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 March 31, 2002
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 March 31, 2002, there were issued and outstanding 55,567,714
shares of the registrant's Class A Common Stock, par value $0.10
per share, and 88,738,999 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 8
Report of Independent Public Accountants 8
Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
Part II. Other Information 20
Signature 22
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)
March 31, December 31,
2002 2001
---------- ----------
(In Thousands)
ASSETS
Current assets:
Cash and cash equivalents $ 9,371 $ 7,587
Restricted investments 49,809 49,809
Accounts receivable 144,612 118,611
Inventories 352,195 369,188
Prepaid expenses and other 5,350 3,075
---------- ----------
Total current assets 561,337 548,270
Property, plant, equipment
and development costs, net 3,383,648 3,409,687
Restricted investments 69,196 92,079
Deferred mining costs 52,298 47,590
Investment in PT Smelting 57,001 57,194
Other assets 54,402 57,109
---------- ----------
Total assets $4,177,882 $4,211,929
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 272,193 $ 307,526
Current portion of long-term debt
and short-term borrowings 138,772 205,420
Unearned customer receipts 43,275 33,422
Rio Tinto share of joint venture cash flows 24,394 33,646
Accrued interest payable 28,224 31,394
Accrued income taxes 8,074 17,019
---------- ----------
Total current liabilities 514,932 628,427
Long-term debt, less current portion:
FCX and PT Freeport Indonesia credit facilities 564,000 475,371
Convertible senior notes 603,750 603,750
Senior notes 450,000 450,000
Infrastructure asset financings 345,270 355,970
Atlantic Copper debt 186,834 198,089
Equipment and other loans 47,072 50,000
Accrued postretirement benefits
and other liabilities 119,210 119,404
Deferred income taxes 668,067 671,015
Minority interests 99,557 92,955
Redeemable preferred stock 462,504 462,504
Stockholders' equity 116,686 104,444
---------- ----------
Total liabilities and stockholders' equity $4,177,882 $4,211,929
========== ==========
The accompanying notes are an integral part of these financial
statements.
3
FREEPORT-McMoRan COPPER & GOLD INC.
STATEMENTS OF OPERATIONS (Unaudited)
Three Months Ended
March 31,
--------------------
2002 2001
-------- --------
(In Thousands, Except
Per Share Amounts)
Revenues $392,680 $447,087
Cost of sales:
Production and delivery 234,917 195,614
Depreciation and amortization 53,054 68,129
-------- --------
Total cost of sales 287,971 263,743
Exploration expenses 754 2,051
General and administrative expenses 16,412 14,409
-------- --------
Total costs and expenses 305,137 280,203
-------- --------
Operating income 87,543 166,884
Equity in PT Smelting losses (822) (1,304)
Interest expense, net (44,282) (48,437)
Other income, net 36 3,177
-------- --------
Income before income taxes and
minority interests 42,475 120,320
Provision for income taxes (28,814) (60,615)
Minority interests in net income of
consolidated subsidiaries (5,554) (12,601)
-------- --------
Net income before cumulative effect of
accounting change 8,107 47,104
Cumulative effect of
accounting change, net (3,049) -
-------- --------
Net income 5,058 47,104
Preferred dividends (9,212) (9,065)
-------- --------
Net income (loss)
applicable to common stock $ (4,154) $ 38,039
======== ========
Net income (loss) per share of common stock:
Basic:
Before accounting change $(.01) $.26
Cumulative effect of
accounting change (.02) -
-------- --------
Net income (loss) per
share of common stock $(.03) $.26
======== ========
Diluted:
Before accounting change $(.01) $.26
Cumulative effect of
accounting change (.02) -
-------- --------
Net income (loss) per
share of common stock $(.03) $.26
======== ========
Average common shares outstanding:
Basic 144,108 143,906
======== ========
Diluted 144,108 144,728
======== ========
The accompanying notes are an integral part of these financial
statements.
4
FREEPORT-McMoRan COPPER & GOLD INC.
STATEMENTS OF CASH FLOWS (Unaudited)
Three Months Ended
March 31,
---------------------
2002 2001
-------- ---------
(In Thousands)
Cash flow from operating activities:
Net income $ 5,058 $ 47,104
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 53,054 68,129
Cumulative effect of accounting change 3,049 -
Deferred income taxes 12,702 22,784
Equity in PT Smelting losses 822 1,304
Minority interests' share of net income 5,554 12,601
Change in deferred mining costs (4,708) (8,384)
Other 5,928 648
Increases in working capital:
Accounts receivable (24,494) (38,033)
Inventories 15,589 2,015
Prepaid expenses and other (2,275) (402)
Accounts payable and
accrued liabilities (30,534) 15,865
Rio Tinto share of
joint venture cash flows (9,332) (29,767)
Accrued income taxes (9,666) 11,642
-------- ---------
Increase in working capital (60,712) (38,680)
-------- ---------
Net cash provided by
operating activities 20,747 105,506
-------- ---------
Cash flow from investing activities:
PT Freeport Indonesia
capital expenditures (31,001) (35,872)
Atlantic Copper capital expenditures (833) (3,465)
Sale of restricted investments 23,678 -
Other (729) 4,592
-------- ---------
Net cash used in investing activities (8,885) (34,745)
-------- ---------
Cash flow from financing activities:
Proceeds from debt 358,746 68,506
Repayments of debt (361,622) (121,511)
Cash dividends paid on preferred stock (9,081) (9,204)
Purchases of FCX common shares - (3,436)
Loans to Nusamba - (1,842)
Proceeds from stock option exercises 2,371 145
Financing costs (492) -
-------- ---------
Net cash used in financing activities (10,078) (67,342)
-------- ---------
Net increase in cash
and cash equivalents 1,784 3,419
Cash and cash equivalents
at beginning of year 7,587 7,968
-------- ---------
Cash and cash equivalents
at end of period $ 9,371 $ 11,387
======== =========
The accompanying notes are an integral part of these financial
statements.
5
FREEPORT-McMoRan COPPER & GOLD INC.
NOTES TO FINANCIAL STATEMENTS
1. EARNINGS PER SHARE
Freeport-McMoRan Copper & Gold Inc.'s (FCX) basic net income per
share of common stock was calculated by dividing net income
applicable to common stock by the weighted-average number of common
shares outstanding during the period. Diluted net income per share
of common stock was calculated by dividing net income 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 unvested restricted stock. Stock options representing
1.4 million shares and unvested restricted stock representing 0.3
million shares in the first quarter of 2002, that otherwise would
have been included in the first-quarter 2002 earnings per share
calculation, were excluded because of the net loss reported for the
period. Dilutive stock options represented 0.5 million shares and
dilutive restricted stock totaled 0.3 million shares in the first
quarter of 2001.
Options with exercise prices greater than the average market
price of the common stock during the period were excluded from the
computation of diluted net income per share of common stock. This
amounted to options for 10.1 million shares (average exercise price
of $22.20 per share) in the first quarter of 2002 and options for
11.4 million shares (average exercise price of $21.59 per share) in
the first quarter of 2001.
FCX's convertible preferred stock and its 8 1/4% Convertible
Senior Notes issued in August 2001 were not included in the
computation of diluted net income per share of common stock because
including the conversion of these instruments would have decreased
the diluted net loss per share reported in 2002 and increased the
diluted net income per share reported in 2001. The preferred stock
was convertible into 11.7 million shares of common stock and
accrued dividends totaled $6.1 million for each period presented.
The senior notes were convertible into 42.2 million shares of
common stock and accrued interest totaled $13.0 million for the
first quarter of 2002.
