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, 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 September 30, 2002, there were issued and outstanding
144,894,108 shares of the registrant's 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 Income 4
Statements of Cash Flows 5
Notes to Financial Statements 6
Remarks 9
Report of Independent Public Accountants 9
Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
Part II. Other Information 24
Signature 24
Certifications 25
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,
2002 2001
---------- ----------
(In Thousands)
ASSETS
Current Assets:
Cash and cash equivalents $ 38,027 $ 7,587
Restricted investments 49,809 49,809
Accounts receivable 165,959 118,611
Inventories 392,355 369,188
Prepaid expenses and other 4,753 3,075
---------- ----------
Total current assets 650,903 548,270
Property, plant, equipment and
development costs, net 3,340,576 3,409,687
Restricted investments 46,222 92,079
Deferred mining costs 71,288 47,590
Investment in PT Smelting 45,694 57,194
Other assets 50,076 57,109
---------- ----------
Total assets $4,204,759 $4,211,929
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued
liabilities $ 250,247 $ 307,526
Current portion of long-term debt and
short-term borrowings 151,837 205,420
Unearned customer receipts 36,495 33,422
Rio Tinto share of joint venture cash
flows 71,133 33,646
Accrued interest payable 26,503 31,394
Accrued income taxes 46,358 17,019
---------- ----------
Total current liabilities 582,573 628,427
Long-term debt, less current portion:
FCX and PT Freeport Indonesia credit
facilities 424,000 475,371
Convertible senior notes 603,750 603,750
Senior notes 450,000 450,000
Infrastructure asset financings 322,609 355,970
Atlantic Copper debt 182,393 198,089
Equipment and other loans 69,995 50,000
---------- ----------
Total long-term debt, less
current portion 2,052,747 2,133,180
Accrued postretirement benefits and
other liabilities 113,565 119,404
Deferred income taxes 689,832 671,015
Minority interests 116,494 92,955
Redeemable preferred stock 450,003 462,504
Stockholders' equity 199,545 104,444
---------- ----------
Total liabilities and stockholders'
equity $4,204,759 $4,211,929
========== ==========
The accompanying notes are an integral part of these financial
statements.
3
FREEPORT-McMoRan COPPER & GOLD INC.
STATEMENTS OF INCOME (Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------- ------------------------
2002 2001 2002 2001
-------- -------- ---------- ----------
(In Thousands, Except Per Share Amounts)
Revenues $538,739 $441,238 $1,339,418 $1,426,584
Cost of sales:
Production and delivery 238,231 242,374 679,272 703,691
Depreciation and amortization 77,077 71,000 192,436 217,448
-------- -------- ---------- ----------
Total cost of sales 315,308 313,374 871,708 921,139
Exploration expenses 908 1,989 2,462 6,460
General and administrative
expenses 16,447 14,962 49,219 45,513
-------- -------- ---------- ----------
Total costs and expenses 332,663 330,325 923,389 973,112
-------- -------- ---------- ----------
Operating income 206,076 110,913 416,029 453,472
Equity in PT Smelting losses (1,864) (919) (5,223) (3,616)
Interest expense, net (41,388) (40,115) (129,162) (129,945)
Other income (expense), net 807 (7,915) (8,488) (4,795)
-------- -------- ---------- ----------
Income before income taxes
and minority interests 163,631 61,964 273,156 315,116
Provision for income taxes (81,134) (40,285) (155,988) (173,308)
Minority interests in net
income of consolidated
subsidiaries (11,534) (8,247) (23,063) (35,855)
-------- -------- ---------- ----------
Net income before cumulative
effect of accounting change 70,963 13,432 94,105 105,953
Cumulative effect of
accounting change, net - - (3,049) -
-------- -------- ---------- ----------
Net income 70,963 13,432 91,056 105,953
Preferred dividends (9,426) (9,184) (28,097) (27,374)
-------- -------- ---------- ----------
Net income applicable to
common stock $ 61,537 $ 4,248 $ 62,959 $ 78,579
======== ======== ========== ==========
Net income per share of
common stock:
Basic:
Before accounting change $.42 $.03 $.46 $.55
Cumulative effect of
accounting change - - (.02) -
---- ---- ---- ----
Net income per share of
common stock $.42 $.03 $.44 $.55
==== ==== ==== ====
Diluted:
Before accounting change $.39 $.03 $.45 $.54
Cumulative effect of
accounting change - - (.02) -
---- ---- ---- ----
Net income per share of
common stock $.39 $.03 $.43 $.54
==== ==== ==== ====
Average common shares
outstanding:
Basic 144,894 143,973 144,567 143,944
======= ======= ======= =======
Diluted 188,877 144,658 146,446 144,907
======= ======= ======= =======
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,
------------------------
2002 2001
--------- ---------
(In Thousands)
Cash flow from operating activities:
Net income $ 91,056 $ 105,953
Adjustments to reconcile net income
to net cash provided by
operating activities:
Depreciation and amortization 192,436 217,448
Cumulative effect of accounting change 3,049 -
Deferred income taxes 34,617 51,171
Equity in PT Smelting losses 5,223 3,616
Minority interests' share of
net income 23,063 35,855
Change in deferred mining costs (23,698) (26,167)
Amortization of deferred
financing costs 9,002 2,382
Currency translation adjustments 7,071 56
Other 8,745 1,774
(Increases) decreases in working capital:
Accounts receivable (43,229) 30,347
Inventories (26,990) 20,243
Prepaid expenses and other (1,658) 7,495
Accounts payable and accrued
liabilities (35,696) 22,884
Rio Tinto share of joint venture 31,680 (15,797)
cash flows
Accrued income taxes 29,589 17,857
(Increase) decrease in working capital (46,304) 83,029
--------- ---------
Net cash provided by operating
activities 304,260 475,117
--------- ---------
Cash flow from investing activities:
Purchase of restricted investments - (139,762)
PT Freeport Indonesia capital
expenditures (143,698) (109,400)
Atlantic Copper capital expenditures (1,962) (9,382)
Sale of restricted investments 47,938 -
Other (167) 4,572
--------- ---------
Net cash used in investing activities (97,889) (253,972)
--------- ---------
Cash flow from financing activities:
Proceeds from sale of convertible
senior notes - 582,619
Proceeds from other debt 342,607 77,523
Repayments of debt (485,286) (802,115)
Purchases of FCX common shares - (3,436)
Partial redemption of preferred stock (11,671) (10,386)
Cash dividends paid:
Preferred stock (27,896) (27,419)
Minority interests - (6,786)
Loans to Nusamba - (5,548)
Proceeds from exercised stock options 7,549 572
Other (1,234) (1,263)
--------- ---------
Net cash used in financing activities (175,931) (196,239)
--------- ---------
Net increase in cash and cash
equivalents 30,440 24,906
Cash and cash equivalents at
beginning of year 7,587 7,968
--------- ---------
Cash and cash equivalents at end
of period $ 38,027 $ 32,874
========= =========
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. The following is a
reconciliation of net income and weighted average common shares
outstanding for purposes of calculating diluted net income per
share (in thousands, except per share amounts):
Three months Nine months
ended ended
September 30, September 30,
---------------- ------------------
2002 2001 2002 2001
------- ------- -------- --------
Net income before preferred dividends
and cumulative effect of accounting
change $70,963 $13,432 $ 94,105 $105,953
Preferred dividends (9,426) (9,184) (28,097) (27,374)
------- ------- -------- --------
Net income before cumulative effect
of accounting change 61,537 4,248 66,008 78,579
Cumulative effect of accounting
change - - (3,049) -
------- ------- -------- --------
Net income applicable to common stock 61,537 4,248 62,959 78,579
Plus income impact of assumed
conversion of 8 1/4% Convertible
Senior Notes, after taxes 12,590 - - -
------- ------- -------- --------
Diluted net income applicable to
common stock $74,127 $ 4,248 $ 62,959 $ 78,579
======= ======= ======== ========
Weighted average common shares
outstanding 144,894 143,973 144,567 143,944
Add: Dilutive stock options 1,497 369 1,606 658
Restricted stock 266 316 273 305
Impact of assumed
conversion of 8 1/4%
Convertible Senior Notes 42,220 - - -
------- ------- -------- --------
Weighted average common shares
outstanding for purposes of
calculating diluted net income per
share 188,877 144,658 146,446 144,907
======= ======= ======== ========
Diluted net income per share of
common stock:
Before accounting change $ 0.39 $ 0.03 $ 0.45 $ 0.54
Cumulative effect of accounting
change - - (0.02) -
------- ------- -------- --------
Net income per share of common
stock $ 0.39 $ 0.03 $ 0.43 $ 0.54
======= ======= ======== ========
Outstanding stock options with exercise prices greater than
the average market price of the common stock during the period are
excluded from the computation of diluted net income per share of
common stock. In addition, our convertible preferred stock is
excluded for all periods presented and our 8 1/4% Convertible Senior
Notes are excluded for all periods presented other than the three
month period ended September 30, 2002. The convertible securities
are excluded because including the conversion of these instruments
would have increased the diluted net income per share reported for
the applicable period. A recap of the excluded amounts follows (in
thousands, except exercise prices):
Three months Nine months
ended ended
September 30, September 30,
-------------- ----------------
2002 2001 2002 2001
------ ------ ------- -------
Weighted average outstanding options 7,905 12,101 7,905 11,056
Weighted average exercise price $22.73 $20.71 $ 22.73 $21.60
Dividends on convertible preferred
stock $6,125 $6,125 $18,374 $18,374
Weighted average shares issuable
upon conversion 11,690 11,690 11,690 11,690
Interest on 8 1/4% Convertible Senior
Notes, net of taxes N/A $7,322 $37,900 $ 7,322
Weighted average shares issuable
upon conversion N/A 25,240 42,220 8,506
2. ACCOUNTING CHANGE - DEPRECIATION AND AMORTIZATION
Effective January 1, 2002, FCX changed its methodology used in
the determination of depreciation for the mining and
milling life-of-mine assets of PT Freeport Indonesia, FCX's
majority-owned Indonesian mining subsidiary. 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 its
developed and undeveloped reserves were depreciated using the unit-
of-production method based on total
6
developed and undeveloped proven and probable recoverable copper reserves.
