SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended September 30, 2001
Commission File Number: 1-9916
Freeport-McMoRan Copper & Gold Inc.
Incorporated in Delaware 74-2480931
(IRS Employer Identification No.)
1615 Poydras Street, New Orleans, Louisiana 70112
Registrant's telephone number, including area code: (504) 582-4000
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No __
On September 30, 2001, there were issued and outstanding
55,459,026 shares of the registrant's Class A Common Stock, par
value $0.10 per share, and 88,514,099 shares of its Class B
Common Stock, par value $0.10 per share.
FREEPORT-McMoRan COPPER & GOLD INC.
TABLE OF CONTENTS
Page
Part I. Financial Information
Financial Statements:
Condensed Balance Sheets 3
Statements of Operations 4
Statements of Cash Flows 5
Notes to Financial Statements 6
Remarks 11
Report of Independent Public Accountants 11
Management's Discussion and Analysis of Financial
Condition and Results of Operations 12
Part II. Other Information 24
Signature 24
Exhibit Index E-1
2
FREEPORT-McMoRan COPPER & GOLD INC.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
FREEPORT-McMoRan COPPER & GOLD INC.
CONDENSED BALANCE SHEETS (Unaudited)
September 30, December 31,
2001 2000
---------- ----------
(In Thousands)
ASSETS
Current Assets:
Cash and cash equivalents $ 32,874 $ 7,968
Restricted investments 49,809 -
Accounts receivable 118,573 149,085
Inventories 375,883 400,607
Prepaid expenses and other 3,928 11,462
---------- ----------
Total current assets 581,067 569,122
Property, plant and equipment, net 3,206,402 3,248,710
Restricted investments 90,750 -
Investment in PT Smelting 55,209 56,154
Other assets 102,256 76,755
---------- ----------
Total assets $4,035,684 $3,950,741
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued
liabilities $ 334,330 $ 313,208
Current portion of long-term debt
and short-term borrowings 112,990 202,294
Unearned customer receipts 65,660 28,688
Rio Tinto share of joint venture
cash flows 55,908 78,706
Accrued income taxes 31,071 11,016
---------- ----------
Total current liabilities 599,959 633,912
Long-term debt, less current portion:
FCX and PT Freeport Indonesia credit
facilities 214,000 760,000
Convertible senior notes 603,750 -
Senior notes 450,000 450,000
Infrastructure asset financings 389,101 457,673
Atlantic Copper debt 233,128 246,727
Equipment and other loans 66,833 73,331
Accrued postretirement benefits and
other liabilities 118,160 112,831
Deferred income taxes 651,028 599,536
Minority interests 138,186 103,795
Redeemable preferred stock 462,504 475,005
Stockholders' equity 109,035 37,931
---------- ----------
Total liabilities and stockholders'
equity $4,035,684 $3,950,741
========== ==========
The accompanying notes are an integral part of these financial
statements.
3
FREEPORT-McMoRan COPPER & GOLD INC.
STATEMENTS OF OPERATIONS (Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
------------------- -----------------------
2001 2000 2001 2000
-------- -------- ---------- ----------
(In Thousands, Except Per Share Amounts)
Revenues $441,238 $473,837 $1,426,584 $1,338,777
Cost of sales:
Production and delivery 245,168 278,886 706,362 798,234
Depreciation and
amortization 71,000 77,825 217,448 195,512
-------- -------- ---------- ----------
Total cost of sales 316,168 356,711 923,810 993,746
Exploration expenses 1,989 2,915 6,460 6,724
Equity in PT Smelting
(earnings) losses (1,875) 5,383 945 9,020
General and
administrative expenses 14,962 18,729 45,513 55,996
-------- -------- ---------- ----------
Total costs and expenses 331,244 383,738 976,728 1,065,486
-------- -------- ---------- ----------
Operating income 109,994 90,099 449,856 273,291
Interest expense, net (40,115) (53,539) (129,945) (153,287)
Other income (expense),net (7,915) 5,598 (4,795) 5,014
-------- -------- ---------- ----------
Income before income
taxes and
minority interests 61,964 42,158 315,116 125,018
Provision for income taxes(40,285) (34,752) (173,308) (93,477)
Minority interests in
net income of
consolidated
subsidiaries (8,247) (7,252) (35,855) (21,832)
-------- -------- ---------- ----------
Net income 13,432 154 105,953 9,709
Preferred dividends (9,184) (9,346) (27,374) (28,273)
-------- -------- ---------- ----------
Net income (loss)
applicable to common
stock $ 4,248 $ (9,192) $ 78,579 $ (18,564)
======== ======== ========== ==========
Net income (loss) per
share of common stock:
Basic $.03 $(.06) $.55 $(.12)
==== ===== ==== =====
Diluted $.03 $(.06) $.54 $(.12)
==== ===== ==== =====
Average common shares
outstanding:
Basic 143,973 150,088 143,944 156,597
======= ======= ======= =======
Diluted 144,658 150,088 144,907 156,597
======= ======= ======= =======
The accompanying notes are an integral part of these financial
statements.
4
FREEPORT-McMoRan COPPER & GOLD INC.
STATEMENTS OF CASH FLOWS (Unaudited)
Nine Months Ended
September 30,
-----------------------
2001 2000
-------- --------
(In Thousands)
Cash flow from operating activities:
Net income $105,953 $ 9,709
Adjustments to reconcile net income
to net cash provided by
operating activities:
Depreciation and amortization 217,448 195,512
Deferred income taxes 51,171 18,707
Equity in PT Smelting losses 945 9,020
Minority interests' share
of net income 35,855 21,832
Other, including change in
deferred mining costs (19,284) 27,511
(Increases) decreases in working capital:
Accounts receivable 30,347 5,090
Inventories 20,243 (30,571)
Prepaid expenses and other 7,495 8,077
Accounts payable and accrued
liabilities 22,884 93,019
Rio Tinto share of joint
venture cash flows (15,797) (11,147)
Accrued income taxes 17,857 (41,838)
-------- --------
Decrease in working capital 83,029 22,630
-------- --------
Net cash provided by operating
activities 475,117 304,921
-------- --------
Cash flow from investing activities:
Purchase of restricted investments (139,762) -
PT Freeport Indonesia capital
expenditures (109,400) (117,950)
Atlantic Copper capital expenditures (9,382) (8,377)
Investment in PT Smelting - (5,717)
Other 4,572 13
-------- --------
Net cash used in investing activities (253,972) (132,031)
-------- --------
Cash flow from financing activities:
Net proceeds from sale of
convertible senior notes 582,619 -
Proceeds from other debt 77,523 399,601
Repayments of debt (802,115) (331,674)
Purchases of FCX common shares (3,436) (158,731)
Partial redemption of preferred (10,386) (11,893)
stock
Cash dividends paid:
Preferred stock (27,419) (28,464)
Minority interests (6,786) (31,757)
Other (6,239) (10,692)
-------- --------
Net cash used in financing activities (196,239) (173,610)
-------- --------
Net increase (decrease) in cash
and cash equivalents 24,906 (720)
Cash and cash equivalents at
beginning of year 7,968 6,698
-------- --------
Cash and cash equivalents at end
of period $ 32,874 $ 5,978
======== ========
The accompanying notes are an integral part of these financial
statements.
5
FREEPORT-McMoRan COPPER & GOLD INC.
NOTES TO FINANCIAL STATEMENTS
1. CONVERTIBLE SENIOR NOTES
In August 2001, Freeport-McMoRan Copper & Gold Inc. (FCX) sold
$603.8 million of 8 1/4% Convertible Senior Notes due 2006 for net
proceeds of $582.6 million. Interest on the notes is payable semi-
annually on January 31 and July 31 of each year. FCX may redeem
some or all of the notes at any time after July 31, 2004 at
specified redemption prices. A portion of the net proceeds was used
to purchase $139.8 million of U.S. government securities, which
secure and will be used to pay for the first six scheduled interest
payments on the notes. The notes are otherwise unsecured. The
remaining net proceeds were used to repay outstanding amounts under
the FCX/PT Freeport Indonesia bank credit facilities.
The notes are convertible, at the option of the holder, at any
time on or prior to maturity into, at the option of the holder,
shares of class A or class B common stock of FCX at a conversion
price of $14.30 per share, which is equal to a conversion rate of
approximately 69.9301 shares of class A or class B common stock per
$1,000 principal amount of notes. The conversion rate is subject
to adjustments.
2. SUBSEQUENT EVENT - AMENDED BANK CREDIT FACILITIES
In October 2001, FCX and PT Freeport Indonesia amended their bank
credit facilities to extend the maturities to December 2005.
Aggregate commitments under the credit facilities total $734.0
million, including $253.4 million if FCX is required to perform in
March 2002 under its guarantee of a loan of PT Nusamba Mineral
Industri, leaving $480.6 million currently available. If FCX were
to be required to perform under this guarantee, it would acquire
rights and seek to recover the PT Indocopper Investama stock owned
by Nusamba as provided by the financing documents, which are governed
by Indonesian law.
Borrowings under the credit facilities as of October 16, 2001,
totaled $251.0 million for PT Freeport Indonesia and none for FCX.
Amounts borrowed are available on a revolving basis until December
2003, at which time all borrowed amounts will become term loans,
except for a $150.0 million revolver for working capital purposes.
The initial interest rate on all borrowings is LIBOR plus 4.0
percent with annual increases of 0.125 percent.
The credit facilities require that all available cash flow
after debt service and capital expenditures be used to reduce
outstanding amounts under the credit facilities, subject to limited
exceptions. Amounts available under the credit facilities may be used to
repay $250.0 million for FCX's 7.20% Senior Notes in November 2003
to the extent necessary. However, the credit facilities impose
limitations on the amount of preferred stock FCX may redeem. If by
August 2003 FCX has not extended the maturity of a specified amount
of FCX's Gold-Denominated Preferred Stock beyond 2005, FCX will not
thereafter be permitted to redeem or pay dividends on any of its
preferred stock. FCX intends to undertake a refinancing or restructuring
of its obligation to redeem the Gold-Denominated Preferred Stock before
the mandatory redemption date in August 2003. The credit facilities
prohibit common stock dividends and common stock purchases;
limit capital expenditures, investments, liens and
transactions with affiliates and require that certain financial
ratios be maintained. Security for obligations outstanding
under the credit facilities includes most of PT Freeport
Indonesia's assets, 50.1 percent of the outstanding stock of PT
Freeport Indonesia, 49 percent of the outstanding stock of PT
Indocopper Investama owned by FCX, and a pledge of PT Freeport
Indonesia's rights under its Contract of Work. PT Freeport
Indonesia also guarantees FCX's obligations under the credit
facilities.
3. EARNINGS PER SHARE
FCX's basic net income (loss) per share of common stock was
calculated by dividing net income (loss) applicable to common stock
by the weighted-average number of common shares outstanding during
the period. Diluted net income (loss) per share of common stock was
calculated by dividing net income (loss) applicable to common stock
by the weighted-average number of common shares outstanding during
the period plus the net effect of dilutive stock options and
restricted stock. Dilutive stock options represented 0.4 million
shares in the third quarter of 2001 and 0.7 million shares in the
2001 nine-month period. Stock options representing less than 0.1
million shares in the third quarter of 2000 and 0.5 million shares
in the 2000 nine-month period that otherwise would have been
considered dilutive were excluded from the diluted net income
(loss) per share calculation because of the net losses for those
periods. Dilutive restricted stock totaled 0.3 million shares in
the third quarter of 2001 and in the 2001 nine-month period.
