.5) (23.9) (41.4)
Uranium - - - 17.1 13.5
Geothermal - - - - 13.2
Other (24.0) (97.3)h (16.6) (19.5) (10.4)
------ ------ ------ ------ ------
Operating income $370.8 $(88.5) $251.9 $223.9 $731.5
====== ====== ====== ====== ======
Dividends per common share:
Cash $ .3125 $1.25 $1.250 $1.25 $1.25
Property i 1.2946 - .175 - -
------- ----- ------ ----- -----
$1.6071 $1.25 $1.425 $1.25 $1.25
======= ===== ====== ===== =====
At December 31:
Property, plant and equipment,
net $3,366.2 $2,773.7 $2,276.9 $2,253.8 $2,204.5
Long-term debt, including
current portion and short-
term borrowings 1,671.3 1,331.7 1,510.7 1,942.0 1,591.0
Minority interests 1,507.5 1,199.3 782.9 293.6 309.3
Stockholders' equity (230.5) .6 346.0 388.3 337.4
Total assets 4,373.6 3,714.1 3,546.7 3,565.4 3,101.3
a. In 1994, includes gains on the conversion/distribution of FCX securities
($74.6 million or $0.54 per share) and an insurance settlement ($11.9
million or $0.09 per share), net of a minority interest charge ($17.2
million or $0.12 per share) because FTX did not receive its proportionate
share of distributions from FRP; in 1993, includes the loss on the
restructuring activities and the loss on valuation and sale of assets
($66.2 million or $0.46 per share), net of a gain on the conversion of FCX
securities ($28.7 million or $0.20 per share); in 1992, from the sale and
conversion of FCX securities; in 1991, from an insurance settlement gain
($7.3 million or $0.05 per share), net of a loss on the valuation of
assets ($2.3 million or $0.02 per share); and in 1990, from the sale of
assets.
b. Restated to conform to 1994 presentation.
c. Includes charges totaling $37.1 million for restructuring and other
related charges.
d. Includes $311.2 million gain from the sale of Freeport-McMoRan Gold
Company.
e. Includes net charges totaling $73.5 million for restructuring, asset
recoverability and other related charges.
f. Includes $183.6 million gain from the sale of assets.
g. Includes charges totaling $84.4 million for restructuring, asset
recoverability and other related charges in 1993. Also includes $69.1
million gain in 1993, $4.3 million gain in 1991 and $14.6 million gain in
1990 from the sale of oil and gas properties.
h. Includes charges totaling $70.5 million for asset recoverability and other
related charges.
i. Reflects the fair market value of the FCX and MOXY shares distributed in
1994 and the FM Properties Inc. shares distributed in 1992.
FREEPORT-McMoRan INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
For FTX 1994 proved to be a year of achievement; building on the
accomplishments of 1993 while focusing on expansion and growth opportunities
for the future. FTX conducts its metals operations through its 68.3 percent-
owned affiliate FCX and conducts its agricultural minerals operations through
its 51.4 percent-owned affiliate FRP. Highlights for FTX and its operating
units include the following:
- Dramatic improvements in world copper and phosphate fertilizer markets
resulted in significantly higher earnings from its Metals and Agricultural
Minerals segments. Product realizations continued to strengthen into
1995.
- PT-FI continued toward mine and mill capacity of 115,000 MTPD; completion
is expected during the second half of 1995. PT-FI will have doubled its
mill throughput rate in less than three years.
- RTM's, smelter expansion to 270,000 metric tons of metal per year is
under way. FCX also agreed in principle to form a joint venture to
construct a copper smelter with annual production of 200,000 metric tons
of metal. Subsequent to completion of these projects, approximately 70
percent of PT-FI's expanded annual concentrate production will be sold to
affiliates at market prices.
- FRP concentrated on maximizing operational and organizational efficiencies
as a result of the formation of IMC-Agrico. The January 1995 purchase of
the Pennzoil sulphur assets and the pending acquisition of Fertiberia
provide additional growth opportunities.
- FTX's plan to separate its two principal businesses, copper/gold and
agricultural minerals, into two independent financial and operating
entities progressed (see Note 2 to the financial statements). As a result
of this plan, FTX would no longer own any interest in FCX. The spinoff of
FCX is expected to provide greater access to credit markets and reduce
financing costs for FCX and FRP. The proposed distribution, expected to
occur by mid-1995, will include a restructuring of the liabilities of FTX
which requires the use of a portion of the FCX shares currently owned by
FTX.
RESULTS OF OPERATIONS
1994 1993 1992
-------- -------- --------
(In Millions,
Except Per Share Amounts)
Revenues $1,982.4 $1,610.6 $1,654.9
Operating income (loss) 370.8a (88.5)b 251.9
Net income (loss) to common stock 41.4a,c (126.2)d 169.1c
Net income (loss) per primary share .30a,c (.89)d 1.17c
Operating income (loss) by segment:
Metals $280.1 $155.3 $276.4
Agricultural minerals 123.8 (105.0) 16.6
Energy (9.1) (41.5) (24.5)
Other (24.0) (97.3) (16.6)
------ ------ ------
$370.8 $(88.5) $251.9
====== ====== ======
a. Includes a $32.6 million gain ($11.9 million to net income or $0.09 per
share) from an insurance settlement on the June 1993 ore pass cave-in.
b. Includes a net charge of $196.4 million for restructuring the
administrative organization, asset sales/recoverability and other related
charges (Note 4).
c. Includes a $74.6 million gain ($0.54 per share) in 1994 and a $134.7
million gain ($0.93 per share) in 1992 on the sale/conversion/distribution
of FCX securities (Notes 2, 5, and 7). 1994 also includes a $17.2 million
minority interest charge ($0.12 per share) because FTX did not receive its
proportionate share of distributions from FRP (Note 2) and a $9.1 million
charge ($0.07 per share) from the early extinguishment of debt (Note 5).
d. Includes a $37.5 million charge ($0.26 per share) for the items discussed
in Note b, net of a gain on the conversion of FCX securities. Also
includes a $20.7 million charge ($0.15 per share) for the cumulative
effect of changes in accounting principle (Note 1).
1994 COMPARED WITH 1993
FTX's results benefited from higher sales volumes and product realizations for
nearly all of its commodities (Note 13). Depreciation and amortization for
1994 was lower as a result of adjustments caused by FRP's disproportionate
interest in cash distributions from the IMC-Agrico joint venture (Note 2) and
from lower oil sales volumes. Exploration expenditures for 1994 declined
reflecting the formation of MOXY in May 1994 (Note 8), partially offset by
increases at FCX. General and administrative expenses in 1994 benefited from
the formation of IMC-Agrico and other restructuring activities undertaken in
1993. General and administrative expenses were higher for the metals segment
because of the additional personnel and administrative effort required to
manage its expanding operations.
Interest expense increased in 1994 as a result of higher average interest
rates and the Main Pass sulphur project becoming operational for accounting
purposes in July 1993 (previously, related interest costs were capitalized).
See Note 6 to the financial statements for information on the provision for
income taxes. Minority interests' share of net income reflected a $22.9
million increase in FCX preferred stock dividends and a $26.5 million charge
because FTX did not receive its proportionate share of distributions from FRP.
Metals Operations. FCX and its operating units contributed 1994 operating
income of $280.1 million on revenues of $1,212.3 million compared with
operating income of $155.3 million on revenues of $925.9 million for 1993.
Significant items affecting operating income follow (in millions):
Metals operating income - 1993 $155.3
------
Increases (decreases):
Price realizations:
Copper 82.7
Gold 15.4
Sales volumes:
Copper 49.9
Gold 11.5
Treatment charges (14.4)
Adjustments to prior year concentrate sales 10.3
RTM revenues, net of eliminations 140.0
Other (9.0)
------
Revenue variance 286.4a
Cost of sales (180.7)
1993 provision for restructuring charges 20.8
1994 gain on insurance settlement 32.6
Exploration expenses (6.6)
General and administrative (27.7)
------
124.8
------
Metals operating income - 1994 $280.1
======
a. Includes net reductions totaling $103 million in 1994 and net additions
totaling $36.8 million in 1993 related to PT-FI's price protection
program. Also includes reductions totaling $4.3 million in 1994 and $5.9
million in 1993 related to RTM's hedging program.
Revenues increased significantly primarily because of a 13 percent
improvement in PT-FI's copper realizations, including the impact of the price
protection program, and a 5 percent increase in gold realizations.
Additionally, copper sales volumes rose 9 percent resulting from expanded mill
throughput, partially offset by lower grades and recoveries.
Treatment charges increased because of higher copper sales volumes and
prices, as certain charges vary with the price of copper. Treatment charges,
which are negotiated annually with customers, will decline significantly on a
per-pound basis in 1995 as a result of the overall tightness currently being
experienced in the copper concentrates market, although higher copper prices
expected in 1995 would somewhat offset reduced charges because of price
participation.
Adjustments to prior year concentrate sales are caused by changes in
prices on prior year open sales. Rising copper prices in early 1994 caused
positive adjustments as opposed to negative adjustments for 1993 when copper
prices declined early in the year. As discussed in Note 1 to the financial
statements, PT-FI recorded $1.01 per pound during the third quarter and fourth
quarter of 1994 on 192 million pounds of open copper sales at year end. This
price will not be adjusted in 1995 because of PT-FI's price protection
program.
PT-FI's 1994 mill throughput rate rose 16 percent. PT-FI's 1994 site
production and delivery costs totaled $401.5 million compared with $317.1
million for 1993, excluding charges related to restructuring activities
discussed below. Unit site production and delivery costs increased 8 cents
per pound because of lower copper grades and recoveries, higher jobsite
administrative expenses, expansion related activities and costs associated
with initial privatization efforts. Unit royalty costs were higher in 1994
because of higher copper prices. Recovery rates for copper and gold vary
depending on the quality of the ore mined. PT-FI anticipates mining a lower
copper grade ore in 1995 which is expected to have a negative impact on its
unit costs and operating results prior to completion of the expansion.
Operating results are expected to improve during the second half of 1995 as
the expansion is completed and higher gold grades are projected. For at least
a year following attainment of 115,000 MTPD, PT-FI intends to fine-tune its
operations to achieve cost efficiencies and maximum cash flows from its
expanded operations. During this optimization period, PT-FI will continue to
review the feasibility of further expansions as well as the results of
exploration activities to ascertain where best to make future investments.
As a result of significant 1993 reserve additions, PT-FI's 1994
depreciation rate decreased to 7.5 cents per pound compared with 8.3 cents for
1993. The initial depreciation rate for 1995 is expected to increase to 8.1
cents per pound as capital expenditures were added in 1994 to support current
operating levels. Once operating levels reach 115,000 MTPD, the depreciation
rate will be reevaluated to take into account the 115,000 MTPD expansion
capital additions, changes in ore reserve estimates and assessments of future
expansion.
In June 1993, two of PT-FI's four mill level ore passes caved resulting in
a blockage of a portion of the ore pass delivery system. The blockage's
primary effect was to limit mill throughput to approximately 40,700 MTPD for
eight weeks. The impact of the blockage was minimized by using an ore
stockpile adjacent to the mill and installing conveyors to alternative ore
pass systems. In December 1994, PT-FI settled the resulting property and
business interruption insurance claims and recognized a $32.6 million gain.
PT-FI's copper concentrates, which contain significant amounts of
recoverable gold and silver, are sold primarily under long-term sales
agreements. PT-FI's current markets include Japan, Asia, Europe and North
America. PT-FI has commitments from various parties to purchase virtually all
of its estimated 1995 production at market prices. Sales for 1995, currently
estimated to be approximately 850 million pounds of copper and 1.1 million
ounces of gold will depend on the timing of completion of the 115,000 MTPD
expansion. Upon completion of RTM's smelter expansion and the proposed Gresik
smelter (Note 10), FTX anticipates that approximately 70 percent of PT-FI's
expanded annual concentrate production will be sold to affiliates at market
prices.
During 1994, PT-FI implemented a price protection program at a cost of
$31.7 million to cover anticipated copper sales for 1995 and a portion of
1996. In late 1994 and early 1995, when spot copper prices rose
significantly, PT-FI closed a portion of its 1995 contracts realizing $46.9
million which will be recognized in first-half 1995 revenues. As a result of
these transactions, PT-FI will realize $1.21 per pound on 142.2 million pounds
of copper in the first half of 1995. An additional 155.2 million pounds of
first-half 1995 PT-FI copper sales will be priced at a minimum average price
of $0.88 per pound, with full participation in prices above an average of
$0.98 per pound. For the second half of 1995, PT-FI's program established a
minimum average price of $0.83 per pound on sales of 396.8 million pounds of
copper with full participation in prices above that amount. PT-FI will also
realize an average price of $1.13 per pound on 119 million pounds of copper
during the second half of 1995. For 1996, PT-FI's program currently has
established a minimum average price of $0.90 per pound on 596.9 million pounds
of copper, with full participation in prices above that amount. As of
December 31, 1994, the unrecognized cost to unwind PT-FI's hedging positions
was approximately $40 million, net of deferred gains on closed contracts. As
conditions warrant, PT-FI may modify or extend its existing program. This
program reflects a philosophy of providing for an assurance of realizing the
benefits of higher copper prices for a significant portion of FCX's production
while it is expanding its operations. Subsequently, management's intention is
to provide a floor price for its production, if attainable at an acceptable
cost, to protect operating cash flow from the impact of potentially
significant declines in copper prices, while providing for full participation
in potentially higher prices.
RTM generated earnings of $0.6 million in 1994 compared with a $15.7
million loss for the 1993 period. Smelter cash margins improved in 1994
because of higher operating rates, cost reduction efforts and greater price
participation resulting from higher copper prices. Cathode refinery
operations also continued to maintain high operating rates. Higher 1994 mill
throughput and recoveries at RTM's gold mining operations resulted in an
increase in gold sales; however, the impact was more than offset by
significantly lower silver grades. Fluctuations in RTM's ore grades are
expected to continue as the mine nears the end of its economic life.
RTM's 1995 results are expected to be negatively affected by the
significant industrywide decline in treatment charge rates. Additionally,
RTM's smelter will be shutdown in 1995 for major maintenance turnarounds and
expansion tie-ins. RTM's results continue to be subject to variations based
on the relative value of the U.S. dollar and the Spanish peseta. Based on
current operating levels, a one peseta change in the exchange rate has an
approximate $1 million impact on RTM's annual earnings and cash flow.