Estimated future development costs, which are significant, are those
costs necessary to develop PT Freeport Indonesia's undeveloped ore bodies
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 consulting 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. PT Freeport Indonesia will continue to depreciate
infrastructure and other common costs over total proven and
probable recoverable 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 new methodology was to reduce depreciation
and amortization expense by $5.4 million in the third quarter of
2002 and $13.1 million in the first nine months of 2002, thus
increasing net income by $2.7 million, $0.01 per share, in the
third quarter of 2002 and by $6.7 million, $0.05 per share, in the
first nine months of 2002. On a pro forma basis, the new
methodology would have reduced depreciation and amortization
expense by $14.0 million in the third quarter of 2001 and $43.0
million in the first nine months of 2001, thus increasing net
income by $6.8 million, $0.05 per share, in the third quarter of
2001 and by $20.9 million, $0.14 per share, in the first nine
months of 2001.
3. 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
Exploration Refining and Other FCX Total
---------- -------- --------- ----------
(In Thousands)
Three months ended
September 30, 2002:
Revenues $ 479,928a $181,400 $(122,589) $ 538,739
Production and delivery 148,666 170,780 (81,215)b 238,231
Depreciation and
amortization 66,010 6,978 4,089 77,077
Exploration expenses 857 - 51 908
General and
administrative expenses 11,685 2,123 2,639 16,447
---------- -------- --------- ----------
Operating income $ 252,710 $ 1,519 $ (48,153) $ 206,076
========== ======== ========= ==========
Equity in PT Smelting
losses $ - $ 1,864 $ - $ 1,864
========== ======== ========= ==========
Interest expense, net $ 16,590 $ 4,649 $ 20,149 $ 41,388
========== ======== ========= ==========
Provision for income taxes$ 85,553 $ - $ (4,419) $ 81,134
========== ======== ========= ==========
Capital expenditures $ 62,788 $ 708 $ 695 $ 64,191
========== ======== ========= ==========
Total assets $3,326,172c $647,543d $ 231,044 $4,204,759
========== ======== ========= ==========
Three months ended
September 30, 2001:
Revenues $ 343,300a $200,007 $(102,069) $ 441,238
Production and delivery 145,719 190,763 (94,108)b 242,374
Depreciation and
amortization 63,107 6,818 1,075 71,000
Exploration expenses 1,936 - 53 1,989
General and
administrative expenses 11,217 2,092 1,653 14,962
---------- -------- --------- ----------
Operating income $ 121,321 $ 334 $ (10,742) $ 110,913
========== ======== ========= ==========
Equity in PT Smelting
losses $ - $ 919 $ - $ 919
========== ======== ========= ==========
Interest expense, net $ 20,137 $ 6,102 $ 13,876 $ 40,115
========== ======== ========= ==========
Provision for income taxes$ 37,272 $ - $ 3,013 $ 40,285
========== ======== ========= ==========
Capital expenditures $ 35,384 $ 2,053 $ 677 $ 38,114
========== ======== ========= ==========
Total assets $3,228,401c $667,461d $ 139,822 $4,035,684
========== ======== ========= ==========
7
Nine months ended
September 30, 2002:
Revenues $1,069,065a $556,997 $(286,644) $1,339,418
Production and delivery 401,934 524,690 (247,352)b 679,272
Depreciation and
amortization 161,689 20,622 10,125 192,436
Exploration expenses 2,357 - 105 2,462
General and
administrative expenses 41,513 6,209 1,497 49,219
---------- -------- --------- ----------
Operating income $ 461,572 $ 5,476 $ (51,019) $ 416,029
========== ======== ========= ==========
Equity in PT Smelting
losses $ - $ 5,223 $ - $ 5,223
========== ======== ========= ==========
Interest expense, net $ 54,500 $ 13,729 $ 60,933 $ 129,162
========== ======== ========= ==========
Provision for income taxes$ 148,690 $ - $ 7,298 $ 155,988
========== ======== ========= ==========
Capital expenditures $ 141,995 $ 1,962 $ 1,703 $ 145,660
========== ======== ========= ==========
Nine months ended
September 30, 2001:
Revenues $1,124,408a $553,532 $(251,356) $1,426,584
Production and delivery 404,360 540,614 (241,283)b 703,691
Depreciation and 193,279 20,453 3,716 217,448
amortization
Exploration expenses 6,222 - 238 6,460
General and 34,035 6,264 5,214 45,513
administrative expenses
Operating income (loss) $ 486,512 $(13,799) $ (19,241) $ 453,472
========== ======== ========= ==========
Equity in PT Smelting
losses $ - $ 3,616 $ - $ 3,616
========== ======== ========= ==========
Interest expense, net $ 74,736 $ 20,321 $ 34,888 $ 129,945
========== ======== ========= ==========
Provision for income taxes$ 151,801 $ - $ 21,507 $ 173,308
========== ======== ========= ==========
Capital expenditures $ 108,025 $ 9,382 $ 1,375 $ 118,782
========== ======== ========= ==========
a. Includes PT Freeport Indonesia sales to PT Smelting totaling
$114.6 million in the third quarter of 2002, $88.2 million in the
third quarter of 2001, $252.7 million in the first nine months of
2002 and $290.7 million in the first nine months of 2001.
b. Includes effect of changes in the 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 $7.4 million in the third quarter of 2002, $(2.8) million
in the third quarter of 2001, $6.3 million in the first nine months
of 2002 and $(2.7) million in the first nine months of 2001.
c. Includes PT Freeport Indonesia's trade receivables with PT
Smelting totaling $21.6 million at September 30, 2002 and $23.2
million at September 30, 2001.
d. Includes PT Freeport Indonesia's equity investment in PT
Smelting totaling $45.7 million at September 30, 2002 and $55.2
million at September 30, 2001.
4. COMPREHENSIVE INCOME
A recap of FCX's comprehensive income is shown below (in thousands).
Three months ended Nine months ended
September 30, September 30,
---------------- -------------------
2002 2001 2002 2001
------- ------- -------- --------
Net income $70,963 $13,432 $ 91,056 $105,953
Other comprehensive income (loss):
Cumulative effect of change in
accounting, no tax effect - - - (982)
Change in unrealized derivatives'
fair value:
Rupiah/Australian dollar currency
contracts (107) 9,049 7,014 4,651
Tax effect 46 (3,838) (2,996) (1,973)
Minority interest effect 6 (806) (413) (414)
Euro currency contracts, no tax
effect (487) 7,540 8,533 (10,177)
Interest rate swap contracts, no
tax effect (1,435) (1,890) (2,382) (3,170)
Reclass to earnings:
Rupiah/Australian dollar currency
contracts (3,261) (425) (7,689) 1,284
Tax effect 1,393 180 3,284 (545)
Minority interest effect 193 38 454 (114)
Euro currency contracts, no tax
effect (285) 856 1,678 2,187
Interest rate swap contracts, no
tax effect 766 499 2,343 433
------- ------- -------- --------
Total Comprehensive Income $67,792 $24,635 $100,882 $ 97,133
======= ======= ======== ========
8
5. INTEREST COST
Interest expense excludes capitalized interest of $4.0 million in
the third quarter of 2002, $2.5 million in the third quarter of
2001, $10.6 million in the first nine months of 2002 and $6.6
million in the first nine months of 2001.
6. RATIO OF EARNINGS TO FIXED CHARGES
The ratio of earnings to fixed charges for the first nine months of
2002 and 2001 was 2.9 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, FCX is
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. FCX has begun work
on identifying and quantifying its asset retirement obligations in
accordance with the new standard, but currently does 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) and
subsidiaries as of September 30, 2002 and the related statements of
income for the three-month and nine-month periods ended September
30, 2002 and the statement of cash flows for the nine months ended
September 30, 2002. These financial statements are the
responsibility of the Company's management. The accompanying
statements of income for the three-month and nine-month periods
ended September 30, 2001 and the statement of cash flows for the
nine months ended September 30, 2001 were reviewed by other
accountants who have ceased operations and whose report (dated
October 16, 2001) stated that they were not aware of any material
modifications that should be made to those statements for them to
be in conformity with accounting principles generally accepted in
the United States.
We conducted our review in accordance with standards
established by the American Institute of Certified Public
Accountants. A review of interim financial information consists
principally of applying analytical procedures to financial data,
and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit
conducted in accordance with auditing standards generally accepted
in the United States, which will be performed for the full year
with the objective of expressing an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such
an opinion.
