e10vq
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
|
|
|
þ
|
|
QUARTERLY REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE
QUARTERLY PERIOD ENDED SEPTEMBER 30, 2006 |
|
|
|
o
|
|
TRANSITION REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE
TRANSITION PERIOD
FROM TO |
COMMISSION
FILE NUMBER: 1-82
PHELPS DODGE CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
|
|
|
New York (State of Incorporation) |
|
13-1808503 (I.R.S. Employer Identification No.) |
One North Central Avenue, Phoenix, AZ 85004
(Address of principal executive offices)(Zip Code)
(602) 366-8100
(Registrants telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last report)
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 þ No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, or a non-accelerated filer. See definition of accelerated filer and large accelerated
filer in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer þ Accelerated Filer o Non-Accelerated Filer o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Exchange Act). Yes o No þ
Number of
Common Shares outstanding at October 20, 2006: 203,988,751 shares.
- i -
PHELPS DODGE CORPORATION
Quarterly Report on Form 10-Q
For the Quarter Ended September 30, 2006
Table of Contents
PHELPS DODGE CORPORATION AND SUBSIDIARIES
Part I. Financial Information
Item 1. Financial Statements
PHELPS DODGE CORPORATION
CONSOLIDATED STATEMENT OF INCOME
(Unaudited; in millions except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended |
|
|
|
Third Quarter |
|
|
September 30, |
|
|
|
2006 |
|
|
2005 |
|
|
2006 |
|
|
2005 |
|
Sales and other operating revenues |
|
$ |
3,458.3 |
|
|
|
2,179.0 |
|
|
|
8,675.1 |
|
|
|
6,031.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating costs and expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of products sold (exclusive of items shown separately below) |
|
|
1,899.4 |
|
|
|
1,396.5 |
|
|
|
5,171.0 |
|
|
|
3,769.7 |
|
Depreciation, depletion and amortization |
|
|
109.7 |
|
|
|
109.5 |
|
|
|
324.6 |
|
|
|
333.9 |
|
Selling and general administrative expense |
|
|
42.9 |
|
|
|
42.4 |
|
|
|
141.5 |
|
|
|
118.4 |
|
Exploration and research expense |
|
|
39.8 |
|
|
|
25.3 |
|
|
|
103.9 |
|
|
|
67.3 |
|
Special items and provisions, net (see Note 4) |
|
|
32.5 |
|
|
|
45.0 |
|
|
|
62.6 |
|
|
|
481.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,124.3 |
|
|
|
1,618.7 |
|
|
|
5,803.6 |
|
|
|
4,770.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
1,334.0 |
|
|
|
560.3 |
|
|
|
2,871.5 |
|
|
|
1,260.9 |
|
Interest expense |
|
|
(18.5 |
) |
|
|
(17.5 |
) |
|
|
(52.6 |
) |
|
|
(62.0 |
) |
Capitalized interest |
|
|
17.0 |
|
|
|
6.7 |
|
|
|
41.2 |
|
|
|
9.1 |
|
Early debt extinguishment costs (see Note 12) |
|
|
|
|
|
|
(54.0 |
) |
|
|
|
|
|
|
(54.0 |
) |
Gain on sale of cost-basis investment (see Note 13) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
438.4 |
|
Change in interest gain (see Note 14) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
159.5 |
|
Miscellaneous income and expense, net (see Note 16) |
|
|
136.3 |
|
|
|
20.0 |
|
|
|
196.9 |
|
|
|
75.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before taxes, minority interests in consolidated
subsidiaries and equity in net earnings (losses) of affiliated companies |
|
|
1,468.8 |
|
|
|
515.5 |
|
|
|
3,057.0 |
|
|
|
1,827.6 |
|
Provision for taxes on income (see Note 9) |
|
|
(375.3 |
) |
|
|
(104.3 |
) |
|
|
(823.8 |
) |
|
|
(300.4 |
) |
Minority interests in consolidated subsidiaries |
|
|
(206.0 |
) |
|
|
(51.6 |
) |
|
|
(525.3 |
) |
|
|
(116.5 |
) |
Equity in net earnings (losses) of affiliated companies |
|
|
1.6 |
|
|
|
0.5 |
|
|
|
3.3 |
|
|
|
1.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
|
889.1 |
|
|
|
360.1 |
|
|
|
1,711.2 |
|
|
|
1,412.6 |
|
Discontinued operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from discontinued operations, net of taxes (see Note 3) |
|
|
(1.1 |
) |
|
|
6.0 |
|
|
|
(17.7 |
) |
|
|
22.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
888.0 |
|
|
|
366.1 |
|
|
|
1,693.5 |
|
|
|
1,435.1 |
|
Preferred stock dividends |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6.8 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income applicable to common shares |
|
$ |
888.0 |
|
|
|
366.1 |
|
|
|
1,693.5 |
|
|
|
1,428.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding basic* |
|
|
202.5 |
|
|
|
197.2 |
|
|
|
202.3 |
|
|
|
193.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
$ |
4.39 |
|
|
|
1.83 |
|
|
|
8.46 |
|
|
|
7.26 |
|
Income (loss) from discontinued operations |
|
|
(0.01 |
) |
|
|
0.03 |
|
|
|
(0.09 |
) |
|
|
0.11 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per common share |
|
$ |
4.38 |
|
|
|
1.86 |
|
|
|
8.37 |
|
|
|
7.37 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding diluted* |
|
|
203.5 |
|
|
|
202.7 |
|
|
|
203.4 |
|
|
|
202.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
$ |
4.37 |
|
|
|
1.78 |
|
|
|
8.42 |
|
|
|
6.99 |
|
Income (loss) from discontinued operations |
|
|
(0.01 |
) |
|
|
0.03 |
|
|
|
(0.09 |
) |
|
|
0.11 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per common share |
|
$ |
4.36 |
|
|
|
1.81 |
|
|
|
8.33 |
|
|
|
7.10 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Refer to Note 15 for discussion of the March 10, 2006, stock split. |
See Notes to Consolidated Financial Information.
2
PHELPS DODGE CORPORATION
CONSOLIDATED BALANCE SHEET
(Unaudited; in millions except per share prices)
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
December 31, |
|
|
|
2006 |
|
|
2005 |
|
Assets |
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
4,086.1 |
|
|
|
1,916.7 |
|
Restricted cash |
|
|
40.1 |
|
|
|
20.8 |
|
Accounts receivable, less allowance for doubtful
accounts (2006 - $7.2; 2005 - $6.9) |
|
|
1,529.9 |
|
|
|
1,028.0 |
|
Mill and leach stockpiles |
|
|
99.9 |
|
|
|
36.6 |
|
Inventories |
|
|
374.0 |
|
|
|
329.5 |
|
Supplies |
|
|
227.1 |
|
|
|
199.7 |
|
Prepaid expenses and other current assets |
|
|
128.9 |
|
|
|
83.6 |
|
Deferred income taxes |
|
|
192.1 |
|
|
|
82.0 |
|
Assets held for sale |
|
|
|
|
|
|
373.8 |
|
|
|
|
|
|
|
|
Current assets |
|
|
6,678.1 |
|
|
|
4,070.7 |
|
Investments and long-term receivables |
|
|
192.3 |
|
|
|
142.6 |
|
Property, plant and equipment, net |
|
|
5,370.3 |
|
|
|
4,830.9 |
|
Long-term mill and leach stockpiles |
|
|
176.9 |
|
|
|
133.3 |
|
Deferred income taxes |
|
|
76.9 |
|
|
|
99.6 |
|
Goodwill |
|
|
12.5 |
|
|
|
22.3 |
|
Intangible assets, net |
|
|
7.1 |
|
|
|
7.5 |
|
Long-term assets held for sale |
|
|
|
|
|
|
431.4 |
|
Trust assets |
|
|
579.2 |
|
|
|
258.4 |
|
Other assets and deferred charges |
|
|
355.8 |
|
|
|
361.3 |
|
|
|
|
|
|
|
|
|
|
$ |
13,449.1 |
|
|
|
10,358.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
Short-term debt |
|
$ |
63.0 |
|
|
|
14.3 |
|
Current portion of long-term debt |
|
|
62.2 |
|
|
|
2.5 |
|
Accounts payable and accrued expenses |
|
|
2,102.9 |
|
|
|
1,445.7 |
|
Accrued income taxes |
|
|
248.0 |
|
|
|
23.6 |
|
Liabilities related to assets held for sale |
|
|
|
|
|
|
123.2 |
|
|
|
|
|
|
|
|
Current liabilities |
|
|
2,476.1 |
|
|
|
1,609.3 |
|
Long-term debt |
|
|
796.4 |
|
|
|
677.7 |
|
Deferred income taxes |
|
|
835.1 |
|
|
|
558.0 |
|
Long-term liabilities related to assets held for sale |
|
|
|
|
|
|
61.3 |
|
Other liabilities and deferred credits |
|
|
1,430.3 |
|
|
|
934.2 |
|
|
|
|
|
|
|
|
|
|
|
5,537.9 |
|
|
|
3,840.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies (see Notes 6, 7 and 9) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minority interests in consolidated subsidiaries |
|
|
1,427.3 |
|
|
|
915.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders equity* |
|
|
|
|
|
|
|
|
Common shares, par value $6.25; 300.0 shares authorized;
204.0 outstanding (2005 - 203.2) after deducting 16.0 shares
(2005 - 16.7) held in treasury, at cost |
|
|
1,274.9 |
|
|
|
635.1 |
|
Capital in excess of par value |
|
|
1,365.9 |
|
|
|
1,998.8 |
|
Retained earnings** |
|
|
3,937.5 |
|
|
|
3,158.8 |
|
Accumulated other comprehensive loss |
|
|
(94.4 |
) |
|
|
(154.5 |
) |
Other |
|
|
|
|
|
|
(36.6 |
) |
|
|
|
|
|
|
|
|
|
|
6,483.9 |
|
|
|
5,601.6 |
|
|
|
|
|
|
|
|
|
|
$ |
13,449.1 |
|
|
|
10,358.0 |
|
|
|
|
|
|
|
|
|
|
|
* |
|
Refer to Note 15 for discussion of the March 10, 2006,
stock split. |
|
** |
|
Included cumulative effect adjustment credit of $19.8 million for the adoption of EITF Issue No.
04-6 in the 2006 first quarter. Refer to Note 5 for further discussion. |
See Notes to Consolidated Financial Information.
3
PHELPS DODGE CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited; $ in millions)
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended |
|
|
|
September 30, |
|
|
|
2006 |
|
|
2005 |
|
Operating activities |
|
|
|
|
|
|
|
|
Net income |
|
$ |
1,693.5 |
|
|
|
1,435.1 |
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
Unrealized losses on copper collars and copper put options |
|
|
1,215.1 |
|
|
|
164.5 |
|
Depreciation, depletion and amortization |
|
|
324.9 |
|
|
|
377.3 |
|
Deferred income tax provision (benefit) |
|
|
145.8 |
|
|
|
(3.9 |
) |
Equity in net earnings (losses) of affiliated companies, net of dividends received |
|
|
(1.2 |
) |
|
|
0.3 |
|
Gain on sale of cost-basis investment |
|
|
|
|
|
|
(438.4 |
) |
Change in interest gain |
|
|
|
|
|
|
(159.5 |
) |
Special items and provisions, net |
|
|
62.6 |
|
|
|
481.3 |
|
Early debt extinguishment costs |
|
|
|
|
|
|
54.0 |
|
Minority interests in consolidated subsidiaries |
|
|
525.7 |
|
|
|
117.4 |
|
Loss on disposition of discontinued operations |
|
|
29.7 |
|
|
|
|
|
Changes in current assets and liabilities: |
|
|
|
|
|
|
|
|
Accounts receivable |
|
|
(543.4 |
) |
|
|
(240.1 |
) |
Repayment of securitized accounts receivable |
|
|
|
|
|
|
(85.0 |
) |
Mill and leach stockpiles |
|
|
(59.2 |
) |
|
|
0.5 |
|
Inventories |
|
|
(34.0 |
) |
|
|
(69.4 |
) |
Supplies |
|
|
(28.1 |
) |
|
|
(26.1 |
) |
Prepaid expenses and other current assets |
|
|
(50.5 |
) |
|
|
(54.6 |
) |
Interest payable |
|
|
9.4 |
|
|
|
4.6 |
|
Other accounts payable |
|
|
35.9 |
|
|
|
71.3 |
|
Accrued income taxes |
|
|
218.8 |
|
|
|
(18.4 |
) |
Realized losses on 2005 copper collars |
|
|
(187.2 |
) |
|
|
|
|
Other accrued expenses |
|
|
14.7 |
|
|
|
(0.4 |
) |
Pension plan contributions |
|
|
|
|
|
|
(250.0 |
) |
Other operating, net |
|
|
(46.3 |
) |
|
|
(61.4 |
) |
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
3,326.2 |
|
|
|
1,299.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing activities |
|
|
|
|
|
|
|
|
Capital outlays |
|
|
(830.3 |
) |
|
|
(392.5 |
) |
Capitalized interest |
|
|
(41.6 |
) |
|
|
(9.9 |
) |
Investments in subsidiaries and other, net of cash received |
|
|
0.3 |
|
|
|
(11.2 |
) |
Proceeds from the sale of Columbian Chemicals |
|
|
505.6 |
|
|
|
|
|
Proceeds from the sale of Magnet Wire North American assets |
|
|
136.6 |
|
|
|
|
|
Proceeds from the sale of HPC |
|
|
49.2 |
|
|
|
|
|
Proceeds from asset dispositions |
|
|
21.1 |
|
|
|
6.2 |
|
Proceeds from sale of cost-basis investments, net of expenses |
|
|
|
|
|
|
451.6 |
|
Restricted cash |
|
|
(19.3 |
) |
|
|
(89.1 |
) |
Global environmental trust contribution |
|
|
(300.0 |
) |
|
|
|
|
Other investing, net |
|
|
(0.1 |
) |
|
|
(2.3 |
) |
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(478.5 |
) |
|
|
(47.2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing activities |
|
|
|
|
|
|
|
|
Net increase (decrease) in short-term debt |
|
|
47.7 |
|
|
|
(48.7 |
) |
Proceeds from issuance of debt |
|
|
182.0 |
|
|
|
|
|
Payment of debt |
|
|
(2.6 |
) |
|
|
(313.8 |
) |
Common dividends |
|
|
(934.6 |
) |
|
|
(84.8 |
) |
Preferred dividends |
|
|
|
|
|
|
(10.1 |
) |
Minority interest dividends |
|
|
(3.1 |
) |
|
|
(28.4 |
) |
Issuance of shares, net |
|
|
25.6 |
|
|
|
52.4 |
|
Debt issue costs |
|
|
(2.7 |
) |
|
|
(5.8 |
) |
Proceeds from issuance of Cerro Verde stock, net of expenses |
|
|
|
|
|
|
441.8 |
|
Other financing, net |
|
|
|
|
|
|
(55.8 |
) |
|
|
|
|
|
|
|
Net cash used in financing activities |
|
|
(687.7 |
) |
|
|
(53.2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate impact on cash and cash equivalents |
|
|
9.4 |
|
|
|
17.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase in cash and cash equivalents |
|
|
2,169.4 |
|
|
|
1,216.1 |
|
Cash and cash equivalents at beginning of period |
|
|
1,916.7 |
|
|
|
1,200.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period |
|
$ |
4,086.1 |
|
|
|
2,416.2 |
|
|
|
|
|
|
|
|
See Notes to Consolidated Financial Information.
4
PHELPS DODGE CORPORATION
CONSOLIDATED STATEMENT OF SHAREHOLDERS EQUITY
(Unaudited; in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
|
|
|
Common Shares |
|
|
Capital in |
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
|
Number |
|
|
At Par |
|
|
Excess of |
|
|
Retained |
|
|
Comprehensive |
|
|
|
|
|
|
Shareholders |
|
|
|
of Shares |
|
|
Value |
|
|
Par Value |
|
|
Earnings |
|
|
Income (Loss)* |
|
|
Other |
|
|
Equity |
|
Balance at December 31, 2005 |
|
|
101.6 |
|
|
$ |
635.1 |
|
|
$ |
1,998.8 |
|
|
$ |
3,158.8 |
|
|
$ |
(154.5 |
) |
|
$ |
(36.6 |
) |
|
$ |
5,601.6 |
|
Cumulative effect adjustment** |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19.8 |
|
|
|
|
|
|
|
|
|
|
|
19.8 |
|
Transition adjustment*** |
|
|
|
|
|
|
|
|
|
|
(36.6 |
) |
|
|
|
|
|
|
|
|
|
|
36.6 |
|
|
|
|
|
Stock options exercised including tax benefit |
|
|
0.7 |
|
|
|
4.1 |
|
|
|
25.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
29.7 |
|
Restricted shares issued/cancelled, net,
including tax benefit |
|
|
0.1 |
|
|
|
0.7 |
|
|
|
13.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14.5 |
|
Directors stock compensation |
|
|
|
|
|
|
0.1 |
|
|
|
1.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.5 |
|
Common shares purchased |
|
|
|
|
|
|
(0.2 |
) |
|
|
(2.0 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2.2 |
) |
Dividends on common shares |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(934.6 |
) |
|
|
|
|
|
|
|
|
|
|
(934.6 |
) |
Comprehensive income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,693.5 |
|
|
|
|
|
|
|
|
|
|
|
1,693.5 |
|
Other comprehensive income (loss), net of tax: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Translation adjustment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
35.6 |
|
|
|
|
|
|
|
35.6 |
|
Net loss on derivative instruments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5.3 |
) |
|
|
|
|
|
|
(5.3 |
) |
Other investment adjustments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.2 |
|
|
|
|
|
|
|
0.2 |
|
Unrealized gain on securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20.9 |
|
|
|
|
|
|
|
20.9 |
|
Minimum pension liability |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8.7 |
|
|
|
|
|
|
|
8.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
60.1 |
|
|
|
|
|
|
|
60.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,753.6 |
|
Stock split**** |
|
|
101.6 |
|
|
|
635.1 |
|
|
|
(635.1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at September 30, 2006 |
|
|
204.0 |
|
|
$ |
1,274.9 |
|
|
$ |
1,365.9 |
|
|
$ |
3,937.5 |
|
|
$ |
(94.4 |
) |
|
$ |
|
|
|
$ |
6,483.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
As of September 30, 2006, this balance comprised $136.3 million of cumulative translation
adjustments and $17.5 million of cumulative minimum pension liability adjustments; partially offset
by $0.5 million of cumulative unrealized gains on securities and $58.9 million of cumulative
unrealized gains on derivative instruments. |
|
** |
|
Refer to Note 5 for discussion of adoption of EITF Issue No. 04-6. |
|
*** |
|
Refer to Note 2 for discussion of adoption of SFAS No. 123-R. |
|
**** |
|
Refer to Note 15 for discussion of the March 10, 2006, stock split. |
See Notes to Consolidated Financial Information.
5
PHELPS DODGE CORPORATION
FINANCIAL DATA BY BUSINESS SEGMENT
(Unaudited; $ in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Mines |
|
|
South American Mines |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chino/ |
|
|
|
|
|
|
Candelaria/ |
|
|
|
|
|
|
|
|
|
|
Primary |
|
|
|
Morenci |
|
|
Bagdad |
|
|
Sierrita |
|
|
Cobre |
|
|
Tyrone |
|
|
Ojos del Salado |
|
|
Cerro Verde |
|
|
El Abra |
|
|
Molybdenum |
|
|
Third Quarter 2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and other operating revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unaffiliated customers |
|
$ |
|
|
|
|
|
|
|
|
1.8 |
|
|
|
6.6 |
|
|
|
|
|
|
|
289.5 |
|
|
|
29.1 |
|
|
|
273.3 |
|
|
|
442.0 |
|
Intersegment |
|
|
497.4 |
|
|
|
172.6 |
|
|
|
241.8 |
|
|
|
129.9 |
|
|
|
46.1 |
|
|
|
40.2 |
|
|
|
159.7 |
|
|
|
190.0 |
|
|
|
|
|
Depreciation, depletion and amortization |
|
|
15.4 |
|
|
|
6.0 |
|
|
|
4.3 |
|
|
|
5.9 |
|
|
|
3.0 |
|
|
|
10.1 |
|
|
|
8.5 |
|
|
|
30.2 |
|
|
|
10.2 |
|
Operating income (loss) before special items and provisions |
|
|
308.0 |
|
|
|
98.1 |
|
|
|
163.3 |
|
|
|
67.4 |
|
|
|
23.0 |
|
|
|
250.6 |
|
|
|
92.6 |
|
|
|
336.4 |
|
|
|
100.4 |
|
Special items and provisions, net |
|
|
(0.6 |
) |
|
|
|
|
|
|
|
|
|
|
(6.8 |
) |
|
|
(1.8 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7.0 |
|
Operating income (loss) |
|
|
307.4 |
|
|
|
98.1 |
|
|
|
163.3 |
|
|
|
60.6 |
|
|
|
21.2 |
|
|
|
250.6 |
|
|
|
92.6 |
|
|
|
336.4 |
|
|
|
107.4 |
|
Interest income |
|
|
0.1 |
|
|
|
|
|
|
|
|
|
|
|
0.7 |
|
|
|
|
|
|
|
4.6 |
|
|
|
2.8 |
|
|
|
9.9 |
|
|
|
0.2 |
|
Interest expense, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.6 |
|
|
|
0.4 |
|
|
|
|
|
Benefit (provision) for taxes on income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(80.7 |
) |
|
|
16.7 |
|
|
|
(121.2 |
) |
|
|
|
|
Minority interests in consolidated subsidiaries |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(34.8 |
) |
|
|
(58.3 |
) |
|
|
(110.4 |
) |
|
|
|
|
Equity in net earnings (losses) of affiliated companies |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from discontinued operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity basis investments at September 30 |
|
|
|
|
|
|
|
|
|
|
0.2 |
|
|
|
|
|
|
|
|
|
|
|
0.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets at September 30 |
|
|
1,145.2 |
|
|
|
445.4 |
|
|
|
330.7 |
|
|
|
456.1 |
|
|
|
119.1 |
|
|
|
1,404.5 |
|
|
|
1,636.0 |
|
|
|
1,822.1 |
|
|
|
938.6 |
|
Expenditures for segment assets |
|
|
60.6 |
|
|
|
6.1 |
|
|
|
6.9 |
|
|
|
6.3 |
|
|
|
4.0 |
|
|
|
3.7 |
|
|
|
123.2 |
|
|
|
3.0 |
|
|
|
18.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Third Quarter 2005* |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and other operating revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unaffiliated customers |
|
$ |
|
|
|
|
|
|
|
|
6.9 |
|
|
|
8.2 |
|
|
|
|
|
|
|
133.6 |
|
|
|
14.2 |
|
|
|
78.1 |
|
|
|
468.0 |
|
Intersegment |
|
|
283.0 |
|
|
|
180.1 |
|
|
|
223.4 |
|
|
|
79.1 |
|
|
|
31.8 |
|
|
|
59.5 |
|
|
|
80.1 |
|
|
|
80.8 |
|
|
|
|
|
Depreciation, depletion and amortization |
|
|
15.7 |
|
|
|
7.6 |
|
|
|
3.5 |
|
|
|
5.1 |
|
|
|
0.2 |
|
|
|
9.6 |
|
|
|
7.0 |
|
|
|
28.6 |
|
|
|
9.7 |
|
Operating income (loss) before special items and provisions |
|
|
128.2 |
|
|
|
112.4 |
|
|
|
153.9 |
|
|
|
18.6 |
|
|
|
3.0 |
|
|
|
73.1 |
|
|
|
55.8 |
|
|
|
52.6 |
|
|
|
71.9 |
|
Special items and provisions, net |
|
|
0.4 |
|
|
|
|
|
|
|
(8.6 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) |
|
|
128.6 |
|
|
|
112.4 |
|
|
|
145.3 |
|
|
|
18.6 |
|
|
|
3.0 |
|
|
|
73.1 |
|
|
|
55.8 |
|
|
|
52.6 |
|
|
|
71.9 |
|
Interest income |
|
|
0.1 |
|
|
|
|
|
|
|
|
|
|
|
0.6 |
|
|
|
|
|
|
|
2.6 |
|
|
|
2.6 |
|
|
|
0.8 |
|
|
|
0.2 |
|
Interest expense, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.1 |
|
|
|
4.9 |
|
|
|
(0.5 |
) |
|
|
|
|
Provision for taxes on income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(13.0 |
) |
|
|
(15.7 |
) |
|
|
(18.0 |
) |
|
|
|
|
Minority interests in consolidated subsidiaries |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(9.5 |
) |
|
|
(23.8 |
) |
|
|
(16.6 |
) |
|
|
|
|
Equity in net earnings (losses) of affiliated companies |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from discontinued operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity basis investments at September 30 |
|
|
|
|
|
|
|
|
|
|
0.2 |
|
|
|
|
|
|
|
|
|
|
|
0.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets at September 30 |
|
|
918.3 |
|
|
|
446.0 |
|
|
|
328.5 |
|
|
|
429.8 |
|
|
|
73.2 |
|
|
|
1,041.4 |
|
|
|
913.8 |
|
|
|
1,003.2 |
|
|
|
934.9 |
|
Expenditures for segment assets |
|
|
16.1 |
|
|
|
10.6 |
|
|
|
5.0 |
|
|
|
2.9 |
|
|
|
2.7 |
|
|
|
4.6 |
|
|
|
106.7 |
|
|
|
6.4 |
|
|
|
18.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate, |
|
|
|
|
|
|
|
|
|
Manufac- |
|
|
|
|
|
|
PDMC |
|
|
PDMC |
|
|
PDMC |
|
|
PDI |
|
|
Other & |
|
|
Discontinued |
|
|
|
|
|
|
turing |
|
|
Sales |
|
|
Segments |
|
|
Other |
|
|
Subtotal |
|
|
Wire & Cable |
|
|
Eliminations |
|
|
Operations |
|
|
Totals |
|
|
|
|
|
|
|
|
|
|
|
Third Quarter 2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and other operating revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unaffiliated customers |
|
$ |
1,833.7 |
|
|
|
219.6 |
|
|
|
3,095.6 |
|
|
|
47.4 |
|
|
|
3,143.0 |
|
|
|
315.3 |
|
|
|
|
|
|
|
|
|
|
|
3,458.3 |
|
Intersegment |
|
|
1.4 |
|
|
|
1.5 |
|
|
|
1,480.6 |
|
|
|
(1,480.6 |
) |
|
|
|
|
|
|
0.2 |
|
|
|
(0.2 |
) |
|
|
|
|
|
|
|
|
Depreciation, depletion and amortization |