6
Options excluded from the computation of diluted net income
(loss) per share of common stock because their exercise prices were
greater than the average market price of the common stock during
the respective periods totaled options for 12.1 million shares
(average exercise price of $20.71 per share) in the third quarter
of 2001, 14.7 million shares (average price of $19.17 per share) in
the third quarter of 2000, 11.1 million shares (average price of
$21.60 per share) in the 2001 nine-month period and 11.7 million
shares (average price of $21.51 per share) in the 2000 nine-month
period. FCX's convertible preferred stock and its recently issued
8 1/4% Convertible Senior Notes were not included in the computation
of diluted net income (loss) per share of common stock because
doing so would have increased diluted net income per share of
common stock or decreased diluted net loss per share of common
stock. The preferred stock was convertible into 11.7 million
shares of common stock, and the related accrued dividends totaled
$6.1 million in the third quarters of 2001 and 2000, and $18.4
million in the 2001 and 2000 nine-month periods. The senior notes
were convertible into an average of 25.2 million shares in the
third quarter of 2001 and an average of 8.5 million shares in the
first nine months of 2001. Interest expense totaled $7.5 million
for the 2001 periods.
4. DERIVATIVE CONTRACTS
At times FCX and its subsidiaries have entered into derivative
contracts to manage certain risks resulting from fluctuations in
commodity prices (primarily copper and gold), foreign currency
exchange rates and interest rates by creating offsetting market
exposures. Effective January 1, 2001, FCX adopted Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" (SFAS 133). SFAS 133, as
subsequently amended, establishes accounting and reporting
standards requiring that every derivative instrument (including
certain derivative instruments embedded in other contracts) be
recorded in the balance sheet as either an asset or liability
measured at its fair value. The accounting for changes in the fair
value of a derivative instrument depends on the intended use of the
derivative and the resulting designation.
Upon adoption of SFAS 133 on January 1, 2001, FCX recorded
immaterial cumulative gain adjustments totaling $0.8 million to
other income ($0.8 million to net income) to adjust the recorded
values of PT Freeport Indonesia's and Atlantic Copper's (FCX's
subsidiaries) foreign currency forward contracts to fair value and
$0.8 million to revenues ($0.4 million to net income) to adjust the
embedded derivatives in PT Freeport Indonesia's provisionally
priced copper sales to fair value, as calculated under SFAS 133.
In addition, FCX recorded a cumulative effect net loss adjustment
to other comprehensive income totaling $1.0 million for the fair
value of Atlantic Copper's interest rate swaps on January 1, 2001.
FCX has entered into derivative contracts in limited instances
to achieve specific objectives. Currently, the objectives
principally relate to managing risks associated with foreign
currency, commodity price and interest rate risks with Atlantic
Copper's smelting operations, where certain derivative contracts
are required under financing agreements. In addition, in response
to volatility in the Indonesian rupiah and Australian dollar
currencies, FCX has sought to manage certain foreign currency risks
with PT Freeport Indonesia's mining operations. In the past, FCX
entered into derivative contracts related to PT Freeport Indonesia's
exposure to copper and gold prices, but activities in this regard
since 1997 have been limited to establishing fixed prices for open
copper sales under PT Freeport Indonesia's concentrate sales contracts.
FCX does not enter into derivative contracts for speculative purposes.
A summary of FCX's outstanding derivative instruments at September
30, 2001 and a discussion of FCX's risk management strategies for
those designated as hedges follow.
Commodity Price Protection Contracts
From time to time, PT Freeport Indonesia has entered into forward
and option contracts to hedge the market risk associated with
fluctuations in the prices of commodities it sells. The primary
objective of these contracts has been to set a minimum price and
the secondary objective is to retain market upside, if available at
a reasonable cost. As of September 30, 2001, FCX had no price
protection contracts relating to its mine production. FCX has
outstanding gold- and silver-denominated redeemable preferred stock
with dividends and redemption amounts determined by commodity
prices. FCX elected to continue its historical accounting for its
redeemable preferred stock indexed to commodities under the
provisions of SFAS 133 which allow such instruments issued before
January 1, 1998 to be excluded from those instruments required to
be adjusted for changes in their fair values. Therefore, FCX's
redeemable preferred stock is recorded at its original issue value
less redemptions, and totaled $462.5 million at September 30, 2001.
Certain of PT Freeport Indonesia's concentrate sales contracts
allow for final pricing in future periods. Under SFAS 133, these
pricing terms cause a portion of the contracts to be considered
embedded derivatives which must be recorded at fair value. Prior
to January 1, 2001, PT Freeport Indonesia adjusted the revenues
from these provisionally priced sales based on then-current spot
prices on or near each reporting date. Effective January 1, 2001,
PT Freeport Indonesia began adjusting the revenues from these
provisionally priced sales to reflect fair value based on forward
prices for the final pricing periods on or near each reporting
date. Changes in the fair value of these embedded derivatives are
recorded in current period revenues.
7
At September 30, 2001, Atlantic Copper had forward copper
contracts designed to hedge its copper price risk whenever its
physical purchases and sales pricing periods do not match. Although
these contracts provide a hedge against changes in copper prices,
they do not qualify for hedge accounting under SFAS 133 because
Atlantic Copper bases its hedging contracts on its net
sales/purchases position and contracts to hedge a net position do
not qualify for hedge accounting under SFAS 133. Atlantic Copper
held forward copper purchase contracts for 13.1 million pounds with
a fair value of $(0.1) million recorded in accounts payable at
September 30, 2001.
Foreign Currency Exchange Contracts
PT Freeport Indonesia and Atlantic Copper enter into foreign
currency forward contracts to hedge the market risks of their
forecasted costs denominated in a currency other than the U.S.
dollar, their functional currency. The primary objective of these
contracts is either to lock-in an exchange rate or to minimize the
impact of adverse exchange rate changes.
As of September 30, 2001, PT Freeport Indonesia had foreign
currency forward contracts to hedge 24.0 million of its aggregate
projected Australian dollar payments from October 2001 through
December 2001, or approximately 50 percent of its aggregate
projected remaining 2001 Australian dollar payments at an average
exchange rate of $0.58 to one Australian dollar. PT Freeport
Indonesia also had foreign currency forward contracts to hedge
599.4 billion of its aggregate projected Indonesian rupiah payments
from October 2001 through December 2002, or approximately 50
percent of its projected remaining 2001 and 2002 rupiah payments,
at an average exchange rate of 12,501 rupiahs to one U.S. dollar.
Atlantic Copper had foreign currency forward contracts to hedge
139.2 million of its projected euro payments from October 2001
through December 2003, or approximately 44 percent of its projected
remaining 2001 peseta/euro payments and approximately 63 percent of
its projected 2002 and 2003 euro payments, at an average exchange
rate of $1.01 per euro. The net fair value of PT Freeport
Indonesia's and Atlantic Copper's foreign currency contracts at
September 30, 2001 totaled $(8.9) million, of which $7.2 million
was recorded in accounts receivable, $(8.1) million was recorded in
accrued liabilities and $(8.0) million was recorded in other long-
term liabilities. PT Freeport Indonesia and Atlantic Copper have
designated their foreign currency forward contracts as cash flow
hedges. There was no hedge ineffectiveness for the outstanding
contracts at September 30, 2001.
Interest Rate Contracts
Atlantic Copper entered into interest rate swap contracts to manage
exposure to interest rate changes on a portion of its variable-rate
debt. The primary objective of these contracts is to lock-in an
interest rate considered to be favorable. As of September 30,
2001, Atlantic Copper had interest rate swap contracts at an
average interest rate of 6.1 percent on $62.8 million of financing,
reducing quarterly through December 2003. Atlantic Copper has
designated its interest rate swap contracts as cash flow hedges and
no ineffectiveness is expected from these hedges. The fair value
of these interest rate swap contracts totaled $(3.7) million,
$(2.6) million of which is recorded in accrued liabilities and
$(1.1) million is recorded in other long-term liabilities at
September 30, 2001.
FCX and its subsidiaries adopted SFAS 133 on January 1, 2001;
therefore, amounts reported for 2001 and 2000 are based on
different accounting methods. Prior to 2001, changes in the market value
of foreign currency exchange contracts were included in current earnings.
Beginning in 2001, changes in the fair value of unrealized derivative
contracts, including foreign currency exchange contracts that
qualify as hedges, are not reported in current earnings, but are
included in other comprehensive income (see Note 5).
A recap of gains (loss) charged to earnings for derivative
contracts, embedded derivatives and redeemable preferred stock
redemptions follows (in millions):
Three Months Ended Nine Months
September 30, Ended September 30,
------------------ -------------------
2001 2000 2001 2000
----- ----- ----- -----
FCX:
Silver-Denominated preferred stock $ 2.1 $ 0.6 $ 2.1 $ 0.6
PT Freeport Indonesia:
Foreign currency exchange contracts 0.4 (7.6) (1.3) (5.8)
Forward copper contracts - (6.0) - 1.7
Concentrate sales contracts (16.1) (a) (39.0) (a)
Atlantic Copper:
Foreign currency exchange contracts (0.9) (19.1) (2.2) (26.9)
Forward copper contracts (0.6) (0.3) 3.7 (1.2)
Interest rate contracts (0.5) 0.4 (0.4) 0.5
(a) Embedded derivatives in PT Freeport Indonesia's concentrate
sales contracts did not require separate accounting before 2001.
8
5. COMPREHENSIVE INCOME
The 2000 periods did not include any items of other comprehensive
income. FCX's comprehensive income for the 2001 periods is
summarized below (in thousands).
Three Months Nine Months
Ended Ended
September 30 September 30
------------ ------------
Net income applicable to common stock $ 4,248 $78,579
Other comprehensive income (loss):
Cumulative effect of change
in accounting for
derivatives, no tax effect - (982)
Change in unrealized
derivatives' fair value
(net of taxes of $3.4
million and $1.7 million,
respectively) 10,055 (11,083)
Reclass to earnings (net of tax
benefit of $0.2 million and
taxes of $0.5 million,
respectively) 1,148 3,245
------- -------
Total comprehensive income $15,451 $69,759
======= =======
6. INTEREST COST
Interest expense excludes capitalized interest of $2.5 million in
the third quarter of 2001, $2.0 million in the third quarter of
2000, $6.6 million in the first nine months of 2001 and $4.8
million in the first nine months of 2000.
7. BUSINESS SEGMENTS
FCX has two operating segments: "mining and exploration" and
"smelting and refining." The mining and exploration segment
includes the copper and gold mining operations of PT Freeport
Indonesia in Indonesia and FCX's Indonesian exploration activities.
The smelting and refining segment includes Atlantic Copper's
operations in Spain and PT Freeport Indonesia's equity investment
in PT Smelting in Gresik, Indonesia. The segment data presented
below were prepared on the same basis as the consolidated FCX
financial statements.