2. ACCOUNTING CHANGE - DEPRECIATION AND AMORTIZATION
Effective January 1, 2002, FCX changed its methodology used in the
determination of depreciation associated with PT Freeport
Indonesia's (PT-FI) mining and milling life-of-mine assets. Prior
to January 1, 2002, PT-FI depreciated mining and milling life-of-
mine assets on a composite basis. Total historical capitalized
costs and estimated future development costs relating to its
developed and undeveloped reserves were depreciated using the unit-
of-production method based on total developed and undeveloped
proven and probable copper reserves. Estimated future development
costs, which are significant, are necessary to develop PT-FI's
undeveloped ore bodies and are expected to be incurred over the
next 20 to 25 years.
After considering the inherent uncertainties and subjectivity
relating to the long time frame over which these estimated costs
would be incurred, and after consultation with the accounting staff
of the Securities and Exchange Commission, management decided to
revise its depreciation methodology prospectively. Effective
January 1, 2002, depreciation for the mining and milling life-of-
mine assets excludes consideration of future development costs.
Instead, under the new methodology, PT-FI depreciates only the
historical capitalized costs of individual producing mines over the
related proven and probable copper reserves. Infrastructure and
other common costs will continue to be depreciated over total
proven and probable copper reserves. The cumulative effect of this
change through December 31, 2001, as reflected in FCX's first-
quarter 2002 results, reduced net income by $3.0 million, net of
taxes and minority interest sharing.
The effect of the change in depreciation methodology in first-
quarter 2002 was to reduce depreciation and amortization expense by
$3.8 million, thus increasing net income by $2.0 million, $0.01 per
share. On a pro forma basis, the change in depreciation
methodology would have reduced first-quarter 2001 depreciation and
amortization expense by $13.3 million and increased net income by
$6.7 million, $0.05 per share.
3. INTEREST COST
Interest expense excludes capitalized interest of $3.1 million in
the first quarter of 2002 and $2.0 million in the first quarter of
2001.
6
4. COMPREHENSIVE INCOME
A recap of FCX's comprehensive income is shown below (in
thousands).
Three months
ended March 31,
-----------------
2002 2001
------ -------
Net income $5,058 $47,104
Other comprehensive income (loss):
Cumulative effect of change
in accounting, no tax effect - (982)
Change in unrealized
derivatives' fair value
(net of taxes of $(1.4)
million and $1.8 million,
respectively) (451) (14,824)
Reclass to earnings
(net of taxes of $0.6 million
and $(0.2) million, respectively) 1,291 331
------ -------
Total Comprehensive Income $5,898 $31,629
====== =======
5. 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.
Mining Smelting
and and Eliminations FCX
Exploration Refining and Other Total
---------- -------- -------- ----------
(In Thousands)
First Quarter of 2002
Revenues $ 269,726a $199,527 $(76,573) $ 392,680
Production and delivery 130,629 189,479 (85,191)b 234,917
Depreciation
and amortization 43,522 6,752 2,780 53,054
Exploration expenses 723 - 31 754
General and
administrative expenses 12,806 1,975 1,631 16,412
---------- -------- -------- ----------
Operating income $ 82,046 $ 1,321 $ 4,176 $ 87,543
========== ======== ======== ==========
Interest expense, net $ 19,113 $ 4,338 $ 20,831 $ 44,282
========== ======== ======== ==========
Provision for income taxes$ 20,740 $ - $ 8,074 $ 28,814
========== ======== ======== ==========
Capital expenditures $ 30,488 $ 833 $ 513 $ 31,834
========== ======== ======== ==========
Total assets $3,199,014c $624,911d $353,957 $4,177,882
========== ======== ======== ==========
First Quarter of 2001
Revenues $ 360,046a $159,126 $(72,085) $ 447,087
Production and delivery 115,102 150,985 (70,473)b 195,614
Depreciation
and amortization 60,019 6,789 1,321 68,129
Exploration expenses 1,975 - 76 2,051
General and
administrative expenses 10,775 2,019 1,615 14,409
---------- -------- -------- ----------
Operating income (loss) $ 172,175 $ (667) $ (4,624) $ 166,884
========== ======== ======== ==========
Interest expense, net $ 30,514 $ 7,146 $ 10,777 $ 48,437
========== ======== ======== ==========
Provision for income taxes$ 52,305 $ - $ 8,310 $ 60,615
========== ======== ======== ==========
Capital expenditures $ 35,566 $ 3,465 $ 306 $ 39,337
========== ======== ======== ==========
Total assets $3,284,193c $685,428d $ (4,367) $3,965,254
========== ======== ======== ==========
a. Includes PT Freeport Indonesia sales to PT Smelting totaling
$99.2 million in 2002 and $90.6 million in 2001.
b. Includes effect of deferral of intercompany profits on 25
percent of PT Freeport Indonesia's sales to PT Smelting that are
still in PT Smelting's inventory at quarter end, totaling $0.6
million in 2002 and $(1.2) million in 2001.
c. Includes PT Freeport Indonesia's trade receivables with PT
Smelting totaling $36.1 million at March 31, 2002 and $15.8 million
at March 31, 2001.
d. Includes PT Freeport Indonesia's equity investment in PT
Smelting totaling $57.0 million at March 31, 2002 and $53.7 million
at March 31, 2001.
7
6. RATIO OF EARNINGS TO FIXED CHARGES
The ratio of earnings to fixed charges for the first three months
of 2002 and 2001 was 1.8 to 1 and 3.3 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.
7. NEW ACCOUNTING STANDARD
In July 2001, the Financial Accounting Standards Board issued SFAS
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, which requires the
cumulative effect of adoption to be reflected in earnings as a
separate line item - "Cumulative effect of accounting change" - for
all 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.
----------------------
Remarks
The information furnished herein should be read in conjunction with
FCX's financial statements contained in its 2001 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
March 31, 2002, and the related statements of operations and cash
flows for the three-month periods ended March 31, 2002 and 2001.
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,
2001, and the related statements of income, cash flows and
stockholders' equity for the year then ended (not presented
herein), and, in our report dated February 8, 2002 (except with
respect to the payment of the Nusamba loan discussed in Note 2 of
the Notes to Financial Statements in the Annual Report on Form 10-K
for the year ended December 31, 2001, as to which the date is
February 27, 2002), 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, 2001,
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
April 18, 2002
8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
OVERVIEW
We operate through our majority-owned subsidiary, PT Freeport
Indonesia, and through PT Irja Eastern Minerals (Eastern
Minerals) and Atlantic Copper, S.A. (Atlantic Copper), our wholly
owned subsidiaries. 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
Papua (formerly Irian Jaya), Indonesia, pursuant to joint venture
and other arrangements. The results of operations reported and
summarized below are not necessarily indicative of future
operating results.
Increased Ownership in PT Freeport Indonesia. In 1997, PT
Nusamba Mineral Industri (Nusamba), an Indonesian company and a
subsidiary of PT Nusantara Ampera Bakti, acquired from a third
party approximately 51 percent of the capital stock of PT
Indocopper Investama. PT Indocopper Investama is an Indonesian
company whose only significant assets are its 9.4 percent of PT
Freeport Indonesia's common stock and its 10.0 percent of Eastern
Minerals' stock. Nusamba paid $61.6 million in cash and financed
$253.4 million of the $315.0 million purchase price with a
variable-rate commercial loan from a syndicate of commercial
banks, including JP Morgan Chase Bank as agent, which was to
mature in March 2002. We guaranteed the Nusamba loan for the
purpose of continuing minority Indonesian ownership of PT
Freeport Indonesia. We also agreed to lend to Nusamba any
amounts to cover any shortfalls between the interest payments due
on the commercial loan and dividends received by Nusamba from PT
Indocopper Investama. We loaned $1.8 million to Nusamba to cover
interest shortfalls during the first quarter of 2001.