|
|
6.3 |
|
|
|
|
|
|
|
99.9 |
|
|
|
4.0 |
|
|
|
103.9 |
|
|
|
3.7 |
|
|
|
2.1 |
|
|
|
|
|
|
|
109.7 |
|
Operating income (loss) before special items and provisions |
|
|
(7.7 |
) |
|
|
0.3 |
|
|
|
1,432.4 |
|
|
|
(53.4 |
) |
|
|
1,379.0 |
|
|
|
22.1 |
|
|
|
(34.6 |
) |
|
|
|
|
|
|
1,366.5 |
|
Special items and provisions, net |
|
|
(1.0 |
) |
|
|
|
|
|
|
(3.2 |
) |
|
|
0.2 |
|
|
|
(3.0 |
) |
|
|
(7.1 |
) |
|
|
(22.4 |
) |
|
|
|
|
|
|
(32.5 |
) |
Operating income (loss) |
|
|
(8.7 |
) |
|
|
0.3 |
|
|
|
1,429.2 |
|
|
|
(53.2 |
) |
|
|
1,376.0 |
|
|
|
15.0 |
|
|
|
(57.0 |
) |
|
|
|
|
|
|
1,334.0 |
|
Interest income |
|
|
|
|
|
|
|
|
|
|
18.3 |
|
|
|
0.5 |
|
|
|
18.8 |
|
|
|
0.9 |
|
|
|
29.3 |
|
|
|
|
|
|
|
49.0 |
|
Interest expense, net |
|
|
(1.1 |
) |
|
|
(0.3 |
) |
|
|
9.6 |
|
|
|
1.2 |
|
|
|
10.8 |
|
|
|
(2.4 |
) |
|
|
(9.9 |
) |
|
|
|
|
|
|
(1.5 |
) |
Provision for taxes on income |
|
|
|
|
|
|
|
|
|
|
(185.2 |
) |
|
|
|
|
|
|
(185.2 |
) |
|
|
|
|
|
|
(190.1 |
) |
|
|
|
|
|
|
(375.3 |
) |
Minority interests in consolidated subsidiaries |
|
|
|
|
|
|
|
|
|
|
(203.5 |
) |
|
|
|
|
|
|
(203.5 |
) |
|
|
(2.5 |
) |
|
|
|
|
|
|
|
|
|
|
(206.0 |
) |
Equity in net earnings (losses) of affiliated companies |
|
|
|
|
|
|
|
|
|
|
0.1 |
|
|
|
0.2 |
|
|
|
0.3 |
|
|
|
0.8 |
|
|
|
0.5 |
|
|
|
|
|
|
|
1.6 |
|
Loss from discontinued operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1.1 |
) |
|
|
(1.1 |
) |
Equity basis investments at September 30 |
|
|
|
|
|
|
|
|
|
|
0.9 |
|
|
|
1.0 |
|
|
|
1.9 |
|
|
|
6.9 |
|
|
|
23.5 |
|
|
|
|
|
|
|
32.3 |
|
Assets at September 30 |
|
|
932.9 |
|
|
|
111.3 |
|
|
|
9,341.9 |
|
|
|
49.8 |
|
|
|
9,391.7 |
|
|
|
585.6 |
|
|
|
3,471.8 |
|
|
|
|
|
|
|
13,449.1 |
|
Expenditures for segment assets |
|
|
3.4 |
|
|
|
|
|
|
|
235.8 |
|
|
|
5.0 |
|
|
|
240.8 |
|
|
|
4.7 |
|
|
|
2.4 |
|
|
|
|
|
|
|
247.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Third Quarter 2005* |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and other operating revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unaffiliated customers |
|
$ |
894.2 |
|
|
|
249.2 |
|
|
|
1,852.4 |
|
|
|
7.3 |
|
|
|
1,859.7 |
|
|
|
319.3 |
|
|
|
|
|
|
|
|
|
|
|
2,179.0 |
|
Intersegment |
|
|
30.6 |
|
|
|
77.3 |
|
|
|
1,125.7 |
|
|
|
(1,046.6 |
) |
|
|
79.1 |
|
|
|
0.3 |
|
|
|
(79.4 |
) |
|
|
|
|
|
|
|
|
Depreciation, depletion and amortization |
|
|
11.2 |
|
|
|
|
|
|
|
98.2 |
|
|
|
2.6 |
|
|
|
100.8 |
|
|
|
7.0 |
|
|
|
1.7 |
|
|
|
|
|
|
|
109.5 |
|
Operating income (loss) before special items and provisions |
|
|
0.2 |
|
|
|
2.3 |
|
|
|
672.0 |
|
|
|
(45.1 |
) |
|
|
626.9 |
|
|
|
11.2 |
|
|
|
(32.8 |
) |
|
|
|
|
|
|
605.3 |
|
Special items and provisions, net |
|
|
0.1 |
|
|
|
|
|
|
|
(8.1 |
) |
|
|
(0.4 |
) |
|
|
(8.5 |
) |
|
|
(1.8 |
) |
|
|
(34.7 |
) |
|
|
|
|
|
|
(45.0 |
) |
Operating income (loss) |
|
|
0.3 |
|
|
|
2.3 |
|
|
|
663.9 |
|
|
|
(45.5 |
) |
|
|
618.4 |
|
|
|
9.4 |
|
|
|
(67.5 |
) |
|
|
|
|
|
|
560.3 |
|
Interest income |
|
|
|
|
|
|
0.1 |
|
|
|
7.0 |
|
|
|
|
|
|
|
7.0 |
|
|
|
0.5 |
|
|
|
11.7 |
|
|
|
|
|
|
|
19.2 |
|
Interest expense, net |
|
|
(0.8 |
) |
|
|
(0.2 |
) |
|
|
3.5 |
|
|
|
0.9 |
|
|
|
4.4 |
|
|
|
(1.9 |
) |
|
|
(13.3 |
) |
|
|
|
|
|
|
(10.8 |
) |
Provision for taxes on income |
|
|
|
|
|
|
|
|
|
|
(46.7 |
) |
|
|
|
|
|
|
(46.7 |
) |
|
|
|
|
|
|
(57.6 |
) |
|
|
|
|
|
|
(104.3 |
) |
Minority interests in consolidated subsidiaries |
|
|
|
|
|
|
|
|
|
|
(49.9 |
) |
|
|
0.1 |
|
|
|
(49.8 |
) |
|
|
(1.8 |
) |
|
|
|
|
|
|
|
|
|
|
(51.6 |
) |
Equity in net earnings (losses) of affiliated companies |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.2 |
) |
|
|
(0.2 |
) |
|
|
0.2 |
|
|
|
0.5 |
|
|
|
|
|
|
|
0.5 |
|
Income from discontinued operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6.0 |
|
|
|
6.0 |
|
Equity basis investments at September 30 |
|
|
|
|
|
|
|
|
|
|
0.5 |
|
|
|
0.9 |
|
|
|
1.4 |
|
|
|
6.4 |
|
|
|
23.8 |
|
|
|
|
|
|
|
31.6 |
|
Assets at September 30 |
|
|
330.6 |
|
|
|
36.7 |
|
|
|
6,456.4 |
|
|
|
6.6 |
|
|
|
6,463.0 |
|
|
|
686.9 |
|
|
|
2,407.1 |
|
|
|
685.0 |
|
|
|
10,242.0 |
|
Expenditures for segment assets |
|
|
5.0 |
|
|
|
|
|
|
|
178.1 |
|
|
|
24.0 |
|
|
|
202.1 |
|
|
|
4.7 |
|
|
|
5.0 |
|
|
|
12.3 |
|
|
|
224.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
In the 2005 fourth quarter, the Company reassessed its reportable segments considering the
increase in copper and molybdenum prices. Based upon our assessment, we are no longer separately
disclosing Miami/Bisbee as an individual reportable segment. Segment information for 2005 has been
revised to conform to the 2006 presentation. |
6
PHELPS DODGE CORPORATION
FINANCIAL DATA BY BUSINESS SEGMENT
(Unaudited; $ in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Mines |
|
|
South American Mines |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chino/ |
|
|
|
|
|
|
Candelaria/ |
|
|
|
|
|
|
|
|
|
|
Primary |
|
|
|
Morenci |
|
|
Bagdad |
|
|
Sierrita |
|
|
Cobre |
|
|
Tyrone |
|
|
Ojos del Salado |
|
|
Cerro Verde |
|
|
El Abra |
|
|
Molybdenum |
|
|
Nine Months Ended September 30, 2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and other operating revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unaffiliated customers |
|
$ |
|
|
|
|
|
|
|
|
19.4 |
|
|
|
26.3 |
|
|
|
|
|
|
|
781.6 |
|
|
|
96.1 |
|
|
|
692.9 |
|
|
|
1,295.6 |
|
Intersegment |
|
|
884.6 |
|
|
|
391.5 |
|
|
|
587.7 |
|
|
|
256.5 |
|
|
|
82.9 |
|
|
|
190.1 |
|
|
|
394.2 |
|
|
|
510.3 |
|
|
|
|
|
Depreciation, depletion and amortization |
|
|
44.4 |
|
|
|
17.6 |
|
|
|
12.2 |
|
|
|
19.0 |
|
|
|
8.9 |
|
|
|
31.4 |
|
|
|
22.8 |
|
|
|
91.1 |
|
|
|
31.7 |
|
Operating income (loss) before special items and provisions |
|
|
393.2 |
|
|
|
171.6 |
|
|
|
360.4 |
|
|
|
72.1 |
|
|
|
11.1 |
|
|
|
657.3 |
|
|
|
327.5 |
|
|
|
846.3 |
|
|
|
319.1 |
|
Special items and provisions, net |
|
|
(0.6 |
) |
|
|
2.2 |
|
|
|
(5.1 |
) |
|
|
(16.9 |
) |
|
|
(1.8 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6.9 |
|
Operating income (loss) |
|
|
392.6 |
|
|
|
173.8 |
|
|
|
355.3 |
|
|
|
55.2 |
|
|
|
9.3 |
|
|
|
657.3 |
|
|
|
327.5 |
|
|
|
846.3 |
|
|
|
326.0 |
|
Interest income |
|
|
0.2 |
|
|
|
|
|
|
|
|
|
|
|
2.1 |
|
|
|
|
|
|
|
7.3 |
|
|
|
6.6 |
|
|
|
17.0 |
|
|
|
0.7 |
|
Interest expense, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.1 |
|
|
|
26.7 |
|
|
|
1.2 |
|
|
|
|
|
Provision for taxes on income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(222.1 |
) |
|
|
(11.2 |
) |
|
|
(311.8 |
) |
|
|
|
|
Minority interests in consolidated subsidiaries |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(84.7 |
) |
|
|
(164.2 |
) |
|
|
(271.4 |
) |
|
|
|
|
Equity in net earnings (losses) of affiliated companies |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from discontinued operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity basis investments at September 30 |
|
|
|
|
|
|
|
|
|
|
0.2 |
|
|
|
|
|
|
|
|
|
|
|
0.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets at September 30 |
|
|
1,145.2 |
|
|
|
445.4 |
|
|
|
330.7 |
|
|
|
456.1 |
|
|
|
119.1 |
|
|
|
1,404.5 |
|
|
|
1,636.0 |
|
|
|
1,822.1 |
|
|
|
938.6 |
|
Expenditures for segment assets |
|
|
145.1 |
|
|
|
18.9 |
|
|
|
22.6 |
|
|
|
13.2 |
|
|
|
14.2 |
|
|
|
12.3 |
|
|
|
445.1 |
|
|
|
14.8 |
|
|
|
34.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2005* |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and other operating revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unaffiliated customers |
|
$ |
|
|
|
|
|
|
|
|
12.2 |
|
|
|
14.0 |
|
|
|
|
|
|
|
356.0 |
|
|
|
47.5 |
|
|
|
238.5 |
|
|
|
1,470.9 |
|
Intersegment |
|
|
773.3 |
|
|
|
526.8 |
|
|
|
635.3 |
|
|
|
243.6 |
|
|
|
94.6 |
|
|
|
155.1 |
|
|
|
196.2 |
|
|
|
233.8 |
|
|
|
|
|
Depreciation, depletion and amortization |
|
|
46.9 |
|
|
|
23.3 |
|
|
|
11.2 |
|
|
|
15.5 |
|
|
|
7.2 |
|
|
|
28.8 |
|
|
|
20.2 |
|
|
|
90.1 |
|
|
|
31.6 |
|
Operating income (loss) before special items and provisions |
|
|
328.9 |
|
|
|
313.3 |
|
|
|
424.0 |
|
|
|
49.2 |
|
|
|
7.5 |
|
|
|
213.1 |
|
|
|
131.4 |
|
|
|
160.9 |
|
|
|
257.4 |
|
Special items and provisions, net |
|
|
(0.2 |
) |
|
|
|
|
|
|
(8.6 |
) |
|
|
(64.5 |
) |
|
|
(215.7 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) |
|
|
328.7 |
|
|
|
313.3 |
|
|
|
415.4 |
|
|
|
(15.3 |
) |
|
|
(208.2 |
) |
|
|
213.1 |
|
|
|
131.4 |
|
|
|
160.9 |
|
|
|
257.4 |
|
Interest income |
|
|
0.1 |
|
|
|
|
|
|
|
|
|
|
|
1.6 |
|
|
|
|
|
|
|
4.8 |
|
|
|
4.9 |
|
|
|
1.2 |
|
|
|
0.4 |
|
Interest expense, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.2 |
|
|
|
6.6 |
|
|
|
(5.0 |
) |
|
|
|
|
Gain on sale of cost-basis investment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
87.2 |
|
Change in interest gain |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
159.5 |
|
|
|
|
|
|
|
|
|
Provision for taxes on income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(42.1 |
) |
|
|
(11.5 |
) |
|
|
(56.4 |
) |
|
|
|
|
Minority interests in consolidated subsidiaries |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(25.9 |
) |
|
|
(38.8 |
) |
|
|
(48.3 |
) |
|
|
|
|
Equity in net earnings (losses) of affiliated companies |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from discontinued operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity basis investments at September 30 |
|
|
|
|
|
|
|
|
|
|
0.2 |
|
|
|
|
|
|
|
|
|
|
|
0.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets at September 30 |
|
|
918.3 |
|
|
|
446.0 |
|
|
|
328.5 |
|
|
|
429.8 |
|
|
|
73.2 |
|
|
|
1,041.4 |
|
|
|
913.8 |
|
|
|
1,003.2 |
|
|
|
934.9 |
|
Expenditures for segment assets |
|
|
23.0 |
|
|
|
21.9 |
|
|
|
11.6 |
|
|
|
11.9 |
|
|
|
4.5 |
|
|
|
12.5 |
|
|
|
178.1 |
|
|
|
15.8 |
|
|
|
25.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate, |
|
|
|
|
|
|
|
|
|
Manufac- |
|
|
|
|
|
|
PDMC |
|
|
PDMC |
|
|
PDMC |
|
|
PDI |
|
|
Other & |
|
|
Discontinued |
|
|
|
|
|
|
turing |
|
|
Sales |
|
|
Segments |
|
|
Other |
|
|
Subtotal |
|
|
Wire & Cable |
|
|
Eliminations |
|
|
Operations |
|
|
Totals |
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and other operating revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unaffiliated customers |
|
$ |
4,832.5 |
|
|
|
(70.2 |
) |
|
|
7,674.2 |
|
|
|
67.8 |
|
|
|
7,742.0 |
|
|
|
933.1 |
|
|
|
|
|
|
|
|
|
|
|
8,675.1 |
|
Intersegment |
|
|
93.5 |
|
|
|
57.2 |
|
|
|
3,448.5 |
|
|
|
(3,393.9 |
) |
|
|
54.6 |
|
|
|
0.5 |
|
|
|
(55.1 |
) |
|
|
|
|
|
|
|
|
Depreciation, depletion and amortization |
|
|
17.7 |
|
|
|
|
|
|
|
296.8 |
|
|
|
9.9 |
|
|
|
306.7 |
|
|
|
11.9 |
|
|
|
6.0 |
|
|
|
|
|
|
|
324.6 |
|
Operating income (loss) before special items and provisions |
|
|
(0.7 |
) |
|
|
8.2 |
|
|
|
3,166.1 |
|
|
|
(174.6 |
) |
|
|
2,991.5 |
|
|
|
52.9 |
|
|
|
(110.3 |
) |
|
|
|
|
|
|
2,934.1 |
|
Special items and provisions, net |
|
|
(2.2 |
) |
|
|
|
|
|
|
(17.5 |
) |
|
|
(5.4 |
) |
|
|
(22.9 |
) |
|
|
(15.8 |
) |
|
|
(23.9 |
) |
|
|
|
|
|
|
(62.6 |
) |
Operating income (loss) |
|
|
(2.9 |
) |
|
|
8.2 |
|
|
|
3,148.6 |
|
|
|
(180.0 |
) |
|
|
2,968.6 |
|
|
|
37.1 |
|
|
|
(134.2 |
) |
|
|
|
|
|
|
2,871.5 |
|
Interest income |
|
|
|
|
|
|
|
|
|
|
33.9 |
|
|
|
1.4 |
|
|
|
35.3 |
|
|
|
1.7 |
|
|
|
68.9 |
|
|
|
|
|
|
|
105.9 |
|
Interest expense, net |
|
|
(3.2 |
) |
|
|
(0.5 |
) |
|
|
24.3 |
|
|
|
3.3 |
|
|
|
27.6 |
|
|
|
(7.0 |
) |
|
|
(32.0 |
) |
|
|
|
|
|
|
(11.4 |
) |
Provision for taxes on income |
|
|
|
|
|
|
|
|
|
|
(545.1 |
) |
|
|
|
|
|
|
(545.1 |
) |
|
|
|
|
|
|
(278.7 |
) |
|
|
|
|
|
|
(823.8 |
) |
Minority interests in consolidated subsidiaries |
|
|
|
|
|
|
|
|
|
|
(520.3 |
) |
|
|
|
|
|
|
(520.3 |
) |
|
|
(5.0 |
) |
|
|
|
|
|
|
|
|
|
|
(525.3 |
) |
Equity in net earnings (losses) of affiliated companies |
|
|
|
|
|
|
|
|
|
|
0.1 |
|
|
|
0.6 |
|
|
|
0.7 |
|
|
|
1.1 |
|
|
|
1.5 |
|
|
|
|
|
|
|
3.3 |
|
Loss from discontinued operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(17.7 |
) |
|
|
(17.7 |
) |
Equity basis investments at September 30 |
|
|
|
|
|
|
|
|
|
|
0.9 |
|
|
|
1.0 |
|
|
|
1.9 |
|
|
|
6.9 |
|
|
|
23.5 |
|
|
|
|
|
|
|
32.3 |
|
Assets at September 30 |
|
|
932.9 |
|
|
|
111.3 |
|
|
|
9,341.9 |
|
|
|
49.8 |
|
|
|
9,391.7 |
|
|
|
585.6 |
|
|
|
3,471.8 |
|
|
|
|
|
|
|
13,449.1 |
|
Expenditures for segment assets |
|
|
9.1 |
|
|
|
|
|
|
|
730.1 |
|
|
|
65.9 |
|
|
|
796.0 |
|
|
|
11.4 |
|
|
|
13.2 |
|
|
|
9.4 |
|
|
|
830.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2005* |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and other operating revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unaffiliated customers |
|
$ |
2,316.6 |
|
|
|
687.5 |
|
|
|
5,143.2 |
|
|
|
19.0 |
|
|
|
5,162.2 |
|
|
|
869.3 |
|
|
|
|
|
|
|
|
|
|
|
6,031.5 |
|
Intersegment |
|
|
136.4 |
|
|
|
195.9 |
|
|
|
3,191.0 |
|
|
|
(2,990.1 |
) |
|
|
200.9 |
|
|
|
0.7 |
|
|
|
(201.6 |
) |
|
|
|
|
|
|
|
|
Depreciation, depletion and amortization |
|
|
23.7 |
|
|
|
|
|
|
|
298.5 |
|
|
|
7.6 |
|
|
|
306.1 |
|
|
|
22.7 |
|
|
|
5.1 |
|
|
|
|
|
|
|
333.9 |
|
Operating income (loss) before special items and provisions |
|
|
11.2 |
|
|
|
1.8 |
|
|
|
1,898.7 |
|
|
|
(95.8 |
) |
|
|
1,802.9 |
|
|
|
30.0 |
|
|
|
(90.7 |
) |
|
|
|
|
|
|
1,742.2 |
|
Special items and provisions, net |
|
|
(148.6 |
) |
|
|
|
|
|
|
(437.6 |
) |
|
|
8.2 |
|
|
|
(429.4 |
) |
|
|
(3.3 |
) |
|
|
(48.6 |
) |
|
|
|
|
|
|
(481.3 |
) |
Operating income (loss) |
|
|
(137.4 |
) |
|
|
1.8 |
|
|
|
1,461.1 |
|
|
|
(87.6 |
) |
|
|
1,373.5 |
|
|
|
26.7 |
|
|
|
(139.3 |
) |
|
|
|
|
|
|
1,260.9 |
|
Interest income |
|
|
|
|
|
|
0.1 |
|
|
|
13.1 |
|
|
|
0.4 |
|
|
|
13.5 |
|
|
|
1.2 |
|
|
|
22.6 |
|
|
|
|
|
|
|
37.3 |
|
Interest expense, net |
|
|
(2.3 |
) |
|
|
(0.7 |
) |
|
|
(1.2 |
) |
|
|
2.4 |
|
|
|
1.2 |
|
|
|
(5.8 |
) |
|
|
(48.3 |
) |
|
|
|
|
|
|
(52.9 |
) |
Gain on sale of cost-basis investment |
|
|
|
|
|
|
|
|
|
|
87.2 |
|
|
|
351.2 |
|
|
|
438.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
438.4 |
|
Change in interest gain |
|
|
|
|
|
|
|
|
|
|
159.5 |
|
|
|
|
|
|
|
159.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
159.5 |
|
Provision for taxes on income |
|
|
|
|
|
|
|
|
|
|
(110.0 |
) |
|
|
|
|
|
|
(110.0 |
) |
|
|
|
|
|
|
(190.4 |
) |
|
|
|
|
|
|
(300.4 |
) |
Minority interests in consolidated subsidiaries |
|
|
|
|
|
|
|
|
|
|
(113.0 |
) |
|
|
0.1 |
|
|
|
(112.9 |
) |
|
|
(3.6 |
) |
|
|
|
|
|
|
|
|
|
|
(116.5 |
) |
Equity in net earnings (losses) of affiliated companies |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.7 |
) |
|
|
(0.7 |
) |
|
|
1.0 |
|
|
|
1.6 |
|
|
|
|
|
|
|
1.9 |
|
Income from discontinued operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22.5 |
|
|
|
22.5 |
|
Equity basis investments at September 30 |
|
|
|
|
|
|
|
|
|
|
0.5 |
|
|
|
0.9 |
|
|
|
1.4 |
|
|
|
6.4 |
|
|
|
23.8 |
|
|
|
|
|
|
|
31.6 |
|
Assets at September 30 |
|
|
330.6 |
|
|
|
36.7 |
|
|
|
6,456.4 |
|
|
|
6.6 |
|
|
|
6,463.0 |
|
|
|
686.9 |
|
|
|
2,407.1 |
|
|
|
685.0 |
|
|
|
10,242.0 |
|
Expenditures for segment assets |
|
|
14.4 |
|
|
|
|
|
|
|
318.8 |
|
|
|
40.3 |
|
|
|
359.1 |
|
|
|
12.0 |
|
|
|
10.0 |
|
|
|
22.6 |
|
|
|
403.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
In the 2005 fourth quarter, the Company reassessed its reportable segments considering the
increase in copper and molybdenum prices. Based upon our assessment, we are no longer separately
disclosing Miami/Bisbee as an individual reportable segment. Segment information for 2005 has been
revised to conform to the 2006 presentation. |
7
NOTES TO CONSOLIDATED FINANCIAL INFORMATION
(Unaudited)
1. General Information
The unaudited consolidated financial information of Phelps Dodge Corporation (the
Company, which may be referred to as Phelps Dodge, PD, we, us or our) presented herein has been
prepared in accordance with the instructions to Form 10-Q and does not include all of the
information and note disclosures required by U.S. generally accepted accounting principles (GAAP).
Therefore, this information should be read in conjunction with the Consolidated Financial
Statements and notes thereto included in our Form 10-K for the year ended December 31, 2005. This
information reflects all adjustments that are, in the opinion of management, necessary to a fair
statement of the results for the interim periods reported. The results of operations for the
quarter and nine months ended September 30, 2006, are not necessarily indicative of the results to
be expected for the full year.
Our business consists of two divisions, Phelps Dodge Mining Company (PDMC) and Phelps Dodge
Industries (PDI). Prior to the 2005 fourth quarter, PDI included, among other manufacturing
businesses, our Specialty Chemicals segment, which consisted of Columbian Chemicals Company and its
subsidiaries (Columbian Chemicals or Columbian). On November 15, 2005, the Company entered into an
agreement to sell Columbian Chemicals to a company owned jointly by One Equity Partners LLC, a
private equity affiliate of JPMorgan Chase & Co., and South Korea-based DC Chemical Co., Ltd. The
transaction was completed on March 16, 2006. As a result of this transaction, the operating results
of Columbian have been reported separately from continuing operations and shown as discontinued
operations in the Consolidated Statement of Income for all periods presented. (Refer to Note 3,
Divestitures, for further discussion.)
In addition, on November 15, 2005, the Company entered into an agreement to sell substantially
all of its North American magnet wire assets, previously reported as part of the Wire and Cable
segment in the PDI division, to Rea Magnet Wire Company, Inc. (Rea). This transaction was completed
on February 10, 2006. On March 4, 2006, Phelps Dodge entered into an agreement to sell High
Performance Conductors of SC & GA, Inc. (HPC), previously reported as part of the Wire and Cable
segment in the PDI division, to International Wire Group, Inc. (IWG). This transaction was
completed on March 31, 2006. Neither transaction met the criteria for classification as
discontinued operations as the Company is continuing to supply Rea with copper rod and IWG with
copper rod and certain copper alloys. (Refer to Note 3, Divestitures, for further discussion of
these transactions.)
Interests in our majority-owned subsidiaries are reported using the full consolidation method.
We fully consolidate the results of operations and the assets and liabilities of these subsidiaries
and report the minority interests in our Consolidated Financial Statements. All material
intercompany balances and transactions are eliminated. Other investments in undivided interests and
unincorporated mining joint ventures that are limited to the extraction of minerals are accounted
for using the proportional consolidation method, which include the Morenci copper mine, located in
Arizona, in which we hold an 85 percent undivided interest.
All references to shares of common stock and per share amounts for the quarter and nine months
ended September 30, 2005, have been adjusted to reflect the March 10, 2006, stock split. (Refer to
Note 15, Shareholders Equity, for further discussion.)
For comparative purposes, certain amounts for the quarter and nine months ended September 30,
2005, have been reclassified to conform to current period presentation.
2. Share-Based Compensation
On January 1, 2006, the Company adopted Statement of Financial Accounting Standards
(SFAS) No. 123 (revised 2004), Share-Based Payment (SFAS No. 123-R). SFAS No. 123-R requires all
share-based payments to employees, including employee stock options, be measured at fair value and
expensed over the requisite service period (generally the vesting period) for awards expected to
vest. The Company elected to use the modified prospective method for adoption, which required
compensation expense to be recognized for all unvested stock options and restricted stock beginning
in the first quarter of adoption. The fair value of restricted stock is determined based on the
quoted price of our common stock on the date of grant, and the fair value of stock options is
determined using the Black-Scholes valuation model, which is consistent with our valuation
techniques previously utilized for stock options in footnote disclosures under SFAS No. 123,
Accounting for Stock-Based Compensation, as amended by SFAS No. 148, Accounting for Stock-Based
Compensation Transition and Disclosure. Such value is recognized as expense over the requisite
service period, net of estimated forfeitures. Under SFAS No. 123-R, any unearned or deferred
compensation related to awards granted prior to the adoption of SFAS No. 123-R should be eliminated
against the appropriate equity accounts upon adoption. Therefore, in the 2006 first quarter, we
made an adjustment to beginning capital in excess of par value of $36.6 million with the offset to
the contra-equity account. Prior to adoption, we applied the disclosure-only provisions of SFAS No.
123. In accordance with the provisions of SFAS No. 123, we accounted for our stock option plans by
measuring compensation cost using the intrinsic-value-based method presented by Accounting
Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees, and related
interpretations. No compensation cost was reflected in consolidated net income for stock option
plans, as all options granted under the plans had an exercise price equal to the market value of
the underlying common stock on the date of the grant.