Based on our review, we are not aware of any material
modifications that should be made to the accompanying financial
statements as of September 30, 2002, and for the three-month and
nine-month periods then ended for them to be in conformity with
accounting principles generally accepted in the United States.
ERNST & YOUNG LLP
New Orleans, Louisiana
October 15, 2002
9
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. Our field exploration activities outside
of our current mining operations in Block A have been temporarily
suspended (see "Exploration Activities"). You should read our
financial statements, the releated discussion and analysis of
financial condition and results of operations and our discussion
of "Business and Properties" in our Form 10-K for the year ended
December 31, 2001, filed with the Securities and Exchange Commission.
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 JPMorgan 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. Through September 30, 2001, we loaned
Nusamba $65.3 million to cover such shortfalls and we charged to
expense $3.7 million of this amount because the loans exceeded Nusamba's
initial cash investment.
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. For accounting
purposes, the transactions were deemed effective as of December
31, 2001. As a result of our payment of the Nusamba bank loan,
our ownership interest in PT Freeport Indonesia increased to 90.6
percent from 85.9 percent, our ownership interest in Eastern
Minerals increased to 100 percent from 95 percent and our balance
sheet as of December 31, 2001, includes the following:
* An additional liability of $253.4 million to reflect the
borrowings to fund the repayment of the Nusamba bank loan,
* A reduction of "other assets" by $61.6 million to reflect
the nonpayment of our loan to Nusamba for interest shortfalls
through June 30, 2001,
* 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 reflect an increased ownership
interest in PT Freeport Indonesia resulting from the Nusamba
acquisition (90.6 percent compared with 85.9 percent for 2001),
which resulted in additional income, after income taxes, of
approximately $5.3 million in the third quarter, net of
approximately $0.9 million of additional intercompany profit
deferred for PT Freeport Indonesia's concentrate sales to
Atlantic Copper, and approximately $8.8 million in the first nine
months, net of approximately $1.8 million of additional
intercompany profit deferred. Interest costs related to the
$253.4 million loan under our bank credit facilities totaled $3.4
million in the third quarter of 2002 and $11.2 million for the
first nine months of 2002. From June 2001 through December 2001,
we recognized an expense for the interest costs we were required
to fund under the Nusamba loan guarantee. The Nusamba
acquisition resulted in additional depreciation and amortization
expense for the increase in property, plant and equipment of $3.0
million in the third quarter of 2002 and $7.4 million in the
first nine months of 2002. In total, the Nusamba-related
transactions reduced our consolidated net income by $1.2 million
in the third quarter of 2002 and by $9.8 million in the first
nine months of 2002.
10
CRITICAL ACCOUNTING ESTIMATES
Management's discussion and analysis of our financial condition
and results of operations are based on our consolidated
financial statements, which have been prepared in conformity with
accounting principles generally accepted in the United States.
The preparation of these statements requires that we make
estimates and assumptions that affect the reported amounts of
assets, liabilities, revenues and expenses. We base these
estimates on historical experience and on assumptions that we
consider reasonable under the circumstances; however, reported
results could differ from those based on the current estimates
under different assumptions or conditions. The areas requiring
the use of management's estimates are discussed in Note 1, "Use
of Estimates," to our consolidated financial statements included
in our Form 10-K for the year ended December 31, 2001. Unless
otherwise noted, the assumptions and estimates described below
are critical accounting estimates for our mining and exploration
segment, our most significant segment.
Management has reviewed the following discussion of its
development and selection of critical accounting estimates with
the Audit Committee of our Board of Directors.
* Reclamation and Closure Costs - Our mining operations
involve activities that have a significant effect on the area in
which those operations take place. As a result, we are required
to incur reclamation and closure costs during production and after
our mining operations cease. Our estimates for reclamation and
closure costs primarily consist of estimates of costs to treat
acidic water (also known as acid rock drainage) created by overburden,
reclamation and revegetation of a large area in the lowlands of Papua
where mill tailings are deposited, reclamation of
overburden stockpiles and other costs to decommission operating
assets. The accounting estimates related to
reclamation and closure costs are critical accounting estimates
because (1) we will not incur most of these costs for a number of
years, requiring us to make long-term estimates; (2) the
Government of Indonesia could amend their reclamation and closure
laws and regulations in the future or circumstances affecting
our operations could change, resulting in significant
changes to our current plans; and (3) given the magnitude of our
estimated reclamation and closure costs, changes in these
estimates could have a material impact on net income.
As of September 30, 2002, PT Freeport Indonesia had $27.7
million accrued for mine closure and reclamation costs. The
most highly uncertain matter that could have a material effect
on the assumptions underlying this critical estimate is the
costs associated with the management of acid rock drainage.
We currently accrue for our estimated reclamation and
closure costs on a unit-of-production basis over the life of
our estimated proven and probable recoverable copper reserves.
For a discussion of the assumptions that we make to estimate
our proven and probable recoverable copper reserves, see "Depreciation
and Amortization" below. PT Freeport Indonesia's best estimate at
this time is that ultimate reclamation and closure costs
(including those that we expect to pay during mining
operations) may require in excess of $100 million but are not
expected to exceed $150 million. Our estimated reclamation
and closure costs are based on management's internal
assessments of the costs to develop and implement technology
for the treatment of captured acid rock drainage and of costs
to decommission assets.
Future changes to governmental rules and regulations could
also require us to revise our plans, and could result in
material changes to our critical accounting estimate for
reclamation and closure costs. In addition, we are currently
working with third-party consultants to develop a
comprehensive mine closure plan as part of our environmental
commitments to the Government of Indonesia and to prepare
estimates of our asset retirement obligations in anticipation
of our adoption of Statement of Financial Accounting Standards
No. 143, "Accounting for Asset Retirement Obligations." This
new accounting standard, which we must implement effective no
later than January 1, 2003, requires the fair value of
estimated asset retirement obligations to be recorded in the
period incurred, whereas we currently accrue for estimated
future reclamation and mine closure costs over the estimated
life of the mine using a unit-of-production method. Under the
new accounting standard, we will estimate these obligations
using an expected cash flow approach, in which we expect to
use multiple cash flow scenarios to reflect a range of possible
outcomes and a credit-adjusted risk-free interest rate to
estimate fair value. We will record the fair value of these
obligations as additional property, plant, equipment and
development costs and record accrued reclamation and closure
liabilities.
The completed mine closure plan and the adoption of
Statement of Accounting Standards No. 143 may result in
material adjustments to our property, plant, equipment and
development cost balances
11
and our accrued reclamation and closure liabilities as of
January 1, 2003, as well as additional depreciation expense and
accretion expense thereafter. Because the closure plan study and our
assessment of the impact of our adopting Statement of Financial
Accounting Standards No. 143 are in progress, we are unable to
quantify the impact that changes in these estimates may have
on our financial condition or results of operations.
* Depreciation and Amortization - As discussed in the notes to
our consolidated financial statements included in our Form 10-K
for the year ended December 31, 2001, we depreciate our mining
and milling assets using the unit-of-production method based on
our estimate of our proven and probable recoverable copper
reserves. We have other assets which we depreciate on a straight-
line basis over their estimated useful lives. Our estimates of
proven and probable recoverable copper reserves and of the useful
lives of our straight-line assets impact our depreciation and
amortization expense. Both our "mining and exploration" and
"smelting and refining" segments are affected by some or all of
these estimates.
Effective January 1, 2002, we changed our methodology used in
the determination of depreciation for the mining and milling
life-of-mine assets of PT Freeport Indonesia. 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 recoverable copper reserves. Estimated
future development costs, which are significant, are those costs
necessary to develop PT Freeport Indonesia's undeveloped ore bodies
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 consulting with the
accounting staff of the Securities and Exchange Commission, we
decided to revise our 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 recoverable copper reserves. We will continue to
depreciate infrastructure and other common costs over total
proven and probable recoverable copper reserves. The
cumulative effect of this change through December 31, 2001, as
reflected in our first-quarter 2002 results, reduced income by
$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 $5.4 million,
$2.7 million to net income or $0.01 per share in the third
quarter of 2002 and by $13.1 million, $6.7 million to net
income or $0.05 per share for the first nine months of 2002.
Had PT Freeport Indonesia followed the new methodology during
2001, our third-quarter 2001 depreciation and amortization
expense would have been reduced by $14.0 million, $6.8 million
to net income or $0.05 per share and by $43.0 million, $20.9
million to net income or $0.14 per share for the first nine
months of 2001.
The accounting estimates related to
depreciation and amortization are critical accounting
estimates because (1) the determination of copper reserves
involves uncertainties with respect to the ultimate geology of
our reserves and the assumptions used in determining the
economic feasibility of mining those reserves, including
estimated copper and gold prices and costs of conducting
future mining activities and (2) changes in estimated proven
and probable recoverable copper reserves and useful asset
lives can have a material impact on net income. We perform
annual assessments of our existing assets, including a review
of asset costs and depreciable lives, in connection with the
review of mine operating and development plans. When we
determine that assigned asset lives do not reflect the
expected remaining period of benefit, we make prospective
changes to their depreciable lives.