In discussions subsequent to December 31, 2001, Nusamba
informed us that it did not expect to be able to repay the bank
loan or our loan at maturity. On February 27, 2002, we repaid
the bank loan as provided for under the terms of our amended
credit facilities (see "Amended Bank Credit Facilities" in our
"Capital Resources and Liquidity" discussion) and acquired
Nusamba's ownership in PT Indocopper Investama. As a result of
our payment of the Nusamba bank loan, our balance sheet as of
December 31, 2001, includes the following:
* An additional liability of $253.4 million to reflect the
payment of the Nusamba bank loan,
* A reduction of "other assets" by $61.6 million to reflect the
nonpayment of our loan to Nusamba,
* An increase in deferred income taxes by $4.2 million to reflect
tax liabilities relating to our increased equity ownership in PT
Freeport Indonesia,
* A reduction in minority interests by $52.0 million to reflect our
increased equity ownership in PT Freeport Indonesia, and
* An increase in property, plant and equipment of $267.3 million to
reflect the cost of the acquisition in excess of the book value
of the equity ownership in PT Freeport Indonesia we acquired.
For 2002, our earnings will reflect an increased ownership
interest in PT Freeport Indonesia (90.6 percent compared with
85.9 percent for 2001), which resulted in approximately $1 million of
additional net income in the first quarter, net of approximately
$0.7 million of additional intercompany profit deferral for PT Freeport
Indonesia's concentrate sales to Atlantic Copper. Interest costs related
to the $253.4 million loan under our bank credit facilities totaled $4.2
million. Since June 2001, we had been recognizing an expense for the
interest costs we were required to fund under the Nusamba loan guarantee.
Additional depreciation and amortization expense for the increase
in property, plant and equipment reduced net income by $2.0 milion.
Summary comparative results for the first-quarter periods
follow (in millions, except per share amounts):
First Quarter
---------------
2002 2001
------ ------
Revenues $392.7 $447.1
Operating income 87.5 166.9
Net income (loss) applicable to common
stock before cumulative effect
adjustment (1.1) 38.0
Net income (loss) applicable to common
stock (4.2) 38.0
Diluted net income (loss) per share:
Before cumulative effect adjustment (0.01) 0.26
Applicable to common stock (0.03) 0.26
9
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-denominated and silver-denominated
preferred stock with dividends and redemption amounts determined
by commodity prices. Based on PT Freeport Indonesia's projected
share of 2002 copper sales (1.5 billion pounds), a $0.01 per
pound change in the average price realized would have an
approximate $15 million impact on our revenues and an approximate
$8 million impact on our net income. A $5 per ounce change in
the average price realized on PT Freeport Indonesia's share of
projected 2002 gold sales (2.3 million ounces) would have an
approximate $12 million impact on our revenues and an approximate
$6 million impact on our net income.
Our first-quarter 2002 consolidated revenues reflect lower
copper and gold revenues at PT Freeport Indonesia partly offset
by higher Atlantic Copper revenues, compared with the first
quarter of 2001. Lower revenues from PT Freeport Indonesia
during the first quarter of 2002 resulted primarily from declines
in sales volumes caused by the mining of lower grade ore, while
Atlantic Copper's revenues improved compared with the first
quarter of 2001 mainly because of higher gold sales. First-
quarter 2002 revenues include net additions of $5.8 million ($3.0
million to net income or $0.02 per share) primarily for
adjustments to the fair value of December 31, 2001 embedded
derivatives in concentrate sales contracts, compared with net
reductions of $2.4 million ($1.2 million to net income or $0.01
per share) to first-quarter 2001 revenues.
Consolidated cost of sales for 2002 were $24.2 million
higher compared with the 2001 quarter largely because of higher
sales at Atlantic Copper, partly offset by lower depreciation and
amortization expense at PT Freeport Indonesia because of a change
in our depreciation methodology (Note 2). Our exploration
expenses declined to $0.8 million in the first quarter of 2002
from $2.1 million in the first quarter of 2001 reflecting efforts
to reduce costs during periods of continued low commodity prices.
General and administrative expenses during the first quarter of
2002 were $2.0 million higher than during the 2001 period. The
first quarter of 2002 included a $0.5 million charge for costs of
stock appreciation rights caused by an increase in FCX's common
stock price and a $0.5 million charge for costs related to a
proposal to convert our Class A common stock to our Class B
common stock.
Our effective tax rate for the first quarter of 2002 was 68
percent compared with an effective rate of 50 percent in the
first quarter of 2001. The higher effective rate for the first
quarter of 2002 primarily reflects the impact of lower income at
PT Freeport Indonesia and higher interest costs at our parent
company (see "Other Financial Results").
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, including those of Eastern Minerals. 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 by segment
for the first-quarter periods follows (in millions):
First Quarter
---------------
2002 2001
----- ------
Mining and exploration $82.0 $172.2
Smelting and refining 1.3 (0.7)
Intercompany eliminations and other 4.2 (4.6)
----- ------
FCX operating income a $87.5 $166.9
===== ======
a. Profits on PT Freeport Indonesia's sales to Atlantic Copper
and 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 $8.9 million in 2002
and $(0.1) million in 2001. Our consolidated quarterly
earnings fluctuate depending on the timing and prices of
these sales.
10
MINING AND EXPLORATION
A summary of increases (decreases) in PT Freeport Indonesia
revenues between the periods follows (in millions):
First
Quarter
------
PT Freeport Indonesia revenues - prior year period $360.0
Increases (decreases):
Sales volumes:
Copper (28.6)
Gold (80.6)
Price realizations:
Copper (10.7)
Gold 9.4
Adjustments, primarily for copper pricing
on prior year sales 14.8
Treatment charges, royalties and other 5.4
------
PT Freeport Indonesia revenues - current year period $269.7
======
When compared to the first quarter of 2001, PT Freeport
Indonesia's first-quarter 2002 copper sales volumes decreased by
11 percent and gold sales volumes decreased by 48 percent,
reflecting the lower grade ore processed during the 2002 period
compared with the higher grade material mined during 2001. Gold
realizations in the first quarter of 2002 were nearly $28 an
ounce higher than first-quarter 2001 realizations, however copper
realizations in the 2002 period were $0.04 per pound lower than
the prior year period. Treatment charges in total were lower in
the first quarter of 2002 primarily because of the lower sales
volumes. Royalties were $3.1 million lower in the first quarter
of 2002 compared with the 2001 period, primarily because of lower
gold sales.
PT Freeport Indonesia has commitments from various parties,
including Atlantic Copper and PT Smelting, to purchase virtually
all of its estimated 2002 production at market prices. Net of
Rio Tinto's interest, PT Freeport Indonesia's share of sales for
the second quarter of 2002 is projected to approximate 400
million pounds of copper and 550,000 ounces of gold. PT Freeport
Indonesia's share of sales for 2002 is projected to approximate
1.5 billion pounds of copper and 2.3 million ounces of gold.
Projected 2002 sales reflect the expectation of mining higher
grade ore compared to 2001.
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
period. Under Statement of Financial Accounting Standards No.
133 (SFAS 133), PT Freeport Indonesia's sales based on a
provisional sales price contain an embedded derivative which must
be separated from the host contract. The host contract is the
sale of the concentrates at the current spot LME price. The
embedded derivative, which does not qualify for hedge accounting,
is marked-to-market through earnings each period. Adjustments to
PT Freeport Indonesia's provisional billings are recorded in
revenues and totaled $10.3 million for the first quarter of 2002
and $(13.0) million for the first quarter of 2001.
