UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
FORM 8-K
CURRENT REPORT
Pursuant to Sections 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest
event
reported): February 26, 2004
Phelps Dodge Corporation
| New York | 001-00082 | 13-1808503 | ||
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| (State or other jurisdiction of incorporation) |
(Commission File Number) | (I.R.S. Employer Identification No.) |
One North Central Avenue
Phoenix, Arizona 85004-4414
(Address of principal executive
offices, including zip code)
Registrant’s telephone
number, including area code: (602) 366-8100
ITEM 12. RESULTS OF OPERATIONS AND FINANCIAL CONDITION
On January 29, 2004, Phelps Dodge Corporation (“Phelps Dodge” or the “Company”) released its results for the quarter and year ended December 31, 2003, and the press release announcing these results was furnished to the Securities and Exchange Commission as an exhibit to a Form 8-K Current Report. Subsequent to the Company’s release of these results, management’s ongoing review of state and local tax matters identified a probable franchise tax liability in the state of Texas as of December 31, 2003. Additionally, the Company recorded an updated estimate to deferred taxes related to a Brazilian subsidiary ($1.3 million). As a result, Phelps Dodge is revising its reported results for the three months and year ended December 31, 2003, to reflect the additional after-tax expense of $9.3 million (10¢ per diluted common share), of which $8.0 million (9¢ per diluted common share) was recorded as a special item.
After giving effect to these matters, net income for the fourth quarter of 2003 was $125.3 million ($1.32 per diluted common share), compared with a loss of $225.3 million in the fourth quarter of 2002. Net income for the year 2003 was $94.8 million (91¢ per diluted common share), compared with a loss of $338.1 million for the year 2002.
The state franchise tax liability that is the subject of this additional accrual would be owed if Phelps Dodge Corporation and certain of its subsidiaries were considered to be conducting business in Texas, where they do not directly operate, due to the processing of copper by affiliates in that state. The Company is analyzing whether any taxes, interest or penalties should be paid, and has applied to resolve the matter through a voluntary compliance program available in the state. Based upon our review, we have estimated a range of reasonably possible loss of $8 million to $25 million, and, as no point within that range is more likely than any other, the lower end of the range has been recorded.
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PHELPS DODGE CORPORATION
STATEMENT OF CONSOLIDATED OPERATIONS
(Unaudited; in millions except per share data)
| Year Ended | |||||||||||||||||
| Fourth Quarter | December 31, | ||||||||||||||||
| 2003 | 2002 | 2003 | 2002 | ||||||||||||||
Sales and other operating revenues |
$ | 1,171.4 | 895.5 | 4,142.7 | 3,722.0 | ||||||||||||
Operating costs and expenses |
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Cost of products sold (exclusive of items shown separately below) |
865.8 | 759.5 | 3,285.1 | 3,120.5 | |||||||||||||
Depreciation, depletion and amortization |
110.7 | 102.3 | 422.6 | 410.2 | |||||||||||||
Selling and general administrative expense |
45.6 | 35.1 | 148.7 | 123.9 | |||||||||||||
Exploration and research expense |
16.0 | 11.7 | 50.7 | 40.3 | |||||||||||||
Special items and provisions, net |
28.4 | 186.7 | 38.0 | 236.4 | |||||||||||||
| 1,066.5 | 1,095.3 | 3,945.1 | 3,931.3 | ||||||||||||||
Operating income (loss) |
104.9 | (199.8 | ) | 197.6 | (209.3 | ) | |||||||||||
Interest expense |
(35.9 | ) | (43.6 | ) | (145.8 | ) | (187.0 | ) | |||||||||
Capitalized interest |
0.2 | — | 0.6 | — | |||||||||||||
Early debt extinguishment costs |
— | — | — | (31.3 | ) | ||||||||||||
Miscellaneous income and expense, net |
3.7 | — | 19.0 | 2.6 | |||||||||||||