To assure price participations on a portion of its estimated 1995
concentrate purchases, RTM wrote call option contracts in December 1994 on
19.8 million pounds of copper for 1995 at an average price of $1.18 per pound,
collecting $4.6 million in premiums. These premiums were deferred and will be
recognized in cost of sales during 1995. RTM also has a hedging program for
its mining operations. At December 31, 1994, RTM had sold forward 56,280
ounces of gold at $394.75 per ounce and 1,106,520 ounces of silver at $4.82
per ounce for 1995. As of December 31, 1994, the unrecognized cost to unwind
RTM's hedging position was $0.5 million.
FCX continues its exploration activities within the original 24,700 acre
Block A area, the adjacent approximate 4.8 million acre Block B area and the
approximate 2.5 million acre Eastern Mining area. Delineation drilling
continues at the Big Gossan prospect within Block A with development expected
to begin in early 1995. Exploration activities continue in other locations
including the Wanagon and Lembah Tembaga prospects, both within Block A, and
the Wabu gold prospect in Block B. Exploratory drilling with three rigs is
also continuing at Etna Bay located within the Eastern Mining acreage. PT-FI
has relinquished its rights to approximately 1.7 million acres at Block B and
will relinquish an additional approximate 3.2 million acres over the next four
years. Similarly, 75 percent of the Eastern Mining area must be relinquished
over the next two to seven years. FCX's exploration costs, currently budgeted
at approximately $50 million for 1995, totaled $40.4 million in 1994, $33.7
million in 1993 and $12.2 million in 1992.
FCX's general and administrative expenses were $109 million in 1994, $81.4
million in 1993 and $68.5 million in 1992. The increases resulted from the
inclusion of RTM activities for a full year in 1994 and additional personnel
and administrative efforts to manage the expanding operations. Included in
the 1993 amount were charges of $6.3 million primarily consisting of a $2
million write-off of deferred charges incurred in 1992 for a planned
securities offering that was withdrawn and $4 million to downsize FCX's
management information systems (MIS) structure.
Agricultural Minerals Operations. FTX's agricultural minerals segment, which
includes FRP's fertilizer and phosphate rock operations (conducted through
IMC-Agrico) and its sulphur business, reported 1994 operating income of $123.8
million on revenues of $730.4 million compared with an operating loss of $105
million on revenues of $619.3 million in 1993. Significant items affecting
operating income follow (in millions):
Agricultural minerals operating loss - 1993 $ (105.0)
--------
Increases (decreases):
Sales volumes 15.8
Realizations 102.7
Other (7.4)
--------
Revenue variance 111.1
Cost of sales 46.8a,b
1993 provision for restructuring charges 33.9
1993 loss on valuation and sale of assets, net 14.8
General and administrative and exploration 22.2a
--------
228.8
--------
Agricultural minerals operating income - 1994 $ 123.8
========
a. 1993 included $17.5 million in cost of sales and $7.3 million in general
and administrative expenses resulting from the restructuring project.
b. 1994 included a $15.8 million reduction and 1993 included a $10.8 million
increase to depreciation and amortization caused by FRP's disproportionate
interest in IMC-Agrico cash distributions.
FRP's 1994 sales volumes for DAP, its principal fertilizer product, were
slightly below 1993 levels. Sales activity benefited from continued strong
export demand and improved domestic activity. This demand caused producer
inventories to remain at prior-year levels despite a rise in industrywide
production. As a result, phosphate fertilizer prices rose sharply from the
near 20-year lows experienced during 1993, with FRP's average DAP realization
increasing 32 percent. Unit production costs benefited from efficiencies at
IMC-Agrico, somewhat offset by higher raw material prices for ammonia.
Strong export demand for phosphate fertilizer products has continued into
early 1995, resulting in improving phosphate fertilizer prices. IMC-Agrico
resumed production at its only idle fertilizer facility in January 1995.
FRP's phosphate rock sales volumes rose 14 percent during 1994, reflecting
increased demand and the addition of a long-term supply contract in October
1994.
Main Pass sulphur production averaged nearly 6,200 TPD, exceeding full
design operating rates of 5,500 TPD, which lowered unit production costs from
1993. Production is expected to be maintained near the 6,000 TPD level for
the immediate future. With increased Main Pass production, FRP ceased
operating the marginally profitable Caminada mine in January 1994. Average
sulphur realizations for 1994 were lower, reflecting the decline in prices
which occurred throughout 1993. However, improved phosphate fertilizer
operating rates, coupled with reduced imports, resulted in sulphur price
increases in Tampa, Florida since mid-1994. As a result, Tampa sulphur prices
are currently above year-ago levels. To the extent U.S. phosphate fertilizer
production remains strong, improved sulphur demand is expected to continue,
although the availability of Canadian sulphur impacts the potential for
significant price increases.
Oil and Gas Operations. Prior to the May 1994 MOXY distribution, FTX's oil
and gas operations (excluding the Main Pass oil operation) involved exploring
for new reserves. These activities generated a 1994 loss of $11.9 million,
including exploration expense of $5.2 million. Earnings for 1993 totaled $20
million as FTX recognized a $69.1 million gain from the $95.3 million cash
sale of the undeveloped reserves discovered at East Cameron Blocks 331/332
offshore Louisiana, partially offset by exploration expense of $22.3 million
and $24.4 million of charges resulting from the restructuring project.
Subsequent to the MOXY distribution, FTX's only significant oil and gas
operations occured at Main Pass.
Main Pass oil operations achieved the following:
1994 1993
--------- ---------
Sales (barrels) 2,533,700 3,443,000
Average realized price $13.74 $14.43
Operating income (in millions) $2.8 $(61.5)
Main Pass oil production was limited during 1994 because of a
redevelopment program which involved drilling two additional wells and
recompleting three existing wells. FRP's 1995 net production is estimated to
approximate 1994 levels, as the benefits of the redevelopment program are
expected to partially offset declining reservoir production. Oil realizations
recovered somewhat from the signifiant decline which occurred in late 1993,
with prices rising to near $15 per barrel in January 1995. The 1993 price
decline resulted in a $60 million charge to FRP's earnings for the excess net
book value of its Main Pass oil assets over the estimated future net cash flow
to be received.
Restructuring Activities. During 1993, FTX undertook a restructuring of its
administrative organization. This restructuring represented a major step by
FTX to lower the costs of operating and administering its businesses in
response to weak market prices of commodities produced by its operating units.
As part of this restructuring, FTX significantly reduced the number of
employees engaged in administrative functions, changed its MIS environment to
achieve efficiencies, reduced its needs for office space, outsourced a number
of administrative functions and took other actions to lower costs. The
restructuring process resulted in FTX incurring certain one-time costs (Note
4).
CAPITAL RESOURCES AND LIQUIDITY
Net cash provided by operating activities during 1994 increased to $506.8
million, compared with $117.3 million for 1993, primarily reflecting higher
income from operations. Cash used in investing activities totaled $694.2
million during 1994, compared with $429 million in 1993, reflecting an
increase in capital expenditures for continuing expansion at PT-FI and RTM.
Cash flow provided by financing activities totaled $189.2 million compared
with a use of $29.5 million during 1993. The 1994 period included $515.4
million of proceeds from public securities offerings compared with $561.1
million in 1993. During 1994, FTX acquired 3.8 million of its common shares
for an aggregate $67.7 million and 2.2 million FCX Class A common shares for
an aggregate $47.6 million under its established program to acquire shares
when warranted by market conditions. During 1993, 1.3 million FTX shares and
0.8 million FCX shares were purchased for an aggregate $38.7 million. FTX had
additions to debt of $7.1 million in 1994, net of the purchase of its 10 7/8%
Debentures, compared with net repayments of $179.5 million during 1993. The
reduction in cash dividends paid during 1994 resulted from FTX's June 1994
change in dividend policy to begin distributing FCX common stock in lieu of
paying cash dividends (Note 7).
Net cash provided by operating activities declined in 1993 to $117.3
million from $339.6 million for 1992, primarily reflecting lower income from
operations. Net cash used in investing activities was $429 million compared
with $885.5 million for 1992. Increased metals capital expenditures were
incurred in 1993 associated with PT-FI's expansion and lower capital
expenditures were incurred at Main Pass and in FRP's agricultural minerals
operations, where development projects were completed in 1992. Asset sales
generated proceeds of $145.2 million during 1993; 1992 included the purchase
of an indirect interest in PT-FI for $211.9 million. Net cash used in
financing activities was $29.5 million in 1993; 1992 financing activities
provided net cash of $837.3 million. The 1993 period included $561.1 million
of proceeds from the FCX preferred stock offerings, and 1992 included $1.3
billion of proceeds form equity security offerings. Increased distributions
to minority interest holders of FCX and FRP securities were made during 1993
as a result of the equity sales during 1993. As indicated above, an aggregate
$38.7 million was spent in 1993 to purchae FTX and FCX shares; in 1992, 5.7
million FTX shares and 0.8 million FCX shares were purchased for an aggregate
$123.8 million. Net long-term debt repayments were $179.5 million in 1993
compared with net borrowings of $53.7 million in 1992.
During 1995, PT-FI's estimated capital expenditures are expected to
approximate $450 million. These expenditures will be funded by operating cash
flow, sales of infrastructure assets, the bank credit facility (Note 5) and
other financing sources. Upon completion of the 115,000 MTPD expansion during
the second half of 1995, PT-FI's operating cash flow will increase
significantly. For at least one year after completion fo the 115,000 MTPD
expansion, FCX plans to undertake efforts to reduce costs and maximize cash
flows. During this period, FCX will assess the feasibility of further
mine/mill expansions, taking into account the results of its exploration
activities, to determine where best to make future investments in capital
projects. In connection with FTX's proposed restructuring plan (Note 2), the
existing FTX credit agreement in which PT-FI participates is expected to be
modified to become a separate facility for PT-FI and a new facility will be
arranged for FCX and PT-FI which is expected to provide greater access to
credit markets and reduce financing costs. PT-FI's long-lived, low-cost
reserve base provides it potential access to a broad range of sources of
capital, including additional public and private issuances of securities.
In June 1994, RTM signed a turnkey contract to expand its smelter capacity
to 270,000 metric tons of metal per year by early 1996 at a cost of
approximately $215 million. In December 1994, RTM obtained $290 million of
project financing, nonrecourse to FCX, which also provided funds for
refinancing a portion of RTM's gold, silver and working capital loans (Note
5). RTM's future operating cash flow will be determined by the supply and
demand for copper smelter capacity, smelter and refining production rates, the
exchange rate between the U.S. dollar and the Spanish peseta and prices and
sales volumes of gold.
In January 1995, FCX agreed in principle to form a joint venture, 20
percent owned by FCX, to develop a 200,000 metric tons of metal per year
copper smelter in Gresik, Indonesia (Note 10). Alternatives for financing the
estimated $550 million aggregate project cost, which excludes approximately
$100 million of working capital, are being reviewed.
In January 1995, FRP acquired essentially all of the domestic assets of
Pennzoil Co.'s sulphur division. Pennzoil will receive quarterly payments
from FRP over 20 years based on the prevailing price of sulphur. The
installment payments may be terminated earlier either by FRP through the
exercise of a $65 million call option or by Pennzoil through a $10 million put
option. Neither option may be exercised prior to 1999.
FRP has agreed in principle to acquire Fertiberia, S.L., the restructured
nitrogen and phosphate fertilizer business of Ercros, S.A., a Spanish
conglomerate. Since September 1993, FRP has managed this company with the
goal of establishing Fertiberia as a financially viable concern. FRP intends
to continue to work with the Spanish authorities on improving the operations
of Fertiberia and eventually to acquire essentially all of the company's
capital stock in return for agreeing to make a capital contribution of $11.5
million upon closing and a further contingent payment of $10 million in
January 1998. As part of the agreement, $38.5 million of nonrecourse
financing has been arranged at Fertiberia with payment terms dependent upon
its financial performance. The acquisition of Fertiberia, one of the largest
fertilizer manufacturers in Europe, is conditioned upon satisfaction of a
number of issues.
Publicly owned FRP units have cumulative rights to receive quarterly
distributions of 60 cents per unit through the distribution for the quarter
ending December 31, 1996 (the Preference Period) before any distributions may
be made to FTX. On January 20, 1995, FRP declared a distribution of 60 cents
per publicly held unit ($30.2 million) and 26 cents per FTX-owned unit ($13.9
million), payable February 15, 1995, bringing the total unpaid distribution to
FTX to $353.1 million. Unpaid distributions to FTX will be recoverable from
one-half of the excess of future quarterly FRP distributions over 60 cents per
unit for all units. The January 1995 distributable cash included $52.2
million from IMC-Agrico. FRP's future distributions will be dependent on the
distributions received from IMC-Agrico and Fertiberia and future cash flow
from FRP's sulphur and oil operations.
FTX is primarily a holding company and its sources of cash flow are
dividends and distributions from its ownership in FCX and FRP. Through mid-
1994, FTX borrowed funds when the cash received from FCX, FRP and asset sales
was insufficient to pay dividends and cover FTX's other cash requirements for
interest, general and administrative expenses and oil and gas operations.
Since the second quarter of 1994, in lieu of paying a $0.3125 quarterly cash
dividend to its common stockholders, FTX distributed quarterly one FCX Class A
common share for each 80 FTX common shares owned.
Subsequent to the spin-off of FCX (Note 2), FTX's business activity will
essentially consist of its 51.4 percent ownership in FRP and its source of
cash flow will be distributions from FRP, which are subject to the FRP public
unitholders' preferential distribution right discussed above. FTX will have
certain obligations relating to its past business activities including income
tax settlements, oil and gas payments and employee benefit liabilities. It
may also have obligations relating to its guarantee of the debt of FM
Properties Inc. (FMPO) discussed in Note 8 to the financial statements. FTX
anticipates that its cash distributions from FRP and amounts available to it
under the new FTX/FRP credit facility (Note 5) will be sufficient to meet
these obligations. FTX's Board of Directors will determine its new dividend
policy based on the availability of cash to FTX.
1993 COMPARED WITH 1992
Results for 1993 were adversely affected by significantly reduced earnings
from FTX's metals and agricultural minerals business segments, generally
caused by lower product realizations and charges resulting from the
restructuring project. The reduction in general and administrative expenses
reflected the initial benefits from the restructuring activities. Interest
expense increased, as no interest was capitalized on the Main Pass sulphur
operations subsequent to its becoming operational for accounting purposes in
July 1993. See Note 6 to the financial statements for information on the
provision for income taxes. Minority interests' share of net income increased
as a result of dividends following the issuance of additional FCX preferred
stock during 1993 (Note 2).