We made changes to certain asset lives at PT Freeport
Indonesia, primarily power generation assets, in 2001. As
disclosed in Note 1 to our consolidated financial statements
included in our Form 10-K for the year ended December 31,
2001, these changes resulted from a review of recent operating
history and current maintenance practices. The impact of the
changes was to decrease depreciation expense for 2001 by $25.6
million, increasing net income by $12.5 million ($0.09 per
share). Also as disclosed in Note 1 to our consolidated
financial statements included in our Form 10-K for the year
ended December 31, 2001, in 2001 we increased our estimates of
future development costs related to our undeveloped ore
bodies, which increased depreciation expense for 2001 by $39.8
million, decreasing net income by $19.4 million ($0.13 per
share). However, because of the change in
12
our depreciation methodology effective January 1, 2002 discussed
above, we no longer include estimates of future development costs
in our depreciation calculations.
There are a number of uncertainties inherent in
estimating quantities of reserves, including many factors
beyond our control. Ore reserves estimates are based upon
engineering evaluations of samplings of drill holes and other
openings. Our estimates of proven and probable recoverable
reserves are prepared by our employees and verified by
independent experts in mining, geology and reserve
determination. As of December 31, 2001, aggregate proven and
probable recoverable copper reserves totaled 52.5 billion
pounds and PT Freeport Indonesia's estimated share totaled
39.4 billion pounds. These estimates involve assumptions
regarding future copper and gold prices, the geology of our
mines, the mining methods we use and the related costs we
incur to develop and mine our reserves. Changes in these
assumptions could result in material adjustments to our
reserve estimates that could result in changes to unit-of-
production depreciation and amortization expense in future
periods, with corresponding adjustments to net income. If
aggregate estimated copper reserves were 10 percent higher at
December 31, 2001, we estimate that our annual depreciation
expense for 2002 would have decreased by approximately $12
million, increasing net income by approximately $7 million.
If aggregate estimated copper reserves were 10 percent lower
at December 31, 2001, we estimate that our annual depreciation
expense for 2002 would have increased by approximately $15
million, decreasing net income by approximately $8 million.
Although some degree of variability is expected, we believe
the extent of our technical data and operating experience -
specifically as it relates to our Grasberg open pit mine,
which we have been mining for over 10 years - mitigates the
potential for significant changes in reserve estimates,
especially as compared with mines that are undeveloped or
newly developed.
Changes to our estimates of proven and probable recoverable
copper and gold reserves could also have an impact on our
assessment of asset impairment. As discussed in Note 1 of our
consolidated financial statements included in our Form 10-K
for the year ended December 31, 2001, we review and evaluate
our long-lived assets for impairment when events or changes in
circumstances indicate that the related carrying amounts may
not be recoverable. However, we believe it is unlikely that
revisions to our estimates of proven and probable recoverable
copper and gold reserves would give rise to an impairment of
our assets because of the significant size of our reserves in
relation to our asset carrying values.
* Deferred Mining Costs - In general, mining costs are charged
to operations as incurred. Because of the configuration and
location of the Grasberg ore body and the location and extent of
surrounding overburden, the ratio of overburden to ore is much
higher in the initial mining of the pit than in later years. As
a result, surface mining costs associated with overburden removal
at PT Freeport Indonesia's open-pit mine that are estimated to
relate to future production are initially deferred and
subsequently charged to operating costs when the ratio of actual
overburden removed to ore mined falls below the estimated average
ratio of overburden to ore over the life of the Grasberg open
pit. The Grasberg open-pit mine is currently our only open-pit
mine.
We believe the estimated average ratio of overburden to
ore over the life of the Grasberg open pit is a critical
accounting estimate because (1) it is susceptible to change
from period to period because it requires management to make
assumptions about the future mine plan; and (2) changes in it
could materially impact net income. Our mine plan is derived
from a model that takes into consideration available
geological data and determines the most efficient and cost
effective method of accessing the economic reserves.
Significant assumptions underlying our mine plan include the
amount of total overburden and ore we expect to move in a
given year and the ultimate configuration of the pit.
From the fourth quarter of 2001 through September 30, 2002,
PT Freeport Indonesia's estimated life-of-mine overburden-to-
ore ratio was 1.8 to 1. PT Freeport Indonesia's geologists
and engineers reassess the overburden-to-ore ratio and the
remaining life of the Grasberg open pit mine at least
annually, and we reflect any changes in our estimates
prospectively beginning in the quarter of change. Beginning
with the fourth quarter of 2002, PT Freeport Indonesia expects
the ratio to change to 1.9 to 1 based on its recently
completed annual assessment. As disclosed in Note 1 to our
consolidated financial statements included in our Form 10-K
for the year ended December 31, 2001, ongoing delineation
drilling efforts combined with successive large expansions of
PT Freeport Indonesia's mining and milling capacity caused
significant variability in engineering estimates of the
quantity of overburden to be removed over the Grasberg pit's
life. As a result, PT Freeport Indonesia's determined its
deferral of overburden removal costs using overburden-to-ore
ratios excluding the years near the end of the productive life
of the Grasberg pit, and these ratios had not varied
significantly prior to 2000. However, during the fourth
quarter of 2000 PT Freeport Indonesia
13
determined that its
future surface mine plans were sufficiently established to
substantiate the use of estimated life-of-mine overburden
tonnage in its 2001 mine plan in the determining its deferred
overburden removal costs at the Grasberg open-pit mine and
changed its life-of-mine overburden-to-ore ratio to 1.6 to 1
from 2.4 to 1. The fourth-quarter 2000 impact of the change
was a $9.9 million deferral of mining costs, which increased
net income by approximately $5 million.
Although some degree of variability is expected, we believe
the extent of our technical data and operating experience -
specifically as it relates to our Grasberg open pit mine,
which we have been mining for over 10 years - mitigates the
potential for significant changes in overburden-to-ore
estimates, especially as compared with mines that are
undeveloped or newly developed. For 2002, if the life-of-mine
overburden-to-ore ratio was 1.65 to 1 as calculated using an
alternate pit configuration, instead of the 1.8 to 1 ratio we
used through September 30, 2002, we estimate our deferral of
mining costs for 2002 would be approximately $7 million higher
and net income would be approximately $4 million higher.
CONSOLIDATED RESULTS
Summary comparative results for the third-quarter and nine-month
periods follow (in millions, except per share amounts):
Third Quarter Nine Months
---------------- -------------------
2002 2001 2002 2001
------ ------ -------- --------
Revenues $538.7 $441.2 $1,339.4 $1,426.6
Operating income 206.1 110.9 416.0 453.5
Net income applicable to common
stock before cumulative effect
adjustment 61.5 4.2 66.0 78.6
Net income applicable to common stock 61.5 4.2 63.0 78.6
Diluted net income per share:
Before cumulative effect adjustment .39 .03 .45 .54
Applicable to common stock .39 .03 .43 .54
Our consolidated revenues include PT Freeport Indonesia's
sale of copper concentrates, which also contain significant
amounts of gold, after eliminating PT Freeport Indonesia's
intercompany sales to Atlantic Copper, 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
annual 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 (2.25
million ounces) would have an approximate $11 million impact on
our annual revenues and an approximate $6 million impact on our
net income.
Our consolidated revenues for the third quarter of 2002
reflect record copper and gold sales volumes at PT Freeport
Indonesia. Late in the second quarter of 2002, we began mining
higher grade ore which we expect to mine into the first half of
next year. Consolidated revenues for the first nine months of 2002
were lower when compared with the first nine months of 2001 primarily
because of lower gold sales volumes in the first six months of
2002.
Third-quarter 2002 consolidated revenues include net
reductions of $10.3 million ($5.3 million to net income or $0.03
per share) for final pricing of concentrates sold in prior quarters
and other less significant adjustments, compared with net reductions
$13.2 million ($6.4 million to net income or $0.04 per share) to
third-quarter 2001 revenues. Nine-month 2002 consolidated revenues
included net additions of $5.4 million ($2.8 million to net income or
$0.02 per share), compared with net reductions of $2.8 million ($1.4
million to net income or $0.01 per share) in the first nine
months of 2001 for adjustments to prior year concentrate sales,
principally resulting from copper pricing.
Consolidated cost of sales for the third quarter of 2002 did
not vary significanlty from the third quarter of 2001. Production and
delivery costs were slightly lower, but depreciation and
amortization expense was slightly higher in the third quarter of
2002. Higher depreciation and amortization expense
14
resulted from higher sales, partially offset by a lower depreciation
rate at PT Freeport Indonesia reflecting the change in methodology
(see "Critical Accounting Estimates" and Note 2).
For the nine-month 2002 period, consolidated cost of sales was
lower primarily because of lower depreciation and amortization
expense at PT Freeport Indonesia as a result of the change in our
depreciation methodology. Our exploration expenses declined to
$0.9 million in the third quarter of 2002 and $2.5 million in the
first nine months of 2002, from $2.0 million and $6.5 million, respectively,
in the 2001 periods reflecting our efforts to reduce costs during
periods of continued low commodity prices and the continued
suspensions under our Contracts of Work outside of Block A.
Third-quarter 2002 general and administrative expenses of
$16.4 million were $1.4 million higher than the $15.0 million
reported in the third quarter of 2001, and for the first nine
months of 2002 general and administrative expenses of $49.2
million were $3.7 million higher than the $45.5 million reported
in the first nine months of 2001.