8
The following table presents the effect on net income and earnings per common share as if we
had applied the fair value recognition provisions of SFAS No. 123 for the quarter and nine months
ended September 30, 2005:
(Unaudited; $ in millions except per share amounts)
|
|
|
|
|
|
|
2005 |
|
|
|
Third Quarter |
|
Net income as reported |
|
$ |
366.1 |
|
Deduct: |
|
|
|
|
Total compensation cost assuming fair value method for stock options, net of tax |
|
|
(0.5 |
) |
|
|
|
|
Pro forma net income |
|
$ |
365.6 |
|
|
|
|
|
|
|
|
|
|
Basic earnings per common share:* |
|
|
|
|
As reported |
|
$ |
1.86 |
|
Pro forma |
|
$ |
1.85 |
|
Diluted earnings per common share:* |
|
|
|
|
As reported |
|
$ |
1.81 |
|
Pro forma |
|
$ |
1.80 |
|
(Unaudited; $ in millions except per share amounts)
|
|
|
|
|
|
|
Nine Months |
|
|
|
Ended |
|
|
|
September 30, 2005 |
|
Net income as reported |
|
$ |
1,435.1 |
|
Deduct: |
|
|
|
|
Total compensation cost assuming fair value method for stock options, net of tax |
|
|
(2.4 |
) |
|
|
|
|
Pro forma net income |
|
$ |
1,432.7 |
|
|
|
|
|
|
|
|
|
|
Basic earnings per common share:* |
|
|
|
|
As reported |
|
$ |
7.37 |
|
Pro forma |
|
$ |
7.36 |
|
Diluted earnings per common share:* |
|
|
|
|
As reported |
|
$ |
7.10 |
|
Pro forma |
|
$ |
7.09 |
|
|
|
|
* |
|
Earnings per common share for the quarter and nine months ended September 30, 2005, have been
adjusted to reflect the March 10, 2006, stock split. (Refer to Note 15, Shareholders Equity,
for further discussion.) |
The fair value of each option grant is estimated on the date of grant using a
Black-Scholes option-pricing model based on the following assumptions:
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended |
|
|
|
September 30, |
|
|
|
2006 |
|
2005 |
Expected dividend yield |
|
|
0.95 |
% |
|
|
1.04 |
% |
Expected stock price volatility |
|
|
37.34 |
% |
|
|
39.83 |
% |
Risk-free interest rate |
|
|
4.48 |
% |
|
|
3.76 |
% |
Expected life of options |
|
5 years |
|
5 years |
The expected dividend yield is based on historical dividend payments. Expected stock
price volatility is based on historical volatility of the Companys stock. The risk-free interest
rate is based upon the interest rates appropriate for the term of the Companys employee stock
options. The expected life of options granted is based on evaluations of historical and expected
future employee exercise behavior and represents the period of time that options granted are
expected to be outstanding.
Executives and other key employees have been granted options to purchase common shares under
stock option plans adopted in 1993, 1998 and 2003. The option price equals the fair market value of
the common shares on the day of the grant, and an options maximum term is 10 years. Options
granted vest ratably over a three-year period.
At September 30, 2006, 7,417,586 shares were available for option grants (including 3,256,018
shares as Restricted Stock awards) under the 2003 plan. These amounts are subject to future
adjustment as described in the plan document. No further options may be granted under the 1998 or
1993 plans.
In connection with the 1999 acquisition, former Cyprus Amax stock options were converted into
1,870,804 Phelps Dodge options, which retain the terms by which they were originally granted under
the Management Incentive Program of Cyprus Amax Minerals Company. These options carry a maximum
term of 10 years and became fully vested upon the acquisition of Cyprus Amax in October 1999.
Exercise periods ranged up to eight years at acquisition. No further options may be granted under
this plan.
The Phelps Dodge Corporation Directors Stock Unit Plan (effective January 1, 1997) provided to
each non-employee director serving on the board since November 15 of the preceding year an annual
award of stock units having a value of $75,000 as of the date of grant. This plan replaced the
Companys 1989 Directors Stock Option Plan. On February 1, 2006, the plan was amended to provide
pro rata awards for those directors elected after November 15, 2005, based on the number of days in
2006 the director is expected to serve on the board. On May 26, 2006, the Phelps Dodge Corporation
2007 Directors Stock Unit Plan was approved by the Companys shareholders. The options granted
under the 1989 Directors Stock Option Plan expire three years after the termination of service as a
director. No further options may be granted under the 1989 plan.
Stock option plans at December 31, 2005, and September 30, 2006, and changes for the first
nine months of 2006 for the combined plans were as follows:
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-Average |
|
|
|
Shares |
|
|
Exercise Price |
|
Outstanding at December 31, 2005* |
|
|
1,111,174 |
|
|
$ |
29.82 |
|
Granted |
|
|
143,000 |
|
|
|
79.00 |
|
Exercised |
|
|
(658,807 |
) |
|
|
26.81 |
|
Forfeited or expired |
|
|
(38,476 |
) |
|
|
45.79 |
|
|
|
|
|
|
|
|
|
Outstanding at September 30, 2006 |
|
|
556,891 |
|
|
|
44.90 |
|
|
|
|
|
|
|
|
|
Exercisable at September 30, 2006 |
|
|
211,461 |
|
|
|
22.59 |
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Outstanding shares and the weighted-average exercise price at December 31, 2005, have been
adjusted to reflect the March 10, 2006, stock split. (Refer to Note 15, Shareholders Equity,
for further discussion.) |
At September 30, 2006, the aggregate intrinsic value of options outstanding was $21.9
million with a weighted-average remaining contractual term of 7.2 years, and the aggregate
intrinsic value of options exercisable was $13.0 million with a weighted-average remaining
contractual term of 5.0 years.
9
Exercisable options by plan at September 30, 2006, were as follows:
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-Average |
|
|
|
Shares |
|
|
Exercise Price |
|
PD Plans |
|
|
|
|
|
|
|
|
2003 Plan |
|
|
14,987 |
|
|
$ |
43.15 |
|
1998 Plan |
|
|
190,984 |
|
|
|
20.71 |
|
1993 Plan |
|
|
5,000 |
|
|
|
32.69 |
|
Cyprus Amax Plans |
|
|
490 |
|
|
|
22.23 |
|
|
|
|
|
|
|
|
|
|
|
|
211,461 |
|
|
|
22.59 |
|
|
|
|
|
|
|
|
|
For the nine months ended September 30, 2006 and 2005, the weighted-average grant-date
fair value of stock options granted was $28.91 per common share and $17.77 per common share,
respectively, and the total intrinsic value of options exercised was $34.1 million and $70.2
million, respectively.
The 2003 plan provides (and the 1993 and 1998 plan provided) for the award to executives and
other key employees, without any payment by them, of common shares subject to certain restrictions
(Restricted Stock). At September 30, 2006, there were 1,551,385 shares of Restricted Stock
outstanding and 3,256,018 shares available for award.
Restricted Stock at December 31, 2005, and September 30, 2006, and changes for the first nine
months of 2006 were as follows:
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-Average |
|
|
|
|
|
|
|
Grant-Date |
|
|
|
|
|
|
|
Fair Value |
|
|
|
Shares |
|
|
Price |
|
Outstanding at December 31, 2005* |
|
|
1,548,734 |
|
|
$ |
36.62 |
|
Granted |
|
|
297,440 |
|
|
|
78.22 |
|
Released |
|
|
(122,443 |
) |
|
|
26.25 |
|
Forfeited |
|
|
(172,346 |
) |
|
|
38.78 |
|
|
|
|
|
|
|
|
|
Outstanding at September 30, 2006 |
|
|
1,551,385 |
|
|
|
45.17 |
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Outstanding shares and the weighted-average grant-date fair value price at December 31, 2005,
have been adjusted to reflect the March 10, 2006, stock split. (Refer to Note 15,
Shareholders Equity for further discussion.) |
For the nine months ended September 30, 2006 and 2005, the weighted-average grant-date
fair value of Restricted Stock was $78.22 per common share and $49.15 per common share,
respectively. Restricted Stock generally becomes fully vested in five years. Although the 2006,
2005 and 2004 awards become fully vested in five years, a majority of the shares included in those
awards have graded-vesting features in which a portion of the shares will vest on the third and
fourth anniversaries of the award. For the nine months ended September 30, 2006 and 2005, the total
fair value of shares released or vested was $9.7 million and $10.3 million, respectively.
Compensation cost for the stock option and restricted stock plans in the 2006 and 2005 third
quarters was $5.4 million and $3.2 million, respectively (included as selling and general
administrative expense in the Consolidated Statement of Income). For the 2006 and 2005 third
quarters, the total tax benefit recognized was $1.4 million and $0.8 million, respectively. For the
nine months ended September 30, 2006 and 2005, compensation cost was $18.1 million and $9.2
million, respectively. For the nine months ended September 30, 2006 and 2005, the total income tax
benefit recognized was $4.4 million and $2.2 million, respectively. At September 30, 2006, there
was $42.0 million of total unrecognized compensation cost related to nonvested, share-based
compensation arrangements. That cost is expected to be recognized over a weighted-average period of
2.0 years.
In the 2006 and 2005 third quarters, cash received from option exercises under all share-based
payment arrangements was $0.7 million and $20.6 million, respectively, and the actual tax benefit
realized for the tax deductions for share-based payment arrangements totaled $1.1 million and $4.6
million, respectively.
For the nine months ended September 30, 2006 and 2005, cash received from option exercises
under all share-based payment arrangements was $17.7 million and $56.0 million, respectively, and
the actual tax benefit realized for the tax deductions for share-based payment arrangements totaled
$10.1 million and $14.6 million, respectively.
3. Divestitures
Columbian Chemicals Company
On November 15, 2005, Phelps Dodge entered into an agreement to sell Columbian Chemicals
to a company owned jointly by One Equity Partners LLC, a private equity affiliate of JPMorgan Chase
& Co., and South Korea-based DC Chemical Co., Ltd. The transaction was completed on March 16, 2006,
resulting in net sales proceeds of approximately $595 million (including approximately $100 million
of Columbians foreign-held cash and net of approximately $27 million in taxes and related
expenses). As a result of the transaction, the operating results of Columbian have been reported
separately from continuing operations and shown as discontinued operations in the Consolidated
Statement of Income for all periods presented.
The transaction resulted in net charges of $124.5 million ($72.9 million after-tax and net of
minority interest), which were recorded in discontinued operations. Of this amount, $94.8 million
($42.6 million after-tax and net of minority interest) was recognized in the 2005 fourth quarter,
which consisted of a goodwill impairment charge of $89.0 million ($67.0 million after-tax and net
of minority interest) to reduce the carrying value of Columbian to its estimated fair value less
costs to sell, a loss on disposal of $5.8 million ($5.0 million after-tax) associated with
transaction and employee-related costs, and taxes of $7.6 million associated with the sale and
dividends paid in 2005; partially offset by a deferred income tax benefit of $37.0 million. An
additional $29.7 million ($30.3 million after-tax) was recognized for the first nine months of
2006, which consisted of a loss on disposal of $15.4 million ($14.7 million after-tax), transaction
and employee-related costs of $14.3 million (before and after taxes) and a deferred income tax
benefit reduction of $1.3 million.
10
The following table details selected financial information, which has been reported as
discontinued operations for the quarters and nine months ended September 30, 2006 and 2005:
(Unaudited; $ in millions)
|
|
|
|
|
|
|
|
|
|
|
Third Quarter |
|
|
|
2006 |
|
|
2005 |
|
Sales and other operating revenues |
|
$ |
|
|
|
|
180.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from discontinued operations before taxes
and loss on disposal |
|
$ |
|
|
|
|
10.3 |
|
Loss on disposal |
|
|
(0.2 |
) |
|
|
|
|
Provision for taxes on income |
|
|
(0.9 |
) |
|
|
(4.3 |
) |
|
|
|
|
|
|
|
Income (loss) from discontinued operations |
|
$ |
(1.1 |
) |
|
|
6.0 |
|
|
|
|
|
|
|
|
(Unaudited; $ in millions)
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended |
|
|
|
September 30, |
|
|
|
2006 |
|
|
2005 |
|
Sales and other operating revenues |
|
$ |
179.8 |
|
|
|
546.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from discontinued operations before taxes
and loss on disposal |
|
$ |
17.0 |
|
|
|
36.5 |
|
Loss on disposal |
|
|
(29.7 |
) |
|
|
|
|
Provision for taxes on income |
|
|
(5.0 |
) |
|
|
(14.0 |
) |
|
|
|
|
|
|
|
Income (loss) from discontinued operations |
|
$ |
(17.7 |
) |
|
|
22.5 |
|
|
|
|
|
|
|
|
We have not separately identified cash flows from discontinued operations for the
quarters and nine months ended September 30, 2006 and 2005, in the Companys Consolidated Statement
of Cash Flows.
Magnet Wire North America
On November 15, 2005, Phelps Dodge entered into an agreement to sell substantially all of
its North American magnet wire assets, including certain copper inventory, to Rea. The transaction
was completed on February 10, 2006, resulting in net sales proceeds of approximately $132 million
(net of approximately $10 million in taxes and related expenses).
The transaction resulted in total special, net charges of $18.3 million ($15.8 million
after-tax). Of this amount, $13.2 million ($10.7 million after-tax) was recognized in the 2005
fourth quarter, which consisted of an asset impairment charge of $5.4 million ($4.8 million
after-tax) to reduce the carrying value of the assets to their estimated fair value less costs to
sell, and transaction and employee-related costs of $7.8 million ($5.9 million after-tax). An
additional $5.1 million (before and after taxes) was recognized for the first nine months of 2006,
which consisted of a loss on disposal of $1.0 million ($2.0 million after-tax) and transaction and
employee related costs of $4.1 million ($3.1 million after-tax).
The North American magnet wire asset sale did not meet the criteria for classification as
discontinued operations as the Company is continuing to supply Rea with copper rod.
High Performance Conductors of SC & GA, Inc.
On March 4, 2006, Phelps Dodge entered into an agreement to sell HPC to IWG. Under the
agreement, IWG purchased the stock of HPC, as well as certain copper inventory. The agreement also
includes a contingent payment of up to $3 million based on HPCs 2006 results. The transaction was
completed on March 31, 2006. During the 2006 third quarter, net sales proceeds, including
settlement of negotiated working capital items, were finalized, which resulted in total net sales
proceeds, exclusive of the contingent payment, of approximately $48 million (net of approximately
$4 million in taxes and related expenses).
The transaction resulted in total special, net charges of $3.9 million ($4.7 million
after-tax), which were recognized in the first nine months of 2006 and consisted of a loss on
disposal of $1.0 million ($1.8 million after-tax) and transaction and employee-related costs of
$2.9 million (before and after taxes).
The HPC sale did not meet the criteria for classification as discontinued operations as the
Company is continuing to supply IWG with copper rod and certain copper alloys.
4. Special Items and Provisions, Net
Following is supplemental information regarding special items and provisions, net,
included in operating income that management believes should be separately disclosed to assist in
the understanding of the financial performance of the Company and the comparability of its results.
This supplemental information is not a substitute for any U.S. GAAP measure. Such special items and
provisions are primarily unpredictable and atypical of the Companys operations in a given period.
In certain instances, certain transactions such as restructuring costs, asset impairment charges,
certain asset disposals or certain legal matters are reflected as special items as they are not
considered to be representative of the normal course of business. Additionally, environmental
provisions and recoveries are included due to their nature and the impact of these amounts on
comparisons between periods. In addition, management measures the performance of its reportable
segments excluding special items. The tax impacts of the special items were determined at the
marginal effective tax rate of the appropriate taxing jurisdictions, including provision for a
valuation allowance, if warranted.
11
The following table summarizes the pre-tax special items and provisions, net, included in
operating income for the quarter and nine months ended September 30, 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months |
|
|
|
2006 |
|
|
Ended |
|
|
|
Third Quarter |
|
|
September 30, 2006 |
|
PDMC |
|
|
|
|
|
|
|
|
Environmental provisions, net |
|
$ |
(9.9 |
) |
|
|
(29.5 |
) |
Environmental insurance recoveries, net |
|
|
(0.1 |
) |
|
|
(0.2 |
) |
Historical legal matters |
|
|
7.0 |
|
|
|
6.8 |
|
|
|
|
|
|
|
|
|
|
|
(3.0 |
) |
|
|
(22.9 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PDI |
|
|
|
|
|
|
|
|
Asset impairment charges |
|
|
(5.6 |
) |
|
|
(5.6 |
) |
Dissolution of international wire and cable entity |
|
|
(1.2 |
) |
|
|
(1.2 |
) |
Sale of North American magnet wire assets: |
|
|
|
|
|
|
|
|
Loss on disposal |
|
|
(1.2 |
) |
|
|
(1.0 |
) |
Transaction and employee-related costs |
|
|
0.6 |
|
|
|
(4.1 |
) |
Sale of HPC: |
|
|
|
|
|
|
|
|
Gain (loss) on disposal |
|
|
0.5 |
|
|
|
(1.0 |
) |
Transaction and employee-related costs |
|
|
(0.2 |
) |
|
|
(2.9 |
) |
|
|
|
|
|
|
|
|
|
|
(7.1 |
) |
|
|
(15.8 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate and Other |
|
|
|
|
|
|
|
|
Environmental provisions, net |
|
|
(19.5 |
) |
|
|
(21.6 |
) |
Environmental insurance recoveries, net |
|
|
0.1 |
|
|
|
0.2 |
|
Asset impairment charges |
|
|
(2.8 |
) |
|
|
(2.8 |
) |
Historical legal matters |
|
|
(0.2 |
) |
|
|
(0.2 |
) |
Sale of non-core real estate |
|
|
|
|
|
|
0.5 |
|
|
|
|
|
|
|
|
|
|
|
(22.4 |
) |
|
|
(23.9 |
) |
|
|
|
|
|
|
|
|
|
$ |
(32.5 |
) |
|
|
(62.6 |
) |
|
|
|
|
|
|
|
For the quarter and nine months ended September 30, 2006, net charges for environmental
provisions of $29.4 million and $51.1 million ($22.3 million and $38.8 million after-tax),
respectively, were recognized. (Refer to Note 6, Environmental, and Reclamation and Closure
Matters, for further discussion of environmental matters.)
On February 10, 2006, Phelps Dodge completed the sale of substantially all its North American
magnet wire assets to Rea. In connection with the transaction, we recognized charges of $5.1
million (before and after taxes) for the nine months ended September 30, 2006, which consisted of a
loss on disposal of $1.0 million ($2.0 million after-tax) and transaction and employee-related
costs of $4.1 million ($3.1 million after-tax). (Refer to Note 3, Divestitures, for further
discussion.)
On March 31, 2006, Phelps Dodge completed the sale of HPC to IWG. In connection with the
transaction, we recognized charges of $3.9 million ($4.7 million after-tax) for the nine months
ended September 30, 2006, which consisted of a loss on disposal of $1.0 million ($1.8 million
after-tax) and transaction and employee-related costs of $2.9 million (before and after taxes).
(Refer to Note 3, Divestitures, for further discussion.)
In the 2006 third quarter, Phelps Dodge International Corporation (PDIC) recognized asset
impairment charges of $5.6 million (before and after taxes),
which were determined through an
assessment of fair market value based on projected cash flows.
In the 2006 third quarter, asset impairment charges of (i) $2.0 million ($1.5 million
after-tax) were recognized for our El Paso, Texas, magnet wire facility, which ceased operations in
the 2004 fourth quarter, and (ii) $0.8 million ($0.6 million after-tax) for our Laurinburg, North
Carolina, magnet wire facility, which was permanently closed in the 2003 fourth quarter. These
impairments were determined through an assessment of fair market value as determined by an
independent appraisal.
In the 2006 third quarter, PDIC recognized a net charge of $1.2 million (before and after
taxes) for the dissolution of a telephone cable operation in El Salvador.
For the nine months ended September 30, 2006, net gains of $6.6 million ($5.0 million
after-tax) were recognized for legal matters. These gains included $7.0 million ($5.3 million
after-tax) for settlement of an historical Cyprus Amax Minerals Company lawsuit in the 2006 third
quarter.
The following table summarizes the pre-tax special items and provisions, net, included in
operating income for the quarter and nine months ended September 30, 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months |
|
|
|
2005 |
|
|
Ended |
|
|
|
Third Quarter |
|
|
September 30, 2005 |
|
PDMC |
|
|
|
|
|
|
|
|
Environmental provisions, net |
|
$ |
(8.7 |
) |
|
|
(24.4 |
) |
Environmental insurance recoveries, net |
|
|
(0.1 |
) |
|
|
(1.2 |
) |
Asset impairment charges |
|
|
|
|
|
|
(419.1 |
) |
Historical legal matters |
|
|
0.3 |
|
|
|
15.3 |
|
|
|
|
|
|
|
|
|
|
|
(8.5 |
) |
|
|
(429.4 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PDI |
|
|
|
|
|
|
|
|
Environmental provisions, net |
|
|
(0.1 |
) |
|
|
(0.1 |
) |
Asset impairment charges |
|
|
(2.0 |
) |
|
|
(2.4 |
) |
Restructuring programs/closures |
|
|
0.3 |
|
|
|
(0.8 |
) |
|
|
|
|
|
|
|
|
|
|
(1.8 |
) |
|
|
(3.3 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate and Other |
|
|
|
|
|
|
|
|
Environmental provisions, net |
|
|
(34.4 |
) |
|
|
(54.1 |
) |
Environmental insurance recoveries, net |
|
|
0.1 |
|
|
|
1.2 |
|
Historical legal matters |
|
|
(0.4 |
) |
|
|
4.3 |
|
|
|
|
|
|
|
|
|
|
|
(34.7 |
) |
|
|
(48.6 |
) |
|
|
|
|
|
|
|
|
|
$ |
(45.0 |
) |
|
|
(481.3 |
) |
|
|
|
|
|
|
|
In the 2005 second quarter, PDMC recorded special charges for asset impairments of $419.1
million ($320.9 million after-tax) at the Tyrone and Cobre mines, Chino smelter and Miami refinery.
On June 1, 2005, the Companys board of directors approved expenditures of $210 million to
construct a concentrate-leach, direct-electrowinning facility at the Morenci copper mine, and to
restart its concentrator, which had been idle since 2001. The concentrate-leach facility will
utilize Phelps Dodges proprietary medium-temperature, pressure leaching and direct-electrowinning
technology that has been demonstrated at our Bagdad, Arizona, copper mine. The concentrate-leach,
direct-electrowinning facility is expected to be in operation by mid-2007, with copper production
projected to be approximately 150 million pounds per year. Concentrate-leach technology, in
conjunction with a conventional milling and flotation concentrator, allows copper in sulfide ores
to be transformed into copper cathode through efficient pressure leaching and
12
electrowinning processes instead of smelting and refining. Historically, sulfide ores have
been processed into copper anodes through a smelter. This decision had consequences for several of
our other southwest U.S. copper operations, resulting in the impairment of certain assets.
With future Morenci copper concentrate production being fed into the concentrate-leach
facility, the operating smelter in Miami, Arizona, will be sufficient to treat virtually all
remaining concentrate expected to be produced by Phelps Dodge at our operations in the southwestern
United States. Accordingly, the Chino smelter located near Hurley, New Mexico, which had been on
care-and-maintenance status since 2002, was permanently closed and demolition initiated. With the
closing of the Chino smelter, we had unnecessary refining capacity in the region. Because of its
superior capacity and operating flexibility, our refinery in El Paso, Texas, continues to operate.
The El Paso refinery is more than twice the size of our refinery in Miami, Arizona, and has
sufficient capacity to refine all anodes expected to be produced from our operations in the
southwestern United States given the changes brought by the above-mentioned Morenci project.
Accordingly, the Miami refinery, which had been on care-and-maintenance status since 2002, was
permanently closed. As a result of the decision to close the Chino smelter and the Miami refinery,
we recorded asset impairment charges during the 2005 second quarter of $89.6 million ($68.6 million
after-tax) and $59.1 million ($45.2 million after-tax), respectively, to reduce the related
carrying values of these properties to their respective salvage values.
The steps being taken at Morenci also impacted our Tyrone and Cobre mines in New Mexico. The
Tyrone mine had been partially curtailed since 2003, while activities at the Cobre mine were
suspended in 1999, with the exception of limited mining activities. Future economics of these mines
will be affected by significantly higher acid costs resulting from their inability to obtain
low-cost acid from the Chino smelter. These factors caused Phelps Dodge to reassess the
recoverability of the long-lived assets at both the Tyrone and Cobre mines. This reassessment,
which was based on an analysis of cash flows associated with the related assets, indicated that the
assets were not recoverable and that asset impairment charges were required.
Tyrones impairment of $210.5 million ($161.2 million after-tax) primarily resulted from
fundamental changes to its life-of-mine (LOM) cash flows mostly due to higher than expected acid
costs and the decision to accelerate reclamation of portions of stockpiles around the mine
perimeter. The impact of these assumptions increased costs and decreased Tyrones copper ore
reserves by approximately 155 million pounds, or 14 percent. The following table summarizes the
reduction in reserves and higher cost of delivered acid for Tyrone included in the 2005 second
quarter impairment analysis and the then-current LOM plan:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June |
|
|
|
|
2004 |
|
2005 |
|
Reduction |
Leach ore (in million tons) |
|
|
275 |
|
|
|
242 |
|
|
|
33 |
|
Grade |
|
|
0.31 |
% |
|
|
0.31 |
% |
|
|
|
|
Saleable copper (in million pounds) |
|
|
1,073 |
|
|
|
918 |
|
|
|
155 |
|
|
|
|
2004 |
|
2005 |
|
Increase |
Delivered acid costs: |
|
|
|
|
|
|
|
|
|
|
|
|
Per ton* |
|
$ |
31 |
|
|
|
51 |
|
|
|
20 |
|
In millions |
|
$ |
61 |
|
|
|
90 |
|
|
|
29 |
|
|
|
|
* |
|
Represents the blended cost of internally sourced acid and acid obtained from third-party
sources. |
Cobres impairment of $59.9 million ($45.9 million after-tax) primarily resulted from
projected higher acid, external smelting and freight costs. Previously, Cobres operating plan was
based on lower-cost acid from the Chino smelter. However, upon the decision to close the Chino
smelter, the long-term operating plan reflected that Cobre would have to obtain acid from
third-party sources (an increase from approximately $25 per ton to $60 per ton). Additionally, the
closure of the Chino smelter would require Cobre to transport its concentrates longer distances to
the Miami smelter at approximately $23 per ton and overseas to third parties at approximately $85
per ton for processing versus concentrate freight charges of approximately $15 per ton transported
to the Chino smelter. In addition, as a result of the Chino smelter being permanently closed, the
charges reflected estimated higher restart and operating costs of running the Cobre mill.
Additionally, the cost for building a tailing pipeline from Cobre to the Chino mine increased based
upon a detailed engineering evaluation recommending (i) extending the pipeline an additional nine
miles, (ii) adding a new thickener and booster pump station and (iii) a larger pipe size. The
higher estimated restart and operating costs associated with running the Cobre mill and the
increased costs for building a tailing pipeline from Cobre to the Chino mine were used only for our
analysis of projected cash flows and resulted in the Cobre millable reserves no longer being
economical at our long-term copper price and costs forecasts. Accordingly, the current development
plan does not include the operation of the Cobre mill.
For the quarter and nine months ended September 30, 2005, net charges for environmental
provisions of $43.2 million and $78.6 million ($33.1 million and $60.0 million after-tax),
respectively, were recognized.
For the nine months ended September 30, 2005, Phelps Dodge Magnet Wire recorded special,
pre-tax charges of $2.4 million ($1.9 million after-tax) for asset impairments. This included an
impairment charge of (i) $2.0 million ($1.6 million after-tax) recognized in the 2005 third quarter
at our El Paso, Texas, magnet wire facility, which
13
ceased operations during the 2004 fourth quarter, and (ii) $0.4 million ($0.3 million
after-tax) recognized in the 2005 second quarter at our Laurinburg, North Carolina, magnet wire
facility, which was permanently closed in the 2003 fourth quarter. The amounts of these asset
impairments were determined through an assessment of fair market value as determined by independent
appraisals.
For the nine months ended September 30, 2005, net pre-tax charges of $0.8 million (net zero
after-tax) were recognized for Phelps Dodge Magnet Wires restructuring programs and facility
closures. (Refer to the Companys Form 10-K for the year ended December 31, 2005, for additional
discussion.)
For the nine months ended September 30, 2005, net pre-tax gains of $19.6 million ($15.7
million after-tax) were recognized for legal matters. These gains included $14.8 million ($11.2
million after-tax) of net settlements on historical legal matters, an adjustment of $3.6 million
(before and after taxes) related to an historical Cyprus Amax Minerals Company lawsuit and a net
settlement of $1.2 million ($0.9 million after-tax) reached with one of our insurance carriers
associated with potential future legal matters.
5. New Accounting Pronouncements
In September 2006, the Financial Accounting Standards Board (FASB) issued SFAS No. 158,
Employers Accounting for Defined Benefit Pension and Other Postretirement Plans an amendment
of FASB Statements No. 87, 88, 106, and 132(R), which requires recognition of a net liability or
asset to report the funded status of defined benefit pension and other postretirement plans on the
balance sheet and recognition (as a component of other comprehensive income) of changes in the
funded status in the year in which the changes occur. Additionally, SFAS No. 158 requires
measurement of a plans assets and obligations as of the balance sheet date and additional annual
disclosures in the notes to the financial statements. The recognition and disclosure provisions of
SFAS No. 158 are effective for fiscal years ending after December 15, 2006, while the requirement
to measure a plans assets and obligations as of the balance sheet date is effective for fiscal
years ending after December 15, 2008. We are currently evaluating the impact the adoption of SFAS
No. 158 will have on our financial reporting and disclosures.