Smelting
Mining and and Eliminations FCX
Exploration Refining and Other Total
---------- -------- --------- ----------
(In Thousands)
Three months ended
September 30, 2001:
Revenues $ 343,300a $200,007 $(102,069)b $ 441,238
Production and delivery 145,719 190,763 (91,314)b 245,168
Depreciation and
amortization 63,107 6,818 1,075 71,000
Exploration expenses 1,936 - 53 1,989
Equity in PT Smelting
earnings - (1,875)c - (1,875)
General and
administrative expenses 11,217 2,092 1,653 14,962
---------- -------- --------- ----------
Operating income (loss) $ 121,321 $ 2,209 $ (13,536) $ 109,994
========== ======== ========= ==========
Interest expense, net $ 20,137 $ 6,102 $ 13,876 $ 40,115
========== ======== ========= ==========
Provision for income taxes$ 37,272 $ 1,034 $ 1,979 $ 40,285
========== ======== ========= ==========
Capital expenditures $ 35,384 $ 2,053 $ 677 $ 38,114
========== ======== ========= ==========
Total assets $3,228,401d $667,461e $ 139,822 $4,035,684
========== ======== ========= ==========
9
Smelting
Mining and and Eliminations FCX
Exploration Refining and Other Total
---------- -------- --------- ----------
(In Thousands)
Three months ended
September 30, 2000:
Revenues $ 385,933a $181,312 $ (93,408)b $ 473,837
Production and delivery 176,002 186,851 (83,967)b 278,886
Depreciation and
amortization 69,881 6,795 1,149 77,825
Exploration expenses 2,388 - 527 2,915
Equity in PT Smelting losses - 5,383c - 5,383
General and
administrative expenses 14,751 2,346 1,632 18,729
---------- -------- --------- ----------
Operating income (loss) $ 122,911 $(20,063) $ (12,749) $ 90,099
========== ======== ========= ==========
Interest expense, net $ 35,061 $ 6,263 $ 12,215 $ 53,539
========== ======== ========= ==========
Provision (benefit)
for income taxeS $ 34,107 $ (649) $ 1,294 $ 34,752
========== ======== ========= ==========
Capital expenditures $ 30,281 $ 4,506 $ 293 $ 35,080
========== ======== ========= ==========
Total assets $3,284,279d $674,532 e $ 22,362 $3,981,173
========== ======== ========= ==========
Nine months ended
September 30, 2001:
Revenues $1,124,408a $553,532 $(251,356)b $1,426,584
Production and delivery 404,360 540,614 (238,612)b 706,362
Depreciation and
amortization 193,279 20,453 3,716 217,448
Exploration expenses 6,222 - 238 6,460
Equity in PT Smelting losses - 945c - 945
General and
administrative expenses 34,035 6,264 5,214 45,513
---------- -------- --------- ----------
Operating income (loss) $ 486,512 $(14,744) $ (21,912) $ 449,856
========== ======== ========= ==========
Interest expense, net $ 74,736 $ 20,321 $ 34,888 $ 129,945
========== ======== ========= ==========
Provision for income
taxes $ 151,801 $ 988 $ 20,519 $ 173,308
========== ======== ========= ==========
Capital expenditures $ 108,025 $ 9,382 $ 1,375 $ 118,782
========== ======== ========= ==========
Nine months ended
September 30, 2000:
Revenues $ 953,313a $607,994 $(222,530)b $1,338,777
Production and delivery 454,490 597,091 (253,347)b 798,234
Depreciation and
amortization 171,066 21,063 3,383 195,512
Exploration expenses 5,445 - 1,279 6,724
Equity in PT Smelting losses - 9,020c - 9,020
General and
administrative expenses 44,768 6,520 4,708 55,996
---------- -------- --------- ----------
Operating income (loss) $ 277,544 $(25,700) $ 21,447 $ 273,291
========== ======== ========= ==========
Interest expense, net $ 100,620 $ 19,111 $ 33,556 $ 153,287
========== ======== ========= ==========
Provision for income
taxes $ 68,863 $ 1,079 $ 23,535 $ 93,477
========== ======== ========= ==========
Capital expenditures $ 117,290 $ 14,094 $ 660 $ 132,044
========== ======== ========= ==========
a. Includes PT Freeport Indonesia sales to PT Smelting totaling
$88.2 million in the third quarter of 2001, $101.2 million in the
third quarter of 2000, $290.7 million in the nine-month period
ended September 30, 2001 and $230.6 million in the nine-month
period ended September 30, 2000.
b. Represents elimination of intersegment sales from PT Freeport
Indonesia to Atlantic Copper and the change in deferred profits on
intersegment sales remaining in Atlantic Copper's inventories.
c. Includes effect of changes in deferred intercompany profits on
25 percent of PT Freeport Indonesia's sales to PT Smelting that
remain in PT Smelting's inventory at period end, totaling $2.8
million in the third quarter of 2001, $(1.8) million in the third
quarter of 2000, $2.7 million in the nine-month period ended
September 30, 2001 and $2.9 million in the nine-month period ended
September 30, 2000.
d. Includes PT Freeport Indonesia's trade receivables with PT
Smelting totaling $23.2 million at September 30, 2001 and $24.7
million at September 30, 2000.
e. Includes PT Freeport Indonesia's equity investment in PT
Smelting totaling $55.2 million at September 30, 2001 and $62.8
million at September 30, 2000.
10
8. RATIO OF EARNINGS TO FIXED CHARGES
The ratio of earnings to fixed charges for the first nine months of
2001 and 2000 was 3.3 to 1 and 1.8 to 1, respectively. For this
calculation, earnings consist of income from continuing operations
before income taxes, minority interests and fixed charges. Fixed
charges include interest and that portion of rent deemed
representative of interest.
----------------------
Remarks
The information furnished herein should be read in conjunction with
FCX's financial statements contained in its 2000 Annual Report on
Form 10-K. The information furnished herein reflects all
adjustments which are, in the opinion of management, necessary for
a fair statement of the results for the periods. All such
adjustments are, in the opinion of management, of a normal
recurring nature.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To The Board of Directors and Stockholders of
Freeport-McMoRan Copper & Gold Inc.:
We have reviewed the accompanying condensed balance sheet of
Freeport-McMoRan Copper & Gold Inc. (a Delaware corporation) as of
September 30, 2001, the related statements of operations for the
three and nine-month periods ended September 30, 2001 and 2000, and
the statements of cash flows for the nine-month periods ended
September 30, 2001 and 2000. These financial statements are the
responsibility of the Company's management.
We conducted our reviews in accordance with standards
established by the American Institute of Certified Public
Accountants. A review of interim financial information consists
principally of applying analytical procedures to financial data and
making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit
conducted in accordance with auditing standards generally accepted
in the United States, the objective of which is the expression of
an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our reviews, we are not aware of any material
modifications that should be made to the financial statements
referred to above for them to be in conformity with accounting
principles generally accepted in the United States.
We have previously audited, in accordance with auditing
standards generally accepted in the United States, the balance
sheet of Freeport-McMoRan Copper & Gold Inc. as of December 31,
2000, and the related statements of income, stockholders' equity
and cash flows for the year then ended (not presented herein), and,
in our report dated January 18, 2001, we expressed an unqualified
opinion on those financial statements. In our opinion, the
information set forth in the accompanying condensed balance sheet
as of December 31, 2000, is fairly stated, in all material
respects, in relation to the balance sheet from which it has been
derived.
ARTHUR ANDERSEN LLP
New Orleans, Louisiana
October 16, 2001
11
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
OVERVIEW
We operate through our majority-owned subsidiaries, PT Freeport
Indonesia and PT Irja Eastern Minerals (Eastern Minerals), and
through Atlantic Copper, S.A. (Atlantic Copper), our wholly owned
subsidiary. PT Freeport Indonesia also has a 25 percent interest
in PT Smelting, an Indonesian company that operates a copper
smelter and refinery in Gresik, Indonesia. In addition to the PT
Freeport Indonesia and Eastern Minerals exploration activities,
we conduct other mineral exploration activities in Irian Jaya
(Papua), Indonesia pursuant to joint venture and other
arrangements. The results of operations reported and summarized
below are not necessarily indicative of future operating results.
Summary comparative consolidated results for the third-
quarter and nine-month periods ended September 30 follow (in
millions, except per share amounts):
Third Quarter Nine Months
------------------ -------------------
2001 2000 2001 2000
------ ------ -------- --------
Revenues $441.2 $473.8 $1,426.6 $1,338.8
Operating income 110.0 90.1 449.9 273.3
Net income (loss) applicable to
common stock 4.2 (9.2) 78.6 (18.6)
Diluted net income (loss) per
share of common stock .03 (.06) .54 (.12)
Our consolidated revenues include PT Freeport Indonesia's
sale of copper concentrates, which also contain significant
amounts of gold, and the sale by Atlantic Copper of copper
anodes, cathodes, wire and wire rod, and gold in anodes and
slimes. Our revenues and net income vary significantly with
fluctuations in the market prices of copper and gold and other
factors. At various times, in response to market conditions, we
have entered into copper and gold price protection contracts for
some portion of our expected future mine production to mitigate
the risk of adverse price fluctuations. We currently have no
copper or gold price protection contracts relating to our mine
production. We have outstanding gold- and silver-denominated
preferred stock with dividends and redemption amounts determined
by commodity prices. Based on PT Freeport Indonesia's projected
share of 2001 copper sales (1.4 billion pounds), a $0.01 per
pound change in the average price realized would have an
approximate $14 million impact on our revenues and an approximate
$7 million impact on our net income. A $5 per ounce change in
the average price realized on PT Freeport Indonesia's share of
projected 2001 gold sales (2.6 million ounces) would have an
approximate $13 million impact on our revenues and an approximate
$6 million impact on our net income.
Our third-quarter 2001 revenues were lower than the 2000
period mostly because of lower copper sales volumes and averaged
realized prices, partly offset by higher gold sales volumes. Our
nine-month 2001 consolidated revenues improved when compared with
the 2000 period primarily because of higher copper and gold sales
volumes, partly offset by lower average realized prices. A
portion of PT Freeport Indonesia's copper sales are provisionally
priced at the time of shipment and finally priced in subsequent
periods based on prices in effect in those periods. Third-
quarter 2001 revenues include reductions of $13.2 million ($6.4
million to net income or $0.04 per share) and third-quarter 2000
revenues benefited by $5.1 million ($2.5 million to net loss or
$0.02 per share) from adjustments to prior period concentrate
sales, mostly for copper pricing. Nine-month 2001 revenues
include reductions of $2.8 million ($1.4 million to net income or
$0.01 per share) for adjustments to year 2000 concentrate sales,
while nine-month 2000 revenues benefited by $10.5 million ($5.1
million to net loss or $0.03 per share) for adjustments to year
1999 concentrate sales, mostly for copper pricing.
From time to time we enter into foreign currency contracts
to hedge our projected operating costs denominated in foreign
currencies. On January 1, 2001, accounting standards for these
types of hedging contracts changed (see Note 4). Prior to
January 1, 2001, our foreign currency forward contracts did not
qualify for hedge accounting and all changes in the market values
of these contracts were included in earnings as they occurred.
As a result, our reported earnings prior to January 1, 2001
included the effects of changes in market value of all our
outstanding foreign currency forward contracts, which were
significant at times. The 2000 periods included losses charged
to cost of sales totaling $26.7 million for the third quarter and
$32.7 million for the nine-month period for changes in market
value of foreign currency forward contracts, most of which would
have been charged to other comprehensive income under the new
accounting rules we adopted on January 1, 2001. Excluding the
2000 charges relating to marking-to-market our foreign currency
contracts, consolidated costs of sales in the third quarter of
2001 were slightly lower than the 2000 quarter primarily because
of lower PT Freeport Indonesia copper sales.
12
Lower cost of sales for the nine-month 2001 period compared with the
2000 period primarily reflects lower sales volumes at Atlantic Copper
because of a major maintenance turnaround completed in April 2001.
The improved results we recorded during 2001 for our equity
interest in PT Smelting primarily reflect the recognition of
deferred profits on PT Freeport Indonesia sales to PT Smelting
and improvements in PT Smelting's operating results during 2001.
General and administrative expenses during the third quarter of
2001 were lower than during the third quarter of 2000 when we
recorded charges totaling $2.3 million for personnel severance
costs. During the first nine months of 2001 general and
administrative expenses were $10.5 million lower than during the
2000 period. In the first nine months of 2000 we recorded net
charges of $7.6 million related to contribution commitments,
personnel severance costs and stock appreciation rights. Our
lower effective tax rate for the first nine months of 2001
primarily reflects the impact of higher income at PT Freeport
Indonesia. The higher level of minority interests in net income
of consolidated subsidiaries in the 2001 periods is also the
result of improved earnings at PT Freeport Indonesia.