Our "Other income (expense), net" includes the impact of
translating Atlantic Copper's net euro-denominated liabilities,
primarily its retiree pension obligation. Changes in the
U.S.$/euro exchange rate require us to adjust the dollar value of
our net euro-denominated liabilities and record the adjustment in
earnings. The exchange rate was $0.88 per euro at December 31,
2001, $1.00 per euro at June 30, 2002 and $0.99 per euro at
September 30, 2002. Exchange rate effects on our net income from
euro-denominated liabilities were gains or (losses) of $1.7 million
in the third quarter of 2002, $(4.4) million in the third quarter
of 2001, $(7.1) million in the first nine months of 2002 and
$(0.1) million in the first nine months of 2001.
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 (loss) data
for each of our two operating segments follow (in millions):
Third Quarter Nine Months
---------------- -----------------
2002 2001 2002 2001
------ ------ ------ -------
Mining and exploration $252.7 $121.3 $461.6 $ 486.5
Smelting and refining 1.5 0.3 5.5 (13.8)
Intercompany eliminations
and other (48.1) (10.7) (51.1) (19.2)
------ ------ ------ -------
FCX operating income a $206.1 $110.9 $416.0 $ 453.5
====== ====== ====== =======
a. We defer profits on PT Freeport Indonesia's sales to Atlantic
Copper and 25 percent of PT Freeport Indonesia's sales to PT
Smelting until the final sale to third parties has occurred.
Changes in the amount of these deferred profits impacted
operating income by $(40.7) million in the third quarter of
2002, $(7.0) million in the third quarter of 2001, $(37.9)
million in the first nine months of 2002 and $(6.4) million
in the first nine months of 2001. 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 - prior year period $343.3 $1,124.4
Increases (decreases):
Sales volumes:
Copper 62.4 13.1
Gold 54.9 (142.3)
Price realizations:
Copper 7.1 (2.2)
Gold 32.8 62.4
Adjustments, primarily for copper pricing
on prior period sales (1.6) 14.9
Treatment charges, royalties and other (19.0) (1.2)
------ --------
PT Freeport Indonesia revenues - current year period $479.9 $1,069.1
====== ========
15
Record quarterly copper and gold sales volumes benefited PT
Freeport Indonesia's third-quarter 2002 revenues when compared
with the 2001 quarter. Copper sales volumes totaled
446.0 million pounds during the third quarter of 2002, 27 percent
higher than the 350.6 million pounds reported in the 2001
quarter. Gold sales volumes totaled 884,600 ounces during the
third quarter, 29 percent higher than the 686,300 ounces reported
in the 2001 quarter. Quarterly sales volumes reflect
the mining of higher-grade ore from the Grasberg open pit mine
and the sale of concentrate inventory at June 30, 2002, which
included approximately 30 million pounds of copper and 55,000
ounces of gold, net to PT Freeport Indonesia's interest.
Concentrate inventory at September 30, 2002 included
approximately 9 million pounds of copper and 22,000 ounces of
gold, net to PT Freeport Indonesia's interest. Third-quarter
2002 revenues also benefited from higher copper and gold price
realizations. Copper price realizations averaged $0.67 per pound
for the third quarter of 2002, compared with $0.65 per pound for
the third quarter of 2001. Gold price realizations in the third
quarter of 2002 averaged $314.19 per ounce and were over $37 per
ounce higher than third-quarter 2001 realizations.
For the nine-month periods, copper sales volumes totaled
1,092.5 million pounds for the period ended September 30, 2002, 2
percent higher than the 1,073.8 million pounds reported in the
2001 period. Copper price realizations were essentially unchanged.
Gold sales volumes for the first nine months of
2002 totaled 1.6 million ounces, 24 percent lower than the 2.1
million ounces reported in the prior-year period. Partially
offsetting the lower gold sales volumes, were higher gold price
realizations of $307.34 per ounce for the first nine months of
2002 compared to $268.70 per ounce for the first nine months of
2001.
Treatment charges in total were higher in the 2002 periods
because of the higher copper sales volumes. Royalties
were $3.2 million higher in the third quarter of 2002 and $3.7
million lower in the first nine months of 2002 compared with the
2001 periods primarily because of the variance in gold sales
volumes.
Substantially all of PT Freeport Indonesia's concentrates
sales contracts provide for final copper pricing in a specified
future period based on world metals prices, primarily prices
quoted on the London Metal Exchange (LME). PT Freeport
Indonesia records revenues and invoices its customers based on
LME prices at the time of shipment. Under accounting rules,
these terms create an "embedded derivative" in our concentrate
sales contracts that must be adjusted to fair value through
earnings each period until the date of final copper pricing. PT
Freeport Indonesia's third-quarter 2002 revenues include net
reductions of $24.0 million for adjustments to the fair value of
embedded derivatives in concentrate sales contracts, compared
with net reductions of $19.2 million to third-quarter 2001
revenues. PT Freeport Indonesia's nine-month 2002 revenues
included net reductions of $9.3 million for adjustments to the
fair value of embedded derivatives in concentrate sales
contracts, compared with net reductions of $49.8 million in the
first nine months of 2001.
At September 30, 2002, we had consolidated embedded
derivatives on copper sales totaling 170.6 million pounds
recorded at an average price of $0.66 per pound. We expect final
prices on nearly all of these sales during the fourth quarter of
2002. A one-cent movement in the average price used for these
provisional billings will have an approximate $0.9 million impact
on our 2002 consolidated 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 nine months of 2002,
and as of September 30, 2002, PT Freeport Indonesia did not have
any price protection programs in place for its copper and gold
sales other than our gold-denominated preferred stock. As
conditions warrant, PT Freeport Indonesia may enter into new
contracts for its future sales; however, it has no plans or
intentions to do so in the foreseeable future.
PT Freeport Indonesia has commitments from various parties,
including Atlantic Copper and PT Smelting, to purchase all of its
estimated production for the remainder of 2002 and virtually all
of its estimated 2003 production. Net of Rio
Tinto's interest, PT Freeport Indonesia's share of sales for the
fourth quarter of 2002 is projected to approximate 415 million
pounds of copper and 630,000 ounces of gold. PT Freeport
Indonesia's share of sales for 2002 is projected to approximate
1.5 billion pounds of copper and 2.25 million ounces of gold.
16
PT Freeport Indonesia Operating Results
Third Quarter Nine Months
------------------- ---------------------
2002 2001 2002 2001
--------- ------- --------- ---------
PT Freeport Indonesia
Net of Rio Tinto's Interest
Copper (recoverable)
Production (000s of pounds) 425,900 341,000 1,097,100 1,077,200
Production (metric tons) 193,200 154,700 497,600 488,600
Sales (000s of pounds) 446,000 350,600 1,092,500 1,073,800
Sales (metric tons) 202,300 159,000 495,600 487,100
Average realized price
per pound $.67 $.65 $.70 $.70
Gold (recoverable)
Production (ounces) 851,500 673,800 1,631,500 2,156,200
Sales (ounces) 884,600 686,300 1,614,900 2,144,600
Average realized price
per ounce $314.19 $277.08 $307.34 $268.70
Gross profit per pound of copper (cents):
Average realized price 67.0 65.4 69.7 69.9
------- ------- --------- ---------
Production costs:
Site production and delivery 33.1a 40.7a 36.4a 37.4a
Gold and silver credits (63.4) (55.1) (46.7) (54.8)
Treatment charges 18.1 18.0 18.3 18.1
Royalty on metals 2.0 1.7 1.5 1.9
------- ------- --------- ---------
Cash production costs (10.2) 5.3 9.5 2.6
Depreciation and amortization 14.8 18.0 14.8 18.0
------- ------- --------- ---------
Total production costs 4.6 23.3 24.3 20.6
Adjustments, primarily for
copper pricing on
prior period open sales (2.7) (2.9) 1.2 -
------- ------- --------- ---------
Gross profit per pound of copper 59.7 39.2 46.6 49.3
======= ======= ========= =========
PT Freeport Indonesia,
100% Operating Statistics
Ore milled (metric tons
per day) 219,800 244,600 234,500 238,100
Average ore grade
Copper (percent) 1.31 0.96 1.11 1.04
Gold (grams per metric ton) 1.85 1.36 1.17 1.53
Gold (ounce per metric ton) .059 .044 .038 .049
Recovery rates (percent)
Copper 90.8 85.3 88.0 87.1
Gold 90.1 89.9 88.1 89.0
Copper (recoverable)
Production (000s of pounds) 510,300 389,900 1,325,000 1,237,200
Production (metric tons) 231,500 176,900 601,000 561,200
Sales (000s of pounds) 534,800 401,000 1,319,500 1,233,600
Sales (metric tons) 242,600 181,900 598,500 559,600
Gold (recoverable ounces)
Production 1,053,100 887,700 2,053,100 2,816,200
Sales 1,096,000 903,900 2,032,100 2,798,700
a. Net of deferred mining costs totaling $11.3 million (2.5
cents per pound) in the third quarter of 2002, $8.1 million (2.3
cents per pound) in the third quarter of 2001, $23.7 million (2.2
cents per pound) in the first nine months of 2002 and $26.2
million (2.4 cents per pound) in the first nine months of 2001.