In September 2006, FASB issued SFAS No. 157, Fair Value Measurements, which provides
enhanced guidance for using fair value to measure assets and liabilities. SFAS No. 157 establishes
a common definition of fair value, provides a framework for measuring fair value under U.S. GAAP
and expands disclosures requirements about fair value measurements. SFAS No. 157 is effective for
financial statements issued in fiscal years beginning after November 15, 2007, and interim periods
within those fiscal years. We are currently evaluating the impact, if any, the adoption of SFAS No.
157 will have on our financial reporting and disclosures.
In June 2006, FASB issued FASB Interpretation No. 48, Accounting for Uncertainty in Income
Taxes an interpretation of FASB Statement No. 109 (FIN 48), which prescribes a recognition
threshold and measurement attribute for the financial statement recognition and measurement of a
tax position taken or expected to be taken in a tax return. FIN 48 also provides guidance on
derecognition, classification, interest and penalties, accounting in interim periods, disclosure
and transition. FIN 48 is effective for fiscal years beginning after December 15, 2006. We are
currently evaluating the impact the adoption of FIN 48 will have on our financial reporting and
disclosure requirements.
In February 2006, FASB issued SFAS No. 155, Accounting for Certain Hybrid Financial
Instruments, an amendment of FASB Statements No. 133 and 140, which eliminates the exemption from
applying SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, to interests
on securitized financial assets so that similar instruments are accounted for similarly regardless
of the form. This Statement also allows the election of fair value measurement at acquisition, at
issuance or when a previously recognized financial instrument is subject to a remeasurement event,
on an instrument-by-instrument basis, in cases in which a derivative would otherwise have to be
bifurcated. SFAS No. 155 is effective for all financial instruments acquired or issued in an
entitys first fiscal year beginning after September 15, 2006. The adoption of this Statement is
not expected to have a material impact on our financial reporting and disclosures.
Effective January 1, 2006, the Company adopted Emerging Issues Task Force (EITF) Issue No.
04-6, Accounting for Stripping Costs Incurred During Production in the Mining Industry, which
specifies that stripping costs incurred during the production phase of a mine are considered
variable production costs and included in the cost of inventory produced during the period that the
stripping costs are incurred. Prior to adoption of EITF Issue No. 04-6, Phelps Dodge had
historically charged stripping costs to maintain production at operating mines to operations as
incurred. Additionally, stripping costs incurred at new mines or at operating mines outside
existing pit limits that were expected to benefit future production were capitalized and amortized
under the units-of-production method. This EITF requires capitalization of pre-stripping or mine
development costs only to the extent that the production phase has not commenced, which is
determined when salable minerals, excluding removal of de minimis material, are extracted from an
ore body. Upon adoption in the 2006 first quarter, we recorded an increase to our work-in-process
inventories of $46.0 million, a net decrease to our capitalized mine development of $19.3 million,
a net increase to minority interests in consolidated subsidiaries of $1.3 million and a cumulative
effect adjustment to increase beginning retained earnings by $19.8 million, net of deferred income
taxes of $8.2 million.
Effective January 1, 2006, the Company adopted SFAS No.
123-R, which amends SFAS No. 123 and requires all share-based payments to employees, including
employee stock options, be measured at fair value and expensed over the requisite period (generally
the vesting period) for awards expected to vest. The Company has elected to use the modified
prospective method for adoption, which requires compensation expense to be recognized for all
unvested stock options and restricted stock beginning in the first quarter of adoption. (Refer to
Note 2, Share-Based Compensation, for further discussion.)
Effective December 31, 2005, the Company adopted FIN 47, Accounting for Conditional Asset
Retirement Obligations an interpretation of FASB Statement No. 143, which clarifies the term
conditional asset retirement obligation as used in SFAS No. 143, Accounting for Asset Retirement
Obligations. With the adoption of FIN 47, we recognize conditional asset retirement obligations as
14
liabilities when sufficient information exists to reasonably estimate the fair value. Any
uncertainty about the amount and/or timing of future settlement of a conditional asset retirement
obligation is factored into the measurement of the liability. Upon adoption in the 2005 fourth
quarter, we recorded an increase to our closure and reclamation reserve of $17.9 million, a net
increase in our mining properties assets of $4.4 million and a cumulative effect loss of $10.1
million, net of deferred income taxes of $3.4 million.
In November 2005, FASB issued FASB Staff Position (FSP) Nos. FAS 115-1 and FAS 124-1, The
Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments (FSP
115-1/124-1). FSP 115-1/124-1 provides guidance on determining when investments in certain debt and
equity securities are considered impaired, whether that impairment is other-than-temporary and on
measuring such impairment loss. FSP 115-1/124-1 also includes accounting considerations subsequent
to the recognition of an other-than-temporary impairment and requires certain disclosures about
unrealized losses that have not been recognized as other-than-temporary impairments. The adoption
of FSP 115-1/124-1 in the 2006 first quarter did not have a material impact on our financial
reporting and disclosures.
In September 2005, FASB ratified the consensus reached by the EITF on Issue No. 04-13,
Accounting for Purchases and Sales of Inventory with the Same Counterparty. The consensus
concluded that two or more legally separate exchange transactions with the same counterpart should
be combined and considered as a single arrangement for accounting purposes, if they are entered
into in contemplation of one another. The EITF also reached a consensus that nonmonetary
exchanges of inventory within the same business should be recognized at fair value. The adoption of
EITF Issue No. 04-13 in the 2006 second quarter did not have a material impact on our financial
reporting and disclosures.
In May 2005, FASB issued SFAS No. 154, Accounting Changes and Error Corrections, a
replacement of APB Opinion No. 20 and FASB Statement No. 3. SFAS No. 154 requires retrospective
application to prior periods financial statements for changes in accounting principle, unless it
is impracticable to determine either the period-specific effects or the cumulative effect of the
change. This Statement applies to all voluntary changes in accounting principle as well as to
changes required by an accounting pronouncement in the unusual instance that the pronouncement does
not include specific transition provisions. SFAS No. 154 further requires a change in depreciation,
amortization or depletion method for long-lived, non-financial assets to be accounted for as a
change in accounting estimate effected by a change in accounting principle. Corrections of errors
in the application of accounting principles will continue to be reported by retroactively restating
the affected financial statements. The Company adopted the provisions of SFAS No. 154 on January 1,
2006.
In November 2004, FASB issued SFAS No. 151, Inventory Costs, an Amendment of ARB No. 43,
Chapter 4. SFAS No. 151 clarifies that abnormal amounts of idle facility expense, freight,
handling costs and wasted materials (spoilage) should be recognized as current period charges and
requires the allocation of fixed production overhead to inventory based on the normal capacity of
the production facilities. The adoption of SFAS No. 151 in the 2006 first quarter did not have a
material impact on our financial reporting and disclosures.
6. Environmental, and Reclamation and Closure Matters
At September 30, 2006, and December 31, 2005, environmental reserves totaled $376.8
million and $367.9 million, respectively, for environmental liabilities attributed to Comprehensive
Environmental Response, Compensation, and Liability Act (CERCLA) or analogous state programs and
for estimated future costs associated with environmental matters at closed facilities and closed
portions of certain operating facilities.
The following table summarizes our environmental reserve activities for the quarter and nine
months ended September 30, 2006:
(Unaudited; $ in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months |
|
|
|
2006 |
|
|
Ended |
|
|
|
Third Quarter |
|
|
September 30, 2006 |
|
Balance, beginning of period |
|
$ |
366.8 |
|
|
|
367.9 |
|
Additions to reserves* |
|
|
34.4 |
|
|
|
61.3 |
|
Reductions in reserve estimates |
|
|
(1.6 |
) |
|
|
(1.6 |
) |
Spending against reserves |
|
|
(22.8 |
) |
|
|
(50.8 |
) |
|
|
|
|
|
|
|
Balance, end of period |
|
$ |
376.8 |
|
|
|
376.8 |
|
|
|
|
|
|
|
|
|
|
|
* |
|
The quarter and nine months ended September 30, 2006, included $3.3 million and $8.5 million,
respectively, associated with a cash settlement to Phelps Dodge with potentially responsible
parties that was not charged to expense. |
The site currently considered to be most significant is the Pinal Creek site near Miami,
Arizona, where $103.5 million remained in the environmental reserve at September 30, 2006. Phelps
Dodge Miami, Inc. and the other Pinal Creek Group (PCG) members have been pursuing contribution
litigation against three other parties involved with the site. Phelps Dodge Miami, Inc. dismissed
its contribution claims against one defendant when another PCG member agreed to be responsible for
any share attributable to that defendant. Phelps Dodge Miami, Inc. and the other PCG members
settled their contribution claims against another defendant in April 2005, which resulted in
cancellation of the Phase I trial. While the terms of the settlement are confidential, the proceeds
of the settlement will be used to address remediation at the Pinal Creek site. The Phase II trial,
which will allocate liability, has been postponed due to a discovery dispute and related orders and
appeals and has not yet been rescheduled.
At September 30, 2006, the cost range for reasonably possible outcomes for all reservable
remediation sites (including Pinal Creeks estimate of approximately $93 million to $206 million)
was estimated to be from approximately $331 million to $630 million (of which $377 million has been
reserved).
Phelps Dodge has a number of sites that are not the subject of an environmental reserve
because it is not probable that a successful claim will be made against the Company for those
sites, but for which there is a reasonably possible likelihood of an environmental remediation
liability. At September 30, 2006, the cost range for reasonably possible outcomes for all such
sites, for which an estimate can be made, was estimated to be from approximately $3
15
million to approximately $17 million. The liabilities arising from potential environmental
obligations that have not been reserved at this time may be material to the operating results of
any single quarter or year in the future. Management, however, believes the liability arising from
potential environmental obligations is not likely to have a material adverse effect on the
Companys liquidity or financial position as such obligations could be satisfied over a period of
years.
We recognize asset retirement obligations (AROs) as liabilities when incurred, with initial
measurement at fair value. In addition, with the adoption of FIN 47, we recognize conditional AROs
as liabilities when sufficient information exists to reasonably estimate the fair value. These
liabilities are accreted to full value over time through charges to income. In addition, asset
retirement costs (ARCs) are capitalized as part of the related assets carrying value and are
depreciated primarily on a units-of-production basis over the assets useful life. Reclamation
costs for future disturbances are recognized as an ARO and as a related ARC in the period incurred.
The Companys cost estimates are reflected on a third-party cost basis and comply with the
Companys legal obligation to retire tangible, long-lived assets as defined by SFAS No. 143. These
cost estimates may differ from financial assurance cost estimates due to a variety of factors,
including obtaining updated cost estimates for reclamation activities, the timing of reclamation
activities, changes in the scope of reclamation activities and the exclusion of certain costs not
accounted for under SFAS No. 143.
The following tables summarize our asset retirement obligations and asset retirement cost
activities for the quarter and nine months ended September 30, 2006:
Asset Retirement Obligations
(Unaudited; $ in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months |
|
|
|
2006 |
|
|
Ended |
|
|
|
Third Quarter |
|
|
September 30, 2006 |
|
Balance, beginning of period |
|
$ |
386.7 |
|
|
|
398.4 |
|
New liabilities during the period |
|
|
1.4 |
|
|
|
3.9 |
|
Accretion expense |
|
|
6.5 |
|
|
|
19.6 |
|
Payments |
|
|
(20.0 |
) |
|
|
(45.5 |
) |
Revisions in estimated cash flows |
|
|
|
|
|
|
(1.8 |
) |
|
|
|
|
|
|
|
Balance, end of period |
|
$ |
374.6 |
|
|
|
374.6 |
|
|
|
|
|
|
|
|
Asset Retirement Costs
(Unaudited; $ in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months |
|
|
|
2006 |
|
|
Ended |
|
|
|
Third Quarter |
|
|
September 30, 2006 |
|
Gross balance, beginning of period |
|
$ |
199.9 |
|
|
|
199.2 |
|
New assets during the period |
|
|
1.4 |
|
|
|
3.9 |
|
Revisions in estimated cash flows |
|
|
|
|
|
|
(1.8 |
) |
|
|
|
|
|
|
|
Gross balance, end of period |
|
|
201.3 |
|
|
|
201.3 |
|
Less accumulated depreciation,
depletion and amortization |
|
|
97.0 |
|
|
|
97.0 |
|
|
|
|
|
|
|
|
Balance, end of period |
|
$ |
104.3 |
|
|
|
104.3 |
|
|
|
|
|
|
|
|
We have estimated that our share of the total cost of AROs, including anticipated future
disturbances and excluding cumulative payments, as of September 30, 2006, aggregated approximately
$1.4 billion (unescalated, undiscounted and on a third-party cost basis), leaving approximately $1
billion remaining to be accreted over time. These aggregate costs may increase or decrease
materially in the future as a result of changes in regulations, technology, permit modifications or
updates, mine plans or other factors and as actual reclamation spending occurs. ARO activities and
expenditures generally are made over an extended period of time commencing near the end of the mine
life; however, certain reclamation activities could be accelerated if they are determined to be
economically beneficial.
In December 2005, the Company established a trust dedicated to funding our global
environmental reclamation and remediation activities and made an initial cash contribution of $100
million. In March 2006, the Company made an additional cash contribution of $300 million to the
trust. The Company also has trust assets that are legally restricted to fund a portion of its AROs
for Chino, Tyrone and Cobre as required for New Mexico financial assurance. At September 30, 2006,
and December 31, 2005, the fair value of the trust assets was approximately $507 million and $191
million, respectively, of which approximately $96 million was legally restricted at September 30,
2006.
7. Contingencies
Significant New Mexico Environmental and Reclamation Programs
The Companys New Mexico operations, Chino, Tyrone, Cobre and Hidalgo, each are subject
to regulation under the New Mexico Water Quality Act and the Water Quality Control Commission
(WQCC) regulations adopted under that Act. The New Mexico Environment Department (NMED) has
required each of these operations to submit closure plans for NMEDs approval. The closure plans
must describe the measures to be taken to prevent groundwater quality standards from being exceeded
following closure of the discharging facilities and to abate any groundwater or surface water
contamination.
Chino, Tyrone and Cobre also are subject to regulation under the New Mexico Mining Act (the
Mining Act), which was enacted in 1993, and the Mining Act Rules, which are administered by the
Mining and Minerals Division (MMD) of the New Mexico Energy, Minerals and Natural Resources
Department. Under the Mining Act, Chino, Tyrone and Cobre are required to submit and obtain
approval of closeout plans describing the reclamation to be performed following closure of the
mines or portions of the mines.
Financial assurance is required to ensure that funding will be available to perform both the
closure and the closeout plans if the operator is not able to perform the work required by the
plans. The amount of the financial assurance is based upon the estimated cost for a third party to
complete the work specified in the plans, including any long-term operation and maintenance, such
as operation of water treatment systems. NMED and MMD calculate the required amount of financial
assurance using a net present value (NPV) method, based upon approved discount and escalation
rates, when the closure plan and/or closeout plan require performance over a long period of time.
In April 2005, the governor of New Mexico signed Senate Bill 986, effective June 17, 2005,
which removes the requirement to provide financial assurance for the gross receipts tax levied on
closure work.
16
Eliminating this requirement is expected to reduce our New Mexico financial assurance up to
approximately $27 million (NPV basis).
The Companys cost estimates to perform the work itself (internal cost basis) generally are
lower than the cost estimates used for financial assurance due to the Companys historical cost
advantages, savings from the use of the Companys own personnel and equipment as opposed to
third-party contractor costs, and opportunities to prepare the site for more efficient reclamation
as mining progresses.
Chino, Tyrone and Cobre each have NMED-issued closure permits and MMD-approved closeout plans.
Chinos closure permit was appealed to the WQCC by a third party. The appeal originally was
dismissed by the WQCC on procedural grounds, but that decision was overturned by the New Mexico
Court of Appeals. The WQCC has postponed the hearing on the Chino closure permit pending a report
by the parties regarding settlement discussions. Tyrone appealed certain conditions in its closure
permit to the WQCC, which upheld the permit conditions. Tyrone appealed the WQCCs decision to the
Court of Appeals, and on June 15, 2006, the Court of Appeals overturned two conditions that Tyrone
had challenged in its closure permit. The New Mexico Supreme Court denied Petitions for Certiorari
filed by other parties. The case will be remanded by the Court of Appeals to the WQCC for further
proceedings. Hidalgo has applied for renewal of its discharge permit, which includes a requirement
for an updated closure plan. Hidalgo expects NMED to issue a new permit, including permit
conditions regarding closure and financial assurance, within the next few months.
The terms of the NMED closure permits and MMD-approved closeout plans for Chino, Tyrone and
Cobre require the facilities to conduct supplemental studies concerning closure and closeout,
including feasibility studies to evaluate additional closure and reclamation alternatives. The
feasibility study is due, along with amended closure plans, before the end of the five-year permit
terms, which end in 2008 for Chino and Tyrone and in 2009 for Cobre. The terms of the NMED closure
permits also require the facilities to prepare and submit abatement plans to address groundwater
that exceeds New Mexico groundwater quality standards as well as potential sources of future
groundwater contamination. Changes to the existing closure plans and additional requirements
arising from the abatement plans could increase or decrease the cost of closure and closeout. Cobre
also has submitted an application to MMD and NMED for a standby permit to defer implementation of
closure and reclamation requirements while Cobre continues on care-and-maintenance status.
The terms of the permits also require Chino, Tyrone, Cobre and Hidalgo to provide and maintain
financial assurance based upon the estimated cost to the state of New Mexico to implement the
closure and closeout plans in the event of a default by the operators. The third-party cost
estimates for financial assurance under the existing permits are $395 million for Chino, $439
million for Tyrone and $45 million for Cobre on an undiscounted and unescalated basis over the
100-year period of the closure and closeout plans. Hidalgo is updating its cost estimate as part of
its pending closure permit renewal. These cost estimates are converted to an NPV basis to determine
the amount of financial assurance required for each facility. The current financial assurance
amounts are $192 million for Chino, $271 million for Tyrone and $29 million for Cobre. In addition,
Hidalgo has provided financial assurance for approximately $11 million under the terms of its
existing discharge permit.
Up to 70 percent of the financial assurance for Chino, Tyrone and Cobre is in the form of
third-party guarantees provided by Phelps Dodge. The terms of the guarantees require Phelps Dodge
to meet certain financial tests that, in part, require Phelps Dodge to maintain an investment-grade
corporate credit rating. Phelps Dodges senior unsecured debt currently carries an investment-grade
credit rating. In the event of a ratings downgrade below investment-grade, some additional portion
of the financial assurance would have to be provided in a different form. The balance of the
financial assurance (approximately 30 percent) is provided in the form of trust funds, real estate
collateral, surety bonds and letters of credit.
The Company estimates its total cost, on an internal cost basis, to perform the requirements
of the approved closure and closeout permits to be approximately $287 million for Chino, $354
million for Tyrone and $41 million for Cobre (undiscounted and unescalated) over the 100-year
period of the closure and closeout plans. The above cost estimates do not include cumulative
payments through September 30, 2006. These estimates are lower than the estimated costs used as the
basis for financial assurance amounts due to the factors discussed above, and reflect our internal
cost estimate. Our cost estimates, on a third-party cost basis used to determine the fair value of
our closure and closeout accrual for SFAS No. 143, totaled approximately $395 million for Chino,
$460 million for Tyrone and $47 million for Cobre (undiscounted and unescalated). Tyrones cost
estimate includes approximately $21 million of net costs in addition to the financial assurance
cost estimate that primarily relates to an increased scope of work for the tailing, stockpiles and
other projects, and updated estimates for actual closure expenditures incurred. Cobres cost
estimate includes approximately $2 million of costs in addition to the financial assurance cost
estimate primarily for increased scope of work for stockpiles and characterization studies. At
September 30, 2006, we had accrued approximately $68 million for Chino, $163 million for Tyrone, $5
million for Cobre and $5 million for Hidalgo. By comparison, at December 31, 2005, we had accrued
approximately $65 million for Chino, $186 million for Tyrone, $8 million for Cobre and $4 million
for Hidalgo.
During 2006, Tyrone continued certain closure activities, including completion of a project to
remove a portion of the 1C stockpile and initiating reclamation of the adjacent stockpile area.
Additionally, Tyrone continued accelerated reclamation of tailing impoundments located in Mangas
Valley, including completion of reclamation of one tailing impoundment. Through September 30, 2006,
approximately $67 million has been spent on these actions, including approximately $21 million on
the 1C stockpile. In 2005, Tyrone submitted an application to reduce the required amount of
financial assurance by $32 million to reflect the completion of the 1C stockpile removal project
and 2005 legislation that eliminated a requirement to include New Mexico gross receipts tax in the
cost estimates used for financial assurance. On December 12, 2005, the state concurred with the
reduction and Tyrone is currently negotiating changes in financial assurance with the state.
17
In December 1994, Chino entered into an Administrative Order on Consent (AOC) with NMED. The
AOC requires Chino to perform a CERCLA quality investigation of environmental impacts and potential
risks to human health and the environment associated with portions of the Chino property affected
by historical mining operations. The remedial investigations began in 1995 and are still under way,
although substantial portions of the remedial investigations are near completion. The Company
expects that some remediation will be required and is considering interim remediation proposals,
although no feasibility studies have yet been completed. Chino has begun remediating residential
yards in the town of Hurley after agreement was reached with NMED on cleanup levels. NMED has not
yet issued a record of decision regarding any additional remediation that may be required under the
AOC. As of September 30, 2006, the Companys estimated cost for all aspects of the AOC is
approximately $23 million. In addition to work under the AOC,
Chino has implemented projects
to control blowing dust from tailing impoundments.
Chino continues work on excavating and removing copper-bearing material from an area known as Lake
One for copper recovery in existing leach stockpiles at the mine. As of September 30, 2006, the
Companys estimated cost for the remaining work at Lake One is approximately $5 million. The
Companys aggregate environmental reserve for liability under the Chino AOC, the interim work on
the tailing impoundments and Lake One, as described above, is approximately $33 million at
September 30, 2006.
Significant Changes in International Closure and Reclamation Programs
Sociedad Minera Cerro Verde S.A.A.
On August 15, 2005, the Peruvian Ministry of Energy and Mines published the final regulation
associated with the Mine Closure Law. The regulation required companies to submit closure plans for
existing projects within one year after August 15, 2005, and for new projects within one year after
approval of the Environment Impact Statement. Additionally, the regulation sets forth the financial
assurance requirements, including guidance for calculating the estimated cost and the types of
financial assurance instruments that can be utilized.
In accordance with the new regulation, Cerro Verde submitted its closure plan on August 14,
2006. Cerro Verde is also in the process of determining its financial assurance obligations
associated with the new regulation. Based on the submitted closure plans scope of work, the
revised site-wide cost estimate is approximately $80 million (undiscounted, unescalated and on a
third-party cost basis). At both September 30, 2006, and December 31, 2005, Cerro Verde had accrued
closure costs of approximately $5 million.
Other
On February 7, 2004, the Chilean Ministry of Mining published and passed a modification to its
mining safety regulations. The current published regulation requires a company to submit a
reclamation plan within five years of the published regulation. In the 2005 fourth quarter, El Abra
and Candelaria completed their comprehensive review of the revised cost estimates based on existing
regulations, which resulted in a revision to the ARO estimates. ARO estimates may require further
revision if new interpretations or additional technical guidance are published to further clarify
the regulation. Final closure plans and related financial assurance requirements will be filed with
the Ministry before February 2009. At September 30, 2006, and December 31, 2005, we had accrued
closure costs of approximately $23 million and $20 million, respectively, for our Chilean
operations.
8. Earnings Per Share
Basic earnings per common share are computed by dividing income available to common
shareholders by the weighted average number of common shares outstanding for the period. Diluted
earnings per common share are computed similarly to basic earnings per common share except that the
denominator is increased to include the number of additional common shares that would have been
outstanding if the potentially dilutive common shares had been issued, and the numerator excludes
preferred stock dividends, unless anti-dilutive. Unvested restricted stock is included in the
computation of diluted earnings per common share as the issuance of such shares is contingent upon
vesting.
(Unaudited; $ in millions except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
Third Quarter |
|
|
|
2006 |
|
|
2005 |
|
Basic Earnings Per Common Share Computation |
|
|
|
|
|
|
|
|
Numerator: |
|
|
|
|
|
|
|
|
Income from continuing operations |
|
$ |
889.1 |
|
|
|
360.1 |
|
Income (loss) from discontinued operations |
|
|
(1.1 |
) |
|
|
6.0 |
|
|
|
|
|
|
|
|
Net income applicable to common shares |
|
$ |
888.0 |
|
|
|
366.1 |
|
|
|
|
|
|
|
|
|
Denominator: |
|
|
|
|
|
|
|
|
Weighted average common shares outstanding* |
|
|
202.5 |
|
|
|
197.2 |
|
|
|
|
|
|
|
|
|
Basic earnings per common share:* |
|
|
|
|
|
|
|
|
Income from continuing operations |
|
$ |
4.39 |
|
|
|
1.83 |
|
Income (loss) from discontinued operations |
|
|
(0.01 |
) |
|
|
0.03 |
|
|
|
|
|
|
|
|
Basic earnings per common share |
|
$ |
4.38 |
|
|
|
1.86 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted Earnings Per Common Share Computation |
|
|
|
|
|
|
|
|
Numerator: |
|
|
|
|
|
|
|
|
Income from continuing operations |
|
$ |
889.1 |
|
|
|
360.1 |
|
Income (loss) from discontinued operations |
|
|
(1.1 |
) |
|
|
6.0 |
|
|
|
|
|
|
|
|
Net income applicable to common shares |
|
$ |
888.0 |
|
|
|
366.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator: |
|
|
|
|
|
|
|
|
Weighted average common shares outstanding* |
|
|
202.5 |
|
|
|
197.2 |
|
Weighted average employee stock options* |
|
|
0.2 |
|
|
|
0.6 |
|
Weighted average restricted stock issued to employees* |
|
|
0.8 |
|
|
|
0.8 |
|
Weighted average mandatory convertible preferred shares* |
|
|
|
|
|
|
4.1 |
|
|
|
|
|
|
|
|
Total weighted average common shares outstanding* |
|
|
203.5 |
|
|
|
202.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per common share:* |
|
|
|
|
|
|
|
|
Income from continuing operations |
|
$ |
4.37 |
|
|
|
1.78 |
|
Income (loss) from discontinued operations |
|
|
(0.01 |
) |
|
|
0.03 |
|
|
|
|
|
|
|
|
Diluted earnings per common share |
|
$ |
4.36 |
|
|
|
1.81 |
|
|
|
|
|
|
|
|
18
(Unaudited; $ in millions except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended |
|
|
|
September 30, |
|
|
|
2006 |
|
|
2005 |
|
Basic Earnings Per Common Share Computation |
|
|
|
|
|
|
|
|
Numerator: |
|
|
|
|
|
|
|
|
Income from continuing operations |
|
$ |
1,711.2 |
|
|
|
1,412.6 |
|
Income (loss) from discontinued operations |
|
|
(17.7 |
) |
|
|
22.5 |
|
|
|
|
|
|
|
|
Net income |
|
|
1,693.5 |
|
|
|
1,435.1 |
|
Preferred stock dividends |
|
|
|
|
|
|
(6.8 |
) |
|
|
|
|
|
|
|
Net income applicable to common shares |
|
$ |
1,693.5 |
|
|
|
1,428.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator: |
|
|
|
|
|
|
|
|
Weighted average common shares outstanding* |
|
|
202.3 |
|
|
|
193.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per common share:* |
|
|
|
|
|
|
|
|
Income from continuing operations |
|
$ |
8.46 |
|
|
|
7.26 |
|
Income (loss) from discontinued operations |
|
|
(0.09 |
) |
|
|
0.11 |
|
|
|
|
|
|
|
|
Basic earnings per common share |
|
$ |
8.37 |
|
|
|
7.37 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted Earnings Per Common Share Computation |
|
|
|
|
|
|
|
|
Numerator: |
|
|
|
|
|
|
|
|
Income from continuing operations |
|
$ |
1,711.2 |
|
|
|
1,412.6 |
|
Income (loss) from discontinued operations |
|
|
(17.7 |
) |
|
|
22.5 |
|
|
|
|
|
|
|
|
Net income applicable to common shares |
|
$ |
1,693.5 |
|
|
|
1,435.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator: |
|
|
|
|
|
|
|
|
Weighted average common shares outstanding* |
|
|
202.3 |
|
|
|
193.7 |
|
Weighted average employee stock options* |
|
|
0.2 |
|
|
|
0.8 |
|
Weighted average restricted stock issued to employees* |
|
|
0.9 |
|
|
|
0.8 |
|
Weighted average mandatory convertible preferred
shares* |
|
|
|
|
|
|
6.9 |
|
|
|
|
|
|
|
|
Total weighted average common shares outstanding* |
|
|
203.4 |
|
|
|
202.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per common share:* |
|
|
|
|
|
|
|
|
Income from continuing operations |
|
$ |
8.42 |
|
|
|
6.99 |
|
Income (loss) from discontinued operations |
|
|
(0.09 |
) |
|
|
0.11 |
|
|
|
|
|
|
|
|
Diluted earnings per common share |
|
$ |
8.33 |
|
|
|
7.10 |
|
|
|
|
|
|
|
|
|
|
|
* |
|
Weighted average shares outstanding and earnings per common share for the quarter and nine
months ended September 30, 2005, have been adjusted to reflect the March 10, 2006, stock
split. (Refer to Note 15, Shareholders Equity, for further discussion.) |
9. Provision for Taxes on Income
The Companys income tax provision from continuing operations for the 2006 third quarter
resulted from taxes on earnings at international operations ($194.9 million) and U.S. operations
($180.4 million), including benefits from the release of valuation allowances ($0.5 million).