RESULTS OF OPERATIONS
We have two operating segments: "mining and exploration" and
"smelting and refining." The mining and exploration segment
includes PT Freeport Indonesia's copper and gold mining
operations in Indonesia and FCX's Indonesian exploration
activities. The smelting and refining segment includes Atlantic
Copper's operations in Spain and PT Freeport Indonesia's 25
percent equity investment in PT Smelting. Summary comparative
operating income (loss) by segment for the third-quarter and
nine-month periods follows (in millions):
Third Quarter Nine Months
------------------ -----------------
2001 2000 2001 2000
------ ------ ------ ------
Mining and exploration $121.3 $122.9 $486.5 $277.5
Smelting and refining 2.2 (20.1) (14.7) (25.7)
Intercompany eliminations and other (13.5) (12.7) (21.9) 21.5
------ ------ ------ ------
FCX operating income a $110.0 $ 90.1 $449.9 $273.3
====== ====== ====== ======
a. Profits on PT Freeport Indonesia's sales to Atlantic Copper
and on 25 percent of PT Freeport Indonesia's sales to PT Smelting
are deferred until the final sale to third parties has occurred.
Changes in the amount of these deferred profits impacted
operating income by $(7.0) million in the third quarter of 2001,
$(10.7) million in the third quarter of 2000, $(6.4) million in
the nine-month 2001 period and $35.9 million in the nine-month
2000 period. Our consolidated quarterly earnings fluctuate
depending on the timing and prices of these sales.
MINING AND EXPLORATION
A summary of increases (decreases) in PT Freeport Indonesia
revenues between the periods follows (in millions):
Third Nine
Quarter Months
------ --------
PT Freeport Indonesia revenues - 2000 periods $385.9 $ 953.3
Increases (decreases):
Sales volumes:
Copper (32.5) 102.4
Gold 72.8 266.2
Price realizations:
Copper (73.3) (140.7)
Gold 0.6 (26.4)
Adjustments, primarily for copper
pricing on prior period open sales (19.5) (3.8)
Treatment charges, royalties and other 9.3 (26.6)
------ --------
PT Freeport Indonesia revenues - 2001 periods $343.3 $1,124.4
====== ========
PT Freeport Indonesia's 2001 revenues for both the third-
quarter and nine-month periods benefited from significant
increases in gold sales volumes compared to the 2000 periods.
When compared to the 2000 periods, copper sales volumes declined
by 10 percent in the 2001 third quarter but were 13 percent
higher in the 2001 nine-month period, while gold sales volumes
improved by 62 percent in the 2001 third quarter and by 79
percent in the 2001 nine-month period. Copper prices have declined
13
throughout 2001 resulting in a $0.21 per pound or 24
percent decline in the third-quarter 2001 average realized price
and a $0.13 per pound or 16 percent decline in the nine-month
2001 average realized price compared with the year-ago periods.
Treatment charges in total were higher in the first nine months
of 2001 primarily because of higher concentrate sales volumes and
royalties were higher in 2001 primarily because of significantly
higher gold sales volumes.
PT Freeport Indonesia estimates its share of fourth-quarter
2001 sales to approximate 330 million pounds of copper and
440,000 ounces of gold, reflecting expected lower ore grades.
Because of the immense size of the Grasberg ore body, there are
periods such as the upcoming quarter when the sequencing of
mining results in production from ore that is economical, but
lower than average in grade. Net of Rio Tinto plc's joint
venture interest, PT Freeport Indonesia's share of sales for 2001
is projected to approximate 1.4 billion pounds of copper and
nearly 2.6 million ounces of gold, an increase from 2000 of over
650,000 ounces reflecting higher average gold ore grades and
recoveries.
PT Freeport Indonesia's concentrate sales agreements, with
regard to copper, provide for provisional billings at the time of
shipment with final pricing settlement generally based on the
average London Metal Exchange (LME) price for a specified future
month. Copper revenues on provisionally priced open pounds are
adjusted monthly based on then-current forward prices. At
September 30, 2001, we had consolidated copper sales totaling
175.4 million pounds recorded at an average price of $0.64 per
pound remaining to be finally priced. Nearly all of these open
pounds are expected to be finally priced during the fourth
quarter of 2001. A one-cent movement in the average price used
for these open pounds would have an approximate $0.9 million
impact on our 2001 net income.
At times PT Freeport Indonesia has entered into derivative
contracts to manage certain risks resulting from fluctuations in
commodity prices. During the first nine months of 2001 and as of
September 30, 2001, PT Freeport Indonesia had no price protection
programs in place for its copper and gold sales other than our
gold-denominated preferred stock. At the beginning of each of
the first three quarters of 2000, PT Freeport Indonesia entered
into forward copper sales contracts to fix the price on its open
concentrate sales. We recorded reductions in revenues totaling
$6.0 million in the third quarter of 2000 and net additional
revenues of $1.7 million in the first nine months of 2000 from
these forward sales contracts.
PT Freeport Indonesia Operating Results
Third Quarter Nine Months
------------------- ---------------------
2001 2000 2001 2000
------- ------- --------- ---------
PT Freeport Indonesia,
Net of Rio Tinto's Interest
Copper
Production (000s of 341,000 362,500 1,077,200 958,300
recoverable pounds)
Sales (000s of 350,600 388,300 1,073,800 950,400
recoverable pounds)
Average realized price $.65 $.86 $.70 $.83
Gold
Production (recoverable 673,800 385,400 2,156,200 1,191,500
ounces)
Sales (recoverable 686,300 422,700 2,144,600 1,197,400
ounces)
Average realized price $277.08 $276.23 $268.70 $281.02
Gross profit per pound of
copper (cents):
Average realized price 65.4 86.3 69.9 83.0
------- ------- --------- ---------
Production costs:
Site production and delivery 40.7 a 43.7 b 37.4 a 46.9b
Gold and silver credits (55.1) (31.3) (54.8) (36.7)
Treatment charges 18.0 18.8 18.1 18.3
Royalty on metals 1.7 1.3 1.9 1.3
------- ------- --------- ---------
Cash production costs 5.3 32.5 2.6 29.8
Depreciation and amortization 18.0 18.0 18.0 18.0
------- ------- --------- ---------
Total production costs 23.3 50.5 20.6 47.8
------- ------- --------- ---------
Adjustments, primarily for
copper pricing on prior
period sales (2.9) 1.9 - 0.2
------- ------- --------- ---------
Gross profit per pound of copper 39.2 37.7 49.3 35.4
======= ======= ========= =========
14
Third Quarter Nine Months
------------------- ---------------------
2001 2000 2001 2000
------- ------- --------- ---------
PT Freeport Indonesia,
100% Operating Statistics
Ore milled (metric tons per day) 244,600 221,500 238,100 223,900
Copper grade (percent) 0.96 1.09 1.04 0.99
Gold grade (grams per metric ton) 1.36 0.89 1.53 0.92
Recovery rate (percent)
Copper 85.3 88.8 87.1 87.1
Gold 89.9 82.1 89.0 83.7
Copper (000s of recoverable
pounds)
Production 389,900 415,400 1,237,200 1,112,600
Sales 401,000 445,700 1,233,600 1,103,900
Gold (recoverable ounces)
Production 887,700 470,900 2,816,200 1,470,800
Sales 903,900 517,500 2,798,700 1,476,100
a. Net of deferred mining costs totaling $8.1 million (2.3
cents per pound) in the third quarter of 2001 and $26.2 million
(2.4 cents per pound) in the first nine months of 2001. During
the fourth quarter of 2000, PT Freeport Indonesia changed its
estimated average ratio of waste rock to ore over the life of the
mine in its deferred mining calculation to 1.6 to 1 from 2.4 to
1. For additional information, see Note 1 to the consolidated
financial statements in our annual report for the year ended
December 31, 2000.
b. Net of deferred mining costs totaling $3.3 million (0.9
cents per pound) in the third quarter of 2000 and includes
recaptured mining costs totaling $9.9 million (1.0 cents per
pound) in the first nine months of 2000.
PT Freeport Indonesia's 2001 production benefited from
higher mill throughput rates, ore grades and gold recovery rates
when compared with the prior-year periods. Mill throughput
averaged a record 244,600 metric tons of ore per day during the
third quarter of 2001. Third-quarter 2001 copper grades declined
12 percent compared to the prior-year quarter and were 5 percent
higher for the nine-month period, while gold grades were 53
percent higher in the third quarter of 2001 and 66 percent higher
in the first nine months of 2001 compared with the prior-year
periods. Recovery rates remained strong for gold and achieved a
quarterly record of 89.9 percent in the third quarter of 2001
reflecting high-recovery ore processed during the last four
quarters and results of various enhanced recovery initiatives
achieved at the mill. As previously reported, lower gold grades
in the Grasberg pit during the first three quarters of 2000
reflected an expected mining of lower grade ore in accordance
with the mine plan during that period and the gold grades in the
first nine months of 2001 reflect a continuation of the improved
grades that began to be mined during the fourth quarter of 2000.
Ore grades to be mined in the next several months, particularly
for gold, are expected to be lower than the higher grade material
mined since the fourth quarter of 2000.
In May 2000, PT Freeport Indonesia, in consultation with the
Government of Indonesia, voluntarily agreed to temporarily limit
Grasberg open-pit production because of an incident at its
Wanagon overburden stockpile. In January 2001, PT Freeport
Indonesia resumed normal mining operations at Grasberg after
receiving governmental approval. Mill throughput rates will vary
based on the characteristics of the ore being processed as we
manage our operations to optimize metal production.
Unit site production and delivery costs in the third quarter
of 2001 averaged $0.41 per pound of copper, $0.03 per pound lower
than the $0.44 reported in the third quarter of 2000, primarily
because of the previously reported change in the estimated ratio
of waste rock to ore over the life of the mine and the effect of
weaker foreign currencies, partially offset by lower volumes.
Gold credits of $0.55 per pound in the 2001 quarter were higher
when compared with the 2000 quarter level of $0.31 per pound
primarily because of higher gold ore grades and sales. Unit
site production and delivery costs and gold credits in the first
nine months of 2001, compared with the 2000 period, benefited for
the same reasons as third-quarter 2001 unit costs. Royalties
were higher in the 2001 periods mostly because of higher gold
sales volumes and totaled $5.8 million in the third quarter of
2001, $4.9 million in the third quarter of 2000, $20.1 million in
the first nine months of 2001 and $12.0 million in the first nine
months of 2000. Unit net cash production costs averaged less
than $0.03 per pound in the first nine months of 2001 and for
full-year 2001 are expected to average less than $0.10 per pound
of copper.
15
In September 2001, we established a trust for the benefit of
those tribal communities in villages closest to PT Freeport
Indonesia's operations for voluntary special recognition of their
traditional land rights in the Grasberg mining area, as part of
an agreement first outlined with these tribes in 1996. Under the
agreement, PT Freeport Indonesia will fund $0.5 million per year
to the trust, as long as certain conditions are met, and has
provided $2.5 million representing funding for mid-1996 through
mid-2001. PT Freeport Indonesia recorded a $2.2 million charged
to third-quarter 2001 production costs for its share of the
initial commitment.
PT Freeport Indonesia has a labor agreement covering its
hourly paid Indonesian employees, the key provisions of which are
renegotiated biannually. PT Freeport Indonesia's labor
agreement was scheduled to expire on September 30, 2001. In June
2001, PT Freeport Indonesia and its workers agreed to terms for a
new labor agreement that expires September 30, 2003. PT Freeport
Indonesia's relations with the workers' union have generally been
positive.
We conduct the majority of our operations in Indonesia and
Spain. Our functional currency is the U.S. dollar. All of our
revenues are denominated in U.S. dollars; however, certain costs
and asset and liability accounts are denominated in Indonesian
rupiah, Australian dollars or Spanish pesetas/euros. Generally,
our results are positively affected when the U.S. dollar
strengthens against these foreign currencies and adversely
affected when the U.S. dollar weakens against these foreign
currencies.