At March 31, 2002, we had consolidated provisional billings
on copper sales totaling 113.5 million pounds recorded at an
average price of $0.74 per pound. Nearly all of these sales are
expected to be finally priced during the second quarter of 2002.
A one-cent movement in the average price used for these
provisional billings will have an approximate $0.6 million impact
on our 2002 net income.
At times PT Freeport Indonesia has entered into derivative
contracts to manage certain risks resulting from fluctuations in
commodity prices. During 2001 and the first-quarter of 2002, and
as of March 31, 2002, PT Freeport Indonesia did not have any
price protection programs in place for its copper and gold sales
other than its gold-denominated preferred stock. As conditions
warrant, PT Freeport Indonesia may enter into new contracts for
its future sales.
11
PT Freeport Indonesia Operating Results
First Quarter
-------------------
2002 2001
------- -------
PT Freeport Indonesia, Net of Rio Tinto's Interest
Copper
Production (000s of recoverable pounds) 296,700 377,100
Production (metric tons) 134,600 171,000
Sales (000s of recoverable pounds) 296,100 333,400
Sales (metric tons) 134,300 151,200
Average realized price $.73 $.77
Gold
Production (recoverable ounces) 335,800 730,900
Sales (recoverable ounces) 336,600 644,700
Average realized price $289.51 $261.54
Gross profit per pound of copper (cents):
Average realized price 73.2 76.8
------- -------
Production costs:
Site production and delivery 43.4a 34.8 a
Gold and silver credits (35.2) (51.7)
Treatment charges 19.4 18.0
Royalty on metals 1.1 1.9
------- -------
Cash production costs 28.7 3.0
Depreciation and amortization 14.7 18.0
------- -------
Total production costs 43.4 21.0
------- -------
Adjustments, primarily for copper pricing
on prior year open sales 3.2 (0.6)
------- -------
Gross profit per pound of copper 33.0 55.2
======= =======
PT Freeport Indonesia, 100% Operating Statistics
Ore milled (metric tons per day) 244,200 229,600
Copper grade (percent) .90 1.13
Gold grade (grams per metric ton) .73 1.68
Recovery rate (percent)
Copper 85.5 89.1
Gold 85.5 87.8
Copper
Production (000s of recoverable pounds) 357,100 434,900
Production (metric tons) 162,000 197,300
Sales (000s of recoverable pounds) 356,400 384,900
Sales (metric tons) 161,700 174,600
Gold (recoverable ounces)
Production 419,000 946,000
Sales 419,900 833,000
a. Net of deferred mining costs totaling $4.7 million (1.6
cents per pound) in the first quarter of 2002 and $8.4 million
(2.5 cents per pound) in the first quarter of 2001.
PT Freeport Indonesia's first-quarter 2002 production
declined because of lower ore grades and recovery rates, partly
offset by higher mill throughput when compared with the prior-
year period. First-quarter 2002 copper grades were 20 percent
lower than the prior-year and gold grades were 57 percent lower.
Recovery rates declined by 4 percent for copper and 3 percent for
gold. As previously reported, the average grade of ore to be
mined in the early part of 2002, particularly for gold, is
expected to be lower than the higher grade material mined
throughout most of 2001. We expect to return to higher grade ore
in the second half of 2002. Because of the nature of the
Grasberg ore body, there are periods when the sequencing of
mining results in production that is economical, but lower than
average in grade.
At the Deep Ore Zone underground mine, production averaged
11,500 metric tons of ore per day in the first quarter of 2002
and 2,900 metric tons of ore per day in the first quarter of
2001. Full production of 25,000 metric tons of ore per day is
expected in the second half of 2002. We are currently studying
plans to increase production rates to as much as 35,000 metric
tons of ore per day.
12
Mill throughput rates averaged 244,200 metric tons of ore per
day during the first quarter of 2002, 6 percent higher than the
229,600 metric tons of ore per day rate achieved in the first
quarter of 2001. Unit site production and delivery costs in the
first quarter of 2002 averaged $0.43 per pound of copper, $0.08
per pound higher than the $0.35 reported in the first quarter of
2001, primarily because of the lower sales volumes that resulted
from mining lower grade ore. The lower grades of ore mined also
resulted in lower gold credits of $0.35 per pound in the 2002
quarter, compared with the 2001 quarter level of $0.52 per pound.
Royalties totaled $3.2 million in the first quarter of 2002 and
$6.3 million in the first quarter of 2001, reflecting lower sales
volumes in the 2002 quarter.
Unit net cash production costs, including gold and silver
credits, for 2002 are expected to average less than $0.10 per
pound of copper, assuming gold prices of $300 per ounce and gold
sales of 2.3 million ounces. In the first half of 2002, unit
costs are expected to be higher than the average for 2002 and in
the second half of 2002 unit costs are expected to be lower than
the average, as both ore grade and production are expected to
increase during the year.
Effective January 1, 2002, we changed our methodology used in
the determination of depreciation associated with PT Freeport
Indonesia's mining and milling life-of-mine assets. Prior to
January 1, 2002, PT Freeport Indonesia depreciated mining and
milling life-of-mine assets on a composite basis. Total
historical capitalized costs and estimated future development
costs relating to PT Freeport Indonesia's developed and
undeveloped reserves were depreciated using the unit-of-
production method based on total developed and undeveloped proven
and probable copper reserves. Estimated future development
costs, which are significant, are necessary to develop PT
Freeport Indonesia's undeveloped ore bodies and are expected to
be incurred over the next 20 to 25 years.
After considering the inherent uncertainties and subjectivity
relating to the long time frame over which these estimated costs
would be incurred, and after consultation with the accounting
staff of the Securities and Exchange Commission, management
decided to revise its depreciation methodology prospectively.
Effective January 1, 2002, depreciation for the mining and
milling life-of-mine assets excludes consideration of future
development costs. Instead, under the new methodology, PT
Freeport Indonesia depreciates only the historical capitalized
costs of individual producing mines over the related proven and
probable copper reserves. Infrastructure and other common costs
will continue to be depreciated over total proven and probable
copper reserves. The cumulative effect of this change through
December 31, 2001, as reflected in our first-quarter 2002
results, totaled $3.0 million ($0.02 per share), net of taxes and
minority interest sharing. The effect of the new methodology was
to reduce depreciation and amortization expense by $3.8 million,
$2.0 million to net income or $0.01 per share in the first
quarter of 2002. Had PT Freeport Indonesia followed the new
methodology during 2001, our first-quarter 2001 depreciation and
amortization expense would have been reduced by $13.3 million,
$6.7 million to net income or $0.05 per share.
We conduct the majority of our operations in Indonesia and
Spain where our functional currency is the U.S. dollar. All of
our revenues are denominated in U.S. dollars; however, some costs
and certain asset and liability accounts are denominated in
Indonesian rupiahs, Australian dollars or 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 9,660
rupiahs at March 31, 2002 and 10,160 rupiahs at December 31,
2001. PT Freeport Indonesia recorded losses totaling $0.4
million during the first quarter of 2002 and $0.5 million during
the first quarter of 2001 related to its rupiah-denominated net
assets. Operationally, PT Freeport Indonesia has benefited from
a weakened rupiah currency, primarily through lower labor costs.
At estimated annual aggregate rupiah payments of 900 billion and
the March 31, 2002 exchange rate of 9,660 rupiahs to one U.S.
dollar, a one-thousand-rupiah increase in the exchange rate would
result in an approximate $9 million decrease in annual operating
costs and a one-thousand-rupiah decrease in the exchange rate
would result in an approximate $11 million increase in annual
operating costs, before any hedging effects.