The Companys income tax provision from continuing operations for the nine months ended
September 30, 2006, resulted from taxes on earnings at international operations ($569.5 million)
and U.S. operations ($254.3 million), including benefits from the release of valuation allowances
($7.4 million).
The release in our domestic valuation allowances for the quarter and nine months ended
September 30, 2006, was attributable to a portion of our U.S. federal minimum tax credits, as well
as our state net operating loss carryforwards.
Phelps Dodge provides reserves for various unresolved tax issues. During the 2006 first
quarter, certain of these issues were favorably resolved, resulting in a reduction of the Companys
income tax provision from continuing operations of approximately $10 million.
In addition, during January 2006, a change in Arizona tax law impacting the apportionment of
income became effective resulting in a reduction of the Companys income tax provision from
continuing operations of approximately $6 million.
The difference between our effective income tax rate of approximately 27 percent for the nine
months ended September 30, 2006, and the U.S. federal statutory rate of 35 percent primarily was
due to percentage depletion deductions for regular tax purposes in the United States and Peruvian
reinvestment deductions associated with the Cerro Verde mine expansion.
The Companys income tax provision from continuing operations for the 2005 third quarter
resulted from taxes on earnings at U.S. operations ($57.0 million), including recognition of
valuation allowances ($34.1 million), and taxes on earnings at international operations ($47.3
million), including benefits from the release of valuation allowances ($0.9 million).
The Companys income tax provision from continuing operations for the nine months ended
September 30, 2005, resulted from taxes on earnings at U.S. operations ($179.2 million), including
recognition of valuation allowances ($2.2 million), and taxes on earnings at international
operations ($121.2 million), including recognition of valuation allowances ($0.6 million).
The difference between our effective income tax rate of approximately 16 percent for the nine
months ended September 30, 2005, and the U.S. federal statutory rate of 35 percent primarily was
due to (i) percentage depletion deductions for regular tax purposes in the United States, (ii) a
portion of the gain on the sale of our Southern Peru Copper Corporation (SPCC) investment being
offset by previously unrecognized capital loss carryovers, (iii) the extraterritorial income
exclusion associated with foreign molybdenum sales, (iv) Peruvian reinvestment benefits resulting
from the Cerro Verde mine expansion and (v) deferred income taxes not being provided on the change
in interest gain from the Cerro Verde stock issuance, as we expected to permanently reinvest our
portion of the proceeds in that entity.
Cerro Verdes Mining Stability Agreement, which was executed in 1998, contains a provision
that allows it to exclude from taxable income qualifying profits that are reinvested in an
investment program filed with and approved by the Ministry of Energy and Mines (the Mining
Authority). On December 9, 2004, Cerro Verde received confirmation from the Mining Authority that
approximately $800 million of its sulfide expansion project qualified for the taxable exclusion.
The total reinvestment benefit is limited to 30 percent of the qualifying investment or up to $240
million. In order to obtain the tax benefit, Cerro Verde is required to reinvest its qualifying
profits of up to $800 million during the four-year period from 2004 through 2007, which could be
extended at the discretion of the Mining Authority for up to three years through 2010. Qualifying
profits for each year are limited to 80 percent of the lesser of after-tax book income or
undistributed earnings. Based on qualified earnings for the first nine months of 2006, Cerro Verde
recorded a current reinvestment benefit of approximately $72 million and a deferred tax benefit of
approximately $21 million. At September 30, 2006, Cerro
19
Verde had a total deferred tax asset of approximately $63 million associated with its sulfide
expansion project.
10. Accounting for Derivative Instruments and Hedging Activities
We do not purchase, hold or sell derivative financial instruments unless we have an
existing asset or obligation or we anticipate a future activity that is likely to occur and will
result in exposing us to market risk. We do not enter into any instruments for speculative
purposes. We use various strategies to manage our market risk, including the use of derivative
instruments to limit, offset or reduce our market exposure. Derivative financial instruments are
used to manage well-defined commodity price, energy, foreign exchange, and interest rate risks from
our primary business activities. The fair values of our derivative instruments are based on
valuations provided by third parties, purchased derivative pricing models or widely published
market closing prices at period end. Refer to Managements Discussion and Analysis of Financial
Condition and Results of Operations and Note 22, Derivative Financial Instruments and Fair Value of
Financial Instruments, to the Consolidated Financial Statements included in the Companys Form 10-K
for the year ended December 31, 2005, for further discussion of our derivative instruments.
Phelps Dodge entered into programs to protect a portion of its expected copper production by
purchasing zero-premium copper collars (consisting of put options and call options) and copper put
options. The copper collars and copper put options are settled on an average London Metal Exchange
(LME) pricing basis for their respective hedge periods. The copper collar put options and purchased
copper put options are settled monthly for 2006 and annually for 2007; all of the copper collar
call options are settled annually. Phelps Dodge entered into the programs as insurance to help
ameliorate the effects of unanticipated copper price decreases.
The following table provides a summary of PDMCs zero-premium copper collar and copper put
option programs for 2006 and 2007:
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
2006 |
|
|
2007 |
|
Copper Collars: |
|
|
|
|
|
|
|
|
Pounds of zero-premium copper collars purchased (in
millions) |
|
|
564 |
|
|
|
486 |
|
Average LME put strike price (floor) per pound |
|
$ |
0.954 |
|
|
|
0.950 |
|
Annual average LME call strike price (ceiling) per pound |
|
$ |
1.632 |
|
|
|
2.002 |
|
Associated pre-tax gains (charges) for the 2006 third
quarter (A): |
|
|
|
|
|
|
|
|
Intrinsic value component (in millions) |
|
$ |
(52 |
) |
|
|
(120 |
) |
Time value component (in millions) |
|
$ |
|
|
|
|
27 |
|
Associated pre-tax gains (charges) for the nine months
ended September 30, 2006 (A): |
|
|
|
|
|
|
|
|
Intrinsic value component (in millions) |
|
$ |
(669 |
) |
|
|
(584 |
) |
Time value component (in millions) |
|
$ |
13 |
|
|
|
28 |
|
|
|
|
|
|
|
|
|
|
Copper Put Options: |
|
|
|
|
|
|
|
|
Pounds of copper put options purchased (in millions) |
|
|
564 |
|
|
|
730 |
|
Average LME put strike price per pound |
|
$ |
0.950 |
|
|
|
0.950 |
|
Premium cost per pound |
|
$ |
0.020 |
|
|
|
0.023 |
|
Associated pre-tax charges for the 2006 third quarter
(A): |
|
|
|
|
|
|
|
|
Intrinsic value component (in millions) |
|
$ |
|
|
|
|
|
|
Time value component (in millions) |
|
$ |
|
|
|
|
|
|
Associated pre-tax charges for the nine months ended
September 30, 2006 (A): |
|
|
|
|
|
|
|
|
Intrinsic value component (in millions) |
|
$ |
|
|
|
|
|
|
Time value component (in millions) |
|
$ |
|
|
|
|
(3 |
) |
|
|
|
|
(A) |
|
The 2006 unrealized pre-tax charges resulted from the 2006 LME price average of $3.105 per
pound exceeding the $1.632 per pound ceiling of our 2006 zero-premium copper collars. The
cumulative pre-tax charges for our 2006 copper collars and copper put options, including
amounts recognized in 2005, were approximately $831 million, primarily reflecting intrinsic
value charges and put option premiums. The 2007 unrealized pre-tax charges resulted from the
2007 LME price average of $3.285 per pound exceeding the $2.002 per pound ceiling of our 2007
zero-premium copper collars. The cumulative pre-tax charges for our 2007 copper collars and
copper put options, including amounts recognized in 2005, were approximately $608 million,
consisting of approximately $584 million for the intrinsic value component and approximately
$7 million for the time value component, with the remainder for put option premiums. |
Transactions under these copper price protection programs do not qualify for hedge
accounting treatment under SFAS No. 133 and are adjusted to fair market value based on the forward
curve price and implied volatility as of the last day of the respective reporting period, with the
gain or loss recorded in revenues. The actual impact of our 2006 and 2007 zero-premium copper
collar price protection programs will not be fully determinable until the maturity of the copper
collars at each respective year end, with final adjustments based on the average annual price.
During the 2006 first quarter, approximately $187 million was paid to the respective
counterparts for the PDMC and El Abra 2005 zero-premium copper collar programs.
During the quarter and nine months ended September 30, 2006, we reclassified approximately
$1.1 million and $9.7 million, respectively, from other comprehensive income to the Consolidated
Statement of Income primarily as a result of our international metal swap contracts.
During the quarter and nine months ended September 30, 2005, we reclassified approximately
$5.0 million and $6.6 million, respectively, of other comprehensive income to the Consolidated
20
Statement of Income primarily as a result of our domestic energy (diesel fuel and natural gas)
price protection contracts.
11. Pension and Postretirement Benefits
The following tables present the components of net periodic benefit cost for pension
benefits and postretirement benefits for the quarters and nine months ended September 30, 2006 and
2005:
Pension Benefits
(Unaudited; $ in millions)
|
|
|
|
|
|
|
|
|
|
|
Third Quarter |
|
|
|
2006 |
|
|
2005 |
|
Service
cost benefits earned during the period |
|
$ |
5.6 |
|
|
|
7.1 |
|
Interest cost on benefit obligation |
|
|
17.5 |
|
|
|
18.6 |
|
Expected return on plan assets |
|
|
(25.9 |
) |
|
|
(21.6 |
) |
Amortization of prior service cost |
|
|
0.7 |
|
|
|
0.9 |
|
Amortization of actuarial loss |
|
|
4.4 |
|
|
|
3.5 |
|
Curtailment and special retirement benefits |
|
|
|
|
|
|
0.1 |
|
|
|
|
|
|
|
|
Net periodic benefit cost |
|
$ |
2.3 |
|
|
|
8.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended |
|
|
|
September 30, |
|
|
|
2006 |
|
|
2005 |
|
Service
cost benefits earned during the period |
|
$ |
16.7 |
|
|
|
21.1 |
|
Interest cost on benefit obligation |
|
|
52.6 |
|
|
|
55.9 |
|
Expected return on plan assets |
|
|
(77.8 |
) |
|
|
(64.7 |
) |
Amortization of prior service cost |
|
|
2.0 |
|
|
|
2.5 |
|
Amortization of net actuarial loss |
|
|
13.4 |
|
|
|
10.6 |
|
Curtailment and special retirement benefits |
|
|
0.5 |
|
|
|
0.1 |
|
|
|
|
|
|
|
|
Net periodic benefit cost |
|
$ |
7.4 |
|
|
|
25.5 |
|
|
|
|
|
|
|
|
Postretirement Benefits
(Unaudited; $ in millions)
|
|
|
|
|
|
|
|
|
|
|
Third Quarter |
|
|
|
2006 |
|
|
2005 |
|
Service
cost benefits earned during the period |
|
$ |
0.3 |
|
|
|
1.1 |
|
Interest cost on benefit obligation |
|
|
3.6 |
|
|
|
5.1 |
|
Expected return on plan assets |
|
|
(1.7 |
) |
|
|
|
|
Amortization of prior service (benefit) cost |
|
|
(0.7 |
) |
|
|
0.1 |
|
Recognized net actuarial (gain) loss |
|
|
(0.2 |
) |
|
|
0.3 |
|
|
|
|
|
|
|
|
Net periodic benefit cost |
|
$ |
1.3 |
|
|
|
6.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended |
|
|
|
September 30, |
|
|
|
2006 |
|
|
2005 |
|
Service
cost benefits earned during the period |
|
$ |
0.9 |
|
|
|
3.3 |
|
Interest cost on benefit obligation |
|
|
10.8 |
|
|
|
14.7 |
|
Expected return on plan assets |
|
|
(5.2 |
) |
|
|
(0.1 |
) |
Amortization of prior service (benefit) cost |
|
|
(1.9 |
) |
|
|
0.2 |
|
Recognized net actuarial (gain) loss |
|
|
(0.6 |
) |
|
|
0.3 |
|
Special retirement benefits |
|
|
(0.3 |
) |
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost |
|
$ |
3.7 |
|
|
|
18.4 |
|
|
|
|
|
|
|
|
On July 13, 2005, Phelps Dodge made a cash contribution of $250 million to certain U.S.
pension plans.
Our pension expense in the 2006 third quarter was $2.3 million, compared with $8.6 million in
the 2005 third quarter. The decrease of $6.3 million was primarily due to (i) an increase in the
expected return on plan assets ($4.3 million) associated with the July 2005 contribution, (ii) a
decrease in service costs ($1.5 million) resulting from updated actuarial assumptions and (iii) a
decrease in interest costs ($1.1 million) resulting mostly from the sale of Columbian Chemicals;
partially offset by higher amortization of actuarial losses ($0.9 million) resulting from a
decrease in the expected future working lifetime of employees due to updated withdrawal
assumptions.
Our pension expense for the nine months ended September 30, 2006, was $7.4 million, compared
with $25.5 million in the corresponding 2005 period. The decrease of $18.1 million was primarily
due to (i) an increase in the expected return on plan assets ($13.1 million) associated with the
July 2005 contribution, (ii) a decrease in service costs ($4.4 million) resulting from updated
actuarial assumptions and (iii) a decrease in interest costs ($3.3 million) resulting mostly from
the sale of Columbian Chemicals; partially offset by higher amortization of actuarial losses ($2.8
million) resulting from a decrease in the expected future working lifetime of employees due to
updated withdrawal assumptions.
In December 2005, Phelps Dodge established and funded two trusts, one dedicated to funding
postretirement medical obligations and the other dedicated to funding postretirement life insurance
obligations, for eligible U.S. retirees. These trusts were established in connection with certain
employee benefit plans sponsored by Phelps Dodge and are intended to constitute Voluntary
Employees Beneficiary Association (VEBA) trusts under section 501(c)(9) of the Internal Revenue
Code. The trusts will help provide assurance to participants in these plans that Phelps Dodge will
continue to have funds available to meet its obligations under the covered retiree medical and life
insurance programs. However, the trusts will not reduce retiree contribution obligations that help
fund these benefits and will not guarantee that retiree contribution obligations will not increase
in the future. In December 2005, the Company contributed a total of $200 million to these trusts,
consisting of $175 million for postretirement medical obligations and $25 million for
postretirement life insurance obligations. At the end of the 2006 second quarter, each VEBA trust
commenced making payments in support of the benefit obligations funded by the respective trust.
Our postretirement expense in the 2006 third quarter was $1.3 million, compared with $6.6
million in the 2005 third quarter. The decrease of $5.3 million was primarily due to (i) an
increase in the expected return on plan assets ($1.7 million) associated with the December 2005
contribution, (ii) lower interest costs ($1.5 million) and service costs ($0.8 million) resulting
from updated actuarial assumptions and the sale of Columbian Chemicals and HPC and (iii)
amortization of prior service cost ($0.8 million) resulting from a plan amendment.
Our postretirement expense for the nine months ended September 30, 2006, was $3.7 million,
compared with $18.4 million in the corresponding 2005 period. The decrease of $14.7 million was
primarily due to (i) an increase in expected return on plan assets ($5.1 million) associated with
the December 2005 contribution, (ii) lower interest costs ($3.9 million) and service costs ($2.4
million) resulting from updated actuarial assumptions and the sale of
21
Columbian Chemicals and HPC and (iii) amortization of prior service cost ($2.1 million)
resulting from a plan amendment.
12. Debt and Other Financing
On April 1, 2005, the Company amended the agreement for its $1.1 billion revolving credit
facility, extending its maturity to April 20, 2010, and slightly modifying its fee structure. The
facility is to be used for general corporate purposes. The agreement requires the Company to
maintain a minimum earnings before interest, taxes, depreciation and
amortization (EBITDA as
defined in the agreement) to interest ratio of 2.25 on a rolling four-quarter basis, and limits
consolidated indebtedness to 55 percent of total consolidated capitalization. At September 30,
2006, there was a total of approximately $73 million of letters of credit issued under the
revolver. Total availability under the revolving credit facility at September 30, 2006, amounted to
approximately $1.0 billion, of which approximately $227 million could be used for additional
letters of credit.
On September 30, 2005, the Company entered into a number of agreements in connection with
obtaining debt-financing facilities in an overall amount of $450 million, subject to certain
conditions, for the expansion of the Cerro Verde copper mine. At September 30, 2006, and December
31, 2005, our Cerro Verde copper mine, in which we own a 53.6 percent equity interest, had
outstanding project-financed debt under these facilities of $112.0 million and $20.0 million,
respectively. (Refer to Note 14, Debt and Other Financing, to the Companys Consolidated Financial
Statements included in the Companys Form 10-K for the year ended December 31, 2005, for additional
information on the Cerro Verde debt-financing facilities.)
On April 17, 2006, the National Supervisory Commission of Companies and Securities of the
Republic of Peru authorized the registration of a series of bonds to be issued through one or more
offerings by Cerro Verde in an aggregate principal amount of up to $250 million, with the issuance
of the first series of bonds in the aggregate principal amount of up to $90 million. On April 27,
2006, the first series of bonds was issued for total proceeds of $90.0 million, which was used to
fund the Cerro Verde expansion project. The issuance of these bonds reduced, dollar-for-dollar, the
$90 million stand-by facility included in the $450 million debt-financing facilities. Any further
issuance of bonds would require the consent of the Senior Facility Lenders in accordance with the
Master Participation Agreement.
In September 2006, Cerro Verde notified the Senior Facility Lenders that it would reduce loan
commitments by $138 million so that total borrowings would not exceed $312 million, including the
$90.0 million of local bonds issued in April 2006 and $112.0 million of outstanding
project-financed debt at September 30, 2006. The reduction in loan commitments became effective on
October 11, 2006.
In July 2005, the Company completed a tender offer for its 8.75 percent Notes due in 2011,
which resulted in the retirement of long-term debt with a book value of approximately $280 million
(representing approximately 72 percent of the outstanding notes). This resulted in a 2005 third
quarter pre-tax charge of $54.0 million ($41.3 million after-tax), including purchase premiums, for
early debt extinguishment costs.
13. Gain on Sale of Cost-Basis Investment
On June 9, 2005, the Company entered into an Underwriting Agreement with Citigroup Global
Markets, Inc., UBS Securities LLC, SPCC Cerro Trading Company, Inc. and SPC Investors, LLC. On June
15, 2005, pursuant to the Underwriting Agreement, the Company sold all of its SPCC common shares to
the underwriters for a net price of $40.635 per share (based on a market price of $42.00 per share
less underwriting fees). This transaction resulted in a 2005 second quarter pre-tax gain of $438.4
million ($388.0 million after-tax).
14. Change in Interest Gain
In the 2005 second quarter, our Cerro Verde copper mine in Peru completed a general
capital increase transaction. The transaction resulted in SMM Cerro Verde Netherlands B.V.
acquiring an equity position in Cerro Verde totaling 21.0 percent. In addition, Compañía de Minas
Buenaventura S.A.A. (Buenaventura) increased its ownership position in Cerro Verde to 18.2 percent.
The remaining minority shareholders own 7.2 percent of Cerro Verde through shares publicly traded
on the Lima Stock Exchange. As a result of the transaction, Phelps Dodges interest in Cerro Verde
was reduced to 53.6 percent from 82.5 percent.
In connection with the transaction, Cerro Verde issued 122.7 million of its common shares at
$3.6074 per share to SMM Cerro Verde Netherlands B.V., Buenaventura and the remaining minority
shareholders, and received $441.8 million in cash (net of $1.0 million of expenses). The stock
issuance transactions resulted in a 2005 second quarter pre-tax gain of $159.5 million ($172.9
million after-tax) associated with our change of interest. The $13.4 million tax benefit related to
this transaction included a reduction in deferred tax liabilities ($16.1 million) resulting from
the recognition of certain book adjustments to reflect dilution of our ownership interest,
partially offset by taxes charged ($2.7 million) on the transfer of stock subscription rights to
Buenaventura and SMM Cerro Verde Netherlands B.V. The inflow of capital from Buenaventura and SMM
Cerro Verde Netherlands B.V. is being used to partially finance the approximate $850 million
expansion to mine a primary sulfide ore body beneath the leachable ore body currently in production
at Cerro Verde.
15. Shareholders Equity
Stock Split
On February 1, 2006, the Companys board of directors approved a two-for-one split of the
Companys outstanding common stock in the form of a 100 percent stock dividend. Common shareholders
of record at the close of business on February 17, 2006, received one additional share of common
stock for every share they owned as of that date. The additional shares were distributed on March
10, 2006, and increased the number of shares outstanding to approximately 203.7 million from
approximately 101.9 million. The par value of Phelps Dodges common stock remains at $6.25 per
share. All references to shares of common stock and per common share amounts for the quarter and
nine months ended September 30, 2005, have been retroactively adjusted to reflect the two-for-one
stock split, except for the Consolidated Statement of Shareholders Equity that reflects the stock
split by reclassifying from Capital in Excess of Par Value to Common Shares an amount equal to the
par
22
value of the additional shares issued to effect the stock split. The Companys common stock
began trading at its post-split price at the beginning of trading on March 13, 2006.
16. Inco Termination Fee
On June 25, 2006, Phelps Dodge, Inco Ltd. (Inco) and Falconbridge Ltd. (Falconbridge)
entered into a Combination Agreement (the Agreement). On July 28, 2006, as the minimum tender
condition of 50.01 percent of Falconbridge common shares had not been satisfied, Inco elected to
terminate its offer for Falconbridge, and on September 5, 2006, Phelps Dodge and Inco agreed to
terminate the Agreement.
In connection with terminating the Agreement, Phelps Dodge received a gross termination fee of
$125 million in cash ($82.3 million net of expenses). This transaction resulted in
a 2006 third quarter net gain of $82.3 million ($62.5 million after-tax), which is included as
miscellaneous income and expense, net, in the Consolidated Statement of Income. Inco has agreed to
pay an additional $350 million if it consummates a change-of-control transaction on or prior to
September 7, 2007.
REVIEW BY INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The financial information as of September 30, 2006, and for the three-month and
nine-month periods ended September 30, 2006 and 2005, included in Part I pursuant to Rule 10-01 of
Regulation S-X has been reviewed by PricewaterhouseCoopers LLP (PricewaterhouseCoopers), the
Companys independent registered public accounting firm, in accordance with the standards of the
Public Company Accounting Oversight Board (United States). PricewaterhouseCoopers report is
included below.
PricewaterhouseCoopers does not carry out any significant or additional procedures beyond
those that would have been necessary if its report had not been included in this quarterly report.
Accordingly, such report is not a report or part of a registration statement within the meaning
of Sections 7 and 11 of the Securities Act of 1933 and the liability provisions of Section 11 of
such Act do not apply.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of Phelps Dodge Corporation:
We have reviewed the accompanying consolidated balance sheet of Phelps Dodge Corporation and
its subsidiaries as of September 30, 2006, and the related consolidated statement of income for
each of the three-month and nine-month periods ended September 30, 2006 and 2005, the consolidated
statement of cash flows for the nine-month periods ended September 30, 2006 and 2005, and the
consolidated statement of shareholders equity for the nine-month period ended September 30, 2006.
This interim financial information is the responsibility of the Companys management.
We conducted our review in accordance with the standards of the Public Company Accounting
Oversight Board (United States). A review of interim financial information consists principally of
applying analytical procedures and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted in accordance with
the standards of the Public Company Accounting Oversight Board, the objective of which is the
expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do
not express such an opinion.
Based on our review, we are not aware of any material modifications that should be made to the
accompanying consolidated interim financial information for it to be in conformity with accounting
principles generally accepted in the United States of America.
We have previously audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the consolidated balance sheet as of December 31, 2005, and the
related consolidated statements of income, of cash flows, and of shareholders equity for the year
then ended, managements assessment of the effectiveness of the Companys internal control over
financial reporting as of December 31, 2005, and the effectiveness of the Companys internal
control over financial reporting as of December 31, 2005; and in our report dated February 24,
2006, we expressed unqualified opinions thereon. The consolidated financial statements and
managements assessment of the effectiveness of internal control over financial reporting referred
to above are not presented herein. In our opinion, the information set forth in the accompanying
consolidated balance sheet information as of December 31, 2005, is fairly stated in all material
respects in relation to the consolidated balance sheet from which it has been derived.
/s/ PricewaterhouseCoopers LLP
Phoenix, Arizona
October 23, 2006
24
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The U.S. securities laws provide a safe harbor for certain forward-looking statements.
This quarterly report contains forward-looking statements that express expectations of future
events or results. All statements based on future expectations rather than historical facts are
forward-looking statements that involve a number of risks and uncertainties, and Phelps Dodge
Corporation (the Company, which may be referred to as Phelps Dodge, PD, we, us or our) cannot give
assurance that such statements will prove to be correct.
Factors that could cause actual results to differ materially include, among other risks: risks
and uncertainties relating to general U.S. and international economic and political conditions; the
cyclical and volatile price of copper, molybdenum and other commodities; volatility in our
financial performance caused by our copper price protection programs; volatility in energy prices,
including the price of electricity, diesel fuel and natural gas; pressure on our copper production
costs; the cost of environmental and regulatory compliance; the cost of mine closure regulations,
including the ability to obtain surety bonds or other financial assurance for reclamation
obligations; uncertainty relating to levels of ore reserves and mill and leach stockpiles; the
ability to replenish our copper and molybdenum ore reserves; political and economic risks
associated with foreign operations; and operational risks, including: unanticipated ground and
water conditions and adverse claims to water rights; geological problems; metallurgical and other
processing problems; the occurrence of unusual weather or operating conditions and other force
majeure events; lower than expected ore grades and recovery rates; accidents; delays in the receipt
of or failure to receive necessary government permits; the results of appeals of agency decisions
or other litigation; uncertainty of exploration and development; delays in transportation; labor
disputes; inability to obtain satisfactory insurance coverage; unavailability of materials and
equipment; the failure of equipment or processes to operate in accordance with specifications or
expectations; unanticipated difficulties consolidating acquired operations and obtaining expected
synergies; and the results of financing efforts and financial market conditions. Refer to Item 1A,
Risk Factors, Managements Discussion and Analysis of Financial Condition and Results of Operations
and to Quantitative and Qualitative Disclosures About Market Risk in the Companys report on Form
10-K for the year ended December 31, 2005, for a further discussion of such risks and
uncertainties, our operations, and our critical accounting policies.
Refer to Note 1, General Information, to our unaudited September 30, 2006, Consolidated
Financial Information for a discussion of our consolidation policy.