Income (loss) before taxes, minority interests, equity in net earnings of affiliated
companies, extraordinary item and cumulative effect of accounting
changes |
72.9 | (243.4 | ) | 71.4 | (425.0 | ) | |||||||||||
Benefit (provision) for taxes on income |
(14.4 | ) | 19.1 | (48.3 | ) | 114.9 | |||||||||||
Minority interests in consolidated subsidiaries |
(2.6 | ) | (1.8 | ) | (7.7 | ) | (7.8 | ) | |||||||||
Equity in net earnings of affiliated companies |
1.1 | 0.8 | 2.7 | 2.7 | |||||||||||||
Income (loss) before extraordinary item and cumulative effect of accounting changes |
57.0 | (225.3 | ) | 18.1 | (315.2 | ) | |||||||||||
Extraordinary gain on acquisition of partner’s interest in Chino Mines Company,
net of taxes of $0 in 2003 |
68.3 | — | 68.3 | — | |||||||||||||
Cumulative effect of accounting changes |
— | — | 8.4 | (22.9 | ) | ||||||||||||
Net income (loss) |
$ | 125.3 | (225.3 | ) | 94.8 | (338.1 | ) | ||||||||||
Preferred stock dividends |
(3.4 | ) | (3.4 | ) | (13.5 | ) | (9.1 | ) | |||||||||
Income (loss) applicable to common shares |
$ | 121.9 | (228.7 | ) | 81.3 | (347.2 | ) | ||||||||||
Average number of common shares outstanding — basic |
89.4 | 88.6 | 88.8 | 84.1 | |||||||||||||
Basic earnings (loss) per common share before extraordinary item and
cumulative effect of accounting changes |
$ | 0.60 | (2.58 | ) | 0.06 | (3.86 | ) | ||||||||||
Extraordinary gain on acquisition of partner’s interest in Chino Mines Company |
0.76 | — | 0.77 | — | |||||||||||||
Cumulative effect of accounting changes |
— | — | 0.09 | (0.27 | ) | ||||||||||||
Basic earnings (loss) per common share |
$ | 1.36 | (2.58 | ) | 0.92 | (4.13 | ) | ||||||||||
Average number of common shares outstanding — diluted * |
95.1 | 88.6 | 89.4 | 84.1 | |||||||||||||
Diluted earnings (loss) per common share before extraordinary item and
cumulative effect of accounting changes |
$ | 0.60 | (2.58 | ) | 0.06 | (3.86 | ) | ||||||||||
Extraordinary gain on acquisition of partner’s interest in Chino Mines Company |
0.72 | — | 0.76 | — | |||||||||||||
Cumulative effect of accounting changes |
— | — | 0.09 | (0.27 | ) | ||||||||||||
Diluted earnings (loss) per common share* |
$ | 1.32 | (2.58 | ) | 0.91 | (4.13 | ) | ||||||||||
BUSINESS DIVISIONS |
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(Unaudited; in millions) |
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Sales and other operating revenues — unaffiliated customers |
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Phelps Dodge Mining Company |
$ | 827.9 | 600.3 | 2,828.6 | 2,485.8 | ||||||||||||
Phelps Dodge Industries |
343.5 | 295.2 | 1,314.1 | 1,236.2 | |||||||||||||
| $ | 1,171.4 | 895.5 | 4,142.7 | 3,722.0 | |||||||||||||
Operating income (loss) |
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Phelps Dodge Mining Company |
$ | 144.1 | (136.2 | ) | 265.2 | (65.0 | ) | ||||||||||
Phelps Dodge Industries |
18.3 | 1.3 | 68.5 | 30.6 | |||||||||||||
Corporate and other |
(57.5 | ) | (64.9 | ) | (136.1 | ) | (174.9 | ) | |||||||||
| $ | 104.9 | (199.8 | ) | 197.6 | (209.3 | ) | |||||||||||
| * | Diluted earnings (loss) per common share would have been anti-dilutive for the years 2003 and 2002 and the fourth quarter of 2002, if based on fully diluted shares adjusted to reflect the conversion of mandatory convertible preferred shares to common shares and stock option exercises. |
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PHELPS DODGE CORPORATION
CONSOLIDATED BALANCE SHEET
(Unaudited; in millions except per share prices)
| December 31, | December 31, | ||||||||||
| 2003 | 2002 | ||||||||||
Assets |
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Current assets: |
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Cash and cash equivalents |
$ | 683.8 | 349.8 | ||||||||
Accounts receivable, net |
461.3 | 391.1 | |||||||||
Mill and leach stockpiles |
22.4 | 48.9 | |||||||||
Inventories |
379.7 | 398.5 | |||||||||
Supplies |
150.7 | 142.8 | |||||||||