PT Freeport Indonesia also purchases materials and supplies
denominated in Australian dollars. The exchange rate was $0.53
to one Australian dollar at March 31, 2002 and $0.51 to one
Australian dollar at December 31, 2001. At estimated annual
aggregate Australian dollar payments of 225 million and the March
31, 2002 exchange rate of $0.53 to one Australian dollar, a $0.01
increase or decrease in the exchange rate would result in an
approximate $2 million change in aggregate annual costs, before
any hedging effects.
13
At times, PT Freeport Indonesia has entered into foreign
currency forward contracts to hedge a portion of its aggregate
anticipated Indonesian rupiah and Australian dollar payments. As
of March 31, 2002, PT Freeport Indonesia had foreign currency
contracts to hedge 359.8 billion of rupiah payments, or
approximately 50 percent of aggregate projected rupiah payments
for the remainder of 2002 at an average exchange rate of 12,792
rupiahs to one U.S. dollar. Each 1,000-rupiah change in the
Indonesian rupiah/U.S. dollar exchange rate impacts the market
value of these contracts by approximately $3.5 million.
PT Freeport Indonesia had foreign currency contracts hedging the
Australian dollar during 2001, but currently has no contracts
hedging the Australian dollar. We recorded net gains (losses) to
production costs for PT Freeport Indonesia's foreign currency
contracts totaling $1.6 million in the first quarter of 2002 and
$(0.5) million in the first quarter of 2001. PT Freeport
Indonesia recorded net gains (charges) to Other Comprehensive
Income, a component of stockholders' equity, totaling $1.0
million during the first quarter of 2002 and $(2.0) million
during the first quarter of 2001 for its currency hedging
contracts that remained open as of the end of those periods.
Exploration Activities
Block A exploration efforts in the first quarter of 2002 were
associated with delineation drilling project known as the Deep
Ore Zone Northwest Extension. This program is intended to test a
400 meter extension immediately adjacent to the current Deep Ore
Zone block cave mine reserve. The drilling program will target
an 80 million metric ton resource with 4,800 meters of drilling,
in eleven holes that fill in gaps between existing exploration
drill holes.
Field exploration activities outside of our current mining
operations area are in suspension due to safety and security
issues and uncertainty relating to a possible conflict between
our mining and exploration rights in certain forest areas covered
by our Contracts of Work and an Indonesian law enacted in 1999
prohibiting open-pit mining in protected forest areas. The
current suspensions were granted for one-year periods ending
February 26, 2003 for Block B, March 31, 2003 for PT Nabire Bakti
Mining and November 15, 2002 for Eastern Minerals. We expect to
continue to seek suspension renewals for additional one-year
periods by written request to the Government of Indonesia for
each of the suspended areas if required.
SMELTING AND REFINING
Our investments in smelters serve 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.
Treatment charges for smelting and refining copper
concentrates represent a cost to PT Freeport Indonesia and income
to Atlantic Copper and PT Smelting. However, because we have
integrated our upstream (mining and milling) and downstream
(smelting and refining) operations, we are able to achieve
operating hedges which substantially offset the effect of changes
in treatment charges for smelting and refining PT Freeport
Indonesia's copper concentrates. For example, while low smelting
and refining charges adversely affect the operating results of
Atlantic Copper and PT Smelting, low charges benefit the
operating results of PT Freeport Indonesia's mining operations.
As a result, changes in smelting and refining charges do not
have a significant impact on our consolidated operating results.
Taking into account taxes and minority ownership interests, an
equivalent change in the charges PT Freeport Indonesia pays and
the charges Atlantic Copper and PT Smelting receive would
essentially offset in our consolidated operating results.
Atlantic Copper Operating Results
First Quarter
------------------
2002 2001
------- -------
Cash margin (in millions) $10.5 $8.3
Operating income (loss) (in millions) $1.3 $(0.7)
Concentrate treated (metric tons) 258,300 205,500
Anodes production (000s of pounds) 170,100 144,000
Cathodes, wire rod and wire sales
(000s of pounds) 135,800 135,600
Gold sales in anodes and slimes (ounces) 251,600 108,200
Atlantic Copper's cash margin, which is revenues less
production costs, was $2.2 million higher in the 2002 quarter
compared with the 2001 quarter primarily because of lower unit
costs. Atlantic Copper's cathode cash production costs per pound
of copper, before currency hedging, averaged $0.10 in the first
14
quarter of 2002 compared with $0.15 in the first quarter of 2001.
The higher unit costs in the 2001 period primarily reflect lower
throughput and higher maintenance costs prior to the start of a
scheduled 27-day major maintenance turnaround in late March 2001.
The next scheduled major maintenance turnaround is expected to
occur in 2004. Atlantic Copper's average treatment rates
remained about the same for both quarters ($0.18 per pound),
which is at historically low levels.
The majority of Atlantic Copper's revenues are denominated
in U.S. dollars; however, some costs and certain asset and
liability accounts are denominated in euros. Atlantic Copper's
estimated annual euro payments total approximately 90 million
euros and at a March 31, 2002 exchange rate of $0.87 per euro, a
$0.05 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 euro-denominated operating costs. At March 31, 2002,
Atlantic Copper had contracts to purchase 110.3 million euros at
an average exchange rate of $1.01 per euro through December 2003.
These contracts currently hedge approximately 63 percent of
Atlantic Copper's projected remaining 2002 and 2003 euro
disbursements. Each $0.01 change in the US$/euro exchange rate
impacts the market value of these contracts by approximately $1
million. Atlantic Copper's first-quarter 2002 operating results
reflect a $1.3 million loss on currency hedging contracts that
matured during the quarter compared to a $0.3 million charge in
the first quarter of 2001. Atlantic Copper recorded charges to
Other Comprehensive Income, a component of stockholders' equity,
totaling $1.1 million during the first quarter of 2002 and $11.1
million during the first quarter of 2001 for its currency hedging
contracts that remained open as of the end of those periods.
The charges reflect a 1 percent decline in the euro exchange rate
during the first quarter of 2002 and a 5 percent decline during
the first quarter of 2001.
Atlantic Copper had euro-denominated net monetary
liabilities at March 31, 2002 totaling $67.6 million recorded at
an exchange rate of $0.87 per euro. The December 31, 2001
exchange rate was $0.88 per euro. Adjustments to Atlantic
Copper's euro-denominated net liabilities to reflect changes in
the exchange rate are recorded in other income and totaled gains
of $0.6 million in the first quarter of 2002 and $3.1 million in
the first quarter of 2001.
PT Smelting Operating Results
First Quarter
-------------
2002 2001
----- -----
(in millions)
PT Freeport Indonesia sales to PT Smelting $99.2 $90.6
Equity in PT Smelting losses 0.8 1.3
PT Freeport Indonesia profits deferred (recognized) (0.6) 1.2
PT Freeport Indonesia accounts for its 25 percent interest
in PT Smelting under the equity method and provides PT Smelting
with nearly all of its concentrate requirements. PT Smelting
operated slightly above its full design capacity of 200,000
metric tons of copper per year during the first quarters of 2002
and 2001. Concentrate treated during the first quarter of 2002
totaled 177,700 metric tons, 10 percent higher the 161,700 metric
tons treated in the first quarter of 2001. First-quarter 2002
anodes production was slightly below the 2001 amounts. Cathodes
production increased by 5 percent when compared to the year-ago
period, resulting in a 2 percent increase in PT Smelting's
cathodes sales in the 2002 quarter over the 2001 quarter. PT
Smelting's cathode cash production costs per pound of copper were
$0.12 in the 2002 quarter compared to $0.11 in the 2001 quarter.