PT Freeport Indonesia's third-quarter 2002 copper and gold
production increased significantly, compared with the third
quarter of 2001, primarily because of higher ore grades and the positive
performance of all sections of its operations and support functions. Third-
quarter 2002 copper ore grades improved to 1.31 percent from 0.96
percent in the prior-year quarter and gold ore grades improved to
1.85 grams per metric ton from 1.36 grams per metric ton in the
prior-year quarter. The mining of higher-grade material and
record copper recoveries (90.8 percent) allowed PT Freeport
Indonesia to report record
17
quarterly copper and gold sales. The record-breaking performance
reflects the higher-grade ore that we began to access late in the
second quarter of 2002.
At the Deep Ore Zone underground mine, production averaged
25,800 metric tons of ore per day in the third quarter of 2002,
compared with 7,000 metric tons of ore per day in the third
quarter of 2001. We expect to expand the Deep Ore Zone mine's
production rates to reach 35,000 metric tons of ore
per day in the first half of 2003. Production from our other
producing underground mine, the Intermediate Ore Zone, averaged
21,000 metric tons of ore per day in the third quarters of 2002
and 2001. We expect production at the Intermediate Ore Zone mine
to decline and its ore reserves to be depleted by the end of 2003.
Unit site production and delivery costs in the third quarter
of 2002 averaged $0.33 per pound of copper, $0.08 per pound lower
than the $0.41 reported in the third quarter of 2001 primarily
because of the higher volumes resulting from higher-grade ore
mined and record copper recoveries. For the first nine months of
2002, unit site production and delivery costs of $0.36 per pound
were $0.01 per pound lower than the $0.37 per pound in the 2001
period primarily because of higher volumes. Higher grades of ore
mined also resulted in higher gold credits of $0.63 per pound in
the 2002 quarter, compared with the 2001 quarter level of $0.55
per pound. Gold credits for the first nine months of 2002 of
$0.47 per pound, however, were lower than the gold credits of
$0.55 per pound in the 2001 period. Gold ore grades for the
third quarter of 2002 improved by 36 percent, compared with the
third quarter of 2001, while gold ore grades for the first nine
months of 2002 declined by 24 percent, compared with the first
nine months of 2001. Because of the physical characteristics of
the Grasberg ore body, the sequencing of mining results in production
of ore of varying grades. Grade variances are more pronounced for
gold than copper. Royalties totaled $9.0 million in the third
quarter of 2002, $5.8 million in the third quarter of 2001, $16.4
million in the first nine months of 2002 and $20.1 million in the
first nine months of 2001, reflecting higher copper and gold sales
volumes in the 2002 quarter and lower gold sales volumes in the
2002 nine-month period when compared with the 2001 periods.
Record-low quarterly unit net cash production costs,
including gold and silver credits, totaled a net credit of $0.10
per pound for the first nine months of 2002, and for the full
year 2002 we expect them to average less than $0.10 per pound of
copper, assuming current gold prices of $315 per ounce and annual
gold sales of 2.25 million ounces.
Our operations are conducted in Indonesia and Spain, where our
functional currency is the U.S. dollar. All of our revenues and
significant costs 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
in relation to these foreign currencies and adversely affected
when the U.S. dollar weakens in relation to these foreign
currencies.
Since 1997, the Indonesian rupiah/U.S. dollar exchange rate
has been volatile. One U.S. dollar was equivalent to 9,002
rupiahs at September 30, 2002, 8,710 rupiahs at June 30, 2002 and
10,160 rupiahs at December 31, 2001. PT Freeport Indonesia
recorded losses related to its rupiah-denominated assets and
liabilities totaling $1.0 million in the third quarter of
2002 and $2.6 million in the first nine months of 2002, compared
with $0.3 million in the third quarter of 2001 and $1.0 million
in the first nine months of 2001. Operationally, changes in the
U.S. dollar/rupiah exchange rate primarily impact PT Freeport
Indonesia's labor costs, which are mostly rupiah-denominated. At
estimated annual aggregate rupiah payments of 900 billion and the
September 30, 2002 exchange rate of 9,002 rupiahs to one U.S.
dollar, a one-thousand-rupiah increase in the exchange rate would
result in an approximate $10 million decrease in annual operating
costs and a one-thousand-rupiah decrease in the exchange rate
would result in an approximate $12 million increase in annual
operating costs, before any hedging effects.
PT Freeport Indonesia purchases materials and supplies
denominated in Australian dollars. The exchange rate was $0.54
to one Australian dollar at September 30, 2002, $0.56 to one
Australian dollar at June 30, 2002 and $0.51 to one Australian
dollar at December 31, 2001. At estimated annual aggregate
Australian dollar payments of 225 million and the September 30,
2002 exchange rate of $0.54 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.
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 September 30, 2002, PT Freeport Indonesia had foreign currency
contracts to hedge 119.6 billion of rupiah payments, or
approximately 50 percent of aggregate projected rupiah payments
for the remainder of 2002 at an
18
average exchange rate of 13,076
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 $1.5 million.
PT Freeport Indonesia had foreign currency contracts hedging
the Australian dollar during 2001, but currently has no contracts
hedging the Australian dollar. PT Freeport Indonesia recorded
net gains (losses) to production costs for its foreign currency
contracts totaling $3.3 million in the third quarter of 2002,
$0.4 million in the third quarter of 2001, $7.7 million in the
first nine months of 2002 and $(1.3) million in the first nine
months of 2001. On a consolidated basis, we recorded net gains
(charges) to Other Comprehensive Income, a component of
stockholders' equity, totaling $(1.7) million in the third
quarter of 2002, $4.2 million in the third quarter of 2001,
$(0.3) million in the first nine months of 2002 and $2.9 million
in the first nine months of 2001 related to PT Freeport
Indonesia's currency hedging contracts that remained open as of
the end of those periods.
Exploration Activities
Block A exploration efforts in the first nine months of 2002 were
associated with delineation drilling for a 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
total 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 investment in smelters (Atlantic Copper and PT Smelting)
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 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. 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
Third Quarter Nine Months
------------------ -------------------
2002 2001 2002 2001
------- ------- ------- -------
Cash margin (in millions) $11.9 $10.0 $35.0 $14.7
Operating income (loss)(in millions) $1.5 $0.3 $5.5 $(13.8)
Concentrate treated (metric tons) 258,200 240,100 759,000 640,900
Anodes production (000s of pounds) 164,500 169,600 486,700 447,900
Cathodes, wire rod and wire sales
(000s of pounds) 137,100 138,000 413,300 402,700
Gold sales in anodes and slimes
(ounces) 154,000 274,900 565,400 564,100
Atlantic Copper's cash margin, which is revenues less
production costs, was $1.9 million higher in the 2002 quarter,
compared with the 2001 quarter, and $20.3 million higher in the
first nine months of 2002, compared with the first nine months of
2001. Atlantic Copper's scheduled 27-day major maintenance
turnaround in April 2001 negatively impacted its cash margin for
the first nine months of 2002. The major maintenance turnaround
was completed at a total cost of approximately $15 million
19
(approximately $9 million of direct costs and $6 million related
to lower sales volumes). We expect that the next scheduled major
maintenance turnaround will occur in 2004. Atlantic Copper
treated 8 percent more concentrates in the third quarter of 2002,
compared with the third quarter of 2001, however copper
production was lower in the 2002 period primarily because of
lower average concentrate grades. Atlantic Copper's cathode cash
production costs per pound of copper, before currency hedging,
averaged $0.12 in both the 2002 and 2001 quarters, and $0.12 in
the first nine months of 2002, compared with $0.15 in the first
nine months of 2001. The higher unit costs in the 2001 nine-
month period primarily reflect lower throughput and higher
maintenance costs associated with the major maintenance
turnaround. Atlantic Copper's average treatment rates, which are
what we and third parties pay Atlantic Copper to smelt and refine
concentrates, continue at historically low levels of $0.18 per
pound for the 2002 third quarter and $0.17 for the first nine
months of 2002, compared with $0.17 per pound for the 2001
periods. The outlook for treatment rates in the near term
continues to remain weak.
The majority of Atlantic Copper's revenues are denominated
in U.S. dollars; however, operating costs other than concentrate
purchases and certain asset and liability accounts are denominated
in euros. Atlantic Copper's estimated annual euro payments total
approximately 100 million euros and at a September 30, 2002 exchange
rate of $0.99 per euro, a $0.05 increase or decrease in the exchange
rate would result in an approximate $5 million change in annual costs,
before any hedging effects.
In connection with refinancing its debt in June 2000, Atlantic
Copper's lenders required a significantly expanded program to
hedge anticipated euro-denominated operating costs. At September
30, 2002, Atlantic Copper had contracts to purchase 78.6 million
euros at an average exchange rate of $1.02 per euro through
December 2003. These contracts currently hedge approximately 60
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 operating results reflect gains
(losses) on currency hedging contracts that matured during the
period totaling $0.3 million in the third quarter of 2002, $(0.9)
million in the third quarter of 2001, $(1.7) million in the first
nine months of 2002 and $(2.2) million in the first nine months
of 2001. On a consolidated basis, we recorded net gains
(charges) to Other Comprehensive Income, a component of
stockholders' equity, totaling $(0.8) million in the third
quarter of 2002, $8.4 million in the third quarter of 2001, $10.2
million in the first nine months of 2002 and $(8.0) million in
the first nine months of 2001 related to Atlantic Copper's euro
hedging contracts that remained open as of the end of those
periods.