Prepaid expenses and other current assets |
31.0 | 26.5 | |||||||||
Deferred income taxes |
61.1 | 70.6 | |||||||||
Current assets |
1,790.0 | 1,428.2 | |||||||||
Investments and long-term receivables |
150.3 | 132.3 | |||||||||
Property, plant and equipment, net |
4,646.5 | 4,813.7 | |||||||||
Long-term mill and leach stockpiles |
89.2 | 64.3 | |||||||||
Deferred income taxes |
7.6 | 11.0 | |||||||||
Goodwill |
98.4 | 90.7 | |||||||||
Intangible assets |
321.3 | 345.9 | |||||||||
Other assets and deferred charges |
169.6 | 142.9 | |||||||||
| $ | 7,272.9 | 7,029.0 | |||||||||
Liabilities |
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Current liabilities: |
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Short-term debt |
$ | 50.5 | 35.2 | ||||||||
Current portion of long-term debt |
204.6 | 127.0 | |||||||||
Accounts payable and accrued expenses |
700.7 | 609.1 | |||||||||
Dividends payable |
3.4 | 3.4 | |||||||||
Accrued income taxes |
56.1 | 9.4 | |||||||||
Current liabilities |
1,015.3 | 784.1 | |||||||||
Long-term debt |
1,703.9 | 1,948.4 | |||||||||
Deferred income taxes |
410.2 | 430.8 | |||||||||
Other liabilities and deferred credits |
1,009.5 | 986.8 | |||||||||
| 4,138.9 | 4,150.1 | ||||||||||
Minority interests in consolidated subsidiaries |
70.2 | 65.3 | |||||||||
Shareholders’ equity |
|||||||||||
Common shares, par value $6.25; 200.0 shares authorized;
91.0 outstanding in 2003 and 88.9 outstanding in 2002 |
568.5 | 555.6 | |||||||||
Preferred shares, par value $1.00; 6.0 shares authorized;
2.0 outstanding in 2003 and 2002 |
2.0 | 2.0 | |||||||||
Capital in excess of par value |
1,642.5 | 1,552.1 | |||||||||
Retained earnings |
1,254.6 | 1,173.3 | |||||||||
Accumulated other comprehensive loss |
(393.5 | ) | (458.5 | ) | |||||||
Other |
(10.3 | ) | (10.9 | ) | |||||||
| 3,063.8 | 2,813.6 | ||||||||||
| $ | 7,272.9 | 7,029.0 | |||||||||
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PHELPS DODGE CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited; in millions)
| Year Ended December 31, | |||||||||||
| 2003 | 2002 | ||||||||||
Operating activities |
|||||||||||
Net income (loss) |
$ | 94.8 | (338.1 | ) | |||||||
Adjustments to reconcile net income (loss) to net cash
provided by operating activities: |
|||||||||||
Depreciation, depletion and amortization |
422.6 | 410.2 | |||||||||
Deferred income taxes |
0.3 | (9.0 | ) | ||||||||
Proceeds (repayments) from sale of accounts receivable |
16.9 | (11.6 | ) | ||||||||
Changes in net assets, special items and provisions, and other |
(64.1 | ) | 296.5 | ||||||||
Net cash provided by operating activities |
470.5 | 348.0 | |||||||||
Investing activities |
|||||||||||
Capital outlays |
(151.4 | ) | (130.4 | ) | |||||||
Capitalized interest |
(0.6 | ) | — | ||||||||
Investment in subsidiaries and other |
49.0 | (2.8 | ) | ||||||||
Proceeds from asset dispositions |
17.8 | 33.3 | |||||||||
Other investing, net |
(2.5 | ) | (40.4 | ) | |||||||
Net cash used in investing activities |
(87.7 | ) | (140.3 | ) | |||||||
Financing activities |
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Increase in debt |
10.3 | 21.8 | |||||||||
Payment of debt |
(157.6 | ) | (819.4 | ) | |||||||
Preferred dividends |
(13.5 | ) | (5.7 | ) | |||||||
Issuance of shares |
80.4 | 593.6 | |||||||||
Other financing, net |
31.6 | (35.1 | ) | ||||||||
Net cash used in financing activities |
(48.8 | ) | (244.8 | ) | |||||||
Increase (decrease) in cash and cash equivalents |
334.0 | (37.1 | ) | ||||||||
Cash and cash equivalents at beginning of year |
349.8 | 386.9 | |||||||||
Cash and cash equivalents at end of year |
$ | 683.8 | 349.8 | ||||||||
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| Phelps Dodge Corporation (Registrant) |
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| Date: February 26, 2004 | By: | /s/ Ramiro G. Peru
Name: Ramiro G. Peru Title: Senior Vice President and Chief Financial Officer |
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