RESULTS OF OPERATIONS
Consolidated Financial Results
As discussed in Note 3, Divestitures, to our unaudited September 30, 2006, Consolidated
Financial Information, on November 15, 2005, the Company entered into an agreement to sell
Columbian Chemicals Company and its subsidiaries (Columbian Chemicals or Columbian). The
transaction was completed on March 16, 2006. As a result of this transaction, the operating results
of Columbian have been reported separately from continuing operations and shown as discontinued
operations in the Consolidated Statement of Income for all periods presented. Note that the results
of discontinued operations are not necessarily indicative of the results of Columbian on a
stand-alone basis. Except as otherwise indicated, all discussions and presentations of financial
results are based on results from continuing operations.
All per share amounts for the quarter and nine months ended September 30, 2005, have been
adjusted to reflect the March 10, 2006, stock split. (Refer to Note 15, Shareholders Equity, to
our unaudited September 30, 2006, Consolidated Financial Information for further discussion.)
All references to earnings or losses per common share are based on diluted earnings or losses
per common share.
(Unaudited; $ in millions except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
Third Quarter |
|
|
|
2006 |
|
|
2005 |
|
Sales and other operating revenues |
|
$ |
3,458.3 |
|
|
|
2,179.0 |
|
Operating income |
|
$ |
1,334.0 |
|
|
|
560.3 |
|
Minority interests in consolidated subsidiaries |
|
$ |
(206.0 |
) |
|
|
(51.6 |
) |
Income from continuing operations |
|
$ |
889.1 |
|
|
|
360.1 |
|
Income (loss) from discontinued operations |
|
$ |
(1.1 |
) |
|
|
6.0 |
|
Net income |
|
$ |
888.0 |
|
|
|
366.1 |
|
|
|
|
|
|
|
|
|
|
Basic earnings per common share:* |
|
|
|
|
|
|
|
|
Income from continuing operations |
|
$ |
4.39 |
|
|
|
1.83 |
|
Income from discontinued operations |
|
|
(0.01 |
) |
|
|
0.03 |
|
|
|
|
|
|
|
|
Basic earnings per common share |
|
$ |
4.38 |
|
|
|
1.86 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per common share:* |
|
|
|
|
|
|
|
|
Income from continuing operations |
|
$ |
4.37 |
|
|
|
1.78 |
|
Income from discontinued operations |
|
|
(0.01 |
) |
|
|
0.03 |
|
|
|
|
|
|
|
|
Diluted earnings per common share |
|
$ |
4.36 |
|
|
|
1.81 |
|
|
|
|
|
|
|
|
|
|
|
* |
|
Earnings per common share for the 2005 third quarter have been adjusted to reflect the March
10, 2006, stock split. (Refer to Note 15, Shareholders Equity, to our unaudited September 30,
2006, Consolidated Financial Information for further discussion.) |
The Company had consolidated net income for the 2006 third quarter of $888.0 million, or
$4.36 per common share, including an after-tax charge of $110.5 million, or 54 cents per common
share, for mark-to-market accounting adjustments on our 2006 and 2007 copper collars and copper put
options. Also included in 2006 third quarter consolidated net income were special, net gains of
$34.8 million, or 17 cents per common share, after taxes. In the 2005 third quarter, consolidated
net income was $366.1 million, or $1.81 per common share, including special, net losses from
continuing operations of $75.8 million, or 37 cents per common share, after taxes. Included in 2005
third quarter consolidated net income was
25
income from discontinued operations of $6.0 million, or 3 cents per common share.
The $529.0 million increase in income from continuing operations in the 2006 third quarter,
compared with the 2005 third quarter primarily was due to (i) the effects of higher average copper
prices (approximately $1.1 billion), (ii) the net gain recognized from the Inco termination fee
($82.3 million) and (iii) the absence of 2005 third quarter early debt extinguishment costs ($54.0
million). These were partially offset by (i) a higher tax provision ($271.0 million) primarily due
to higher international earnings, (ii) higher minority interests in consolidated subsidiaries
($154.4 million) mostly resulting from increased earnings at our South American mining operations
and the reduction of our ownership interest in Ojos del Salado, (iii) higher copper production
costs (approximately $142 million), (iv) the negative impact of higher net copper pricing
adjustments for our copper collars and copper put options (approximately $70 million) and (v) lower
molybdenum by-product revenues (approximately $65 million).
(Unaudited; $ in millions except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended |
|
|
|
September 30, |
|
|
|
2006 |
|
|
2005 |
|
Sales and other operating revenues |
|
$ |
8,675.1 |
|
|
|
6,031.5 |
|
Operating income |
|
$ |
2,871.5 |
|
|
|
1,260.9 |
|
Minority interests in consolidated subsidiaries |
|
$ |
(525.3 |
) |
|
|
(116.5 |
) |
Income from continuing operations |
|
$ |
1,711.2 |
|
|
|
1,412.6 |
|
Income (loss) from discontinued operations |
|
$ |
(17.7 |
) |
|
|
22.5 |
|
Net income |
|
$ |
1,693.5 |
|
|
|
1,435.1 |
|
|
|
|
|
|
|
|
|
|
Basic earnings per common share:* |
|
|
|
|
|
|
|
|
Income from continuing operations |
|
$ |
8.46 |
|
|
|
7.26 |
|
Income (loss) from discontinued operations |
|
|
(0.09 |
) |
|
|
0.11 |
|
|
|
|
|
|
|
|
Basic earnings per common share |
|
$ |
8.37 |
|
|
|
7.37 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per common share:* |
|
|
|
|
|
|
|
|
Income from continuing operations |
|
$ |
8.42 |
|
|
|
6.99 |
|
Income (loss) from discontinued operations |
|
|
(0.09 |
) |
|
|
0.11 |
|
|
|
|
|
|
|
|
Diluted earnings per common share |
|
$ |
8.33 |
|
|
|
7.10 |
|
|
|
|
|
|
|
|
|
|
|
* |
|
Earnings per common share for the nine months ended September 30, 2005, have been adjusted to
reflect the March 10, 2006, stock split. (Refer to Note 15, Shareholders Equity, to our
unaudited September 30, 2006, Consolidated Financial Information for further discussion.) |
The Company had consolidated net income for the nine months ended September 30, 2006, of
$1.7 billion, or $8.33 per common share, including an after-tax charge of $923.5 million, or $4.54
per common share, for mark-to-market accounting adjustments on our 2006 and 2007 copper collars and
copper put options. Also included in consolidated net income for the first nine months of 2006 were
(i) special, net gains from continuing operations of $10.4 million, or 5 cents per common share,
after taxes (consisting of a special gain of $62.5 million to miscellaneous income and expense,
net; partially offset by special, net charges to operating income of $52.1 million) and (ii) a loss
from discontinued operations of $17.7 million, or 9 cents per common share, including special, net
charges of $30.3 million, or 15 cents per common share, after taxes. For the nine months ended
September 30, 2005, consolidated net income was $1.4 billion, or $7.10 per common share, including
special, net gains from continuing operations of $150.1 million, or 74 cents per common share,
after taxes. Also included in consolidated net income for the first nine months of 2005 was income
from discontinued operations of $22.5 million, or 11 cents per common share.
The $298.6 million increase in income from continuing operations for the nine months ended
September 30, 2006, compared with the corresponding 2005 period primarily was due to the effects of
(i) higher average copper prices (approximately $2.7 billion) and other net pricing adjustments
(approximately $61 million) primarily for provisionally priced copper contracts at September 30,
2006, (ii) the absence of 2005 second quarter asset impairment charges recorded at PDMC ($419.1
million), (iii) the net gain recognized from the Inco termination fee ($82.3 million) and (iv) the
absence of 2005 third quarter early debt extinguishment costs ($54.0 million). These were partially
offset by (i) the negative impact of higher net copper pricing adjustments for our copper collars
and copper put options (approximately $ 1.1 billion), (ii) a higher tax provision ($523.4
million) primarily due to higher international earnings, (iii) the absence of the 2005 gain
recognized on the sale of our Southern Peru Copper Corporation (SPCC) investment ($438.4 million),
(iv) higher minority interests in consolidated subsidiaries ($408.8 million) mostly resulting from
increased earnings at our South American mining operations and the reduction of our ownership
interests in Cerro Verde and Ojos del Salado, (v) higher copper production costs (approximately
$295 million), (vi) the absence of the 2005 second quarter change in interest gain associated with
the Cerro Verde stock issuance ($159.5 million) and (vii) lower molybdenum by-product revenues
(approximately $160 million).
Special Items, Net of Taxes (Includes Special Items and Provisions, Net, in Operating Income and Other Non-Operating Significant Items Affecting Comparability of Results)
Throughout Managements Discussion and Analysis of Financial Condition and Results of
Operations there is disclosure and discussion of what management believes to be special items.
Special items include those operating and non-operating items that management believes should be
separately disclosed to assist in the understanding of the financial performance of the Company and
the comparability of its results. Such special items and provisions are primarily unpredictable and
atypical of the Companys operations in a given period. In certain instances, certain transactions
such as restructuring costs, asset impairment charges, certain asset disposals, certain legal
matters, early debt extinguishment costs or certain tax items are reflected as special items or
other non-operating significant items as they are not considered to be representative of the normal
course of business. Additionally, environmental provisions and recoveries are included due to their
nature and the impact of these amounts on comparison between periods. We believe consistent
identification, disclosure and discussion of such items, both favorable and unfavorable, provide
additional information to assess the quality of our performance and our earnings or losses. In
addition, management measures the performance of its reportable segments excluding special items.
This supplemental information is not a substitute for any U.S. generally accepted accounting
principles (GAAP) measure and should be evaluated within the context of our U.S. GAAP results. The
tax impacts of the special items were determined at the marginal effective tax rate of the
appropriate taxing jurisdictions, including provision for valuation allowance, if warranted.
26
Any supplemental information references to earnings, losses or results excluding special items or
before special items is a non-GAAP measure that may not be comparable to similarly titled measures
reported by other companies.
Note: Supplemental Data
The following table summarizes consolidated net income, special items, and the resultant net
income excluding these special items, net of taxes for the quarters and nine months ended September
30, 2006 and 2005:
(Unaudited;
$ in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended |
|
|
|
Third Quarter |
|
|
September 30, |
|
|
|
2006 |
|
|
2005 |
|
|
2006 |
|
|
2005 |
|
Net income |
|
$ |
888.0 |
|
|
|
366.1 |
|
|
|
1,693.5 |
|
|
|
1,435.1 |
|
Special items, net of taxes |
|
|
34.8 |
|
|
|
(75.8 |
) |
|
|
(19.9 |
) |
|
|
150.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income excluding special items (after taxes) |
|
$ |
853.2 |
|
|
|
441.9 |
|
|
|
1,713.4 |
|
|
|
1,285.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note: Supplemental Data
The following tables summarize the special items for the quarters and nine months ended
September 30, 2006 and 2005 (refer to Note 4, Special Items and Provisions, Net, to our unaudited
September 30, 2006, Consolidated Financial Information, for further discussion of special items and
provisions, net, included in operating income):
(Unaudited;
$ in millions except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended |
|
|
|
2006 Third Quarter |
|
|
September 30, 2006 |
|
|
|
|
|
|
|
|
|
|
|
$/Share |
|
|
|
|
|
|
|
|
|
|
$/Share |
|
Consolidated Statement of Income Line Item |
|
Pre-tax |
|
|
After-tax |
|
|
After-tax |
|
|
Pre-tax |
|
|
After-tax |
|
|
After-tax |
|
Special items and provisions, net (included in operating income): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PDMC (see Business Segment disclosure) |
|
$ |
(3.0 |
) |
|
|
(2.2 |
) |
|
|
(0.01 |
) |
|
|
(22.9 |
) |
|
|
(17.4 |
) |
|
|
(0.08 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PDI (see Business Segment disclosure) |
|
|
(7.1 |
) |
|
|
(7.0 |
) |
|
|
(0.04 |
) |
|
|
(15.8 |
) |
|
|
(16.6 |
) |
|
|
(0.09 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate and Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Environmental provisions, net |
|
|
(19.5 |
) |
|
|
(14.8 |
) |
|
|
(0.07 |
) |
|
|
(21.6 |
) |
|
|
(16.4 |
) |
|
|
(0.08 |
) |
Environmental insurance recoveries, net |
|
|
0.1 |
|
|
|
0.1 |
|
|
|
|
|
|
|
0.2 |
|
|
|
0.2 |
|
|
|
|
|
Asset impairment charges |
|
|
(2.8 |
) |
|
|
(2.1 |
) |
|
|
(0.01 |
) |
|
|
(2.8 |
) |
|
|
(2.1 |
) |
|
|
(0.01 |
) |
Historical legal matters |
|
|
(0.2 |
) |
|
|
(0.2 |
) |
|
|
|
|
|
|
(0.2 |
) |
|
|
(0.2 |
) |
|
|
|
|
Sale of non-core real estate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.5 |
|
|
|
0.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(22.4 |
) |
|
|
(17.0 |
) |
|
|
(0.08 |
) |
|
|
(23.9 |
) |
|
|
(18.1 |
) |
|
|
(0.09 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Special items and provisions, net (included in operating income) |
|
|
(32.5 |
) |
|
|
(26.2 |
) |
|
|
(0.13 |
) |
|
|
(62.6 |
) |
|
|
(52.1 |
) |
|
|
(0.26 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other non-operating significant items affecting comparability of results: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Miscellaneous income and expense, net (A): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inco termination fee, net of expenses |
|
|
82.3 |
|
|
|
62.5 |
|
|
|
0.31 |
|
|
|
82.3 |
|
|
|
62.5 |
|
|
|
0.31 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued operations (B): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss on disposal of Columbian Chemicals |
|
|
(0.6 |
) |
|
|
(1.9 |
) |
|
|
(0.01 |
) |
|
|
(15.4 |
) |
|
|
(16.0 |
) |
|
|
(0.08 |
) |
Transaction and employee-related costs |
|
|
0.4 |
|
|
|
0.4 |
|
|
|
|
|
|
|
(14.3 |
) |
|
|
(14.3 |
) |
|
|
(0.07 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.2 |
) |
|
|
(1.5 |
) |
|
|
(0.01 |
) |
|
|
(29.7 |
) |
|
|
(30.3 |
) |
|
|
(0.15 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
49.6 |
|
|
|
34.8 |
|
|
|
0.17 |
|
|
|
(10.0 |
) |
|
|
(19.9 |
) |
|
|
(0.10 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(A) |
|
Miscellaneous income and expense, net, of $136.3 million and $196.9 million, as reflected in
the Consolidated Statement of Income for the quarter and nine months ended September 30, 2006,
respectively, included other amounts that have not been separately disclosed as special items,
as these amounts are typical and representative of the normal course of the Companys business
in a given period. |
|
(B) |
|
Loss from discontinued operations of $1.1 million and $17.7 million, as reflected in the
Consolidated Statement of Income for the quarter and nine months ended September 30, 2006,
respectively, included the operating results of Columbian Chemicals of $0.4 million and $12.6
million, respectively, which have not been separately disclosed as special items. Refer to
Note 3, Divestitures, to our unaudited September 30, 2006, Consolidated Financial Information
for further discussion of special items recorded in discontinued operations for the nine
months ended September 30, 2006. |
Inco termination fee. On September 5, 2006, Phelps Dodge and Inco
Ltd. (Inco) agreed to terminate the Combination Agreement (the Agreement) entered into on June 25,
2006. In connection with terminating the Agreement, Phelps Dodge received a gross termination fee
of $125 million in cash ($82.3 million net of expenses). This transaction resulted
in a 2006 third quarter net gain of $82.3 million ($62.5 million after-tax).
27
(Unaudited;
$ in millions except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended |
|
|
|
2005 Third Quarter |
|
|
September 30, 2005 |
|
|
|
|
|
|
|
|
|
|
|
$/Share |
|
|
|
|
|
|
|
|
|
|
$/Share |
|
Consolidated Statement of Income Line Item |
|
Pre-tax |
|
|
After-tax |
|
|
After-tax* |
|
|
Pre-tax |
|
|
After-tax |
|
|
After-tax* |
|
Special items and provisions, net (included in operating income): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PDMC (see Business Segment disclosure) |
|
$ |
(8.5 |
) |
|
|
(6.5 |
) |
|
|
(0.03 |
) |
|
|
(429.4 |
) |
|
|
(328.8 |
) |
|
|
(1.63 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PDI (see Business Segment disclosure) |
|
|
(1.8 |
) |
|
|
(1.4 |
) |
|
|
(0.01 |
) |
|
|
(3.3 |
) |
|
|
(2.0 |
) |
|
|
(0.01 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate
and Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Environmental provisions, net |
|
|
(34.4 |
) |
|
|
(26.3 |
) |
|
|
(0.13 |
) |
|
|
(54.1 |
) |
|
|
(41.3 |
) |
|
|
(0.21 |
) |
Environmental insurance recoveries, net |
|
|
0.1 |
|
|
|
|
|
|
|
|
|
|
|
1.2 |
|
|
|
0.9 |
|
|
|
0.01 |
|
Historical legal matters |
|
|
(0.4 |
) |
|
|
(0.3 |
) |
|
|
|
|
|
|
4.3 |
|
|
|
4.1 |
|
|
|
0.02 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(34.7 |
) |
|
|
(26.6 |
) |
|
|
(0.13 |
) |
|
|
(48.6 |
) |
|
|
(36.3 |
) |
|
|
(0.18 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Special items and provisions, net (included in operating income) |
|
|
(45.0 |
) |
|
|
(34.5 |
) |
|
|
(0.17 |
) |
|
|
(481.3 |
) |
|
|
(367.1 |
) |
|
|
(1.82 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other non-operating significant items affecting comparability of results: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Early debt extinguishment costs |
|
|
(54.0 |
) |
|
|
(41.3 |
) |
|
|
(0.20 |
) |
|
|
(54.0 |
) |
|
|
(41.3 |
) |
|
|
(0.21 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain on sale of cost-basis investment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
438.4 |
|
|
|
388.0 |
|
|
|
1.92 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in interest gain |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
159.5 |
|
|
|
172.9 |
|
|
|
0.86 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for taxes on income (A): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign dividend taxes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2.4 |
) |
|
|
(0.01 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(99.0 |
) |
|
|
(75.8 |
) |
|
|
(0.37 |
) |
|
|
62.6 |
|
|
|
150.1 |
|
|
|
0.74 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
After-tax per common share amounts have been adjusted to reflect the March 10, 2006, stock
split. (Refer to Note 15, Shareholders Equity, to our unaudited September 30, 2006,
Consolidated Financial Information for further discussion.) |
|
(A) |
|
Provision for taxes on income of $300.4 million, as reflected in the Consolidated Statement
of Income for the nine months ended September 30, 2005, included other amounts that have not
been separately disclosed as special items, as these amounts are typical and representative of
the normal course of the Companys business in a given period. |
Early debt extinguishment costs. In July 2005, the Company completed a
tender offer for its 8.75 percent Notes due in 2011, which resulted in the retirement of long-term
debt with a book value of approximately $280 million (representing approximately 72 percent of the
outstanding notes). This resulted in a 2005 third quarter pre-tax charge of $54.0 million ($41.3
million after-tax), including purchase premiums, for early debt extinguishment costs.
Gain on sale of cost-basis investment. In the 2005 second quarter, a pre-tax gain of
$438.4 million ($388.0 million after-tax) was recognized from the sale of our common shares of
SPCC. On June 9, 2005, the Company entered into an Underwriting Agreement with Citigroup Global
Markets, Inc., UBS Securities LLC, SPCC, Cerro Trading Company, Inc. and SPC Investors, LLC. On
June 15, 2005, pursuant to the Underwriting Agreement, the Company sold all of its SPCC common
shares to the underwriters for a net purchase price of $40.635 per share (based on a market
purchase price of $42.00 per share less underwriting fees).
Change in interest gain. In the 2005 second quarter, our Cerro Verde copper mine in
Peru completed a general capital increase transaction. The transaction resulted in SMM Cerro Verde
Netherlands B.V. acquiring an equity position in Cerro Verde totaling 21.0 percent. In addition,
Compañía de Minas Buenaventura S.A.A. (Buenaventura) increased its ownership position in Cerro
Verde to 18.2 percent. The remaining minority shareholders own 7.2 percent of Cerro Verde through
shares publicly traded on the Lima Stock Exchange. As a result of the transaction, Phelps Dodges
interest in Cerro Verde was reduced to 53.6 percent from 82.5 percent.
In connection with the transaction, Cerro Verde issued 122.7 million of its common shares at
$3.6074 per share to SMM Cerro Verde Netherlands B.V., Buenaventura and the remaining minority
shareholders, and received $441.8 million in cash (net of $1.0 million of expenses). This stock
issuance transaction resulted in a pre-tax gain of $159.5 million ($172.9 million after-tax)
associated with our change of interest. The $13.4 million tax benefit related to this transaction
included a reduction in deferred tax liabilities ($16.1 million) resulting from the recognition of
certain book adjustments to reflect the dilution of our ownership interest, partially offset by
taxes charged ($2.7 million) on the transfer of stock subscription rights to Buenaventura and SMM
Cerro Verde Netherlands B.V. The inflow of capital from Buenaventura and SMM Cerro Verde
Netherlands B.V. is being used as partial financing for an approximate $850 million expansion
project to mine a primary sulfide ore body beneath the leachable ore body currently in production.
Provision for taxes on income. For the nine months ended September 30, 2005, tax
expense of $2.4 million was recognized for U.S. taxes incurred with respect to dividends received
from Cerro Verde in 2005.
Business Divisions
Results for 2006 and 2005 can be meaningfully compared by separate reference to our business
divisions, Phelps Dodge Mining Company (PDMC) and Phelps Dodge Industries (PDI).
On November 15, 2005, the Company entered into an agreement to sell Columbian Chemicals to a
company owned jointly by One Equity Partners LLC, a private equity affiliate of JPMorgan Chase &
Co., and South Korea-based DC Chemical Co., Ltd. The transaction was completed on March 16, 2006.
As a result of this transaction, the operating results of Columbian, which were previously reported as a
28
segment of PDI, have been reported separately from continuing operations and shown as
discontinued operations in the Consolidated Statement of Income for all periods presented.
In addition, on November 15, 2005, the Company entered into an agreement to sell substantially
all of its North American magnet wire assets, previously reported as part of the Wire and Cable
segment in the PDI division, to Rea Magnet Wire Company, Inc. (Rea). This transaction was completed
on February 10, 2006. On March 4, 2006, Phelps Dodge entered into an agreement to sell High
Performance Conductors of SC & GA, Inc. (HPC), previously reported as part of the Wire and Cable
segment in the PDI division, to International Wire Group, Inc. (IWG). This transaction was
completed on March 31, 2006.
(Refer to Note 3, Divestitures, to our unaudited September 30, 2006, Consolidated Financial
Information, for further discussion of these transactions.)
Significant events and transactions have occurred within the reportable segments of each
business division that, as indicated in the separate discussions presented below, are material to
an understanding of the particular periods results and to a comparison with results of the other
periods.
RESULTS OF PHELPS DODGE MINING COMPANY
PDMC is our international business division comprising our vertically integrated copper
operations from mining through rod production, molybdenum operations from mining through conversion
to chemical and metallurgical products, marketing and sales; and worldwide mineral exploration,
technology and project development programs. PDMC includes 11 reportable segments and other mining
activities.
In the 2005 fourth quarter, the Company reassessed its reportable segments considering the
increase in copper and molybdenum prices. Based upon our assessment, we are no longer separately
disclosing Miami/Bisbee as an individual reportable segment, but rather have included it in PDMC
Other. In accordance with Statement of Financial Accounting Standards (SFAS) No. 131, Disclosures
about Segments of an Enterprise and Related Information, segment information for 2005 has been
revised to conform to the 2006 presentation.
PDMC has five reportable copper production segments in the United States (Morenci, Bagdad,
Sierrita, Chino/Cobre and Tyrone) and three reportable copper production segments in South America
(Candelaria/Ojos del Salado, Cerro Verde and El Abra). These segments include open-pit mining,
underground mining, sulfide ore concentrating, leaching, solution extraction and electrowinning. In
addition, the Candelaria/Ojos del Salado, Morenci, Bagdad, Sierrita and Chino/Cobre segments also
produce gold and silver, and the Bagdad, Sierrita and Chino mines produce molybdenum and rhenium as
by-products.
The Manufacturing segment consists of conversion facilities, including our smelter, refinery,
rod mills and specialty copper products facility. The Manufacturing segment processes copper
produced at our mining operations and copper purchased from others into copper anode, cathode, rod
and custom copper shapes. In addition, at times it smelts and refines copper and produces copper
rod and shapes for customers on a toll basis. Toll arrangements require the tolling customer to
deliver appropriate copper-bearing material to our facilities, which we then process into a product
that is returned to the customer. The customer pays PDMC for processing its material into the
specified products.
The Sales segment functions as an agent to sell copper from our U.S. mines and Manufacturing
segment. The Sales segment also purchases and sells any copper not sold by the South American Mines
to third parties. Copper is sold to others primarily as rod, cathode or concentrate. Copper rod
historically was sold to the HPC and Magnet Wire North American operations of PDIs Wire and Cable
segment. Since the disposition of these businesses, we have continued to sell them copper rod and
certain copper alloys.
The Primary Molybdenum segment consists of the Henderson and Climax mines, related conversion
facilities and a technology center. This segment is an integrated producer of molybdenum, with
mining, roasting and processing facilities that produce high-purity, molybdenum-based chemicals,
molybdenum metal powder and metallurgical products, which are sold to customers around the world.
In addition, at times this segment roasts and/or processes material on a toll basis. Toll
arrangements require the tolling customer to deliver appropriate molybdenum-bearing material to our
facilities, which we then process into a product that is returned to the customer. The customer
pays PDMC for processing its material into the specified products. This segment also includes a
technology center whose primary activity is developing, marketing and selling new engineered
products and applications.
PDMC Other includes our worldwide mineral exploration and development programs, a process
technology center whose primary activities are improving existing processes and developing new
cost-competitive technologies, other ancillary operations, including our Miami/Bisbee operations,
and eliminations within PDMC.