Atlantic Copper had euro-denominated net monetary
liabilities at September 30, 2002 totaling $67.9 million recorded
at an exchange rate of $0.99 per euro. The June 30, 2002
exchange rate was $1.00 per euro and 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 (expense), net"
on our income statements and totaled $1.7 million in the third
quarter of 2002, $(4.4) million in the third quarter of 2001,
$(7.1) million in the first nine months of 2002 and $(0.1)
million in the first nine months of 2001.
Atlantic Copper has an unfunded contractual obligation
denominated in euros to supplement amounts paid to retired
employees. Atlantic Copper made payments totaling $5.7 million
in 2001 to the retired employees. Amended Spanish legislation
requires that Atlantic Copper begin funding its contractual
obligation to the retired employees through a third party in
November 2002. In August 2002, Atlantic Copper complied with the
amended Spanish legislation by agreeing to fund approximately 7
million euros annually for the next 15 years to an approved
insurance company for its estimated 72 million euro contractual
obligation. The initial payment was made in August 2002.
Atlantic Copper had $55.2 million recorded as of September 30,
2002 for this obligation and is amortizing the unaccrued balance
of approximately $10 million over the 15-year funding period.
The scheduled annual payments of 7 million euros are not
significantly more than the payments Atlantic Copper has made
directly to its retired employees over the last several years.
PT Smelting Operating Results
Third Quarter Nine Months
---------------- --------------
2002 2001 2002 2001
------ ----- ------ ------
(In millions)
PT Freeport Indonesia sales
to PT Smelting $114.6 $88.2 $252.7 $290.7
Equity in PT Smelting losses 1.9 0.9 5.2 3.6
PT Freeport Indonesia profits
deferred (recognized) 7.4 (2.8) 6.3 (2.7)
20
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
treated 192,200 metric tons of concentrate in the third quarter
of 2002, 7 percent more than the 178,800 metric tons treated in
the 2001 quarter, and 500,500 metric tons in the first nine
months of 2002, 4 percent less than the 520,200 metric tons
treated in the first nine months of 2001. The lower level of
concentrate treated in the first nine months of 2002 and the
resulting decline in anodes and cathodes production and sales were
caused by a scheduled maintenance turnaround in the second
quarter of 2002. PT Smelting's copper cathode cash production
costs per pound totaled $0.12 in both the third quarter of 2002
and 2001, and $0.16 for the first nine months of 2002, compared
with $0.12 for the first nine months of 2001, reflecting the
impact of the 28-day maintenance turnaround in May 2002. We
expect the next scheduled 30-day maintenance turnaround to occur
in 2006.
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 operating profits totaling $7.4 million in the third quarter
of 2002, $(2.8) million in the third quarter of 2001, $6.3
million in the first nine months of 2002 and $(2.7) million in
the first nine months of 2001.
OTHER FINANCIAL RESULTS
The FCX/Rio Tinto joint ventures incurred $1.3 million of
exploration costs in the third quarter of 2002, $3.7 million in
the third quarter of 2001, $3.8 million in the first nine months
of 2002 and $10.8 million in the first nine months of 2001. 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 exploration expense of $0.9 million in the third
quarter of 2002, $2.0 million in the third quarter of 2001, $2.5
million in the first nine months of 2002 and $6.5 million in the
first nine months of 2001 for our share of exploration costs.
Third-quarter 2002 general and administrative expenses of
$16.4 million were $1.4 million higher than the $15.0 million
reported in the 2001 quarter, while general and administrative
expenses for the first nine months of 2002 were $3.7 million
higher at $49.2 million, compared with $45.5 million reported in
the 2001 period.
On May 2, 2002, at FCX's annual shareholder meeting the
shareholders approved the conversion of each outstanding share of
Class A common stock into one share of Class B common stock. The
transaction simplified our capital structure and enhanced trading
liquidity of our common stock. The conversion also created a new
measurement date for FCX's Class A stock options that were
converted to Class B stock options. Under accounting rules, the
in-the-money value of these stock options on the new measurement
date ($8.8 million) must be charged to earnings over the
remaining vesting period of the options, which extends through
January 2006. The charge to general and administrative expenses
totaled $0.6 million in the third quarter of 2002 and $1.0
million in the first nine months of 2002. The first nine months
of 2002 also included charges totaling $0.7 million for costs
related to the proposal to convert our Class A common stock into
Class B common stock.
Our total interest cost (before capitalization) was $45.4
million in the third quarter of 2002, $42.6 million in the third
quarter of 2001, $139.8 million in the first nine months of 2002
and $136.5 million in the first nine months of 2001. We
capitalized $4.0 million of interest costs in the third quarter
of 2002, $2.5 million in the third quarter of 2001, $10.6
million in the first nine months of 2002 and $6.6 million in the
first nine months of 2001. Total interest costs increased in the
2002 periods because of higher average debt levels.
Our effective tax rate was 57 percent for the first nine
months of 2002 and 55 percent for the first nine months 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 FCX (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 FCX.
21
CAPITAL RESOURCES AND LIQUIDITY
Net cash provided by operating activities was $304.3 million for
the first nine months of 2002, compared with $475.1 million for
the 2001 period. Net cash used in investing activities totaled
$97.9 million in the 2002 period, compared with $254.0 million in
the 2001 period. Net cash used in financing activities totaled
$175.9 million in 2002 compared with $196.2 million in 2001.
Changes in working capital were the primary reason for the
decrease in operating cash flow to $304.3 million for the first
nine months of 2002 from $475.1 million in the year-ago nine-
month period. We used our operating cash flows to fund capital
expenditures of $145.7 million in 2002 and $118.8 million in
2001, and preferred dividends of $27.9 million in 2002 and
$27.4 million in 2001. After funding our capital expenditures
and making scheduled dividend payments, we reduced our
outstanding debt and redeemable preferred stock
by $154.4 million in the first nine months of 2002 and $152.4
million in the first nine months of 2001. During the first nine
months of 2002, we used $47.9 million in proceeds from the sale
of restricted investments to pay interest on our 8 1/4%
Convertible Senior Notes. In the third quarter of 2001, we
sold $603.8 million of our 8 1/4% Convertible Senior Notes for
net proceeds of $582.6 million. We used $139.8 million of the
net proceeds to purchase a portfolio of U.S. government
securities, which secure and are being used to pay the first
six scheduled interest payments on the notes.
At copper and gold prices of $0.65 per pound and $315 per
ounce, respectively, for the remainder of the year, our operating
cash flow is expected to approximate $500 million for the year,
which would allow us to reduce debt and redeemable preferred
stock by over $250 million during the year. Our capital
expenditures for the fourth quarter of 2002 are expected to total
approximately $55 million.
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 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. Aggregate commitments under our
amended credit facilities total $734.0 million. Borrowings on
October 15, 2002, totaled $32.0 million for PT Freeport Indonesia
and $396.0 million for FCX, including a $149.0 million term loan.
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. 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.
Except as necessary to maintain our availability to repay $250.0
million for the 7.20% senior notes (see below) and to preserve the
$150.0 million revolving facility that will continue to be available
through December 31, 2005, we are 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 aggregate commitments under the amended credit facilities.
Thus, no portion of our operating cash flows is currently available
for general corporate purposes.
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 ratios were
2.3:1.0 and 2.6:1.0, respectively, as of September 30, 2002. 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.
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 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.
Below is a summary of our debt and redeemable preferred stock
maturities based on loan balances as of September 30, 2002, and
the September 30, 2002 London P.M. gold fixing price for one ounce of
22
gold ($323.70) and the London silver fixing spot price
for one ounce of silver ($4.53) in the London bullion market
(which determine the preferred stock redemption amounts) as of
September 30, 2002 (in millions):
2002 2003 2004 2005 2006 Thereafter
----- ------ ----- ------ -------- ------
Infrastructure financings
and equipment loans $33.9 $ 50.6 $58.0 $ 54.5 $ 58.1 $208.2
Atlantic Copper facilities 64.4 22.6 10.2 24.2 24.2 117.9
and other
7.20% Senior Notes due 2026 a - 250.0 - - - -
Amended bank credit facilities - - - 424.0 - -
7.50% Senior Notes due 2006 b - - - - 200.0 -
8 1/4% Convertible Senior
Notes due 2006 c - - - - 603.8 -
----- ------ ----- ------ -------- ------
Total debt maturities 98.3 323.2 68.2 502.7 886.1 326.1
Redeemable preferred stock d - 205.0 10.8 10.8 150.0 -
----- ------ ----- ------ -------- ------
Total maturities $98.3 $528.2 $79.0 $513.5 $1,036.1 $326.1
===== ====== ===== ====== ======== ======
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. Due January 31, 2006.
d. Represents $10.8 million each year from 2003 through 2006
for our Silver-Denominated Preferred Stock, $194.2 million in
August 2003 for our Gold-Denominated Preferred Stock, and $139.2
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 and her Cabinet marked their
first anniversary in office during the third quarter and have
committed to continued efforts to restore the country's economy
and investor confidence. Progress in achieving these goals has
been hindered by the global economic slow-down and issues internal
to Indonesia. President Megawati has supported the international
community's efforts to counter terrorism, while addressing political
complexities in Indonesia, the world's largest Muslim country.