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 were the recognition of $0.6
million of profits in the first quarter of 2002 and the deferral
of $1.2 million of profits in the first quarter of 2001.
OTHER FINANCIAL RESULTS
The FCX/Rio Tinto joint ventures incurred $1.2 million of
exploration costs in the 2002 quarter, compared with $3.5 million
in the 2001 first quarter. Lower exploration costs reflect the
continued suspensions of our contracts of work outside of Block A
and our efforts to reduce costs during periods of continued low
commodity prices. We reported $0.8 million of exploration
expense in the first quarter of 2002 and $2.1 million in the
first quarter of 2001 for our share of these exploration costs.
15
First-quarter 2002 general and administrative expenses of
$16.4 million were $2.0 million higher than the $14.4 million
reported in the 2001 quarter. The 2002 period included a $0.5
million charge for costs for stock appreciation rights because of
an increase in our stock price during the first quarter of 2002
and a $0.5 million charge for costs related to a proposal to
convert our Class A common stock to Class B common stock.
Our total interest cost (before capitalization) was $47.4
million in the 2002 quarter, slightly lower than the $50.4
million incurred in the 2001 quarter. We capitalized $3.1 million
of interest costs in the first quarter of 2002 and $2.0 million
of interest costs in the first quarter of 2001.
Our effective tax rate was 68 percent for the first quarter
of 2002 and 50 percent for the first quarter of 2001. 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
higher effective tax rate for the first quarter of 2002 primarily
reflects the impact of lower income at PT Freeport Indonesia and
higher interest costs at our parent company.
CAPITAL RESOURCES AND LIQUIDITY
Net cash provided by operating activities was $20.7 million for
the first quarter of 2002, compared with $105.5 million for the
2001 period. Net cash used in investing activities totaled $8.9
million in the 2002 period, compared with $34.7 million in the
2001 period. Net cash used in financing activities totaled $10.1
million in 2002 compared with $67.3 million in 2001.
Operating Activities
Lower net income in 2002 and working capital changes resulted
in a decrease in operating cash flow to $20.7 million from
$105.5 million in the year-ago period. The $60.7 million net
increase in working capital for the first quarter of 2002
primarily reflects an increase in accounts receivable and a
decrease in accounts payable and accrued liabilities. The $38.7
million net increase in working capital for the first quarter
of 2001 primarily reflects an increase in accounts receivable
because of the timing of shipments and the timing of payments
to Rio Tinto for their share of joint venture cash flows.
Investing Activities
Our first-quarter 2002 capital expenditures were slightly lower
compared to the 2001 period. Our capital expenditures for 2002
are expected to total approximately $200 million, including
approximately $30 million for haul truck purchases currently
under consideration and $36 million for final 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 the second half of 2002. Capital
expenditure funding is expected to be provided by operating cash
flow. During the first quarter of 2002 we sold $23.7 million of
our restricted investments and used the proceeds to pay the
initial semiannual payment of interest on our 8 1/4% Convertible
Senior Notes.
Financing Activities
During the first quarter of 2002 we had net repayments of debt
totaling $2.9 million, compared with net repayments totaling
$53.0 million during the first quarter of 2001. Lower cash flows
from operating activities during the first quarter of 2002
resulted in less cash available to reduce outstanding debt.
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 quarter of 2001, we
purchased 0.2 million of our shares for $1.6 million, $8.35 per
share. From inception of these programs in July 1995 through
April 18, 2002, 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. We have not purchased any of our shares since the first
quarter of 2001 and our amended bank credit facilities prohibit
common stock purchases. See "Other Covenants" under the heading
"Amended Bank Credit Facilities" below.
Amended Bank Credit Facilities
In October 2001, we amended our bank credit facilities to extend
the maturities and to provide financing to repay the commercial
bank loan to Nusamba that we guaranteed. As discussed earlier,
we repaid the
16
Nusamba loan on February 27, 2002. We believe that
the amended bank credit facilities together with our cash flows
from operations will enable us to fund our ongoing capital
expenditures and meet our debt maturities and other commitments
over the next several years.
* Commitments and Availability. Aggregate commitments under
our amended credit facilities total $734.0 million. Borrowings
on April 18, 2002, totaled $214.0 million for PT Freeport
Indonesia and $367.0 million for FCX, including a $149.0 million
term loan.
We are able to use the amounts available under the amended
credit facilities to satisfy interest and principal
requirements on our other debt when due. We are currently
required to use all operating cash flows remaining after
scheduled payments of other debt, permitted capital
expenditures and payment of operating and other costs to
reduce our borrowings under the amended credit facilities.
Thus, no portion of our operating cash flows is currently
available for general corporate purposes. At such time that
our aggregate borrowings and unused commitments under the
amended facilities are less than $200 million and our ratio
of consolidated debt to EBITDA (Earnings Before Interest,
Taxes, Depreciation and Amortization) is less than or equal
to 3.0:1.0, 25 percent of our operating cash flows will be
available for general corporate purposes and 75 percent will
reduce our borrowings under the amended credit facilities.
Our amended facilities do not restrict our planned
exploration activities. The amended credit facilities,
however, impose annual limitations on PT Freeport
Indonesia's capital expenditures, which limit the amount of
funds that we can use for development activities. These
annual limitations are approximately $171 million in 2002,
$188 million in 2003, $128 million in 2004 and $136 million
in 2005. If our capital expenditures in any year are less
than 80 percent of the annual limitation for the year, then
the unused amount may be carried forward to the next two
succeeding years. We have approximately $34 million of
unused amounts from 2001 that we may use in 2002 and 2003.
* 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,
provided that the balance of such financing proceeds are used to
repay borrowings and to reduce commitments under our amended
credit facilities. All other proceeds from financings and all
available cash of FCX and PT Freeport Indonesia will be used to
pay outstanding borrowings under the amended credit facilities
and the commitments under the facilities will be reduced by those
amounts, except as necessary to maintain our availability to
repay $250.0 million for the 7.20% senior notes (see "Revised
Debt and Redeemable Preferred Stock Maturities") and to preserve
the $150.0 million revolving facility that will continue to be
available through December 31, 2005.
* Maturities and Term Loan Conversion. Amounts that we borrow
under our amended credit facilities will mature on December 31,
2005. On December 31, 2003, all revolving loans will convert to
term loans, except for a $150.0 million revolving loan for
working capital purposes. Scheduled principal payments on the
term loans will not be required until maturity. Instead, we will
repay the principal amount of the term loans through semiannual
payments of any excess operating cash flows remaining after
scheduled payments of other debts, permitted capital expenditures
and payment of operating and other costs. Any remaining balance
on the term loans will be due on December 31, 2005. Any
outstanding balance on the remaining $150.0 million revolving
loan will be due on the earlier of December 31, 2005, or one year
following repayment in full of the term loans.
* Interest Rates. Interest rates on all loans under the
amended credit facilities are LIBOR plus 4.0 percent with annual
increases of 0.125 percent on each anniversary of the closing of
the amended facilities with provisions for lower rates if our
credit ratings improve. As of March 31, 2002, the interest rate
on the amended facilities was 5.9 percent based on a LIBOR rate
of 1.9 percent. In May 2002, Standard & Poor's announced an
upgrade of our corporate credit rating to B from CCC+ and our
senior unsecured debt rating to B- from CCC. Under the terms of
our credit facilities, our borrowing rates will improve if Moody's
or Standard & Poor's increases our senior unsecured credit rating
above B3 or B-, respectively.