29
Major operating and financial results of PDMC for the quarters and nine months ended September
30, 2006 and 2005, are summarized in the following tables:
(Unaudited; $ in millions except per pound amounts)
|
|
|
|
|
|
|
|
|
|
|
Third Quarter |
|
|
|
2006 |
|
|
2005 |
|
Sales and other operating revenues
to unaffiliated customers |
|
$ |
3,143.0 |
|
|
|
1,859.7 |
|
Operating income |
|
$ |
1,376.0 |
|
|
|
618.4 |
|
Operating income before special
items and provisions, net |
|
$ |
1,379.0 |
|
|
|
626.9 |
|
Minority interests in consolidated subsidiaries (A) |
|
$ |
(203.5 |
) |
|
|
(49.8 |
) |
Copper production (thousand short tons): |
|
|
|
|
|
|
|
|
Total copper production |
|
|
317.4 |
|
|
|
319.5 |
|
Less undivided interest (B) |
|
|
15.6 |
|
|
|
15.3 |
|
|
|
|
|
|
|
|
Copper production on a consolidated basis |
|
|
301.8 |
|
|
|
304.2 |
|
Less minority participants shares (A) |
|
|
53.0 |
|
|
|
48.0 |
|
|
|
|
|
|
|
|
Copper production on a pro rata basis |
|
|
248.8 |
|
|
|
256.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Copper sales (thousand short tons): |
|
|
|
|
|
|
|
|
Total copper sales from own mines |
|
|
314.1 |
|
|
|
318.7 |
|
Less undivided interest (B) |
|
|
15.3 |
|
|
|
15.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Copper sales from own mines on a
consolidated basis |
|
|
298.8 |
|
|
|
303.4 |
|
Less minority participants shares (A) |
|
|
55.6 |
|
|
|
48.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Copper sales from own mines on a
pro rata basis |
|
|
243.2 |
|
|
|
255.1 |
|
|
|
|
|
|
|
|
Purchased copper |
|
|
97.6 |
|
|
|
123.8 |
|
|
|
|
|
|
|
|
Total copper sales on a consolidated basis |
|
|
396.4 |
|
|
|
427.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LME average spot copper price
per pound cathodes |
|
$ |
3.479 |
|
|
|
1.704 |
|
COMEX average spot copper price
per pound cathodes |
|
$ |
3.539 |
|
|
|
1.701 |
|
|
|
|
|
|
|
|
|
|
Molybdenum production (million pounds) |
|
|
16.5 |
|
|
|
16.4 |
|
Molybdenum sales (million pounds): |
|
|
|
|
|
|
|
|
Net Phelps Dodge share from own mines |
|
|
16.6 |
|
|
|
14.8 |
|
Purchased molybdenum |
|
|
2.3 |
|
|
|
2.9 |
|
|
|
|
|
|
|
|
Total molybdenum sales |
|
|
18.9 |
|
|
|
17.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Metals Week: |
|
|
|
|
|
|
|
|
Molybdenum Dealer Oxide mean
price per pound |
|
$ |
26.22 |
|
|
|
30.74 |
|
M-1 price per pound |
|
$ |
25.57 |
|
|
|
31.85 |
|
|
|
|
|
|
|
|
|
|
(Unaudited;
$ in millions except per pound amounts)
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended |
|
|
|
September 30, |
|
|
|
2006 |
|
|
2005 |
|
Sales and other operating revenues
to unaffiliated customers |
|
$ |
7,742.0 |
|
|
|
5,162.2 |
|
Operating income |
|
$ |
2,968.6 |
|
|
|
1,373.5 |
|
Operating income before special
items and provisions, net |
|
$ |
2,991.5 |
|
|
|
1,802.9 |
|
Minority interests in consolidated subsidiaries (A) |
|
$ |
(520.3 |
) |
|
|
(112.9 |
) |
Copper production (thousand short tons): |
|
|
|
|
|
|
|
|
Total copper production |
|
|
959.9 |
|
|
|
966.2 |
|
Less undivided interest (B) |
|
|
45.5 |
|
|
|
44.6 |
|
|
|
|
|
|
|
|
Copper production on a consolidated basis |
|
|
914.4 |
|
|
|
921.6 |
|
Less minority participants shares (A) |
|
|
159.1 |
|
|
|
134.0 |
|
|
|
|
|
|
|
|
Copper production on a pro rata basis |
|
|
755.3 |
|
|
|
787.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Copper sales (thousand short tons): |
|
|
|
|
|
|
|
|
Total copper sales from own mines |
|
|
960.0 |
|
|
|
971.7 |
|
Less undivided interest (B) |
|
|
45.2 |
|
|
|
44.6 |
|
|
|
|
|
|
|
|
Copper sales from own mines on a
consolidated basis |
|
|
914.8 |
|
|
|
927.1 |
|
Less minority participants shares (A) |
|
|
160.8 |
|
|
|
136.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Copper sales from own mines on a
pro rata basis |
|
|
754.0 |
|
|
|
791.0 |
|
|
|
|
|
|
|
|
Purchased copper |
|
|
304.3 |
|
|
|
295.0 |
|
|
|
|
|
|
|
|
Total copper sales on a consolidated basis |
|
|
1,219.1 |
|
|
|
1,222.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LME average spot copper price
per pound cathodes |
|
$ |
2.997 |
|
|
|
1.575 |
|
COMEX average spot copper price
per pound cathodes |
|
$ |
3.055 |
|
|
|
1.567 |
|
|
|
|
|
|
|
|
|
|
Molybdenum production (million pounds) |
|
|
51.4 |
|
|
|
47.8 |
|
Molybdenum sales (million pounds): |
|
|
|
|
|
|
|
|
Net Phelps Dodge share from own mines |
|
|
51.3 |
|
|
|
45.2 |
|
Purchased molybdenum |
|
|
6.6 |
|
|
|
9.8 |
|
|
|
|
|
|
|
|
Total molybdenum sales |
|
|
57.9 |
|
|
|
55.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Metals Week: |
|
|
|
|
|
|
|
|
Molybdenum Dealer Oxide mean
price per pound |
|
$ |
24.56 |
|
|
|
32.44 |
|
M-1 price per pound |
|
$ |
24.50 |
|
|
|
32.23 |
|
|
|
|
(A) |
|
Minority participant interests include (i) a 20 percent partnership interest in Candelaria in
Chile owned by SMMA Candelaria, Inc., Sumitomo Metal Mining Co., Ltd. and Sumitomo
Corporation, (ii) a 49 percent partnership interest in the El Abra copper mining operation in
Chile held by Corporación Nacional del Cobre de Chile, (iii) a 17.5 percent equity interest
through May 31, 2005, and a 46.4 percent equity interest beginning June 1, 2005, in the Cerro
Verde copper mining operation in Peru held by SMM Cerro Verde Netherlands B.V. and Compañía de
Minas Buenaventura S.A.A., and (iv) a 20 percent equity interest beginning December 23, 2005,
in the Ojos del Salado copper mining operation in Chile held by SMMA Candelaria, Inc. |
|
(B) |
|
Represents a 15 percent undivided interest in Morenci, Arizona, copper mining complex held by
Sumitomo Metal Mining Arizona, Inc. |
(thousand short tons)
|
|
|
|
|
|
|
|
|
|
|
Third Quarter |
|
|
|
2006 |
|
|
2005 |
|
Minority participants shares of copper production: |
|
|
|
|
|
|
|
|
Candelaria |
|
|
9.1 |
|
|
|
8.3 |
|
Ojos del Salado |
|
|
1.4 |
|
|
|
|
|
Cerro Verde |
|
|
12.5 |
|
|
|
12.3 |
|
El Abra |
|
|
30.0 |
|
|
|
27.4 |
|
|
|
|
|
|
|
|
|
|
|
53.0 |
|
|
|
48.0 |
|
|
|
|
|
|
|
|
30
(thousand short tons)
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended |
|
|
|
September 30, |
|
|
|
2006 |
|
|
2005 |
|
Minority participants shares of copper production: |
|
|
|
|
|
|
|
|
Candelaria |
|
|
28.7 |
|
|
|
27.2 |
|
Ojos del Salado |
|
|
4.3 |
|
|
|
|
|
Cerro Verde |
|
|
36.2 |
|
|
|
23.6 |
|
El Abra |
|
|
89.9 |
|
|
|
83.2 |
|
|
|
|
|
|
|
|
|
|
|
159.1 |
|
|
|
134.0 |
|
|
|
|
|
|
|
|
Total PDMC Division Sales
PDMCs sales and other operating revenues to unaffiliated customers increased $1.3 billion, or
69 percent, in the 2006 third quarter compared with the 2005 third quarter. The increase primarily
reflected higher average copper prices (approximately $1.4 billion); partially offset by higher net
copper pricing adjustments for our copper collars and copper put options (approximately $70
million) and lower average molybdenum realizations (approximately $57 million).
PDMCs sales and other operating revenues to unaffiliated customers increased $2.6 billion, or
50 percent, in the first nine months of 2006 compared with the corresponding 2005 period. The
increase primarily reflected (i) higher average copper prices (approximately $3.6 billion) and
other net pricing adjustments (approximately $61 million) mostly for provisionally priced copper
contracts at September 30, 2006, (ii) higher copper sales volumes (approximately $146 million),
including purchased copper, and (iii) higher primary molybdenum sales volumes (approximately $76
million). These were partially offset by higher net copper pricing adjustments for our copper
collars and copper put options (approximately $1.1 billion) and lower average molybdenum
realizations (approximately $255 million).
PDMCs sales and other operating revenues to unaffiliated customers during the quarter and
nine months ended September 30, 2006, were negatively impacted by our 2006 and 2007 copper collar
price protection programs. These programs represent approximately 25 percent of our expected annual
copper sales for 2006 and approximately 20 percent for 2007. As these sales do not qualify for
hedge accounting treatment under SFAS No. 133, Accounting for Derivative Instruments and Hedging
Activities, the entire quantity hedged for both 2006 and 2007 was adjusted to fair market value
based on the London Metal Exchange (LME) forward curve price at September 30, 2006, with the gain
or loss recorded in revenues. The actual impact of our 2006 and 2007 zero-premium copper collar
price protection programs will not be fully determinable until the maturity of the copper collars
at each respective year end, with final adjustments based on the average annual price.
Approximately 75 percent of sales in 2006 and 80 percent in 2007 are not covered by the copper
collar price protection programs and, therefore, will participate fully in LME and New York
Commodity Exchange (COMEX) copper prices.
Total PDMC Division Operating Income
PDMC reported operating income of $1.4 billion for the 2006 third quarter, including special,
net pre-tax charges of $3.0 million, compared with operating income of $618.4 million for the 2005
third quarter, including special, net pre-tax charges of $8.5 million. The increase in operating
income of $757.6 million, or 123 percent, primarily included the effects of higher average copper
prices (approximately $1.1 billion); partially offset by higher copper production costs
(approximately $142 million), higher net copper pricing adjustments for our copper collars and
copper put options (approximately $70 million) and lower by-product molybdenum revenues
(approximately $65 million). Higher copper production costs were primarily due to higher mining and
milling costs (approximately $93 million) and higher smelting, refining and freight costs
(approximately $47 million).
PDMC reported operating income of $3.0 billion for the first nine months of 2006, including
special, net pre-tax charges of $22.9 million, compared with operating income of $1.4 billion for
the corresponding 2005 period, including special, net pre-tax charges of $429.4 million. The
increase in operating income of $1.6 billion, or 116 percent, primarily included the effects of (i)
higher average copper prices (approximately $2.7 billion) and other net pricing adjustments
(approximately $61 million) mostly for provisionally priced copper contracts at September 30, 2006,
and (ii) lower special, net pre-tax charges ($406.5 million) mostly associated with the absence of
asset impairment charges recognized in the 2005 second quarter. These were partially offset by (i)
higher net copper pricing adjustments for our copper collars and copper put options (approximately
$1.1 billion), (ii) higher copper production costs (approximately $295 million) and (iii) lower
by-product molybdenum revenues (approximately $160 million). Higher copper production costs were
primarily due to (i) higher mining and milling costs (approximately $246 million), higher smelting,
refining and freight costs (approximately $92 million) and (iii) higher energy costs (approximately
$26 million); partially offset by an increase in work-in-process inventories (approximately $69
million).
For both 2006 and 2005, higher average copper prices, including premiums, reflected improved
copper fundamentals and an improved economic environment. (Refer to Item 3, Quantitative and
Qualitative Disclosure About Market Risk, for further discussion of the Companys market risk.)
The price of copper, our principal product, was a significant factor influencing our results
for the third quarters and nine months ended September 30, 2006 and 2005. We principally base our
selling price for U.S. sales on the COMEX spot price per pound of copper cathode, which averaged
$3.539 and $1.701 in the third quarters of 2006 and 2005, respectively, and $3.055 and $1.567 for
the first nine months of 2006 and 2005, respectively. Internationally, our copper selling prices are generally based on the
LME spot price per pound of copper cathode, which averaged $3.479 and $1.704 for the third quarters
of 2006 and 2005, respectively, and $2.997 and $1.575 for the first nine months of 2006 and 2005,
respectively.
Any material change in the price we receive for copper, or in PDMCs cost of copper
production, has a significant effect on our results. Based on expected 2006 annual consolidated
production of approximately 2.5 billion pounds of copper, each 1 cent per pound change in our
average annual realized copper price (or our average annual cost of copper production) causes a
variation in annual operating income, excluding the impact of our copper collars and before taxes
and adjustments for minority interests, of approximately $25 million.
31
Energy, including electricity, diesel fuel and natural gas, represents a significant portion
of production costs for our operations. The principal sources of energy for our mining operations
are electricity, purchased petroleum products and natural gas. To moderate or offset the impact of
increasing energy costs, we use a combination of multi-year energy contracts that we put in place
at favorable points in the price cycle as well as self-generation and diesel fuel and natural gas
hedging. Nevertheless, we pay more for our energy needs during these times of progressively higher
energy prices. Energy consumed in our mines and smelter accounted for 21.2 cents per pound of our
production costs in the 2006 third quarter, compared with 20.4 cents per pound in the 2005 third
quarter and 20.1 cents in the 2006 second quarter.
Certain of PDMCs sales agreements provide for provisional pricing based on either COMEX or
LME, as specified in the contract, when shipped. Final settlement is based on the average
applicable price for a specified future period (quotational period or QP), generally from one to
three months after arrival at the customers facility. PDMC records revenues upon passage of title
using anticipated pricing based on the commodity exchange forward rate. For accounting purposes,
these revenues are adjusted to fair value through earnings each period until the date of final
copper pricing. At September 30, 2006, approximately 256 million pounds of copper sales were
provisionally priced at an average of $3.430 per pound, with final quotational periods of October
2006 through February 2007. Candelaria accounted for approximately 55 percent of the outstanding
provisionally priced sales at September 30, 2006.
Phelps Dodge has entered into copper swap contracts to protect certain provisionally priced
sales exposures in a manner designed to allow it to receive the average LME price for the month of
shipment, while our Candelaria customers receive the QP price they requested (i.e., one to three
months after month of arrival at the customers facility). These hedge contracts are in accordance
with our Copper Quotational Period Swap Program discussed in Note 22, Derivative Financial
Instruments and Fair Value of Financial Instruments, of the Companys Form 10-K for the year ended
December 31, 2005. At October 20, 2006, we had in place
copper swap contracts for approximately 69
percent of Candelarias provisionally priced copper sales outstanding at September 30, 2006, at an
average of $3.484 per pound. This program is expected to ameliorate the volatility provisionally
priced copper sales could have on our revenues.
Phelps Dodge entered into programs to protect a portion of its expected copper production by
purchasing zero-premium copper collars (consisting of put options and call options) and copper put
options. The copper collars and copper put options are settled on an average LME pricing basis for
their respective hedge periods. The copper collar put options and purchased copper put options are
settled monthly for 2006 and annually for 2007; all of the copper collar call options are settled
annually. The above-mentioned copper collar price protection programs represent approximately 25
percent of our expected annual copper sales for 2006 and approximately 20 percent for 2007.
Approximately 75 percent of sales in 2006 and 80 percent in 2007 are not covered by the copper
collar price protection programs and, therefore, will participate fully in higher LME and COMEX
copper prices. Phelps Dodge entered into the programs as insurance to help ameliorate the effects
of unanticipated copper price decreases.
The following table provides a summary of PDMCs zero-premium copper collar and copper put
option programs for 2006 and 2007:
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
2006 |
|
2007 |
Copper Collars: |
|
|
|
|
|
|
|
|
Pounds of zero-premium copper collars
purchased (in millions) |
|
|
564 |
|
|
|
486 |
|
Average LME put strike price (floor) per pound |
|
$ |
0.954 |
|
|
|
0.950 |
|
Annual average LME call strike
price (ceiling) per pound |
|
$ |
1.632 |
|
|
|
2.002 |
|
Associated pre-tax gains (charges) for the
2006 third quarter (A): |
|
|
|
|
|
|
|
|
Intrinsic value component (in millions) |
|
$ |
(52 |
) |
|
|
(120 |
) |
Time value component (in millions) |
|
$ |
|
|
|
|
27 |
|
Associated pre-tax gains (charges) for the
nine months ended September 30, 2006 (A): |
|
|
|
|
|
|
|
|
Intrinsic value component (in millions) |
|
$ |
(669 |
) |
|
|
(584 |
) |
Time value component (in millions) |
|
$ |
13 |
|
|
|
28 |
|
|
|
|
|
|
|
|
|
|
Copper Put Options: |
|
|
|
|
|
|
|
|
Pounds of copper put options purchased (in millions) |
|
|
564 |
|
|
|
730 |
|
Average LME put strike price per pound |
|
$ |
0.950 |
|
|
|
0.950 |
|
Premium cost per pound |
|
$ |
0.020 |
|
|
|
0.023 |
|
Associated pre-tax charges for the
2006 third quarter (A): |
|
|
|
|
|
|
|
|
Intrinsic value component (in millions) |
|
$ |
|
|
|
|
|
|
Time value component (in millions) |
|
$ |
|
|
|
|
|
|
Associated pre-tax charges for the
nine months ended September 30, 2006 (A): |
|
|
|
|
|
|
|
|
Intrinsic value component (in millions) |
|
$ |
|
|
|
|
|
|
Time value component (in millions) |
|
$ |
|
|
|
|
(3 |
) |
|
|
|
(A) |
|
The 2006 unrealized pre-tax charges resulted from the 2006 LME price average of $3.105 per
pound exceeding the $1.632 per pound ceiling of our 2006 zero-premium copper collars. The
cumulative pre-tax charges for our 2006 copper collars and copper put options, including
amounts recognized in 2005, were approximately $831 million, reflecting primarily intrinsic
value charges and put option premiums. The 2007 unrealized pre-tax charges resulted from the
2007 LME price average of $3.285 per pound exceeding the $2.002 per pound ceiling of our 2007
zero-premium copper collars. The cumulative pre-tax charges for our 2007 copper collars and
copper put options, including amounts recognized in 2005, were approximately $608 million,
consisting of approximately $584 million for the intrinsic value component and approximately
$7 million for the time value component, with the remainder for put option premiums. |
Transactions under these copper price protection programs do not qualify for hedge
accounting treatment under SFAS No. 133 and are adjusted to fair market value based on the forward
curve price and implied volatility as of the last day of the respective reporting period, with the
gain or loss recorded in revenues. The actual impact of our 2006 and 2007 zero-premium copper
collar price protection programs will not be fully determinable until the maturity of the copper
collars at each respective year end, with final adjustments based on the average annual price.
Based on current market prices as of October 18, 2006, we estimate unrealized after-tax charges of
approximately $29 million for the 2006 fourth quarter associated with our 2006 and 2007 copper
collars and copper put options.
During the 2006 first quarter, approximately $187 million was paid to the respective
counterparts for the PDMC and El Abra 2005 zero-premium copper collar
programs. Based on current market prices as of October 18, 2006, we expect to pay approximately $850 million to the respective counterparts for the 2006
copper collars and copper put options in the 2007 first quarter.
32
Note: Supplemental Data
The following table summarizes PDMCs special items and provisions, net, included in operating
income for the quarters and nine months ended September 30, 2006 and 2005 (refer to Note 4, Special
Items and Provisions, Net, to our unaudited September 30, 2006, Consolidated Financial Information,
for further discussion):
(Unaudited; $ in millions)
|
|
|
|
|
|
|
|
|
|
|
Third Quarter |
|
|
|
2006 |
|
|
2005 |
|
Environmental provisions, net |
|
$ |
(9.9 |
) |
|
|
(8.7 |
) |
Environmental insurance recoveries, net |
|
|
(0.1 |
) |
|
|
(0.1 |
) |
Historical legal matters |
|
|
7.0 |
|
|
|
0.3 |
|
|
|
|
|
|
|
|
|
|
$ |
(3.0 |
) |
|
|
(8.5 |
) |
|
|
|
|
|
|
|
(Unaudited;
$ in millions)
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended |
|
|
|
September 30, |
|
|
|
2006 |
|
|
2005 |
|
Environmental provisions, net |
|
$ |
(29.5 |
) |
|
|
(24.4 |
) |
Environmental insurance recoveries, net |
|
|
(0.2 |
) |
|
|
(1.2 |
) |
Asset impairment charges |
|
|
|
|
|
|
(419.1 |
) |
Historical legal matters |
|
|
6.8 |
|
|
|
15.3 |
|
|
|
|
|
|
|
|
|
|
$ |
(22.9 |
) |
|
|
(429.4 |
) |
|
|
|
|
|
|
|
33
PDMC RESULTS BY REPORTABLE SEGMENTS
(Unaudited)
The following tables summarize, on a segment basis, production and sales
statistics, operating income (loss), special items and provisions, net, and
operating income (loss) excluding special items and provisions for the third
quarters of 2006 and 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Mines |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chino/ |
|
|
|
|
|
|
|
|
|
Morenci |
|
|
Bagdad |
|
|
Sierrita |
|
|
Cobre |
|
|
Tyrone |
|
|
Subtotal |
|
Third Quarter 2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Copper production (thousand short tons): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total production |
|
|
103.8 |
|
|
|
20.5 |
|
|
|
19.9 |
|
|
|
20.5 |
|
|
|
8.0 |
|
|
|
172.7 |
|
Less undivided interest |
|
|
15.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Copper production on a consolidated basis |
|
|
88.2 |
|
|
|
20.5 |
|
|
|
19.9 |
|
|
|
20.5 |
|
|
|
8.0 |
|
|
|
157.1 |
|
Less minority participants shares |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Copper production on a pro rata basis |
|
|
88.2 |
|
|
|
20.5 |
|
|
|
19.9 |
|
|
|
20.5 |
|
|
|
8.0 |
|
|
|
157.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Copper sales (thousand short tons): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total copper sales from own mines |
|
|
102.0 |
|
|
|
17.5 |
|
|
|
17.2 |
|
|
|
20.0 |
|
|
|
7.9 |
|
|
|
164.6 |
|
Less undivided interest |
|
|
15.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Copper sales from own mines on a consolidated basis |
|
|
86.7 |
|
|
|
17.5 |
|
|
|
17.2 |
|
|
|
20.0 |
|
|
|
7.9 |
|
|
|
149.3 |
|
Less minority participants shares |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Copper sales from own mines on a pro rata basis |
|
|
86.7 |
|
|
|
17.5 |
|
|
|
17.2 |
|
|
|
20.0 |
|
|
|
7.9 |
|
|
|
149.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total purchased copper |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total copper sales on a consolidated basis |
|
|
86.7 |
|
|
|
17.5 |
|
|
|
17.2 |
|
|
|
20.0 |
|
|
|
7.9 |
|
|
|
149.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
($ in millions) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) |
|
$ |
307.4 |
|
|
|
98.1 |
|
|
|
163.3 |
|
|
|
60.6 |
|
|
|
21.2 |
|
|
|
650.6 |
|
Special items and provisions, net |
|
|
(0.6 |
) |
|
|
|
|
|
|
|
|
|
|
(6.8 |
) |
|
|
(1.8 |
) |
|
|
(9.2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) before special items and provisions, net |
|
$ |
308.0 |
|
|
|
98.1 |
|
|
|
163.3 |
|
|
|
67.4 |
|
|
|
23.0 |
|
|
|
659.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Third Quarter 2005 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Copper production (thousand short tons): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total production |
|
|
102.1 |
|
|
|
25.3 |
|
|
|
18.7 |
|
|
|
25.6 |
|
|
|
9.6 |
|
|
|
181.3 |
|
Less undivided interest |
|
|
15.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Copper production on a consolidated basis |
|
|
86.8 |
|
|
|
25.3 |
|
|
|
18.7 |
|
|
|
25.6 |
|
|
|
9.6 |
|
|
|
166.0 |
|
Less minority participants shares |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Copper production on a pro rata basis |
|
|
86.8 |
|
|
|
25.3 |
|
|
|
18.7 |
|
|
|
25.6 |
|
|
|
9.6 |
|
|
|
166.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Copper sales (thousand short tons): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total copper sales from own mines |
|
|
102.1 |
|
|
|
25.3 |
|
|
|
18.6 |
|
|
|
25.6 |
|
|
|
9.6 |
|
|
|
181.2 |
|
Less undivided interest |
|
|
15.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Copper sales from own mines on a consolidated basis |
|
|
86.8 |
|
|
|
25.3 |
|
|
|
18.6 |
|
|
|
25.6 |
|
|
|
9.6 |
|
|
|
165.9 |
|
Less minority participants shares |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Copper sales from own mines on a pro rata basis |
|
|
86.8 |
|
|
|
25.3 |
|
|
|
18.6 |
|
|
|
25.6 |
|
|
|
9.6 |
|
|
|
165.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total purchased copper |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total copper sales on a consolidated basis |
|
|
86.8 |
|
|
|
25.3 |
|
|
|
18.6 |
|
|
|
25.6 |
|
|
|
9.6 |
|
|
|
165.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
($ in millions) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) |
|
$ |
128.6 |
|
|
|
112.4 |
|
|
|
145.3 |
|
|
|
18.6 |
|
|
|
3.0 |
|
|
|
407.9 |
|
Special items and provisions, net |
|
|
0.4 |
|
|
|
|
|
|
|
(8.6 |
) |
|
|
|
|
|
|
|
|
|
|
(8.2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) before special items and provisions, net |
|
$ |
128.2 |
|
|
|
112.4 |
|
|
|
153.9 |
|
|
|
18.6 |
|
|
|
3.0 |
|
|
|
416.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Refer to segment discussion on pages 39 through 44.
Revenues, operating costs and expenses of PDMCs segments include allocations
that may not be reflective of market conditions. Additionally, certain costs
are not allocated to the reportable segments. (Refer to pages 39 and 40 for
further discussion.)
34
PDMC RESULTS BY REPORTABLE SEGMENTS
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
South American Mines |
|
|
|
Candelaria/ |
|
|
|
|
|
|
|
|
|
|
|
|
Ojos del |
|
|
|
|
|
|
|
|
|
|
|
|
Salado |
|
|
Cerro Verde |
|
|
El Abra |
|
|
Subtotal |
|
Third Quarter 2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Copper production (thousand short tons): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total production |
|
|
52.6 |
|
|
|
27.0 |
|
|
|
61.3 |
|
|
|
140.9 |
|
Less undivided interest |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Copper production on a consolidated basis |
|
|
52.6 |
|
|
|
27.0 |
|
|
|
61.3 |
|
|
|
140.9 |
|
Less minority participants shares |
|
|
10.5 |
|
|
|
12.5 |
|
|
|
30.0 |
|
|
|
53.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Copper production on a pro rata basis |
|
|
42.1 |
|
|
|
14.5 |
|
|
|
31.3 |
|
|
|
87.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Copper sales (thousand short tons): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total copper sales from own mines |
|
|
55.0 |
|
|
|
26.8 |
|
|
|
65.5 |
|
|
|
147.3 |
|
Less undivided interest |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Copper sales from own mines on a consolidated basis |
|
|
55.0 |
|
|
|
26.8 |
|
|
|
65.5 |
|
|
|
147.3 |
|
Less minority participants shares |
|
|
11.0 |
|
|
|
12.5 |
|
|
|
32.1 |
|
|
|
55.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Copper sales from own mines on a pro rata basis |
|
|
44.0 |
|
|
|
14.3 |
|
|
|
33.4 |
|
|
|
91.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total purchased copper |
|
|
(1.3 |
) |
|
|
|
|
|
|
|
|
|
|
(1.3 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total copper sales on a consolidated basis |
|
|
53.7 |
|
|
|
26.8 |
|
|
|
65.5 |
|
|
|
146.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
($ in millions) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) |
|
$ |
250.6 |
|
|
|
92.6 |
|
|
|
336.4 |
|
|
|
679.6 |
|
Special items and provisions, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) before special items and provisions, net |
|
$ |
250.6 |
|
|
|
92.6 |
|
|
|
336.4 |
|
|
|
679.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Third Quarter 2005 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Copper production (thousand short tons): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total production |
|
|
52.1 |
|
|
|
26.6 |
|
|
|
55.8 |
|
|
|
134.5 |
|
Less undivided interest |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Copper production on a consolidated basis |
|
|
52.1 |
|
|
|
26.6 |
|
|
|
55.8 |
|
|
|
134.5 |
|
Less minority participants shares |
|
|
8.3 |
|
|
|
12.3 |
|
|
|
27.4 |
|
|
|
48.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Copper production on a pro rata basis |
|
|
43.8 |
|
|
|
14.3 |
|
|
|
28.4 |
|
|
|
86.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Copper sales (thousand short tons): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total copper sales from own mines |
|
|
49.9 |
|
|
|
26.2 |
|
|
|
57.8 |
|
|
|
133.9 |
|
Less undivided interest |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Copper sales from own mines on a consolidated basis |
|
|
49.9 |
|
|
|
26.2 |
|
|
|
57.8 |
|
|
|
133.9 |
|
Less minority participants shares |
|
|
7.9 |
|
|
|
12.1 |
|
|
|
28.3 |
|
|
|
48.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Copper sales from own mines on a pro rata basis |
|
|
42.0 |
|
|
|
14.1 |
|
|
|
29.5 |
|
|
|
85.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total purchased copper |
|
|
9.1 |
|
|
|
|
|
|
|
|
|
|
|
9.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total copper sales on a consolidated basis |
|
|
59.0 |
|
|
|
26.2 |
|
|
|
57.8 |
|
|
|
143.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
($ in millions) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) |
|
$ |
73.1 |
|
|
|
55.8 |
|
|
|
52.6 |
|
|
|
181.5 |
|
Special items and provisions, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) before special items and provisions, net |
|
$ |
73.1 |
|
|
|
55.8 |
|
|
|
52.6 |
|
|
|
181.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Refer to segment discussion on pages 39 through 44.