On August 31, 2002, a group of unidentified assailants shot and
killed three people and wounded eleven others in an ambush of
several vehicles transporting international contract schoolteachers,
their family members, and other contractors on the road near
Tembagapura, the mining town where the majority of PT Freeport
Indonesia's personnel reside, between the lowlands and highlands areas
of PT Freeport Indonesia's operations. The wounded individuals are
recovering following medical treatment for the injuries. Our Company,
the Papuan provincial and local governments and leaders of the local
people residing in the area of our operations have condemned the attack.
Indonesian authorities continue to investigate the incident and we are
cooperating with the investigation. Representatives of the U.S.
Federal Bureau of Investigation also visited the site and consulted
with the Indonesian authorities about the incident.
On October 12, 2002, a bombing killed nearly 200 people in the
Indonesian province of Bali, which is 1,500 miles west of our mining and
milling operations. Press reports indicate that terrorists linked to
international organizations are believed to be responsible for the
bombing. An investigation led by Indonesian authorities is in progress.
The Government of Indonesia, which provides security for PT Freeport
Indonesia's personnel and operations, has expressed a strong commitment
to protect natural resources businesses operating in Indonesia,
including PT Freeport Indonesia, with heightened security following the
Bali bombing and the shooting incident discussed above. Our mining and
milling operations were not interrupted by either incident.
After beginning the year at 10,400 rupiahs to one U.S.
dollar, the Indonesian currency continued to stabilize, averaging
approximately 9,000 rupiahs to one U.S. dollar over the six-month
period ending September 30, 2002. The stronger rupiah reflects
weakness in the U.S. dollar and the economic progress made by
President Megawati's administration.
23
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, commodity prices, unit costs, treatment
rates, operating cash flows, 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 currency exchange 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.
Item 4. Controls and Procedures.
(a) Evaluation of disclosure controls and procedures. Our chief
executive officer and chief financial officer, with the
participation of management, have evaluated the
effectiveness of our "disclosure controls and procedures" (as
defined in Rules 13a-14(c) and 15d-14(c) under the Securities
Exchange Act of 1934) as of a date within 90 days prior to the
filing of this quarterly report on Form 10-Q. Based on their
evaluation, they have concluded that our disclosure controls and
procedures are effective in timely alerting them to material
information relating to FCX (including our consolidated
subsidiaries) required to be disclosed in our periodic Securities
and Exchange Commission filings.
(b) Changes in internal controls. There were no significant
changes in our internal controls or in other factors that could
significantly affect these controls subsequent to the date of
their evaluation.
PART II. OTHER INFORMATION
Item 1. Legal 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 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 four Current
Reports on Form 8-K. Current Reports dated July
1, 2002 and August 31, 2002 reported information
under Item 5. A Current Report dated July 10,
2002 reported information under Item 4 and a
Current Report dated August 7, 2002 reported
information under Item 9.
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: November 6, 2002
24
CERTIFICATIONS
I, James R. Moffett, certify that:
1. I have reviewed this quarterly report on Form 10-Q of
Freeport-McMoRan Copper & Gold Inc.;
2. Based on my knowledge, this quarterly report does not
contain any untrue statement of a material fact or omit to
state a material fact necessary to make the statements made,
in light of the circumstances under which such statements
were made, not misleading with respect to the period covered
by this quarterly report;
3. Based on my knowledge, the financial statements, and other
financial information included in this quarterly report,
fairly present in all material respects the financial
condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are
responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules
13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to
ensure that material information relating to the
registrant, including its consolidated subsidiaries, is
made known to us by others within those entities,
particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's
disclosure controls and procedures as of a date within
90 days prior to the filing date of this quarterly
report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions
about the effectiveness of the disclosure controls and
procedures based on our evaluation as of the Evaluation
Date;
5. The registrant's other certifying officers and I have
disclosed, based on our most recent evaluation, to the
registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation
of internal controls which could adversely affect the
registrant's ability to record, process, summarize and
report financial data and have identified for the
registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves
management or other employees who have a significant
role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have
indicated in this quarterly report whether or not there were
significant changes in internal controls or in other factors
that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies
and material weaknesses.
Date: November 6, 2002
/s/James R. Moffett
---------------------------
James R. Moffett
Chairman of the Board
and Chief Executive Officer
25
CERTIFICATIONS
I, Richard C. Adkerson, certify that:
1. I have reviewed this quarterly report on Form 10-Q of
Freeport-McMoRan Copper & Gold Inc.;
2. Based on my knowledge, this quarterly report does not
contain any untrue statement of a material fact or omit to
state a material fact necessary to make the statements made,
in light of the circumstances under which such statements
were made, not misleading with respect to the period covered
by this quarterly report;
3. Based on my knowledge, the financial statements, and other
financial information included in this quarterly report,
fairly present in all material respects the financial
condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are
responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules
13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to
ensure that material information relating to the
registrant, including its consolidated subsidiaries, is
made known to us by others within those entities,
particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's
disclosure controls and procedures as of a date within
90 days prior to the filing date of this quarterly
report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions
about the effectiveness of the disclosure controls and
procedures based on our evaluation as of the Evaluation
Date;
5. The registrant's other certifying officers and I have
disclosed, based on our most recent evaluation, to the
registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation
of internal controls which could adversely affect the
registrant's ability to record, process, summarize and
report financial data and have identified for the
registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves
management or other employees who have a significant
role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have
indicated in this quarterly report whether or not there were
significant changes in internal controls or in other factors
that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies
and material weaknesses.
Date: November 6, 2002
/s/Richard C. Adkerson
------------------------
Richard C. Adkerson
President and
Chief Financial Officer
26
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.
Incorporated by reference to Exhibit 3.1 to the Quarterly Report
on Form 10-Q of FCX for the quarter ended March 31, 2002 (the FCX
2002 First 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 Deposit Agreement dated as of July 1, 1993 among FCX, Mellon
Securities Trust Company, (Mellon), 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 4.1 to the Quarterly Report on Form 10-Q
of FCX for the quarter ended June 30, 2002 (the FCX 2002 Second
Quarter Form 10-Q).
4.2 Form of Step-Up Depositary Receipt. Incorporated by
reference to Exhibit 4.2 to the FCX 2002 Second Quarter Form 10-
Q.
4.3 Deposit Agreement dated as of August 12, 1993 among FCX,
Mellon, 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
4.3 to the FCX 2002 Second Quarter Form 10-Q.
4.4 Form of Gold-Denominated Depositary Receipt. Incorporated by
reference to Exhibit 4.4 to the FCX 2002 Second Quarter Form 10-
Q.
4.5 Deposit Agreement dated as of January 15, 1994, among FCX,
Mellon, 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 4.5 to the FCX 2002 Second Quarter Form 10-Q.
4.6 Form of Gold-Denominated II Depositary Receipt. Incorporated
by reference to Exhibit 4.6 to the FCX 2002 Second Quarter Form
10-Q.
4.7 Deposit Agreement dated as of July 25, 1994 among FCX,
Mellon, 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 4.7 to the FCX 2002 Second Quarter Form 10-Q.
4.8 Form of Silver-Denominated Depositary Receipt. Incorporated
by reference to Exhibit 4.8 to the FCX 2002 Second Quarter Form
10-Q.
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
E-1
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. Incorporated
by reference to Exhibit 4.16 to the FCX 2002 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 10.1 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 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.
E-2
10.8 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 10.9
through 10.36)
10.9 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.
10.10 1995 Long-Term Performance Incentive Plan of FCX.
Incorporated by reference to Exhibit 10.6 to the FCX November 5,
2001 Form S-3.
10.11 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.
10.12 FCX President's Award Program. Incorporated by
reference to Exhibit 10.7 to the FCX November 5, 2001 Form S-3.
10.13 FCX Adjusted Stock Award Plan, as amended.
Incorporated by reference to Exhibit 10.15 to the 1997 FCX Form
10-K.
10.14 FCX 1995 Stock Option Plan. Incorporated by reference
to Exhibit 10.8 to the FCX November 5, 2001 Form S-3.
10.15 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.
10.16 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.
10.17 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).
10.18 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).
10.19 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.
10.20 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.
10.21 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.
10.22 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.
10.23 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.
10.24 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.
10.25 Agreement for Consulting Services between FTX and B. M.
Rankin, Jr. effective as of January 1, 1990 (assigned to FMS as
of January 1, 1996). Incorporated by reference to Exhibit 10.24
to the FCX 1997 Form 10-K.
E-3
10.26 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.
10.27 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.
10.28 Supplemental Agreement between FMS and B. M. Rankin,
Jr. dated February 2, 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).
10.29 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.
10.30 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.
10.31 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.
10.32 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.
10.33 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.
10.34 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.
10.35 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.
10.36 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 October 15, 2002 from Ernst & Young LLP
regarding unaudited interim financial statements.
18.1 Letter from Arthur Andersen LLP regarding change in
accounting. Incorporated by reference to Exhibit 18.1 to
the FCX 2002 First Quarter Form 10-Q.
E-4