Since 1997, the Indonesian rupiah/U.S. dollar exchange rate
has been volatile. One U.S. dollar was equivalent to 9,655
rupiahs at September 30, 2001, 11,430 rupiahs at June 30, 2001
and 9,215 rupiahs at December 31, 2000. PT Freeport Indonesia
recorded gains (losses) to production costs totaling $(0.3)
million during the third quarter of 2001, $0.2 million during the
third quarter of 2000, $(1.0) million during the first nine
months of 2001 and $(0.5) million during the first nine months of
2000 related to its rupiah-denominated net assets. A weakened
rupiah currency results in lower reported costs by PT Freeport
Indonesia, primarily lower labor costs. At estimated annual
aggregate rupiah payments of 800 billion and a September 30, 2001
exchange rate of 9,655 rupiahs to one U.S. dollar, a one-thousand-
rupiah increase in the exchange rate would result in an
approximate $8 million decrease in annual operating costs and a
one-thousand-rupiah decrease in the exchange rate would result in
an approximate $10 million increase in annual operating costs,
before any hedging effects.
In April 2000, PT Freeport Indonesia entered into foreign
currency forward contracts to hedge a portion of its aggregate
anticipated Australian dollar payments for the remainder of 2000
and for 2001. As of September 30, 2001, these contracts hedge
24.0 million of Australian dollar payments from October 2001
through December 2001, or approximately 50 percent of aggregate
projected remaining 2001 Australian dollar payments at an average
exchange rate of $0.58 to one Australian dollar. The exchange
rate was $0.49 to one Australian dollar at September 30, 2001.
Each $0.01 change in the U.S. dollar/Australian dollar exchange
rate impacts the September 30, 2001 market value of these
contracts by approximately $0.2 million.
In July 2000, PT Freeport Indonesia entered into foreign
currency forward contracts to hedge a portion of its aggregate
projected April through July 2001 Indonesian rupiah payments. In
June 2001, PT Freeport Indonesia entered into additional foreign
currency forward contracts to hedge a portion of its aggregate
projected August 2001 through December 2002 rupiah payments. As
of September 30, 2001, the rupiah contracts hedge 599.4 billion
of rupiah payments from October 2001 through December 2002, or
approximately 50 percent of projected remaining 2001 rupiah
payments and 2002 rupiah payments at an average exchange rate of
12,501 rupiahs to one U.S. dollar. Each 1,000-rupiah change in
the Indonesian rupiah/U.S. dollar exchange rate impacts the
September 30, 2001 market value of these contracts by
approximately $5 million. PT Freeport Indonesia recorded net
realized gains (losses) to production costs related to matured
Australian dollar and Indonesian rupiah contracts totaling $0.4
million in the third quarter of 2001 and $(1.3) million in the
first nine months of 2001, compared to losses of $7.6 million in
the third quarter of 2000 and $(5.8) million in the first nine
months of 2000 for all outstanding currency hedging contracts in
the 2000 periods.
Under new accounting standards that became effective January
1, 2001 gains or losses on qualifying hedging contracts are
recognized in earnings as the contracts are settled, with changes
in the fair value of outstanding contracts reflected in Other
Comprehensive Income, a component of stockholders' equity, until
realized (see Notes 4 and 5). We recorded net gains of $4.2
million to Other Comprehensive Income in the third quarter of
2001 and $2.9 million in the first nine months of 2001 for PT
Freeport Indonesia's outstanding currency hedging contracts at
September 30, 2001.
16
Exploration Activities
Our reserve extension drilling program has been completed at the
Ertsberg Stockwork Zone (ESZ), adjacent to the Deep Ore Zone
(DOZ) mine. The results indicate an expansion of the footprint
of the lower ESZ mining block and additional filling in of ore
between the DOZ mine reserve and the ESZ reserve. We are
currently evaluating the potential for exploiting the two
deposits as one, by an outward extension of the DOZ mine
infrastructure. Exploration drilling also continues at the
Grasberg Underground. This drilling at the perimeter of the
Grasberg intrusion is directed at closing the gap between the
Grasberg block cave mine reserve and the Kucing Liar mine
reserve. The exploration drilling program at GBT-A (also
previously referred to as Guru Ridge) has been completed. With
current copper and gold metals prices, we will not pursue current
development of this surface deposit, but will continue to study
and evaluate the prospect and mining opportunities for other
smaller near-surface ore bodies, including the Dom ore body.
Field exploration activities outside of our current mining
operations area have been temporarily suspended pending the
resolution of security and regulatory issues involving a possible
conflict between our mining and exploration rights under our
Contract of Work and the requirements of certain recently enacted
Indonesian forestry laws.
SMELTING AND REFINING
Impact of Smelter Treatment and Refining Charges
Our investment in smelters serves an important role in our
concentrate marketing strategy. Approximately one-half of PT
Freeport Indonesia's concentrate production is sold to its
affiliated smelters, Atlantic Copper and PT Smelting, and the
remainder is sold to other customers. Through downstream
integration, we are able to achieve operating hedges for changes
in treatment charges for smelting and refining PT Freeport
Indonesia's copper concentrates. While low smelter treatment and
refining charges adversely affect the operating results of our
smelter operations, they benefit the operating results of our
mining operations of PT Freeport Indonesia. Taking into account
taxes and minority ownership interests, an equivalent change in
rates would essentially offset in our consolidated operating
results.
Atlantic Copper Operating Results
Third Quarter Nine Months
------------------ ------------------
2001 2000 2001 2000
------- ------- ------- -------
Cash margin (in millions) $10.0 $13.7 $14.7 $38.3
Operating income(loss)(in millions) $0.3 $(14.7) $(13.8) $(16.7)
Concentrate treated (metric tons) 240,100 245,200 640,900 728,400
Anode production (000s of pounds) 169,600 164,300 447,900 510,400
Cathode, wire rod and wire
sales (000s of pounds) 138,000 143,200 402,700 427,400
Gold sales in anodes and
slimes (ounces) 274,900 119,000 564,100 503,400
Atlantic Copper's cash margin, revenues less production
costs, was $3.7 million lower in the 2001 quarter compared with
the 2000 quarter primarily because of lower sales volumes and
higher unit costs for refined copper cathodes. Cash margins were
$23.6 million lower in the first nine months of 2001 compared
with the first nine months of 2000 primarily because of a
scheduled 27-day major maintenance turnaround in April 2001. The
major maintenance turnaround was completed on schedule at a total
cost of approximately $15 million (approximately $9 million of
direct costs and $6 million related to lower sales volumes).
Atlantic Copper's cathode cash production costs per pound of
copper, before currency hedging, averaged $0.12 in the third
quarter of 2001 and $0.10 in the third quarter of 2000. The
higher unit costs in the 2001 quarter primarily reflect a
stronger peseta currency. For the first nine months of 2001
cathode cash production costs were $0.15 per pound of copper,
compared with $0.11 in the first nine months of 2000. The
increase in unit costs in the nine-month period primarily
reflects the effects of lower production volumes and the costs
resulting from the turnaround. The next scheduled major
maintenance turnaround is not anticipated for another three
years. Atlantic Copper's treatment rates (including price
participation) averaged $0.17 per pound in the reported 2001 and
2000 periods, which is at historically low levels.
Atlantic Copper recorded operating income of $0.3 million in
the third quarter of 2001, compared with losses of $14.7 million
in the 2000 period. Atlantic Copper's operating results include
a $0.9 million loss in the third quarter of 2001 and a $2.2
million loss in the first nine months of 2001 on currency hedging
contracts maturing during the periods compared to a $19.1 million
charge in the third quarter of 2000 and a $26.9 million charge in
the first nine months of 2000 for all outstanding currency
hedging contracts in the
17
2000 periods. Under new accounting
standards discussed previously and in Note 4, Atlantic Copper
recorded gains to Other Comprehensive Income totaling $8.4
million in the third quarter of 2001 and charges totaling $8.0
million in the first nine months of 2001 for its outstanding
currency hedging contracts at September 30, 2001.
Atlantic Copper had peseta/euro-denominated net monetary
liabilities at September 30, 2001 totaling $68.2 million recorded
at an exchange rate of 182.2 pesetas to one U.S. dollar or $0.91
per euro. The December 31, 2000 exchange rate was 178.8 pesetas
to one U.S. dollar or $0.93 per euro and the June 30, 2001
exchange rate was 196.2 pesetas to one U.S. dollar or $0.85 per
euro. Adjustments to Atlantic Copper's peseta/euro-denominated
net liabilities to reflect changes in the exchange rate are
recorded in other income (expense) and totaled gains (losses) of
$(4.4) million in the third quarter of 2001, $5.9 million in the
third quarter of 2000, $(0.1) million in the first nine months of
2001 and $8.0 million in the first nine months of 2000.
At estimated annual peseta/euro payments of 15 billion
pesetas/90 million euros and a September 30, 2001 exchange rate
of 182.2 pesetas to one U.S. dollar or $0.91 per euro, a 10-
peseta/$0.06 increase or decrease in the exchange rate would
result in an approximate $4.5 million change in annual costs,
before any hedging effects.
As part of refinancing its debt in June 2000, Atlantic
Copper was required to significantly expand its program to hedge
anticipated peseta/euro-denominated operating costs. At
September 30, 2001, Atlantic Copper had contracts to purchase
23.2 billion pesetas/139.2 million euros from October 2001
through December 2003 at an average exchange rate of 164.6
pesetas per one U.S. dollar or $1.01 per euro. These contracts
currently hedge approximately 44 percent of Atlantic Copper's
projected remaining 2001 peseta/euro disbursements and
approximately 63 percent of Atlantic Copper's projected 2002 and
2003 euro disbursements. Each $0.01 change in the US$/euro
exchange rate impacts the September 30, 2001 market value of
these contracts by approximately $1.4 million.
PT Smelting Operating Results
Third Quarter Nine Months
--------------- ---------------
2001 2000 2001 2000
----- ------ ------ ------
(In millions)
PT Freeport Indonesia share of
net losses $ 0.9 $ 3.6 $ 3.6 $ 11.9
PT Freeport Indonesia profits
deferred (recognized) (2.8) 1.8 (2.7) (2.9)
----- ------ ------ ------
Equity in PT Smelting
(earnings) losses $(1.9) $ 5.4 $ 0.9 $ 9.0
===== ====== ====== ======
PT Freeport Indonesia sales to
PT Smelting $88.2 $101.2 $290.7 $230.6
===== ====== ====== ======
PT Freeport Indonesia accounts for its 25 percent interest
in PT Smelting under the equity method and has provided PT
Smelting with all of its concentrate requirements. PT Smelting
operated at 111 percent of its full design capacity of 200,000
metric tons of copper per year during the third quarter of 2001
and at 108 percent of its full design capacity during the first
nine months of 2001. Concentrate treated during the third quarter
of 2001 totaled 178,800 metric tons, 4 percent below the year-ago
quarter. Third-quarter 2001 cathode production increased by 14
percent when compared to the year-ago period, resulting in a 20
percent increase in PT Smelting's cathode sales in the 2001
quarter over the 2000 quarter. PT Smelting shut down the
smelter, as planned, at the end of March 2000 for the tie-in of a
new third anode furnace as well as for planned maintenance. The
smelter restarted at the end of April 2000. Anode production was
38 percent higher and cathode production was 49 percent higher in
the first nine months of 2001 compared with the first nine months
of 2000. PT Smelting's cathode cash production costs per pound
of copper totaled $0.12 in the 2001 quarter and first nine months
of 2001, compared with $0.09 in the 2000 quarter and $0.13 in the
first nine months of 2000. Unit costs were higher in the 2001
quarter compared with the prior-year period because of higher
maintenance costs.