Revenues, operating costs and expenses of PDMCs segments include allocations
that may not be reflective of market conditions. Additionally, certain costs
are not allocated to the reportable segments. (Refer to pages 39 and 40 for
further discussion.)
35
PDMC RESULTS BY REPORTABLE SEGMENTS
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Primary |
|
|
|
|
|
|
|
|
|
|
PDMC |
|
|
|
|
|
|
Total |
|
|
|
Molybdenum |
|
|
Manufacturing |
|
|
Sales |
|
|
Segments |
|
|
Other |
|
|
PDMC |
|
Third Quarter 2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Copper production (thousand short tons): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total production |
|
|
|
|
|
|
0.9 |
|
|
|
|
|
|
|
314.5 |
|
|
|
2.9 |
|
|
|
317.4 |
|
Less undivided interest |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15.6 |
|
|
|
|
|
|
|
15.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Copper production on a consolidated basis |
|
|
|
|
|
|
0.9 |
|
|
|
|
|
|
|
298.9 |
|
|
|
2.9 |
|
|
|
301.8 |
|
Less minority participants shares |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
53.0 |
|
|
|
|
|
|
|
53.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Copper production on a pro rata basis |
|
|
|
|
|
|
0.9 |
|
|
|
|
|
|
|
245.9 |
|
|
|
2.9 |
|
|
|
248.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Copper sales (thousand short tons): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total copper sales from own mines |
|
|
|
|
|
|
0.9 |
|
|
|
|
|
|
|
312.8 |
|
|
|
1.3 |
|
|
|
314.1 |
|
Less undivided interest |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15.3 |
|
|
|
|
|
|
|
15.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Copper sales from own mines on a consolidated basis |
|
|
|
|
|
|
0.9 |
|
|
|
|
|
|
|
297.5 |
|
|
|
1.3 |
|
|
|
298.8 |
|
Less minority participants shares |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
55.6 |
|
|
|
|
|
|
|
55.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Copper sales from own mines on a pro rata basis |
|
|
|
|
|
|
0.9 |
|
|
|
|
|
|
|
241.9 |
|
|
|
1.3 |
|
|
|
243.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total purchased copper |
|
|
|
|
|
|
98.9 |
|
|
|
|
|
|
|
97.6 |
|
|
|
|
|
|
|
97.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total copper sales on a consolidated basis |
|
|
|
|
|
|
99.8 |
|
|
|
|
|
|
|
395.1 |
|
|
|
1.3 |
|
|
|
396.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Molybdenum production (thousand pounds): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Primary Henderson |
|
|
8,764 |
|
|
|
|
|
|
|
|
|
|
|
8,764 |
|
|
|
|
|
|
|
8,764 |
|
By-product: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bagdad |
|
|
2,504 |
|
|
|
|
|
|
|
|
|
|
|
2,504 |
|
|
|
|
|
|
|
2,504 |
|
Sierrita |
|
|
5,060 |
|
|
|
|
|
|
|
|
|
|
|
5,060 |
|
|
|
|
|
|
|
5,060 |
|
Chino |
|
|
216 |
|
|
|
|
|
|
|
|
|
|
|
216 |
|
|
|
|
|
|
|
216 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total molybdenum production |
|
|
16,544 |
|
|
|
|
|
|
|
|
|
|
|
16,544 |
|
|
|
|
|
|
|
16,544 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Molybdenum sales (thousand pounds): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Phelps Dodge share from own mines |
|
|
16,630 |
|
|
|
|
|
|
|
|
|
|
|
16,630 |
|
|
|
|
|
|
|
16,630 |
|
Purchased molybdenum |
|
|
2,301 |
|
|
|
|
|
|
|
|
|
|
|
2,301 |
|
|
|
|
|
|
|
2,301 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total molybdenum sales |
|
|
18,931 |
|
|
|
|
|
|
|
|
|
|
|
18,931 |
|
|
|
|
|
|
|
18,931 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
($ in millions) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) |
|
$ |
107.4 |
|
|
|
(8.7 |
) |
|
|
0.3 |
|
|
|
1,429.2 |
|
|
|
(53.2 |
) |
|
|
1,376.0 |
|
Special items and provisions, net |
|
|
7.0 |
|
|
|
(1.0 |
) |
|
|
|
|
|
|
(3.2 |
) |
|
|
0.2 |
|
|
|
(3.0 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) before special items and provisions, net |
|
$ |
100.4 |
|
|
|
(7.7 |
) |
|
|
0.3 |
|
|
|
1,432.4 |
|
|
|
(53.4 |
) |
|
|
1,379.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Third Quarter 2005 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Copper production (thousand short tons): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total production |
|
|
|
|
|
|
(0.1 |
) |
|
|
|
|
|
|
315.7 |
|
|
|
3.8 |
|
|
|
319.5 |
|
Less undivided interest |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15.3 |
|
|
|
|
|
|
|
15.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Copper production on a consolidated basis |
|
|
|
|
|
|
(0.1 |
) |
|
|
|
|
|
|
300.4 |
|
|
|
3.8 |
|
|
|
304.2 |
|
Less minority participants shares |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
48.0 |
|
|
|
|
|
|
|
48.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Copper production on a pro rata basis |
|
|
|
|
|
|
(0.1 |
) |
|
|
|
|
|
|
252.4 |
|
|
|
3.8 |
|
|
|
256.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Copper sales (thousand short tons): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total copper sales from own mines |
|
|
|
|
|
|
(0.1 |
) |
|
|
|
|
|
|
315.0 |
|
|
|
3.7 |
|
|
|
318.7 |
|
Less undivided interest |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15.3 |
|
|
|
|
|
|
|
15.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Copper sales from own mines on a consolidated basis |
|
|
|
|
|
|
(0.1 |
) |
|
|
|
|
|
|
299.7 |
|
|
|
3.7 |
|
|
|
303.4 |
|
Less minority participants shares |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
48.3 |
|
|
|
|
|
|
|
48.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Copper sales from own mines on a pro rata basis |
|
|
|
|
|
|
(0.1 |
) |
|
|
|
|
|
|
251.4 |
|
|
|
3.7 |
|
|
|
255.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total purchased copper |
|
|
|
|
|
|
108.5 |
|
|
|
6.2 |
|
|
|
123.8 |
|
|
|
|
|
|
|
123.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total copper sales on a consolidated basis |
|
|
|
|
|
|
108.4 |
|
|
|
6.2 |
|
|
|
423.5 |
|
|
|
3.7 |
|
|
|
427.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Molybdenum production (thousand pounds): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Primary Henderson |
|
|
8,386 |
|
|
|
|
|
|
|
|
|
|
|
8,386 |
|
|
|
|
|
|
|
8,386 |
|
By-product: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bagdad |
|
|
2,977 |
|
|
|
|
|
|
|
|
|
|
|
2,977 |
|
|
|
|
|
|
|
2,977 |
|
Sierrita |
|
|
4,976 |
|
|
|
|
|
|
|
|
|
|
|
4,976 |
|
|
|
|
|
|
|
4,976 |
|
Chino |
|
|
43 |
|
|
|
|
|
|
|
|
|
|
|
43 |
|
|
|
|
|
|
|
43 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total molybdenum production |
|
|
16,382 |
|
|
|
|
|
|
|
|
|
|
|
16,382 |
|
|
|
|
|
|
|
16,382 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Molybdenum sales (thousand pounds): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Phelps Dodge share from own mines |
|
|
14,754 |
|
|
|
|
|
|
|
|
|
|
|
14,754 |
|
|
|
|
|
|
|
14,754 |
|
Purchased molybdenum |
|
|
2,953 |
|
|
|
|
|
|
|
|
|
|
|
2,953 |
|
|
|
|
|
|
|
2,953 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total molybdenum sales |
|
|
17,707 |
|
|
|
|
|
|
|
|
|
|
|
17,707 |
|
|
|
|
|
|
|
17,707 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
($ in millions) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) |
|
$ |
71.9 |
|
|
|
0.3 |
|
|
|
2.3 |
|
|
|
663.9 |
|
|
|
(45.5 |
) |
|
|
618.4 |
|
Special items and provisions, net |
|
|
|
|
|
|
0.1 |
|
|
|
|
|
|
|
(8.1 |
) |
|
|
(0.4 |
) |
|
|
(8.5 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) before special items and provisions, net |
|
$ |
71.9 |
|
|
|
0.2 |
|
|
|
2.3 |
|
|
|
672.0 |
|
|
|
(45.1 |
) |
|
|
626.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Refer to segment discussion on pages 39 through 44.
Revenues, operating costs and expenses of PDMCs segments include allocations
that may not be reflective of market conditions. Additionally, certain costs
are not allocated to the reportable segments. (Refer to pages 39 and 40 for
further discussion.)
36
PDMC RESULTS BY REPORTABLE SEGMENTS
(Unaudited)
The following tables summarize, on a segment basis, production and sales
statistics, operating income (loss), special items and provisions, net, and
operating income (loss) excluding special items and provisions for the nine
months ended September 30, 2006 and 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Mines |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chino/ |
|
|
|
|
|
|
|
|
|
Morenci |
|
|
Bagdad |
|
|
Sierrita |
|
|
Cobre |
|
|
Tyrone |
|
|
Subtotal |
|
Nine Months Ended September 30, 2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Copper production (thousand short tons): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total production |
|
|
303.2 |
|
|
|
59.6 |
|
|
|
60.8 |
|
|
|
72.2 |
|
|
|
24.2 |
|
|
|
520.0 |
|
Less undivided interest |
|
|
45.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
45.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Copper production on a consolidated basis |
|
|
257.7 |
|
|
|
59.6 |
|
|
|
60.8 |
|
|
|
72.2 |
|
|
|
24.2 |
|
|
|
474.5 |
|
Less minority participants shares |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Copper production on a pro rata basis |
|
|
257.7 |
|
|
|
59.6 |
|
|
|
60.8 |
|
|
|
72.2 |
|
|
|
24.2 |
|
|
|
474.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Copper sales (thousand short tons): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total copper sales from own mines |
|
|
301.4 |
|
|
|
59.2 |
|
|
|
60.5 |
|
|
|
71.7 |
|
|
|
24.1 |
|
|
|
516.9 |
|
Less undivided interest |
|
|
45.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
45.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Copper sales from own mines on a consolidated basis |
|
|
256.2 |
|
|
|
59.2 |
|
|
|
60.5 |
|
|
|
71.7 |
|
|
|
24.1 |
|
|
|
471.7 |
|
Less minority participants shares |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Copper sales from own mines on a pro rata basis |
|
|
256.2 |
|
|
|
59.2 |
|
|
|
60.5 |
|
|
|
71.7 |
|
|
|
24.1 |
|
|
|
471.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total purchased copper |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total copper sales on a consolidated basis |
|
|
256.2 |
|
|
|
59.2 |
|
|
|
60.5 |
|
|
|
71.7 |
|
|
|
24.1 |
|
|
|
471.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
($ in millions) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) |
|
$ |
392.6 |
|
|
|
173.8 |
|
|
|
355.3 |
|
|
|
55.2 |
|
|
|
9.3 |
|
|
|
986.2 |
|
Special items and provisions, net |
|
|
(0.6 |
) |
|
|
2.2 |
|
|
|
(5.1 |
) |
|
|
(16.9 |
) |
|
|
(1.8 |
) |
|
|
(22.2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) before special items and provisions, net |
|
$ |
393.2 |
|
|
|
171.6 |
|
|
|
360.4 |
|
|
|
72.1 |
|
|
|
11.1 |
|
|
|
1,008.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2005 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Copper production (thousand short tons): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total production |
|
|
297.2 |
|
|
|
80.3 |
|
|
|
60.1 |
|
|
|
79.0 |
|
|
|
30.9 |
|
|
|
547.5 |
|
Less undivided interest |
|
|
44.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
44.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Copper production on a consolidated basis |
|
|
252.6 |
|
|
|
80.3 |
|
|
|
60.1 |
|
|
|
79.0 |
|
|
|
30.9 |
|
|
|
502.9 |
|
Less minority participants shares |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Copper production on a pro rata basis |
|
|
252.6 |
|
|
|
80.3 |
|
|
|
60.1 |
|
|
|
79.0 |
|
|
|
30.9 |
|
|
|
502.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Copper sales (thousand short tons): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total copper sales from own mines |
|
|
297.2 |
|
|
|
81.6 |
|
|
|
61.3 |
|
|
|
79.0 |
|
|
|
30.9 |
|
|
|
550.0 |
|
Less undivided interest |
|
|
44.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
44.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Copper sales from own mines on a consolidated basis |
|
|
252.6 |
|
|
|
81.6 |
|
|
|
61.3 |
|
|
|
79.0 |
|
|
|
30.9 |
|
|
|
505.4 |
|
Less minority participants shares |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Copper sales from own mines on a pro rata basis |
|
|
252.6 |
|
|
|
81.6 |
|
|
|
61.3 |
|
|
|
79.0 |
|
|
|
30.9 |
|
|
|
505.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total purchased copper |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total copper sales on a consolidated basis |
|
|
252.6 |
|
|
|
81.6 |
|
|
|
61.3 |
|
|
|
79.0 |
|
|
|
30.9 |
|
|
|
505.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
($ in millions) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) |
|
$ |
328.7 |
|
|
|
313.3 |
|
|
|
415.4 |
|
|
|
(15.3 |
) |
|
|
(208.2 |
) |
|
|
833.9 |
|
Special items and provisions, net |
|
|
(0.2 |
) |
|
|
|
|
|
|
(8.6 |
) |
|
|
(64.5 |
) |
|
|
(215.7 |
) |
|
|
(289.0 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) before special items and provisions, net |
|
$ |
328.9 |
|
|
|
313.3 |
|
|
|
424.0 |
|
|
|
49.2 |
|
|
|
7.5 |
|
|
|
1,122.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Refer to segment discussion on pages 39 through 44.
Revenues, operating costs and expenses of PDMCs segments include allocations
that may not be reflective of market conditions. Additionally, certain costs
are not allocated to the reportable segments. (Refer to pages 39 and 40 for
further discussion.)
37
PDMC RESULTS BY REPORTABLE SEGMENTS
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
South American Mines |
|
|
|
Candelaria/ |
|
|
|
|
|
|
|
|
|
|
|
|
Ojos del |
|
|
|
|
|
|
|
|
|
|
|
|
Salado |
|
|
Cerro Verde |
|
|
El Abra |
|
|
Subtotal |
|
Nine Months Ended September 30, 2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Copper production (thousand short tons): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total production |
|
|
164.9 |
|
|
|
78.1 |
|
|
|
183.5 |
|
|
|
426.5 |
|
Less undivided interest |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Copper production on a consolidated basis |
|
|
164.9 |
|
|
|
78.1 |
|
|
|
183.5 |
|
|
|
426.5 |
|
Less minority participants shares |
|
|
33.0 |
|
|
|
36.2 |
|
|
|
89.9 |
|
|
|
159.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Copper production on a pro rata basis |
|
|
131.9 |
|
|
|
41.9 |
|
|
|
93.6 |
|
|
|
267.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Copper sales (thousand short tons): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total copper sales from own mines |
|
|
165.1 |
|
|
|
77.1 |
|
|
|
187.7 |
|
|
|
429.9 |
|
Less undivided interest |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Copper sales from own mines on a consolidated basis |
|
|
165.1 |
|
|
|
77.1 |
|
|
|
187.7 |
|
|
|
429.9 |
|
Less minority participants shares |
|
|
33.0 |
|
|
|
35.8 |
|
|
|
92.0 |
|
|
|
160.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Copper sales from own mines on a pro rata basis |
|
|
132.1 |
|
|
|
41.3 |
|
|
|
95.7 |
|
|
|
269.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total purchased copper |
|
|
3.1 |
|
|
|
|
|
|
|
|
|
|
|
3.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total copper sales on a consolidated basis |
|
|
168.2 |
|
|
|
77.1 |
|
|
|
187.7 |
|
|
|
433.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
($ in millions) |
Operating income (loss) |
|
$ |
657.3 |
|
|
|
327.5 |
|
|
|
846.3 |
|
|
|
1,831.1 |
|
Special items and provisions, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) before special items and provisions, net |
|
$ |
657.3 |
|
|
|
327.5 |
|
|
|
846.3 |
|
|
|
1,831.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2005 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Copper production (thousand short tons): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total production |
|
|
159.6 |
|
|
|
76.6 |
|
|
|
169.7 |
|
|
|
405.9 |
|
Less undivided interest |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Copper production on a consolidated basis |
|
|
159.6 |
|
|
|
76.6 |
|
|
|
169.7 |
|
|
|
405.9 |
|
Less minority participants shares |
|
|
27.2 |
|
|
|
23.6 |
|
|
|
83.2 |
|
|
|
134.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Copper production on a pro rata basis |
|
|
132.4 |
|
|
|
53.0 |
|
|
|
86.5 |
|
|
|
271.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Copper sales (thousand short tons): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total copper sales from own mines |
|
|
158.6 |
|
|
|
74.3 |
|
|
|
175.3 |
|
|
|
408.2 |
|
Less undivided interest |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Copper sales from own mines on a consolidated basis |
|
|
158.6 |
|
|
|
74.3 |
|
|
|
175.3 |
|
|
|
408.2 |
|
Less minority participants shares |
|
|
27.0 |
|
|
|
23.2 |
|
|
|
85.9 |
|
|
|
136.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Copper sales from own mines on a pro rata basis |
|
|
131.6 |
|
|
|
51.1 |
|
|
|
89.4 |
|
|
|
272.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total purchased copper |
|
|
15.5 |
|
|
|
|
|
|
|
|
|
|
|
15.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total copper sales on a consolidated basis |
|
|
174.1 |
|
|
|
74.3 |
|
|
|
175.3 |
|
|
|
423.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
($ in millions) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) |
|
$ |
213.1 |
|
|
|
131.4 |
|
|
|
160.9 |
|
|
|
505.4 |
|
Special items and provisions, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) before special items and provisions, net |
|
$ |
213.1 |
|
|
|
131.4 |
|
|
|
160.9 |
|
|
|
505.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Refer to segment discussion on pages 39 through 44.
Revenues, operating costs and expenses of PDMCs segments include allocations
that may not be reflective of market conditions. Additionally, certain costs
are not allocated to the reportable segments. (Refer to pages 39 and 40 for
further discussion.)
38
PDMC RESULTS BY REPORTABLE SEGMENTS
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Primary |
|
|
|
|
|
|
|
|
|
|
PDMC |
|
|
|
|
|
|
Total |
|
|
|
Molybdenum |
|
|
Manufacturing |
|
|
Sales |
|
|
Segments |
|
|
Other |
|
|
PDMC |
|
Nine Months Ended September 30, 2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Copper production (thousand short tons): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total production |
|
|
|
|
|
|
4.1 |
|
|
|
|
|
|
|
950.6 |
|
|
|
9.3 |
|
|
|
959.9 |
|
Less undivided interest |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
45.5 |
|
|
|
|
|
|
|
45.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Copper production on a consolidated basis |
|
|
|
|
|
|
4.1 |
|
|
|
|
|
|
|
905.1 |
|
|
|
9.3 |
|
|
|
914.4 |
|
Less minority participants shares |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
159.1 |
|
|
|
|
|
|
|
159.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Copper production on a pro rata basis |
|
|
|
|
|
|
4.1 |
|
|
|
|
|
|
|
746.0 |
|
|
|
9.3 |
|
|
|
755.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Copper sales (thousand short tons): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total copper sales from own mines |
|
|
|
|
|
|
4.1 |
|
|
|
|
|
|
|
950.9 |
|
|
|
9.1 |
|
|
|
960.0 |
|
Less undivided interest |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
45.2 |
|
|
|
|
|
|
|
45.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Copper sales from own mines on a consolidated basis |
|
|
|
|
|
|
4.1 |
|
|
|
|
|
|
|
905.7 |
|
|
|
9.1 |
|
|
|
914.8 |
|
Less minority participants shares |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
160.8 |
|
|
|
|
|
|
|
160.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Copper sales from own mines on a pro rata basis |
|
|
|
|
|
|
4.1 |
|
|
|
|
|
|
|
744.9 |
|
|
|
9.1 |
|
|
|
754.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total purchased copper |
|
|
|
|
|
|
300.6 |
|
|
|
0.6 |
|
|
|
304.3 |
|
|
|
|
|
|
|
304.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total copper sales on a consolidated basis |
|
|
|
|
|
|
304.7 |
|
|
|
0.6 |
|
|
|
1,210.0 |
|
|
|
9.1 |
|
|
|
1,219.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Molybdenum production (thousand pounds): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Primary Henderson |
|
|
27,903 |
|
|
|
|
|
|
|
|
|
|
|
27,903 |
|
|
|
|
|
|
|
27,903 |
|
By-product: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bagdad |
|
|
7,722 |
|
|
|
|
|
|
|
|
|
|
|
7,722 |
|
|
|
|
|
|
|
7,722 |
|
Sierrita |
|
|
15,033 |
|
|
|
|
|
|
|
|
|
|
|
15,033 |
|
|
|
|
|
|
|
15,033 |
|
Chino |
|
|
752 |
|
|
|
|
|
|
|
|
|
|
|
752 |
|
|
|
|
|
|
|
752 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total molybdenum production |
|
|
51,410 |
|
|
|
|
|
|
|
|
|
|
|
51,410 |
|
|
|
|
|
|
|
51,410 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Molybdenum sales (thousand pounds): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Phelps Dodge share from own mines |
|
|
51,288 |
|
|
|
|
|
|
|
|
|
|
|
51,288 |
|
|
|
|
|
|
|
51,288 |
|
Purchased molybdenum |
|
|
6,627 |
|
|
|
|
|
|
|
|
|
|
|
6,627 |
|
|
|
|
|
|
|
6,627 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total molybdenum sales |
|
|
57,915 |
|
|
|
|
|
|
|
|
|
|
|
57,915 |
|
|
|
|
|
|
|
57,915 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
($ in millions) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) |
|
$ |
326.0 |
|
|
|
(2.9 |
) |
|
|
8.2 |
|
|
|
3,148.6 |
|
|
|
(180.0 |
) |
|
|
2,968.6 |
|
Special items and provisions, net |
|
|
6.9 |
|
|
|
(2.2 |
) |
|
|
|
|
|
|
(17.5 |
) |
|
|
(5.4 |
) |
|
|
(22.9 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) before special items and provisions, net |
|
$ |
319.1 |
|
|
|
(0.7 |
) |
|
|
8.2 |
|
|
|
3,166.1 |
|
|
|
(174.6 |
) |
|
|
2,991.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2005 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Copper production (thousand short tons): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total production |
|
|
|
|
|
|
1.7 |
|
|
|
|
|
|
|
955.1 |
|
|
|
11.1 |
|
|
|
966.2 |
|
Less undivided interest |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
44.6 |
|
|
|
|
|
|
|
44.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Copper production on a consolidated basis |
|
|
|
|
|
|
1.7 |
|
|
|
|
|
|
|
910.5 |
|
|
|
11.1 |
|
|
|
921.6 |
|
Less minority participants shares |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
134.0 |
|
|
|
|
|
|
|
134.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Copper production on a pro rata basis |
|
|
|
|
|
|
1.7 |
|
|
|
|
|
|
|
776.5 |
|
|
|
11.1 |
|
|
|
787.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Copper sales (thousand short tons): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total copper sales from own mines |
|
|
|
|
|
|
1.7 |
|
|
|
|
|
|
|
959.9 |
|
|
|
11.8 |
|
|
|
971.7 |
|
Less undivided interest |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
44.6 |
|
|
|
|
|
|
|
44.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Copper sales from own mines on a consolidated basis |
|
|
|
|
|
|
1.7 |
|
|
|
|
|
|
|
915.3 |
|
|
|
11.8 |
|
|
|
927.1 |
|
Less minority participants shares |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
136.1 |
|
|
|
|
|
|
|
136.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Copper sales from own mines on a pro rata basis |
|
|
|
|
|
|
1.7 |
|
|
|
|
|
|
|
779.2 |
|
|
|
11.8 |
|
|
|
791.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total purchased copper |
|
|
|
|
|
|
266.1 |
|
|
|
13.4 |
|
|
|
295.0 |
|
|
|
|
|
|
|
295.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total copper sales on a consolidated basis |
|
|
|
|
|
|
267.8 |
|
|
|
13.4 |
|
|
|
1,210.3 |
|
|
|
11.8 |
|
|
|
1,222.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Molybdenum production (thousand pounds): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Primary Henderson |
|
|
25,279 |
|
|
|
|
|
|
|
|
|
|
|
25,279 |
|
|
|
|
|
|
|
25,279 |
|
By-product: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bagdad |
|
|
8,496 |
|
|
|
|
|
|
|
|
|
|
|
8,496 |
|
|
|
|
|
|
|
8,496 |
|
Sierrita |
|
|
13,610 |
|
|
|
|
|
|
|
|
|
|
|
13,610 |
|
|
|
|
|
|
|
13,610 |
|
Chino |
|
|
376 |
|
|
|
|
|
|
|
|
|
|
|
376 |
|
|
|
|
|
|
|
376 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total molybdenum production |
|
|
47,761 |
|
|
|
|
|
|
|
|
|
|
|
47,761 |
|
|
|
|
|
|
|
47,761 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Molybdenum sales (thousand pounds): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Phelps Dodge share from own mines |
|
|
45,184 |
|
|
|
|
|
|
|
|
|
|
|
45,184 |
|
|
|
|
|
|
|
45,184 |
|
Purchased molybdenum |
|
|
9,784 |
|
|
|
|
|
|
|
|
|
|
|
9,784 |
|
|
|
|
|
|
|
9,784 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total molybdenum sales |
|
|
54,968 |
|
|
|
|
|
|
|
|
|
|
|
54,968 |
|
|
|
|
|
|
|
54,968 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
($ in millions) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) |
|
$ |
257.4 |
|
|
|
(137.4 |
) |
|
|
1.8 |
|
|
|
1,461.1 |
|
|
|
(87.6 |
) |
|
|
1,373.5 |
|
Special items and provisions, net |
|
|
|
|
|
|
(148.6 |
) |
|
|
|
|
|
|
(437.6 |
) |
|
|
8.2 |
|
|
|
(429.4 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) before special items and provisions, net |
|
$ |
257.4 |
|
|
|
11.2 |
|
|
|
1.8 |
|
|
|
1,898.7 |
|
|
|
(95.8 |
) |
|
|
1,802.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Refer to segment discussion on pages 39 through 44.
Revenues, operating costs and expenses of PDMCs segments include allocations
that may not be reflective of market conditions. Additionally, certain costs
are not allocated to the reportable segments. (Refer to pages 39 and 40 for
further discussion.)
39
Sales of Copper (U.S. and South America) and Molybdenum
PDMCs Manufacturing and Sales segments are responsible for selling all copper produced
at the U.S. mines. Intersegment revenues of the individual U.S. mines represent an internal
allocation based on PDMCs sales to unaffiliated customers based on realized copper prices, which
includes the impact of net copper pricing adjustments mostly associated with our 2006 and 2007
copper collars and copper put options. Therefore, the following discussion and analysis combines
U.S. Mining Operations with the Manufacturing and Sales segments, along with other mining
activities. The Sales segment purchases and sells any copper not sold by the South American Mines
to third parties. The South American Mines sold approximately 40 percent and 49 percent of their
copper to the Sales segment in the third quarters of 2006 and 2005, respectively, and 41 percent
and 48 percent for the first nine months of 2006 and 2005, respectively. Intersegment sales by the
South American Mines are based upon arms-length prices at the time of the sale. Intersegment sales
of any individual mine may not be reflective of the actual prices PDMC ultimately receives due to a
variety of factors including additional processing, timing of sales to unaffiliated customers and
transportation premiums. These sales are reflected in the Manufacturing and Sales segments.
(Unaudited; $ in millions)
|
|
|
|
|
|
|
|
|
|
|
Third Quarter |
|
|
|
2006 |
|
|
2005 |
|
U.S. Mining Operations (A)(C): |
|
|
|
|
|
|
|
|
Unaffiliated customers |
|
$ |
2,109.1 |
|
|
|
1,165.8 |
|
Intersegment elimination |
|
|
(389.9 |
) |
|
|
(220.4 |
) |
|
|
|
|
|
|
|
|
|
|
1,719.2 |
|
|
|
945.4 |
|
|
|
&n |