Metals Operations. FCX contributed 1993 operating income of $155.3 million on
revenues of $925.9 million compared with operating income of $276.4 million on
revenues of $714.3 million for 1992. Revenues in 1993 increased as a result
of the RTM acquisition. PT-FI revenues were down 4 percent primarily because
of lower copper realizations. Operating income was affected adversely by
increased unit site production and delivery, general and administrative and
exploration costs, and by RTM's losses. Significant items affecting operating
income follow (in millions):
Metals operating income - 1992 $276.4
------
Increases (decreases):
Price realizations:
Copper (84.7)
Gold 14.7
Sales volumes:
Copper (5.5)
Gold 30.2
Treatment charges 23.6
Adjustments to prior year concentrate sales (13.0)
RTM revenues, net of eliminations 240.7
Other 5.6
------
Revenue variance 211.6 a
Cost of sales (277.4)b
1993 provision for restructuring charges (20.8)
Exploration expenses (21.6)
General and administrative (12.9)b
------
(121.1)
------
Metals operating income - 1993 $155.3
======
a. Includes net additions totaling $36.8 million in 1993 and net reductions
totaling $8.9 million in 1992 related to PT-FI's price protection program.
Also includes reductions totaling $5.9 million in 1993 related to RTM's
hedging program.
b. 1993 included $10 million in cost of sales and $6.3 million in general and
administrative expenses resulting from the restructuring project.
Copper price realizations, taking into account PT-FI's price protection
program, were 12 percent lower than in 1992. Gold realizations were up 6
percent. Although mill throughput averaged 62,300 MTPD in 1993, 8 percent
higher than in 1992, copper sales volumes decreased slightly because of a
reduction in inventory during 1992. Gold sales volumes in 1993 benefited from
higher gold grades and an increase in gold recovery rates. Treatment charges
declined 3.4 cents per pound from 1992, resulting from a tightening in the
concentrate market and lower copper prices. Open copper sales at the
beginning of 1993 were recorded at an average price of $1.04 per pound, but
subsequently were adjusted downward as copper prices fell during the first few
months of the year.
PT-FI's unit site production and delivery costs, excluding charges related
to the restructuring project, rose slightly from 1992 because of costs
incurred in connection with the ore pass blockage and higher production
overhead costs related to expansion activities. Unit cash production costs
declined 9.6 cents per pound in 1993, benefiting from higher gold and silver
credits, lower treatment charges and reduced royalties. PT-FI's depreciation
rate increased from 7.4 cents per pound during 1992 to 8.3 cents in 1993,
reflecting the increased cost relating to the 66,000 MTPD expansion.
Agricultural Minerals Operations. FTX's agricultural minerals segment
reported a 1993 operating loss of $105 million on revenues of $619.3 million
compared with operating income of $16.6 million on revenues of $799 million in
1992. Significant items affecting operating income follow (in millions):
Agricultural minerals operating income - 1992 $ 16.6
-------
Increases (decreases):
Sales volumes (67.4)
Realizations (103.2)
Other (9.1)
-------
Revenue variance (179.7)
Cost of sales 89.5a
1993 provision for restructuring charges (33.9)
1993 loss on valuation and sale of assets, net (14.8)
General and administrative and exploration 17.3a
-------
(121.6)
-------
Agricultural minerals operating loss - 1993 $(105.0)
=======
a. 1993 included $17.5 million in cost of sales and $7.3 million in general
and administrative expenses resulting from the restructuring project.
Weak industrywide demand and changes attributable to FRP's participation
in IMC-Agrico resulted in 1993 DAP sales volumes declining 17 percent. Unit
production costs, excluding charges related to the restructuring project,
declined from 1992 reflecting initial production efficiencies from IMC-Agrico,
reduced raw material costs for sulphur and lower phosphate rock mining
expenses, partially offset by increased natural gas costs and lower production
volumes. FRP's realization for DAP was lower, reflecting the near 20-year low
prices realized during 1993 as well as an increase in the lower-priced Florida
sales by IMC-Agrico. FRP's proportionate share of the larger IMC-Agrico
phosphate rock operation caused 1993 sales volumes to increase 12 percent.
Combined sulphur production from the Caminada and Main Pass mines
increased compared with 1992. However, sales volumes declined 16 percent,
primarily because of reduced purchases by IMC-Agrico resulting from its
curtailed fertilizer production. Due to a significant decline in the market
price of sulphur during 1993, FRP recorded a 1993 charge to earnings for the
excess of capitalized cost over expected realization of its non-Main Pass
sulphur assets, primarily the Caminada sulphur mine. Main Pass sulphur became
operational for accounting purposes beginning July 1993.
Oil and Gas Operations. FTX's non-Main Pass oil operations generated 1993
earnings of $20 million, including exploration expense of $22.3 million, $24.4
million of charges resulting from the restructuring project and a $69.1
million gain from the sale of the East Cameron Block 331/332 oil and gas
property. A loss of $29.1 million, including exploration expense of $18.3
million, was generated in 1992. During 1992, FTX transferred substantially
all of its non-Main Pass oil and gas properties to FMPO, whose shares were
distributed to FTX common shareholders (Note 8).
Main Pass oil operations achieved the following:
1993 1992
--------- ---------
Sales (barrels) 3,443,000 4,884,000
Average realized price $14.43 $15.91
Operating income (in millions) $(61.5) $4.6
Main Pass oil production during early 1993 was hampered by water
encroachment. As discussed earlier, the 1993 operating loss includes a $60
million recoverability charge because of lower oil prices.
ENVIRONMENTAL
FTX has a history of commitment to environmental responsibility. Since the
1940s, long before public attention focused on the importance of maintaining
environmental quality, FTX has conducted preoperational, bioassay, marine
ecological and other environmental surveys to ensure the environmental
compatibility of its operations. FTX's Environmental Policy commits its
operations to full compliance with local, state and federal laws and
regulations, and prescribes the use of periodic environmental audits of all
domestic facilities to evaluate compliance status and communicate that
information to management. FTX has access to environmental specialists who
have developed and implemented corporatewide environmental programs. FTX's
operating units continue to study and implement methods to reduce discharges
and emissions.
Federal legislation (sometimes referred to as "Superfund") requires
payments for cleanup of certain abandoned waste disposal sites, even though
such waste disposal activities were performed in compliance with regulations
applicable at the time of disposal. Under the Superfund legislation, one
party may, under certain circumstances, be required to bear more than its
proportional share of cleanup costs at a site where it has responsibility
pursuant to the legislation, if payments cannot be obtained from other
responsible parties. Other legislation mandates cleanup of certain wastes at
unabandoned sites. States also have regulatory programs that can mandate
waste cleanup. Liability under these laws involves inherent uncertainties.
FTX has received notices from governmental agencies that it is one of many
potentially responsible parties at certain sites under relevant federal and
state environmental laws. Further, FTX is aware of additional sites for which
it may receive such notices in the future. Some of these sites involve
significant cleanup costs; however, at each of these sites other large and
viable companies with equal or larger proportionate shares are among the
potentially responsible parties. The ultimate settlement for such sites
usually occurs several years subsequent to the receipt of notices identifying
potentially responsible parties because of the many complex technical and
financial issues associated with site cleanup. FTX believes that the
aggregation of any costs associated with these potential liabilities will not
exceed amounts accrued and expects that any costs would be incurred over a
period of years.
FTX maintains insurance coverage in amounts deemed prudent for certain
types of damages associated with environmental liabilities which arise from
unexpected and unforeseen events and has an indemnification agreement covering
certain acquired sites (Note 10).
In June 1994, a sinkhole was found at a phosphogypsum storage area at IMC-
Agrico's New Wales, Florida facility. In addition, there was an earthen dam
breach at two of its phosphate rock facilities in late 1994 (Note 10). While
there is no evidence indicating underground water contamination in areas away
from the facilities, this issue continues to be monitored. If there were
contamination, which IMC-Agrico considers unlikely, the costs that would be
required are uncertain and cannot be estimated at the present. If significant
costs were incurred it would be necessary to determine the applicability of
insurance coverage maintained by IMC-Agrico, and separately by FRP, and for
the sharing of costs between the joint venture partners.
FTX has made, and will continue to make, expenditures at its operations
for protection of the environment. Continued government and public emphasis
on environmental issues can be expected to result in increased future
investments for environmental controls, which will be charged against income
from future operations. Present and future environmental laws and regulations
applicable to FTX's operations may require substantial capital expenditures
and may affect its operations in other ways that cannot now be accurately
predicted.
--------------------------------
The results of operations reported and summarized above are not necessarily
indicative of future operating results.
REPORT OF MANAGEMENT
Freeport-McMoRan Inc. (the Company) is responsible for the preparation of the
financial statements and all other information contained in this Annual
Report. The financial statements have been prepared in conformity with
generally accepted accounting principles and include amounts that are based on
management's informed judgments and estimates.
The Company maintains a system of internal accounting controls designed
to provide reasonable assurance at reasonable costs that assets are
safeguarded against loss or unauthorized use, that transactions are executed
in accordance with management's authorization and that transactions are
recorded and summarized properly. The system is tested and evaluated on a
regular basis by the Company's internal auditors, Price Waterhouse LLP. In
accordance with generally accepted auditing standards, the Company's
independent public accountants, Arthur Andersen LLP, have developed an overall
understanding of our accounting and financial controls and have conducted
other tests as they consider necessary to support their opinion on the
financial statements.
The Board of Directors, through its Audit Committee composed solely of
non-employee directors, is responsible for overseeing the integrity and
reliability of the Company's accounting and financial reporting practices and
the effectiveness of its system of internal controls. Arthur Andersen LLP and
Price Waterhouse LLP meet regularly with, and have access to, this committee,
with and without management present, to discuss the results of their audit
work.
James R. Moffett Richard C. Adkerson
Chairman of the Board and Senior Vice President and
Chief Executive Officer Chief Financial Officer
FREEPORT-MCMORAN INC.
BALANCE SHEETS
December 31,
-----------------------
1994 1993
---------- ----------
ASSETS (In Thousands)
Current assets:
Cash and short-term investments $ 41,548 $ 39,785
Accounts receivable:
Customers 200,416 174,716
Other 111,848 94,046
Inventories:
Products 200,624 158,639
Materials and supplies 223,074 186,694
Prepaid expenses and other 18,331 25,675
---------- ----------
Total current assets 795,841 679,555
---------- ----------
Property, plant and equipment 4,906,825 4,210,575
Less accumulated depreciation and amortization 1,540,582 1,436,845
---------- ----------
Net property, plant and equipment 3,366,243 2,773,730
---------- ----------
Other assets 211,491 260,782
---------- ----------
Total assets $4,373,575 $3,714,067
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 571,118 $ 408,289
Current portion of long-term debt
and short-term borrowings 24,412 49,256
---------- ----------
Total current liabilities 595,530 457,545
Long-term debt, less current portion 1,646,882 1,282,424
Accrued postretirement benefits and pension costs 263,137 239,134
Reclamation and mine shutdown reserves 125,702 120,957
Other liabilities and deferred credits 172,722 212,536
Deferred income taxes 292,580 201,553
Minority interests 1,507,489 1,199,269
Stockholders' equity:
Preferred stock, par value $1, at liquidation
value, authorized 50,000,000 shares:
$1.875 Convertible Exchangeable - 6,286
$4.375 Convertible Exchangeable 250,000 250,000
Common stock, par value $1, authorized
300,000,000 shares 166,365 165,293
Capital in excess of par value of common stock - 21,868
Retained earnings (deficit) (221,925) (81,224)
Cumulative foreign translation adjustment (2,555) (7,187)
Common stock held in treasury - 29,179,000
and 25,334,600 shares, respectively, at cost (422,352) (354,387)
---------- ----------
(230,467) 649
---------- ----------
Total liabilities and stockholders' equity $4,373,575 $3,714,067
========== ==========
The accompanying notes are an integral part of these financial statements.
FREEPORT-MCMORAN INC.
STATEMENTS OF OPERATIONS
Years Ended December 31,
------------------------------------
1994 1993 1992
---------- ---------- ----------
(In Thousands,
Except Per Share Amounts)
Revenues $1,982,396 $1,610,581 $1,654,911
Cost of sales:
Production and delivery 1,297,007 1,141,705 986,274
Depreciation and amortization 132,713 191,938 202,382
---------- ---------- ----------
Total cost of sales 1,429,720 1,333,643 1,188,656
Exploration expenses 47,052 65,080 37,036
Provision for restructuring charges - 67,145 -
Loss on valuation and sale of
assets, net - 64,114 -
Gain on insurance settlement (32,602) - -
General and administrative expenses 167,390 169,059 177,363
---------- ---------- ----------
Total costs and expenses 1,611,560 1,699,041 1,403,055
---------- ---------- ----------
Operating income (loss) 370,836 (88,460) 251,856
Interest expense, net (91,834) (79,882) (51,788)
Gain on sale of FCX Class A shares - - 100,934
Gain on conversion/distribution of FCX
securities 114,750 44,116 33,753
Other income (expense), net (3,830) (2,727) 1,640
---------- ---------- ----------
Income (loss) before income taxes
and minority interests 389,922 (126,953) 336,395
Provision for income taxes (148,388) (17,854) (75,597)
Minority interests in net (income)
loss of consolidated subsidiaries (168,951) 61,689 (72,987)
---------- ---------- ----------
Income (loss) before extraordinary
item and changes in accounting
principle 72,583 (83,118) 187,811
Extraordinary loss on early
extinguishment of debt, net (9,108) - -
Cumulative effect of changes in
accounting principle, net - (20,717) -
---------- ---------- ----------
Net income (loss) 63,475 (103,835) 187,811
Preferred dividends (22,032) (22,368) (18,677)
---------- ---------- ----------
Net income (loss) applicable to
common stock $ 41,443 $ (126,203) $ 169,134
========== ========== ==========
Primary and fully diluted net income (loss) per share:
Before extraordinary item and changes
in accounting principle $.37 $(.74) $1.17
Extraordinary loss on early
extinguishment of debt (.07) - -
Cumulative effect of changes in
accounting principle - (.15) -
---- ----- -----
$.30 $(.89) $1.17
==== ===== =====
Average common and common equivalent shares outstanding:
Primary 139,223 141,595 144,515
======= ======= =======
Fully diluted 139,223 142,099 145,257
======= ======= =======
Dividends per common share:
Cash $ .3125 $1.250 $1.250
Property 1.2946 - .175
------- ------ ------
$1.6071 $1.250 $1.425
======= ====== ======
The accompanying notes are an integral part of these financial statements.