Our revenues include PT Freeport Indonesia's sales to PT
Smelting, but we defer recognizing profits on 25 percent of PT
Freeport Indonesia sales to PT Smelting that are still in PT
Smelting's inventory at the end of the period. The effect of
changes in these deferred profits was the deferral (recognition)
of profits totaling $(2.8) million in the third quarter of 2001,
$1.8 million in the third quarter of 2000, $(2.7) million in the
first nine months of 2001 and $(2.9) million in the first nine
months of 2000.
18
OTHER FINANCIAL RESULTS
The FCX/Rio Tinto joint ventures incurred exploration costs of
$3.7 million in the 2001 third quarter, $4.2 million in the 2000
third quarter, $10.8 million in the 2001 nine-month period and
$9.7 million in the 2000 nine-month period. All costs in the
joint venture areas are now being shared 60 percent by us and 40
percent by Rio Tinto.
Third-quarter 2001 general and administrative expenses of
$15.0 million were $3.7 million lower than the $18.7 million
reported in the 2000 quarter primarily because of a $2.3 million
charge in the 2000 period for personnel severance costs. Nine-
month 2001 general and administrative expenses were $10.5 million
lower compared to the 2000 period primarily because of a $6.0
million charge in 2000 for contribution commitments to support
small business development programs within Irian Jaya (Papua)
that were paid over a two-year period and $3.1 million of charges
for personnel severance costs. Partially offsetting these
charges was a $1.5 million reversal of previously recorded
charges relating to stock appreciation rights because of a
decrease in our common stock price.
Our total interest costs (before capitalization) were $42.6
million in the 2001 quarter, $55.5 million in the 2000 quarter,
$136.5 million in the first nine months of 2001 and $158.1
million in the first nine months of 2000. The decrease in
interest costs reflects lower debt levels and interest rates. We
capitalized $2.5 million of interest costs in the third quarter
of 2001, $2.0 million in the third quarter of 2000, $6.6 million
in the first nine months of 2001 and $4.8 million in the first
nine months of 2000.
Our effective tax rate was 55 percent for the first nine
months of 2001 and 75 percent for the first nine months of 2000.
PT Freeport Indonesia's Contract of Work provides a 35 percent
corporate income tax rate and a withholding tax rate of 10
percent (based on the tax treaty between Indonesia and the United
States) on dividends and interest paid to us by PT Freeport
Indonesia. No income taxes are recorded at Atlantic Copper,
which is subject to taxation in Spain, because it has not
generated significant taxable income in recent years and has
substantial tax loss carryforwards for which no financial
statement benefit has been provided. Additionally, we only
receive a small U.S. tax benefit on costs incurred by our parent
company because it has no U.S.-sourced income. As a result, our
effective tax rate varies with the level of earnings at PT
Freeport Indonesia, Atlantic Copper and the parent company. The
lower effective tax rate for the first nine months of 2001
primarily reflects the impact of higher income at PT Freeport
Indonesia.
NEW ACOUNTING STANDARD AND ENVIRONMENTAL MATTERS
In July 2001, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 143, "Accounting
for Asset Retirement Obligations," which requires recording the
fair value of a liability for an asset retirement obligation in
the period incurred. The standard is effective for fiscal years
beginning after June 15, 2002, with earlier application
permitted. Upon adoption of the standard, we are required to use
a cumulative-effect approach through earnings to recognize
transition amounts for any existing asset retirement obligation
liabilities, asset retirement costs and accumulated depreciation.
We have begun work on identifying and quantifying our asset
retirement obligations in accordance with the new standard, but
currently do not expect to adopt the new rules before January 1,
2003.
The cost of complying with environmental laws is a fundamental
cost of our business. We incurred environmental capital
expenditures and other environmental costs totaling $106.1
million in 2000, $73.3 million in 1999 and $111.5 million in
1998, including levee maintenance and mine reclamation. In 2001,
we expect to incur approximately $47 million of environmental
capital expenditures, including $18.0 million of capital
expenditures in connection with our construction of a treatment
facility at the mill level to remove and recover copper from acid
rock drainage resulting from mining and overburden storage
operations, and $46 million of other environmental costs. These
environmental capital expenditures are part of our overall 2001
capital expenditure budget.
CAPITAL RESOURCES AND LIQUIDITY
Net cash provided by operating activities was $475.1 million for
the first nine months of 2001, compared with $304.9 million for
the 2000 period. Net cash used in investing activities totaled
$254.0 million in the 2001 period, compared with $132.0 million
in the 2000 period. Net cash used in financing activities totaled
$196.2 million in 2001 compared with $173.6 million in 2000.
Operating Activities
Higher net income and working capital changes in the first nine
months of 2001 resulted in a $170.2 million increase in operating
cash flow to $475.1 million, compared with $304.9 million
reported in the year-ago period. The $83.0 million net decrease
in working capital for the first nine months of 2001
19
primarily reflects decreases in accounts receivable and inventories.
The net $22.6 million decrease in working capital for the first nine
months of 2000 primarily reflects an increase in accounts payable
and accrued liabilities, partly offset by an increase in
inventories and the payment of income taxes.
Investing Activities
As part of our refinancing transactions discussed below, we sold
$603.8 million of 8 1/4% Convertible Senior Notes due January 2006.
The terms of these notes required that we use $139.8 million of
the proceeds to purchase a portfolio of U.S. government
securities, which secure and will be used to pay for the first
six scheduled interest payments on the notes. The notes are
otherwise unsecured.
Our nine-month 2001 capital expenditures were slightly lower
compared to the 2000 period primarily because we paid for
previously purchased mine equipment in the first half of 2000.
Our capital expenditures for 2001 are expected to total
approximately $170 million, including $40 million for continued
development of the Deep Ore Zone underground ore body, which
started production in 2000 and is expected to reach full
production of 25,000 metric tons of ore per day in mid-2002.
Capital expenditure funding is expected to be provided by
operating cash flows.
Financing Activities
In August 2001, we sold $603.8 million of 8 1/4% Convertible Senior
Notes due 2006 (Convertible Notes) for net proceeds of $582.6
million. A portion of the net proceeds were used to purchase
U.S. government securities for $139.8 million as security for the
first six semi-annual interest payments on the Convertible Notes
(see Investing Activities above) and the remaining net
proceeds were used to repay outstanding amounts under our bank
credit facilities. During the first nine months of 2000 we had
net borrowings of $67.9 million and paid $158.7 million for
purchases of our common stock. Our annual mandatory partial
redemptions of our Silver-Denominated Preferred Stock totaled
$10.4 million in August 2001 and $11.9 million in August 2000.
Five annual redemption payments remain and will vary with the
price of silver. Cash dividends to minority interests owners
declined from $31.8 million in the first nine months of 2000 to
$6.8 million in the first nine months of 2001 because of lower PT
Freeport Indonesia dividends.
As discussed in our Form 10-K for the year ended December
31, 2000, we guarantee a $253.4 million loan to PT Nusamba
Mineral Industri (Nusamba), which matures in March 2002. Based
on current market conditions, we may be required to perform under
the guarantee. See "Amended Bank Credit Facilities" below. We
also agreed to lend Nusamba any amounts necessary to cover
shortfalls between the interest payments on the loan and
dividends received by Nusamba on the PT Indocopper Investama
stock. At September 30, 2001, we had loaned $65.3 million to
Nusamba for this purpose. The amount of any future shortfalls
will depend primarily on the level of PT Freeport Indonesia's
dividends to PT Indocopper Investama. The total of the
guaranteed loan and the amounts we have subsequently loaned to
Nusamba have exceeded the original purchase price ($315 million)
of Nusamba's acquisition of its interest in PT Indocopper
Investama. Any amounts in excess of the $315 million original
purchase price we loan to Nusamba are charged to other expense,
including $3.6 million in the third quarter of 2001 and $3.7
million in the first nine months of 2001.
In June 2000, our Board of Directors authorized a 20-million-
share increase in our open market share purchase program,
bringing the total shares approved for purchase under this
program to 80 million. During the first nine months of 2001, we
purchased 0.2 million of our shares (all during the first
quarter) for $1.6 million, $8.35 per share. During the first nine
months of 2000, we acquired 15.0 million of our shares for $167.5
million (an average of $11.13 per share). Our cash flows
statement reflects only $158.7 million paid for stock purchases
in the first nine months of 2000 because we paid $8.8 million in
October 2000. From inception of these programs in July 1995
through October 16, 2001, we have purchased a total of 70.7
million shares for $1.24 billion (an average of $17.53 per share)
and approximately 9.3 million shares remain available under the
program. The timing of future purchases is dependent upon many
factors, including the price of common shares, our business and
financial position, and general economic and market conditions.
Our amended bank credit facilities also include prohibitions on
common stock repurchases. See "Amended Bank Credit Facilities"
discussion.
Amended Bank Credit Facilities
In October 2001, we amended our bank credit facilities to extend
the maturities and to provide a mechanism for financing any
obligations we may have under our guarantee of the commercial
bank loan to PT Nusamba Mineral Industri. We believe that the
credit facilities, together with our cash flows from operations,
will enable us to fund our ongoing capital expenditures and meet
our debt maturities over the next several years.
20
* Commitments and Availability. Aggregate commitments under
the credit facilities total $734.0 million, including $253.4
million if FCX is required to perform in March 2002 under its
guarantee of a loan of Nusamba, leaving $480.6 million currently
available. Of the $480.6 million currently available, borrowings
on October 22, 2001 were $266.0 million.
Nusamba indirectly owns 4.7 percent of PT Freeport Indonesia
through its approximate 51 percent ownership of PT Indocopper
Investama. To secure its commercial bank loan, Nusamba pledged
its ownership in PT Indocopper Investama. If Nusamba does not
pay the loan when due and we are required to perform under the
guarantee, we would fund the $253.4 million obligation through a
term loan under the amended credit facilities and would acquire
rights and seek to recover the PT Indocopper Investama stock as
provided by the Nusamba financing documents, which are governed
by Indonesian law.
* Maturities and Term Loan Conversion. Amounts that we borrow
under the credit facilities will mature on December 31, 2005. On
December 31, 2003 all revolving loans will become term loans,
except for a $150.0 million revolver for working capital
purposes.
We are able to use the amounts available under the credit
facilities to pay interest and principal requirements on our
other debt when due. We are required to use all available cash
flow after debt service and capital expenditures to reduce
amounts outstanding under the credit facilities, subject to
limited exceptions.
* Mandatory Repayments and Reductions in Commitments. If we
raise proceeds from future offerings, 25 percent of the proceeds
from debt issuances and 50 percent of the proceeds from equity
issuances will be available to us for general corporate purposes
so long as commitments are reduced with the balance of such
financing proceeds. All other proceeds from financings and all
available cash of FCX and PT Freeport Indonesia will be used to
pay outstanding borrowings under the credit facilities and the
commitments under the facilities will be reduced by those
amounts, except as necessary to maintain availability to repay
$250.0 million for the 7.20% senior notes and to preserve the
$150.0 million revolving facility that will continue to be
available through December 31, 2005.
* Interest Rates. Interest rates on all loans under the
credit facilities, including any amounts used to fund our
obligations under the Nusamba guarantee, are LIBOR plus 4.0
percent with annual increases of 0.125 percent, subject to
potential reductions if our credit ratings improve.
* Gold-Denominated Preferred Stock Due in 2003. Prior to the
mandatory redemption date in August 2003, we intend to refinance
or restructure our obligation to redeem our Gold-Denominated
Preferred Stock. Under the credit facilities, we have
limitations on the amount of preferred stock we may redeem and,
if by August 2003 we have not extended the maturity of 80 percent
of the Gold-Denominated Preferred Stock beyond 2005, we will not
thereafter be permitted to redeem or pay dividends on any of our
preferred stock.