* Gold-Denominated Preferred Stock Due in 2003. Under the
amended credit facilities, we have limitations on the amount of
preferred stock we may redeem. In addition, if by August 2003 we
have not refinanced or extended the maturity of 80 percent of the
Gold-Denominated Preferred
17
Stock beyond 2005, we will not
thereafter be permitted to redeem or pay dividends on any of our
preferred stock. Therefore, prior to the August 2003 mandatory
redemption date of the depositary shares representing our Gold-
Denominated Preferred Stock, we intend to refinance or restructure
our redemption obligation as to at least 80 percent
of the outstanding 6.0 million depositary shares.
* Other Covenants. The covenants under the amended 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
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 and limitations on transactions
with affiliates. In addition, the covenants include a
requirement that we implement minimum hedging protection for
copper prices under certain circumstances. These covenants will
require us to hedge at least 33 percent of our exposure to
declines in copper prices for a period of up to one year if put
options providing for the sale of copper at a floor price of at
least $0.90 per pound become available at a cost of $0.02 or less
per pound of copper. These put options would protect operating
cash flow from the impact of declines in copper prices below the
floor price while continuing to provide full participation at
higher prices. The price of copper would have to increase
substantially from current levels for put options to be available
at this price.
* Security and Guarantees. Our obligations under the amended
credit facilities are secured by a first security lien on over 80
percent of PT Freeport Indonesia's total assets (the remaining
assets secure other obligations) and by our pledge of 50.1
percent of the outstanding capital stock of PT Freeport Indonesia
and all of the outstanding capital stock of PT Indocopper
Investama owned 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.
* Revised Debt and Redeemable Preferred Stock Maturities.
Below is a summary of our debt and redeemable preferred stock
maturities based on loan balances as of March 31, 2002, and gold
and silver prices (which determine the preferred stock redemption
amounts) as of March 31, 2002 (in millions):
2002 2003 2004 2005 2006 Thereafter
------ ------ ----- ------ -------- ------
Amended bank credit
facilities $ - $ - $ - $564.0 $ - $ -
Infrastructure
financings and
equipment loans 66.4 57.7 63.1 46.4 48.5 190.8
7.20% Senior Notes
due 2026 a - 250.0 - - - -
7.50% Senior Notes
due 2006 b - - - - 200.0 -
Convertible Senior Notes - - - - 603.8 -
Atlantic Copper
facilities and other 52.9 20.4 10.1 24.1 24.0 113.5
------ ------ ----- ------ -------- ------
Total debt maturities 119.3 328.1 73.2 634.5 876.3 304.3
Redeemable preferred
stock c 11.1 192.9 11.1 11.1 141.4 -
------ ------ ----- ------ -------- ------
Total maturities $130.4 $521.0 $84.3 $645.6 $1,017.7 $304.3
====== ====== ===== ====== ======== ======
a. Although due in 2026, the holders of the 7.20% senior notes
may, and are expected to, elect early repayment in November 2003.
b. Due November 15, 2006.
c. Represents $11.1 million each year for our Silver-
Denominated Preferred Stock, $181.8 million in August 2003 for
our Gold-Denominated Preferred Stock, and $130.3 million in
February 2006 for our Gold-Denominated Preferred Stock, Series
II. As discussed above, we intend to refinance or restructure
our redemption obligation as to at least 80 percent of the
outstanding Gold-Denominated Preferred Stock.
DEVELOPMENTS IN INDONESIA
In Indonesia, President Megawati Sukarnoputri continued to make
progress toward improving the nation's economy during the first
part of 2002. The Indonesian government on April 9th signed a
new letter of intent with the International Monetary Fund, which
resulted in a new agreement with the Paris Club of
18
creditor nations for the rescheduling of Indonesia's sovereign debt
maturities. The Paris Club agreement represented an important
achievement for President Megawati and the Indonesian economy,
even though the nation's debt remains large. Recent signs of
progress also include a decline in inflation, rising exports, a
stronger currency, two-year highs on the Jakarta Stock Exchange
and announcements of major new foreign investments in the
telecommunications, banking, power and petrochemical industries.
President Megawati visited China, India, South Korea and North
Korea in late March and early April, signing a number of
agreements to boost economic ties.
The economic progress made by the new administration has
resulted in a stronger currency. After beginning the year at a
rate approximating 10,400 rupiahs to 1 US dollar, the rupiah
steadily increased averaging approximately 10,100 rupiahs to 1 US
dollar. The rupiah has continued to improve in April and
currently approximates 9,400 rupiahs to 1 US dollar.
In Papua, where Christianity is the predominant religion of
the local population, there have been sporadic conflicts between
separatists and the Indonesian military. President
Sukarnoputri's government advanced implementation of special
autonomy rules, which provide greater revenues and control to the
province, and passed a law to change Irian Jaya's name to Papua.
Our mining operations have continued to operate normally.
Although incidents of violence continue to be reported in Papua,
no incidents of separatist 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.
Six ambassadors of European Union nations visited Papua in
March and confirmed their support for Papua and Indonesia, and
the continuation of Papua being an integral part of Indonesia.
A month earlier, the same support was pledged by
Australian Prime Minister John Howard after meeting with
President Megawati in Jakarta. The new US Ambassador to
Indonesia, Ralph L. "Skip" Boyce and his team also recently
concluded a highly productive and positive visit to PT Freeport
Indonesia's operations area. Mr. Boyce made strong public
comments regarding the territorial integrity of Papua in
Indonesia and supporting greater autonomy and financial
assistance to the region.
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, commodity prices, capital
expenditures, debt maturities and other commitments, and
political, economic and social conditions in our areas of
operations. 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 "Risk
Factors" in our Form 10-K for the year ended December 31, 2001.
19
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 alleges environmental, human
rights and social/cultural violations in Indonesia and seeks
unspecified monetary damages and other equitable relief. In March
2000, the Civil District Court for the Parish of Orleans, State
of Louisiana, granted our exception of no cause of action and
dismissed the entire case with prejudice. The plaintiff appealed
to the Louisiana Fourth Circuit Court of Appeal and, in February
2002, the Louisiana Fourth Circuit Court of Appeal affirmed the
lower court's dismissal of the case with prejudice. The plaintiff
has appealed to the Louisiana Supreme Court. FCX will continue
to defend this action vigorously.
In addition to the foregoing proceedings, we are involved
from time to time in various legal proceedings of a character
normally incident to the ordinary course of our business. We
believe that potential liability in such proceedings would not
have a material adverse effect on our financial condition or
results of operations. We maintain liability insurance to cover
some, but not all, potential liabilities normally incident to the
ordinary course of our business as well as other insurance
coverage customary in our business, with coverage limits that we
deem prudent.
Item 4. Submission of Matters to a Vote of Security Holders.
(a) Our Annual Meeting of Stockholders was held May 2, 2002
(the Annual Meeting). Proxies were solicited pursuant to
Regulation 14A under the Securities Exchange Act of 1934, as
amended.
(b) At the Annual Meeting Robert W. Bruce III, Robert A.
Day, H. Devon Graham, Jr., Steven J. Green, Bobby L. Lackey and
Gabrielle K. McDonald were elected to serve until the 2005 Annual
Meeting of Stockholders. In addition to the directors elected at
the Annual Meeting, the terms of the following directors
continued after the Annual Meeting: Robert J. Allison, Jr., R.
Leigh Clifford, Gerald J. Ford, Oscar Y. L. Groeneveld, J.
Bennett Johnston, James R. Moffett, B. M. Rankin, Jr., J.
Stapleton Roy and J. Taylor Wharton.