FREEPORT-MCMORAN INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
Years Ended December 31,
---------------------------------
1994 1993 1992
--------- -------- --------
(In Thousands)
$1.875 Convertible exchangeable preferred stock:
Balance at beginning of year $ 6,286 $ 7,453 $ 9,680
Conversions to common stock and
redemptions (6,286) (1,167) (2,227)
--------- -------- --------
Balance at end of year - 6,286 7,453
--------- -------- --------
$4.375 Convertible exchangeable preferred stock:
Balance at beginning of year 250,000 250,000 -
Issuance of shares - - 250,000
--------- -------- --------
Balance at end of year 250,000 250,000 250,000
--------- -------- --------
Common stock:
Balance at beginning of year 165,293 164,818 81,796
Two-for-one stock split - - 81,796
Conversions to common stock and other 1,072 475 1,226
--------- -------- --------
Balance at end of year 166,365 165,293 164,818
--------- -------- --------
Capital in excess of par value of common stock:
Balance at beginning of year 21,868 186,032 352,705
Two-for-one stock split - - (81,796)
Dividends on preferred stock - (20,499) -
Dividends on common stock (35,600) (131,992) (92,124)
Conversions to common stock and other 13,732 (11,673) 7,247
--------- -------- --------
Balance at end of year - 21,868 186,032
--------- -------- --------
Retained earnings (deficit):
Balance at beginning of year (81,224) 68,532 163,754
Net income (loss) 63,475 (103,835) 187,811
Dividends on preferred stock (22,032) (1,869) (18,677)
Dividends on common stock (182,144) (44,052) (264,356)
--------- -------- --------
Balance at end of year (221,925) (81,224) 68,532
--------- -------- --------
Cumulative foreign translation adjustment:
Balance at beginning of year (7,187) - -
Adjustment 4,632 (7,187) -
--------- -------- --------
Balance at end of year (2,555) (7,187) -
--------- -------- --------
Common stock held in treasury:
Balance at beginning of year (354,387) (330,814) (219,654)
Purchase of 3,831,800, 1,326,200 and
5,705,100 shares, respectively (67,747) (22,229) (108,591)
Other (218) (1,344) (2,569)
--------- -------- --------
Balance at end of year (422,352) (354,387) (330,814)
--------- -------- --------
Total stockholders' equity $(230,467) $ 649 $346,021
========= ======== ========
The accompanying notes are an integral part of these financial statements.
FREEPORT-MCMORAN INC.
STATEMENTS OF CASH FLOW
Years Ended December 31,
---------------------------------
1994 1993 1992
--------- --------- ---------
(In Thousands)
Cash flow from operating activities:
Net income (loss) $ 63,475 $(103,835) $ 187,811
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Cumulative effect of changes in
accounting principle - 20,717 -
Extraordinary loss on early
extinguishment of debt 9,108 - -
Depreciation and amortization 137,038 199,506 211,176
Other noncash charges to income - 33,194 -
Provision for restructuring charges, net
of payments - 23,890 -
Loss on valuation and sale of
assets, net - 64,114 -
Oil and gas exploration expenses 5,231 26,710 18,333
Amortization of debt discount and
financing costs 37,128 41,166 51,206
Gain on sale of FCX Class A shares - - (100,934)
Gain on conversion/distribution of FCX
securities (114,750) (44,116) (33,753)
Deferred income taxes 96,065 (39,035) 53,079
Minority interests' share of
net income (loss) 168,951 (61,689) 72,987
Cash distribution from IMC-Agrico in
excess of capital interest 43,293 - -
Reclamation and mine shutdown
expenditures (9,837) (9,980) (18,038)
(Increase) decrease in working capital, net
of effect of acquisitions and dispositions:
Accounts receivable (44,614) 2,821 (14,672)
Inventories (40,320) 4,475 (20,675)
Prepaid expenses and other 7,350 (10,873) (23,037)
Accounts payable and accrued
liabilities 163,283 (24,590) (43,001)
Other (14,574) (5,186) (845)
--------- --------- ---------
Net cash provided by operating activities 506,827 117,289 339,637
--------- --------- ---------
Cash flow from investing activities:
Capital expenditures:
PT-FI (664,735) (450,854) (367,842)
RTM, including acquisition cost (78,735) (12,658) -
Main Pass (10,941) (37,427) (117,902)
Agricultural minerals (18,740) (14,743) (86,815)
Oil and gas (12,493) (35,455) (50,493)
Other (20,577) (27,450) (59,557)
Sale of assets:
Oil and gas - 95,250 -
Geothermal 36,910 23,000 -
Other 75,092 26,961 -
Purchase of indirect interest in PT-FI - - (211,892)
Other - 4,375 8,962
--------- --------- ---------
Net cash used in investing activities $(694,219) $(429,001) $(885,539)
--------- --------- ---------
FREEPORT-MCMORAN INC.
STATEMENTS OF CASH FLOW
Years Ended December 31,
---------------------------------
1994 1993 1992
---------- -------- --------
(In Thousands)
Cash flow from financing activities:
Proceeds from sale of:
Convertible exchangeable preferred stock $ - $ - $245,700
FRP 8 3/4% Senior subordinated notes 146,125 - -
FRP depositary units - - 425,996
FCX Class A common shares - - 174,142
FCX preferred and preference stock 252,985 561,090 217,867
FCX 9 3/4% Senior notes 116,276 - -
PT-FI common shares - - 212,485
Purchase of FTX common shares (67,747) (22,229) (108,591)
Purchase of FCX Class A common shares (47,596) (16,482) (15,253)
Distributions paid to minority interests:
FCX (110,312) (74,848) (46,051)
FRP (121,184) (121,180) (109,450)
Distribution of MOXY and FMPO shares (35,441) - (28,019)
Net proceeds from infrastructure financing 110,825 20,000 -
Proceeds from debt 1,865,928 635,376 851,447
Repayment of debt (1,715,954) (814,920) (797,735)
Purchase of 10 7/8% Senior Debentures (142,919) - -
Cash dividends paid:
Common stock (44,467) (175,890) (179,677)
Preferred stock (22,110) (22,384) (16,882)
Other 4,746 1,962 11,322
---------- -------- --------
Net cash provided by (used in) financing
activities 189,155 (29,505) 837,301
---------- -------- --------
Net increase (decrease) in cash and
short-term investments 1,763 (341,217) 291,399
Cash and short-term investments at
beginning of year 39,785 381,002 89,603
---------- -------- --------
Cash and short-term investments at
end of year $ 41,548 $ 39,785 $381,002
========== ======== ========
Interest paid $ 94,631 $ 94,557 $ 95,787
========== ======== ========
Income taxes paid $ 42,576 $ 15,925 $ 28,123
========== ======== ========
The accompanying notes, which include information in Notes 1 through 5, 7 and
8 regarding noncash transactions, are an integral part of these financial
statements.
FREEPORT-MCMORAN INC.
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation. The consolidated financial statements of Freeport-
McMoRan Inc. (FTX) include all majority-owned subsidiaries and its publicly
traded partnerships (Note 2). Investments in joint ventures and partnerships
(other than publicly traded entities) are generally reflected using the
proportionate consolidation method in accordance with standard industry
practice. All significant intercompany transactions have been eliminated.
Certain prior year amounts have been reclassified to conform to the 1994
presentation.
Cash and Short-Term Investments. Highly liquid investments purchased with a
maturity of three months or less are considered cash equivalents. Cash and
short-term investments owned by consolidated entities are not available to FTX
until a distribution is paid to all owners of an entity's equity securities.
Accounts Receivable. In 1994, IMC-Agrico Company (IMC-Agrico) entered into an
agreement whereby it can sell on an ongoing basis up to $75 million of
accounts receivable. FTX's accounts receivable at December 31, 1994 were net
of $17.9 million of receivables sold.
Inventories. Inventories are generally stated at the lower of average cost or
market and removed at average cost. Rio Tinto Minera, S.A. (RTM) uses the
first-in, first-out (FIFO) cost method.
Property, Plant and Equipment. Property, plant and equipment is carried at
cost. Mineral exploration costs are expensed as incurred, except in the year
the property is deemed to contain a viable mineral deposit, in which case they
are capitalized. Development costs, including interest incurred during the
construction and development period, are capitalized. Expenditures for
replacements and improvements are capitalized. Depreciation for mining and
production assets, including mineral interests, is determined using the unit-
of-production method based on estimated recoverable reserves. Other assets
are depreciated on a straight-line basis over estimated useful lives of 15 to
30 years for buildings and 3 to 25 years for machinery and equipment.
Oil and Gas Costs. FTX follows the successful efforts method of accounting
for its oil and gas operations. Costs of leases, productive exploratory wells
and development activities are capitalized. Other exploration costs are
expensed. Depreciation and amortization is determined on a field-by-field
basis using the unit-of-production method. Gain or loss is included in
income when properties are sold.
Environmental Remediation and Compliance. Environmental expenditures that
relate to current operations are expensed or capitalized as appropriate.
Expenditures resulting from the remediation of an existing condition caused by
past operations, and which do not contribute to current or future revenue
generation, are expensed. Liabilities are recognized for remedial activities
when the efforts are probable and the cost can be reasonably estimated.
Derivatives. Derivatives have been used by FTX to manage certain market risks
resulting from fluctuations in commodity prices (primarily copper and gold),
foreign exchange rates and interest rates by creating offsetting market
exposures. Costs or premiums and gains or losses on the contracts, including
closed contracts, are recognized with the hedged transaction. Also, gains or
losses are recognized if the hedged transaction is no longer expected to
occur. FTX monitors its credit risk on an ongoing basis and considers this
risk to be minimal because its contracts are with a diversified group of
financially strong counterparties.
Freeport-McMoRan Copper & Gold Inc. (FCX) redeemable preferred stocks and
gold and silver denominated loans are treated as hedges of future production
and are carried at their original issue value (the acquisition date value for
the RTM gold and silver denominated loans). As principal payments occur,
differences between the carrying value and the payment are recorded as an
adjustment to revenues.
Concentrate Sales. Revenues from P.T. Freeport Indonesia Company (PT-FI)
concentrate sales are recorded net of royalties, treatment costs and the
impact of its price protection program. PT-FI's concentrate sales agreements
provide for provisional billings based on world metals prices, primarily the
London Metal Exchange, with actual settlement on the copper portion generally
based on appropriate future prices. Revenues, recorded initially using
provisional prices, are adjusted using current prices. At December 31, 1994,
copper sales totaling 192 million pounds remained to be contractually priced
in 1995. As a result of PT-FI's hedging activities, it will realize an
average of $1.01 per pound on these sales. Gold sales are priced according to
individual contract terms.
In December 1991, PT-FI and the Government of Indonesia (the Government)
signed a contract of work (the COW) with a 30-year term and two 10-year
extensions permitted. Under the COW, PT-FI pays the Government a royalty of
1.5 percent to 3.5 percent on the value of copper sold, net of delivery costs
and treatment and refining charges, and a 1 percent royalty on gold and silver
sales. The royalties totaled $19.4 million in 1994, $9.5 million in 1993 and
$15.7 million in 1992.
Foreign Translation Adjustment. RTM's assets and liabilities are translated
to U.S. dollars using the exchange rate in effect at the balance sheet date,
with FTX's share of the translation adjustments recorded as a component of
stockholders' equity. Results of operations are translated using the average
exchange rates during the period.
Net Income Per Share. Primary net income per share is computed by dividing
net income applicable to common stock by the average common and common
equivalent shares outstanding. Fully diluted net income per share is computed
assuming all convertible securities, if dilutive, were converted at the
beginning of the period or date of issuance, whichever is later.
Changes in Accounting Principle. During 1993, FTX adopted the following
changes in accounting principle effective January 1, 1993:
Periodic Scheduled Maintenance - These costs are expensed when incurred.
Previously, costs were capitalized when incurred and amortized.
Deferred Charges - Costs that directly relate to the acquisition,
construction and development of assets and to the issuance of debt and related
instruments are deferred. Previously, certain other costs that benefited
future periods were deferred.
Management Information Systems (MIS) - MIS equipment and software that
have a material impact on net income are capitalized. Other MIS costs,
including equipment and purchased software, that involve immaterial amounts
(currently individual expenditures of less than $0.5 million) and short
estimated productive lives (currently less than three years) are charged to
expense when incurred. Previously, most expenditures for MIS equipment and
purchased software were capitalized.
These changes were adopted to improve the measurement of operating
results by expensing cash expenditures when incurred unless they directly
relate to long-lived asset additions. The change in accounting for MIS costs
also recognizes the rapid rate of technology change in MIS which results in a
need for continuing investments. These changes did not have a material impact
on 1993 income before changes in accounting principle.
2. PUBLIC SUBSIDIARIES
Distribution of FCX Investment. FTX is pursuing a plan to separate its two
principal businesses, copper/gold and agricultural minerals, into two
independent financial and operating entities. To accomplish this plan, FTX
would make a pro-rata distribution of its common stock ownership in FCX to FTX
common stockholders. As a result of this distribution, which will require a
series of steps to implement, FTX would no longer own any interest in FCX.
The proposed distribution, which is expected to take several months to
implement, is contingent on a number of factors including completion of a
restructuring of the liabilities of FTX including its long-term debt, which
will include the use of a portion of the FCX shares currently owned by FTX,
and changing the voting rights of FCX stockholders so that the Class B
stockholders elect 80 percent of the FCX directors and the Class A
stockholders and preferred stockholders elect the balance. The change in
voting rights is subject to FCX Class A stockholder approval. There can be no
assurances that these contingencies will be met. In an Internal Revenue
Service private-letter ruling, FTX has received assurance that the
distribution of FCX Class B common shares to FTX common stockholders will be
tax-free.
Freeport-McMoRan Copper & Gold Inc. FTX's metals operations are conducted
through its publicly traded subsidiary, FCX. FTX's ownership of the FCX Class
A and Class B common stock combined was 68.3 percent at December 31, 1994 and
71.8 percent at December 31, 1993. FCX's operations are conducted primarily
through its subsidiaries, PT-FI which principally operates the Indonesian
copper and gold mining facilities and RTM which operates a copper smelter in
Spain (Note 3).