* Other Covenants. The covenants under the credit facilities
include (a) a minimum consolidated debt service coverage ratio of
1.25:1.0 through December 2002, and thereafter 1.5:1.0 and (b) a
maximum ratio of consolidated debt to EBITDA (Earnings Before
Interest, Taxes, Depreciation and Amortization) equal to 4.25:1.0
through September 30, 2002, and thereafter 3.5:1.0. The
covenants also include prohibitions on common stock dividends and
common stock repurchases, prohibitions on changes in control of
FCX or PT Freeport Indonesia, limitations on capital expenditures
to specified budgets, limitations on investments, limitations on
liens, limitations on transactions with affiliates, and a
requirement to implement minimum hedging protection for copper
prices under certain circumstances.
* Security and Guarantees. Our obligations under the credit
facilities are secured by a first security lien on most of PT
Freeport Indonesia's assets and by our pledge of (1) 50.1 percent
of the outstanding capital stock of PT Freeport Indonesia, (2)
the approximate 49 percent of the outstanding capital stock of PT
Indocopper Investama owned by us and (3) the approximate 51
percent of the outstanding capital stock of PT Indocopper
Investama securing the original Nusamba loan, if acquired by us.
PT Freeport Indonesia's obligations also continue to be secured
by its pledge of its rights under the Contract of Work. In
addition, PT Freeport Indonesia guarantees FCX's obligations
under the credit facilities.
21
* Revised Debt and Redeemable Preferred Stock Maturities. Below is
a summary of our debt and redeemable preferred stock maturities,
including the Nusamba loan maturity, based on loan balances as of
September 30, 2001, and gold and silver prices (which determine
the preferred stock redemption amounts) as of September 28, 2001
(in millions):
2001 2002 2003 2004 2005 2006 Thereafter
----- ------ ------ ----- ------ -------- ------
Bank credit
facilities a $ - $ - $ - $ - $214.0 $ - $ -
Infrastructure
financings and
equipment loans 16.4 112.5 56.9 62.3 45.6 47.7 187.1
7.20% Senior Notes
due 2026 b - - 250.0 - - - -
7.50% Senior Notes
due 2006 c - - - - - 200.0 -
Convertible Notes - - - - - 603.8 -
Atlantic Copper
facilities and other 3.0 75.6 20.1 10.1 24.1 24.1 116.5
----- ------ ------ ----- ------ -------- ------
Total debt maturities 19.4 188.1 327.0 72.4 283.7 875.6 303.6
Nusamba loan guarantee d - - - - 253.4 - -
Redeemable preferred
stock e - 10.9 185.4 10.9 10.9 136.0 -
----- ------ ------ ----- ------ -------- ------
Total maturities $19.4 $199.0 $512.4 $83.3 $548.0 $1,011.6 $303.6
===== ====== ====== ===== ====== ======== ======
a. Reflects December 2005 maturity based on credit facilities
closed on October 19, 2001.
b. Although due in 2026, the holders of the 7.20% senior notes
may, and are expected to, elect early repayment in November 2003.
c. Due November 15, 2006.
d. If we are required to perform under this guarantee in March
2002, we intend to fund the $253.4 million obligation under our
credit facilities.
e. Represents $10.9 million each year for our Silver-
Denominated Preferred Stock, $174.5 million in August 2003 for
our Gold-Denominated Preferred Stock, and $125.1 million in
February 2006 for our Gold-Denominated Preferred Stock, Series II.
DEVELOPMENTS IN INDONESIA
Indonesia's economic recovery remains vulnerable to ongoing
political and social tensions. In July 2001, Indonesia's highest
political institution, the People's Consultative Assembly,
elected then Vice President Megawati Sukarnoputri as the new
President. The international community, including the United
States, has expressed support for the newly elected President.
In late September 2001, President Sukarnoputri visited the United
States for nine days and met with U.S. President George W. Bush
and other U.S. Government officials. President Sukarnoputri
announced Indonesia's strong support for the U.S. war against
terrorism and won U.S. support for Indonesia's territorial
integrity and for renewed ties with Indonesia's military. The
U.S. also announced a new assistance package for Indonesia,
including funds for judicial reform, police training, refugee
aid, trade and finance initiatives as well as the granting of
duty-free status to additional Indonesian exports. Her comments
in public and in private with U.S. business and financial groups
provided strong reassurance that the Indonesian government would
honor all of its contracts and commitments and take steps to
restore order and certainty.
Since the September 11 attacks on the World Trade Center in
New York, the Sukarnoputri government has been criticized by
certain political and religious sects for its support of the
U.S. Indonesia is the world's most populous Muslim
country and there have been anti-American protests in Jakarta,
the capital city of Indonesia. Most observers agree that the
demonstrations do not reflect a change for Indonesia's
overwhelmingly moderate Muslims, but rather are being
orchestrated by a small group of radical Muslims.
In Irian Jaya (Papua), where Christianity is the predominant
religion of the local population, there have been sporadic attacks
by separatists and sporadic conflicts between separatists and the
Indonesian military. Our mining operations have continued to
operate normally. No incidents of violence have occurred in PT Freeport
Indonesia's area of operations, where the local community leaders
continue to support peaceful solutions to the complex issue of
regional autonomy.
22
CAUTIONARY STATEMENT
Our discussion and analysis contains forward-looking statements
in which we discuss factors we believe may affect our performance
in the future. Forward-looking statements are all statements
other than historical facts, such as those regarding anticipated
sales volumes, ore grades, production costs, capital
expenditures, cash flows, political, economic and social
conditions in our areas of operations, treatment charge rates and
exploration efforts and results. We caution you that these
statements are not guarantees of future performance, and our
actual results may differ materially from those projected,
anticipated or assumed in the forward-looking statements.
Important factors that can cause our actual results to differ
materially from those anticipated in the forward-looking
statements include unanticipated declines in the average grades
of ore mined, unanticipated milling and other processing
problems, labor relations, weather conditions, the speculative
nature of mineral exploration, fluctuations in interest rates and
other adverse financial market conditions, and other factors
described in more detail under the heading "Cautionary
Statements" in our Form 10-K for the year ended December 31,
2000.
23
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
Yosefa Alomang v. Freeport-McMoRan Inc. and Freeport-McMoRan
Copper & Gold Inc., Civ. No. 96-9962 (Orleans Civ. Dist. Ct. La.
Filed June 19, 1996). The plaintiff alleged environmental, human
rights and social/cultural violations in Indonesia and seeks
unspecified monetary damages and other equitable relief. In
addition, the plaintiff alleged that she was a third-party
beneficiary under the 1967 and the 1991 Contracts of Work, and
claimed that she had not received fair compensation for her land
rights.
On March 21, 2000 the trial court dismissed the entire case
with prejudice, granting FCX's exception of no cause of action.
On March 24, 2000, the plaintiff filed a petition of appeal to
the Louisiana Fourth Circuit. FCX will continue to defend this
action vigorously. Oral arguments were held in August 2001.
In addition to the foregoing proceedings, FCX may be from
time to time involved in various legal proceedings of a character
normally incident to the ordinary course of its business.
Management believes that potential liability in any proceedings
would not have a material adverse effect on the financial
condition or results of operations of FCX. FCX maintains
liability insurance to cover some, but not all, potential
liabilities normally incident to the ordinary course of its
business as well as other insurance coverage customary in its
business, with coverage limits as management deems prudent.
Item 6. Exhibits and Reports on Form 8-K.
(a) The exhibits to this report are listed in the Exhibit
Index beginning on Page E-1 hereof.
(b) During the quarter for which this report is filed,
the registrant filed three Current Reports on Form 8-K
dated July 30, 2001, August 2, 2001 and September 24,
2001 reporting information under Item 5.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned hereunto duly authorized.
FREEPORT-McMoRan COPPER & GOLD INC.
By: /s/ C. Donald Whitmire, Jr.
---------------------------
C. Donald Whitmire, Jr.
Vice President and
Controller-Financial Reporting
(authorized signatory and
Principal Accounting Officer)
Date: November 1, 2001
24
Freeport-McMoRan Copper & Gold Inc.
EXHIBIT INDEX
Exhibit
Number Description
------- -----------
2.1 Agreement, dated as of May 2, 1995 by and between Freeport-
McMoRan Inc. (FTX) and FCX and the RTZ Corporation PLC, RTZ
Indonesia Limited, and RTZ America, Inc. (the Rio Tinto
Agreement). Incorporated by reference to Exhibit 2.1 to the
Current Report on Form 8-K of FTX dated as of May 26, 1995.
2.2 Amendment dated May 31, 1995 to the Rio Tinto Agreement.
Incorporated by reference to Exhibit 2.1 to the Quarterly
Report on Form 10-Q of FTX for the quarter ended June
30, 1995.
2.3 Distribution Agreement dated as of July 5, 1995 between FTX and
FCX. Incorporated by reference to Exhibit 2.1 to the Quarterly
Report on Form 10-Q of FTX for the quarter ended September 30,
1995 (the FTX 1995 Third Quarter Form 10-Q).
3.1 Composite copy of the Certificate of Incorporation of FCX.
Incorporated by reference to Exhibit 3.1 to the Quarterly
Report on Form 10-Q of FCX for the quarter ended June 30, 1995
(the FCX 1995 Second Quarter Form 10-Q).
3.2 Amended By-Laws of FCX dated as of March 12, 1999.
Incorporated by reference to Exhibit 3.2 to the Annual Report
on Form 10-K of FCX for the fiscal year ended December 31, 1998
(the 1998 FCX Form 10-K).
4.1 Certificate of Designations of the Step-Up Convertible
Preferred Stock of FCX. Incorporated by reference to Exhibit
4.2 to the FCX 1995 Second Quarter Form 10-Q.
4.2 Deposit Agreement dated as of July 1, 1993 among FCX,
ChaseMellon Shareholder Services, L.L.C. (ChaseMellon), as
Depositary, and holders of depositary receipts (Step-Up
Depositary Receipts) evidencing certain Depositary Shares, each
of which, in turn, represents 0.05 shares of Step-Up
Convertible Preferred Stock. Incorporated by reference to
Exhibit 4.5 to the Annual Report on Form 10-K of FCX for the
fiscal year ended December 31, 1993 (the FCX 1993 Form 10-K).
4.3 Form of Step-Up Depositary Receipt. Incorporated by reference
to Exhibit 4.6 to the FCX 1993 Form 10-K.
4.4 Certificate of Designations of the Gold-Denominated Preferred
Stock of FCX. Incorporated by reference to Exhibit 4.3 to the
FCX 1995 Second Quarter Form 10-Q.
4.5 Deposit Agreement dated as of August 12, 1993 among FCX,
ChaseMellon, as Depositary, and holders of depositary receipts
(Gold-Denominated Depositary Receipts) evidencing certain
Depositary Shares, each of which, in turn, represents 0.05
shares of Gold-Denominated Preferred Stock. Incorporated by
reference to Exhibit 4.8 to the FCX 1993 Form 10-K.
4.6 Form of Gold-Denominated Depositary Receipt. Incorporated by
reference to Exhibit 4.9 to the FCX 1993 Form 10-K.
4.7 Certificate of Designations of the Gold-Denominated Preferred
Stock, Series II (the Gold-Denominated Preferred Stock II) of
FCX. Incorporated by reference to Exhibit 4.4 to the FCX 1995
Second Quarter Form 10-Q.
4.8 Deposit Agreement dated as of January 15, 1994, among FCX,
ChaseMellon, as Depositary, and holders of depositary receipts
(Gold-Denominated II Depositary Receipts) evidencing certain
Depositary Shares, each of which, in turn, represents 0.05
shares of Gold-Denominated Preferred Stock II. Incorporated by
reference to Exhibit 4.2 to the Quarterly Report on Form 10-Q
of FCX for the quarter ended March 31, 1994 (the FCX 1994 First
Quarter Form 10-Q).