(c) At the Annual Meeting, holders of FCX's Class A Common
Stock and FCX's Preferred Stock, voting as a class, elected
one director with the number of votes cast for or withheld from
the nominee as follows:
Name For Withheld
---- --- --------
Steven J. Green 43,388,706 10,899,013
At the Annual Meeting, holders of shares of FCX's Class B Common
Stock elected five directors with the number of votes cast for or
withheld from each nominee as follows:
Name For Withheld
---- --- --------
Robert W. Bruce III 48,299,757 29,991,089
Robert A. Day 50,296,172 27,994,674
H. Devon Graham, Jr. 47,876,699 30,414,147
Bobby L. Lackey 48,071,804 30,219,042
Gabrielle K. McDonald 48,070,249 30,220,597
With respect to the election of directors, there were no abstentions or
broker non-votes.
At the Annual Meeting, holders of Class A and Class B Common
Stock, voting as separate classes, voted on and approved a
proposal to reclassify our two classes of common stock into a
single class by amending our certificate of incorporation to
convert each outstanding share of Class A Common Stock into one
share of Class B Common Stock.
* Class A: Holders of 45,266,584 Class A shares (81.46% of
the outstanding Class A shares) voted for, holders of 52,983
Class A shares (0.10% of the outstanding Class A shares) voted
against and holders of 22,587 Class A shares (0.04% of the
outstanding Class A shares) abstained from voting on, the
proposal. There were broker non-votes consisting of 7,882,783
Class A shares with respect to this proposal.
20
* Class B: Holders of 65,798,812 Class B shares (74.26% of
the outstanding Class B shares) voted for, holders of 472,440
Class B shares (0.53% of the outstanding Class B shares) voted
against and holders of 567,169 Class B shares (0.64% of the
outstanding Class B shares) abstained from voting on, the
proposal. There were broker non-votes consisting of 11,452,425
Class B shares with respect to this proposal.
At the Annual Meeting, holders of Class A and Class B Common
Stock voted on and approved a stockholder proposal requesting
that the board of directors take steps to eliminate the
classification of our board. Holders of 87,987,402 shares
(78.43% of the votes cast) voted for, holders of 23,238,665
shares (20.72% of the votes cast) voted against and holders of
954,496 shares (0.85% of the votes cast) abstained from voting
on, the proposal. There were broker non-votes consisting of
19,335,220 shares with respect to this proposal.
At the Annual Meeting, holders of the Class A and Class B Common
Stock voted on and failed to pass a stockholder proposal
requesting that the board of directors take steps to permit
stockholders to elect advisors to the Company's compensation
committee. The proposal failed to pass because it received less
than a majority of the votes cast for the proposal. Holders of
7,353,835 shares (6.56% of the votes cast) voted for, holders of
103,875,588 shares (92.60% of the votes cast) voted against and
holders of 951,136 shares (0.85% of the votes cast) abstained
from voting on, the proposal. There were broker non-votes
consisting of 19,335,224 shares with respect to this proposal.
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 no Current Reports
on Form 8-K.
21
FREEPORT-McMoRan COPPER & GOLD INC.
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: May 7, 2002
22
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
Registration Statement on Form S-3 of FCX filed November 5, 2001
(the FCX November 5, 2001 Form S-3).
2.2 Amendment dated May 31, 1995 to the Rio Tinto Agreement.
Incorporated by reference to Exhibit 2.2 to the FCX November 5,
2001 Form S-3.
2.3 Distribution Agreement dated as of July 5, 1995 between FTX
and FCX. Incorporated by reference to Exhibit 2.3 to the FCX
November 5, 2001 Form S-3.
3.1 Amended and restated Certificate of Incorporation of FCX.
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 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).
4.2 Form of Step-Up Depositary Receipt. Incorporated by
reference to Exhibit 4.6 to the FCX 1993 Form 10-K.
4.3 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.
4.4 Form of Gold-Denominated Depositary Receipt. Incorporated
by reference to Exhibit 4.9 to the FCX 1993 Form 10-K.
4.5 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).
4.6 Form of Gold-Denominated II Depositary Receipt.
Incorporated by reference to Exhibit 4.3 to the FCX 1994 First
Quarter Form 10-Q.
4.7 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 Form 8-A of FCX dated July 15,
1994 (the FCX July 1994 Form 8-A).
4.8 Form of Silver-Denominated Depositary Receipt. Incorporated
by reference to Exhibit 4.1 to the FCX July 1994 Form 8-A.
4.9 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. Incorporated by reference to Exhibit 4.13 to
the Quarterly Report on Form 10-Q of FCX for the quarter ended
September 30, 2001.
4.10 Indenture dated as of August 7, 2001 from FCX and FCX
Investment Ltd. to The Bank Of New York, as trustee.
Incorporated by reference to Exhibit 4.1 to the FCX November 5,
2001 Form S-3.
4.11 Registration Rights Agreement dated as of August 7, 2001 by
and between FCX and FCX Investment Ltd., as issuers, and Merrill
Lynch, Pierce, Fenner & Smith Incorporated, as initial purchaser.
Incorporated by reference to Exhibit 4.2 to the FCX November 5,
2001 Form S-3.
4.12 Collateral Pledge and Security Agreement dated as of August
7, 2001 by and among FCX Investment Ltd., as pledgor, The Bank of
New York, as trustee, and The Bank of New York, as collateral
agent. Incorporated by reference to Exhibit 4.3 to the FCX
November 5, 2001 Form S-3.
4.13 Senior Indenture dated as of November 15, 1996 from FCX to
The Chase Manhattan Bank, as Trustee. Incorporated by reference
to Exhibit 4.4 to the FCX November 5, 2001 Form S-3.
4.14 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 4.5 to the FCX November 5, 2001 Form S-3.
4.15 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.
4.16 Amendment No. 1 to Rights Agreement dated as of February 26,
2002 between FCX and Mellon Investor Services.
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 10.1 to the FCX
November 5, 2001 Form S-3.
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 November 5, 2001 Form S-3.
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 Current Report on Form 8-K of FCX dated November 13,
1996 and filed November 15, 1996.
10.4 Concentrate Purchase and Sales Agreement dated effective
December 11, 1996 between PT Freeport Indonesia and PT Smelting.
Incorporated by reference to Exhibit 10.3 to the FCX November 5,
2001 Form S-3.
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
10.4 to the FCX November 5, 2001 Form S-3.
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
10.5 to the FCX November 5, 2001 Form S-3.
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 Annual Report of FCX on Form 10-
K for the year ended December 31, 1997 (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 10.33)
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 10.6 to the FCX November 5,
2001 Form S-3.
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 10.7 to the FCX November 5, 2001 Form S-3.
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 10.8 to the FCX November 5, 2001 Form S-3.
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.
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
(the FCX 2001 Second Quarter Form 10-Q).
10.21 Financial Counseling and Tax Return Preparation and
Certification Program of FCX. Incorporated by reference to
Exhibit 10.21 to the FCX 2001 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 10.23 to the FCX 2001 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 10.26 to the FCX 2001 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 (the FCX 2000 Form 10-K).
10.31 Letter Agreement effective as of January 7, 1997
between Senator J. Bennett Johnston, Jr. and FMS. Incorporated
by reference to Exhibit 10.31 to the FCX 2001 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 to the Quarterly Report on Form 10-Q of FCX for
the quarter ended June 30, 2000.
10.35 Executive Employment Agreement dated April 30, 2001
between FCX and James R. Moffett. Incorporated by reference to
Exhibit 10.35 to 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 to 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 to 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 to the FCX 2001 Second Quarter Form 10-Q.
15.1 Letter dated April 18, 2002 from Arthur Andersen LLP
regarding unaudited interim financial statements.
18.1 Letter from Arthur Andersen LLP regarding change in
accounting.