In December 1992, FCX purchased 49 percent (10.5 million shares) of the
capital stock of a publicly traded Indonesian entity which owned 10 percent of
PT-FI. The fair market value of FCX Class A common stock at the time of the
agreement was the basis for calculating the purchase price. In December 1993
and January 1994, PT-FI issued shares of its stock to FCX in exchange for the
conversion of certain intercompany notes. FCX's direct ownership in PT-FI
totaled 81.3 percent and 80.8 percent at December 31, 1994 and 1993,
respectively. At December 31, 1994, PT-FI's net assets totaled $261.2
million, including $57.6 million of retained earnings.
In July 1992, FCX sold publicly 8.6 million shares of its Class A common
stock, resulting in an after-tax gain to FTX of $100.9 million, and 9 million
depositary shares for net proceeds of $392 million. Each depositary share
represents 2 16/17 shares of its 7% Convertible Exchangeable Special
Preference Stock, has a cumulative annual cash dividend of $1.75 (payable
quarterly) and a $25 liquidation preference, and is convertible at the option
of the holder into 1.021 shares of FCX Class A common stock. Beginning August
1995, FCX may redeem these depositary shares for cash at $26.225 per share
(declining ratably to $25 per share in March 2002) plus accrued and unpaid
dividends.
In July 1993, FCX sold publicly 14 million depositary shares representing
its Step-Up Convertible Preferred Stock for net proceeds of $340.7 million.
Each depositary share has a cumulative annual cash dividend (payable
quarterly) of $1.25 through August 1996 and $1.75 thereafter and a $25
liquidation preference, and is convertible at the option of the holder into
0.835 shares of FCX Class A common stock. From August 1996 through August
1999, FCX may redeem these depositary shares for 0.835 shares of FCX Class A
common stock per depositary share if the market price of FCX Class A common
stock exceeds certain specified levels. Thereafter, FCX may redeem these
depositary shares at $25 per share (payable in FCX Class A common stock, cash
or a combination of both, at FCX's option) plus accrued and unpaid dividends.
In August 1993, FCX sold publicly 6 million depositary shares
representing its Gold-Denominated Preferred Stock for net proceeds of $220.4
million. Each depositary share has a cumulative quarterly cash dividend equal
to the value of 0.000875 ounces of gold and will be redeemed in August 2003
for the cash value of 0.1 ounces of gold.
In January 1994, FCX sold publicly 4.3 million depositary shares
representing its Gold-Denominated Preferred Stock, Series II for net proceeds
of $158.5 million. Each depositary share has a cumulative quarterly cash
dividend equal to the value of 0.0008125 ounces of gold and will be redeemed
in February 2006 for the cash value of 0.1 ounces of gold.
In July 1994, FCX sold publicly 4.8 million depositary shares
representing its Silver-Denominated Preferred Stock for net proceeds of $94.5
million. Each depositary share has a cumulative quarterly cash dividend equal
to the value of 0.04125 ounces of silver. Annually, beginning in August 1999,
FCX will redeem the underlying Silver-Denominated Preferred Stock in eight
equal installments.
The FCX redeemable preferred stocks are being reported as a hedge of
future gold and silver sales for accounting purposes (Note 1). FTX reports
the FCX preferred stock and related dividends as minority interests in its
financial statements.
PT-FI entered into joint ventures owned one-third by PT-FI and two-thirds
by P.T. ALatieF Nusakarya Corporation (ALatieF), an Indonesian investor, to
purchase and manage certain PT-FI infrastructure assets for $270 million. The
management agreements, which are terminable by either party upon six months
written notice after debt repayment, provide ALatieF with a guaranteed minimum
rate of return on its investment and result in the joint ventures being
consolidated for financial reporting purposes. The joint ventures have
purchased $194.9 million of infrastructure assets through December 31, 1994
and are expected to purchase the final $75.1 million of assets in 1995.
Funding for the purchases consists of $90 million in equity contributions by
the joint venture partners, the ALatieF bank loan and the 9 3/4% Senior Notes
(Note 5).
In December 1994, PT-FI entered into a joint venture, 30 percent owned by
PT-FI, to purchase and manage its power-related assets for an estimated $215
million. A $100 million sale occurred in December 1994 and the remaining
sales are expected to take place by the end of 1995. PT-FI guaranteed the
joint venture a minimum rate of return and is obligated to make minimum
payments sufficient to allow the joint venture to meet its debt service. PT-
FI accounts for its investment in the joint venture using the equity method.
PT-FI is proceeding with plans to sell other nonoperating assets whereby
the purchaser will operate the assets and provide services to PT-FI and its
designees.
Freeport-McMoRan Resource Partners, Limited Partnership (FRP). FTX's
fertilizer and sulphur operations and its Main Pass oil operations are
conducted through its publicly traded affiliate, FRP. FTX owned 51.4 percent
and 51.3 percent of the FRP units outstanding at December 31, 1994 and 1993,
respectively.
In July 1993, FRP and IMC Global Inc. (IGL) formed the IMC-Agrico joint
venture, operated by IGL, for their respective phosphate fertilizer
businesses, including phosphate rock and uranium. FRP's "Current Interest",
reflecting cash to be distributed from ongoing operations, initially was 58.6
percent and its "Capital Interest", reflecting the purchase or sale of long-
term assets or any required capital contributions, was 46.5 percent. These
ownership percentages (55 percent and 45.1 percent, respectively, at December
31, 1994) decline in annual increments to 40.6 percent for the fiscal year
ending June 30, 1998 and remain constant thereafter. At December 31, 1994,
FRP's investment in IMC-Agrico totaled $399.2 million. IMC-Agrico's assets
are not available to FRP until distributions are paid by the joint venture.
Publicly owned FRP units have cumulative rights to receive quarterly
distributions of 60 cents per unit through the distribution for the quarter
ending December 31, 1996 (the Preference Period) before any distributions may
be made to FTX. On January 20, 1995, FRP declared a distribution of 60 cents
per publicly held unit ($30.2 million) and 26 cents per FTX-owned unit ($13.9
million), bringing the total unpaid distributions to FTX to $353.1 million.
During the Preference Period the unpaid FTX distributions will be payable,
after a 60 cents per unit quarterly distribution is paid to all unitholders,
equal to the lesser of any deficiency or one-half of the amount by which
distributable cash exceeds a 60 cents per unit distribution. Remaining
distributable cash will be paid to all unitholders according to their
percentage interests. After the Preference Period, distribution deficiencies
on FTX-owned FRP units will be paid as described above after any deficiencies
in the cumulative quarterly distribution to the public are paid and a
quarterly distribution of 60 cents per unit has been paid to all unitholders.
In February 1992, FRP sold publicly 19.5 million new units, resulting in
a gain to FTX of $136.6 million which was deferred because of the FRP public
unitholders' distribution priority. Even though FTX had not been receiving
its proportionate share of FRP distributions, FTX was able to reflect its
proportionate share of FRP's earnings through recognition of portions of the
deferred gain ($32.6 million in 1994, $62.2 million in 1993 and $41.8 million
in 1992) prior to the third quarter of 1994. However, the remaining deferred
gain was utilized and FTX recognized an additional minority interest charge in
1994 of $26.5 million. In future periods, FTX's share of the reported
financial results of FRP will depend on the extent to which FTX receives its
proportionate share of FRP distributions. To the extent that public
unitholders receive a disproportionately large share of FRP distributions, as
has been the case since early 1992, FTX will recognize a smaller share of
FRP's reported earnings than would be represented by its percentage ownership
of FRP.
3. ACQUISITIONS
In March 1993, FCX acquired a 65 percent interest in RTM and in December 1993,
RTM redeemed the remaining 35 percent. At December 31, 1994, RTM's net assets
totaled $80.2 million. The purchase price allocation follows (in thousands):
Current assets $101,454
Current liabilities (158,445)
Property, plant and equipment 277,170
Other assets 5,358
Long-term debt (38,941)
Accrued postretirement benefits and other liabilities (176,206)
--------
Net cash investment $ 10,390
========
In January 1995, FRP acquired essentially all of the domestic assets of
Pennzoil Co.'s sulphur division. Pennzoil will receive quarterly payments
from FRP over 20 years based on the prevailing price of sulphur. The
installment payments may be terminated earlier either by FRP through the
exercise of a $65 million call option or by Pennzoil through a $10 million put
option. Neither option may be exercised prior to 1999.
4. RESTRUCTURING AND VALUATION CHARGES
Restructuring Charges. During 1993, FTX recognized restructuring expenses
totaling $67.1 million. The charges consisted of $30.3 million for personnel
related costs, $15 million for excess office space and furniture and fixtures
resulting from staff reductions, $8.2 million for downsizing its MIS
structure, $4.8 million of deferred charges relating to FTX's and PT-FI's
credit facilities which were substantially revised in June 1993 and $8.8
million for IMC-Agrico formation costs.
In connection with the restructuring project, FTX changed its accounting
systems and undertook a detailed review of its accounting records and
valuation of various assets and liabilities. As a result of this process, FTX
recorded charges totaling $65.1 million, comprised of (a) $26.2 million of
production and delivery costs consisting of $10.4 million for revised
estimates of prior year costs; $6.3 million for revised estimates of
environmental liabilities; $5 million for materials and supplies inventory
obsolescence and $4.5 million for adjustments in converting accounting
systems, (b) $18.7 million of depreciation and amortization consisting of
$11.5 million for estimated future abandonment and reclamation costs and $7.2
million for the write-down of miscellaneous properties, (c) $4.4 million of
exploration expenses for the write-down of an unproved oil and gas property
and (d) $15.8 million of general and administrative expenses consisting of
$9.4 million to downsize FTX's MIS structure and $6.4 million for the write-
off of miscellaneous assets.
Asset Sales/Recoverability. During 1993, FTX sold a nonproducing oil and gas
property recognizing a gain of $69.1 million, and FRP sold assets, primarily
certain previously mined phosphate rock acreage, recognizing a gain of $11.8
million. FRP also sold its remaining interests in producing geothermal
properties for $63.5 million, consisting of $23 million in cash and $40.5
million of interest-bearing notes (included in other assets), recognizing a
$31 million charge to expense and recording a $9 million charge for impairment
of its undeveloped geothermal properties. In 1994, FRP received prepayment of
these notes.
FTX charged $105 million to expense during 1993 for the recoverability
of certain assets, primarily FRP's Main Pass oil and non-Main Pass sulphur
assets.
5. LONG-TERM DEBT
December 31,
-----------------------
1994 1993
---------- ----------
(In Thousands)
Notes payable:
FTX credit agreement, average rate 5.5% in 1994
and 4.1% in 1993 $ 425,000 $ 388,000
RTM project financing, average rate 8.3% in 1994 110,000 -
ALatieF loan, average rate 6.7% in 1994 57,000 60,000
FCX equipment loan 70,000 -
Other, primarily RTM borrowings 34,276 57,709
---------- ----------
Total notes payable 696,276 505,709
---------- ----------
Publicly traded notes and debentures:
10 7/8% Senior Subordinated Debentures due 2001 - 125,358
6.55% Convertible Subordinated Notes, face amount of
$373 million, effective rate of 9.825%, due 2001 318,237 311,863
Zero Coupon Convertible Subordinated Debentures, face
amount of $749.7 million, effective rate of 9%,
due 2006 270,196 247,427
FRP 8 3/4% Senior Subordinated Notes due 2004 150,000 -
FCX 9 3/4% Senior Notes due 2001 120,000 -
FCX Zero Coupon Exchangeable Notes - 102,039
---------- ----------
Total publicly traded notes and debentures 858,433 786,687
---------- ----------
RTM gold and silver denominated loans, average rate
1.2% in 1994 and 1.3% in 1993 16,585 39,284
PT-FI capital lease obligation, net of $244 million
in future interest (Note 2) 100,000 -
---------- ----------
1,671,294 1,331,680
Less current portion and short-term borrowings 24,412 49,256
---------- ----------
$1,646,882 $1,282,424
========== ==========
Notes Payable. FTX has a variable rate credit agreement (the Credit
Agreement) structured as a revolving line of credit through June 1996 followed
by a 3 1/2 year reducing revolver. The Credit Agreement is part of an $800
million committed credit facility and is subject to a borrowing base,
redetermined annually by the banks, which establishes maximum consolidated
debt for FTX. As of December 31, 1994, $466.7 million was available under the
borrowing base and $377 million of borrowings were unused under the credit
facility. FTX guarantees any borrowings under the Credit Agreement and is
required to retain control of FRP and PT-FI. Under certain circumstances, FTX
could be required to pledge a portion of its equity in FCX and FRP. PT-FI
also assigned its existing and future sales contracts and pledged its rights
under the COW and certain assets as security for its borrowings. The Credit
Agreement provides for working capital requirements, specified coverage of
fixed charges and restrictions on other borrowings.
The proposed spinoff of FCX (Note 2) is expected to occur by mid-1995 and
will include a restructuring of the liabilities of FTX which requires the use
of a portion of the FCX shares currently owned by FTX. FTX has discussed with
several potential investors transactions that which would provide for the
recapitalization or refinancing of its debt and guarantees. However, no
agreements have been reached with respect to any transaction. Separate bank
credit facilities are being arranged for FTX/FRP and FCX/PT-FI. The
restructuring plan is expected to provide greater access to credit markets and
reduce financing costs for the FTX companies from that which would be
available otherwise.
In 1994, RTM obtained variable rate project financing (the RTM Facility)
consisting of a $225 million term loan facility and a $65 million working
capital facility, both nonrecourse to FCX. The term loan facility matures in
thirty-six equal quarterly payments starting September 30, 1996. The working
capital facility matures June 2005. The RTM Facility requires certain hedging
arrangements, restricts other borrowings and specifies certain coverage
ratios. Prior to the completion of the expansion, the RTM Facility is secured
by RTM's capital stock and thereafter by 51 percent of the capital stock.
The ALatieF bank loan, entered into as part of the PT-FI infrastructure
sales (Note 2), has a variable interest rate and is guaranteed by PT-FI.
Principal payments total $3 million annually with a balloon payment in
December 1998.
In December 1994, FCX entered into a $70 million variable rate equipment
loan secured by certain PT-FI assets. Principal payments total $7 million
annually with a balloon payment in December 2001.