E-1
Freeport-McMoRan Copper & Gold Inc.
EXHIBIT INDEX
Exhibit
Number Description
------- -----------
4.9 Form of Gold-Denominated II Depositary Receipt. Incorporated
by reference to Exhibit 4.3 to the FCX 1994 First Quarter Form
10-Q.
4.10 Certificate of Designations of the Silver-Denominated Preferred
Stock of FCX. Incorporated by reference to Exhibit 4.5 to the
FCX 1995 Second Quarter Form 10-Q.
4.11 Deposit Agreement dated as of July 25, 1994 among FCX,
ChaseMellon, as Depositary, and holders of depositary receipts
(Silver-Denominated Depositary Receipts) evidencing certain
Depositary Shares, each of which, in turn, initially represents
0.025 shares of Silver-Denominated Preferred Stock.
Incorporated by reference to Exhibit 4.2 to the July 15, 1994
Form 8-A.
4.12 Form of Silver-Denominated Depositary Receipt. Incorporated by
reference to Exhibit 4.1 to the July 15, 1994, Form 8-A.
4.13 Amended and Restated Credit Agreement dated as of October 19,
2001 among FCX, PT Freeport Indonesia, the several financial
institutions that are parties thereto, U.S. Bank Trust National
Association, as PT Freeport Indonesia Trustee, J.P. Morgan
Securities Inc., as arranger, and The Chase Manhattan Bank as
administrative agent, security agent, JAA security agent and
documentary agent.
4.14 Senior Indenture dated as of November 15, 1996 from FCX to The
Chase Manhattan Bank, as Trustee. Incorporated by reference to
Exhibit 4.1 to the Current Report on Form 8-K of FCX dated
November 13, 1996 and filed November 15, 1996.
4.15 First Supplemental Indenture dated as of November 18, 1996 from
FCX to The Chase Manhattan Bank, as Trustee, providing for the
issuance of the Senior Notes and supplementing the Senior
Indenture dated November 15, 1996 from FCX to such Trustee,
providing for the issuance of Debt Securities. Incorporated by
reference to Exhibit 4.20 to the FCX 1996 Form 10-K.
4.16 Certificate of Designations of Series A Participating
Cumulative Preferred stock of FCX. Incorporated by reference
to Exhibit 4.25 to the Quarterly Report on Form 10-Q of FCX for
the quarter ended March 31, 2000 (the FCX 2000 First Quarter
Form 10-Q).
4.17 Rights Agreement dated as of May 3, 2000 between FCX and
Chasemellon Shareholder Services, L.L.C., as Rights Agent.
Incorporated by reference to Exhibit 4.26 to the FCX 2000 First
Quarter Form 10-Q.
10.1 Contract of Work dated December 30, 1991 between the Government
of the Republic of Indonesia and PT Freeport Indonesia.
Incorporated by reference to Exhibit 10.20 to the FCX 1991 Form
10-K.
10.2 Contract of Work dated August 15, 1994 between the Government
of the Republic of Indonesia and PT Irja Eastern Minerals
Corporation. Incorporated by reference to Exhibit 10.2 to the
FCX 1995 Form 10-K.
10.3 Agreement dated as of October 11, 1996 to Amend and Restate
Trust Agreement among PT Freeport Indonesia, FCX, the RTZ
Corporation PLC, P.T. RTZ-CRA Indonesia, RTZ Indonesian Finance
Limited and First Trust of New York, National Association, and
The Chase Manhattan Bank, as Administrative Agent, JAA Security
Agent and Security Agent. Incorporated by reference to Exhibit
10.3 to the FCX November 13, 1996 Form 8-K.
10.4 Concentrate Purchase and Sales Agreement dated effective
December 11, 1996 between PT Freeport Indonesia and PT
Smelting. Incorporated by reference to Exhibit 10.34 to the
Annual Report of FCX on Form 10-K for the year ended December
31, 1999 (the FCX 1999 Form 10-K).
E-2
Freeport-McMoRan Copper & Gold Inc.
EXHIBIT INDEX
Exhibit
Number Description
------- -----------
10.5 Participation Agreement dated as of October 11, 1996 between PT
Freeport Indonesia and P.T. RTZ-CRA Indonesia with respect to a
certain contract of work. Incorporated by reference to Exhibit
10.5 to the FCX November 13, 1996 Form 8-K.
10.6 Second Amended and Restated Joint Venture and Shareholders'
Agreement dated as of December 11, 1996 among Mitsubishi
Materials Corporation, Nippon Mining and Metals Company,
Limited and PT Freeport Indonesia. Incorporated by reference
to Exhibit 10.3 of the FCX 1996 Form 10-K.
10.7 Put and Guaranty Agreement dated as of March 21, 1997 between
FCX and The Chase Manhattan Bank. Incorporated by reference to
Exhibit 10.7 to the FCX 1997 Form 10-K.
10.8 Subordinated Loan Agreement dated as of March 21, 1997 between
FCX and PT Nusamba Mineral Industri. Incorporated by reference
to Exhibit 10.8 to the FCX 1997 Form 10-K.
10.9 Amended and Restated Power Sales Agreement dated as of December
18, 1997 between PT Freeport Indonesia and P.T. Puncakjaya
Power. Incorporated by reference to Exhibit 10.9 to the FCX
1997 Form 10-K.
10.10 Option, Mandatory Purchase and Right of First Refusal Agreement
dated as of December 19, 1997 among PT Freeport Indonesia, P.T.
Puncakjaya Power, Duke Irian Jaya, Inc., Westcoast Power, Inc.
and P.T. Prasarana Nusantara Jaya. Incorporated by reference to
Exhibit 10.10 to the FCX 1997 Form 10-K.
Executive Compensation Plans and Arrangements (Exhibits 10.11
through 10.38)
10.11 Annual Incentive Plan of FCX as amended effective February 2,
1999. Incorporated by reference to Exhibit 10.11 to the 1998
FCX Form 10-K.
10.12 1995 Long-Term Performance Incentive Plan of FCX. Incorporated
by reference to Exhibit 10.9 to the FCX 1996 Form 10-K.
10.13 FCX Performance Incentive Awards Program as amended effective
February 2, 1999. Incorporated by reference to Exhibit 10.13 to
the 1998 FCX Form 10-K.
10.14 FCX President's Award Program. Incorporated by reference to
Exhibit 10.8 to the FCX 1995 Form 10-K.
10.15 FCX Adjusted Stock Award Plan, as amended. Incorporated by
reference to Exhibit 10.15 to the 1997
FCX Form 10-K.
10.16 FCX 1995 Stock Option Plan. Incorporated by reference to
Exhibit 10.13 to the FCX 1996 Form 10-K.
10.17 FCX 1995 Stock Option Plan for Non-Employee Directors, as
amended. Incorporated by reference to Exhibit 10.17 to the FCX
1997 Form 10-K.
10.18 FCX 1999 Stock Incentive Plan. Incorporated by reference to
Exhibit 10.18 to the Quarterly Report on Form 10-Q of FCX for
the quarter ended June 30, 1999.
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Freeport-McMoRan Copper & Gold Inc.
EXHIBIT INDEX
Exhibit
Number Description
------- -----------
10.19 FCX 1999 Long-Term Performance Incentive Plan. Incorporated by
reference to Exhibit 10.19 to the Annual Report of FCX on Form
10-K for the year ended December 31, 1999 (the FCX 1999 Form 10-
K).
10.20 FCX Stock Appreciation Rights Plan dated May 2, 2000.
Incorporated by reference to Exhibit 10.20 to the Quarterly
Report on Form 10-Q of FCX for the quarter ended June 30, 2001.
10.21 Financial Counseling and Tax Return Preparation and
Certification Program of FCX. Incorporated by reference to
Exhibit 10.12 to the FCX 1995 Form 10-K.
10.22 FM Services Company Performance Incentive Awards Program as
amended effective February 2, 1999. Incorporated by reference
to Exhibit 10.19 to the 1998 FCX Form 10-K.
10.23 FM Services Company Financial Counseling and Tax Return
Preparation and Certification Program. Incorporated by
reference to Exhibit 10.14 to the FCX 1995 Form 10-K.
10.24 Consulting Agreement dated as of December 22, 1988 between FTX
and Kissinger Associates, Inc. (Kissinger Associates).
Incorporated by reference to Exhibit 10.21 to the FCX 1997 Form
10-K.
10.25 Letter Agreement dated May 1, 1989 between FTX and Kent
Associates, Inc. (Kent Associates, predecessor in interest to
Kissinger Associates). Incorporated by reference to Exhibit
10.22 to the FCX 1997 Form 10-K.
10.26 Letter Agreement dated January 27, 1997 among Kissinger
Associates, Kent Associates, FTX, FCX and FMS. Incorporated by
reference to Exhibit 10.20 to the FCX 1996 Form 10-K.
10.27 Agreement for Consulting Services between FTX and B. M. Rankin,
Jr. effective as of January 1, 1991 (assigned to FMS as of
January 1, 1996). Incorporated by reference to Exhibit 10.24 to
the FCX 1997 Form 10-K.
10.28 Supplemental Agreement between FMS and B. M. Rankin Jr. dated
December 15, 1997. Incorporated by reference to Exhibit 10.25
to the FCX 1997 Form 10-K.
10.29 Supplemental Agreement between FMS and B.M. Rankin Jr. dated
December 7, 1998. Incorporated by reference to Exhibit 10.26 to
the 1998 FCX Form 10-K.
10.30 Supplemental Agreement between FMS and B. M. Rankin, Jr. dated
February 5, 2001. Incorporated by reference to Exhibit 10.29
to the Annual Report on Form 10-K of FCX for the fiscal year
ended December 31, 2000.
10.31 Letter Agreement effective as of January 7, 1997 between
Senator J. Bennett Johnston, Jr. and FMS. Incorporated by
reference to Exhibit 10.25 of the FCX 1996 Form 10-K.
10.32 Supplemental Letter Agreement dated April 13, 2000 between J.
Bennett Johnston, Jr. and FMS. Incorporated by reference to
Exhibit 10.30 to the FCX 2000 First Quarter Form 10-Q.
10.33 Letter Agreement dated November 1, 1999 between FMS and
Gabrielle K. McDonald. Incorporated by reference to Exhibit
10.33 of the FCX 1999 Form 10-K.
10.34 Supplemental Letter Agreement dated May 17, 2000 between FMS
and Gabrielle K. McDonald. Incorporated by reference to
Exhibit 10.35 of the FCX 2000 Second Quarter Form 10-Q.
E-4
Freeport-McMoRan Copper & Gold Inc.
EXHIBIT INDEX
Exhibit
Number Description
------- -----------
10.35 Executive Employment Agreement dated April 30, 2001 between FCX
and James R. Moffett. Incorporated by reference to Exhibit
10.35 to the Quarterly Report on Form 10-Q of FCX for the
quarter ended June 30, 2001 (the FCX 2001 Second Quarter Form
10-Q).
10.36 Executive Employment Agreement dated April 30, 2001 between FCX
and Richard C. Adkerson. Incorporated by reference to Exhibit
10.36 of the FCX 2001 Second Quarter Form 10-Q.
10.37 Change of Control Agreement dated April 30, 2001 between FCX
and James R. Moffett. Incorporated by reference to Exhibit
10.37 of the FCX 2001 Second Quarter Form 10-Q.
10.38 Change of Control Agreement dated April 30, 2001 between FCX
and Richard C. Adkerson. Incorporated by reference to Exhibit
10.38 of the FCX 2001 Second Quarter Form 10-Q.
15.1 Letter dated October 16, 2001 from Arthur Andersen LLP
regarding unaudited interim financial statements.
E-5