In February 1994, IMC-Agrico entered into a three-year $75 million
variable rate credit facility (the IMC-Agrico Facility). Borrowings under the
IMC-Agrico Facility are unsecured with a negative pledge on substantially all
of IMC-Agrico's assets. The IMC-Agrico Facility has minimum capital, fixed
charge and current ratio requirements for IMC-Agrico; places limitations on
debt at IMC-Agrico; and restricts the ability of IMC-Agrico to make cash
distributions in excess of distributable cash generated.
Publicly Traded Notes and Debentures. During 1994, FTX defeased $125.3
million of its 10 7/8% Senior Subordinated Debentures resulting in a $9.1
million after-tax extraordinary loss.
FTX's 6.55% Convertible Subordinated Notes are convertible at the
holder's option into 48.55 shares of FTX common stock per $1,000 principal
amount (equivalent to a conversion price of $20.60 per FTX share). FTX may
redeem these notes for cash at 91.21 percent of principal (increasing ratably
to 100 percent over the term of the notes) plus accrued interest.
FTX's Zero Coupon Convertible Subordinated Debentures are convertible, at
the holder's option, into 14.42 shares of FTX common stock per $1,000
principal amount (subject to adjustment in certain events), with FTX having
the right to pay cash in lieu of all or part of such FTX common stock. FTX
may redeem these debentures for cash at the issue price plus accrued original
issue discount. The debentures have a contingent payment feature (if the
market price of FTX common stock exceeds certain specified amounts) payable in
FTX common stock, cash or a combination of both, at FTX's option. The
debentures contain purchase rights at the holder's option, as of August 1996
or 2001, at the issue price plus accrued original issue discount.
In February 1994, FRP sold publicly $150 million of 8 3/4% Senior
Subordinated Notes and in April 1994, a wholly owned subsidiary of FCX sold
publicly $120 million of 9 3/4% Senior Notes which are guaranteed by FCX.
In 1991, FCX sold $1.035 billion face amount of Zero Coupon Exchangeable
Notes. Notes with a face amount of $386 million, $322.6 million and $326.4
million were presented for exchange in 1994-1992, respectively, for which FCX
issued 5.8 million, 4.8 million and 4.5 million shares of its Class A common
stock. FCX also paid $0.3 million in 1994 and $7.9 million in 1992. As a
result of these exchanges, FTX recognized a pretax gain of $9.3 million in
1994, $44.1 million in 1993 and $33.8 million in 1992.
RTM Gold and Silver Denominated Loans. In December 1994, RTM used borrowings
under the RTM facility to in effect defease its two gold and silver
denominated loans. RTM retired one of its gold and silver loans and purchased
55,000 ounces of gold at $379.81 per ounce to offset the remaining gold loan
(5,000 ounces payable quarterly). The purchased gold is recorded as product
inventory or other long-term assets according to the payment terms.
Minimum Principal Payments. Payments scheduled for each of the five
succeeding years based on the amounts and terms outstanding at December 31,
1994 are $24.4 million in 1995, $82.8 million in 1996, $145.5 million in 1997,
$187.9 million in 1998 and $140.6 million in 1999.
Capitalized Interest. Capitalized interest totaled $53.3 million in 1994,
$62.2 million in 1993 and $84.7 million in 1992.
6. INCOME TAXES
Effective January 1, 1992, FTX adopted Statement of Financial Accounting
Standards No. 109, the new accounting standard for income taxes. The
cumulative adjustment to taxes and the impact on 1992 earnings from operations
were not material. The components of FTX's net deferred tax asset (included
in other assets) and liability are as follows:
1994 1993
Consolidated Tax Group Consolidated Tax Group
----------------------- ----------------------
FTX FCX FTX FCX
--------- --------- --------- ---------
(In Thousands)
Deferred tax asset:
Net operating loss
carryforwards $121,248 $ - $ 58,650 $ -
Alternative Minimum Tax
credits 47,183 26,972 43,242 29,465
Other tax carryforwards 45,637 - 41,814 -
Deferred compensation,
postretirement and
pension benefits 55,039 - 44,820 -
Reclamation and shutdown
reserve 24,908 - 25,371 -
Other 14,440 - 49,332 -
Less valuation allowance (45,637) (26,972) (41,814) (29,465)
-------- --------- --------- ---------
Total deferred tax
asset 262,818 - 221,415 -
-------- --------- --------- ---------
Deferred tax liability:
Property, plant and
equipment (116,215) (290,259) (100,499) (199,956)
Basis in subsidiaries (39,380) - (21,554) -
Other (42,155) (2,321) (10,527) (1,597)
-------- --------- --------- ---------
Total deferred tax
liability (197,750) (292,580) (132,580) (201,553)
-------- --------- --------- ---------
Net deferred tax asset
(liability) $ 65,068 $(292,580) $ 88,835 $(201,553)
======== ========= ========= =========
The net deferred tax asset is from FTX's domestic operations and the net
deferred tax liability relates to PT-FI's operations. Recognition of a
deferred tax asset is dependent upon FTX's evaluation that it is more likely
than not that it will ultimately be realized from future domestic operating
income. FTX believes that no valuation allowance is needed for its net
operating loss (NOL) carryforwards and alternative minimum tax (AMT) credits
because historically it has been able to use substantially all of its tax
benefits and tax-planning strategies are available that would enable it to use
these deferred tax assets. The NOL carryforwards do not expire until the
years 2007-2009 and the AMT credits can be carried forward indefinitely. FTX
has provided a valuation allowance for the other tax credit and charitable
contribution carryforwards as they can only be used subsequent to the NOL
carryforwards and AMT credits and substantially all expire between 1995 and
2000. A valuation allowance has been provided at FCX for all AMT credits, as
these would only be used should FCX be required to pay regular U.S. tax, which
is unlikely.
RTM is subject to taxation in Spain. FCX has provided a valuation
allowance equal to the future tax benefits resulting from RTM's approximately
$122 million of additional tax basis and for $5.5 million of net operating
losses because RTM has not generated taxable income in recent years.
FTX does not provide deferred taxes for certain financial and income tax
reporting differences related to FCX and FRP which are considered permanent in
duration. These differences resulted primarily from gains recognized for
financial reporting purposes upon the sale of FCX shares and FRP units. As of
December 31, 1994, these basis differences were approximately $185 million for
FCX and $330 million for FRP. If ownership in these subsidiaries were to fall
below 50 percent, FTX would be required to charge earnings for taxes on the
difference between the book and tax basis of its investment.
During 1994, FTX requested and received a ruling from the Internal
Revenue Service that a spinoff of the FCX shares currently held by FTX to its
common shareholders would qualify as a tax-free reorganization, provided
certain conditions are met. FTX has announced its intention to enter into
this transaction during 1995 (Note 2). If the transaction is consummated the
basis difference relating to FCX shares described above would be eliminated.
The provision for income taxes consists of the following:
1994 1993 1992
-------- ------- --------
(In Thousands)
Current income taxes:
Federal $ 12,612 $(2,497) $(24,565)
Foreign 26,829 54,994 45,996
State (638) 4,391 1,087
-------- ------- --------
38,803 56,888 22,518
-------- ------- --------
Deferred income taxes:
Federal 13,174 (54,730) (10,359)
Foreign 91,027 4,600 63,438
State 480 - -
-------- ------- --------
104,681 (50,130) 53,079
-------- ------- --------
$143,484 $ 6,758 $ 75,597
======== ======= ========
Reconciliations of the differences between income taxes computed at the
federal statutory tax rate and income taxes recorded follow:
1994 1993 1992
---------------- ----------------- ------------------
Amount Percent Amount Percent Amount Percent
-------- ------- -------- ------- -------- -------
(Dollars In Thousands)
Income taxes computed at the federal
statutory tax rate $131,363 35% $(61,193) 35% $114,374 34%
Increase (decrease) attributable to:
FCX dividend 6,453 2 6,456 (3) 5,799 2
Statutory depletion (1,780) (1) (2,016) 1 (5,126) (2)
Partnership minority interests (25,342) (7) 45,057 (26) (3,253) (1)
Sale of subsidiary interests - - - - (45,794) (14)
Minimum, state and foreign taxes 10,963 3 18,462 (11) 13,855 4
Sales of assets and other 21,827 6 (8) - (4,258) (1)
-------- -- -------- -- -------- --
Provision for income taxes $143,484 38% $ 6,758 (4)% $ 75,597 22%
======== == ======== == ======== ==
7. STOCKHOLDERS' EQUITY
Preferred Stock. In March 1992, FTX issued 5 million shares of its $4.375
Convertible Exchangeable Preferred Stock, each with a $50 liquidation value,
convertible into FTX common stock at a conversion price of $21.57 per share.
Beginning March 1997, FTX may redeem this preferred stock for cash at $52.1875
per share (declining ratably to $50 per share in March 2002) plus accrued and
unpaid dividends.
Common Stock. In June 1994, FTX changed its dividend policy and distributed
quarterly one FCX common share for each 80 FTX common shares owned in lieu of
paying a $0.3125 quarterly cash dividend to its stockholders. FTX recorded
pretax gains totaling $105.5 million in 1994 related to these property
dividends. Subsequent to the FTX restructuring, FTX's Board of Directors will
determine a new dividend policy.
Stock Options. FTX's stock option plans provide for the issuance of stock
options and stock appreciation rights (SARs) at no less than market value at
time of grant. Under the 1992 stock option plans, FTX can grant options to
employees to purchase up to 9.5 million shares, including SARs and stock
incentive units (SIUs), which are similar to SARs. The 1988 Stock Option Plan
for Non-Employee Directors authorizes FTX to grant options to purchase up to
1.5 million shares. Under certain options, FTX will pay cash to the optionee
equal to an amount based on the maximum individual federal income tax rate in
effect at the time of exercise. In connection with the distribution of FCX
and McMoRan Oil & Gas Co. (MOXY) shares, each option was adjusted to preserve
the economic value of the option and similar adjustments will occur for future
FCX share distributions. Additionally, the FCX spin-off would result in an
adjustment to the average option price based on the value of the distribution.
Generally, stock options terminate ten years from the date of grant. A
summary of stock options outstanding, including SARs and SIUs, follows:
1994 1993
---------------------- -----------------------
Average Average
Number of Option Number of Option
Options Price Options Price
---------- ------- ---------- -------
Beginning of year 13,742,990 $17.69 13,386,365 $17.58
Granted 1,787,200 19.42 1,358,800 18.37
Adjustments 954,161 -
Exercised (689,446) 15.90 (416,639) 14.35
Expired (113,377) 17.90 (585,536) 18.87
---------- ----------
End of year 15,681,528 16.46 13,742,990 17.69
========== ==========
At December 31, 1994, stock options representing 10.7 million shares were
exercisable at an average option price of $15.92 per share. Options for 1.6
million shares and 0.6 million shares were available for new grants under the
1992 and 1988 Stock Option Plans, respectively, as of December 31, 1994.
8. PROPERTY DISTRIBUTIONS
FM Properties Inc. (FMPO). In June 1992, FTX transferred substantially all of
its domestic oil and gas properties and real estate held for development by it
and certain of its subsidiaries, excluding FRP, to a partnership which is
currently 99.8 percent owned by FMPO. FTX owns a 0.2 percent interest in the
partnership and serves as its managing general partner. In May 1992, FTX
declared a distribution of one FMPO common share for each ten FTX common
shares owned. Selected financial information of FMPO follows:
1994 1993 May 31, 1992
-------- -------- ------------
(In Thousands)
Balance Sheets:
Current assets $ 6,857 $ 99,839 $ 42,103
Current liabilities, excluding current
portion of long-term debt 18,671 37,968 13,302
Oil and gas properties, net - - 444,676
Investment in real estate 198,453 286,459 248,647
Total assets 214,365 392,865 741,618
Long-term debt (guaranteed by FTX) 132,075 173,796 493,305
Stockholders' equity 59,370 145,660 176,588
Statements of Operations:
Revenues 40,435 26,027
Operating loss (123,739) (17,722)
Net loss (86,290) (18,814)
Cash Flow:
Operating activities 11,968 103,920
Investing activities 29,019 196,372
Financing activities (42,270) (300,517)
During recent months, FMPO has been engaged in discussions with third
parties regarding obtaining new financing for its existing debt, which has
significant maturities beginning in January 1996 when $74 million becomes due.
The new financing may involve issuing new debt, common or preferred equity
investments or sales of assets. An objective in arranging new financing for
FMPO will be to eliminate the FTX guarantee of FMPO's debt. In the event that
FMPO's refinancing is not complete at the time of the FCX spinoff, an
arrangement is being considered that would involve FCX's guaranteeing a
significant portion of FMPO's debt pending completion of FMPO's refinancing.
Based on an analysis, using generally accepted accounting principles, of the
carrying amount in its financial statements of its investment in real estate
assets, FMPO concluded that it should reduce these amounts through a $115
million pretax, noncash write-down in 1994.
During 1993, FMPO sold all of its producing oil and gas properties and
used the proceeds, a portion of which was received in 1994, to reduce its
long-term debt.
McMoRan Oil & Gas Co. (MOXY). In May 1994, FTX's Board of Directors declared
a special distribution of one common share of its newly formed, wholly owned
subsidiary, MOXY for each ten FTX common shares. MOXY was organized for the
purpose of carrying on substantially all of the oil and gas exploration
activities previously conducted by FTX. The net assets transferred to MOXY at
FTX's historical cost follow (in thousands):
Cash and short-term investments $35,441
Property, plant and equipment 13,052
Other assets 10,113
Current liabilities (1,138)
-------
$57,468
=======
9. PENSION AND OTHER EMPLOYEE BENEFITS
The FTX pension plan covers substantially all United States and certain
overseas employees. Employees covered by collective bargaining agreements and
most nonresident aliens, many of whom are covered by other plans, are not
included. Benefits are based on compensation levels and years of service.
FTX funds its pension liability in accordance with Internal Revenue Service
guidelines. Additionally, for those participants in the qualified defined
benefit plan whose benefits are limited under federal income tax laws, FTX
sponsors an unfunded, nonqualified plan. Information on the two plans
follows:
December 31,
----------------------
1994 1993
--------- ---------
(In Thousands)
Actuarial present value of benefit obligations
(projected unit credit method):
Vested $ 90,396 $ 93,609
Nonvested 1,643 2,236
-------- ---------
Accumulated benefit obligations $ 92,039 $ 95,845
======== =========
Projected benefit obligations (projected unit credit
method) $(114,599) $(130,585)
Less plan assets at fair value 108,326 107,917
--------- ---------
Projected benefit obligations in excess of plan
assets (6,273) (22,668)
Unrecognized net (gain) loss from past experience
different from that assumed (5,179) 16,518
Unrecognized prior service costs 4,340 4,833
Unrecognized net asset at January 1, 1986,
being recognized over 19 years (3,763) (4,142)
--------- ---------
Accrued pension cost $ (10,875) $ (5,459)
========= =========
In determining the present value of benefit obligations for 1994 and
1993, FTX used a 8.25 percent and 7 percent discount rate, respectively, a 5
percent annual increase in future compensation levels and a 9 percent average
expected rate of return on assets.
Net pension cost includes the following:
1994 1993 1992
------ ------- -------
(In Thousands)
Service cost $5,668 $ 8,573 $ 7,376
Interest cost on projected benefit
obligations 9,008 9,739 8,609
Actual return on plan assets 126 (9,388) (10,220)
Net amortization and deferral (8,814) 1,423 3,689
Termination benefits 2,404 26 1,813
------ ------- -------
Net pension cost $8,392 $10,373 $11,267
====== ======= =======
RTM has an unfunded contractual obligation to supplement the amounts paid
to retired employees. Based on a discount rate of 8 percent, the accrued
liability totaled $84.7 million at December 31, 1994. RTM expensed $6.8
million in 1994 and $5.2 million since its acquisition in 1993 for interest on
this obligation. Cash payments were $7.8 million in 1994 and $8 million in
1993.
The operator of IMC-Agrico maintains non-contributory pension plans that
cover substantially all of its employees. As of July 1, 1994, FRP's share of
the actuarial present value of the vested projected benefit obligation was
$7.5 million based on a discount rate of 8.4 percent and a 5 percent annual
increase in future compensation levels. As of December 31, 1994, these plans
are unfunded. FRP's share of the expense related to these plans totaled $3.6
million in 1994 and $1.5 million in 1993.
FTX provides certain health care and life insurance benefits for retired
employees. The related expense totaled $13.9 million in 1994 ($1.5 million
for service cost and $12.4 million in interest for prior period services),
$12.4 million in 1993 ($1.9 million and $10.5 million, respectively) and $12.5
million in 1992 ($1.6 million and $10.9 million, respectively). Summary
information of the plan follows:
December 31,
-------------------
1994 1993
-------- --------
Actuarial present value of accumulated (In Thousands)
postretirement obligation:
Retirees $121,077 $118,418
Fully eligible active plan participants 9,750 14,066
Other active plan participants 5,105 14,083
-------- --------
Total accumulated postretirement obligation 135,932 146,567
Unrecognized net gain (loss) 4,470 (14,237)
-------- --------
Accrued postretirement benefit cost $140,402 $132,330
======== ========
The initial health care cost trend rate used was 11.5 percent for 1993,
decreasing 0.5 percent per year until reaching 6 percent. A one percent
increase in the trend rate would increase the amounts by approximately 10
percent. The discount rate used was 8.25 percent in 1994 and 7 percent in
1993. FTX has the right to modify or terminate these benefits.
The operator of IMC-Agrico provides certain health care benefits for
retired employees. At July 1, 1994, FRP's share of the accumulated
postretirement obligation was $3.6 million, which was unfunded, with FRP's
share of expense being $0.5 million in 1994 and $0.4 million in 1993. The
initial health care cost trend rate used was 10.4 percent, decreasing
gradually to 5.5 percent in 2003. The discount rate used was 8.4 percent.
Employees are not vested and benefits are subject to change.
FTX has an Employee Capital Accumulation Program which permits eligible
employees to defer a portion of their pretax earnings. FTX also has an
unfunded excess benefits plan for employees to defer amounts in excess of the
limitations imposed by the Internal Revenue Code. FTX matches employee
deferrals up to 5 percent of basic earnings through an investment in FTX
common shares. FTX has other employee benefits plans, certain of which are
related to its performance, which costs are recognized currently in general
and administrative expense. The cost of these plans totaled $20.6 million in
1994, $7.6 million in 1993 and $15.9 million in 1992.
As a result of the proposed FCX spinoff, FCX is currently in the process
of establishing its own employee benefit and stock option plans and will
assume certain liabilities associated with FTX's employee benefits and stock
option plans.
10. COMMITMENTS AND CONTINGENCIES
Litigation. While FTX is a defendant in various lawsuits incurred in the
ordinary course of its businesses, management believes the potential liability
in such lawsuits is not material or is adequately covered by insurance, third
party indemnity agreements or reserves previously established. FTX maintains
liability and other insurance customary in its businesses, with coverage
limits deemed prudent.
Environmental. FTX makes expenditures at its operations for protection of the
environment. FTX is subject to contingencies as a result of environmental
laws and regulations. The related future cost is indeterminable due to such
factors as the unknown timing and extent of the corrective actions that may be
required and the application of joint and several liability. However, FTX
believes that such costs will not have a material adverse effect on its
operations or financial position.
Estimated future expenditures to restore properties and related
facilities to a state required to comply with environmental and other
regulations are accrued over the life of the properties. The future
expenditures are estimated based on current costs, laws and regulations. As
of December 31, 1994, FRP had accrued $55 million for abandonment and
restoration of its non-Main Pass sulphur assets, approximately one-half of
which will be reimbursed by third parties, and $42.8 million for reclamation
of land relating to mining and processing phosphate rock. FRP estimates that
its share of abandonment and restoration costs of the Main Pass sulphur mine
will approximate $35 million, $1.4 million of which had been accrued at
December 31, 1994, with essentially all costs to be incurred after mine
closure in approximately 30 years. Additionally, at December 31, 1994 FCX had
an accrual of $12.9 million related to RTM's impending mine closure. These
estimates are by their nature imprecise and can be expected to be revised over
time due to changes in government regulations, operations, technology and
inflation.
In June 1994, a sinkhole was found at a phosphogypsum storage area at
IMC-Agrico's New Wales, Florida facility. In addition, there was an earthen
dam breach at two of its phosphate rock facilities in late 1994. IMC-Agrico
accrued $10.8 million ($4.9 million net to FRP) during 1994 for costs to
rectify these situations. While there is no evidence indicating underground
water contamination in areas away from the facilities, this issue continues to
be monitored. If there were contamination, which IMC-Agrico considers
unlikely, the costs that would be required are uncertain and cannot be
estimated at the present. If significant costs were incurred it would be
necessary to determine the applicability of insurance coverage maintained by
IMC-Agrico, and separately by FRP, and for the sharing of costs between the
joint venture partners.
FRP has an indemnification for environmental remediation costs in excess
of an aggregate $5 million on certain identified sites (FRP has previously
accrued the $5 million). The third party has assumed management of these
sites. Based on FRP's review of the potential liabilities and the third
party's financial condition, FRP concluded that it is remote that FRP would
have any additional liability. FTX believes its exposure on other domestic
abandoned environmental sites will not exceed amounts accrued and expects that
any costs would be incurred over a period of years.
FTX believes it is in compliance with all applicable Indonesian
environmental laws, rules and regulations. Based on current Indonesian
environmental regulations, eventual mine closure and reclamation costs for
Irian Jaya mining operations are not expected to be material.
RTM's expansion costs include approximately $18 million to modify and
expand its sulphuric acid plants. Subsequent to expansion, RTM believes its
facilities will be in compliance with all existing Spanish and European
environmental standards.
Long-Term Contracts and Operating Leases. In June 1994, RTM signed a turnkey
contract to expand its smelter capacity to 270,000 metric tons of metal per
year by early 1996 at a cost of approximately $215 million, of which $154
million had not been incurred at December 31, 1994. In addition, RTM has
commitments to purchase concentrate (excluding PT-FI) of 338,750 metric tons
in 1995, 285,000 metric tons in 1996, 330,000 metric tons in 1997, 280,000
metric tons in 1998 and a total of 280,000 metric tons from 1999-2000, at
market prices.
In January 1995, FCX agreed in principle to form a joint venture, 20
percent owned by FCX, to develop a 200,000 metric tons of metal per year
copper smelter in Gresik, Indonesia. Design is under way and construction is
expected to begin in 1995, with operations commencing as soon as the second
half of 1998. Alternatives for financing the estimated $550 million aggregate
project cost, which excludes approximately $100 million of working capital,
are being reviewed. It is contemplated that PT-FI would provide all of the
smelter's concentrate requirements at market rates; however, for the first
fifteen years of operations the treatment and refining charges would not fall
below a certain minimum rate. FCX has also agreed to assign its earnings in
the joint venture to support an after-tax return of 13 percent to the 70
percent partner, if necessary, for the first twenty years of commercial
operations. Additionally, the 10 percent partner has an option, exercisable
on the third anniversary of commercial operations, to require FCX to purchase
its interest at a 10 percent annual return.
FTX's minimum annual contractual charges under noncancellable long-term
contracts and operating leases which extend to 2009 total $385.2 million, with
$40 million in 1995, $38.5 million in 1996, $35.5 million in 1997, $32.9
million in 1998 and $31.9 million in 1999. Total rental expense under long-
term contracts and operating leases amounted to $41.7 million in 1994, $43
million in 1993 and $31.4 million in 1992.
11. FINANCIAL INSTRUMENTS
Summarized below are the financial instruments (including all derivative
instruments) whose carrying amount is not equal to its fair value at December
31, 1994. Fair values are based on quoted market prices and other available
market information.
Carrying Fair
Amount Value
---------- ----------
(In Thousands)
Price protection program:
Open contracts in asset position $ 25,165 $ 84,602
Open contracts in liability position (98,900) (234,134)
Debt:
Long-term debt (Note 5) (1,671,294) (1,677,087)
Foreign exchange contracts:
$U.S./Deutsche marks - 2,750
$U.S./Spanish pesetas - 2,459
Interest rate swaps - (6,409)
Redeemable preferred stocks (Note 2) (500,007) (437,999)
Price Protection Program. PT-FI has forward and option contracts to hedge the
market risk associated with fluctuations in commodity prices. At December 31,
1994, PT-FI had sold forward 608.5 million pounds of copper at an average
price of $0.92 per pound for delivery at various dates through March 1996.
PT-FI also has call option contracts for 218.3 million pounds of copper from
January-June 1995 with an average price of $0.98 per pound and put option
contracts for 993.7 million pounds of copper from October 1995 to December
1996 at an average price of $0.87 per pound. Deferred gains on closed
contracts at December 31, 1994 totaled $36.2 million.
At December 31, 1994, RTM had sold forward 56,280 ounces of gold at
$394.75 per ounce and 1,106,520 ounces of silver at $4.82 per ounce for 1995.
RTM had also bought forward 2.5 million pounds of copper at $1.36 per pound to
eliminate the copper price risk of its concentrate inventory. Additionally,
RTM has written call option contracts on 19.8 million pounds of copper at an
average price of $1.18 per pound to assure minimum price participations on a
portion of its estimated 1995 concentrate purchases. A deferred loss of $1.6
million was recorded in 1994 resulting from RTM's repayment of one of its gold
and silver loans.
Debt. Portions of RTM's smelter expansion contract are denominated in
Deutsche marks and Spanish pesetas while the related financing is denominated
in U.S. dollars. To eliminate exposure to fluctuations in foreign exchange
rates, RTM entered foreign exchange contracts which mature through March 1996,
totaling $73.8 million on 117 million Deutsche marks and $85.8 million on 11.8
billion Spanish pesetas at December 31, 1994.
FTX and its affiliates entered into interest rate swaps to manage
exposure to interest rate changes on a portion of its variable rate debt.
Under 1986 interest rate exchange agreements, FTX pays an average fixed rate
of 8.2 percent on $150.1 million of financing until April 1996. FTX and FRP
pay an average fixed rate of 10.2 percent on interest rate exchange agreements
entered into in late 1987 and early 1988 on $66.3 million of financing at
December 31, 1994, reducing annually through 1999. PT-FI pays 8.3 percent on
a 1991 agreement covering $71.4 million of financing at December 31, 1994,
reducing annually through 1999. Under these interest swaps, FTX and its
subsidiaries received an average interest rate of 4.4 percent in 1994, 3.4
percent in 1993 and 4.2 percent in 1992, resulting in additional interest
costs of $13.1 million, $17.6 million and $12.2 million, respectively.
12. SEGMENT FINANCIAL INFORMATION
FTX's business segments consist of the following: Metals, which includes
FCX's Indonesian copper/gold operations and the RTM smelting operations in
Spain; Agricultural Minerals, which includes FRP's fertilizer and sulphur
businesses; and Energy, which includes the oil and gas operations of FTX and
FRP. FTX's foreign operations are primarily conducted by FCX.
Agricultural
Metals a Minerals Energy Other Total
1994 --------- ----------- ------- --------- ----------
---- (In Thousands)
Revenues $1,212,284 $ 730,391 $35,636 $ 4,085 $1,982,396b
Production and delivery 740,261 534,650 10,896 11,200 1,297,007
Depreciation and amortization 75,100 33,811 20,755 3,047 132,713
Exploration expenses 40,380 - 5,231 1,441 47,052
Gain on insurance settlement (32,602) - - - (32,602)
General and administrative expenses 109,011 38,148 7,810 12,421 167,390
---------- ---------- ------- ------- ----------
Operating income (loss) $ 280,134 $ 123,782 $(9,056) $(24,024) $ 370,836
========== ========== ======= ======== ==========
Capital expenditures $ 737,714 $ 20,278 $21,897 $ 20,576 $ 800,465
========== ========== ======= ======== ==========
Total assets $3,040,197 $1,083,375 $42,830 $207,173 $4,373,575
========== ========== ======= ======== ==========
1993
----
Revenues $ 925,932 $ 619,332 $ 56,680 $ 8,637 $1,610,581b
Production and delivery 566,765 544,448 13,012 17,480 1,141,705
Depreciation and amortization 67,906 70,803 42,000 11,229 191,938
Exploration expenses 33,748 2,261 26,708 2,363 65,080
Provision for restructuring charges 20,795 33,947 12,403 - 67,145
Loss on valuation and sale of
assets, net - 14,802 (9,107) 58,419 64,114
General and administrative expenses 81,399 58,091 13,169 16,400 169,059
---------- ---------- -------- --------- ----------
Operating income (loss) $ 155,319 $ (105,020) $(41,505) $ (97,254)$ (88,460)
========== ========== ======== ========= ==========
Capital expenditures $ 453,122 $ 46,270c $ 40,394 $ 28,411 $ 568,197
========== ========== ======== ========= ==========
Total assets $2,116,653 $1,194,304 $ 68,062 $ 335,048 $3,714,067
========== ========== ======== ========= ==========
1992
----
Revenues $ 714,315 $ 799,032 $127,799 $ 13,765 $1,654,911b
Production and delivery 308,948 638,503 28,861 9,962 986,274
Depreciation and amortization 48,272 66,299 79,942 7,869 202,382
Exploration expenses 12,185 4,777 18,394 1,680 37,036
General and administrative
expenses 68,481 72,828 25,155 10,899 177,363
---------- ---------- -------- -------- ----------
Operating income (loss) $ 276,429 $ 16,625 $(24,553) $(16,645) $ 251,856
========== ========== ======== ======== ==========
Capital expenditures $ 367,842 $ 170,224c $ 55,580 $ 48,160 $ 641,806
========== ========== ======== ======== ==========
Total assets $1,694,005 $1,233,085 $180,987 $438,634 $3,546,711
========== ========== ======== ======== ==========
<FN>
a. Includes the operations of RTM (Note 3) since its acquisition. RTM
revenues totaled $536.7 million with operating income at breakeven during
1994 and identifiable assets of $536.6 million at December 31, 1994.
Revenues totaled $288.4 million with an operating loss of $6.4 million
during 1993 and identifiable assets of $352 million at December 31, 1993.
b. Export sales to Asia, Australia, Latin America and Canada approximated 15
percent, 13 percent and 20 percent of total revenues for 1994-1992,
respectively. Sales to Japanese companies by FCX were 12 percent, 19
percent and 15 percent of total revenues for 1994-1992, respectively.
c. Includes Main Pass Sulphur development costs ($16.6 million in 1993 and
$20.8 million in 1992) and capitalized interest ($11.1 million in 1993
and $17.7 million in 1992) prior to becoming operational for accounting
purposes in 1993.
13. SUPPLEMENTARY MINERAL RESERVE, PRODUCTION AND SALES INFORMATION
(UNAUDITED)
Proved and probable mineral reserves, including proved oil reserves, follow:
December 31,
--------------------------------------------
1994 1993 1992 1991 1990
------- ------- ------- ------- -------
(In Thousands)
Copper-thousands of recoverable
pounds a 28,000 26,800 20,900 21,800 13,900
Gold-recoverable ouncesa 39,700b 39,500b 32,100 32,400 19,500
Silver-recoverable ounces a 84,000b 85,200b 44,700 50,000 34,700
Sulphur-long tons c 41,018 38,637 41,570 42,780 44,125
Phosphate rock-short tons d 206,661 215,156 208,655 206,183 205,752
Oil-barrelse 7,279 9,962 13,861 18,496 18,785
a. Recoverable content reflects an estimated recovery rate of 90 percent
for copper, 80 percent for gold and 70 percent for silver, less normal
smelting and refining allowances.
b. Includes 0.1 million ounces of gold and 3.2 million ounces of silver
for 1994, and 0.4 million ounces of gold and 8.5 million ounces of
silver for 1993 attributable to RTM.
c. Includes 41 million tons in 1994, 38.6 million tons in 1993, 39
million tons in 1992 and 39.1 million tons in 1991 and 1990, net to
FRP before royalties, at Main Pass, subject to a 12.5 percent federal
royalty based on net mine revenues.
d. For 1994 and 1993, represents FRP's share, based on its Capital
Interest ownership, of the IMC-Agrico reserves. Contains an average
of 68 percent bone phosphate of lime.
e. Reflects only Main Pass reserves.
Production, sales and average realized prices follow.
1994 1993 1992 1991 1990
METALS ------- ------- ------- ------- -------
PT-FI (In Thousands, Except Average Realizations)
Copper (recoverable pounds)
Production 710,300 658,400 619,100 466,700 361,800
Sales 700,800 645,700 651,800 439,700 348,000
Average realized price a $1.02 $.90 $1.03 $1.01 $1.20
Gold (recoverable ounces)
Production 784 787 641 421 284
Sales 795 763 679 398 273
Average realized price $381.13 $361.74 $340.11 $358.76 $378.30
Silver (recoverable ounces)
Production 1,305 1,541 1,643 1,568 1,749
Sales 1,335 1,481 1,804 1,621 1,664
Average realized price $5.08 $4.15 $3.72 $3.87 $4.61
RTM (since acquisition)
Smelter operations
Concentrate treated
(metric tons) 485 330
Anode production (pounds) 347,500 299,300
Cathode production (pounds)312,100 227,300
Gold operations
Production (recoverable ounces)173 133
Average realized price $363.05 $337.33
AGRICULTURAL MINERALS
Phosphate fertilizers (short tons)b
Diammonium phosphate
Sales:
Florida 1,081
Louisiana 970
Other 217
------
Total sales 2,268 2,303 2,760 2,841 2,568
Average realized price:c
Florida $146.53
Louisiana 152.48
Monoammonium phosphate
Sales:
Granular 298 423 509 476 438
Powdered 162 55
Average realized price:c
Granular $158.54
Powdered 129.24
Granular triple superphosphate
Sales 465
Average realized pricec $114.76 565 715 710 717
Phosphate rock (short tons)b
Sales 4,373
Average realized price c $21.38 3,840 3,441 2,247 1,455
Sulphur (long tons)
Sales d 2,088 1,973 2,346 2,528 2,491
ENERGY
Oil (barrels)
Sales 2,534 3,443 4,884 351 -
Average realized price $13.74 $14.43 $15.91 $13.34 -
a. Excludes adjustments for prior year concentrate sales or price protection
program costs. Excluding amounts recognized under PT-FI's price
protection program, the realization for 1994 and 1993 would have been
$1.15 and $0.82 per pound, respectively.
b. Certain information prior to the formation of IMC-Agrico was not recorded
on a basis consistent with that currently being presented and therefore is
not available. Reflects FRP's 46.5 percent share of the IMC-Agrico assets
for the year ended June 30, 1994, while FRP received 58.6 percent of the
cash flow generated during such period. FRP's share of the IMC-Agrico
assets for the year ended June 30, 1995 is 45.1 percent, while FRP will
receive 55 percent of the cash flow.
c. Represents average realization f.o.b. plant/mine.
d. Includes 739,900 tons, 1,138,800 tons, 1,654,300 tons, 1,612,400 tons and
1,564,000 tons for 1994-1990, respectively, which represent internal
consumption and Main Pass start-up sales that are not included in sales
for accounting purposes.
14. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
Net Income (Loss)
Net Income Per Common Share
(Loss) -----------------
Operating Applicable To Fully
Revenues Income (Loss) Common Stock Primary Diluted
---------- ------------- ------------- ------- -------
(In Thousands, Except Per Share Amounts)
1994
1st Quartera $ 449,594 $ 65,522 $ 12,373 $ .09 $ .09
2nd Quarterb 468,398 72,304 4,634 .03 .03
3rd Quarterc 503,187 88,289 6,044 .04 .04
4th Quarterd 561,217 144,721 18,392 .13 .13
---------- -------- ---------
$1,982,396 $370,836 $ 41,443 .30 .30
========== ======== =========
1993
1st Quartere $ 300,821 $(45,516) $ (55,346) $(.39) $(.39)
2nd Quarterf 421,818 (158,439) (77,379) (.54) (.54)
3rd Quarterg 402,353 101,335 26,786 .19 .19
4th Quarterh 485,589 14,160 (20,264) (.14) (.14)
---------- -------- ---------
$1,610,581 $(88,460) $(126,203) (.89) (.89)
========== ======== =========
a. Includes a $44 million gain ($28.6 million to net income or $0.20 per
share) on the conversion of FCX securities and a $5.5 million charge to
net income ($0.04 per share) related to early extinguishment of debt.
b. Includes a $26 million gain ($16.9 million to net income or $0.12 per
share) on the distribution of FCX securities and a $3.6 million charge to
net income ($0.03 per share) related to early extinguishment of debt.
c. Includes a $25.8 million gain ($16.7 million to net income or $0.12 per
share) on the distribution of FCX securities and a $10.9 million minority
interest charge ($7.1 million to net income or $0.05 per share) because
FTX did not receive its proportionate share of FRP distributions.
d. Includes gains of $19 million ($12.4 million or $0.09 per share) on the
distribution of FCX securities and $32.6 million ($11.9 million to net
income or $0.09 per share) from an insurance settlement on the June 1993
ore pass cave-in, net of a $15.6 million minority interest charge ($10.1
million to net income or $0.07 per share) because FTX did not receive its
proportionate share of FRP distributions.
e. Includes a $47.4 million charge ($18.5 million to net income or $0.13 per
share) related to administrative restructuring costs and the sale of FRP's
producing geothermal assets, and an $8 million gain ($5.3 million to net
income or $0.04 per share) related to the conversion of FCX notes. Also
includes a $20.7 million charge ($0.15 per share), net of taxes and
minority interests, for the cumulative effect of changes in accounting
principle.
f. Includes a $165.6 million charge ($74.6 million to net income or $0.52 per
share) related to restructuring, asset recoverability and other related
charges. Also includes a $25.3 million gain ($16.7 million to net income
or $0.12 per share) related to the conversion of FCX notes.
g. Includes a $70.2 million gain ($46.1 million to net income or $0.32 per
share) primarily from the sale of an oil and gas property.
h. Includes a $64.3 million charge ($22.8 million to net income or $0.16 per
share) primarily related to the recoverability of FRP's Main Pass oil
investment, a $10.7 million gain ($3.6 million to net income or $0.03 per
share) from FRP's sale of certain previously mined phosphate rock acreage
and a $13.7 million gain ($8.9 million to net income or $0.06 per share)
related to the conversion of FCX notes.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO THE STOCKHOLDERS AND BOARD OF DIRECTORS OF FREEPORT-McMoRan INC.:
We have audited the accompanying balance sheets of Freeport-McMoRan Inc. (the
Company), a Delaware Corporation, and consolidated subsidiaries as of December
31, 1994 and 1993, and the related statements of operations, cash flow and
stockholders' equity for each of the three years in the period ended December
31, 1994. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits. We did not audit the financial statements of
IMC-Agrico Company (the Joint Venture). The Company's share of the Joint
Venture constitutes 12 percent and 16 percent of assets and 33 percent and 15
percent of revenues of the Company's totals as of December 31, 1994 and 1993
and the years then ended, respectively. Those statements were audited by
other auditors whose report has been furnished to us and our opinion, insofar
as it relates to the amounts included for the Company's interest in the Joint
Venture, is based solely on the report of the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits and the report of other
auditors provide a reasonable basis for our opinion.
In our opinion, based on our audits and the report of other auditors, the
financial statements referred to above present fairly, in all material
respects, the financial position of Freeport-McMoRan Inc. and consolidated
subsidiaries as of December 31, 1994 and 1993 and the results of its
operations and its cash flow for each of the three years in the period ended
December 31, 1994 in conformity with generally accepted accounting principles.
As discussed in Notes 6 and 1 to the consolidated financial statements,
effective January 1, 1992, the Company changed its method of accounting for
income taxes, and effective January 1, 1993, changed its method of accounting
for periodic scheduled maintenance costs, deferred charges, and costs of
management information systems.
Arthur Andersen LLP
New Orleans, Louisiana,
January 24, 1995
Common Shares. Our common shares trade on the New York Stock Exchange (NYSE)
under the symbol FTX. The FTX share price is reported daily in the financial
press under "FrptMc" in most listings of NYSE securities. At year-end 1994
the number of holders of record of our common stock was 25,076.
Common share price ranges on the NYSE composite tape during 1994 and 1993:
1994 1993
------------------- ------------------
High Low High Low
------ ------ ------ ------
First Quarter $21.75 $18.75 $22.63 $17.00
Second Quarter 19.75 16.25 22.25 18.13
Third Quarter 20.00 16.13 19.38 17.50
Fourth Quarter 19.88 16.75 19.88 15.75
Restructuring Plan/Common Share Dividends. On May 3, 1994 FTX announced a
restructuring plan to separate its two principal businesses, copper/gold and
agricultural minerals, into two independent financial and operating entities.
At the same time, FTX announced that during the interim period it would
distribute common shares of FCX to FTX common shareholders in lieu of cash
dividends. Each FTX shareholder entitled to receive a fractional share was
paid cash in lieu of the fractional share. Subsequent to the completion of
the restructuring plan, the FTX Board of Directors will determine a new
dividend policy for FTX which will depend on the financial performance of FRP.
For the first quarter of 1994 and for 1993 our Board of Directors fixed the
amount of the regular quarterly common stock cash dividend at $0.3125 per
common share.
On May 12, 1994, the Board of Directors declared a special pro-rata
distribution of one share of MOXY common stock for each 10 shares of FTX
common stock. Each shareholder entitled to receive a fractional share was
paid cash in lieu of the fractional share.
Cash and property dividends paid during 1994 and 1993:
1994
----------------------------------------------------------------------
DIVIDEND PER FTX SHARE RECORD DATE PAYMENT DATE
---------------------- ------------- ------------
$.3125 Feb. 15, 1994 Mar. 1, 1994
1/80 FCX share* May 16, 1994 Jun. 1, 1994
1/10 MOXY share* May 20, 1994 May 20, 1994
1/80 FCX share* Aug. 15, 1994 Sep. 1, 1994
1/80 FCX share* Nov. 15, 1994 Dec. 1, 1994
* Below is a summary of the cost basis of shares for the property dividends.
Cost Basis Cash in Lieu Rate For
Record Date Share Per Share Fractional Share
------------ ----- ---------- ---------------------
May 16, 1994 FCX $24.1875 $24.4375
May 20, 1994 MOXY 4.5000 5.4933
Aug. 15, 1994 FCX 22.7500 21.0625
Nov. 15, 1994 FCX 20.0625 22.0625
1993
-----------------------------------------------------------------------
DIVIDEND PER FTX SHARE RECORD DATE PAYMENT DATE
---------------------- ------------- ------------
$.3125 Feb. 15, 1993 Mar. 1, 1993
.3125 May 14, 1993 Jun. 1, 1993
.3125 Aug. 16, 1993 Sep. 1, 1993
.3125 Nov. 15, 1993 Dec. 1, 1993